<PAGE>   1

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

                      SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549-0001

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

                                   FORM 10-Q

(MARK ONE)

[X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

                    FOR THE THREE MONTHS ENDED JUNE 30, 2000

                                       OR

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

                        COMMISSION FILE NUMBER 000-23699

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

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

<TABLE>
<CAPTION>

                  DELAWARE                                   52-1837515
<S>                                                        <C>
           (State or other jurisdiction of                   (I.R.S. Employer
           incorporation or organization)                    Identification No.)

            2092 GAITHER ROAD, ROCKVILLE, MD                 20850-4013
           (Address of principal executive offices)          (Zip Code)
</TABLE>

      Registrant's telephone number, including area code: (301) 296-2300

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

     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 the
filing requirements for the past 90 days. Yes [X] No [ ]

     As of August 9, 2000, 30,968,806 shares of the registrant's Common
Stock, par value $.01 per share, were issued and outstanding.

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


<PAGE>   2



                              VISUAL NETWORKS, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                           FOR THE THREE MONTHS ENDED
                                  JUNE 30, 2000

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                  PAGE
                                                                                  ----
<S>                                                                             <C>
              Part I. Financial Information
                Item 1. Financial Statements:
                   Consolidated Balance Sheets -- June 30, 2000 and
                    December 31, 1999.......................................        3
                   Consolidated Statements of Operations -- Three and six
                    months ended June 30, 2000 and 1999.....................        4
                   Consolidated Statements of Cash Flows -- Three and six
                    months ended June 30, 2000 and 1999.....................        5
                   Notes to Consolidated Financial Statements...............        6
                Item 2. Management's Discussion and Analysis of Financial
                   Condition and Results of Operations......................       10
                Item 3. Qualitative and Quantitative Disclosure about
                   Market Risk..............................................       14
              Part II. Other Information

                Items 1 -- 6................................................       15
                Signatures..................................................       18
</TABLE>


<PAGE>   3



                         PART I: FINANCIAL INFORMATION

ITEM 1:  FINANCIAL STATEMENTS

                              VISUAL NETWORKS, INC.

                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                                JUNE 30,     DECEMBER 31,
                                                                                  2000          1999
                                                                                  ----          ----
                                     ASSETS
<S>                                                                           <C>           <C>
Current Assets:
  Cash and cash equivalents..............................................      $  60,638      $  54,629
  Short term investments.................................................          1,893             --
  Accounts receivable, net of allowance of $1,132 and $754,
     respectively........................................................         15,080          9,374
  Inventory..............................................................          7,494          7,998
  Other current assets...................................................          3,669          2,472
                                                                               ---------      ---------
       Total current assets..............................................         88,774         74,473
Property and equipment, net..............................................         12,543          8,566
Intangible assets, net...................................................        373,411             --
Other assets.............................................................          3,993            115
                                                                               ---------      ---------
       Total assets......................................................      $ 478,721      $  83,154
                                                                               =========      =========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable and accrued expenses..................................      $  27,361      $  11,754
  Deferred revenue.......................................................         16,446         11,798
  Current portion of long-term debt......................................            579            568
                                                                               ---------      ---------
       Total current liabilities.........................................         44,386         24,120
Deferred income taxes....................................................         17,286             --
Long-term debt, net of current portion...................................          1,170            782
                                                                               ---------      ---------
       Total liabilities.................................................         62,842         24,902
                                                                               ---------      ---------
Stockholders' Equity:
  Common stock, $.01 par value, 50,000,000 shares
     authorized, 30,923,148 and 24,833,609 shares issued
     and outstanding as of June 30, 2000 and December 31,
     1999, respectively..................................................            309            248
  Additional paid-in capital.............................................        484,333         90,169
  Deferred compensation..................................................           (522)          (705)

  Accumulated other comprehensive loss...................................             (4)            --
  Accumulated deficit....................................................        (68,237)       (31,460)
                                                                               ---------      ---------
       Total stockholders' equity........................................        415,879         58,252
                                                                               ---------      ---------
       Total liabilities and stockholders' equity........................      $ 478,721      $  83,154
                                                                               =========      =========
</TABLE>

         See accompanying notes to consolidated financial statements.


<PAGE>   4



                              VISUAL NETWORKS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>



                                                            FOR THE THREE MONTHS       FOR THE SIX MONTHS
                                                               ENDED JUNE 30,            ENDED JUNE 30,
                                                          ------------------------  ----------------------
                                                             2000         1999          2000         1999
                                                         ------------ ------------  ------------ -----------
<S>                                                     <C>           <C>           <C>          <C>
Revenue.............................................       $ 28,644     $ 21,210      $ 59,138     $ 39,798
Cost of revenue.....................................          9,490        7,501        18,785       13,978
                                                           --------     --------      --------     --------
  Gross profit......................................         19,154       13,709        40,353       25,820
                                                           --------     --------      --------     --------
Operating expenses:
  Research and development..........................          6,251        4,001        11,308        7,817
  Write-off of purchased research and development...         39,000           --        39,000           --
  Sales and marketing...............................          9,280        5,876        16,257       11,467
  General and administrative........................          2,376        1,920         4,627        3,605
  Amortization of acquired intangibles..............          8,841           --         8,841           --
                                                           --------     --------      --------     --------
     Total operating expenses.......................         65,748       11,797        80,033       22,889
                                                           --------     --------      --------     --------
Income (loss) from operations.......................        (46,594)       1,912       (39,680)       2,931
Interest income, net................................            693          517         1,370        1,079
                                                           --------     --------      --------     --------
Income (loss) before income taxes...................        (45,901)       2,429       (38,310)       4,010
Income tax benefit (expense)........................          3,582         (777)        1,532       (1,283)
                                                           --------     --------      --------     --------
Net income (loss)...................................       $(42,319)    $  1,652      $(36,778)    $  2,727
                                                           ========     ========      =========    ========
Basic income (loss) per share.......................       $  (1.54)    $   0.07      $  (1.40)    $   0.11
                                                           ========     ========      ========     ========
Diluted income (loss) per share.....................       $  (1.54)    $   0.06      $  (1.40)    $   0.10
                                                           ========     ========      ========     ========
Basic weighted average shares outstanding...........         27,398       24,449        26,189       24,422
                                                           ========     ========      ========     ========
Diluted weighted average shares outstanding.........         27,398       26,240        26,189       26,354
                                                           ========     ========      ========     ========
</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>   5


                              VISUAL NETWORKS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                       FOR THE SIX MONTHS
                                                                         ENDED JUNE 30,
                                                                 ----------------------------
                                                                       2000          1999
                                                                       ----          ----
Cash flows from operating activities:
<S>                                                               <C>            <C>
  Net income (loss).........................................         $(36,778)     $  2,727
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Depreciation and amortization..........................           11,324         1,616
     Write-off of purchased research and development........           39,000            --
     Deferred taxes.........................................           (1,532)           --
  Changes in assets and liabilities:
     Accounts receivable....................................           (5,706)       (6,282)
     Inventory..............................................              504        (1,211)
     Other assets...........................................             (921)         (662)
     Accounts payable and accrued expenses..................            7,188         1,098
     Customer deposits......................................               --        (4,613)
     Deferred revenue.......................................           (2,657)        5,501
                                                                     ---------      --------
       Net cash provided by (used in) operating
        activities..........................................           10,422        (1,826)
                                                                     ---------      --------
Cash flows from investing activities:
  Net maturities of short-term investments..................            3,662           166
  Expenditures for property and equipment...................           (4,611)       (4,282)
  Proceeds from sale leaseback transaction..................               --           750
  Merger-related transaction costs, net of cash acquired....           (5,039)           --
                                                                     ---------      --------
       Net cash used in investing activities................           (5,988)       (3,366)
                                                                     ---------      --------
Cash flows from financing activities:
  Exercise of stock options.................................            3,456         1,170
  Repurchase of common stock................................               --            (1)

  Net borrowings (repayments) under credit agreements.......           (1,658)          386
  Principal payments on capital lease obligations...........             (219)         (175)
                                                                     ---------      --------
       Net cash provided by financing activities............            1,579         1,380
                                                                     ---------      --------
Effect of exchange rate changes.............................               (4)           --
                                                                     ---------      --------
Net increase (decrease) in cash and cash equivalents........            6,009        (3,812)
Cash and cash equivalents, beginning of period..............           54,629        51,655
                                                                     ---------      --------
Cash and cash equivalents, end of period....................         $ 60,638      $ 47,843
                                                                     ========      =========
Supplemental cash flow information:
  Cash paid for interest....................................         $     81      $    102
                                                                     ========      =========
Supplemental disclosure of non-cash activities:
  5,413,753 shares of common stock issued for acquisition...         $395,121      $     --
                                                                     ========      =========
</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>   6



                              VISUAL NETWORKS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)

(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Visual Networks, Inc. ("Visual" or the "Company") designs, manufactures
and sells service management systems for corporate networks based on the
internet protocol ("IP") and the Internet. The Company's operations are subject
to certain risks and uncertainties, including among others, successful
implementation of the sales and distribution model, dependence on significant
customers, rapidly changing technology, current and potential competitors with
greater financial, technological, production, and marketing resources,
dependence on sole and limited source suppliers, dependence on key management
personnel, limited protection of intellectual property and proprietary rights,
integration of acquisitions, uncertainty of future profitability and possible
fluctuations in financial results.

FINANCIAL STATEMENT PRESENTATION

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.

     These financial statements are unaudited and have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission regarding interim financial reporting. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements, and it is suggested
that these financial statements be read in conjunction with the financial
statements and notes thereto, included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999. In the opinion of management, the
comparative financial statements for the periods presented herein include all
adjustments that are normal and recurring which are necessary for a fair
presentation of results for the interim periods. The results of operations for
the three and six months ended June 30, 2000 are not necessarily indicative of
the results for the entire year ending December 31, 2000.

     On May 15, 1998, Visual acquired Net2Net Corporation ("Net2Net") in a
merger transaction accounted for as a pooling of interests. Net2Net was engaged
in developing, manufacturing and marketing Asynchronous Transfer Mode ("ATM")
wide-area-network management and analysis systems. On September 30, 1999,
Visual acquired Inverse Network Technology ("Inverse") in a merger transaction
accounted for as a pooling of interests. Inverse was a provider of service
level management software solutions and Internet measurement services. The
accompanying consolidated financial statements have been retroactively restated
to reflect the combined financial position and combined results of operations
and cash flows for all periods presented, giving effect to the acquisitions of
Net2Net and Inverse as if they had occurred at the beginning of the earliest
period presented.

     On May 24, 2000, Visual acquired Avesta Technologies, Inc. ("Avesta") in a
merger transaction accounted for using the purchase method of accounting.
Avesta is a provider of fault management and application performance monitoring
software systems to e-business customers. The results of operations have been
included in the accompanying consolidated statements of operations from the
date of acquisition (hereafter, Visual, Net2Net, Inverse and Avesta are
collectively referred to as the "Company").

PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts of Visual and
its wholly owned subsidiaries.  All significant intercompany account balances
and transactions have been eliminated in consolidation.

CREDIT RISK

     Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments, and accounts receivable. The Company primarily sells
its products to large telecommunications companies, Internet service providers
and e-business customers located in

<PAGE>   7
the United States. Three customers individually represented 27%, 17% and 10% of
revenue, respectively, for the six months ended June 30, 2000. For the six
months ended June 30, 1999, two customers individually represented 25% and 24%
of revenue, respectively.

SHORT-TERM INVESTMENTS

    The Company classifies, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," all of its investments as available for sale. The
investments consist primarily of commercial paper and debt securities and are
stated at fair value, with realized gains and losses, net of tax, reported in
other comprehensive income.  At June 30, 2000, the fair values of the Company's
short-term investments approximated their respective costs. For the three and
six months ended June 30, 2000, the unrealized gains and losses were
insignificant.

INVENTORY

     Inventory is stated at the lower of cost or market. Inventory consists of
the following (unaudited, in thousands):

<TABLE>
<CAPTION>

                                              JUNE 30,      DECEMBER 31,
                                                2000            1999
                                                ----            ----

<S>                                          <C>             <C>
                     Raw materials......       $   599        $   764
                     Work-in-progress...         2,602          2,230
                     Finished goods.....         4,293          5,004
                                               -------        -------
                     Total                     $ 7,494        $ 7,998
                                               =======        =======
</TABLE>

REVENUE RECOGNITION

     The Company's service management products and services include hardware,
software, benchmark services, professional services and technical support. The
Company generally recognizes revenue from the sale or license of its products
upon delivery and passage of title to the customer. Where agreements provide
for evaluation or customer acceptance, the Company recognizes revenue upon the
completion of the evaluation process and acceptance of the product by the
customer. Maintenance contracts require the Company to provide technical
support and software updates to customers. The Company recognizes product
support and maintenance revenue, including maintenance revenue that is bundled
with product sales, ratably over the term of the contract period, which
generally ranges from one to five years. Revenue from services is recognized
when the services are performed. Subscription fees for the Company's benchmark
reports are deferred and recognized upon delivery of the reports.

     The Company adopted the American Institute of Certified Public Accountants
(the "AICPA") Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," in 1998. In 1999, the Company adopted SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions,"
which amends SOP 98-4, "Deferral of Effective Date of a Provision of SOP 97-2,"
to provide additional guidance regarding the accounting for multiple element
software sales. The Company recognizes software revenue in accordance with these
Statements of Position.

INCOME TAXES

     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are computed based on the difference between the financial statement
and income tax bases of assets and liabilities using the enacted marginal tax
rate. SFAS No. 109 requires that the net deferred tax asset be reduced by a
valuation allowance if, based on the weight of available evidence, it is more
likely than not that some portion or all of the net deferred tax asset will not
be realized.

FOREIGN CURRENCY AND INTERNATIONAL OPERATIONS




<PAGE>   8


    The functional currencies of three of the Company's subsidiaries are the
Canadian and Singapore dollars and British pounds, respectively. The financial
statements of these subsidiaries are translated to U.S. dollars using
period-end rates for assets and liabilities and average rates during the
relevant period for revenues and expenses. Translation gains and losses are
accumulated as a component of other comprehensive loss in stockholders' equity.

COMPREHENSIVE LOSS

    The Company reports comprehensive income (loss) in accordance with SFAS No.
130, "Reporting Comprehensive Income."  SFAS No. 130 establishes rules for the
reporting and display of comprehensive income and its components.  SFAS No. 130
requires foreign currency translation adjustments and the unrealized gains and
losses on marketable securities, net of tax, to be included in other
comprehensive income (loss).

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

     Basic earnings (loss) per share includes no dilution and is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share includes the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock.

     Options and warrants to purchase 4,537,418 shares of common stock that
were outstanding at June 30, 2000, were not included in the computations of
diluted loss per share for the three and six months ended June 30, 2000 as
their effect would be anti-dilutive.


<PAGE>   9


     The following details the computations of the earnings (loss) per share
(unaudited, in thousands except per share data):

<TABLE>
<CAPTION>

                                                                   FOR THE THREE  MONTHS ENDED    FOR THE SIX MONTHS ENDED
                                                                              JUNE 30,                     JUNE 30,
                                                                              --------                     --------
                                                                         2000          1999            2000          1999
                                                                         ----          ----            ----          ----
<S>                                                                 <C>            <C>            <C>           <C>
ADJUSTMENTS TO NET INCOME:

  Net income (loss)..........................................         $  (42,319)    $  1,652       $(36,778)     $  2,727
                                                                      ===========    ========       =========     ========
WEIGHTED AVERAGE SHARE CALCULATION:
  Basic weighted average shares outstanding:
     Average number of shares of common stock outstanding
       during the period.....................................             27,407       24,449         26,194        24,422
  Diluted weighted average shares outstanding:
     Treasury stock effect of options and warrants...........                 --        1,791             --         1,932
                                                                      ----------     --------       --------      --------
  Diluted weighted average shares outstanding................             27,407       26,240         26,194        26,354
                                                                      ==========     ========       ========      ========
INCOME (LOSS) PER COMMON SHARE:

  Basic income (loss) per share..............................         $    (1.54)    $    0.07      $   (1.40)    $    0.11
                                                                      ===========    =========      ==========    =========
  Diluted income (loss) per share............................         $    (1.54)    $    0.06      $   (1.40)    $    0.10
                                                                      ===========    =========      ==========    =========
</TABLE>

(2) NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards requiring every derivative
instrument to be reported on the balance sheet as either an asset or liability
measured at its fair value. It requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS No. 133 was initially proposed to be effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999, however, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," and
the effective date of this SFAS has been deferred until issuance by the FASB.
The Company does not expect that adoption will have a material effect on the
Company's financial position or results of operations.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in
Financial Statements." SAB No. 101 provides guidance on applying generally
accepted accounting principles to revenue recognition, presentation and
disclosure in financial statements. Subsequently, the SEC has amended the
implementation dates so that the Company is required to adopt the provisions of
SAB No. 101 in the fourth quarter of 2000. We are currently reviewing the
impact of SAB No. 101, but we believe that it will not materially affect the
Company's results of operations or financial position.

(3) AVESTA TECHNOLOGIES MERGER

     On February 7, 2000, the Company entered into an agreement and plan of
merger (the "Merger") with Avesta, a provider of fault management and
application performance monitoring software systems to e-business customers.
Upon closing of the Merger on May 24, 2000, the Company acquired all of the
outstanding preferred and common stock of Avesta. In addition, all of the
outstanding Avesta stock options and warrants were converted into options and
warrants to purchase shares of the Company's common stock. At closing, Avesta
equity holders received an aggregate of 5,413,753 shares of Visual common
stock, 673,338 options and 445,463 warrants to purchase shares of Visual common
stock. In addition, Avesta equity holders are entitled to receive up to
2,000,000 shares of Visual common stock as additional consideration if certain
annual sales goals are achieved in calendar 2000. The acquisition has been
accounted for as a purchase business combination. The purchase price has been
allocated on a preliminary basis as follows (unaudited, in thousands):

<TABLE>
<CAPTION>
<S>                                                               <C>
                         Net assets acquired................                $    1,215
                         Completed technology...............                   129,000
                         In-process technology..............                    39,000
                         Assembled workforce................                     4,000
                         Trademarks.........................                    19,000
                         Goodwill...........................                   244,279
                         Deferred tax liability.............                   (41,373)
                                                                            ----------
                         Total..............................                $  395,121
                                                                            ==========
</TABLE>


<PAGE>   10
     Of the $395.1 million purchase price, $39.0 million was allocated to
in-process technology. The Company retained professional appraisal consultants
to assist with the assessment and allocation of a portion of the purchase price
to the in-process technology. These allocations represent the estimated fair
value based on risk-adjusted future cash flows related to the incomplete
projects. At the date of the Merger, the development of these projects had not
yet reached technological feasibility and the technology had no alternative
future uses. As a result, the entire $39.0 million of in-process technology
acquired was expensed as of the acquisition date.

     Goodwill is amortized over a period of four years. The assembled workforce
is amortized over a period of three years. Trademarks are amortized over a
period of seven years. Completed technology is amortized over a period of five
years. The pro forma information presented below (unaudited, in thousands)
reflects the Merger as if it occurred on January 1, 1999. These results are not
necessarily indicative of future operating results or what would have occurred
had the Merger been consummated at that date.

<TABLE>
<CAPTION>

                                                                             SIX MONTHS ENDED
                                                                                  JUNE 30,
                                                                                  -------
                                                                            2000            1999
                                                                         -----------    ------------
<S>                                                                     <C>             <C>
               Pro forma net revenues............................         $  65,653       $  41,712
               Pro forma net loss................................           (38,320)        (41,415)
               Pro forma basic and diluted loss per share........         $   (1.25)      $   (1.39)
</TABLE>

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

OVERVIEW

    From our incorporation in August 1993 through December 1996, our principal
objective was to secure sufficient equity financing to enable us to accelerate
product development efforts of Visual UpTime for Frame Relay deployment and to
develop sales and marketing functions and general and administrative
infrastructure. Visual UpTime was first shipped in mid-1995. We began
generating significant revenue from sales of Visual UpTime during 1996. In
August 1996, we entered into a master reseller agreement with Sprint, resulting
in our products being sold through Sprint to subscribers. In October 1997, we
entered into a similar master reseller



<PAGE>   11


agreement with MCI, which also resulted in our shipping of products through MCI
to subscribers. During 1997 and 1998, we focused on selling Visual UpTime
directly to providers for use as part of their network infrastructure and
Visual IP Insight and Visual Internet Benchmark to Internet service providers.
In December 1997, we entered into an agreement with AT&T, which provides for
the sale of our products to AT&T for deployment as part of AT&T's
infrastructure. During 1999, we continued to focus on selling Visual UpTime,
Visual IP Insight and Visual Internet Benchmark.

     On May 15, 1998, we acquired Net2Net in a merger accounted for as a
pooling of interests. On September 30, 1999, we acquired Inverse in a merger
accounted for as a pooling of interests. See Note 1 of Notes to Consolidated
Financial Statements. On May 24, 2000, we acquired Avesta in a merger accounted
for using the purchase method of accounting. See Notes 1 and 3 of Notes to
Consolidated Financial Statements. The combinations with Net2Net, Inverse and
Avesta will affect the future results of the operations reported by us.

     We realize revenue from sales of hardware, software, benchmark services,
professional services and technical support. We generally recognize revenue
from the sale or license of our products upon delivery of the product and
passage of title to the customer. Where the agreements provide for evaluation
or customer acceptance, we recognize revenue upon the completion of the
evaluation process and acceptance of the product by the customer. Maintenance
contracts call for us to provide technical support and software updates to
customers. We recognize maintenance revenue, including maintenance revenue that
is bundled with product sales, ratably over the lengths of the maintenance
contracts, which currently range from one to five years. Revenue from services
is recognized when the services are performed. Subscription fees for our
benchmark reports are deferred and recognized upon delivery of the reports.

     We currently contract with third party subcontract manufacturers for most
of the assembly, testing and shipping of our products. We anticipate
maintaining a portion of our internal manufacturing function for the
foreseeable future at our Rockville, Maryland facility.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH
THE THREE MONTHS ENDED JUNE 30, 1999

     REVENUE. We recognized $28.6 million in revenue for the three months ended
June 30, 2000, a 35.0% increase over revenue of $21.2 million for the three
months ended June 30, 1999. The increase was primarily due to the continued
acceptance of our Visual Uptime, Visual IP Insight and Visual Internet
Benchmark products and the acquisition of the Avesta Trinity and Ewatcher
products. Sales to service providers accounted for approximately 67% and 72% of
revenue for the three months ended June 30, 2000 and 1999, respectively.

     GROSS PROFIT. Cost of revenue consists of subcontracting costs, component
parts, direct compensation costs, communication costs, warranty and other
contractual obligations, royalties, license fees and other overhead expenses
related to our manufacturing operations and to supporting our software products
and benchmark services. Gross profit was $19.2 million for the three months
ended June 30, 2000, as compared to $13.7 million for the three months ended
June 30, 1999, an increase of $5.5 million. Gross margin was 66.9% of revenue
for the three months ended June 30, 2000, as compared to 64.6% of revenue for
the three months ended June 30, 1999. The increase in gross margin percentage
was due primarily to an increase in higher-margin software sales, which were
partially offset by an increase in lower-margin hardware sales. Our future
gross margins may be adversely affected by a number of factors, including
product mix, the proportion of sales to providers, competitive pricing,
manufacturing volumes and an increase in component part costs.

     RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
consists of compensation for research and development staff, depreciation of
test and development equipment, certain software development costs and costs of
prototype materials. Research and development expense was $6.3 million for the
three months ended June 30, 2000, as compared to $4.0 million for the three
months ended June 30, 1999, an increase of $2.3 million. The increase in
research and development expense was due primarily to increased staffing levels
and related support costs, purchases of materials and services used in the
development of new or enhanced products and the addition of Avesta research and
development staff and costs subsequent to the acquisition. Research and
development expense was 21.8% and 18.9% of revenue for the three months ended
June 30, 2000 and 1999, respectively. We expect that research and development
expenditures will increase in absolute dollars, and may decrease as a
percentage of revenue, during the remainder of 2000. The increase in absolute
dollars will support continued development of new or enhanced products and the
exploration of new or complementary technologies.

     WRITE-OFF OF PURCHASED RESEARCH AND DEVELOPMENT. A one-time write-off of
research and development costs related to the Avesta acquisition was recorded
in the amount of $39.0 million in the three months ended June 30, 2000. The
amount was determined by professional appraisal consultants and represents the
estimated fair value of incomplete projects.

     SALES AND MARKETING EXPENSE. Sales and marketing expense consists of
compensation for the sales and marketing staff, commissions, pre-sales support,
travel and entertainment, trade shows and other marketing programs. Sales and
marketing expense was $9.3 million for the three months ended June 30, 2000, as
compared to $5.9 million for the three months ended June 30, 1999, an


<PAGE>   12


increase of $3.4 million. The increase in sales and marketing expense was due
primarily to continued growth in staffing, commissions, and marketing programs
and the costs of Avesta sales and marketing staff and programs subsequent
to the acquisition. Sales and marketing expense was 32.4% and 27.7% of revenue
for the three months ended June 30, 2000 and 1999, respectively. We expect that
sales and marketing expenditures will increase in absolute dollars, and may
decrease as a percentage of revenue, during the remainder of 2000. This
increase in absolute dollars is expected to be incurred as additional personnel
are hired, field offices are opened and promotional expenditures increase to
allow us to increase our market penetration and to pursue market opportunities.

     GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
consists of finance, administration and general management activities. General
and administrative expense was $2.4 million for the three months ended June 30,
2000, as compared to $1.9 million for the three months ended June 30, 1999, an
increase of $0.5 million. The increase in general and administrative expense
was due primarily to increased staffing, professional services and corporate
facilities and network infrastructure costs and the addition of Avesta staff
and professional services subsequent to the acquisition. General and
administrative expense was 8.3% and 9.1% of revenue for the three months ended
June 30, 2000 and 1999, respectively. We expect that general and administrative
expenditures may increase in absolute dollars and may continue to decrease as a
percentage of revenue, during the remainder of 2000. The increase in absolute
dollars is expected to be required for the expansion of our administrative
staff and internal systems to support expanding operations.

     AMORTIZATION OF ACQUIRED INTANGIBLES. The Company recorded $8.8 million in
amortization of goodwill and other intangibles related to the acquisition of
Avesta.

     INTEREST INCOME, NET. Interest income, net, for the three months ended
June 30, 2000, was approximately $0.7 million as compared to $0.5 million for
the three months ended June 30, 1999, an increase of $0.2 million. The increase
was primarily due to decreased interest expense related to capital leases and
other borrowings and increased interest income related to the increased cash
balances and the addition of Avesta cash and short-term investments.

     INCOME TAXES. The income tax benefit for the three months ended June 30,
2000, was $3.6 million compared to expense of $0.8 million for the three months
ended June 30, 1999.

     NET INCOME (LOSS). Net loss for the three months ended June 30, 2000, was
$42.3 million as compared to net income of $1.7 million for the three months
ended June 30, 1999, a decrease of $44.0 million. This decrease was due
primarily to the write off of purchased research and development and the
amortization of goodwill and other intangible assets offset by increases in
revenue and gross profit in the three months ended June 30, 2000.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH THE
SIX MONTHS ENDED JUNE 30, 1999

     REVENUE. We recognized $59.1 million in revenue for the six months ended
June 30, 2000, a 48.6% increase over revenue of $39.8 million for the six
months ended June 30, 1999. The increase was primarily due to the continued
acceptance of our Visual Uptime, Visual IP Insight and Visual Internet
Benchmark products and the acquisition of Avesta Trinity and Ewatcher products
with an increase in sales to service providers. Sales to service providers
accounted for approximately 69% and 66% of revenue for the six months ended
June 30, 2000 and 1999, respectively.

     GROSS PROFIT. Gross profit was $40.4 million for the six months ended June
30, 2000, as compared to $25.8 million for the six months ended June 30, 1999,
an increase of $14.6 million. Gross margin was 68.2% of revenue for the six
months ended June 30, 2000, as compared to 64.9% of revenue for the six months
ended June 30, 1999. The increase in gross margin percentage was due primarily
to an increase in higher-margin software sales, which were partially offset by
an increase in lower-margin hardware sales.

     RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was
$11.3 million for the six months ended June 30, 2000, as compared to $7.8
million for the six months ended June 30, 1999, an increase of $3.5 million.
The increase in research and development expense was due primarily to increased
staffing levels and related support costs, and purchases of materials and
services used in the development of new or enhanced products and the addition
of Avesta research and development staff and costs subsequent to the
acquisition. Research and development expense was 19.1% and 19.6% of revenue
for the six months ended June 30, 2000 and 1999, respectively.

    WRITE-OFF OF PURCHASED RESEARCH AND DEVELOPMENT. A one-time write-off of
research and development costs related to the Avesta acquisition was recorded
in the amount of $39.0 million in the sixth months ended June 30, 2000.

     SALES AND MARKETING EXPENSE. Sales and marketing expense was $16.3 million
for the six months ended June 30, 2000, as compared to $11.5 million for the
six months ended June 30, 1999, an increase of $4.8 million. The increase in
sales and marketing expense was due primarily to continued growth in staffing,
commissions, and marketing programs and the acquisition of Avesta sales



<PAGE>   13


and marketing staff and programs subsequent to the acquisition. Sales and
marketing expense was 27.5% and 28.8% of revenue for the six months ended June
30, 2000 and 1999, respectively.

     GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense was
$4.6 million for the six months ended June 30, 2000, as compared to $3.6 million
for the six months ended June 30, 1999, an increase of $1.0 million. The
increase in general and administrative expense was due primarily to increased
staffing, professional services and corporate facilities and network
infrastructure costs and the addition of Avesta staff and professional services
subsequent to the acquisition. General and administrative expense was 7.8% and
9.1% of revenue for the six months ended June 30, 2000 and 1999, respectively.

     AMORTIZATION OF ACQUIRED INTANGIBLES.  The Company recorded $8.8 million
in amortization of goodwill and other intangibles related to the acquisition of
Avesta.

     INTEREST INCOME, NET. Interest income, net, for the six months ended June
30, 2000, was approximately $1.4 million as compared to $1.1 million for the six
months ended June 30, 1999, an increase of $0.3 million. The increase was
primarily due to decreased interest expense related to capital leases and other
borrowings and increased interest income related to the increased cash balances
and the addition of Avesta cash and short-term investments.

     INCOME TAXES. The income tax benefit for the six months ended June 30,
2000, was $1.5 million compared to expense of $1.3 for the six months ended June
30, 1999.

     NET INCOME (LOSS). Net loss for the six months ended June 30, 2000, was
$36.8 million as compared to net income of $2.7 million for the six months
ended June 30, 1999, a decrease of $39.5 million. This decrease was due
primarily to the write off of purchased research and development and the
amortization of goodwill and other intangible assets offset by increases in
revenue and gross profit in the six months ended June 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

     At June 30, 2000, our combined balance of cash, cash equivalents and
short-term investments was $62.5 million as compared to $54.6 million as of
December 31, 1999, an increase of $7.9 million. This increase is primarily
attributable to $10.4 million in cash provided from operations, $3.5 million in
proceeds from the exercise of stock options and other stock issuances offset by
$4.6 million in capital expenditure and $5.0 million in merger-related
transaction costs, net of cash acquired.

     We require substantial working capital to fund our core business,
particularly to finance inventories, accounts receivable, research and
development activities and capital expenditures. Additionally, we require
substantial working capital to support our acquisition strategy. We currently
anticipate that capital expenditures for 2000 are not expected to exceed $10
million. Our future capital requirements will depend on many factors, including
the rate of revenue growth, if any, the timing and extent of spending to
support product development efforts and expansion of sales and marketing, the
timing of introductions of new products and enhancements to existing products
and market acceptance of our products. There can be no assurance that
additional equity or debt financing, if required, will be available on
acceptable terms, if at all.

     In addition to our cash and cash equivalents, our other principal source
of liquidity is our bank credit facility. The credit facility includes a
revolving line of credit providing for borrowings up to the lesser of $7.0
million or 85% of eligible accounts receivable (as defined in the credit
facility). The agreement contains restrictive financial covenants, including,
but not limited to, restrictions related to liquidity, profitability and net
worth, as well as restrictions related to acquisitions, dispositions of assets,
distributions and investments. As of June 30, 2000, the Company had no
borrowings outstanding under the credit agreement.

    Avesta's revolving line of credit agreement with a financial institution
(the "Avesta Facility"), as amended in October 1999, allows for borrowings up
to $7,500,000. Borrowings under the Avesta Facility cannot exceed 85% of
outstanding eligible accounts receivable, as defined, and bear interest at the
bank's prime rate plus 2%. Borrowings under the Avesta Facility are
secured by


<PAGE>   14


all of Avesta's assets including its intellectual property, and the payments of
cash dividends are restricted. The Avesta Facility matures in October 2000. As
of June 30, 2000, there were no borrowings outstanding under the Avesta
Facility.

    In February 1997, and renewed annually thereafter, Avesta entered into a
$300,000 letter of credit facility bearing interest at the prime rate plus 1%.
The letter of credit facility was unused at June 30, 2000.

     We believe that our current cash position combined with our credit
facilities are sufficient to meet our capital expenditure and working capital
requirements for the next 18 to 24 months. We may consider from time to time
various alternatives and may seek to raise additional capital through equity or
debt financing or to enter into strategic agreements. There can be no
assurance, however, that any of such financing alternatives will be available
on terms acceptable to us, if at all.

FACTORS THAT MAY AFFECT FUTURE RESULTS

     The market for our products is growing rapidly and our business
environment is characterized by rapid technological changes, changes in
customer requirements and new emerging market segments. Consequently, to
compete effectively, we must make frequent new product introductions and
enhancements and deploy sales and marketing resources to take advantage of new
business opportunities. Our operations are also subject to certain other risks
and uncertainties including, among other things, the effectiveness of actual
and potential competition, the success of our relationships with our current
strategic partners, the continued development of reseller relationships with
new service providers, and the risks associated with acquisitions and
international expansion. Failure to meet any of these challenges could
adversely affect future operating results.

     Although a significant majority of our sales to date have been made to
customers in the United States and Canada, we intend to increase our sales
efforts in other international markets. We plan to sell our products to
international customers at prices denominated in U.S. dollars. However, if we
experience material levels of sales at prices not denominated in U.S. dollars,
we intend to adopt a strategy to hedge against currency fluctuations.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

     The foregoing discussion contains forward-looking information within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and is subject to the safe harbor created by
those sections. Our future results may be impacted by various important factors
including, but not limited to, our ability to implement our provider deployment
model, our lengthy sales cycle, dependence on our major customers, risks
associated with the integration of acquired companies, risks associated with
rapid technological change and the emerging services market, potential
fluctuations in quarterly results, our dependence on sole and limited source
suppliers and fluctuations in component pricing and our dependence on key
employees, the adoption of the Internet by business and consumers for
e-commerce, and other risk factors set forth in our Annual Report on Form 10-K
for the year ended December 31, 1999 and Registration Statement No. 333-33946
on Form S-4 filed April 4, 2000, as amended.

ITEM 3.  QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

     See Item 2. "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Factors That May Affect Future Results."


<PAGE>   15



                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     In July 2000, several purported class action complaints were filed against
the Company and Scott E. Stouffer, its Chairman and CEO, in the United States
District Court for the District of Maryland. The complaints allege that between
February 7, 2000 and July 5, 2000, the defendants made false and misleading
statements which had the effect of inflating the market price of the Company's
stock, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934. The complaints do not specify the amount of damages sought. The
Company believes that the plaintiffs' claims are without merit and intends to
defend these cases vigorously. The Company may, however, incur significant
legal costs related to this litigation.

     In October 1997, a lawsuit was filed against Avesta and one of its
employees that alleges patent infringement, unfair competition, breach of
contract and interference with contractual relations resulting in unjust
enrichment. Avesta answered the complaint, denying all allegations, and also
asserted counterclaims against the plaintiff for patent misuse, unfair
competition and interference with business and patent invalidity. The Company
intends to vigorously defend itself against these allegations and management
believes that they acted appropriately in connection with the matters at issue.
The Company cannot presently determine the ultimate outcome of this action and
the effect, if any, on the accompanying financial statements. A negative outcome
could have a material adverse effect on the Company's financial position.
Failure to prevail in the litigation could result in one or more of the
following: (i) the payment of substantial monetary and punitive damages; (ii)
the reimbursement of the plaintiff's legal costs; (iii) the requirement to stop
selling one of the Company's major products in its current form; (iv) the
redesign of that product; (v) the requirement to license certain technology from
the plaintiff, which could include significant royalty payments; and (vi) the
indemnification of certain customers against the losses they may incur due to
the alleged infringement. In addition, the Company may incur significant legal
costs related to this litigation.

ITEM 2.  CHANGES IN SECURITIES

     None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

    (a) The Company held its annual meeting of Stockholders on May 24, 2000 (the
"Annual Meeting").

    (b) n/a

    (c) The following matters were voted upon at the Annual Meeting:

         (i)         All Nominees were elected as directors to serve until the
                     2003 Annual Meeting of Stockholders, or until their
                     respective successors are elected and duly qualified, with
                     99% of the shares of Common Stock present and voting at
                     the meeting voting for Messers McCourtney, Smith and
                     Stouffer as follows:

<TABLE>
<CAPTION>

                             NOMINEE                         FOR              WITHHELD
                             -------                         ---              --------
<S>                                                     <C>                  <C>
                         Mr. McCourtney                   18,497,009           38,258
                         Mr. Smith                        18,496,639           38,628
                         Mr. Stouffer                     18,496,609           38,658
</TABLE>


<PAGE>   16
         (ii)        The Agreement and Plan of Merger dated as of February 7,
                     2000 among Visual Networks, Inc., Visual Acquisitions
                     Three, Inc. and Avesta Technologies, Inc. was approved by
                     83% of the shares of Common Stock present and voting at the
                     meeting.  (Votes for:  15,370,256; votes against or
                     withheld 491,638; broker non-votes 2,673,373).

         (iii)       An amendment to the Company's Amended and Restated
                     Certificate of Incorporation increasing the authorized
                     shares of common stock from 50,000,000 to 200,000,000 was
                     approved by 51% of the issued and outstanding shares of
                     Common Stock (Votes for: 12,660,617; votes against or
                     withheld: 5,874,650)

         (iv)        The Visual Networks, Inc. 2000 Stock Incentive Plan and
                     the issuance of 7,000,000 shares of common stock
                     hereunder was approved by 51% of the shares of Common
                     Stock present and voting at the meeting (Votes for:
                     9,486,062; votes against or withheld: 6,375,832; broker
                     non-votes:  2,673,373).

         (v)         The appointment of Arthur Andersen LLP as the Company's
                     independent auditors was ratified by 99% of the shares
                     present and voting at the meeting (Votes for:
                     18,526,404; votes against or withheld: 8,863).

ITEM 5.  OTHER INFORMATION

     None.


ITEM 6.  (a) EXHIBITS

<TABLE>
<CAPTION>

                        EXHIBIT
                        NUMBER                                    EXHIBIT DESCRIPTION
                ---------------------     -------------------------------------------
              <S>                        <C>
                     3.1       $          Amended and Restated Certificate of Incorporation of the Company.
                   3.1.1       @          Certificate of Amendment to Amended and Restated Certificate of
                                          Incorporation.
                     3.2       *          Restated By-Laws of the Company.
                    10.1       *          1994 Stock Option Plan.
                    10.2       *          1997 Omnibus Stock Plan, as amended.
                    10.3       *          Amended and Restated 1997 Directors' Stock Option Plan.
                    10.4                  2000 Stock Incentive Plan, as amended.
                    10.5       *+         Reseller/Integration Agreement, dated August 29, 1997, by
                                          and between the Company and MCI Telecommunications
                                          Corporation.
                   10.5.1      $$$++      Second Amendment, dated November 4, 1998, to the
                                          Reseller/Integration Agreement between the
                                          Company and MCI Telecommunications
                                          Corporation (relating to Exhibit 10.5).
                    10.6       !          Master Purchase Agreement, dated as of May 22, 2000,
                                          between Sprint/United Management Company and the Company.
                    10.7       *+         General Agreement for the Procurement of Equipment, Services
                                          and Supplies between the Company and AT&T Corp.
                    10.8       *          Lease Agreement, dated December 12, 1996, by and between the
                                          Company and The Equitable Life Assurance Society of the
                                          United States.
                   10.8.1      *          Lease Amendment, dated September 2, 1997, by and between
                                          the Company and The Equitable Life Assurance Society of
                                          The United States (related to Exhibit 10.8).
                   10.8.2      $$$        Second Lease Amendment, dated February 8, 1999, by
                                          and between the Company and TA/Western, LLC,
                                          successor to The Equitable Life Assurance Society of
                                          The United States (relating to Exhibit 10.8).
                   10.8.3      ***        Third Lease Amendment, dated January 10, 2000, by
                                          and between the Company and TA/Western, LLC
                                          (relating to Exhibit 10.8).
                   10.8.4                 Fourth Lease Amendment, dated May 17, 2000, by
                                          and between the Company and TA/Western, LLC,
                                          successor to The Equitable Life
                                          Assurance Society of the United States
                                          (relating to Exhibit (10.8).
                    10.9       ***        Sublease, dated October 1, 1999, between the Company and
                                          Micron Technology, Inc.
                   10.10       *          Employment Agreement, dated December 15, 1994, by and
                                          between the Company and Scott E. Stouffer, as amended.
                   10.11                  Lease Agreement, dated April 7, 2000, by and between Visual
                                          Networks, Inc. and TA/Western, LLC.
                   10.12       *          Terms of Employment, dated June 11, 1997, by and between the
                                          Company and Peter J. Minihane, as amended.
                   10.15       %          Loan and Security Agreement, dated April 5, 1999, by and
                                          between Silicon Valley Bank and the Company.
                  10.15.1      %          Revolving Promissory Note issued by the Company on April 5,
                                          1999, to Silicon Valley Bank (relating to Exhibit 10.15).
                   10.17       **         Net2Net 1994 Stock Option Plan.
                   10.20       $$         1999 Employee Stock Purchase Plan.
                   10.21       %%         Agreement and Plan of Merger, dated September 15, 1999, by
                                          and among the Company, Visual Acquisitions Two, Inc. and
                                          Inverse Network Technology.
                   10.22       %%%        Inverse Network Technology 1996 Stock Option Plan.
                   10.23       @          Merger Agreement, dated February 7, 2000, by and
                                          among Visual Networks, Inc., Visual Acquisitions Three, Inc.
                                          and Avesta Technologies, Inc.
                 10.23.1                  Avesta Technologies 1996 Stock Option Plan.
                    16.1       *          Letter regarding change in certified accountants.
                    16.2       @          Letter regarding change in certified accountants.
                    21.1                  List of subsidiaries of the Company.
                    27.1                  Financial Data Schedule.
</TABLE>

<PAGE>   17

----------

 *    Incorporated herein by reference to the Company's Registration Statement
      on Form S-1, No. 333-41517.

**    Incorporated herein by reference to Exhibit 10.1 to the Company's
      Registration Statement on Form S-8, No. 333-53153.

***   Incorporated herein by reference to the Company's Annual Report on Form
      10-K for the year ended December 31, 1999.

%     Incorporated herein by reference to the Company's Registration Statement
      on Form S-3, No. 333-90105.

%%    Incorporated herein by reference to Exhibit 2.1 to the Company's Current
      Report on Form 8-K dated October 8, 1999.

%%%   Incorporated herein by reference to Exhibit 10.1 to the Company's
      Registration Statement on Form S-8, No. 333-88719.

@     Incorporated herein by reference to the Company's Registration Statement
      on Form S-4, No. 333-33946.

$     Incorporated herein by reference to Exhibit 3.1 to the Company's
      Quarterly Report on Form 10-Q for the three months ended June 30, 1999.

$$    Incorporated herein by reference to the Company's Definitive Proxy
      Statement on Schedule 14A filed April 30, 1999.

$$$   Incorporated herein by reference to the Company's Annual Report on Form
      10-K for the year ended December 31, 1998.

+     Portions of this Exhibit were omitted and have been filed separately with
      the Secretary of the Commission pursuant to the Company's Application
      Requesting Confidential Treatment under Rule 406 of the Securities Act,
      filed on December 22, 1997, January 28, 1998 and February 4, 1998.

++    Portion's of this Exhibit were omitted and have been filed separately
      with the Secretary of the Commission pursuant to the Company's Application
      Requesting Confidential Treatment under Rule 24b-2 of the Securities
      Exchange Act of 1934.

!     To be filed by amendment.

     (b) REPORTS ON FORM 8-K

     The Company filed a Current Report on Form 8-K on June 1, 2000, reporting
the Closing of the Merger with Avesta as an Item 2 event and the results of the
Company's annual meeting as an Item 5 event.


<PAGE>   18



                                   SIGNATURES

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

VISUAL NETWORKS, INC.

By: /s/ PETER J. MINIHANE
--------------------------------
    Peter J. Minihane

    Executive Vice President,
    Chief Operating Officer,
    Chief Financial Officer
    and Treasurer (principal financial
    and accounting officer)

August 14, 2000