<PAGE>   1

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K
                  FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
                           SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934
                     FOR THE FISCAL YEAR ENDED JUNE 30, 1999

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                FOR THE TRANSITION PERIOD FROM________ TO________

                         COMMISSION FILE NUMBER 0-25740

                               ACT NETWORKS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                              _____________________

            DELAWARE                                             77-0152144
  (STATE OR OTHER JURISDICTION                                (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                            IDENTIFICATION NO.)

               26707 WEST AGOURA ROAD, CALABASAS, CALIFORNIA 91302
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 871-6400
--------------------------------------------------------------------------------

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                  COMMON STOCK
                                (Title of Class)

        Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                             Yes   [X]   No   [ ]

        Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

        Based on the closing sale price on Nasdaq National Market on August 31,
1999, the aggregate market value of the voting stock held by non-affiliates of
the registrant was $98,000,633.

        As of August 31, 1999, there were 10,236,192 shares of Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE

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


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                               ACT NETWORKS, INC.

                          1999 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>        <C>                                                                              <C>
ITEM 1.    BUSINESS..........................................................................1

ITEM 2.    PROPERTIES.......................................................................14

ITEM 3.    LEGAL MATTERS....................................................................14

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS..............................14

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............15

ITEM 6.    SELECTED FINANCIAL DATA..........................................................16

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
           OF OPERATIONS....................................................................17

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................21

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................22

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.............................................................22

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............................23

ITEM 11.   EXECUTIVE COMPENSATION...........................................................25

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................31

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................32

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.................33
</TABLE>


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ITEM 1. BUSINESS

ACT Networks, Inc., a Delaware corporation ("ACT" or the "Company"), develops,
manufactures and markets multi-service access products that enable the
convergence of voice, video and data onto one managed network. Service providers
and enterprise customers use the Company's products to build converged networks
that are bandwidth efficient, cost-effective and easy to manage. The Company's
award-winning NetPerformer product incorporates advanced voice and data
compression algorithms, enhanced switching and traffic management capabilities,
and state-of-the-art hardware and software integration technologies.

The Company was incorporated in California in May 1987 under the name Advanced
Compression Technology, Inc., changed its name to ACT Networks, Inc. in May
1994, and reincorporated in the state of Delaware on May 2, 1995. The Company's
executive offices are located at 26707 West Agoura Road, Calabasas, California
91302 and its telephone number at that location is (818) 871-6400.

INDUSTRY BACKGROUND

The communications traffic of many organizations has grown steadily during the
past two decades due to increased use of distributed computing, electronic mail,
facsimile, electronic transaction processing, corporate-wide voice
communications systems and, more recently, the Internet. This evolution has led
to the use of wide area networks ("WAN") to provide interoffice information
access and communications, which in turn has produced an increasing need for
cost-effective, reliable and flexible WAN access solutions.

The WAN solutions available to an organization vary substantially depending on
the organization's size and communications needs, and the state of the local
telecommunications infrastructure. Large organizations with large amounts of
data traffic have traditionally relied upon wideband digital transmission
circuits (such as T1 and E1 and above) leased from public carriers to provide
voice, facsimile and data communications between regional offices.

Organizations with less data traffic, including middle market companies and
branch offices of large organizations, have traditionally used a combination of
low speed leased digital circuits (such as DDS 56K) for data and analog lines or
public switched telephone networks for voice and facsimile communications.

In international markets where the public telecommunication infrastructure is
generally less developed, organizations are increasingly relying on satellite
transmission ("VSAT") and other wireless media to build private networks to
transmit voice, facsimile and data between remote locations.

Conventional WANs are typically comprised of leased dedicated circuits, circuit
switching mechanisms and network access equipment based on time division
multiplexing ("TDM"). This approach has inherent limitations which may reduce
its cost-effectiveness in certain applications. The deployment of a leased
circuit to connect two remote sites is often inefficient because the entire
bandwidth capacity is dedicated to the organization 24 hours a day even during
periods of little or no communications traffic. Leased circuits are also
expensive and in many cases can comprise a significant portion of an
organization's total networking budget. In addition, conventional WAN solutions
are inflexible as bandwidth within the network is static between two fixed
points and cannot be dynamically switched among multiple locations on demand. As
a result, conventional WAN solutions are not ideally suited to the multimedia
transmission of data, voice and facsimile traffic.

In response to the need for services that allow the flexible allocation and
efficient utilization of bandwidth among multiple network sites, public carriers
began providing packet-switched services such as X.25. Although these services
generally cost less than dedicated digital circuits and provide reliable
transmission of low-speed asynchronous data, they impose substantial
transmission delays and thus are not well suited for high-speed synchronous
data, voice, facsimile and other delay-sensitive applications.

In the early 1990s two highly performant networking technologies emerged to
address the need for integrated, cost-effective, flexible WAN solutions: Frame
Relay and Asynchronous Transfer Mode ("ATM"). These high-speed packet/cell-based
networks provide significantly reduced network delays while still permitting
bandwidth capacity to be allocated on demand between any two endpoints on a WAN,
thereby improving utilization efficiency and supporting a broader range of
communications applications. More recently, "IP" (Internet Protocol) is
establishing itself as the WAN transmission protocol of choice among Internet
Service Providers ("ISPs") and next generation telephone companies.

The majority of public carriers and service providers in the United States and
around the world have deployed Frame Relay and/or ATM networks to provide
high-speed public services supporting voice and data traffic. They are now
implementing, or planning to implement, IP-based services, such as Virtual
Private Networking ("VPN") to complement their Internet offerings. Enterprises
are using Frame Relay, ATM and IP to integrate voice, data and facsimile traffic
over public and private WANs and are realizing greater efficiencies at an
inherently lower operating cost. Service providers rely on WAN access products
to bring traffic onto their networks and to deliver it to its destination, be it
another Frame Relay, ATM or IP-based network and the traditional telephone voice
network ("PSTN").

THE ACT SOLUTION



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ACT's WAN access products are designed to integrate voice, data and video
applications over Frame Relay, ATM and IP-based WANs. Enterprise customers and
service providers use the Company's products to build multimedia networks that
are bandwidth efficient, cost-effective and easy to manage. The Company's
products incorporate advanced voice and data compression algorithms, enhanced
switching and traffic management capabilities, and state-of-the-art hardware and
software integration technologies.

ACT's products are based on current international standards and are designed to
work with either terrestrial media (such as copper, fiber and coaxial
transmission lines) or wireless media (such as satellite, radio and microwave).

MARKETS AND APPLICATIONS

The following describes the primary markets and applications for the Company's
products:

The Enterprise Market: this market consists of companies that consolidate their
voice, data and facsimile applications over a private, or dedicated, wide area
network. For example, a large bank in Korea has deployed the Company's
integrated Frame Relay access devices to build an integrated private frame relay
network connecting approximately 350 sites. This network provides switched voice
and facsimile connectivity among these locations and concurrently supports both
SNA and LAN data applications. The enterprise market also consists of
organizations whose telecommunications requirements do not justify leasing
dedicated circuits for the purposes of establishing a private network. These
end-users contract with service providers to interconnect their remote offices
via public Frame Relay or ATM services, and more recently over IP, to eliminate
many of the problems and costs associated with managing and supporting a private
network. These customers install the Company's products on their premises to
aggregate their voice and data traffic for transmission via the service provider
of their choice.

The Service Provider Market: traditionally, telephone companies have provided
voice services and value added network service providers have provided data
transmission services. As a result of worldwide deregulation and the
liberalization of telecommunications policies, many new service providers have
emerged to offer competitive voice and data services. These service providers
deploy Frame Relay, ATM and/or IP networks to transport and manage voice and
data traffic over a network infrastructure that is inherently better suited to
transport multimedia traffic than the PSTN. These efficiencies are passed on to
the end-user in the form of higher throughput, increased connectivity and lower
costs. The Company markets its WAN access products to alternate service
providers (such as wholesale long-distance carriers and call-back operators),
value added network services providers, competitive local exchange carriers
("CLECs"), incumbent local exchange carriers ("ILECs"), competitive access
providers ("CAPs"), Internet Service Providers ("ISPs") and Interexchange
Carriers ("IXCs"). These customers deploy the Company's products within their
networks to achieve greater levels of traffic aggregation over their
transmission circuits, or at the premises of their end-user customers to bring
voice and data traffic onto their service networks.

PRODUCTS

The Company is migrating toward two principal product families, NetPerformer and
ServiceXchange, which share a common technology foundation but are targeted at
different market segments. NetPerformer is a family of multi-service access
products targeted at enterprise customers who need to integrate and transport
voice, fax, LAN and SNA data over private or public Frame Relay, IP or ATM
networks. ServiceXchange addresses the needs of service providers who are
especially focused on transporting large volumes of voice traffic cost
effectively over Frame Relay or IP backbones. Within each family, both
chassis-based and stand-alone configurations will be offered to serve specific
customer requirements for price, performance, density and feature set.

The common technology foundation that the two platforms share, the Packet Voice
Technology, has been developed or significantly enhanced over the past year, and
includes

o   Voice Processing: New low-cost, high-density, DSP based voice processors,
    which helps reduce the cost of the overall solution. The Company supports
    more than a dozen voice processing algorithms, including, many of the
    popular standards-based algorithms, as well as several higher-quality
    proprietary algorithms.

o   Signaling: Flexible voice signaling system, which enhances compatibility and
    commonality with various public switch infrastructures.

o   Networking: Key voice routing and gateway functions that improve network
    resiliency and call completion reliability.

o   Integration: Efficient, cell-based protocol and prioritization scheme, known
    as PowerCell, which helps maintain toll-quality voice transmission, yet
    ensures the delivery of mission-critical data.

The Company intends to leverage its Packet Voice Technology in future products.

NetPerformer

Designed to integrate voice, fax, SNA and LAN traffic over Frame Relay and
emerging IP and ATM-based public network services, NetPerformer addresses the
needs for branch, regional and central site internetworking with a low cost of
ownership. ACT offers two products that complement the NetPerformer line:
SkyPerformer (formerly SkyFrame) and MS-8000/9000.

NetPerformer enterprise WAN access products include:
o SDM-9500: modular, chassis-based central-site solution



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o   SDM-9400: expandable analog/digital voice/fax/data solution for regional
    offices
o   SDM-9300/9350: low-cost voice/fax/data solutions for branch office
    applications
o   SDM-8300: data-only access device for regional offices
o   SDM-8200: entry-level data-only solution for branch office applications

The Company intends to add additional variants in fiscal 2000 based on ACT's new
common technology foundation, which will offer a reduced cost basis, while
improving port density and overall system performance.

With NetPerformer enterprise WAN access products, organizations worldwide can
build private networks that are:

o   Cost Effective: Integrating LAN, SNA, legacy data, voice and fax traffic
    substantially cuts recurring communications costs;

o   Bandwidth Efficient: Fast packet networking and advanced compression
    capabilities (8:1 voice, 4:1 data) save bandwidth and money;

o   Easy to Manage: Integrated traffic is managed via ACT's standards-based GUI
    network management system, ACTview 2000.

SkyPerformer

In fiscal 1999, ACT implemented its strategy to focus on non-satellite based
enterprise applications for its NetPerformer and related products by (i)
discontinuing its SkyFrame product line (which was based on its legacy ACTnet
product line) and instead adding software-based satellite support (the
SkyPerformer) into its NetPerformer line; (ii) divesting its Wireless Network
Systems division in Phoenix, Arizona; and (iii) signing an OEM agreement with
Gilat Florida, Inc. ("Gilat"), a VSAT satellite solutions provider. The Gilat
partnership allows ACT to sell its SkyPerformer software through Gilat without
the need to develop satellite modem hardware to deliver VSAT based solutions.
Additionally, the Company is able to migrate networks from the legacy ACTnet
line to its newer NetPerformer line. SkyPerformer adds a satellite (VSAT)
networking dimension to the NetPerformer product line so that, in conjunction
with VSAT modem and solutions providers such as Gilat, ACT can offer end-to-end
voice, fax and data solutions, under one network management system, regardless
of the network topology used: satellite or wireline. SkyPerformer is deployed to
interconnect remote branch offices for small to medium size networks in markets
where geography, or the lack of wireline infrastructure, necessitate the use of
space-based communications facilities.

MS-8000/9000 Frame Relay Switches

ACT has a long-standing OEM partnership with Ascend Communications (now Lucent
Technologies ("Lucent") as a result of its acquisition of Ascend) where ACT
private-labels Ascend/Lucent frame relay switches. ACT bundles its NetPerformer
products with Ascend/Lucent's high-capacity Frame Relay switches to provide
performance, redundancy and scalability, allowing ACT's customers to deploy
large, cost-effective private networks.

ServiceXchange

ServiceXchange is a product line that forms the foundation of ACT's future
service provider offering, and shares the common technology foundation with the
NetPerformer family. The ServiceXchange SX-10, which began shipping in June
1999, is a highly-scalable, H.323-compliant, IP telephony gateway. The
ServiceXchange is designed for high density, packet telephony, fax and data
applications over IP, Frame Relay and the PSTN.

The SX-10, the entry-level system, supports four T1/E1 channels for 96/120
simultaneous calls. Other members of the ServiceXchange family will be
introduced at future dates to satisfy various price and density requirements.
The timing of the introductions will be largely dependent on a variety of
factors including, without limitation, the success of product development and
the evolution of the packet telephony market.

ACTview 2000 NMS

ACT has developed ACTview 2000, a fully-featured SNMP network management tool
that is optimized for the two strategic product families, yet manages the legacy
product lines offered by ACT and installed by its customers in the past. ACT
customers have the ability to manage all aspects of their networks, including
monitoring voice and data traffic, configuring nodes and expansion cards,
downloading new versions of software, and monitoring the health of the network
via an intuitive graphical user interface. Based on HP OpenView, operating on a
Windows NT or Windows 95/98 workstation, ACTView 2000 can be integrated with
other enterprise management applications to support a single, centrally-located
enterprise management system.

Legacy Products

ACT enhanced the ACTnet product line, composed of the SDM-JFP, SDM-FP and
SDM-DX, with features that improve compatibility with the NetPerformer family,
enabling long standing ACTnet customers to migrate to newer platforms. The
Company began discontinuing the SDM-T in fiscal 1999, and will continue
discontinuing the remaining legacy platforms in fiscal 2000 and migrate
customers to the NetPerformer and ServiceXchange platforms.



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CUSTOMERS

End users of the Company's products include financial institutions, government
agencies, retail chains, distribution companies and manufacturing organizations.
The Company's products are also used by public network service providers of all
types. A representative list of end users and service providers is set forth
below:

Domestic End-Users                      Alternative Service Providers

      Bonnecker & Leigh                       IDT Telecommunications
      First Chicago Bank                      DynaLink
      Idaho National Guard                    Access Line
      Intelsat                                DeTeSat (Germany)
      National Semiconductor                  Teleglobe
      Pyrodyne                                AT&T Alascom
      South East Frozen Food                  Comsat do Brazil
      Worldex                                 Department of Telecom, India
      Hewlett-Packard                         Entel-Chile
                                              IMPSAT
International End-Users                       Infonet Services Corporation
                                              Philippine Long Distance Company
      American Express, Argentina             Russtel, Russia
      China Tax Authority                     Telefonica de Espana
      Apple Computer, Australia               Telefonica de Peru
      Bank of Brazil                          Teleport Europe, Germany
      Cheietsee, Japan                        Victori
      Duty-Free, Australia
      Industrial Bank of Korea
      Memorex Telex, Australia
      RadioCel/Biper, Mexico
      Samsung, Korea
      Ssangyong, Korea
      TAM, Brazil


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SALES AND MARKETING

        The Company markets and sells its enterprise-oriented products primarily
through its OEM partners, which include Lucent and FORE Systems Inc. ("FORE"),
and through a worldwide network of value-added resellers and systems
integrators. Because the WAN access needs of end users vary significantly from
market to market, the Company focuses on contracting with local resellers who
have the technical capability and the market presence to assist enterprises in
developing networking solutions to meet their particular needs. Additionally,
the Company leverages the product, service, and support resources of its OEM
partners to serve large, multi-national enterprise customers. The Company
devotes significant resources to educating its OEM partners and resellers as to
the benefits of the Company's products and to training them in the proper
installation and support of the Company's products. The Company's salespersons
support the Company's OEM partners and resellers in their marketing and sales
efforts, as does the marketing organization through a variety of support
programs.

        The Company also sells its products directly to service providers and
large, multi-national enterprises. The Company believes that these customers can
best be served via a direct sales force, and the Company intends to continue to
increase the number of sales personnel focused on these customers.

        In addition to Lucent, FORE and Gilat, the Company intends to increase
its direct marketing efforts to other major telecommunications product
manufacturers who offer a broader line of solutions. These manufacturers may
serve as resellers of the Company's products under private label, OEM or other
types of strategic relationships.

        The Company's marketing efforts include participating in major
telecommunication trade shows, advertising in major trade journals, conducting
targeted, vertically-segmented marketing campaigns, publishing newsletters and
technical articles, and conducting training and conferences for OEM partners and
resellers. The Company also relies heavily on its web site for information
distribution, lead generation and qualification, and sales support (via sales
and reseller Intranet sites). As of June 30, 1999, the Company's marketing
department consisted of 17 full-time employees.

CUSTOMER SUPPORT AND TRAINING

        The Company considers on-going technical support, training, service and
repair of its products an integral part of its business. The Company's standard
product warranty includes one-year factory hardware repair and a 90-day
dead-on-arrival express replacement service. In addition, the Company offers
extended out-of-warranty hardware repair and maintenance programs, software
upgrades, Internet problem resolution access and a 24-hour priority technical
support hot line. Other service programs include network design and analysis,
network optimizing and tuning, network staging and on-site installation and
troubleshooting. The Company's OEM partners, resellers and certain third party
service organizations provide additional customer support.

        The Company offers its resellers a variety of training modules covering
product sales, technical matters and new products. The Company also offers
similar training programs to end-users. Classes are conducted regularly at the
Company's facility in Calabasas, California, and can be scheduled at the
customer premises.

PRODUCT DEVELOPMENT

        The Company has spent approximately $8.3 million, $16.3 million and
$12.9 million during each of the fiscal years ended June 30, 1997, 1998 and
1999, respectively, on research and development activities. The Company's
current product development efforts are directed toward producing a common
technology foundation which can be leveraged to rapidly deliver new products in
order to meet the changing needs of customers in the enterprise and service
provider market segments. In particular, the Company intends to focus on the
completion of its NetPerformer line, the development of other products in the
NetPerformer family and the development of new capabilities for the
ServiceXchange family. The Company's product development efforts focus on the
following principles:

        Develop New Products and Technology. The Company continually assesses
worldwide market trends with the focus of developing new products designed to
meet emerging market demands. In developing new products, the Company attempts
to combine its existing technology base (largely its extensive integrated voice
and data technology) with new technologies (such as IP and ATM, with a variety
of carrier-relevant physical layer interfaces, such as xDSL, on the network
side) to provide a broader range of networking solutions to the end-user.

        Improve Existing Technology. The Company has, over time, amassed a set
of voice processing technologies and expertise, all captured as part of its
Packet Voice Technology ("PVT") suite. As voice processing technology becomes
generally available as licensable software or integrated chip sets, the Company
seeks to maintain differentiation by optimizing its PVT suite to maintain toll
quality, while continuing to reduce the bandwidth requirements and expand
industry compatibility and data integration. Additionally, the Company plans to
improve voice processing density by making use of newly-available high-power
digital signal processing technology.

        Leverage Software-defined Products. With the Company's focus shifting
toward two strategic product platforms, NetPerformer and ServiceXchange, which
share common software-defined technology components, the Company is able to more


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rapidly enhance the products to meet emerging market needs. This strategy also
allows the Company to reduce hardware design changes and retooling costs, and to
accelerate the certification processes for new products.

        The Company believes its future success will depend, in part, upon its
ability to expand and enhance the features of its existing products and to
develop and introduce new products designed to meet changing customer needs on a
cost-effective and timely basis. Failure by the Company to respond on a timely
basis to technological developments, changes in industry standards or customer
requirements, or any significant delay in product development or introduction,
could have a material adverse effect on the Company's business and results of
operations. There can be no assurance that the Company will respond effectively
to technological changes or new product announcements by others or that the
Company will be able to successfully develop and market new products or product
enhancements.

COMPETITION

        The market for the Company's products is highly competitive. The Company
competes with a variety of companies offering multi-service access products,
which are split into two categories largely by their size. The larger
competitors, including such companies as Cisco Systems, Inc. ("Cisco"), Northern
Telecom ("Nortel"), Motorola Information Systems Group ("Motorola") and Lucent,
offer total solutions (including backbone products, access products, integration
and support) for large, multi-national customers.

        Smaller, more specialized competitors, such as Memotec Communications,
Inc. ("Memotec") and Nuera Communications ("Nuera"), focus primarily on building
private Frame Relay networks for small-to-mid-size companies, or back-hauling
telephony traffic over international leased lines.

        The Company plans to compete with its larger competitors by establishing
strategic partnerships with one or more of them. For example, the Company
entered into an OEM relationship with Lucent in August of 1998. The Company
plans to compete directly with the smaller competitors by highlighting product
and technology differentiators, and providing expert integration service and
support.

        The Company expects substantial additional competition from existing
competitors and from a number of other companies which may enter the Company's
existing or future markets. Many of the Company's current and potential
competitors have substantially greater name recognition and financial,
marketing, sales, technical and other resources than the Company, as well as a
larger installed customer base. Many of these companies sell directly to
end-users, which the Company believes may provide a competitive edge over the
Company when marketing either similar products or alternative networking
solutions. Consolidations in the industry could enhance the capabilities of the
Company's competitors. Furthermore, the Company's OEM partners may in the future
develop competitive products and may decide to terminate their relationships
with the Company. There can be no assurance that the Company will be able to
successfully compete against either current or potential competitors or that
competition will not have a material adverse effect on the Company's business,
operation results and financial condition.

        The principal competitive factors in the markets for the Company's
products are price, quality, product features, performance, reliability, product
reputation and customer support. The Company believes it presently competes
favorably in all of these areas.

MANUFACTURING

        The Company's manufacturing operations consist primarily of supplier
management and quality assurance, as well as, some final assembly and
configuration, functional testing, burn in and shipping. The Company has
migrated most of its front end manufacturing to contract manufacturers and plans
to expand this migration to include the back end operations, including order
fulfillment and depot repair. By the end of fiscal 2000, the Company intends for
manufacturing operations to consist of supply chain management and quality
assurance, with emphasis on ensuring contract manufacturer compliance with
quality, cost and shipping schedule requirements. The Company believes that this
approach minimizes both inventory and capital expenditures while providing
support and capacity flexibility. The Company's facilities renewed their ISO9001
certification in fiscal year 2000.

        The Company currently procures the bulk of its components from outside
suppliers, primarily through its contract manufacturers. The Company has
generally been able to obtain adequate supplies of all components in a timely
manner from existing sources. In order to minimize the risk of supply
interruption, the Company maintains quantities of selected parts and has
arrangements with various suppliers to maintain shelf stock to support its
near-term requirements. Some of these arrangements with alternative suppliers
and subcontractors obligate the Company to purchase the suppliers' shelf stock.

        The Company resells Frame Relay switches purchased from Lucent. Although
the Company believes similar products can be purchased from other sources, the
process of qualifying replacement suppliers, generating the supporting
documentation, performing system level integration, obtaining
standards-compliant approval for its products, and retraining sales and
marketing channels would take a significant amount of time and expense. The
Company's ability to offer an integrated, cost effective networking solution is
based, in part, on its ability to sell such products as part of its present
line. The Company's inability to source these products at satisfactory quality
and quantity levels and with the appropriate lead time would adversely affect
the Company's business and operations.


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        Certain components used in the Company's products are available only
from single sources. These include digital signal processors, microprocessors,
programmable gate array devices, power supplies and passive components. Although
the Company generally buys components under purchase orders and does not have
long-term agreements with its suppliers, it expects its suppliers, most of whom
are large companies such as Texas Instruments and Motorola, to be able to
continue to satisfy its requirements. Although the Company believes that
alternative sources are available, if the Company's ability to obtain these
components were impaired or interrupted for any reason, there could be a
substantial disruption in the supply of the Company's products, which could
adversely affect the Company's business operating results and financial
condition.

GOVERNMENTAL REGULATION

        The Company's products are subject to regulations promulgated by the
Federal Communications Commission ("FCC") regarding emission of electromagnetic
energy, which may interfere with other equipment. All of the Company's current
products have been tested and comply with the relevant FCC regulations and with
all required Underwriters Laboratories safety specifications.

        The Company's products are also subject to extensive governmental
regulation and product certification in certain foreign countries. These
regulations and product certification requirements are often significantly more
stringent and burdensome than the regulations to which the Company's products
are subject in the United States. In addition, the certification process to
which the Company must subject its products before they can be marketed in such
countries is time consuming and expensive.

        Resellers in many countries have title to the governmental
authorizations and certifications necessary to market the Company's products in
such country, and there is no assurance that, in the event a reseller ceased
marketing the Company's products, the reseller would transfer such authorization
or certification to the Company or that the expense and delay associated with
obtaining a new authorization or certification would not adversely affect the
Company's business and operations in such country. There can be no assurance
that resellers will continue to market the Company's products or devote the
resources necessary to provide effective sales and marketing support to the
Company.

PROPRIETARY RIGHTS

        The Company does not hold any patents and historically has relied on a
combination of contractual rights, trade secrets, copyright and trademark law
and technical measures to establish and protect its proprietary rights in its
products. However, the Company is currently seeking patent protection for
certain of its technologies. Although the Company relies to a great extent on
trade secret protection for much of its technology, and obtains confidentiality
agreements from its employees, consultants and other third parties to whom the
Company reveals confidential information pursuant to their business
relationships, there can be no assurance that third parties will not
independently develop the same or similar technology, obtain unauthorized access
to the Company's proprietary technology or misuse the technology to which the
Company has granted them access. The Company has substantial international
operations and the laws of foreign countries treat the protection of proprietary
rights differently from, and may not protect the Company's proprietary rights to
the same extent as do, laws in the United States.

        Certain technology licensed from third parties is incorporated in the
Company's products. For example, the Company licenses certain of its voice
compression algorithms, the right to commercialize its SkyPerformer products,
components of its network management system software and other software and
technology embedded in the hardware incorporated into the Company's products
pursuant to nonexclusive license agreements. The failure of the Company to
retain such licenses or obtain new licenses as improvements in such technology
are developed and new technology is introduced could adversely affect the
Company's business and results of operations.

        Since patent applications in the United States are not publicly
disclosed until the patent issues, applications may have been filed which, if
issued as patents, would relate to the Company's products. In addition, the
Company has never conducted a comprehensive patent search relating to the
technology used in its products. Accordingly, there can be no assurance that
third parties will not assert infringement claims against the Company in the
future or that such claims will not be successful. The Company could incur
substantial costs in defending itself and its customers against any such claims,
regardless of the merits of such claims. Parties making such claims may be able
to obtain injunctive or other equitable relief which could effectively block the
Company's ability to sell its products in the United States and abroad, and
could result in an award of substantial damages. In the event of a successful
claim of infringement, the Company, its customers and end-users may be required
to obtain one or more licenses from third parties. In addition, the Company has
in the past, and may in the future, pay significant sums to obtain licenses from
third parties to avoid the costs and uncertainties associated with defending a
potential claim. There can be no assurance that the Company or its customers
could obtain necessary licenses from third parties at a reasonable cost or at
all. The defense of any lawsuit could result in time consuming and expensive
litigation, damages, license fees, royalty payments and restrictions on the
Company's ability to sell its products, any of which could have a material
adverse effect on the Company's business and results of operations.

EMPLOYEES

        As of August 31, 1999, the Company employed 230 full-time persons,
including 39 in operations, 65 in sales and marketing, 16 in customer service,
81 in engineering and 29 in finance and administration. The Company also employs
a small



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number of temporary and contract employees. None of the Company's employees is
represented by a labor union. The Company is not a party to any collective
bargaining agreement or other similar agreement. The Company has experienced no
work stoppages to date. The Company believes that its relationship with its
employees is good.

RISK FACTORS

        This report may contain forward-looking statements that involve a number
of risks and uncertainties. Certain results that could cause actual results to
differ are discussed below. The Company's actual results may differ materially
from any future performance discussed in forward-looking statements. The
following risks should be considered carefully, in addition to the other
information contained in this Report, before trading in the shares of the
Company's Common Stock.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company has experienced and may
in the future experience significant fluctuations in net sales and operating
results as a result of a number of factors including, without limitation, the
volume and timing of orders from, and shipments to, major customers,
particularly Lucent; market acceptance of the Company's products; the Company's
ability to support its current and new products; the ability of the Company's
customers, particularly international customers, to obtain financing for the
purchase of the Company's products; economic issues in international markets;
changes in the Company's strategies; changes in pricing policies or price
reductions by the Company or its competitors; variations in the Company's sales
channels or the mix of product sales; the Company's ability to expand and
implement its sales and marketing programs; the timing of new product
announcements and product introductions by the Company or its competitors;
product obsolescence resulting from new product introductions or changes in
customer demand; the availability and cost of supplies; the financial stability
of major customers; expenses associated with the acquisition of technologies or
businesses; changes in regulatory requirements; intellectual property disputes;
the development of public telecommunications infrastructures, particularly in
international markets; currency fluctuations; and general economic conditions.
While the Company regularly engages in price discounting, significant discounts
in a particular quarter could adversely affect the results of operations for
such quarter. In addition, significant and continuing discounts due to
competition or other factors could adversely affect the Company's business,
operating results and financial condition. The Company has generally not
experienced seasonality in its net sales, although the Company has from time to
time experienced decreased net sales to customers in Europe in the third
calendar quarter of each year and has experienced some decreases in net sales in
other international markets during certain periods during the year. Due to all
of the foregoing factors, in certain quarters the Company's operating results
have been, and it is likely that in some future periods the Company's operating
results will be, below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock has been and in the
future could be materially adversely affected. For example, on several occasions
over the last few years, the Company's net sales decreased when compared to the
preceding quarter and, as a result, the Company's results of operations and, in
certain instances, the price of the Company's Common Stock were adversely
affected. Quarterly results are not necessarily indicative of future performance
for any particular period, and there can be no assurance that the Company will
attain growth in net sales or profitability on a quarterly or annual basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

        The Company's sales are primarily through OEM partners and resellers and
are typically characterized by several large orders and a large number of small
orders. The Company's revenue in any period is highly dependent on the sales
efforts and success of the Company's OEM partners (including Lucent and FORE)
and other resellers, which are not under the Company's control. The Company's
resellers typically do not stock a supply of the Company's products and place
orders with the Company only after they have received orders from their
customers. The Company has limited information as to the sell-through of its
products to OEM partners. There is no assurance that even if an OEM partner does
purchase products in a quarter, that the partner will sell such products to its
customers. Any reduction or delay in sales of the Company's products by its OEM
partners could have a material adverse effect on the Company's business,
operating results and financial condition. The Company generally realizes a
lower gross margin on sales through its OEM partners. Accordingly, if the
Company's OEM partners were to account for an increased portion of the Company's
net sales, gross margins would decline. In addition, the Company's backlog at
the beginning of a quarter is generally insufficient to achieve expected net
sales for the quarter. To achieve its revenue objectives, the Company is
dependent upon obtaining orders in a quarter for shipment in that quarter. While
it is difficult for the Company to accurately forecast the timing and quantity
of orders on a quarter to quarter basis, the Company may increase expenses with
the expectation of future sales. The failure of the Company to accurately
forecast the timing and volume of orders for a quarter would adversely affect
the results of operations for such quarter and, potentially, for future periods.
Fluctuations in quarterly results may result in significant volatility in the
market price of the Company's Common Stock. In addition, sales of networking
products fluctuate from time to time based on numerous factors, including
capital spending levels and general economic and market conditions. Future
declines in networking product sales, as a result of general economic conditions
or for any other reason, could have a material adverse effect on the Company's
business, operating results and financial condition.

LIMITED HISTORY OF PROFITABILITY; UNCERTAIN FUTURE PROFITABILITY. The Company
has incurred losses in recent quarters. There can be no assurance that the
Company will be profitable in future periods. In the past, the Company has
expanded its level of operations, resulting in increased fixed costs and
operating expenses, with the expectation of increased sales and gross profits.
The Company's operating results and net income were


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<PAGE>   11

adversely impacted as net sales and gross profits did not increase sufficiently
to offset such increased expenses. The Company commenced a restructuring program
in July 1998 to decrease expenses. The Company completed its restructuring in
its second fiscal quarter of 1999. Since then, the Company has increased its
investments in sales and marketing and related infrastructures. If the Company
increases its operating expenses, the Company's operating results will be
adversely affected if revenue and gross profits do not also increase. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

SUBSTANTIAL COMPETITION. The market for the Company's products is highly
competitive and subject to frequent product introductions with improved price or
performance characteristics, significant price reductions, rapid technological
change and continued emergence of new industry standards. The Company competes
directly domestically and internationally with a variety of companies offering
multi-service access products including Cisco, Nortel, Memotec, Motorola, Lucent
and other companies. The Company expects substantial additional competition from
existing competitors and from a number of other companies which may enter the
Company's existing or future markets. Many of the Company's current and
potential competitors have substantially greater name recognition and financial,
marketing, sales, technical and other resources, as well as a larger installed
customer base, than the Company. Many of these companies sell directly to
end-users, which the Company believes may provide a competitive edge over the
Company when marketing either similar products or alternative networking
solutions. In addition, many of these companies offer a more comprehensive
networking solutions to their customers than the Company. Consolidations in the
industry could enhance the capabilities of the Company's competitors.
Furthermore, the Company's OEM partners may in the future develop competitive
products and may then decide to terminate their relationships with the Company.
There can be no assurance that the Company will be able successfully to compete
against either current or potential competitors or that competition will not
have a material adverse effect on the Company's business, operating results and
financial condition.

CUSTOMER CONCENTRATION; DEPENDENCE ON PARTNERS. A small number of customers have
historically accounted for a substantial portion of the Company's net sales.
During the fiscal years ended June 30, 1997, 1998 and 1999, the Company's five
largest customers collectively accounted for 36%, 35% and 44%, respectively, of
net sales. In many instances, the Company's major customers in any given period
have ordered significantly fewer products in future periods. The Company
believes that this has been due, in part, to customers who make large, one-time
purchases to set up their communications infrastructure, after which such
customers do not require further significant purchases. In addition, the Company
believes this may be due to a variety of other factors, including, without
limitation, the economic conditions in various countries, particularly those in
Asia and South America. Therefore, the Company expects that its major customers
will fluctuate from period to period. There can be no assurance that a major
customer will not reduce or delay the amount of products ordered from the
Company or significantly change the terms upon which the Company and such
customer do business. Any such reduction, delay or change could have a material
adverse effect on the Company's business.

        The Company's sales and marketing strategy is to focus on developing
distribution channels with major communications companies. The Company has
entered into reseller agreements with Lucent and FORE and is allocating
significant resources to these relationships. The reseller agreements do not
require minimum purchases. There is no assurance that Lucent or FORE will become
or will continue to be significant customers of the Company. For the fiscal year
ended June 30, 1999, sales to Lucent and Impsat accounted for 13% and 10%,
respectively, of the Company's revenue. There is no assurance that Lucent or
Impsat will continue to purchase the Company's products. Any reduction or delay
in sales of the Company's products to significant customers could have a
material adverse effect on the Company's business, operating results and
financial condition. Furthermore, there can be no assurance that the Company
will retain its current OEM partners or that it will be able to establish
relationships with new partners or replace its current partners. The loss of one
or more of the Company's OEM partners could have a material adverse effect on
the Company's business, operating results and financial condition. The Company
generally realizes a lower gross margin on sales to its OEM partners.
Accordingly, if the Company's OEM partners were to account for an increased
portion of the Company's revenue, its gross margins would decline.

DEPENDENCE ON CONTRACT MANUFACTURING. The Company's operational strategy is to
further rely on outsourcing of its manufacturing. The Company also intends to
streamline its manufacturing operations by focusing on a small number of
manufacturing contractors. Accordingly, the risks associated with reliance on
sole sources are expected to increase. Any interruption or delay by the
Company's contract manufacturers could have a material adverse effect upon the
Company's business, operating results and financial condition. The Company may
experience problems with its contract manufacturers, such as inferior quality,
insufficient quantities and late delivery of product. While such problems have
not resulted in any material liabilities from the Company to its customers and
end-users to date, there can be no assurance that such problems will not
generate material liabilities for the Company or adversely impact the Company's
relations with customers and end-users in the future.

DEPENDENCE ON KEY PERSONNEL; NEW MANAGEMENT. The Company's success is dependent
in large part on its executive officers, senior management and sales and
technical personnel. Since July 1998, the Company has undergone numerous
personnel changes in all levels of the organization as a result of a
restructuring and other factors. The failure of new management and other
personnel to fully integrate into the Company's operations and to


                                       9
<PAGE>   12

execute the Company's strategy, and the failure of the Company to retain such
management and other personnel, could have a material adverse effect on the
Company's business. The Company's success will be dependent on its continued
ability to attract, retain and motivate highly skilled employees, who are in
great demand. There can be no assurance that the Company will be able to do so.

TECHNOLOGICAL CHANGE, CHANGING MARKETS AND NEW PRODUCTS. The market for the
Company's products is characterized by rapid technological advances, evolving
industry standards, frequent new product introductions and enhancements, and
significant price competition. The introduction of products involving superior
or alternative technologies, the emergence of new industry standards,
governmental regulations, changes in a market's pricing structure and other
factors could render the Company's existing products, as well as products under
development, obsolete and unmarketable in one or more markets which could
adversely affect the Company's business, operating results and financial
condition. The Company has experienced instances where one or more of those
factors resulted in a significant decrease in sales of the Company's products in
particular markets or resulted in new products becoming obsolete or
unmarketable. The Company's success will depend, in part, on the viability of
the Company's products in its markets and the ability of the Company to develop
effective distribution channels to address these markets. There can be no
assurance that the Company's products will be widely accepted. Failure of the
Company's products to achieve market acceptance could have a material adverse
effect on the Company's business, operating results and financial condition.

        The Company believes its future success will depend, in part, upon its
ability to expand and enhance the features of its existing products and to
develop or acquire and introduce new products designed to meet changing customer
needs on a cost-effective and timely basis. In particular, the completion of the
development and successful commercial release of the ServiceXchange family of
products is critical to the Company's strategies. Failure by the Company to
respond on a timely basis to technological developments, changes in industry
standards or customer requirements, or any significant delay in product
development or introduction (particularly the ServiceXchange products), could
have a material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that the Company will respond
effectively to technological changes or new product announcements by others or
that the Company will be able to successfully develop and market new products or
product enhancements and that any new product or product enhancement will gain
market acceptance.

        Inherent in the product development process is a number of risks. The
development of new, technologically advanced products and product enhancements
is a complex and uncertain process requiring high levels of innovation, as well
as the accurate anticipation of technological and market trends. The Company
allocates research and development expenditures based on planned product
introductions and enhancements; however, actual expenditures may significantly
differ from allocated expenditures. There can be no assurance that the Company
will successfully identify, develop or introduce new products or product
enhancements. Products such as those offered by the Company may contain
undetected or unresolved software errors when they are first introduced or as
new versions are released. There can be no assurance that, despite extensive
testing by the Company, software errors will not be found in new products or
upgrades after commencement of commercial shipments, resulting in delay in or
loss of market acceptance. Future delays in the introduction or shipment of new
or enhanced products, the inability of such products to gain market acceptance
or problems associated with new product transitions could adversely affect the
Company's operating results, particularly on a quarterly basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

INTEGRATION OF ACQUISITIONS. The Company has acquired, and may in the future
acquire, complementary technologies and businesses. Acquisitions by the Company
may result in potentially dilutive issuances of equity securities, the
incurrence of additional debt, the creation and amortization of goodwill and the
incurrence of acquisition related expenses, all of which could adversely affect
the Company's results of operations. In addition, acquisitions involve numerous
risks, including difficulties in the assimilation of the operations,
technologies and products of the acquired businesses; the diversion of
management's attention from other business concerns; risks associated with the
Company's entering markets in which it has no or limited direct prior
experience; and the potential loss of key employees of the acquired company. The
Company has engaged in several acquisitions in the past which resulted in
increased expenses without a commensurate increase in net sales. These
acquisitions have also adversely impacted the Company's results of operations
due to in-process research and development expenses, the write down of tangible
and intangible assets and other factors. In the event the Company engages in
additional acquisitions, no assurances can be given as to the effect thereof on
the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

MANAGEMENT OF GROWTH. The Company has from time to time experienced growth in
its operations, both internally and as a result of acquisitions. The Company's
growth has placed, and will continue to place, strain on the Company's
managerial, operational and financial resources, systems and controls. This is
particularly true with respect to sales in international markets since each
specific international market has its own unique regulatory, financial,
technical, customer and other characteristics which often require the Company to
devote significant resources to sell products in that country. The Company's
future operating results will depend on its ability to attract, hire and retain
skilled employees, and to expand and improve the Company's operational, product
development, management information and financial systems and controls. The
Company continues to upgrade its management information and product development
systems. The Company's failure to manage growth effectively, successfully
upgrade its systems or to hire, retain and integrate necessary qualified
personnel could adversely affect the Company's business, operating results and
financial condition.


                                       10
<PAGE>   13
INTERNATIONAL SALES, TARIFF AND REGULATORY MATTERS. Sales of the Company's
products to customers outside of North America accounted for approximately 75%,
64% and 51% of the Company's net sales for the fiscal years ended June 30, 1997,
1998 and 1999, respectively. The Company expects that international sales will
continue to account for a significant portion of the Company's net sales in
future periods. International sales are subject to certain inherent risks,
including unexpected changes in regulatory requirements and tariffs,
difficulties in staffing and managing foreign operations, potentially adverse
tax consequences and problems in collecting accounts receivable. A significant
number of the Company's products are sold or installed in countries, including
several in South America and Asia, where political or economic issues have
adversely affected, and may in the future adversely affect, the purchasing
decision of customers. The Company believes that recent events in Asia and Latin
America have adversely impacted, and will continue to adversely impact, the
Company's net sales in these regions in the near term. Although the Company's
sales are currently denominated in U.S. dollars, fluctuations in currency
exchange rates have in the past caused, and could in the future cause, the
Company's products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country and potentially leading to an extension of payment terms. Furthermore,
future international activity may result in foreign currency denominated sales
and, in such event, gains and losses on the conversion to U.S. dollars of
accounts receivable and accounts payable arising from international operations
may contribute to fluctuations in the Company's results of operations. The
financial stability of foreign markets could also affect the Company's
international sales. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

        Rates for telecommunications services are governed by tariffs of
licensed carriers that are subject to regulatory approval. Future changes in
these tariffs could have a material adverse effect on the Company's business.
For example, should tariffs for public switched digital services increase in the
future relative to tariffs for private leased services, the cost-effectiveness
of certain of the Company's products would be reduced, and its business and
results of operations could be adversely affected. In addition, the Company's
products must meet standards and receive certification for connection with the
public telecommunications networks of a country prior to their sale in such
country. In the United States, for example, the Company's products must comply
with certain regulations promulgated by the Federal Communications Commission.
Domestic telecommunications carriers must also certify the Company's products.
In foreign countries, the Company's products are subject to a wide variety of
governmental review and certification requirements. From time to time, foreign
governments have altered certification or regulatory requirements, which has
adversely impacted the Company's ability to sell products in such markets. Any
future inability to obtain on a timely basis or retain domestic certificate or
foreign regulatory approvals could have a material adverse effect on the
Company's business, operating results and financial condition.

RELIANCE ON THIRD PARTY SUPPLIERS. The Company relies on third party suppliers
who supply the components used in the Company's products. The unavailability of
certain components from current suppliers, especially custom designed components
for the Company, could result in delays in the shipment of the Company's
products as well as additional expenses associated with obtaining and qualifying
a new supplier. In addition, certain key components used in the Company's
products are available only from single sources and the Company does not have
long term contracts ensuring the supply of such components. As the Company
typically maintains less than 90 days supply of such components, there can be no
assurance that components will be available to meet the Company's future
requirements at favorable prices, if at all. The Company's inability to obtain
components in a timely manner would materially and adversely affect the
Company's business and financial condition. In addition, any significant
increase in component prices could also adversely affect the Company's results
of operations. The Company resells Frame Relay switches purchased from Ascend
(now Lucent). Although the Company believes similar products can be purchased
from other sources, the process of qualifying replacement suppliers, generating
the supporting documentation, performing system level integration, obtaining
standards-compliant approval for its products and retraining sales and marketing
channels would require a significant amount of time and expense. The Company's
ability to offer an integrated, cost effective networking solution is based, in
part, on its ability to sell such products as part of its present line. The
Company's inability to source these products at satisfactory quality and
quantity levels and with the appropriate lead time would adversely affect the
Company's business, operating results and financial condition.

RELIANCE ON INDIRECT DISTRIBUTION. The Company markets and sells products
domestically and internationally primarily through its OEM partners and
resellers, such as distributors, value-added resellers and system integrators.
The number of qualified resellers in certain countries is limited. Resellers
typically are not effective at selling the Company's products until they have
been trained and have successfully completed several sales. The Company's
performance depends in part on attracting, retaining and motivating such
resellers. Certain of the Company's resellers also act as resellers for
competitors of the Company and could devote greater effort and resources to
marketing competitive products. The Company's OEM partners and resellers are
generally provided discounts and, occasionally, are entitled to special pricing
or distribution arrangements, the effect of which is to decrease the Company's
gross margins. While the Company has contractual relationships with its OEM
partners and many of its resellers, these agreements do not require the OEM
partners or resellers to purchase the Company's products and can generally be
terminated on short notice. Resellers in many countries have title to the
governmental authorizations and certifications necessary to market the Company's
products in such country, and there is no assurance that, in the event a
reseller ceased marketing the Company's products, the reseller would transfer
such authorization or certification to the Company or that the expense and delay
associated with obtaining a new authorization or certification would not
adversely affect the Company's business and operations in such country. There
can be no assurance that the Company's OEM partners or resellers will continue
to market the Company's products or devote the resources necessary to provide
effective sales and marketing support to the



                                       11
<PAGE>   14

Company. In addition, the Company is dependent on the continued viability and
financial stability of its resellers, many of which are small organizations with
limited capital. The loss of any key partner or reseller could adversely affect
the Company's business, operating results and financial condition.

DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's future success will depend
in part on its proprietary technology. In addition, certain technology licensed
from third parties is incorporated in the Company's products. In particular, the
Company licenses certain of its voice compression algorithms, the right to
commercialize its SkyPerformer products, components of its network management
system software and other software and technology embedded in the hardware
incorporated into the Company's products pursuant to nonexclusive license
agreements. The failure of the Company to retain such licenses or obtain new
licenses as improvements in such technology are developed and new technology is
introduced could adversely affect the Company's business. The Company does not
currently hold any patents. The Company relies principally on copyright, trade
secret and contract law to protect its proprietary technology. There can be no
assurance that such measures are adequate to protect the Company's proprietary
technology. The Company has substantial international operations and the laws of
foreign countries treat the protection of proprietary rights differently from,
and may not protect the Company's proprietary rights to the same extent as do,
laws in the United States. Since patent applications in the United States are
not publicly disclosed until the patent is issued, applications may have been
filed which, if issued as patents, would relate to the Company's products. In
addition, the Company has never conducted a comprehensive patent search relating
to the technology used in its products. Accordingly, there can be no assurance
that third parties will not assert infringement claims against the Company in
the future or that such claims will not be successful. The Company could incur
substantial costs in defending itself and its customers against any such claims,
regardless of the merits of such claims. Parties making such claims may be able
to obtain injunctive or other equitable relief which could effectively block the
Company's ability to sell its products in the United States and abroad, and
could result in an award of substantial damages. In the event of a successful
claim of infringement, the Company, its customers and end-users may be required
to obtain one or more licenses from third parties. The Company has in the past,
and may in the future, pay significant sums to obtain licenses from third
parties to avoid the costs and uncertainties associated with defending a
potential claim. There can be no assurance that the Company or its customers
could obtain necessary licenses from third parties at a reasonable cost or at
all. The defense of any lawsuit could result in time consuming and expensive
litigation, damages, license fees, royalty payments and restrictions on the
Company's ability to sell its products, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition.

YEAR 2000. The Year 2000 issue is the result of computer programs that were
written using two digits rather than four to define the applicable year;
accordingly, computer programs that have time-sensitive software or firmware may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruptions of
operations including, among other things, an inability to process transactions,
send invoices or engage in similar normal activities.

        The Company's primary internal information systems currently operate
with application software and an operating system represented by the respective
suppliers as Year 2000 compliant. Costs incurred by the Company to upgrade to
compliant versions of such software have not been material. The Company has
performed internal testing of each of its products and expects to continue such
testing for developing products. Based on its testing to date, the Company
believes that its current products are substantially Year 2000 compliant. The
Company has not had, and has no present intention to have, its products tested
by an independent lab. The Company does not expect that the costs to continue
the testing program related to the Year 2000 will have a material impact on
operations or financial results. However, the inability of any of the Company's
products to process year 2000 data accurately could result in increased costs
and liabilities which could have a material adverse effect upon the Company's
operations and financial condition. The Company believes that there are two
predominant sources of third party risk for the Company with respect to the Year
2000 issue. The Company depends on turnkey manufacturers of components for its
manufacturing process and disruption of operations at such a supplier, whether
due to Year 2000 non-compliance or not, could negatively impact the Company's
shipment schedule and operations. In the event that the systems of significant
suppliers are not converted or modified in a timely manner to make the Year 2000
compliant, there could be material adverse effect on the Company's business and
financial results. The Company also has a number of large customers which
include end-users, resellers and the Company's OEM partners. The Company's top
five customers generated 44% of net sales in the fiscal year ended June 30,
1999. Year 2000 non-compliance at such customers' sites could negatively impact
sales to such customers by disrupting the networks of such customers or their
customers, in the case of resellers. The Company has surveyed specific major
suppliers to assess the potential impact, if any, of Year 2000 non-compliance on
the part of such suppliers. None of the vendors responding indicate any expected
difficulty in carrying on their business with the Company due to the Year 2000
issue. The Company has not conducted a comprehensive survey of major customers
to assess the potential impact, if any, of Year 2000 non-compliance. Any failure
of the Company's suppliers and customers to resolve their Year 2000 problems in
a timely manner could result in a material disruption of the Company's business.
Any such disruption could have a material adverse effect upon the business and
financial results of the Company. In the event that the Company's internal
system or systems of significant outside vendors are not converted or modified
in a timely manner to make them Year 2000 compliant, there could be a material
adverse effect upon the business and financial results of the Company. The
Company does not have a contingency plan in place to address such an event and
does not presently intend to create one.

VOLATILITY OF STOCK PRICE. The trading price of the Company's Common Stock has
undergone significant fluctuations and is expected to continue to be subject to
significant fluctuations in response to variations in quarterly operating
results, the gain or loss of significant contracts, changes in management,
announcements of technological innovations or new products by the



                                       12
<PAGE>   15
Company or its competitors, legislative or regulatory changes, general trends in
the industry and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations which have particularly
affected the market price for many high technology companies and which have
often been unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of the Company's
Common Stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company anticipates
that available cash and cash flow from operations will be adequate to satisfy
its capital requirements through at least the next 12 months. The Company's
future capital requirements will depend on many factors including, but not
limited to, the cost of acquisitions of businesses, products and technologies,
the levels at which the Company maintains inventory, the market acceptance of
the Company's products, the levels of promotion and advertising required to
launch such products and attain a competitive position in the marketplace, and
the extent to which the Company invests in new technology and improvements to
its existing technology. To the extent that existing resources and future
earnings are insufficient to fund the Company's activities, the Company may need
to raise additional funds through public or private financing including equity
financing. If additional funds are raised through the issuance of equity
securities, the percentage ownership of then current stockholders of the Company
will be reduced and such equity securities may have rights, preferences or
privileges senior to those of the holders of the Company's Common Stock. No
assurance can be given that additional financing will be available or that, if
available, it can be obtained on terms favorable to the Company and its
stockholders. The Company's lack of authorized Preferred Stock could hinder the
Company's ability to obtain financing. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate some or all of its
research and development, to curtail its operations significantly or to obtain
funds through arrangements with strategic partners or others that may require
the Company to relinquish rights to certain of its technologies or potential
markets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's Certificate of
Incorporation provides for a Board of Directors with staggered terms, which may
discourage or prevent certain types of transactions involving an actual or
potential change in control of the Company, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices. Certain provisions of Delaware law applicable to the
Company, including Section 203 of the Delaware General Corporation Law, could
have the effect of delaying, deferring or preventing a change of control of the
Company. It is possible that the staggered board and Section 203 of the Delaware
General Corporation Law may have the effect of delaying, deferring or preventing
a change of control of the Company, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of the Common Stock.

LACK OF DIVIDENDS. The Company has never paid cash dividends on shares of its
capital stock. The Company currently intends to retain any future earnings in
its business and does not anticipate paying any cash dividends in the future.


                                       13
<PAGE>   16
ITEM 2. PROPERTIES.

        The Company's principal administrative, engineering and manufacturing
facilities are located in one 58,979 square foot leased facility in Calabasas,
California, under a lease that expires on June 30, 2006. The base rent is
currently approximately $81,400 a month. In addition to the base rent, the
Company pays its share of the operating expenses, property tax, and insurance
premiums on the building. The Company also leases 15,000 square feet of space in
Montreal, Canada and 14,000 square feet in Manassas, Virginia. ACT maintains
small sales support offices in the United Kingdom, Australia, Mexico, Singapore
and in the State of Texas. The Company believes its facilities are adequate for
its current needs and that suitable additional or substitute space will be
available as needed.

ITEM 3. LEGAL MATTERS.

     The Company has no material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

     No matters were submitted to a vote of security-holders during the quarter
ended June 30, 1999.


                                       14
<PAGE>   17
                                     PART II
                                     -------

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

PRICE RANGE OF COMMON STOCK

     The following table sets forth, for the fiscal periods indicated, the range
of high and low closing sale prices of the Common Stock as quoted on The Nasdaq
Stock Market.

<TABLE>
<CAPTION>

FISCAL YEAR                                      HIGH           LOW
-----------                                      ----           ---
<S>                                            <C>           <C>

2000

  1st Quarter (through September 15, 1999)     $18 1/4       $8 9/16

FISCAL YEAR                                      HIGH          LOW
-----------                                      ----          ---

1999

  4th Quarter                                    23 7/8        14 7/16
  3rd Quarter                                    19 1/4        11 1/8
  2nd Quarter                                    14             6 1/16
  1st Quarter                                     9 3/16        4 15/16

FISCAL YEAR                                      HIGH          LOW
-----------                                      ----          ---

1998

  4th Quarter                                    15             8 3/4
  3rd Quarter                                    13             7 7/8
  2nd Quarter                                    12 3/4         7
  1st Quarter                                    15 7/8        11 11/16
</TABLE>

As of September 15, 1999, there were approximately 65 record holders of the
Company's Common Stock. On September 15, 1999, the last reported sale price of
the Common Stock on the Nasdaq National Market was $8.88 per share.

DIVIDEND POLICY

        The Company has never paid cash dividends on shares of its capital
stock. The Company currently intends to retain any future earnings for use in
its business and does not anticipate paying any cash dividends in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."



                                       15
<PAGE>   18
ITEM 6. SELECTED FINANCIAL DATA.

        The following selected financial data with respect to the Company's
statements of operations for each of the five fiscal years ended June 30, 1995,
1996, 1997, 1998 and 1999 and the balance sheet data at June 30, 1995, 1996,
1997, 1998 and 1999 are derived from the audited financial statements of the
Company. The financial statements and the related report of independent auditors
for the fiscal years ended June 30, 1995 and 1996 are not included in this
Report. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Financial Statements of the Company and the related
notes thereto included elsewhere in this Report.

<TABLE>
<CAPTION>
                                                                  FISCAL YEAR ENDED JUNE 30,
                                           --------------------------------------------------------------------------
                                                1995           1996            1997            1998            1999
                                                ----           ----            ----            ----            ----
                                                            (in thousands, except per share data)
<S>                                           <C>            <C>             <C>             <C>             <C>
Statement of Operations Data:

  Net sales                                   $ 20,566       $ 28,404        $ 49,173        $ 54,964        $ 54,322
  Cost of goods sold                             9,244         13,998          21,431          29,900          24,412
                                           --------------------------------------------------------------------------
    Gross profit                                11,322         14,406          27,742          25,064          29,910
Operating expenses:
    Research and development                     3,586          5,027           8,344          16,349          12,887
    Sales and marketing                          4,785          7,174          11,115          15,984          13,961
    General and administrative                   1,736          3,257           5,291           8,935           7,925
    In-process research and development             --          5,600           3,416           6,750              --
    Impairment and restructuring                    --             --              --           3,393             607
                                           --------------------------------------------------------------------------
                                                10,107         21,058          28,166          51,411          35,380
                                           --------------------------------------------------------------------------
  Income (loss) from operations                  1,215         (6,652)           (424)        (26,347)         (5,470)
  Gain on sale of investment                        --             --              --           4,704             120
  Net interest income and other income
  (expense)                                         69          1,220           3,327           2,419           2,260
                                           --------------------------------------------------------------------------
  Income (loss) before income taxes              1,284         (5,432)          2,903         (19,224)         (3,090)
  Provision for income taxes                        22            295           1,420             157              36
                                           --------------------------------------------------------------------------
  Net income (loss)                           $  1,262       $ (5,727)       $  1,483        $(19,381)       $ (3,126)
                                           ==========================================================================
Earnings (loss) per share
   Basic                                      $   0.72       $  (0.78)       $   0.16        $  (2.11)       $  (0.32)
   Diluted                                    $   0.24       $  (0.78)       $   0.15        $  (2.11)       $  (0.32)

   Shares used in per share calculations
   Basic                                         1,753          7,308           9,184           9,170           9,644
   Diluted                                       5,211          7,308           9,973           9,170           9,644


                                                                           AS OF JUNE 30,
                                           --------------------------------------------------------------------------
                                                 1995          1996            1997            1998            1999
                                                 ----          ----            ----            ----            ----
                                                                          (in thousands)

Balance Sheet Data:

  Working capital                             $ 38,235       $ 84,747        $ 81,982        $ 66,145        $ 71,245
  Total assets                                  42,847         93,851         100,696          80,838          85,641
  Total long-term debt, excluding
  current maturities                                 -            147               -               -               -
  Accumulated deficit                           (2,304)        (8,036)         (6,652)        (25,933)        (29,059)
  Total stockholders' equity  (1)               40,316         90,140          93,538          72,517          76,919

</TABLE>
___________

(1) The Company has never paid cash dividends on shares of its capital stock.


                                       16
<PAGE>   19

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

        The following discussion and analysis should be read in conjunction with
the Financial Statements and related Notes thereto contained elsewhere in this
Report. This Report contains forward-looking statements that involve a number of
risks and uncertainties including, without limitation, those set forth in
"Business--Risk Factors." The Company's actual results may differ materially
from any future performance discussed in the forward-looking statements and in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations.

GENERAL

        ACT develops, manufactures and markets multi-service access products
that enable the convergence of voice, video and data onto one managed network.
Service providers and enterprise customers use the Company's products to build
converged networks that are bandwidth efficient, cost-effective and easy to
manage. The Company's award-winning NetPerformer product incorporates advanced
voice and data compression algorithms, enhanced switching and traffic management
capabilities, and state-of-the-art hardware and software integration
technologies.

        The Company is migrating toward two principal product families,
NetPerformer and ServiceXchange, which share a common technology foundation but
are targeted at different market segments. NetPerformer is a family of
multi-service access products targeted at enterprise customers who need to
integrate and transport voice, fax, LAN and SNA data over private or public
Frame Relay, IP or ATM networks. ServiceXchange addresses the needs of service
providers who are especially focused on transporting large volumes of voice
traffic cost effectively over Frame Relay or IP backbones. Within each family,
both chassis-based and stand-alone configurations will be offered to serve
specific customer requirements for price, performance, density and feature set.

        The Company's future results will be dependent upon a variety of factors
including, without limitation, the Company's ability to develop and release new
products in a timely manner and within anticipated budgets. While the Company
anticipates the release of new products in fiscal 2000, there can be no
assurance that such products will be released when anticipated or that such
products will achieve market acceptance.

        The Company anticipates that, in general, the average sales price for
its products will decrease over time due to competition and other factors. The
Company is currently focusing on developing existing and new OEM or similar
relationships with third parties, which may result in significant pricing
discounts and lower gross margins. In addition, the Company has from time to
time introduced new products, which are less expensive alternatives to the
Company's older products. In such instances, the Company must sell more units to
maintain the same level of aggregate net sales. Price erosion of existing
products, significant discounting and the Company's introduction of less
expensive networking alternatives could adversely affect the Company's margins
and results of operations.

        Sales to customers outside of North America accounted for approximately
51%, 64% and 75% of the Company's net sales for the fiscal years ended June 30,
1999, 1998 and 1997, respectively. The Company expects that international sales
will continue to account for a significant portion of the Company's net sales in
future periods. International sales are subject to certain inherent risks,
including unexpected changes in regulatory requirements and tariffs, problems
and delays in collecting accounts receivable and economic downturns in foreign
markets. A significant number of the Company's products are sold or installed in
countries, including several in South America and Asia, where political or
economic issues have adversely affected, and may in the future adversely affect,
the purchasing decision of the customer. In addition, fluctuations in currency
exchange rates have caused, and may in the future cause, the Company's products
to become relatively more expensive to customers in a particular country,
leading to a reduction in sales or profitability in that country.

        A small number of customers have historically accounted for a
substantial portion of the Company's net sales. During the fiscal years ended
June 30, 1999, 1998 and 1997, the Company's five largest customers collectively
accounted for 44%, 35% and 36%, respectively, of net sales. Sales to Lucent and
Impsat accounted for 13% and 10%, respectively, of the Company's revenue in
1999. Any reduction, delay or change in orders from significant customers could
have a material adverse effect on the Company's business.

ACQUISITIONS

        In December 1996, the Company acquired all the outstanding shares of
DeltaComm Corporation, a developer of bandwidth efficient modems with expertise
in the satellite communications industry. In March 1997, the Company acquired
the DynaStar family of products from Dynatech Communications, Inc. The DynaStar
product line is a family of compact, flexible, integrated multi-service access
switch connectivity products that support extensive multiprotocol WAN
connections including TCP/IP, PPP, Frame Relay, X.25 and ATM. In August 1997,
the Company acquired out of bankruptcy certain assets of Sourcecom, Inc., a
developer of high performance broadband access devices. In connection with these
acquisitions, the Company expensed a portion of the purchase prices as
in-process research and development. The products and technologies acquired in
the Dynatech Communications, Inc. and DeltaComm Corporation acquisitions are
being either de-emphasized or discontinued.


RESTRUCTURING PROGRAM


                                       17
<PAGE>   20

        In July 1998, the Company announced a major restructuring program
designed to streamline operations and focus on key markets. As part of the
restructuring program, the Company concentrated its resources on the
NetPerformer and ServiceXchange product lines. The Company significantly reduced
its workforce, eliminating its business unit matrix structure in favor of a
functional organization and de-emphasizing engineering, sales and marketing
efforts for non-strategic products. As the Company does not intend to actively
promote many of its former products which have, historically, accounted for a
majority of the Company's net sales, the Company's net sales may be adversely
impacted in the near term. The Company has in the past, and may in the future,
encounter decreased sales as a result of product transitions.

        Included in the Company's June 30, 1999 net loss were certain
restructuring charges of $0.6 million related to employee terminations. Included
in the Company's June 30, 1998 net loss were certain restructuring and
impairment charges of $3.4 million as a result of the Company's evaluation and
write-down of certain assets, principally the tangible and intangible assets
established in the DeltaComm, DynaStar, and Sourcecom acquisitions. In addition,
the Company recorded charges to cost of goods sold of $3.7 million to write-down
the carrying value of inventory due to the restructuring and related de-emphasis
or discontinuation of certain product lines and other factors.

        The impairment write-downs, excluding inventory write-downs, reflected
in the statement of operations for the year ended June 30, 1998 consist of the
following non-cash charges (in thousands):

<TABLE>
<CAPTION>
        Asset Impaired                                                      Amount
        ------------------------------------------------------           -----------
<S>                                                                      <C>
        Property, plant and equipment                                    $       682
        Developed technology and other acquisition intangibles                 2,444
        Other intangible assets                                                  267
                                                                         ===========
                                                                         $     3,393
                                                                         ===========
</TABLE>


RESULTS OF OPERATIONS

        The following table sets forth, for the years indicated, the percentage
of net sales represented by each item in the Company's statement of operations.

<TABLE>
<CAPTION>
                                                             Fiscal Years Ended June 30,
                                                      --------------------------------------
                                                        1999           1998           1997
                                                      --------       --------       --------
<S>                                                   <C>            <C>            <C>
Net sales                                                100.0%         100.0%         100.0%
Cost of goods sold                                        44.9           54.4           43.6
                                                      --------       --------       --------
Gross profit                                              55.1           45.6           56.4

  Operating expenses:
   Research and development                               23.7           29.6           17.0
   Sales and marketing                                    25.7           29.1           22.6
   General and administrative                             14.6           16.3           10.8
   Impairment and restructuring                            1.1            6.2           --
   Acquired in-process research and development           --             12.3            6.9
                                                      --------       --------       --------
                                                          65.1           93.5           57.3
                                                      --------       --------       --------
Loss from operations                                     (10.0)         (47.9)          (0.9)

Net interest and other income                              4.4           12.9            6.8
                                                      --------       --------       --------
Income (loss) before taxes                                (5.6)         (35.0)           5.9

Provision for income taxes                                 0.1            0.3            2.9
                                                      ========       ========       ========
Net income (loss)                                         (5.7)%        (35.3)%          3.0%
                                                      ========       ========       ========
</TABLE>

Net sales

        The Company classifies its sales as either international or domestic.
International sales are, in general, shipments to locations outside the United
States, regardless of the end-user's or the customer's location. Domestic sales
are, in general, shipments to locations within the United States, even if the
end-user or customer is located outside the United States. As the Company sells
primarily through resellers, the Company does not know with certainty the
location of the end-user. The Company believes that a significant portion of
sales that it classifies as domestic is shipped to end users outside the United
States.


                                       18
<PAGE>   21

        Net sales for fiscal year 1999 were relatively unchanged in total from
fiscal year 1998, with a decline in average selling prices offset by increased
sales volume. Higher sales volume in North America and Europe was offset by
lower volume in Latin America and the Asia Pacific region.

        Net sales for fiscal year 1998 increased 11.8% from fiscal year 1997,
primarily as a result of increased domestic sales of the Company's products and
of sales of products from businesses acquired in fiscal 1997 and 1998. Increases
in sales to Europe and the Asia Pacific region were offset by decreases in sales
to South America. Net sales to the Asia Pacific region decreased substantially,
however, during the latter half of fiscal year 1998.

The following tables set forth the percentages of domestic and international
sales for the three most recent fiscal years.

                                        Fiscal Year ended June 30,
                                    ----------------------------------
                                     1999          1998          1997
                                    ------        ------        ------
<TABLE>
<CAPTION>
<S>                                 <C>           <C>           <C>
         Domestic Sales              48.6%         36.2%         25.3%
         International Sales         51.4          63.8          74.7
                                    ------        ------        ------
                                    100.0%        100.0%        100.0%
                                    ======        ======        ======
</TABLE>


        The Company also classifies its sales by customer. In general, the end
users of the Company's products are either enterprise customers, who acquire the
Company's products for use in their own networks, or service providers, who use
the Company's products to provide telecommunications services to third parties.
Service providers include alternate service providers (such as wholesale long
distance carriers and call back operators), value added network services
providers, CLECs, ILECs, CAPs, ISPs and IXCs.

The following table sets forth the percentages of enterprise and service
provider sales for the three most recent fiscal years.

                                       Fiscal Year ended June 30,
                                  ------------------------------------
                                    1999         1998          1997
                                  ---------    ----------    ---------
<TABLE>
<CAPTION>
<S>                               <C>          <C>           <C>
         Enterprise Sales            58.2%         64.9%        83.8%
         Service Provider Sales      41.8          35.1         16.2
                                  ---------    ----------    ---------
                                    100.0%        100.0%       100.0%
                                  =========    ==========    =========
</TABLE>


Gross Profit

        Gross profit represents net sales less the cost of goods sold, which
includes costs of materials, manufacturing overhead, direct labor expenses, and
contract manufacturing services. Gross profit percentages for fiscal years 1999,
1998 and 1997 were 55.1%, 45.6% and 56.4 % of net sales, respectively. Gross
profit in 1999 was positively impacted by the sale of certain inventory that was
written down in 1998. The sale of such inventory increased gross profit in 1999
by approximately $1.9 million, or 3.5% of net sales. The lower gross profit for
fiscal year 1998 is due primarily to charges totaling $3.7 million to write-down
the carrying value of inventory for certain product lines being de-emphasized or
discontinued. Without these charges, gross profit for fiscal year 1998 would
have been 52.2 % of net sales. Management anticipates continued downward
pressure on gross profit as a percentage of sales, particularly as the Company
pursues OEM opportunities that typically produce lower gross margins.

Operating Expenses

        Research and development. Research and development expense for fiscal
year 1999 decreased approximately 21% compared with fiscal year 1998 due
primarily to a reduced headcount in connection with the restructuring program.
The development of new products and features involves a number of risks and
uncertainties. There can be no assurance that the Company's research and
development expenses will not increase either in actual dollars or as a
percentage of sales in future periods.

Research and development expense for fiscal year 1998 increased approximately
96% compared with fiscal year 1997. Over one-half of this increase was
attributable to the cost of personnel added for the development of new products
and enhancement of existing products. The remaining increase related primarily
to engineering personnel added as a result of the DynaStar and Sourcecom
acquisitions (see Note 2 of Notes to Financial Statements) and to increases in
consultant fees, the cost of materials and depreciation expense.


                                       19
<PAGE>   22

        Sales and marketing. Sales and marketing expense for fiscal year 1999
decreased approximately 13% compared with fiscal year 1998 due primarily to a
reduced headcount in connection with the restructuring program.

Sales and marketing expense for fiscal year 1998 increased approximately 44%
compared with fiscal year 1997 due primarily to the addition of personnel and
increased marketing activities associated with new product lines.

        General and administrative. General and administrative expense for
fiscal year 1999 declined approximately 11% compared with fiscal year 1998 due
primarily to a reduced headcount in connection with the restructuring program.

General and administrative expense for fiscal year 1998 increased approximately
69% compared with fiscal 1997. The DynaStar and Sourcecom acquisitions
contributed significantly to the increase in general and administrative expense
without a commensurate increase in sales. Other material components of the
increase in general and administrative expense were personnel costs associated
with the expansion of the Company's management team, outside services, and bad
debt expense of approximately $1.2 million.

        Amortization expense relating to acquisitions was approximately
$370,000, $880,000 and $427,000 in the fiscal years ended June 30, 1999, 1998
and 1997, respectively. Amortization expense related to previous acquisitions is
expected to be comparable to 1999 for the next four years.

Net Interest and Other Income (Expense)

        Net interest income declined approximately 7% for fiscal year 1999
compared with fiscal year 1998 due to lower yields on investments, partially
offset by a slight increase in average invested funds. Net interest income
declined approximately 27% for fiscal year 1998 compared with fiscal year 1997
due primarily to the decrease in invested funds resulting from acquisitions in
late March 1997 and August 1997 and working capital requirements.

Income Taxes

        The provision for income taxes for the fiscal years 1999 and 1998 relate
primarily to the foreign income taxes on the Company's foreign subsidiaries. For
those years the difference between the U.S. federal statutory rate and the
effective U.S. tax rate is due primarily to operating losses for which no
benefit has been recognized in the financial statements. At June 30, 1999,
subject to certain limitations, the Company had approximately $19,704,000 and
$7,524,000 in federal and state operating loss carryforwards, respectively, and
research and development credit carryforwards of approximately $1,835,000 and
$1,052,000 for federal and state income tax purposes, respectively. See Note 6
of Notes to Financial Statements.

Inflation

        Although management cannot accurately anticipate the effect of inflation
on its operations, to date inflation has not had a material effect on product
sales or results of operations.

Foreign currency transactions

        Because of its operations in foreign countries, especially in Canada,
the Company faces exposure to changes in foreign currency exchange rates. The
Company maintains engineering and other technical operations in its office in
Quebec, Canada, which operations are funded from the Unites States. Should the
exchange rate between the United States dollar and the Canadian dollar
fluctuate, the Company's reported expenses would also fluctuate. For example,
based on the total Canadian expenses incurred in 1999, a 10% negative
fluctuation in the average exchange rate would have increased the Company's
reported expenses by approximately $0.4 million. The Company does not currently,
nor does it plan to, engage in any foreign currency hedging activities.

Year 2000

        The Year 2000 issue is the result of computer programs that were written
using two digits rather than four to define the applicable year; accordingly,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal activities.

        The Company's primary internal information systems currently operate
with application software and an operating system represented by the respective
suppliers as Year 2000 compliant. Costs incurred by the Company to upgrade to
compliant versions of such software have not been material.

        Based on internal testing of its products, to date, the Company believes
that its products are substantially Year 2000 compliant. The Company has not,
and has no present intention to, have its products tested by an independent lab.
The Company does not expect that the costs to continue the testing program
related to the Year 2000 will have a material impact on operations



                                       20
<PAGE>   23

or financial results. However, the inability of any of the Company's products to
process year 2000 data accurately could result in increased costs and
liabilities which could have a material adverse effect upon the Company's
operations and financial condition.

        The Company has surveyed specific major suppliers to assess the
potential impact, if any, of Year 2000 non-compliance on the part of such
suppliers. None of the vendors responding indicate any expected difficulty in
carrying on their business with the Company due to the Year 2000 issue. The
Company has not conducted a comprehensive survey of its major customers
regarding Year 2000 compliance. The Company believes that there are two
predominant sources of third party risk for the Company with respect to the Year
2000 issue. The Company depends on turnkey manufacturers of components for its
manufacturing process and disruption of operations at such a supplier, whether
due to Year 2000 non compliance or not, could negatively impact the Company's
shipment schedule. In the event that the systems of significant suppliers are
not converted or modified in a timely manner to make them Year 2000 compliant,
there could be a material adverse effect on the Company's business and financial
results and the Company's OEM partners. The Company has a number of large
customers which include end-users, resellers. The Company's top five customers
generated 44% of net sales in fiscal 1999. Year 2000 noncompliance at such
customers' sites could negatively impact sales to such customers by disrupting
the networks of such customers or their customers, in the case of OEM partners
and resellers. The Company does not have a contingency plan in place to address
such events and does not presently intend to create one.

LIQUIDITY AND CAPITAL RESOURCES

        The Company has funded its operations primarily from sales of the
Company's products and the sale of stock. For fiscal 1999 and 1998, the
Company's operating activities used cash of approximately $0.5 million and $8.9
million, respectively. At June 30, 1999, the Company had approximately $71
million in working capital, including $51 million in cash and cash equivalents
and short-term investments.

        Capital expenditures relating primarily to the purchase of computer
equipment, test equipment, computer software and leasehold improvements amounted
to approximately $2.1 million for the fiscal year ended June 30, 1999. The
Company currently has no material commitments for capital expenditures. However,
the Company anticipates spending between $2 million and $3 million during the
next twelve months to acquire test equipment, computer equipment, office
furniture, tooling and leasehold improvements.

        The Company believes that available cash, cash equivalents and
short-term investments together with internally generated cash flow, will be
adequate to satisfy its capital requirements for at least the next twelve
months.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

        The Company maintains investment portfolio holdings consisting primarily
of short-term commercial paper. At June 30, 1999, the average maturity of the
Company's investments was less than one year. The Company has structured its
investment portfolio in such a manner that various securities mature
periodically, but not less often than quarterly. The Company believes that the
value of the maturing securities will be sufficient to meet any reasonably
foreseeable cash requirements that may arise. As a result, the Company believes
that it is unlikely that any change in interest rates or other market factors
would have a material effect on its financial position, results of operations or
cash flow.



                                       21
<PAGE>   24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        The financial statements and supplementary data required by Regulation
S-X are included in this Form 10-K commencing on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE.

               Not applicable.


                                       22
<PAGE>   25
                                    PART III
                                    --------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS AND DIRECTORS

        The following table sets forth certain information concerning the
executive officers and directors of the Company as of August 31, 1999.

    NAME                           AGE     POSITION
    ----                           ---     --------
    Andre de Fusco                 41      President, Chief Executive Officer
                                           and Director
    Martin A. Woll                 49      Chief Financial Officer and Vice
                                           President, Finance
    Alain Gravel                   40      Vice President, Engineering
    Mike T. Zeile                  35      Vice President, Marketing
    Mario Uribe                    51      Vice President,  Sales
    Brig. Gen. Harold R. Johnson   76      Director
    (1)(2)
    William Ambrose (1)(2)         42      Director
    Archibald J. McGill (1)(2)     68      Director
    Frederick W. Gluck             64      Director
___________
(1)     Member of the Compensation Committee.
(2)     Member of the Audit Committee.

        ANDRE DE FUSCO was appointed President and Chief Executive Officer in
July 1998. Previously Mr. de Fusco held several positions with the Company,
including the position of Vice President and General Manager of the Company's
Broadband Network Services subsidiary from August 1997 to June 1998, Vice
President, Strategic Planning and Business Development from December 1995 to
June 1998 and Vice President of Marketing from December 1994 to December 1995.
Mr. de Fusco was employed as Director of International Accounts and Director of
Business Development for Northern Telecom from 1991 to 1994 and as Vice
President of Marketing and President of MaxCom, a developer of electronic mail
systems, from 1984 to 1991. Mr. de Fusco is presently a member of the Board of
Directors of Isocor.

        MARTIN A. WOLL has served as Chief Financial Officer and Vice President
of Finance since December 1998. Prior to joining the Company, Mr. Woll was a
partner with Coopers & Lybrand L.L.C. from 1984 to 1998. Mr. Woll is a certified
public accountant.

        ALAIN GRAVEL was appointed Vice President, Engineering in July 1998.
From November 1995 to July 1998, Mr. Gravel served as Vice President of Research
& Development, Data Products, of the Company's Enterprise Network Systems
division. Mr. Gravel served as Vice President of Research & Development of
Presticom until the Company acquired Presticom in November 1995. Mr. Gravel was
a co-founder of Presticom and was responsible for the development of the
NetPerformer product line. He also served on the Board of Directors of
Presticom. Mr. Gravel was employed as the Software Development Manager for
Memotec from 1988 to 1989 and for Datagram, a developer of statistical
multiplexers, from 1984 to 1988.

        MIKE T. ZEILE was appointed Vice President, Marketing in July 1998. Mr.
Zeile held the position of Vice President of Marketing at ComCore Semiconductor
from July 1997 to July 1998 where he managed all aspects of the Company's
marketing business as well as product management. Prior to joining ComCore, Mr.
Zeile worked at Sourcecom Corporation, where he led the definition of the
product platform that became the basis for ACT's new ServiceXchange product
family. Mr. Zeile has also held various senior management and marketing
positions at ADC Telecommunications from 1987 to 1997.

        MARIO URIBE was appointed Vice President, Sales in March 1999. Mr. Uribe
held the position of Vice President and General Manager of the U.S. Eastern
Region and Israel at Newbridge Networks from 1994 to March 1999 where he was
responsible for sales and support of all Newbridge products in the region. Mr.
Uribe has also held various management and sales positions at Newbridge,
Timeplex Inc. and Xerox Corporation from 1974 to 1994.

        BRIG. GEN. (RETIRED) HAROLD R. JOHNSON has served as a member of the
Board of Directors of the Company since 1988. Brig. Gen. Johnson retired as
Senior Vice President of Business Development at The Fairchild Corporation, an
aerospace and communications company, in 1999 where he had served in various
capacities since 1988. From 1980 to 1988, Brig. Gen. Johnson was founder,
President and Chief Executive Officer of Telebit Corporation, a manufacturer of
telecommunications equipment. Gen. Johnson presently serves as a member of the
Board of Directors of several companies, including KLT, Telecoms, ORAMIR Semi
Conductor Equipment Corporation, Celtronix, Radio Connect and Accelerated
Networks.

        WILLIAM W. AMBROSE has served as a member of the Board of Directors
since 1993. Mr. Ambrose is currently an independent consultant for several
private companies. Prior to 1998, Mr. Ambrose was the President of Pyramid
Research, Inc.,



                                       23
<PAGE>   26
a telecommunications market research organization that he founded in 1986. Mr.
Ambrose was initially elected as a director of the Company pursuant to a voting
agreement entered into in connection with investment in the Company by a
subsidiary of a former stockholder. Mr. Ambrose is presently a member of the
Board of Directors of CGLA Infrastructure.

        ARCHIBALD J. MCGILL has served as a member of the Board of Directors
since 1994. Mr. McGill is the President and Chief Executive Officer of
Chardonnay Inc., an investment management company, and has served in such
position since 1985. Mr. McGill served as President of Rothschild, Inc., a
venture capital investment firm, from 1983 to 1986. Mr. McGill was previously
President of the AIS/American Bell division of AT&T and a Vice President of
Marketing for International Business Machines. Mr. McGill is presently a member
of the Board of Directors of Disc, Inc., Ciber, Inc. and Carlton Corporation.

        FREDERICK W. GLUCK has served as a member of the Board of Directors
since March 1997. Mr. Gluck is currently of counsel to McKinsey and Company. Mr.
Gluck was Vice Chairman and a director of the Bechtel Group from 1995 through
July 1998. Previously, Mr. Gluck was at McKinsey and Company for 27 years and
led the firm from 1988 until his retirement in 1995. Mr. Gluck is presently a
member of the Board of Directors of Amgen, Columbia HCA, Thinking Tools, Inc.
and several other private companies.

        The Board of Directors of the Company is divided into three classes,
designated "Class I," "Class II" and "Class III," respectively. Each director
serves for a term ending on the date of the third annual meeting of stockholders
following the annual meeting at which such director was elected. However, each
director in Class I (Mr. de Fusco and Mr. Gluck) serves for a term ending on the
date of the annual meeting of stockholders held in 2001; each director in Class
II (Mr. Ambrose and Mr. McGill) serves for a term ending on the date of the
annual meeting of stockholders held in 2000 and each director in Class III
(Brig. Gen. Johnson) serves for a term ending on the date of the annual meeting
of stockholders held in 1999.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

        Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms filed by such person.

        Based solely on the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that for the fiscal year ended June 30, 1999, there was compliance with
all filing requirements applicable to the Company's executive officers,
directors and more than 10% stockholders.



                                       24
<PAGE>   27

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

        The following table sets forth the aggregate compensation earned, by the
Chief Executive Officer and each of the four additional most highly compensated
executive officers for the fiscal year ended June 30, 1999 (the "Named Executive
Officers"), for services rendered in all capacities to the Company for the
fiscal years ended June 30, 1997, 1998 and 1999. Except as indicated below,
during fiscal years 1997, 1998 and 1999, no Named Executive Officer received
other compensation in excess of the lesser of $50,000 or 10% of such
individual's base salary and bonus for the applicable fiscal year, nor did any
such individual receive any restricted stock award, stock appreciation right or
payment under any long term incentive plan for the applicable fiscal year.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                  LONG-TERM
                                                   ANNUAL COMPENSATION          COMPENSATION
                                         -----------------------------------  -----------------
                                                                  OTHER ANNUAL    SECURITIES
                                 FISCAL                           COMPENSATION    UNDERLYING
NAME AND PRINCIPAL POSITIONS      YEAR   SALARY($)(1)   BONUS($)(2)    ($)      OPTIONS (#)(10)
-----------------------------     ----   -----------    -----------    ---      ---------------
<S>                               <C>    <C>            <C>        <C>          <C>
Andre de Fusco..............      1999     $270,000      19,035                     674,286(5)
    President and CEO             1998      140,000      27,740                      20,000(6)
                                  1997      140,000           -                          --
Martin A. Woll..............      1999       90,000       3,038                      120,000
    CFO and Vice President,       1998           --           -                           -
Finance                           1997           --           -                          --
Alain Gravel................      1999      134,756       9,870     44,600(4)        87,000(7)
    Vice President, Engineering   1998       76,230           -                      45,000(8)
                                  1997       65,782        366
Mike T. Zeile ..............      1999      135,782       9,870                     180,000(9)
    Vice President, Marketing     1998           --           -                          --
                                  1997           --           -
Mario Uribe.................      1999       57,283      12,832(3)                  150,000
    Vice President, Sales         1998           --           -
                                  1997           --           -
</TABLE>

----------

(1)     Includes amounts deferred under the Company's 401(k) Plan.

(2)     Includes bonuses earned in the indicated year and paid in the subsequent
        year. Excludes bonuses paid in the indicated year but earned in the
        preceding year.

(3)     Represents amounts paid in commissions.

(4)     Amounts paid by the Company as reimbursement for relocation, immigration
        and tax planning expenses.

(5)     Mr. de Fusco was granted (i) options for 2,286 shares on August 1, 1995,
        (ii) options for 52,000 shares on September 19, 1995, (iii) options for
        20,000 shares on December 3, 1997 and (iv) options for 300,000 shares on
        July 1, 1998 at exercise prices of $16.50, $13.00, $7.69 and $8.38,
        respectively. In connection with the Company's cancellation/regrant
        program on August 3, 1998, all such options were cancelled and regranted
        with an exercise price of $6.75 per share, the closing price of the
        Company's Common Stock. Accordingly, the net number of shares for which
        Mr. de Fusco was granted options during the 1999 fiscal year was
        374,286 shares.

(6)     As indicated in footnote (5) of this table, these options were
        originally granted on December 3, 1997 with an exercise price of $7.69
        per share and were cancelled and regranted on August 3, 1998 with an
        exercise price of $6.75 per share, the closing price of the Company's
        Common Stock.

(7)     Mr. Gravel was granted (i) options for 30,000 shares on December 5, 1995
        and (ii) options for 15,000 shares on December 3, 1997 at exercise
        prices of $10.38 and $7.69, respectively. In connection with the
        Company's cancellation/regrant program on August 3, 1998, his pre-1998
        options covering a total of 42,000 shares were cancelled and regranted
        with an exercise price of $6.75 per share, the closing price of the
        Company's common stock.

(8)     As indicated in footnote (7) of this table, these options were
        originally granted on December 3, 1997 with an exercise price of $7.69
        per share and were cancelled and regranted on August 3, 1998 with an
        exercise price of $6.75 per share, the closing price of the Company's
        Common Stock.

(9)     Mr. Zeile was granted options for 90,000 shares on July 13, 1998 with an
        exercise price of $8.75. In connection with the Company's
        cancellation/regrant program on August 3, 1998, such options were
        cancelled and regranted with an exercise price of $6.75 per share, the
        closing price of the Company's common stock. Accordingly, the net number
        of shares for which Mr. Zeile was granted options during fiscal year
        1999 was 90,000 shares.

(10)    The options are immediately exercisable (except Mr. Uribe's options,
        which are installment options) with any unvested shares acquired under
        such option to be subject to repurchase by the Company, at the exercise
        price paid per share, upon


                                       25
<PAGE>   28
        termination of the optionee's service with the Company prior to vesting
        in those shares. The shares will vest according to the following
        schedule ("Standard Vesting Schedule"): twenty-four percent (24%) of the
        shares vest upon completion of one year following the vesting
        commencement date and the balance will vest at a rate of two percent
        (2%) per full month of employment thereafter. Mr. Uribe's options will
        become exercisable in installments in accordance with the Standard
        Vesting Schedule.


                                       26
<PAGE>   29

                              REPRICING OF OPTIONS

        In order to reincentivize the Company's employees, the Board of
Directors, upon recommendation of the Compensation Committee, in August 1998
approved an option cancellation/regrant program pursuant to which employees
could surrender for cancellation options granted by the Company having exercise
prices greater than $6.75 per share and receive in the place of such surrendered
options new options having an exercise price of $6.75 per share, the fair market
value of the Company's Common Stock on the date of Board approval and date of
grant. The new options issued pursuant to this cancellation/regrant program were
subject to the same vesting provisions as the surrendered options, except each
employee participating in the cancellation/regrant program had to remain in the
Company's employ for a period of six (6) months following August 3, 1998 to be
entitled to any vesting which may have occurred. The following table sets forth
certain information as of June 30, 1999 with respect to the repricing of certain
stock options held by the Company's Named Executive Officers since the Company's
initial public offering.

                           TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
                                                                                                 LENGTH OF
                                   NUMBER OF         MARKET                                       ORIGINAL
                                   SECURITIES       PRICE OF         EXERCISE                   OPTION TERM
                                   UNDERLYING       STOCK AT         PRICE AT        NEW        REMAINING AT
                       DATE OF       OPTIONS        TIME OF          TIME OF      EXERCISE        DATE OF
       NAME          REPRICING(1)   REPRICED(#)    REPRICING($)    REPRICING($)     PRICE ($)    REPRICING
       ----          -----------    -----------    ------------    ------------   -----------    ---------

<S>                  <C>            <C>            <C>             <C>            <C>           <C>
Andre de Fusco         8/3/98          2,286           6.75           16.50          6.75       7 yrs. 0 mos.
  President and CEO    8/3/98         52,000           6.75           13.00          6.75       7 yrs. 2 mos.
                       8/3/98         20,000           6.75            7.69          6.75       9 yrs. 4 mos.
                       8/3/98        300,000           6.75            8.38          6.75       9 yrs. 11 mos.

Alain Gravel           8/3/98         27,000           6.75           10.38          6.75       7 yrs. 4 mos.
  Vice President,      8/3/98         15,000           6.75            7.69          6.75       9 yrs. 4 mos.
  Engineering

Mike T. Zeile          8/3/98         90,000           6.75            8.75          6.75       9 yrs. 11 mos.
  Vice President,
  Marketing
</TABLE>

--------------
(1)     The Company implemented an option cancellation/regrant program for
        directors, executive officers and other employees holding stock options
        with an exercise price per share in excess of the market price of the
        Company's Common Stock at the time the cancellation/regrant occurred.
        The cancellation/regrant was effected on August 3, 1998, and 1,733,278
        outstanding options with an exercise price in excess of $ 6.75 per share
        were cancelled and new options for the same aggregate number of shares
        were granted with an exercise price of $ 6.75 per share. Andre de Fusco,
        Frederick W. Gluck (an outside director of the Company), Alain Gravel
        and Mike T. Zeile received lower priced options for 374,286, 21,000,
        42,000 and 90,000 shares, respectively, in cancellation of their higher
        priced options for the same number of shares.


                                       27
<PAGE>   30

OPTION GRANTS

        The following table sets forth, for the fiscal year ended June 30, 1999,
information concerning the grant of options to purchase shares of Common Stock
under the Company's 1995 Plan or 1997 Incentive Plan to the Named Executive
Officers. No stock appreciation rights were granted to any of the Named
Executive Officers during fiscal year 1999.

                    OPTION GRANTS IN YEAR ENDED JUNE 30, 1999

                                INDIVIDUAL GRANTS
                                -----------------
<TABLE>
<CAPTION>
                                        PERCENT OF                                 POTENTIAL REALIZABLE
                      NUMBER OF           TOTAL                                       VALUE AT ASSUMED
                     SECURITIES          OPTIONS        EXERCISE                   ANNUAL RATES OF STOCK
                     UNDERLYING         GRANTED TO       OF BASE                   PRICE APPRECIATION FOR
                       OPTIONS        EMPLOYEES IN       PRICE        EXPIRATION        OPTION TERM(7)
NAME                GRANTED(#)(1)    FISCAL 1999(5)     ($/SH)(6)        DATE          5%($)      10%($)
----                -------------    --------------     ---------        ----          -----      ------
<S>                 <C>              <C>                <C>           <C>          <C>        <C>
Andre de Fusco           2,286(2)         0.06%           6.75         8/1/05          9,705      24,594
                        52,000(2)         1.38%           6.75        9/18/05        220,742     559,404
                        20,000(2)         0.53%           6.75        12/3/07         84,901     215,155
                       300,000(2)         7.99%           8.38         7/1/08      1,581,041   4,006,669(8)
                       300,000(2)         7.99%           6.75         7/1/08      1,273,512   3,227,328

Mario Uribe            150,000            3.99%          11.13        2/23/09      1,049,940   2,660,753


Martin A. Woll         120,000            3.20%          12.95       12/28/08        977,302   2,476,676

Mike T. Zeile           90,000(3)         2.40%           8.75        7/13/08        495,255   1,255,072(8)
                        90,000(3)         2.40%           6.75        7/13/08        382,053     968,199

Alain Gravel            27,000(4)         0.72%           6.75        12/4/05        114,616     290,460
                        15,000(4)         0.40%           6.75        12/3/07         63,676     161,366
                        45,000            1.20%           5.38        9/10/08        152,255     385,845
</TABLE>

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

(1)     The options granted to the Named Executive Officers have a maximum term
        of 10 years measured from the option grant or, for any option granted in
        cancellation of a higher-priced option, measured from the original grant
        date of the cancelled higher-priced option, subject to earlier
        termination in the event of the optionee's cessation of service with the
        Company. The options are immediately exercisable (except for Mr. Uribe's
        options, which are installment options) with any unvested shares
        acquired under such option to be subject to repurchase by the Company,
        at the exercise price paid per share, upon termination of the optionee's
        service with the Company prior to vesting in those shares. The shares
        will vest according to the following schedule ("Standard Vesting
        Schedule"): twenty-four percent (24%) of the shares vest upon completion
        of one year following the vesting commencement date and the balance will
        vest at a rate of two percent (2%) per full month of employment
        thereafter. Mr. Uribe's options will become exercisable in installments
        in accordance with the Standard Vesting Schedule. All of the option
        shares will immediately vest in the event the Company is acquired by a
        merger or asset sale, unless the options are assumed by the acquiring
        entity.

(2)     Mr. de Fusco was granted (i) options for 2,286 shares on August 1, 1995,
        (ii) options for 52,000 shares on September 19, 1995, (iii) options for
        20,000 shares on December 3, 1997 and (iv) options for 300,000 shares on
        July 1, 1998 at exercise prices of $16.50, $13.00, $7.69 and $8.38,
        respectively. In connection with the Company's cancellation/regrant
        program on August 3, 1998, all such options were cancelled and regranted
        with an exercise price of $6.75 per share, the closing price of the
        Company's Common Stock. Accordingly, the net number of shares for which
        Mr. de Fusco was granted options during the 1999 fiscal year was
        374,286 shares.

(3)     Mr. Zeile was granted options for 90,000 shares on July 13, 1998 with at
        an exercise price of $8.75. In connection with the Company's
        cancellation/regrant program on August 3, 1998, such options were
        cancelled and regranted with an exercise price of $6.75 per share, the
        closing price of the Company's Common Stock. Accordingly, the net number
        of shares for which Mr. Zeile was granted options during fiscal year
        1999 was 90,000 shares.

(4)     Mr. Gravel was granted (i) options for 30,000 shares on December 5, 1995
        and (ii) options for 15,000 shares on December 3, 1997 and (iii) options
        for 45,000 shares on September 10, 1998 at exercise prices of $10.38 and
        $7.69 and $5.38, respectively. In connection with the Company's
        cancellation/regrant program on August 3, 1998, his pre-1998 options
        covering a total of 42,000 shares were cancelled and regranted with an
        exercise price of $6.75 per share, the closing price of the Company's
        Common Stock.


                                       28
<PAGE>   31

(5)     The Company granted new stock options for 2,021,858 shares and options
        for 1,733,278 shares were cancelled and regranted in connection with the
        cancellation/regrant program, for a total of 3,755,136 stock option
        grants in fiscal 1999. The percentages in the table above are based on
        3,755,136 stock options granted in fiscal 1999.

(6)     The exercise price may be paid in cash, in shares of Common Stock valued
        at fair market value on the exercise date or pursuant to a cashless
        exercise procedure. The Company may also finance the option exercise in
        loaning the optionee sufficient funds to pay the exercise price for the
        purchased shares.

(7)     There is no assurance provided to any executive officer or any other
        holder of the Company's securities that the actual stock price
        appreciation over the 10-year option term will be at the assumed 5% and
        10% levels or at any other defined level. Unless the market price of the
        Common Stock does in fact appreciate over the option term, no value will
        be realized from the option grants.

(8)     This option was cancelled in connection with the August 3, 1998
        cancellation/regrant program and is no longer outstanding.

OPTION EXERCISES AND HOLDINGS

        No Named Executive Officers exercised options during the fiscal year
ended June 30, 1999 and no stock appreciation rights were exercised during
fiscal year 1999 or outstanding as of June 30, 1999.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        The Board of Directors has a Compensation Committee, which administers
the Company's stock option plans. The members of the Compensation Committee are
Mr. William Ambrose, Brig. Gen. (ret.) Harold R. Johnson and Mr. Archibald J.
McGill. None of these individuals were at any time during the fiscal year ended
June 30, 1999 an officer or employee of the Company.

        The Board of Directors has an Audit Committee which supervises and makes
recommendations and decisions with respect to the periodic audits of the
Company's financial results. The members of the Audit Committee are Mr.
Archibald J. McGill, Mr. William Ambrose and Brig. Gen. (ret.) Harold R.
Johnson.

DIRECTOR COMPENSATION

        Each non-employee director (which does not include any director who
serves as representative of a stockholder who owns more than 5% of the Company's
voting securities) receives $6,000 annually for services as a member of the
Board of Directors. Non-employee directors are reimbursed for their
out-of-pocket expenses in serving on the Board of Directors. There are no family
relationships among any of the current executive officers or directors of the
Company.

        During the 1999 fiscal year, non-employee directors were eligible to
receive option grants under the Automatic Option Grant Program in effect under
the Company's 1997 Stock Incentive Plan. Accordingly, at the 1998 Annual
Stockholders Meeting held on November 30, 1998, each of the following
non-employee directors received an option grant under the Automatic Option Grant
Program for 7,000 shares of Common Stock with an exercise price of $10.25 per
share: Messrs. Ambrose, McGill, Gluck and Brig. Gen. (ret.) Johnson. In
addition, on October 19, 1998, the above named directors also received an option
grant under the Discretionary Option Grant Program under the Company's 1997
Stock Incentive Plan for 3,000 shares with an exercise price of $7.56 per share.
The exercise price in effect for each option is equal to the fair market value
per share of Common Stock on the grant date. Each option has a maximum term of
ten (10) years measured from the grant date, subject to earlier termination
following the optionee's cessation of Board service. Each option is immediately
exercisable for all of the option shares; however, any shares purchased under
the option will be subject to repurchase by the Company, at the option exercise
price paid per share, upon the optionee's cessation of Board service prior to
vesting in those shares. The shares subject to each 7,000 and 3,000 share grant
will vest on the day immediately preceding the date of the 1999 Annual Meeting,
provided the optionee continues in Board service through that date.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

        Under Section 145 of the Delaware General Corporation Law, the Company
can indemnify its directors and officers against liabilities they may incur in
such capacities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). The Company's Bylaws provide that the Company
will indemnify its directors and officers to the fullest extent permitted by law
and require the Company to advance litigation expenses upon receipt by the
Company of an undertaking by the director or officer to repay such advances if
it is ultimately determined that the director or officer is not entitled to
indemnification. The Bylaws further provide that rights conferred under such
Bylaws do not exclude any other right such persons may have or acquire under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

        The Company's Certificate of Incorporation provides that, pursuant to
Delaware Law, its directors shall not be liable for monetary damages for breach
of the directors' fiduciary duty of care to the Company and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the duty
of care, and in appropriate circumstances equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware Law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to the Company or its stockholders, for acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper



                                       29
<PAGE>   32
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.

        The Company has entered into agreements to indemnify its directors and
certain of its officers in addition to the indemnification provided for in the
Certificate of Incorporation and Bylaws. These agreements, among other things,
indemnify the Company's directors and certain of its officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by such person in any action or proceeding, including any action by or
in the right of the Company, on account of services as a director or officer of
the Company, or as a director or officer of any other company or enterprise to
which the person provides services at the request of the Company.



                                       30
<PAGE>   33

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 31, 1999 by (i)
each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers of the Company as a group:

<TABLE>
<CAPTION>
DIRECTORS, FIVE PERCENT STOCKHOLDERS, NAMED EXECUTIVE              SHARES BENEFICIALLY
OFFICERS AND DIRECTORS AND OFFICERS AS A GROUP                          OWNED (1)
--------------------------------------------------------      ------------------------------
                                                                     NUMBER      PERCENT
                                                                    ---------    -------
<S>                                                                 <C>          <C>
Gilder Gagnon Howe & Co. LLC (2)(3).....................            1,104,275     10.8%
        1775 Broadway, 26th Floor, New York, NY  10019

Paul Tudor Jones, II (2)(4).............................              729,400      7.1
        600 Steamboat Road, Greenwich, CT  06830

Dimensional Fund Advisors Inc. (2)(5)...................              579,600      5.7
        1299 Ocean Avenue, 11th Floor, Santa Monica,
        CA 90401

Andre de Fusco (6)......................................              407,504      4.0
Martin A. Woll (7)......................................              120,736      1.2
Alain Gravel (8)........................................               76,321       *
Mario Uribe (9).........................................               20,000       *
Mike T. Zeile (10)......................................               91,792       *
Brig. Gen. H. R. Johnson (11)...........................               17,000       *
William W. Ambrose (12).................................               59,155       *
Archibald J. McGill (13)................................               66,857       *
Frederick W. Gluck (14).................................               92,000       *
All directors and executive officers as a
  group (9 persons) (15)(16)...........................                951,365     9.3%

</TABLE>

-----------

 *      Less than 1%.

(1)     Unless otherwise indicated, the persons 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 and except as
        indicated in the other footnotes to this table. Beneficial ownership is
        determined in accordance with the rules of the Commission. 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 or
        warrants held by that person that are currently exercisable or
        exercisable within 60 days after August 31, 1999 are deemed outstanding.
        Such shares, however, are not deemed outstanding for the purpose of
        computing the percentage ownership of any other person..

(2)     Based upon information obtained from Forms 13G supplied to the Company
        by Gilder as of June 30, 1999, Dimensional as of February 11, 1999 and
        Tudor as of July 29, 1999.

(3)     Gilder Gagnon Howe & Co. LLC have shared dispositive power over the
        shares.

(4)     Paul Tudor Jones, II refers to the following persons with shared voting
        and dispositive power: The shares of Common Stock reported herein as
        beneficially owned are owned directly by Tudor BVI (182,500 shares), TPT
        (41,800 shares), Raptor L.P. (83,000 shares), Raptor Ltd. (382,200
        shares) and Upper Mill (39,900 shares). Because TIC is the sole general
        partner of Raptor L.P. and provides investment advisory services to
        Raptor Ltd., Raptor L.P., Tudor BVI and Upper Mill, TIC may be deemed to
        beneficially own the shares of Common Stock owned by each of such
        Reporting Persons. TIC expressly disclaims such beneficial ownership. In
        addition, because Mr. Jones is the controlling shareholder of TIC and
        the indirect controlling equity holder of TPT, Mr. Jones may be deemed
        to beneficially own the shares of Common Stock deemed beneficially owned
        by TIC and TPT. Mr. Jones expressly disclaims such beneficial ownership.

(5)     Dimensional Fund Advisors Inc.("Dimensional"), an investment advisor
        registered under Section 203 of the Investment Advisors Act of 1940,
        furnishes investment advice to four investment companies registered
        under the Investment Company Act of 1940, and serves as investment
        manager to certain other investment vehicles, including commingled group
        trusts. (These investment companies and investment vehicles are the
        "Portfolios"). In its role as investment advisor and investment manager,
        Dimensional possesses both voting and investment power over the


                                       31
<PAGE>   34
        securities of the Issuer described in this schedule that are owned by
        the Portfolios. All securities reported in this schedule are owned by
        the Portfolios, and Dimensional disclaims beneficial ownership of such
        securities.

(6)     Includes 401,000 shares issuable upon exercise of immediately
        exercisable options, of which 178,760 shares will be vested within 60
        days from August 31, 1999.

(7)     Includes 120,000 shares issuable upon exercise of immediately
        exercisable options, of which no shares will be vested within 60 days
        from August 31, 1999.

(8)     Includes 76,200 shares issuable upon exercise of immediately exercisable
        options, of which 42,900 shares will be vested within 60 days from
        August 31, 1999.

(9)     Mr. Uribe owns 20,000 shares which were acquired by him prior to his
        employment with the Company. No shares will be vested within 60 days
        from August 31, 1999.

(10)    Includes 90,000 shares issuable upon exercise of immediately exercisable
        options, of which 27,000 shares will be vested within 60 days from
        August 31, 1999.

(11)    Includes 17,000 shares issuable upon exercise of immediately exercisable
        options, of which 10,000 shares will be vested within 60 days from
        August 31, 1999.

(12)    Includes 25,155 shares beneficially owned by Stone Silo Investments. Mr.
        Ambrose, as sole owner of Stone Silo Investments, may be deemed to have
        beneficial ownership of these shares. Also includes 34,000 shares
        issuable upon exercise of immediately exercisable options, of which
        27,000 shares will be vested within 60 days from August 31, 1999.

(13)    Includes 66,857 shares issuable upon exercise of immediately exercisable
        options, of which 59,857 shares will be vested within 60 days from
        August 31, 1999.

(14)    Includes 92,000 shares issuable upon exercise of immediately exercisable
        options of which 46,840 shares will be vested within 60 days from August
        31, 1999.

(15)    Includes 25,155 shares owned by Stone Silo Investments and 20,000 owned
        by Mr. Uribe. Also includes an aggregate of 897,057 shares issuable to
        the Company's directors and executive officers upon the exercise of
        immediately exercisable options held by such directors and executive
        officers of which 392,357 shares will be vested within 60 days from
        August 31, 1999.

(16)    The business address for the Company's directors and executive officers
        is as follows: c/o ACT Networks, Inc., 26707 West Agoura Road,
        Calabasas, California 91302.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

NONE


                                       32
<PAGE>   35
                                     PART IV
                                     -------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

        (a)(1) FINANCIAL STATEMENTS:

               The Company's financial statements appear in a separate section
of this Annual Report on Form 10-K commencing on the pages referenced below:

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                                   <C>
        Report of Ernst & Young LLP, Independent Auditors                              F-1
        Consolidated Balance Sheets as of June 30, 1999 and 1998                       F-2
        Consolidated Statements of Operations for the years ended
          June 30, 1999, 1998 and 1997                                                 F-4
        Consolidated Statements of Stockholders' Equity for the years
          ended June 30, 1999, 1998 and 1997                                           F-5
        Consolidated Statements of Cash Flows for the years ended
          June 30, 1999, 1998 and 1997                                                 F-6
        Notes to Consolidated Financial Statements                                     F-8

        (2) FINANCIAL STATEMENT SCHEDULES:
</TABLE>

              The financial statement schedules of the Company are included in
a separate section of this Annual Report on Form 10-K commencing on the pages
referenced below. All other schedules have been omitted because they are not
applicable, not required, or the information is included in the financial
statements or notes thereto.

<TABLE>
<CAPTION>
                                                                                      PAGE
                                                                                      ----
<S>                                                                                   <C>
        SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS                               S-2
</TABLE>



                                       33
<PAGE>   36
        (3) EXHIBITS:
EXHIBIT
  NO.

3.1     Certificate of Incorporation of the Company. Incorporated by reference
        to Exhibit 3.1 to the Company's Registration Statement on Form S-1,
        Registration No. 33-90394

3.2     Bylaws of the Company. Incorporated by reference to Exhibit 3.2 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394

4.1     Specimen certificate representing shares of Common Stock of the Company.
        Incorporated by reference to Exhibit 4.1 to the Company's Registration
        Statement on Form S-1, Registration No. 33-90394.

4.2     Form of Warrant of the Company. Incorporated by reference to Exhibit 4.2
        to the Company's Registration Statement on Form S-1, Registration No.
        33-90394.

10.1    Master Lease Agreement dated January 11, 1994 by and between the Company
        and Leasetec Corporation, as amended and supplemented. Incorporated by
        reference to Exhibit 10.2 to the Company's Registration Statement on
        Form S-1, Registration No. 33-90394.

10.2    Form of Indemnification Agreement. Incorporated by reference to Exhibit
        10.6 to the Company's Registration Statement on Form S-1, Registration
        No. 33-90394.

10.3    1987 Stock Option Plan (the "1987 Plan"). Incorporated by reference to
        Exhibit 10.7 to the Company's Registration Statement on Form S-1,
        Registration No. 33-90394.

10.4    Form of Amended Notice of Grant of Stock Option with respect to holders
        of installment incentive stock options granted under the 1987 Plan.
        Incorporated by reference to Exhibit 10.8 to the Company's Registration
        Statement on Form S-1, Registration No. 33-90394.

10.5    Form of 1987 Installment Incentive Stock Option Agreement, Immediately
        Exercisable Stock Option Agreement and Immediately Exercisable
        Non-Qualified Stock Option Agreement generally used in connection with
        the 1987 Plan. Incorporated by reference to Exhibit 10.9 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394.

10.6    Form of 1987 Stock Purchase Agreement generally used in connection with
        the 1987 Plan. Incorporated by reference to Exhibit 10.10 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394.

10.7    1993 Stock Option Plan as amended (the "1993 Plan"). Incorporated by
        reference to Exhibit 10.11 to the Company's Registration Statement on
        Form S-1, Registration No. 33-90394.

10.8    Form of Notice of Grant of Stock Option generally used in connection
        with the 1993 Plan. Incorporated by reference to Exhibit 10.12 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394.

10.9    Form of 1993 Stock Option Agreement generally used in connection with
        the 1993 Plan. Incorporated by reference to Exhibit 10.13 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394.

10.10   Form of 1993 Stock Purchase Agreement generally used in connection with
        the 1993 Plan. Incorporated by reference to Exhibit 10.14 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394.

10.11*  Cooperation and Supply Agreement dated as of November 19, 1993 by and
        between StrataCom, Inc. and the Company. Incorporated by reference to
        Exhibit 10.15 to the Company's Registration Statement on Form S-1,
        Registration No. 33-90394.

10.12   Technical Information Escrow Agreement dated July 18, 1994 by and
        between StrataCom, Inc., the Indianapolis Vault Company and the Company.
        Incorporated by reference to Exhibit 10.16 to the Company's Registration
        Statement on Form S-1, Registration No. 33-90394.

10.13   1995 Stock Option/Stock Issuance Plan (the "1995 Plan"). Incorporated by
        reference to Exhibit 99.1 to the Company's Registration Statement on
        Form S-8, Registration No. 33-80007.

10.14   Form of Stock Option Agreement generally used in connection with the
        Discretionary Option Grant Program of the 1995 Plan. Incorporated by
        reference to Exhibit 99.3 to the Company's Registration Statement on
        Form S-8, Registration No. 33-80007.


                                       34
<PAGE>   37
10.15   Form of Addendum to Stock Option Agreement (Limited Stock Appreciation
        Right). Incorporated by reference to Exhibit 99.4 to the Company's
        Registration Statement on Form S-8, Registration No. 33-80007.

10.16   Form of Addendum to Stock Option Agreement (Involuntary Termination
        Following Change of Control). Incorporated by reference to Exhibit 99.5
        to the Company's Registration Statement on Form S-8, Registration No.
        33-80007.

10.17   Form of Addendum to Stock Option Agreement (Special Tax Elections).
        Incorporated by reference to Exhibit 99.6 to the Company's Registration
        Statement on Form S-8, Registration No. 33-80007.

10.18   Form of Automatic Stock Option Agreement. Incorporated by reference to
        Exhibit 99.9 to the Company's Registration Statement on Form S-8,
        Registration No. 33-80007.

10.19   Form of Stock Issuance Agreement generally used in connection with the
        Discretionary Option Grant Program of the 1995 Plan. Incorporated by
        reference to Exhibit 99.10 to the Company's Registration Statement on
        Form S-8, Registration No. 33-80007.

10.20   Form of Addendum to Stock Issuance Agreement (Involuntary Termination
        Following Change of Control). Incorporated by reference to Exhibit 99.11
        to the Company's Registration Statement on Form S-8, Registration No.
        33-80007.

10.21   Form of Addendum to Stock Issuance Agreement (Special Tax Elections).
        Incorporated by reference to Exhibit 99.12 to the Company's Registration
        Statement on Form S-8, Registration No. 33-80007.

10.22   Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.13
        to the Company's Registration Statement on Form S-8, Registration No.
        33-80007.

10.23   The Share Purchase Agreement By and Among the Company, Canada Inc. and
        Certain Presticom Stockholders, dated as of November 24, 1995.
        Incorporated by reference to Exhibit 2.1 to the Company's Current Report
        on Form 8-K, dated November 30, 1995.

10.24   1997 Non-Executive Officer Stock Option/Stock Issuance Plan as amended
        July 15, 1997. Incorporated by reference to Exhibit 99.1 to the
        Company's Registration Statement on Form S-8, Registration No.
        333-85845.

10.25   Form of Notice of Grant of Stock Option generally used in connection
        with 1997 Plan. Incorporated by reference to Exhibit 10.29 to the
        Company's Quarterly Report for the period ended March 31, 1997.

10.26   Form of Stock Option Agreement generally used in connection with 1997
        Plan Incorporated by reference to Exhibit 10.30 to the Company's
        Quarterly Report for the period ended March 31, 1997.

10.27   Form of Addendum to Stock Option Agreement. Incorporated by reference to
        Exhibit 10.31 to the Company's Quarterly Report for the period ended
        March 31, 1997.

10.28   The Asset Purchase Agreement by and between the Company and Sourcecom,
        Inc. dated as of July 16, 1997. Incorporated by reference to Exhibit 2.2
        to the Company's Current Report on Form 8-K dated August 11, 1997.

10.29   1997 Stock Incentive Plan. Incorporated by reference to Exhibit 99.1 to
        the Company's Registration Statement on Form S-8, Registration No.
        333-85845.

10.30   Form of Notice of Grant of Stock Option - Installment Option.
        Incorporated by reference to Exhibit 99.2 to the Company's Registration
        Statement on Form S-8, Registration No. 333-44087.

10.31   Form of Stock Option Agreement - Installment Option. Incorporated by
        reference to Exhibit 99.3 to the Company's Registration Statement on
        Form S-8, Registration No. 333-44087.

10.32   Notice of Grant of Stock Option - Immediately Exercisable Option.
        Incorporated by reference to Exhibit 99.4 to the Company's Registration
        Statement on Form S-8, Registration No. 333-44087.

10.33   Stock Option Agreement - Immediately Exercisable Option. Incorporated by
        reference to Exhibit 99.5 to the Company's Registration Statement on
        Form S-8, Registration No. 333-44087.

10.34   Form of Addendum to Stock Option Agreement (Limited Stock Appreciation
        Rights). Incorporated by reference to Exhibit 99.6 to the Company's
        Registration Statement on Form S-8, Registration No. 333-44087.


                                       35
<PAGE>   38
10.35   Form of Addendum to Stock Option Agreement (Involuntary Termination
        following Change in Control). Incorporated by reference to Exhibit 99.7
        to the Company's Registration Statement on Form S-8, Registration No.
        333-44087.

10.36   Stock Purchase Agreement. Incorporated by reference to Exhibit 99.8 to
        the Company's Registration Statement on Form S-8, Registration No.
        333-44087.

10.37   Addendum to Stock Purchase Agreement (Involuntary Termination following
        Change in Control). Incorporated by reference to Exhibit 99.9 to the
        Company's Registration Statement on Form S-8, Registration No.
        333-44087.

10.38   Automatic Notice of Initial Grant. Incorporated by reference to Exhibit
        99.10 to the Company's Registration Statement on Form S-8, Registration
        No. 333-44087.

10.39   Automatic Notice of Annual Grant. Incorporated by reference to Exhibit
        99.11 to the Company's Registration Statement on Form S-8, Registration
        No. 333-44087.

10.40   Automatic Stock Option Agreement. Incorporated by reference to Exhibit
        99.12 to the Company's Registration Statement on Form S-8, Registration
        No. 333-44087.

10.41   Office Lease dated April 15, 1999 by and between the Company and Malibu
        Canyon Office Partners, LLC.

10.42   Form of Notice of Grant of Stock Option - Option Grant to Mr. Uribe.
        Incorporated by reference to Exhibit 99.17 to the Company's Registration
        Statement on Form S-8, Registration No. 33-85845.

10.43   Form of Stock Option Agreement - Option Grant to Mr. Uribe. Incorporated
        by reference to Exhibit 99.18 to the Company's Registration Statement on
        Form S-8, Registration No. 333-85845.

21.1    List of Subsidiaries of the Company.

23.2    Consent of Ernst & Young LLP.

24.1    Power of Attorney (included on page 36).

27.1    Financial Data Schedule.

* The Company has received confidential treatment for portions of this document
  previously filed with the Commission.

        (b) REPORTS ON FORM 8-K:

            No reports on Form 8-K were filed during the quarter ended June 30,
            1999.


                                       36
<PAGE>   39

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Calabasas,
State of California, on September 19, 1999.

                                       ACT NETWORKS, INC.


                                       BY: /s/ ANDRE DE FUSCO
                                           -------------------------------------
                                           ANDRE DE FUSCO
                                           PRESIDENT AND CHIEF EXECUTIVE OFFICER


                                POWER OF ATTORNEY

We, the undersigned officers and directors of ACT Networks, Inc., do hereby
constitute and appoint Andre de Fusco and Martin A. Woll, and each of them, our
true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Report, and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or 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 each of said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on the
dates indicated:

Signature                 Title                               Date
---------                 -----                               ----


/s/ ANDRE DE FUSCO        President and Chief Executive       September 19, 1999
-----------------------   Officer
 Andre de Fusco


/s/ MARTIN A. WOLL        Vice President, Finance and Chief   September 19, 1999
-----------------------   Financial Officer (principal
 Martin A. Woll           financial officer)


/s/ ROBERT FAULK          Principal Accounting Officer        September 19, 1999
-----------------------
 Robert Faulk


/s/ WILLIAM W. AMBROSE    Director                            September 19, 1999
-----------------------
 William W. Ambrose


/s/ HAROLD R. JOHNSON     Director                            September 19, 1999
-----------------------
 Harold R. Johnson


/s/ ARCHIBALD J. MCGILL   Director                            September 19, 1999
-----------------------
 Archibald J. McGill


/s/ FREDERICK W. GLUCK    Director                            September 19, 1999
-----------------------
 Frederick W. Gluck


                                       37
<PAGE>   40
                         Report of Independent Auditors

Board of Directors
ACT Networks, Inc.

We have audited the accompanying consolidated balance sheets of ACT Networks,
Inc. as of June 30, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended June 30, 1999. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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 ACT Networks, Inc.
at June 30, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended June 30, 1999, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

                                         ERNST & YOUNG LLP

Woodland Hills, California
July 26, 1999

                                      F-1

<PAGE>   41

                               ACT Networks, Inc.

                           Consolidated Balance Sheets
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                 June 30
                                                            1999         1998
                                                          -------      -------
<S>                                                       <C>          <C>
ASSETS
Current assets:
   Cash and cash equivalents                              $33,850      $35,018
   Marketable securities                                   17,613       11,607
   Accounts receivable, less allowances of
     $2,440 in 1999 and $2,030 in 1998                     18,309       17,226
   Inventory                                                9,613        8,829
   Prepaids and other current assets                          582        1,786
                                                          -------      -------
Total current assets                                       79,967       74,466
                                                          -------      -------
Plant, equipment and other improvements:
   Machinery and equipment                                  7,696        6,288
   Furniture and fixtures                                   1,318          992
   Computer software                                        2,145        1,822
   Leasehold improvements                                     787          672
                                                          -------      -------
                                                           11,946        9,774
Accumulated depreciation and amortization                   8,310        6,031
                                                          -------      -------
                                                            3,636        3,743

Goodwill and other intangibles                              1,769        2,574
Other assets                                                  269           55
                                                          -------      -------
Total assets                                              $85,641      $80,838
                                                          =======      =======
</TABLE>

                                      F-2
<PAGE>   42

                               ACT Networks, Inc.

                     Consolidated Balance Sheets (continued)
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                June 30
                                                          1999            1998
                                                         ------          ------
<S>                                                      <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                      $6,898          $4,538
   Accrued payroll and related benefits                   1,192           1,743
   Restructuring cost                                        --             750
   Other accrued liabilities                                567           1,225
   Deferred income taxes                                     65              65
                                                        -------         -------
Total current liabilities                                 8,722           8,321

Commitments and contingencies                                --              --

Stockholders' equity:

   Common stock and additional paid-in capital;
     $.001 par value:
       Authorized -- 40,000
       Issued --  10,397  at June 30, 1999 and
          9,402 at June 30, 1998                        108,680         101,067
   Treasury stock,  at cost 214  shares at
     June 30, 1999 and 1998                              (2,402)         (2,402)
   Accumulated deficit                                  (29,059)        (25,933)
   Accumulated other comprehensive loss                    (300)           (215)
                                                        -------         -------
Total stockholders' equity                               76,919          72,517
                                                        -------         -------
Total liabilities and stockholders' equity              $85,641         $80,838
                                                        =======         =======
</TABLE>

                            See accompanying notes.

                                      F-3
<PAGE>   43

                               ACT Networks, Inc.

                      Consolidated Statements of Operations
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                      Years ended June 30

                                              1999           1998           1997
                                             -------        -------        -------
<S>                                          <C>            <C>            <C>
Net sales                                    $54,322        $54,964        $49,173
Cost of goods sold                            24,412         29,900         21,431
                                             -------        -------        -------
    Gross profit                              29,910         25,064         27,742
                                             -------        -------        -------
Operating expenses:
   Research and development                   12,887         16,349          8,344
   Sales and marketing                        13,961         15,984         11,115
   General and administrative                  7,925          8,935          5,291
   In process research and development            --          6,750          3,416
   Impairment and restructuring                  607          3,393             --
                                             -------        -------        -------
Total operating expenses                      35,380         51,411         28,166
                                             -------        -------        -------
Loss from operations                          (5,470)       (26,347)          (424)

Other:
   Gain on sale of investment                    120          4,704             --
   Interest and other income, net              2,260          2,426          3,346
   Interest expense                               --             (7)           (19)
                                             -------        -------        -------
                                               2,380          7,123          3,327
                                             -------        -------        -------
Income (loss) before income taxes             (3,090)       (19,224)         2,903
Provision for income taxes                        36            157          1,420
                                             -------        -------        -------
Net income (loss)                            $(3,126)      $(19,381)        $1,483
                                             =======        =======        =======
Earnings (loss) per share:
   Basic                                      $(0.32)        $(2.11)         $0.16
   Diluted                                    $(0.32)        $(2.11)         $0.15
                                             =======        =======        =======
Shares used in computation of earnings
   (loss) per share:
   Basic                                       9,644          9,170          9,184
   Diluted                                     9,644          9,170          9,973
                                             =======        =======        =======
</TABLE>

                            See accompanying notes.


                                      F-4
<PAGE>   44

                               ACT Networks, Inc.

                 Consolidated Statements of Stockholders' Equity
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                             Paid-In Capital                             Other
                                             Common Stock     in Excess of    Treasury  Accumulated  Comprehensive
                                           Shares   Amount      Par Value       Stock     Deficit    Income (Loss)   Total
                                           ------   ------   ---------------  --------  -----------  ------------- --------
<S>                                        <C>      <C>      <C>              <C>       <C>          <C>           <C>
Balance at June 30, 1996                    9,117    $   9       $ 98,166      $  --      $ (8,035)     $   --     $ 90,140
                                                                                                                   --------
Comprehensive income
   Net income                                  --       --             --         --         1,483          --        1,483
   Other comprehensive income,
     net of tax,
       Foreign currency translation
         adjustment                            --       --             --         --            --           2            2
                                                                                                                   --------
    Comprehensive income                       --       --             --         --            --          --        1,485
                                                                                                                   --------
   Exercise of options to purchase
     common stock and employee stock
     purchases                                131       --          1,273         --            --          --        1,273
   Shares issued in connection with
     acquisition                               23       --            640         --            --          --          640
                                            -----    -----        -------      -----      --------      ------     --------
Balance at June 30, 1997                    9,271        9        100,079         --        (6,552)          2       93,538
                                                                                                                   --------
Comprehensive loss
       Net loss                                --       --             --         --       (19,381)         --      (19,381)
   Other comprehensive loss, net of tax,
     Foreign currency translation
       adjustment                              --       --             --         --            --        (312)        (312)
     Unrealized gains on marketable
       securities                              --       --             --         --            --          95           95
                                                                                                                   --------
         Total other comprehensive loss        --       --             --         --            --          --         (217)
                                                                                                                   --------
    Comprehensive loss                         --       --             --         --            --          --      (19,598)
   Exercise of options to purchase
     common stock and employee stock
     purchases                                108       --            613         --            --          --          613
   Exercise of Warrants                        23       --            235         --            --          --          235
   Stock option compensation                   --       --            131         --            --          --          131
   Treasury stock purchased                  (214)      --             --     (2,402)           --          --       (2,402)
                                            -----    -----        -------      -----      --------      ------     --------
Balance at June 30, 1998                    9,188        9        101,058     (2,402)      (25,933)       (215)      72,517
                                            =====    =====        =======     ======      ========      ======     ========
</TABLE>

                                      F-5
<PAGE>   45

                               ACT Networks, Inc.

           Consolidated Statements of Stockholders' Equity (continued)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                                      Accumulated
                                                             Paid-In Capital                             Other
                                             Common Stock     in Excess of    Treasury  Accumulated  Comprehensive
                                           Shares   Amount      Par Value       Stock     Deficit        Income      Total
                                           ------   ------   ---------------  --------  -----------  ------------- --------
<S>                                        <C>      <C>      <C>              <C>       <C>          <C>           <C>
Balance at June 30, 1998                    9,188        9        101,058     (2,402)      (25,933)       (215)      72,517
                                                                                                                    -------
Comprehensive loss
   Net loss                                    --      --              --         --        (3,126)         --       (3,126)
   Other comprehensive loss,
       net of tax,
     Foreign currency translation
       adjustment                              --       --             --         --            --          10           10
     Unrealized gains on marketable
       securities                              --       --             --         --            --         (95)         (95)
                                                                                                                    -------
         Total other comprehensive
           loss                                --       --             --         --            --          --          (85)
                                                                                                                    -------
    Comprehensive loss                         --       --             --         --            --          --       (3,211)

   Exercise of options to purchase
     common stock and employee
     stock purchases                          995        1          7,612         --            --          --        7,613
                                           ------    -----       --------    -------      --------       -----      -------
Balance at June 30, 1999                   10,183    $  10       $108,670    $(2,402)     $(29,059)      $(300)     $76,919
                                           ======    =====       ========    =======      ========       =====      =======
</TABLE>


                            See accompanying notes.

                                      F-6
<PAGE>   46

                               ACT Networks, Inc.
                      Consolidated Statements of Cash Flows

                                 (in thousands)
<TABLE>
<CAPTION>

                                                                              Years ended June 30
                                                                   1999             1998             1997
                                                                  -------         --------           ------
<S>                                                               <C>             <C>                <C>
OPERATING ACTIVITIES
Net income (loss)                                                 $(3,126)        $(19,381)          $1,483
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:

     Depreciation                                                   2,299            2,436            1,571
     Amortization of intangible assets                                700            1,210              756
     Non-cash charges for warrants and stock options                   --              366               --
     Gain on sale of investment                                      (120)          (4,704)              --
     Provision for bad debt                                         1,406            1,712                6
     Provision for deferred taxes                                      --              (22)               9
     Impairment  and restructuring charges                             --            3,393               --
     Write-off of in-process research and development                  --            6,750            3,416
     Changes in operating assets and liabilities:

       Accounts receivable                                         (2,489)          (4,146)          (4,723)
       Inventory                                                     (784)           3,734           (3,285)
       Prepaids and other current assets                            1,204           (1,241)             196
       Accounts payable, accrued expenses,  other current
         liabilities and income taxes payable                         401              989            3,303
                                                                  -------         --------           ------
Net cash provided by (used in) operations                            (509)          (8,904)           2,732
INVESTING ACTIVITIES
Purchase of marketable securities                                 (23,537)         (18,727)         (13,744)
Sales at maturity of  marketable securities                        17,436           17,807            3,153
Sale (purchase) of long-term investment                               120            6,699           (1,995)
Purchase of plant, equipment and other fixed assets                (2,081)          (2,434)          (3,163)
Acquisition of DeltaComm Corp., net of cash acquired                   --               --             (262)
Acquisition of Dynastar product line                                   --               --           (6,794)
Acquisition of certain assets of SourceCom                             --           (8,390)              --
Increase in other assets                                             (220)            (142)            (329)
                                                                  -------         --------           ------
Net cash used in investing activities                              (8,282)          (5,187)         (23,134)

FINANCING ACTIVITIES
Exercise of stock warrants and options                              7,613              613            1,273
Repurchase of treasury shares                                          --           (2,402)              --
Repayment of notes payable                                             --               --             (297)
                                                                  -------         --------           ------
Net cash provided by (used in) financing activities                 7,613           (1,789)             976
Net impact of foreign exchange rate changes on cash                    10              (50)              --
                                                                  -------         --------           ------
Net (decrease) increase in cash                                    (1,168)         (15,930)         (19,426)
Cash and cash equivalents at beginning of year                     35,018           50,948           70,374
                                                                  -------         --------           ------
Cash and cash equivalents at end of year                          $33,850          $35,018          $50,948
                                                                  =======         ========          =======
</TABLE>

                                      F-7
<PAGE>   47

                               ACT Networks, Inc.

                Consolidated Statements of Cash Flows (continued)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                     Years ended June 30
                                                              1999          1998           1997
                                                             ------        ------         ------
<S>                                                          <C>           <C>            <C>
Supplemental cash flow information:
   Interest and income taxes paid during the year:
     Interest                                                $   --            $7            $19
     Income taxes                                               $36        $2,103           $173

Non-cash investing and financing activities:
  Acquisition of certain assets of
       SourceCom:
     Fair market value of assets (including goodwill)
       acquired                                              $             $1,640           $ --
     Estimated value of in-process research &
       development                                                          6,750             --
                                                             ------        ------         ------
                                                                            8,390             --
   Acquisition of DeltaComm Corporation:
     Fair market value of assets (including
     goodwill) acquired                                          --            --            374
     Estimated value of in-process research and
       development                                               --            --            701
     Fair market value of liabilities assumed                    --            --           (158)
     Issuance of stock                                           --            --           (640)
     Cash acquired                                               --            --            (15)
                                                             ------        ------         ------
                                                                 --            --            262
   Acquisition of Dynastar product line:
     Fair market value of assets (including
       intangibles) acquired                                     --            --          4,353
     Estimated value of in-process research
       and development                                           --            --          2,715
     Liabilities assumed                                         --            --           (274)
                                                             ------        ------         ------
                                                                 --            --          6,794

                                                             $   --        $8,390         $7,056
                                                             ======        ======         ======
</TABLE>

                            See accompanying notes.


                                      F-8
<PAGE>   48

                               ACT Networks, Inc.

                   Notes to Consolidated Financial Statements


1.   SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND OPERATIONS

ACT Networks, Inc. (the Company) was incorporated in California on May 15, 1987
and reincorporated in Delaware in March 1995. The Company develops, manufactures
and markets integrated wide-area network (WAN) access products which support a
broad range of integrated voice and data network applications. The Company's
products utilize advanced voice and data compression algorithms, enhanced
switching and traffic management capabilities, and proprietary integration
technologies to build cost-effective, bandwidth efficient WANs.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation. Results of operations include
operations of subsidiaries from the date of acquisition.

CASH EQUIVALENTS

The Company considers cash equivalents to be only those investments which are
highly liquid, readily convertible to cash and which mature within three months
from date of purchase. Cash equivalents are carried at cost which approximates
fair market value and are considered available-for-sale as defined in Statement
of Financial Accounting Standards ("SFAS") No. 115.

MARKETABLE SECURITIES

The Company classifies its investments in marketable securities as
available-for-sale and, accordingly, records them at fair value. These
investments, consist primarily of corporate investment-grade bonds and
commercial paper. The contractual maturities of all the Company's marketable
securities are less than one year at June 30, 1999. The cost of securities sold
is based on the specific identification method.

                                      F-9
<PAGE>   49


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


1.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


CONCENTRATION OF CREDIT RISKS AND SIGNIFICANT CUSTOMERS

Accounts receivable consist primarily of amounts due from various original
equipment manufacturers, end users and distributors. Although, the Company does
not require collateral, it performs periodic credit evaluations and analysis of
amounts due from its customers. In addition, the Company carries credit
insurance on certain foreign receivables, subject to certain limits.

INVENTORY

Inventory is stated at the lower of cost (first-in, first-out method) or market.

PLANT, EQUIPMENT AND OTHER IMPROVEMENTS

Plant, equipment and other improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets or, if shorter for leasehold improvements, the
remaining lease term, which vary from three to seven years.

GOODWILL AND OTHER INTANGIBLES

Goodwill and other intangibles of $1,769,000 and $2,574,000 at June 30, 1999 and
1998 are net of accumulated amortization of $2,346,000 and $1,646,000,
respectively, and consist primarily of goodwill and developed technology
acquired in the Company's acquisitions. Goodwill represents the excess of the
purchase price over the estimated fair market value of net assets acquired in
business combinations and is being amortized over 7 years. Acquisition
intangibles represent the fair market valuation of intangibles acquired in
business combinations and are being amortized over 5 to 7 years. Other
intangible assets include software licensing agreements which are being
amortized over 3 to 5 years. Intangible assets were significantly written down
in 1998 as a part of the Company's restructuring (see Note 10).

LONG-LIVED ASSETS

Long-lived assets, such as plant, equipment and intangibles, are reviewed for
impairment whenever events or changes in circumstances indicate that the net
book value of these assets may not be recoverable (See Note 12).

                                      F-10
<PAGE>   50

                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


1.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING FOR INCOME TAXES

Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.

REVENUE RECOGNITION

The Company recognizes revenues from product sales upon shipment. The Company's
products are generally under warranty against defects and are sold with
provisions for certain levels of continuing customer support. The amounts of any
potential warranty costs or other customer support costs are estimated and
provided for in the period of sale.

CREDITS

The Company receives foreign credits from Canada and the Province of Quebec
related to research and development expenditures made by its Canadian
subsidiary. These amounts are reflected as a reduction of research and
development expense in the Company's statement of operations. Amounts receivable
as of June 30, 1999 and 1998 of such credits and grants amounted to $163,000 and
$63,000, respectively. For the years ended June 30, 1999, 1998 and 1997,
$184,000, $159,000 and $77,000, respectively, of these credits and grants were
reflected as a reduction of research and development expense in the accompanying
statement of operations.

EFFECT OF FOREIGN CURRENCY

The Company translates the assets and liabilities of its foreign subsidiaries at
the rate of exchange in effect at the period end. Revenues and expenses are
translated using an average of exchange rates in effect during the period.
Translation adjustments are recorded as a component of stockholders' equity in
the consolidated balance sheet.

                                      F-11
<PAGE>   51

                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


1.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EARNINGS (LOSS) PER SHARE

"Basic earnings (loss) per share" is based upon the weighted average number of
common shares outstanding. "Diluted earnings (loss) per share" is based upon the
weighted average number of common shares and dilutive potential common shares
outstanding. Potential common shares are outstanding stock options under the
Company's stock option plans which are included under the treasury stock method.

STOCK OPTION AND PURCHASE PLANS

The Company's stock option and purchase plans are accounted for under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" (see Note 8).

SEGMENT INFORMATION

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers, presented in
Notes 4 and 10. Based on the provisions of SFAS 131 and the manner in which
management analyzes the business, the Company has determined that it does not
have separately reportable operating segments. 1.

                                      F-12
<PAGE>   52

                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Software for Internal Use" (SOP 98-1), which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 is not
expected to have a material impact on the Company's financial condition or
results of operations. To date the Company has not incurred significant costs
developing internal-use software which would be capitalizable.

In June 1998 and June 1999, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" and SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133,"respectively. These Statements require companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS 137 is effective for fiscal years beginning
after June 15, 1999. The adoption of SFAS 137 is not expected to have a material
impact on the Company's financial condition or results of operations.

USE OF 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 may differ from those estimates.

                                      F-13
<PAGE>   53


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


2.   BUSINESS AND ASSET ACQUISITIONS

On August 10, 1997, the Company acquired, out of bankruptcy court, certain
assets of SourceCom, a Massachusetts corporation ("SourceCom"). SourceCom is a
developer of high performance broadband access devices. The cash purchase price
paid by the Company was approximately $8,000,000. The Company also recorded
transaction costs of approximately $390,000.The acquired assets were recorded at
their estimated fair market values at the date of acquisition. Of the total
purchase price for the assets acquired, $6,750,000 represented the value of
in-process research and development that had not yet reached technological
feasibility and was charged to the Company's operations and $1,090,000
represented other intangibles being amortized over 5 years (see Note 12). The
fair market value of the in-process research and development and other
intangibles was determined by an independent appraiser. Pro forma financial
information is not presented because the transaction was only an acquisition of
certain assets, primarily technology, with no relative historical operating
results and, therefore, pro forma financial information would not be meaningful.

On March 11, 1997, the Company acquired the DynaStar family of products from
Dynatech Communications, Inc. The DynaStar product line is a family of compact,
flexible, integrated multi-service access switch connectivity products that
support extensive multi protocol WAN connections including TCP/IP, PPP, Frame
Relay, X.25 and ATM. The cash purchase price paid by the Company was $6,444,000.
The Company assumed approximately $274,000 of debt and recorded transaction
expenses of approximately $350,000.

The acquisition was accounted for under the purchase method of accounting and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair market values at the date of acquisition. DynaStar's operating
results have been included in the Company's consolidated financial statements
since the acquisition date of March 11, 1997. The purchase price plus costs
directly attributable to the completion of the acquisition have been allocated
to the assets and liabilities acquired. Of the total purchase price, $2,715,000
represented the value of in-process research and development that had not yet
reached technological feasibility and was charged to the Company's operations
and $2,221,000 represented other intangibles being amortized over 5 years (see
Note 12). The fair market value of the in-process research and development and
other intangibles was determined by an independent appraiser. Pro forma
financial information is not presented because the pro forma effect of the
transaction is not considered material to the Consolidated Statements of
Operations.

                                      F-14
<PAGE>   54


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


2.   BUSINESS AND ASSET ACQUISITIONS (CONTINUED)

On December 16, 1996, the Company acquired all the issued and outstanding shares
of DeltaComm Corporation, an Arizona corporation ("DeltaComm"). DeltaComm is a
developer of bandwidth-efficient modems with expertise in the satellite
communication industry. The Company paid $158,000 in cash and issued 23,000
shares of common stock of the Company with an estimated fair market value of
$640,000. The Company assumed $158,000 of liabilities. Transaction costs were
approximately $104,000.

The acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities were recorded at their estimated fair market values at
the date of acquisition. DeltaComm's operating results have been included in the
Company's consolidated financial statements since the acquisition date of
December 16, 1996. The purchase price plus costs directly attributable to the
completion of the acquisition have been allocated to the assets and liabilities
acquired. Approximately $701,000 of the total purchase price represented the
value of in-process research and development that had not yet reached
technological feasibility and was charged to the Company's operations. Pro forma
financial information is not presented because the pro forma effect of the
transaction is not considered material to the Consolidated Statements of
Operations.

3.   MARKETABLE SECURITIES

Marketable securities had a cost basis of $17,613,000 and $11,512,000,
unrealized gain of $0 and $95,000, and a fair value of $17,613,000 and
$11,607,000 as of June 30, 1999 and 1998, respectively.

In March 1999, the Company sold its interest in a joint venture investment,
previously written off, for proceeds and gain of $120,000. In March 1998, the
Company sold its investment in common stock of Netspeak with a cost basis of
$1,995,000 for gross proceeds of $6,699,000, realizing a gain of $4,704,000.
There were no other material realized gains or losses relating to marketable
securities during the years ended June 30, 1999 and 1998.

4.   ACCOUNTS RECEIVABLE AND SALES TO MAJOR CUSTOMERS

Included in accounts receivable at June 30, 1999 and 1998 are $11,827,000 and
$11,019,000, respectively, of amounts due from foreign customers.

The three largest accounts receivable from individual customers represented
22.3%, 8.0% and 8.0% at June 30, 1999 and 19.6%, 4.7% and 4.2% at June 30, 1998
of total accounts receivable, respectively.

                                      F-15
<PAGE>   55


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


4.   ACCOUNTS RECEIVABLE AND SALES TO MAJOR CUSTOMERS (CONTINUED)

Sales to two customers represented 12.9% and 10.0%, respectively, of total sales
for 1999, sales to one customer represented 12.3% of total sales for 1998, and
sales to one customer represented 11.5% of total sales for 1997.

5.   INVENTORY

Inventory consisted of the following components (in thousands):

<TABLE>
<CAPTION>
                                                                  June 30,
                                                          -----------------------
                                                            1999            1998
                                                          -------         -------
<S>                                                       <C>             <C>
Purchased parts                                           $ 2,076         $ 3,643
Sub-assemblies and finished goods                           7,537           5,186
                                                          -------         -------
                                                          $ 9,613         $ 8,829
                                                          =======         =======
</TABLE>


6.   INCOME TAXES

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                          Years ended June 30,
                                              ----------------------------------------
                                               1999            1998              1997
                                              ------          ------            ------
<S>                                           <C>             <C>               <C>
Current:
   Federal                                    $   --          $   --            $   60
   State                                          --              10                20
   Foreign                                        36             169             1,331
                                                ----           -----           -------
                                                  36             179             1,411
Deferred:
   Federal                                        --              --                --
   State                                          --              --                --
   Foreign                                        --             (22)                9
                                                ----           -----           -------
                                                  --             (22)                9
                                                $ 36           $ 157           $ 1,420
                                                ====           =====           =======
</TABLE>


The Company's foreign and domestic operations had income (loss) before income
taxes and eliminations of $(316,000) and $(2,570,000) for the year ended June
30, 1999, $491,000 and $(19,623,000) for the year ended June 30, 1998 and
$3,987,000 and $(1,134,000) for the year ended June 30, 1997.

                                      F-16
<PAGE>   56


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


6.   INCOME TAXES (CONTINUED)

A reconciliation of the statutory federal income tax rate to the effective tax
rate, as a percentage of income before tax, is as follows:

<TABLE>
<CAPTION>
                                                        Years ended June 30,
                                               1999           1998          1997
                                               ----           ----          ----
<S>                                            <C>            <C>            <C>
Statutory federal income tax (benefit)
  rate                                         (34)%          (34)%          34%
Amortization of goodwill                         5              1             4
Change in valuation allowance                   29             33             8
Foreign income taxes                             1              1            --
Other                                           --             --             3
                                               ----           ----          ----
                                                 1%             1%           49%
                                               ----           ----          ----
</TABLE>


The tax provision for the year ended June 30, 1997 included the application of
net operating loss carryforwards which generated tax benefits of approximately
$848,000.

                                      F-17
<PAGE>   57


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


6.   INCOME TAXES (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 June 30
                                                          1999             1998
                                                        --------         --------
<S>                                                     <C>              <C>
Deferred tax assets:
   Allowance for losses on receivables                  $    781         $    778
   Vacation accruals                                         104              245
   Depreciation                                              904              320
   Inventory                                                 720            1,905
   Intangibles                                             4,210            4,448
   Net operating loss carryforwards                        7,032            2,852
   Research and development credit carryforwards           2,888            1,601
   Other accruals                                            294              503
                                                        --------         --------
Total deferred tax assets                               $ 16,933         $ 12,652
                                                        --------         --------
Deferred tax liabilities:
   Unicap adjustment                                          --              (57)
   Software development costs                                (27)             (27)
   License fee                                               (39)             (70)
   Prepaid insurance                                         (24)             (81)
   Federal benefit from State                               (739)            (525)
                                                        --------         --------
Total deferred tax liabilities                              (829)            (760)
                                                        --------         --------
Net deferred tax assets                                   16,104           11,892
Valuation allowance                                      (16,104)         (11,892)
Foreign deferred tax liabilities                             (65)             (65)
                                                        --------         --------
                                                        $    (65)        $    (65)
                                                        ========         ========
</TABLE>


The net change in the valuation allowance for net deferred tax assets during the
year ended June 30, 1999 was approximately $4,212,000.

                                      F-18
<PAGE>   58


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


6.   INCOME TAXES (CONTINUED)

At June 30, 1999, the Company has net operating loss carryforwards for federal
and state tax purposes of approximately $19,704,000 and $7,524,000,
respectively, which expire in 2014 for federal and 2004 for state. The Company
has research and development credit carryforwards of $1,835,000 and $1,052,000
for federal and state tax purposes, respectively that expire through 2013 for
federal and state.

Included in the valuation allowance balance is $4,776,000 related to the
exercise of stock options which are not reflected as an expense for financial
reporting purposes. Accordingly, any future reduction in the valuation allowance
relating to this amount will be credited directly to equity and not reflected as
an income tax benefit in the statement of operations.

The Company intends to reinvest the foreign subsidiary's net earnings in the
subsidiary's local operations. Accordingly, U.S. taxes have not been provided
for such earnings.

7.   COMMITMENTS & CONTINGENCIES

The Company leases its offices, manufacturing facility and certain equipment
under noncancelable operating lease agreements. The office and manufacturing
facility leases are subject to annual increases based on the Consumer Price
Index. Future minimum lease payments are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
<S>                                                             <C>
       2000                                                     $ 1,376
       2001                                                       1,282
       2002                                                       1,203
       2003                                                       1,151
       2004                                                       1,104
                                                                -------
                                                                $ 6,116
                                                                =======
</TABLE>


Rental expense under operating leases was $1,966,000, $1,429,000 and $668,000
for the years ended June 30, 1999, 1998 and 1997, respectively.

The Company is involved in certain claims and legal proceedings which arise in
the normal course of business. Management does not believe that the outcome of
any of these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

                                      F-19
<PAGE>   59


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


8.   STOCKHOLDERS' EQUITY

STOCK OPTION AND PURCHASE PLANS

The Company's stock option plans provide for option grants designated as either
nonqualified or incentive stock options. Options granted under all stock option
plans generally carry an exercise price of not less than the fair market value
of the underlying shares as of the date of the option grant and expire after ten
years. The Company executes individual option agreements under the stock option
plans and the shares underlying the options generally become vested at 24% of
the total grant after the completion of the first 12 full months of employment
and 2% per month thereafter. Certain terms of options held by the Company's
then-Chairman of the Board and Chief Executive Officer were modified giving rise
to a non-cash compensation charge of $131,000 for the year ended June 30, 1998.

At June 30, 1999, the Company has authorized a total of 2,779,000 shares of
common stock for issuance under the 1995 stock option/stock issuance plan (the
1995 Plan), 950,000 shares under the 1997 Non-Executive Officer Stock
Option/Stock Issuance Plan (the 1997 Plan), 660,000 shares under the 1997 Stock
Incentive Plan (the "1997 Incentive Plan"), and 150,000 shares under the option
grant for Mario Uribe. At June 30, 1999, 7,000 shares remain available for grant
and 1,383,000 are reserved for issuance upon the exercise of outstanding options
and options available for grant under the 1995 Plan, 12,000 shares remain
available for grant and 885,000 shares are reserved for issuance upon the
exercise of outstanding options under the 1997 Plan, 22,000 shares remain
available for grant and 502,000 shares are reserved for issuance upon the
exercise of outstanding options under the 1997 Incentive Plan, and no shares
remain available for grant and 150,000 shares are reserved for issuance upon the
exercise of outstanding options under the option grant for Mario Uribe.

On August 3, 1998, the Company implemented an option cancellation/regrant
program for directors, executive officers and other employees holding stock
options with an exercise price per share in excess of the market price of the
Company's Common Stock at the time the cancellation/regrant occurred. Stock
options of 1,724,798 with an exercise price in excess of $ 6.75 per share were
canceled and new options for the same aggregate number of shares were granted
with an exercise price of $ 6.75 per share.

                                      F-20
<PAGE>   60

                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


8.   STOCKHOLDERS' EQUITY (CONTINUED)

On June 10, 1997, the Company's Board of Directors implemented a
cancellation/regrant program for options issued under the 1995 plan, whereby
holders of certain stock options were offered the opportunity to cancel certain
existing options and receive a grant of a new option to purchase the same number
of unexercised shares with an exercise price equal to the then market price of
ACT common stock.

The following is a summary of all stock option activity for the three years
ended June 30, 1999:

<TABLE>
<CAPTION>
                                                                EXERCISE          WEIGHTED
                                               NUMBER OF        PRICE PER          AVERAGE
                                                SHARES            SHARE         EXERCISE PRICE
                                               ---------      ------------      --------------
<S>                                           <C>             <C>                <C>
Outstanding at June 30, 1996                   1,422,000      $ .70-$23.88        $   0.67
   Granted                                     1,745,000       11.00-35.00           21.97
   Canceled                                     (936,000)        .70-35.00           26.00
   Exercised                                    (110,000)        .70-17.25            8.10
                                               ---------      ------------        --------
Outstanding at June 30, 1997                   2,121,000         .70-35.00           13.33
   Granted                                     1,256,000        7.06-14.56           10.31
   Canceled                                     (665,000)       1.75-35.00           15.91
   Exercised                                     (51,000)        .70-12.13            2.43
                                               ---------      ------------        --------
Outstanding at June 30, 1998                   2,661,000         .70-27.50           11.47
   Granted                                     3,756,000        5.38-23.88            8.72
   Canceled                                   (2,621,000)        .70-25.50           11.41
   Exercised                                    (916,000)        .70-16.63            7.57
                                               ---------      ------------        --------
Outstanding at June 30, 1999                   2,880,000      $ .70-$27.50        $   9.17
                                               =========      ============        ========
</TABLE>


At June 30, 1999, stock options to purchase 1,246,000 shares were exercisable at
a weighted average price of $7.73. Information regarding stock options
outstanding as of June 30, 1999 is as follows:

                                      F-21
<PAGE>   61


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


8.   STOCKHOLDERS' EQUITY (CONTINUED)


<TABLE>
<CAPTION>
                                   Options Outstanding                              Options Exercisable
                     -------------------------------------------------           --------------------------
                                                            Weighted-
                                        Weighted-            Average                              Weighted-
                                        Average             Remaining                              Average
                                        Exercise           Contractual                             Exercise
 Price Range          Shares             Price                Life               Shares             Price
------------         ---------          ---------          -----------          ---------         ---------
<S>                  <C>                <C>                <C>                  <C>               <C>
Under $10.00         1,856,000            6.43                 8.4              1,039,000            6.36
 Over $10.00         1,024,000           14.15                 9.5                207,000           14.64
</TABLE>


Fair Value Disclosures

Stock option grants are set at the closing price of the Company's common stock
on the date of grant and the related number of shares granted are fixed at that
point in time. Therefore under the principles of APB Opinion No. 25, the Company
does not recognize compensation expense associated with the grant of stock
options. SFAS No. 123, "Accounting for Stock-Based Compensation", requires the
use of option valuation models to provide supplemental information regarding
options granted after fiscal 1996. Pro forma information regarding net income
(loss) and earnings (loss) per share shown below was determined as if the
Company had accounted for its employee stock options and shares sold under its
stock purchase plan under the fair value method of that statement.

The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of
6.0%, 6.22% and 6.61%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 85% for 1999, and 65% for 1998 and
1997, and expected life of the options of 4.17, 4.16 and 4 years, respectively.
These assumptions resulted in weighted-average fair values of $5.76, $5.73 and
$9.62 per share for stock options granted in 1999, 1998 and 1997, respectively.

                                      F-22
<PAGE>   62

                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


8.   STOCKHOLDERS' EQUITY (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting periods. The pro forma effect on net
income (loss) for 1999, 1998 and 1997 is not representative of the pro forma
effect on net income (loss) in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1997. Pro forma information in future years will reflect the amortization of a
larger number of stock options granted in several succeeding years. The
Company's pro forma information is as follows (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
Years ended June 30,                 1999                 1998              1997
--------------------               -------              --------          --------
<S>                                <C>                  <C>               <C>
Pro forma net loss                 $(9,747)             $(24,184)         $ (2,412)
Pro forma loss per share:
     Basic                         $ (1.01)             $  (2.64)         $  (0.26)
     Diluted                       $ (1.01)             $  (2.64)         $  (0.26)
==================================================================================
</TABLE>


The Company has an employee stock purchase plan whereby, in accordance with
Section 423 of the Internal Revenue Code, eligible employees may authorize
payroll deductions of up to 10% of their salary to purchase shares of the
Company's common stock at the lower of 85% of the fair market value of common
stock on the first or last day of the offering period. 87,000 shares were issued
under this plan for the year ended June 30, 1999. There are 136,000 shares
authorized and available for future issuance under this plan.

OTHER COMPREHENSIVE INCOME/(LOSS)

As of July 1, 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income." SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains and
losses on the Company's available-for-sale securities and foreign currency
translation adjustments to be included in other comprehensive income/(loss).

                                      F-23
<PAGE>   63

                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


8.   STOCKHOLDERS' EQUITY (CONTINUED)

Information regarding the components of accumulated other comprehensive
income/(loss) are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                           ACCUMULATED
                                                    UNREALIZED            FOREIGN              OTHER
                                                  GAINS/(LOSSES)ON       CURRENCY          COMPREHENSIVE
                                                     SECURITIES         TRANSLATION        INCOME/(LOSS)
                                                  ----------------      -----------        -------------
<S>                                               <C>                   <C>                <C>
Balance at June 30, 1997                                 $  --             $    2             $     2
  Comprehensive other income,
    For the year ended June 30, 1998                        95               (312)               (217)
                                                         -----             ------             -------
Balance at June 30, 1998                                    95               (310)               (215)
  Comprehensive other income,
     For the year ended June 30, 1999                      (95)                10                 (85)
                                                         -----             ------             -------
Balance at June 30, 1999                                 $  --             $ (300)            $  (300)
                                                         =====             ======             =======
</TABLE>


9.   EMPLOYEES' RETIREMENT PLAN

In 1994, the Company established a 401(k) Plan (the Plan) covering substantially
all of its full-time employees. Employees may make voluntary contributions to
the Plan. The Company may voluntarily contribute a percentage of the employee's
contribution, at its discretion, subject to certain limitations. The Company
contributed $75,000, $66,000 and $30,000 to the Plan during the years ended
1999, 1998 and 1997, respectively.

                                      F-24
<PAGE>   64


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


10. GEOGRAPHIC INFORMATION

The Company's sales by geographic area of the customer are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                   Years ended June 30,
                                            1999           1998           1997
                                           -------        -------        -------
<S>                                        <C>            <C>            <C>
North America (primarily US)               $26,408        $19,913        $12,422
Latin America                                9,476         14,194         18,936
Europe                                       8,342          6,203          5,375
Asia Pacific                                10,096         14,654         12,440
                                           -------        -------        -------
                                           $54,322        $54,964        $49,173
                                           =======        =======        =======
</TABLE>


Information about the Company's long-lived assets in each geographic area is as
follows (in thousands):

<TABLE>
<CAPTION>
                                                        Years ended June 30,
                                                      1999                1998
                                                     ------               ------
<S>                                                  <C>                  <C>
Long-lived assets:
   United States                                     $2,968               $3,106
   Canada                                               634                  637
   Asia Pacific                                          34                   --
                                                     ------               ------
Total  assets                                        $3,636               $3,743
                                                     ======               ======
</TABLE>


Long-lived assets are those assets of the Company that are identified with the
operations in each geographic area.

                                      F-25
<PAGE>   65

                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


11.  QUARTERLY OPERATING DATA (UNAUDITED)

The following is a summary of unaudited quarterly results of operations (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                           Quarter
                                      ------------------------------------------------
                                       First(1)      Second        Third        Fourth
                                      ---------    --------      --------     --------
<S>                                   <C>          <C>           <C>          <C>
Year ended June 30, 1999:
   Net sales                          $ 13,936     $ 12,074      $ 15,103     $ 13,209
   Gross profit                          7,931        7,204         8,809        5,966
   Net (loss) income                      (966)         225           612       (2,997)
                                      --------     --------      --------     --------
   (Loss) earnings per share
     Basic                            $  (0.10)    $    .02      $   0.06     $   (.30)
                                      ========     ========      ========     ========
     Diluted                          $  (0.10)    $    .02      $   0.06     $   (.30)
                                      ========     ========      ========     ========
</TABLE>


<TABLE>
<CAPTION>
                                                           Quarter
                                      ------------------------------------------------
                                       First(1)      Second      Third(3)     Fourth(1)
                                      ---------    --------      --------     ---------
<S>                                   <C>          <C>           <C>          <C>
Year ended June 30, 1998:
   Net sales                          $ 13,021     $ 15,310      $ 13,007     $ 13,626
   Gross profit                          7,322        8,572         7,287        1,884
   Net(loss) income                     (8,946)        (483)        3,148      (13,099)
                                      ---------    --------      --------     --------
   (Loss) earnings per share
     Basic                            $  (0.97)    $  (0.05)      $  0.34     $  (1.43)
                                      ========     ========      ========     ========
     Diluted                          $  (0.97)    $  (0.05)      $  0.33     $  (1.43)
                                      ========     ========      ========     ========
</TABLE>
----------
(1)  The first quarter of 1999 includes a restructuring charge of $607,000, and
     the fourth quarter of 1998 includes impairment and restructuring charges of
     $3,393,000 and related inventory write-downs of $3,651,000, additional
     inventory write-downs of $522,000 and $1,200,000 of charges for reserves
     against receivables due to unexpectedly slow collections (see Note 12).
(2)  Included in the Company's net loss for the first quarter of 1998, is a
     charge of $6,750,000 due to the write-off of in-process research and
     development purchased in connection with acquisitions (see Note 2).
(3)  Included in the Company's net income for the third quarter of 1998 is a
     gain of $4,704,000 from the sale of Netspeak Corporation Common Stock.

                                      F-26
<PAGE>   66


                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


12.  IMPAIRMENT AND RESTRUCTURING CHARGES

In July 1998, the Company announced a major restructuring program designed to
streamline operations and focus on key markets. As part of the restructuring
program, the Company concentrated its resources on the Netperformer and
ServiceXchange product lines. Additionally, the Company significantly reduced
its workforce, eliminated its business unit matrix structure in favor of a
functional organization, consolidated its facilities, and de-emphasized
engineering, sales and marketing efforts for non-strategic products.

As a result of the restructuring plan, in fiscal 1999, the Company incurred
approximately $607,000 of charges related primarily to employee terminations. At
June 30, 1998, the Company accrued approximately $750,000 for certain
non-cancelable purchase orders for non-strategic inventory that became impaired.

In connection with the restructuring, in 1998 the Company evaluated its
long-lived assets, principally the tangible and intangible assets established in
the DeltaComm, Dynastar, and SourceCom acquisitions, for impairment under SFAS
No. 121. The carrying amount of these assets exceeded the projected undiscounted
future cash flows and, accordingly, the carrying amount was written-down to fair
value. Fair value was determined based on an analysis of the projected future
discounted cash flows of the underlying operation, including cash generated from
the disposal of underlying assets. In addition, in 1998, the Company recorded
charges to cost of goods sold of $3,651,000 to write-down the carrying value of
inventory due to the restructuring and related de-emphasis or discontinuation of
certain product lines and other factors.

The impairment write-downs, excluding inventory write-downs, reflected in the
1998 statement of operations consisted of the following non-cash charges (in
thousands):

<TABLE>
<CAPTION>
Asset Impaired                                               Amount
--------------                                              -------
<S>                                                         <C>
Property, plant and equipment                               $   682
Developed technology and other acquisition intangibles        2,444
Other intangible assets                                         267
                                                            -------
                                                            $ 3,393
                                                            =======
</TABLE>


During 1999, the Company sold certain assets, and the buyer assumed certain
liabilities, originally acquired in the DeltaComm acquisition. The Company
recognized a loss of $120,000 on the sale of those assets, which loss is
included in Interest and other income in the Statement of Operations.

                                      F-27
<PAGE>   67

                               ACT Networks, Inc.

             Notes to Consolidated Financial Statements (continued)


13.  EARNINGS (LOSS) PER SHARE

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

<TABLE>
<CAPTION>
                                                                         Years ended June 30,
                                                                    1999         1998        1997
                                                                  -------      --------     ------
<S>                                                               <C>          <C>          <C>
Numerator for basic and diluted earnings per share -- net
   income (loss)...............................................   $(3,126)     $(19,381)    $1,483
                                                                  =======      ========     ======
Denominator:
   Denominator for basic  earnings (loss) per share --
      weighted-average shares..................................     9,644         9,170      9,184
   Effect of dilutive securities -- employee stock options.            --           --         789
                                                                  -------      --------     ------
Denominator for diluted earnings (loss) per share --
   adjusted weighted-average shares............................     9,644         9,170      9,973
                                                                   ======        ======     ======
Basic earnings (loss) per share................................    $(0.32)       $(2.11)    $ 0.16
                                                                   ======        ======     ======
Diluted earnings (loss) per share..............................    $(0.32)       $(2.11)    $ 0.15
                                                                   ======        ======     ======
</TABLE>


Options to purchase 2,880,000 and 2,661,000 shares outstanding during the years
ended June 30, 1999 and 1998 respectively, were excluded from the respective
computations of diluted loss per share because their effect would be
anti-dilutive. Options to purchase 360,000 shares with exercise prices greater
than the average market prices of common stock outstanding during the year ended
June 30, 1997 were also excluded from the computations of diluted earnings per
share because of their anti-dilutive effect.

                                      F-28
<PAGE>   68
                                 EXHIBITS INDEX

EXHIBIT
  NO.

3.1     Certificate of Incorporation of the Company. Incorporated by reference
        to Exhibit 3.1 to the Company's Registration Statement on Form S-1,
        Registration No. 33-90394

3.2     Bylaws of the Company. Incorporated by reference to Exhibit 3.2 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394

4.1     Specimen certificate representing shares of Common Stock of the Company.
        Incorporated by reference to Exhibit 4.1 to the Company's Registration
        Statement on Form S-1, Registration No. 33-90394.

4.2     Form of Warrant of the Company. Incorporated by reference to Exhibit 4.2
        to the Company's Registration Statement on Form S-1, Registration No.
        33-90394.

10.1    Master Lease Agreement dated January 11, 1994 by and between the Company
        and Leasetec Corporation, as amended and supplemented. Incorporated by
        reference to Exhibit 10.2 to the Company's Registration Statement on
        Form S-1, Registration No. 33-90394.

10.2    Form of Indemnification Agreement. Incorporated by reference to Exhibit
        10.6 to the Company's Registration Statement on Form S-1, Registration
        No. 33-90394.

10.3    1987 Stock Option Plan (the "1987 Plan"). Incorporated by reference to
        Exhibit 10.7 to the Company's Registration Statement on Form S-1,
        Registration No. 33-90394.

10.4    Form of Amended Notice of Grant of Stock Option with respect to holders
        of installment incentive stock options granted under the 1987 Plan.
        Incorporated by reference to Exhibit 10.8 to the Company's Registration
        Statement on Form S-1, Registration No. 33-90394.

10.5    Form of 1987 Installment Incentive Stock Option Agreement, Immediately
        Exercisable Stock Option Agreement and Immediately Exercisable
        Non-Qualified Stock Option Agreement generally used in connection with
        the 1987 Plan. Incorporated by reference to Exhibit 10.9 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394.

10.6    Form of 1987 Stock Purchase Agreement generally used in connection with
        the 1987 Plan. Incorporated by reference to Exhibit 10.10 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394.

10.7    1993 Stock Option Plan as amended (the "1993 Plan"). Incorporated by
        reference to Exhibit 10.11 to the Company's Registration Statement on
        Form S-1, Registration No. 33-90394.

10.8    Form of Notice of Grant of Stock Option generally used in connection
        with the 1993 Plan. Incorporated by reference to Exhibit 10.12 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394.

10.9    Form of 1993 Stock Option Agreement generally used in connection with
        the 1993 Plan. Incorporated by reference to Exhibit 10.13 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394.

10.10   Form of 1993 Stock Purchase Agreement generally used in connection with
        the 1993 Plan. Incorporated by reference to Exhibit 10.14 to the
        Company's Registration Statement on Form S-1, Registration No. 33-90394.

10.11*  Cooperation and Supply Agreement dated as of November 19, 1993 by and
        between StrataCom, Inc. and the Company. Incorporated by reference to
        Exhibit 10.15 to the Company's Registration Statement on Form S-1,
        Registration No. 33-90394.

10.12   Technical Information Escrow Agreement dated July 18, 1994 by and
        between StrataCom, Inc., the Indianapolis Vault Company and the Company.
        Incorporated by reference to Exhibit 10.16 to the Company's Registration
        Statement on Form S-1, Registration No. 33-90394.

10.13   1995 Stock Option/Stock Issuance Plan (the "1995 Plan"). Incorporated by
        reference to Exhibit 99.1 to the Company's Registration Statement on
        Form S-8, Registration No. 33-80007.

10.14   Form of Stock Option Agreement generally used in connection with the
        Discretionary Option Grant Program of the 1995 Plan. Incorporated by
        reference to Exhibit 99.3 to the Company's Registration Statement on
        Form S-8, Registration No. 33-80007.



<PAGE>   69
10.15   Form of Addendum to Stock Option Agreement (Limited Stock Appreciation
        Right). Incorporated by reference to Exhibit 99.4 to the Company's
        Registration Statement on Form S-8, Registration No. 33-80007.

10.16   Form of Addendum to Stock Option Agreement (Involuntary Termination
        Following Change of Control). Incorporated by reference to Exhibit 99.5
        to the Company's Registration Statement on Form S-8, Registration No.
        33-80007.

10.17   Form of Addendum to Stock Option Agreement (Special Tax Elections).
        Incorporated by reference to Exhibit 99.6 to the Company's Registration
        Statement on Form S-8, Registration No. 33-80007.

10.18   Form of Automatic Stock Option Agreement. Incorporated by reference to
        Exhibit 99.9 to the Company's Registration Statement on Form S-8,
        Registration No. 33-80007.

10.19   Form of Stock Issuance Agreement generally used in connection with the
        Discretionary Option Grant Program of the 1995 Plan. Incorporated by
        reference to Exhibit 99.10 to the Company's Registration Statement on
        Form S-8, Registration No. 33-80007.

10.20   Form of Addendum to Stock Issuance Agreement (Involuntary Termination
        Following Change of Control). Incorporated by reference to Exhibit 99.11
        to the Company's Registration Statement on Form S-8, Registration No.
        33-80007.

10.21   Form of Addendum to Stock Issuance Agreement (Special Tax Elections).
        Incorporated by reference to Exhibit 99.12 to the Company's Registration
        Statement on Form S-8, Registration No. 33-80007.

10.22   Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.13
        to the Company's Registration Statement on Form S-8, Registration No.
        33-80007.

10.23   The Share Purchase Agreement By and Among the Company, Canada Inc. and
        Certain Presticom Stockholders, dated as of November 24, 1995.
        Incorporated by reference to Exhibit 2.1 to the Company's Current Report
        on Form 8-K, dated November 30, 1995.

10.24   1997 Non-Executive Officer Stock Option/Stock Issuance Plan as amended
        July 15, 1997. Incorporated by reference to Exhibit 99.1 to the
        Company's Registration Statement on Form S-8, Registration No.
        333-85845.

10.25   Form of Notice of Grant of Stock Option generally used in connection
        with 1997 Plan. Incorporated by reference to Exhibit 10.29 to the
        Company's Quarterly Report for the period ended March 31, 1997.

10.26   Form of Stock Option Agreement generally used in connection with 1997
        Plan Incorporated by reference to Exhibit 10.30 to the Company's
        Quarterly Report for the period ended March 31, 1997.

10.27   Form of Addendum to Stock Option Agreement. Incorporated by reference to
        Exhibit 10.31 to the Company's Quarterly Report for the period ended
        March 31, 1997.

10.28   The Asset Purchase Agreement by and between the Company and Sourcecom,
        Inc. dated as of July 16, 1997. Incorporated by reference to Exhibit 2.2
        to the Company's Current Report on Form 8-K dated August 11, 1997.

10.29   1997 Stock Incentive Plan. Incorporated by reference to Exhibit 99.1 to
        the Company's Registration Statement on Form S-8, Registration No.
        333-85845.

10.30   Form of Notice of Grant of Stock Option - Installment Option.
        Incorporated by reference to Exhibit 99.2 to the Company's Registration
        Statement on Form S-8, Registration No. 333-44087.

10.31   Form of Stock Option Agreement - Installment Option. Incorporated by
        reference to Exhibit 99.3 to the Company's Registration Statement on
        Form S-8, Registration No. 333-44087.

10.32   Notice of Grant of Stock Option - Immediately Exercisable Option.
        Incorporated by reference to Exhibit 99.4 to the Company's Registration
        Statement on Form S-8, Registration No. 333-44087.

10.33   Stock Option Agreement - Immediately Exercisable Option. Incorporated by
        reference to Exhibit 99.5 to the Company's Registration Statement on
        Form S-8, Registration No. 333-44087.

10.34   Form of Addendum to Stock Option Agreement (Limited Stock Appreciation
        Rights). Incorporated by reference to Exhibit 99.6 to the Company's
        Registration Statement on Form S-8, Registration No. 333-44087.


<PAGE>   70

10.35   Form of Addendum to Stock Option Agreement (Involuntary Termination
        following Change in Control). Incorporated by reference to Exhibit 99.7
        to the Company's Registration Statement on Form S-8, Registration No.
        333-44087.

10.36   Stock Purchase Agreement. Incorporated by reference to Exhibit 99.8 to
        the Company's Registration Statement on Form S-8, Registration No.
        333-44087.

10.37   Addendum to Stock Purchase Agreement (Involuntary Termination following
        Change in Control). Incorporated by reference to Exhibit 99.9 to the
        Company's Registration Statement on Form S-8, Registration No.
        333-44087.

10.38   Automatic Notice of Initial Grant. Incorporated by reference to Exhibit
        99.10 to the Company's Registration Statement on Form S-8, Registration
        No. 333-44087.

10.39   Automatic Notice of Annual Grant. Incorporated by reference to Exhibit
        99.11 to the Company's Registration Statement on Form S-8, Registration
        No. 333-44087.

10.40   Automatic Stock Option Agreement. Incorporated by reference to Exhibit
        99.12 to the Company's Registration Statement on Form S-8, Registration
        No. 333-44087.

10.41   Office Lease dated April 15, 1999 by and between the Company and Malibu
        Canyon Office Partners, LLC.

10.42   Form of Notice of Grant of Stock Option - Option Grant to Mr. Uribe.
        Incorporated by reference to Exhibit 99.17 to the Company's Registration
        Statement on Form S-8, Registration No. 33-85845.

10.43   Form of Stock Option Agreement - Option Grant to Mr. Uribe. Incorporated
        by reference to Exhibit 99.18 to the Company's Registration Statement on
        Form S-8, Registration No. 333-85845.

21.1    List of Subsidiaries of the Company.

23.2    Consent of Ernst & Young LLP.

24.1    Power of Attorney (included on page 37).

27.1    Financial Data Schedule.

* The Company has received confidential treatment for portions of this document
  previously filed with the Commission.

        (b) REPORTS ON FORM 8-K:

            No reports on Form 8-K were filed during the quarter ended June 30,
            1999.