<PAGE>   1
--------------------------------------------------------------------------------


                       SECURITIES AND EXCHANGE COMMISSION
                                 WASHINGTON, DC

                                   ----------

                                    FORM 10-Q
(Mark One)

[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

                  For the quarterly period ended June 26, 1999

[   ] 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 0-27312

                         TOLLGRADE COMMUNICATIONS, INC.
             (Exact Name of Registrant as Specified in its Charter)

          PENNSYLVANIA                                          25-1537134
  (State or Other Jurisdiction                               (I.R.S. Employer
of Incorporation or Organization)                         Identification Number)

                                  493 NIXON RD.
                               CHESWICK, PA 15024
          (Address of Principal Executive Offices, including zip code)

                                  724-274-2156
              (Registrant's telephone number, including area code)


         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 _______

         As of July 30, 1999, there were 5,968,497 shares of the Registrant's
Common Stock, $0.20 par value per share, and no shares of the Registrant's
Preferred Stock, $1.00 par value per share, outstanding.

         This report consists of a total of 53 pages. The exhibit index is at
page 20.


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

<PAGE>   2
                         TOLLGRADE COMMUNICATIONS, INC.

                          QUARTERLY REPORT ON FORM 10-Q
                       FOR THE QUARTER ENDED JUNE 26, 1999


                                TABLE OF CONTENTS
                                -----------------

<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION                                                                    PAGE NO.
------------------------------                                                                    --------

<S>                                                                                               <C>
ITEM 1        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

              CONDENSED CONSOLIDATED BALANCE SHEETS AS OF  JUNE 26, 1999 AND
              DECEMBER 31,1998 ..........................................................................3

              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE THREE-MONTH AND SIX-MONTH PERIODS
              ENDED JUNE 26, 1999 AND JUNE 27, 1998......................................................4

              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH PERIODS
              ENDED JUNE 26, 1999 AND JUNE 27, 1998 .....................................................5

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.......................................6

              REVIEW REPORT OF INDEPENDENT ACCOUNTANTS...................................................8

ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
              CONDITION..................................................................................9


PART II.  OTHER INFORMATION
---------------------------

ITEM 1        LEGAL PROCEEDINGS.........................................................................17
ITEM 2        CHANGES IN SECURITIES.....................................................................17
ITEM 3        DEFAULTS UPON SENIOR SECURITIES...........................................................17
ITEM 4        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................17
ITEM 5        OTHER INFORMATION.........................................................................18
ITEM 6        EXHIBITS AND REPORTS ON FORM 8-K..........................................................18

SIGNATURE...............................................................................................19
EXHIBIT INDEX...........................................................................................20
</TABLE>



<PAGE>   3

PART I.  FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------

                 TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
=========================================================================================================
                                                                        (UNAUDITED)          DECEMBER 31,
                                                                       JUNE 26, 1999             1998
=========================================================================================================
<S>                                                                     <C>                   <C>
ASSETS
CURRENT ASSETS:
         Cash and cash equivalents                                      $ 9,666,494           $ 8,311,353
         Short term investments                                          10,618,738            14,249,164
         Accounts receivable:
                  Trade                                                  12,028,872             7,888,060
                  Other                                                     201,808               300,680
         Inventories                                                     14,875,931            13,201,771
         Prepaid expenses and deposits                                      345,219               352,413
         Deferred tax assets                                                354,891               354,891
---------------------------------------------------------------------------------------------------------
                TOTAL CURRENT ASSETS                                     48,091,953            44,658,332

Long term investments                                                     1,455,000             1,553,000
Property and equipment, net                                               3,524,478             3,314,522
Deferred tax assets                                                         334,474               334,474
Patents and other assets                                                      2,821                 4,247
=========================================================================================================
                TOTAL ASSETS                                            $53,408,726           $49,864,575
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
         Accounts payable                                               $ 1,183,004           $   687,079
         Accrued expenses                                                   711,002             1,128,421
         Accrued salaries and wages                                         845,672               801,908
         Royalties payable                                                  945,998               712,971
         Income taxes payable                                             1,016,582               788,479
---------------------------------------------------------------------------------------------------------
                TOTAL CURRENT LIABILITIES                                 4,702,258             4,118,858

Deferred income                                                                  --                40,000
Deferred tax liabilities                                                      9,950                 9,950
---------------------------------------------------------------------------------------------------------
                TOTAL LIABILITIES                                         4,712,208             4,168,808

Shareholders' equity:
         Common stock, $.20 par value; authorized shares,
            25,000,000; issued shares 5,960,064 and 5,920,464,
            respectively                                                  1,192,013             1,184,093
         Additional paid-in capital                                      28,013,052            27,503,772
         Treasury stock, at cost, 193,400 and 109,100 shares,
            respectively                                                 (3,164,975)           (1,789,287)
         Retained earnings                                               22,656,428            18,797,189
---------------------------------------------------------------------------------------------------------
                TOTAL SHAREHOLDERS' EQUITY                               48,696,518            45,695,767
=========================================================================================================
                TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                $53,408,726           $49,864,575
=========================================================================================================
</TABLE>
          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.



                                       3
<PAGE>   4


                 TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
====================================================================================================================================
                                                                         FOR THE                               FOR THE
                                                                    THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                              JUNE 26, 1999     JUNE 27, 1998      JUNE 26, 1999    JUNE 27, 1998
====================================================================================================================================
<S>                                                            <C>               <C>               <C>               <C>
REVENUES                                                       $14,269,719       $14,025,024       $25,390,064       $24,788,864
COST OF PRODUCT SALES                                            5,902,774         5,919,637        10,654,718        10,274,949
------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT                                                     8,366,945         8,105,387        14,735,346        14,513,915
------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
     Selling and marketing                                       1,767,547         1,499,318         3,165,988         3,121,202
     General and administrative                                    964,933         1,262,850         2,013,369         2,352,557
     Research and development                                    2,157,980         1,542,450         4,033,658         3,170,452
------------------------------------------------------------------------------------------------------------------------------------
         TOTAL OPERATING EXPENSES                                4,890,460         4,304,618         9,213,015         8,644,211
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS                                           3,476,485         3,800,769         5,522,331         5,869,704
     Interest and other income, net                                236,549           417,366           507,763           605,991
------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES                                       3,713,034         4,218,135         6,030,094         6,475,695
     Provision for income taxes                                  1,339,855         1,575,000         2,170,855         2,388,000
====================================================================================================================================
NET INCOME                                                     $ 2,373,179       $ 2,643,135       $ 3,859,239       $ 4,087,695
====================================================================================================================================
EARNINGS PER SHARE INFORMATION:
Weighted average shares of common stock and equivalents:
     Basic                                                       5,768,925         5,855,207         5,778,233         5,816,867
     Diluted                                                     5,805,943         6,007,594         5,841,776         5,982,179
------------------------------------------------------------------------------------------------------------------------------------
Net income per common and common equivalent shares:
     Basic                                                     $       .41       $       .45       $       .67       $       .70
     Diluted                                                   $       .41       $       .44       $       .66       $       .68
====================================================================================================================================
</TABLE>
               The accompanying notes are an integral part of the
                  condensed consolidated financial statements.



                                      4
<PAGE>   5

                 TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
============================================================================================================================
                                                                                                  SIX MONTHS ENDED
                                                                                        JUNE 26, 1999          JUNE 27, 1998
============================================================================================================================
<S>                                                                                      <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                                               $ 3,859,239           $  4,087,695

Adjustments to reconcile net income to net cash used in operating activities:

         Depreciation and amortization                                                       541,794                601,586

         Compensation expense for restricted stock                                                --                 26,950

Changes in assets and liabilities:

         Increase in accounts receivable-trade                                            (4,140,812)            (4,695,784)

         Decrease in accounts receivable-other                                                98,872                192,291

         Increase in inventories                                                          (1,674,160)              (199,376)

         Decrease in prepaid expenses and deposits                                             7,194                142,284

         Increase in accounts payable                                                        495,925                 33,384

         Decrease in accrued expenses, deferred income, and royalties payable               (224,392)               (67,702)

         Increase (decrease) in accrued salaries and wages                                    43,764               (405,395)

         Increase  in income taxes payable                                                   228,103                 25,318
----------------------------------------------------------------------------------------------------------------------------
                  Net cash used in operating activities                                     (764,473)              (258,749)
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:

         Redemption/maturity of investments                                                5,689,303             12,931,757

         Purchase of investments                                                          (1,960,877)           (10,694,127)

         Capital expenditures                                                               (750,324)            (1,002,806)

         Purchase of treasury stock                                                       (1,375,688)              (287,623)
----------------------------------------------------------------------------------------------------------------------------
                  Net cash provided by  investing activities                               1,602,414                947,201
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:

         Proceeds from exercise of stock options including related tax benefits              517,200              1,748,702
----------------------------------------------------------------------------------------------------------------------------
                  Net cash provided by financing activities                                  517,200              1,748,702
----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                                  1,355,141              2,437,154

Cash and cash equivalents at beginning of period                                           8,311,353              3,183,944
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                               $ 9,666,494           $  5,621,098
============================================================================================================================
</TABLE>
    The accompanying notes are an integral part of the condensed consolidated
                             financial statements.


                                       5

<PAGE>   6


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



1.       BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements included
herein have been prepared by Tollgrade Communications, Inc. (the "Company") in
accordance with generally accepted accounting principles for the interim
financial information and Article 10 of Regulation S-X. The condensed
consolidated financial statements as of and for the three and six-month periods
ended June 26, 1999 should be read in conjunction with the Company's
consolidated financial statements (and notes thereto) included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. Accordingly,
the accompanying condensed consolidated financial statements do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements, although the Company believes that
the disclosures are adequate to make the information presented not misleading.
In the opinion of the Company's management, all adjustments considered necessary
for a fair presentation of the accompanying condensed consolidated financial
statements have been included, and all adjustments are of a normal and recurring
nature. Operating results for the three and six-month periods ended June 26,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.


2.       INVENTORY

At June 26, 1999 and December 31, 1998, inventory consisted of the following:

                                                (Unaudited)
                                                  June 26,        December 31,
                                                    1999              1998
                                                -----------       -----------

         Raw materials ....................     $ 7,206,497       $ 6,135,743
         Work in progress .................       5,509,142         4,725,776
         Finished goods ...................       2,160,292         2,340,252
                                                -----------       -----------
                                                $14,875,931       $13,201,771
                                                ===========       ===========

3.       INVESTMENTS

Short-term investments at June 26,1999 consisted of individual municipal bonds
stated at cost, which approximated market value. These securities have a
maturity of one year or less at date of purchase and/or contain a callable
provision in which the bonds can be called within one year from date of
purchase. Long-term investments are individual municipal bonds with a maturity
of more than one year but less than eighteen months. The primary investment
purposes are to provide a reserve for future business purposes, including
possible acquisitions, capital expenditures and to meet working capital
requirements.


                                       6
<PAGE>   7



4.       INCOME PER COMMON SHARE

Net income per share is calculated by dividing net income by the weighted
average number of common shares plus incremental common stock equivalent shares
(shares issuable upon exercise of stock options). Incremental common stock
equivalent shares are calculated for each measurement period based on the
treasury stock method, which uses the monthly average market price per share.

The calculation of net income per common and common equivalent shares follows:

<TABLE>
<CAPTION>
======================================================================================================================
                                                      THREE MONTHS     THREE MONTHS      SIX MONTHS       SIX MONTHS
                                                          ENDED           ENDED             ENDED            ENDED
                                                     JUNE 26, 1999     JUNE 27, 1998    JUNE 26, 1999    JUNE 27, 1998
======================================================================================================================
<S>                                                    <C>              <C>              <C>              <C>
Net income ......................................      $2,373,179       $2,643,135       $3,859,239       $4,087,695
                                                       ==========       ==========       ==========       ==========

Common and common equivalent shares:
      Weighted average number of
      common shares outstanding
      during the period .........................       5,768,925        5,855,207        5,778,233        5,816,867

      Common shares issuable upon exercise
          of outstanding stock options
               Diluted ..........................          37,018          152,387           63,543          165,312
                                                       ----------       ----------       ----------       ----------

      Common and common equivalent shares
          outstanding during the period
               Diluted ..........................       5,805,943        6,007,594        5,841,776        5,982,179
                                                       ==========       ==========       ==========       ==========

Earnings per share data
      Net income per common and common
          equivalent shares
               Basic ............................      $     0.41       $     0.45       $     0.67       $     0.70
               Diluted ..........................      $     0.41       $     0.44       $     0.66       $     0.68
</TABLE>


                                       7
<PAGE>   8


                    REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
                    ----------------------------------------



To the Board of Directors of
Tollgrade Communications, Inc.:

We have reviewed the accompanying condensed consolidated balance sheet of
Tollgrade Communications, Inc. and subsidiaries as of June 26, 1999, and the
related condensed consolidated statements of operations for the three months and
six-months ended June 26, 1999 and June 27, 1998 and the condensed consolidated
statements of cash flows for the six-months ended June 26, 1999 and June 27,
1998. These financial statements are the responsibility of the company's
management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.

We previously audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet of Tollgrade Communications, Inc. and
subsidiaries as of December 31, 1998 and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated January 25, 1999, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1998, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.



/s/ PricewaterhouseCoopers LLP
July 13, 1999


                                       8
<PAGE>   9


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
------------------------------------------------------------
          OPERATIONS AND FINANCIAL CONDITION
          ----------------------------------

The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and notes thereto appearing elsewhere in this
report.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.

The statements contained in the following Management's Discussion and Analysis
of Results of Operations and Financial Condition which are not historical are
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These statements as to management's beliefs, strategies, plans,
expectations or opinions in connection with Company performance, which are based
on a number of assumptions concerning future conditions that may ultimately
prove to be inaccurate. Such statements must be qualified by important factors
that could cause actual earnings and other results to differ materially from
those achieved in the past or those expected by the Company. These include:
rapid technological change along with the need to continually develop new
products; the Company's dependence on a single product line; competition; the
Company's dependence on key employees; difficulties in managing the Company's
growth; the Company's dependence upon a small number of large customers and
certain suppliers; the Company's dependence upon proprietary rights; risks of
third party claims of infringement; and government regulation.

OVERVIEW
The Company was organized in 1986 and began operations in 1988. The Company
designs, engineers, markets and supports test access and test extension products
for the telecommunications and cable television industries. The Company's
telecommunication proprietary products enable telephone companies to use their
existing line test systems to remotely diagnose problems in Plain Old Telephone
Service ("POTS") lines containing both copper and fiber optics. The Company's
MCU(R) product line, which includes POTS line testing as well as alarm-related
products, represented approximately 88% of the Company's revenue for the second
quarter ended June 26, 1999 and will continue to account for a majority of the
Company's revenues for the foreseeable future. In addition, the Company has
begun modest shipments of the Digitest (TM) centralized network test platform.
The Digitest system is a test head designed to measure electrical and audio
characteristics of telephone lines providing POTS service, including the
capability to perform certain line prequalification tests in anticipation of the
deployment of wide bandwidth services. The Company is planning to further
develop the Digitest system to ultimately address in-service testing of digital
subscriber lines including Integrated Service Digital Network (ISDN) and
Asymmetric Digital Subscriber Line (ADSL). The Company's cable products consist
of a complete cable status monitoring system that provides a broad testing
solution for the Broadband Hybrid Fiber Coax distribution system. The status
monitoring system includes a host for user interface, control and configuration;
a headend controller for managing network communications; and transponders that
are strategically located within the cable network to gather status reports from
power supplies, line amplifiers and fiber-optic nodes.

The Company's telecommunication product sales are primarily to the five Regional
Bell Operating Companies ("RBOCs") as well as major independent telephone
companies such as Sprint and to certain digital loop carrier ("DLC") equipment
manufacturers. For the quarter ended June 26, 1999, approximately 79% of the
Company's total revenue was generated from sales to these five RBOCs, the two
largest of which comprised approximately 44% of revenues. The Company markets
and sells its cable products directly, as well as through various Original



                                       9
<PAGE>   10

Equipment Manufacturer ("OEM") arrangements with cable network equipment
manufacturers. The Company presently has one such OEM arrangement under contract
and works under less formal arrangements with several other OEM partners. Sales
for the Company's cable products for the second quarter of 1999 were modest.

 The Company's operating results have fluctuated and may continue to fluctuate
as a result of various factors, including the timing of orders from and
shipments to the RBOCs. This timing is particularly sensitive to various
business factors within each of the RBOCs including the RBOCs relationships with
their various organized labor groups.

The Company believes that recent changes within the telecommunication
marketplace, including industry consolidation, as well as the Company's ability
to successfully penetrate certain new markets, have resulted in some discounting
and more favorable terms granted to certain customers of the Company. In
addition, the Company experienced certain customer demands to consolidate
product purchases which have translated into large bulk orders. Although the
Company will continue to strive to meet the demands of its customers, which
include delivery of quality products at an acceptable price and on acceptable
terms, there are no assurances that the Company will be successful in
negotiating acceptable terms and conditions pertaining to these large orders.
Additionally, recent consolidations among the RBOCs, and their ability to
consolidate their inventory and product procurement systems could cause
fluctuations or delays in the Company's order patterns. The Company cannot
predict such future events or business conditions and the Company's results may
be adversely affected by these industry trends in the primary markets its
serves.

Although international sales to date have not been significant, the Company
believes that certain international markets may offer opportunities. However,
the international telephony markets differ from those found domestically due to
the different types and configurations of equipment used by those international
communication companies to provide services. In addition, certain competitive
elements also are found internationally which do not exist in the Company's
domestic markets. These factors, when combined, have made entrance into these
international markets extremely difficult. From time to time, the Company has
utilized the professional services of various marketing consultants to assist in
defining the Company's international market opportunities. With the assistance
of these consultants and through direct marketing efforts by the Company, it has
been determined that its present MCU technology offers limited opportunities in
certain international markets for competitive and other technological reasons.
These markets include China other than through an existing OEM relationship,
Europe and the Pac Rim countries. There can be no assurance that any continued
efforts by the Company will be successful or that the Company will achieve
significant international sales.

The Company believes that continued growth will depend on its ability to design
and engineer new products and, therefore, spends a significant amount on
research and development. Research and development expenses as a percent of
revenues were approximately 15.1% for the second quarter ended June 26, 1999.
The Company expects its research and development expenses to continue at
significant levels.


                                       10
<PAGE>   11



                     RESULTS OF OPERATIONS - SECOND QUARTER


REVENUES
Revenues for the second quarter of 1999 of $14,269,719 were $244,695, or 1.7%,
higher than the revenues of $14,025,024 reported for the second quarter of 1998.
The increase in revenues for the second quarter of 1999 was primarily
attributable to an increase in unit volume sales of core MCU(R) line testing
products to US West as well as increases in sales to BellSouth and SBC
Communications. Additionally, sales to Competitive Local Exchange Carriers
improved from second quarter, 1998, with increased shipments to Allegiance
Telecom and Sprint. The current quarter sales increase was offset somewhat by
decreased shipment levels to Bell Atlantic, which the Company believes can be
attributed to lingering inventory and product deployment issues. The Company is
continuing to implement strategies designed to bring this customer back to its
historical product usage levels, including product installation training and
support. Periodic fluctuations in customer orders and backlog result from a
variety of factors, including but not limited to the timing of significant
orders and shipments, and are not necessarily indicative of long-term trends in
sales of the Company's products.

GROSS PROFIT
Gross profit for the second quarter of 1999 was $8,366,945 compared to
$8,105,387 for the second quarter of 1998, representing an increase of $261,558,
or 3.2%. Gross profit as a percentage of revenues increased to 58.6% in the
second quarter of 1999, compared to 57.8% in the same quarter last year. The
overall increase in the gross profit from the prior year period resulted
primarily from the increased sales levels, while improvements in gross profit as
a percentage of revenues were primarily due to certain manufacturing and
purchasing efficiencies.

SELLING AND MARKETING EXPENSE
Selling and marketing expense for the second quarter of 1999 was $1,767,547
compared to $1,499,318 for the second quarter of 1998. This increase of
$268,229, or 17.9%, is primarily attributable to an increase in marketing
expenses associated with the Company's comprehensive technical training and
other testability improvement initiative programs as well as increased spending
on advertising, promotion and related marketing activities. As a percentage of
revenues, selling and marketing expenses increased to 12.4% in the second
quarter of 1999 from 10.7% in the second quarter of 1998.

GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense for the second quarter of 1999 was $964,933,
a decrease of $297,917, or 23.6%, from the $1,262,850 recorded in the second
quarter of 1998. The decrease in general and administrative expense primarily
reflects a reduction in salaries and associated expenses, as well as a decrease
in certain professional service fees. As a percentage of revenues, general and
administrative expenses decreased to 6.8% in the second quarter of 1999 from
9.0% in the second quarter of 1998.



                                       11
<PAGE>   12


RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense in the second quarter of 1999 was $2,157,980,
an increase of $615,530, or 39.9%, over the $1,542,450 recorded in the second
quarter of 1998. The increase is primarily associated with additional personnel
and related development costs to support new product introductions (primarily
Digitest and various cable-related products). The new personnel were hired for
positions in design engineering, hardware and software development, engineering
support, and test engineering. Their efforts are associated with new product
development, as well as support, and feature enhancement of existing products.
As a percentage of revenues, research and development expense increased to 15.1%
in the second quarter of 1999 from 11.0% in the second quarter of 1998.

INTEREST AND OTHER INCOME
Interest and other income consists primarily of interest income. For the second
quarter of 1999, interest and other income was $236,549 compared to $417,366 for
the second quarter of 1998, representing a decrease of $180,817, or 43.3%. This
decrease relates to the net key man life insurance proceeds of approximately
$156,000 associated with the death of Company's former Chairman, R. Craig
Allison being included in the second quarter of 1998. Excluding the effect of
the aforementioned net life insurance proceeds, interest and other income
decreased $24,817, or 9.5%.

PROVISION FOR INCOME TAXES
The provision for income taxes for the second quarter of 1999 was $1,339,855, a
decrease of $235,145, or 14.9%, from the $1,575,000 for the second quarter of
1998. The effective income tax rate decreased to approximately 36.1% in the
second quarter of 1999, compared to approximately 37.3% in the second quarter of
1998. The decrease in the effective tax rate between periods reflects certain
refinements for the estimated effective tax rate for fiscal year 1999.

NET INCOME AND EARNINGS PER SHARE
As a result of the above factors, net income for the second quarter of 1999 was
$2,373,179, a decrease of $269,956, or 10.2%, from the $2,643,135 recorded in
the second quarter of 1998. Basic and diluted earnings per common share of $.41
and $.41, respectively, for the second quarter of 1999 decreased by $.04 and
$.03, or 8.9% and 6.8%, from the $.45 and $.44, respectively, earned in the
second quarter of 1998. The prior year quarter includes approximately $226,000,
or $.04 per share, related to the after-tax effect of the key man life insurance
proceeds. Excluding the effect of these net life insurance proceeds, net income
decreased $43,956, or 1.8%, between periods and diluted earnings per common
share increased $.01, or 2.5%. Basic and diluted weighted average common and
common equivalent shares outstanding were 5,768,925 and 5,805,943, respectively,
in the second quarter of 1999 compared to 5,855,207 and 6,007,594, respectively,
in the second quarter of 1998. As a percentage of revenues, net income for the
second quarter of 1999 decreased to 16.6% compared to the 18.8% for the second
quarter of 1998.


                      RESULTS OF OPERATIONS - YEAR TO DATE

REVENUES
For the first six months of 1999, revenues were $25,390,064 compared to
$24,788,864 for the first six months of 1998, representing an increase of
$601,200 or 2.4%. The increase in revenues for the first six months of 1999 was
primarily attributable to an increase in unit volume sales of core MCU(R) line
testing products to US West, as well as increases in sales to BellSouth and SBC
Communications. Additionally, sales to Competitive Local Exchange Carriers
improved with increased shipments to Allegiance Telecom. The sales increase in
the first six months of 1999 was offset somewhat by decreased shipment levels to
Bell Atlantic, which the Company believes can be



                                       12
<PAGE>   13

attributed to lingering inventory and product deployment issues. The Company is
continuing to implement strategies designed to bring this customer back to its
historical product usage levels, including product installation training and
support. Periodic fluctuations in customer orders and backlog result from a
variety of factors, including but not limited to the timing of significant
orders and shipments, and are not necessarily indicative of long-term trends in
sales of the Company's products.

GROSS PROFIT
For the six months of 1999, gross profit increased to $14,735,346 compared to
$14,513,915 for the first six months of 1998, representing an increase of
$221,431, or 1.5%. As a percentage of revenues, gross profit decreased to 58.0%
in the first six months of 1999 compared to 58.6% in the same period for 1998.
The overall increase in gross profit margin resulted primarily from increased
sales levels, while the decrease in gross margin as a percentage of revenues was
primarily a result of increased manufacturing costs associated with the initial
production of certain of the Company's new products.

SELLING AND MARKETING EXPENSE
For the first six months of 1999, selling and marketing expense totaled
$3,165,988 compared to $3,121,202 for the first six months of 1998, representing
an increase of $44,786 ,or 1.4%. This increase is primarily attributable to the
Company's comprehensive customer focused testability improvement initiative
programs. As a percentage of revenue, selling and marketing expense decreased to
12.5% in the first six months of 1999 from 12.6% for the same period of 1998.

GENERAL AND ADMINISTRATIVE EXPENSE
For the first six months of 1999, general and administrative expense totaled
$2,013,369 compared to $2,352,557 for the first six months of 1998, representing
a decrease of $339,188 or 14.4%. The decrease in general and administrative
expense primarily reflects a reduction in salary and related expense associated
with the death of the former Chairman, R. Craig Allison, as well as a reduction
in certain professional service fees between periods. As a percentage of
revenue, general and administrative expense decreased to 7.9% in the first six
months of 1999 from 9.5% for the same period of 1998.

RESEARCH AND DEVELOPMENT EXPENSE
For the first six months of 1999, research and development expense totaled
$4,033,658 compared to $3,170,452 for the first six months of 1998, representing
an increase of $863,206 or 27.2%. This increase is primarily associated with
additional personnel and related development costs to support new product
introductions (primarily Digitest and cable-related products). The new personnel
were hired for positions in design engineering, hardware and software
development, engineering support, and test engineering. Their efforts are
associated with new product development as well as support, and feature
enhancements for existing products. As a percentage of revenues, research and
development expense increased to 15.9% in the first six months of 1999 from
12.8% for the first six months of 1998.

INTEREST AND OTHER INCOME
For the first six months of 1999, interest and other income was $507,763
compared to $605,991 for the first six months of 1998, representing a decrease
of $98,228. This decrease relates to the net key man life insurance proceeds, of
approximately $156,000 associated with the death of Company's former Chairman,
R. Craig Allison being included in the second quarter of 1998. Excluding the
effect of the aforementioned net life insurance proceeds, interest and other
income increased $57,772, or 12.8%. This increase is primarily attributable to
an increase in funds available for investment between periods.



                                       13

<PAGE>   14

PROVISION FOR INCOME TAXES
The provision for income taxes for the first six months of 1999 was $2,170,855
which was a decrease of $217,145, or 9.1%, from $2,388,000 for the first six
months of 1998. The effective income tax rate decreased to approximately 36.0%
in the first six months of 1999, compared to approximately 36.9% in the first
six months of 1998. The decrease in the effective tax rate between periods
reflects certain refinements for the estimated effective tax rate for fiscal
year 1999.

NET INCOME AND EARNINGS PER SHARE
As a result of the above factors, net income for the first half of 1999 was
$3,859,239, a decrease of $228,456, or 5.6%, from the $4,087,695 recorded in the
first six months of 1998. Basic and diluted earnings per common share of $.67
and $.66, respectively, for the first half of 1999 decreased by $.03 and $.02,
or 4.3% and 2.9%, from the $.70 and $.68, respectively, earned in the first half
of 1998. The prior year period includes approximately $226,000, or $.04 per
share, related to the after-tax effect of the key man life insurance proceeds.
Excluding the effect of these net insurance proceeds, net income decreased
$2,456, or 0.1%, between periods and diluted earnings per common share increased
$.02, or 3.1%. Basic and diluted weighted average common and common equivalent
shares outstanding were 5,778,233 and 5,841,776, respectively, in the first half
of 1999 compared to 5,816,867 and 5,982,179, respectively, in the first half of
1998. As a percentage of revenues, net income for the first half of 1999
decreased to 15.2% compared to the 16.5% for the first half of 1998.

                         LIQUIDITY AND CAPITAL RESOURCES

At June 26, 1999, the Company had working capital of $43,389,695, which
represented an increase of $2,850,220, or 7.0%, from the $40,539,474 of working
capital as of December 31, 1998. The increase in working capital can be
attributed primarily to operating cash flow (income from operations before
depreciation and amortization) and proceeds from the exercise of stock options
exceeding requirements for purchases of property and equipment and funding of
the Company's stock buyback program. Significant components of the Company's
change in working capital include an increase in inventories associated with
increases in raw materials and work-in-process for new product introductions, as
well as an increase in accounts receivable-trade which reflects the shipment of
certain large bulk purchases during the latter portion of the current quarter.
Management believes that operating cash flow and cash reserves are adequate to
finance currently planned capital expenditures and to meet the overall liquidity
needs of the Company.

The Company made capital expenditures of $750,324 in the first six months of
1999 which were primarily related to test equipment and fixtures for new product
introductions, as well as certain leasehold improvements made to the Company's
facilities. The Company presently has no material capital expenditure
commitments.

On April 22, 1997, the Company's Board of Directors authorized a program to
purchase up to 200,000 shares of its common stock over a two-year period. The
program intended that the shares would be utilized to provide stock under
certain employee benefit programs. As of April 22, 1999, the expiration of this
initial program, the Company had purchased 193,400 shares of common stock under
this program. The Company has used existing cash and short-term investments to
finance these purchases. On May 6, 1999, the Company's Board of Directors
authorized a new program to purchase up to 200,000 shares of its common stock
over a two-year period. As of June 26, 1999, the Company has not initiated any
purchases of common stock under this new program.



                                       14

<PAGE>   15

                          IMPACT OF THE YEAR 2000 ISSUE

The Year 2000 issue exists because many computer systems and applications use
two digit rather than four digit date fields to designate an applicable year. As
a result, the systems and applications may not properly recognize the year 2000
or process data which include it, potentially causing data miscalculations or
inaccuracies or operational malfunctions or failures.

The Company has established a Year 2000 committee to transition the Company's
business applications, computing infrastructure and communication systems into
the next millennium. The objectives of the Year 2000 committee are to ensure all
internal computer systems function correctly in the year 2000, ensure data
exchanged with external organizations conforms to year 2000 standards and ensure
all products sold by the Company conform to year 2000 standards. The Company has
developed an inventory of all Company business systems and corresponding
software applications, and has assessed the business priority of each system.
Each system was classified by mission criticality and a determination was made
to either replace or remediate the system depending upon its importance. In
addition, the Year 2000 project included a review of the Year 2000 compliance
efforts of the Company's key suppliers and other principal business partners
and, as appropriate, the development of joint business support and continuity
plans for Year 2000 issues. While this initiative is broad in scope, it has been
structured to identify and prioritize efforts for mission critical systems,
products and key business partners.

As of June 30, 1999, the majority of the Company's critical applications are
currently prepared to process Year 2000 information. In addition, we have
conducted integration testing of our critical systems. During the remainder of
1999, the Year 2000 committee will focus attention to continue remediation and
testing on a few remaining internal business systems and contingency planning.

The Company's products with time-of-day ("TOD") clocks in their design have been
tested for successful Year 2000 operation. Products that do not have TOD clocks
have no potential Year 2000 operational issues and therefore have not been
tested. The Company believes that it will have no material exposure to
contingencies related to the Year 2000 Issue for the products it has sold.

In order to ensure year 2000 compliance among the Company's key suppliers and
business partners, the Year 2000 committee developed surveys that were provided
to the suppliers in addition to verifying compliance efforts via the supplier
and business partners Web site for Year 2000 compliance-related information. The
Company continues to examine where and how outside suppliers and business
partners impact the business and apply the same mission-critical standard to
suppliers and business partners that applies to the Company's own internal
systems. There can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.

The Company currently estimates the expenses associated with the anticipated
Year 2000 efforts to be approximately $0.1 million through 1999 with an
additional $0.3 million for capital improvement costs to support this project.
The costs expensed to date have approximated the Company's initial estimates.
The timing of the Company's expenses may vary and is not necessarily indicative
of readiness efforts or progress to date. The Company anticipates that a portion
of the Year 2000 expenses will not be incremental costs, but rather will
represent the redeployment of existing information technology resources.



                                       15
<PAGE>   16

As part of the Year 2000 initiative, the Company is evaluating scenarios that
may occur as a result of the century change and is in the process of developing
contingency and business plans that address potential Year 2000-related
occurrences. These plans are expected to assess the potential for business
disruption and to provide operational back up, recovery and restoration
alternatives.

The above information is based on the Company's current best estimates. Given
the complexity of the Year 2000 issues and risks, actual results may vary
materially from those anticipated and discussed above. Specific factors that
might cause such differences include, among others, the availability and cost of
personnel trained in this area, the ability to locate and correct all affected
computer systems, applications and products and the timing and success of
remedial efforts of the Company's third party suppliers and business partners.

                                     BACKLOG

The Company's backlog consists of firm customer purchase orders for the
Company's various products. As of June 26, 1999, the Company had a backlog of
$7,431,562 compared to $570,155 at December 31, 1998 and $2,202,611 at June 27,
1998. During the latter part of June 1999, the Company received a non-cancelable
order from an Original Equipment Manufacturing (OEM) customer of approximately
$4 million for one of the company's MCU products. It is expected that all
products subject to the order will be delivered during the third quarter of
1999, but delivery may be deferred until no later than November 30, 1999. The
Company has not been given reason to expect that this order will be repeated by
this customer in comparable volume in the foreseeable future. As with any OEM
purchases, there is a possibility that this order may reduce the Company's
direct sales of other MCU products to its customer base in some future period.
For these reasons, this order is not necessarily indicative of a corresponding
increase in sales during the second half of 1999. Periodic fluctuations in
customer orders and backlog result from a variety of factors, including but not
limited to the timing of significant orders and shipments, and are not
necessarily indicative of long-term trends in sales of the Company's products.



                                       16

<PAGE>   17

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
--------------------------
           None.

ITEM 2.  CHANGES IN SECURITIES
------------------------------
           None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
           None.

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

           On May 6, 1999, the Company held its annual shareholders meeting. At
the meeting, Christian L. Allison, Daniel P. Barry, and David S. Egan were
elected to the Board of Directors for a three-year term expiring at the annual
meeting of shareholders in 2002. The terms of Directors James J. Barnes and
Rocco L. Flaminio continued after the meeting and will expire at the annual
meeting of shareholders in 2000. The terms of Directors Richard H. Heibel and
Robert W. Kampmeinert also continued after the meeting and will expire at the
annual meeting of shareholders in 2001. In addition, the Company's 1995
Long-Term Incentive Compensation Plan (the "Plan") was amended to increase the
number of shares authorized issuance under the Plan. Also, the shareholders
ratified the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors for fiscal year 1999. The results of the voting were as
follows:

<TABLE>
<CAPTION>
                                          Total Votes
                                             Cast           For          Against      Withheld      Abstained
                                             ----           ---          -------      --------      ---------
<S>                                        <C>           <C>            <C>            <C>          <C>
Election of Directors:
----------------------
   Christian L. Allison                    5,369,968     5,090,828            --       279,140          --
   Daniel P. Barry                         5,369,968     5,091,878            --       278,090          --

Amendment of 1995 Long-Term Incentive
-------------------------------------
Compensation Plan                          5,369,968     4,300,317      1,018,138          --        51,513
-----------------

Ratification of Appointment of             5,369,968     5,314,734         45,018          --        10,216
------------------------------
PricewaterhouseCoopers LLP
--------------------------
</TABLE>



                                       17
<PAGE>   18

ITEM 5.  OTHER INFORMATION
--------------------------

At a meeting on July 15, 1999, the Board of Directors of the Company approved
the addition of a new Section 3.17 to Article III of the Bylaws of the Company.
The new Section 3.17 requires that any shareholder of the Company intending to
present a nomination of a person for election to the Board of Directors of the
Company or a proposal for action by the shareholders at an annual or special
meeting must give written notice of the nomination or proposal, containing
specified information, to the Secretary of the Company not later than the notice
deadline established under the new Section 3.17 of the Bylaws. The notice
deadline will generally be 60 days prior to the anniversary date of the
Company's proxy statement for the previous year's annual meeting. For the 2000
annual meeting, this notice deadline will be January 26, 2000. Compliance with
the notice requirements of the new section of the Bylaws will be required in
order for a nomination or shareholder proposal to be presented for a shareholder
vote at an annual or special meeting.

The new section of the Bylaws also provides that nominations of persons for
election to the Board of Directors will exclusively be made by the Board or a
Committee appointed by the Board. The Nominating Committee of the Company has
been appointed by the Board to make such nomination and will consider candidates
proposed by shareholders who meet the notice and information requirements
specified in new Section 3.17 of the Bylaws.

The new section of the Bylaws will not affect any rights of a shareholder to
request inclusion of a proposal in the Company's proxy statement pursuant to
Securities and Exchange Commission Rule 14a-8 or to present for action at an
annual meeting any proposal so included. Rule 14a-8 requires that notice of
shareholder proposals requested to be included in the Company's proxy materials
pursuant to that Rule must generally be furnished to the Company not later than
120 days prior to the anniversary date of the Company's proxy statement for the
previous year's annual meeting. For the 2000 annual meeting, the Rule 14a-8
notice deadline is November 26, 1999.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

(a)        Exhibits:
           The following exhibits are being filed with this report:

           Exhibit
           Number          Description
           ------          -----------

            3.2            Amended and Restated Bylaws of the Company dated
                           July 15, 1999, filed herewith.

           10.29           Change in Control Agreement, entered into July 16,
                           1999 between the Company and Donald J. Pavlek, file
                           herewith.

           15              Letter re unaudited interim financial information

           27              Financial Data Schedule

(b)      Reports on Form 8-K:

         The Company did not file any Current Report on Form 8-K during the
quarter ended June 26, 1999.



                                       18
<PAGE>   19


                                    SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                 TOLLGRADE COMMUNICATIONS, INC.
                                 (REGISTRANT)



Dated:   August 10, 1999         /s/ CHRISTIAN L. ALLISON
                                 -----------------------------------------------
                                 CHRISTIAN L. ALLISON
                                 CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER





Dated:   August 10, 1999         /s/ SAMUEL C. KNOCH
                                 -----------------------------------------------
                                 SAMUEL C. KNOCH
                                 CHIEF FINANCIAL OFFICER AND TREASURER




Dated:   August 10, 1999         /s/ BRADLEY N. DINGER
                                 -----------------------------------------------
                                 BRADLEY N. DINGER
                                 CONTROLLER



                                       19
<PAGE>   20


                                  EXHIBIT INDEX
                    (Pursuant to Item 601 of Regulation S-K)


Exhibit
Number          Description
------          -----------
 3.2            Amended and Restated Bylaws of the Company dated July 15, 1999,
                filed herewith.

10.29           Change in Control Agreement, entered into July 16, 1999 between
                the Company and Donald J. Pavlek, filed herewith.

15              Letter re unaudited interim financial information

27              Financial Data Schedule



                                       20