<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 SEPTEMBER 30, 1999

                                       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            (Zip Code)
                executive offices)

</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 November 10, 1999, 24,760,503 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 SEPTEMBER 30, 1999

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                          PAGE
                                                                                          ----
                     <S>                                                                  <C>
                     Part I. Financial Information
                       Item 1. Financial Statements:
                                   Consolidated Balance Sheets --
                                   September 30, 1999 and December 31, 1998.............    3
                                   Consolidated Statements of Operations --
                                   Three and nine months ended September 30, 1999
                                   and 1998.............................................    4
                                   Consolidated Statements of Cash Flows --
                                   Nine months ended September 30, 1999 and 1998........    5
                                   Notes to Consolidated Financial Statements...........    6
                       Item 2. Management's Discussion and Analysis of Financial
                                   Condition and Results of Operations..................    9
                       Item 3. Qualitative and Quantitative Disclosure about
                                   Market Risk..........................................   15
                     Part II. Other Information
                                  Items 1 -- 6..........................................   16
                                  Signatures............................................   19
</TABLE>

                                     - 2 -

<PAGE>   3



                         PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

                             VISUAL NETWORKS, INC.
                          CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                       SEPTEMBER 30,   DECEMBER 31,
                                                           1999            1998
                                                       -------------  -------------
                       ASSETS
<S>                                                    <C>             <C>
CURRENT ASSETS:
     Cash and cash equivalents.......................  $  54,938        $  51,655
     Short-term investments..........................         --            1,002
     Accounts receivable, net of allowance of $759
      and $493, respectively.........................      8,676            5,948
     Inventory.......................................      7,320            5,086
     Other current assets............................      2,322            1,902
                                                       ---------        ---------
          Total current assets.......................     73,256           65,593
Property and equipment, net..........................      8,375            5,814
Other assets.........................................        149              373
                                                       ---------        ---------
          Total assets...............................  $  81,780        $  71,780
                                                       =========        =========

        LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

     Accounts payable and accrued expenses...........  $  16,469        $   6,388
     Accrued compensation............................      2,931            2,853
     Customer deposits...............................         --            4,613
     Deferred revenue................................     11,473            7,957
     Bank line of credit.............................        578               --
     Current portion of long-term debt...............        668              636
                                                       ---------         --------
          Total current liabilities..................     32,119           22,447
Long-term debt, net of current portion                       866            1,011
                                                       ---------         --------
          Total liabilities..........................     32,985           23,458
                                                       ---------         --------
STOCKHOLDERS' EQUITY:
     Preferred stock, $.01 par value, 5,000,000
     shares authorized, no shares issued and
     outstanding.....................................         --               --
     Common stock, $.01 par value, 50,000,000 shares
     authorized, 24,662,415 and 24,190,219 shares
     issued and outstanding as of September 30, 1999
     and December 31, 1998, respectively.............        247              242
     Deferred compensation...........................       (809)            (739)
     Notes receivable from shareholders..............       (147)            (147)
     Additional paid-in capital......................     85,761           83,977
     Accumulated deficit.............................    (36,257)         (35,011)
                                                       ---------        ---------
          Total stockholders' equity.................     48,795           48,322
                                                       ---------        ---------
          Total liabilities and stockholders' equity.  $  81,780        $  71,780
                                                       =========        =========
</TABLE>

                     See accompanying notes to consolidated
                             financial statements.

                                     - 3 -

<PAGE>   4



                             VISUAL NETWORKS, INC.

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

<TABLE>
<CAPTION>
                                         FOR THE THREE MONTHS ENDED      FOR THE NINE MONTHS ENDED
                                                SEPTEMBER 30,                  SEPTEMBER 30,
                                       -----------------------------  -----------------------------
                                            1999           1998            1999           1998
                                       -------------   -------------  -------------   -------------
<S>                                    <C>            <C>            <C>            <C>
Revenue..............................   $     24,522   $     14,890    $     64,320   $     39,312
Cost of revenue......................          8,226          5,343          22,204         14,827
                                        ------------   ------------    ------------   ------------
     Gross profit....................         16,296          9,547          42,116         24,485
                                        ------------   ------------    ------------   ------------
Operating expenses:
     Research and development........          4,266          3,557          12,083         10,136
     Sales and marketing.............          6,458          4,919          17,925         14,761
     General and administrative......          2,018          1,419           5,623          4,051
     Merger-related costs............          6,776             --           6,776          7,347
                                        ------------   ------------    ------------   ------------
          Total operating expenses...         19,518          9,895          42,407         36,295
                                        ------------   ------------    ------------   ------------
Loss from operations.................         (3,222)          (348)           (291)       (11,810)
Interest income, net.................            568            656           1,647          1,787
                                        ------------   ------------    ------------   ------------
Income (loss) before income taxes....         (2,654)           308           1,356        (10,023)
Income taxes.........................         (1,319)            --          (2,602)            --
                                        -------------  ------------    ------------   ------------
Net income (loss)....................         (3,973)           308          (1,246)       (10,023)
Dividends and accretion on preferred
  stock..............................             --             --              --           (171)
                                        ------------   ------------    ------------   ------------
Net income (loss) attributable to
  common stockholders................   $     (3,973)  $        308    $     (1,246)  $    (10,194)
                                        =============  ============    ============   ============
Basic income (loss) per share........   $      (0.16)  $       0.01    $      (0.05)  $      (0.48)
                                        =============  ============    ============   ============
Diluted income (loss) per share......   $      (0.16)  $       0.01    $      (0.05)  $      (0.48)
                                        =============  ============    ============   ============
Pro forma diluted loss per share.....                                                 $      (0.44)
                                                                                      ============
Basic weighted average shares
  outstanding........................         24,611         23,815          24,456         21,169
                                        ============   ============    ============   ============
Diluted weighted average shares
  outstanding........................         24,611         26,096          24,456         21,169
                                        ============   ============    ============   ============
Pro forma diluted weighted average
  shares outstanding.................                                                       22,801
                                                                                      ============
</TABLE>

                     See accompanying notes to consolidated
                             financial statements.

                                     - 4 -

<PAGE>   5



                             VISUAL NETWORKS, INC.

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

<TABLE>
<CAPTION>
                                                     FOR THE NINE MONTHS
                                                     ENDED SEPTEMBER 30,
                                                     -------------------
                                                       1999       1998
                                                     -------------------
<S>                                                  <C>       <C>
Cash flows from operating activities:
     Net loss......................................  $ (1,246)  $(10,023)
     Adjustments to reconcile net loss to net cash
      used in operating activities:
          Depreciation and amortization............     2,903      1,296
     Changes in assets and liabilities:
          Accounts receivable......................    (2,728)      (974)
          Inventory................................    (2,234)    (1,330)
          Other assets.............................      (420)    (1,260)
          Accounts payable and accrued expenses....    10,081      3,771
          Customer deposits........................    (4,613)       (51)
          Accrued compensation.....................        78        691
          Deferred revenue.........................     3,516        899
                                                     --------   --------

               Net cash provided by (used in)
                  operating activities.............     5,337     (6,981)
                                                     --------   --------
Cash flows from investing activities:
          Net (purchases) sales/maturities of
             short-term Investments................     1,002         --
          Proceeds from sale-lease back
              transactions.........................       750         --
          Expenditures for property and equipment..    (4,402)    (3,789)
                                                      --------   --------
               Net cash used in investing
                  activities.......................    (2,650)    (3,789)
                                                      --------   --------
Cash flows from financing activities:
          Exercise of stock options................     1,484        419
          Proceeds from issuance of common stock,
            net of issuance costs..................        --     51,884
          Payment of Series A dividends............        --        (30)
          Net borrowings (repayments) under
            credit agreements......................      (480)       253
          Principal payments on capital lease
            obligations............................      (408)      (256)
                                                     --------   ---------
                Net cash provided by financing
                   activities......................       596     52,270
                                                     --------   --------
Net increase in cash and cash equivalents..........     3,283     41,500
Cash and cash equivalents, beginning of period.....    51,655      9,601
                                                     --------   --------
Cash and cash equivalents, end of period...........  $ 54,938   $ 51,101
                                                     ========   ========
Supplemental cash flow information:
     Cash paid for interest........................  $    189   $    194
                      Cash paid for income taxes...  $     --   $    513
</TABLE>

                     See accompanying notes to consolidated
                             financial statements.

                                     - 5 -

<PAGE>   6



                             VISUAL NETWORKS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999
                                  (UNAUDITED)

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

         We design, manufacture and sell service management systems for
corporate networks based on the internet protocol ("IP") and the Internet. Our
operations are subject to certain risks and uncertainties, including among
others, successful implementation of our 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 period.
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 Registration Statement
No. 333-90105 on Form S-3 and the financial statements and the notes thereto,
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998. 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 statement of results for the interim
periods. The results of operations for the three and nine months ended September
30, 1999 are not necessarily indicative of the results for the entire year
ending December 31, 1999.

         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 is a provider of service level management software solutions and
Internet measurement services. Visual issued 4,096,429 shares of its common
stock in exchange for all of the outstanding preferred and common stock of
Inverse. In addition, outstanding stock options and warrants were converted
into options and warrants to purchase 425,088 shares of Visual common stock.

         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 (hereafter, Visual, Net2Net and Inverse are
collectively referred to as the "Company").

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

         The Company considers all highly liquid instruments with an original
maturity of three months or less at the time of purchase to be cash
equivalents. The Company's cash equivalents consist primarily of investments in
money market funds that invest in U.S. Treasury obligations, repurchase
agreements collateralized by U.S. Treasury securities, and high quality
corporate obligations. All other highly liquid investments are classified as
short-term investments and consist of U.S. corporate bonds with maturities in
excess of three months. The Company classifies its investments as
available-for-sale securities, and reports them at fair value with unrealized
gains and losses included in a separate component of stockholders' equity.

                                     - 6 -

<PAGE>   7

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying values of current assets and current liabilities
approximate fair value because of the relatively short maturities of these
instruments. The fair value of the Company's long-term debt is estimated using
a discounted cash flow analysis based on the Company's borrowing cost for
similar credit facilities. The Company estimates that as of September 30, 1999,
the fair value of its long-term debt does not differ materially from its
carrying value.

REVENUE RECOGNITION

         The Company's service management products and services include
hardware, software, benchmark 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 three years. Revenues from services are recognized
when the services are performed. Subscription fees for the Company's benchmark
reports are deferred and recognized upon delivery of the reports.

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 sells
its products to large telecommunications and Internet service providers and
subscribers primarily in the United States. Three customers individually
represented 27%, 14% and 12% of revenue for the nine months ended
September 30, 1998, respectively. Three customers individually represented 27%,
23% and 10% of revenue for the nine months ended September 30, 1999,
respectively.

INVENTORY

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

<TABLE>
<CAPTION>
                                                  September 30,   December 31,
                                                      1999           1998
                                                  ------------   ------------
                       <S>                        <C>            <C>
                       Raw materials..............  $ 2,819        $   821
                       Work-in-progress...........    1,148          1,228
                       Finished goods.............    3,353          3,037
                                                     ------        -------
                                                     $7,320        $ 5,086
                                                     ======        =======
</TABLE>

                                     - 7 -

<PAGE>   8


INCOME TAXES

         The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("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.

BASIC AND DILUTED EARNINGS PER SHARE

         Basic earnings per share includes no dilution and is computed by
dividing net income (loss) attributable to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
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 common stock that were outstanding at
September 30, 1998 were not included in the computation of diluted loss per
share for the nine months ended September 30, 1998 as their effect would be
anti-dilutive. Options and warrants to purchase common stock that were
outstanding at September 30, 1999 were not included in the computation of
diluted loss per share for the three and nine months ended September 30, 1999
as their effect would be anti-dilutive. The effect of the conversion of
preferred stock into 10,605,735 shares of common stock is included in the
computation of basic loss per share from the date of conversion on February 11,
1998. The effect of preferred stock convertible into 10,605,735 shares of
common stock for the period January 1, 1998 through February 10, 1998 was not
included in the computation of diluted loss per share for the nine months ended
September 30, 1998 as such effect would have been anti-dilutive. Pro forma
diluted weighted average shares outstanding for the nine months ended September
30, 1998 assumes the conversion of all of the Company's outstanding convertible
preferred stock into common stock.

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

<TABLE>
<CAPTION>

                                                            FOR THE THREE MONTHS ENDED      FOR THE NINE MONTHS ENDED
                                                                   SEPTEMBER 30,                  SEPTEMBER 30,
                                                            --------------------------      -------------------------
                                                               1999           1998            1999           1998
                                                            -----------    -----------     -----------    -----------
               <S>                                        <C>             <C>            <C>             <C>
               ADJUSTMENTS TO NET INCOME (LOSS):
                    Net income (loss)...................   $     (3,973)  $        308    $     (1,246)  $    (10,023)
                    Preferred dividends and accretion...             --             --              --           (171)
                                                           ------------   ------------    ------------   ------------
                         Net income (loss) attributable
                           to common stockholders.......   $     (3,973)  $        308    $     (1,246)  $    (10,194)
                                                           ============   ============    ============   ============
               WEIGHTED AVERAGE SHARE CALCULATION:
                    Basic weighted average shares
                      outstanding:
                         Average number of shares of
                         common stock outstanding during
                         the period.....................         24,611         23,815          24,456         21,169
                    Diluted weighted average shares
                      outstanding:
                         Treasury stock effect of
                            options and warrants........             --          2,281              --             --
                                                           ------------   ------------    ------------   ------------
                    Diluted weighted average shares
                      outstanding.......................         24,611         26,096          24,456         21,169
                    Pro forma diluted weighted average
                    shares outstanding:
                         Conversion of preferred stock..             --             --              --          1,632
                                                            -----------    -----------     -----------   ------------
                         Pro forma diluted weighted
                           average shares outstanding...         24,611         26,096          24,456         22,801
                                                           ============   ============    ============   ============
               INCOME (LOSS) PER COMMON SHARE:
                    Basic income (loss) per share.......   $      (0.16)   $      0.01    $      (0.05)  $      (0.48)
                                                           ============   ============    ============   ============
                    Diluted income (loss) per share.....   $      (0.16)   $      0.01    $      (0.05)  $      (0.48)
                                                           ============   ============    ============   ============
                    Pro forma diluted loss per share....                                                 $      (0.44)
                                                                                                         ============
</TABLE>

(2) CREDIT AGREEMENTS

         Effective April 5, 1999, the Company renewed its bank credit agreement
for an additional term of one year. The agreement provides for borrowings up to
the lesser of $7.0 million or 85% of eligible accounts receivable (the
"Revolving Line") as well as a

                                     - 8 -

<PAGE>   9

$1.0 million capital equipment line. Borrowings under the Revolving Line bear
interest at the prime rate. Borrowings under the capital equipment line will be
payable over a three-year period. The agreement also contains restrictive
covenants, including, but not limited to, restrictions related to liquidity,
profitability and net worth, as well as restrictions related to acquisitions,
disposition of assets, distributions and investments. As of September 30, 1999,
the Company had no borrowings outstanding under the credit agreement.

         In June 1999, Inverse entered into an accounts receivable purchase
agreement ("Accounts Receivable Agreement") with a bank. The Accounts
Receivable Agreement, as amended, allows for the sale of Inverse accounts
receivable of up to $2.5 million to the bank, subject to certain limitations.
The Accounts Receivable Agreement matures on June 25, 2000, and outstanding
balances bear interest at the bank's prime rate plus 4%. The Accounts
Receivable Agreement also provides for certain other administrative and
facility fees. Outstanding balances and other obligations under the Accounts
Receivable Agreement are secured by substantially all of Inverse's assets. As
of September 30, 1999, outstanding balances under the Accounts Receivable
Agreement totaled $0.6 million.

(3) NEW ACCOUNTING PRONOUNCEMENTS

         The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income." Under SFAS No. 130, the Company is required to display comprehensive
income (loss) and its components as part of the financial statements.
Comprehensive income (loss) includes certain changes in equity that are
excluded from net income (loss). Specifically, SFAS No. 130 requires unrealized
holding gains and losses on available-for-sale securities, to be included in
accumulated and other comprehensive income (loss). The Company has no material
components of other comprehensive income (loss) and, accordingly, the
comprehensive income (loss) is the same as net loss for all periods presented.

         The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information."  The adoption of SFAS No. 131 did not have
a significant effect on the disclosure of segment information as management
concluded that operations occur primarily in one segment only.

         In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for all quarters of years
beginning after June 15, 1999. The adoption of this pronouncement will not have
a material impact on the Company's results of operations, financial position or
cash flows.

(4) INITIAL PUBLIC OFFERING

         In February 1998, the Company completed an initial public offering
("IPO") of 4,025,000 shares of common stock, resulting in net proceeds of
approximately $45.4 million. All of the shares sold were issued and sold by the
Company. Concurrent with the closing of the offering, the outstanding shares of
Series A convertible preferred stock and Series B, C, D and E redeemable
convertible preferred stock were converted into 485,890 and 10,119,845 shares
of common stock, respectively.

(5) MERGER-RELATED COSTS

         In connection with the Net2Net acquisition, the Company recorded
merger-related costs for transaction costs, integration expenses and
restructuring charges of approximately $7.3 million in the three months ended
June 30, 1998. In the three months ended December 31, 1998, the Company
reversed approximately $2.3 million of the aforementioned merger-related costs
as a result of the payment of lower than estimated transaction and
restructuring costs in connection with the Net2Net transaction.

         In connection with the Inverse acquisition, the Company recorded
merger-related costs of approximately $6.8 million. Transaction costs totaled
approximately $6.4 million and consisted primarily of fees for investment
bankers, attorneys, accountants and other direct transaction costs. The
remaining $0.4 million in non-recurring costs consisted primarily of the
write-off of certain assets as a result of the merger and the accrual of
certain employee benefits to conform the policies of Inverse with those of the
Company.

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

OVERVIEW

         We were incorporated in Maryland in August 1993 as Avail Networks,
Inc. and reincorporated in Delaware in December 1994 as Visual Networks, Inc.
From incorporation through December 1994, our principal objective was to secure
sufficient equity

                                     - 9 -

<PAGE>   10

financing to enable us to accelerate product development efforts. We secured
our first round of equity financing in December 1994.

         During 1995 and 1996, we devoted substantial resources to developing
Visual UpTime for Frame Relay deployment and to developing 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.

         During 1995 and 1996, most of our sales were to subscribers. In August
1996, we entered into a master reseller agreement with Sprint, under which we
shipped our products through Sprint to Sprint's subscribers. In October 1997,
we entered into a similar master reseller agreement with MCI, which also
resulted in our shipping our products through MCI to MCI's subscribers. Since
1997, we have focused on selling Visual UpTime directly to providers as part of
their network infrastructure. 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.

         On May 15, 1998, we acquired Net2Net in a merger accounted for as a
pooling of interests. The combination with Net2Net will affect the future
results of the operations reported by us. See Notes 1 and 5 of Notes to
Consolidated Financial Statements.

         On September 30, 1999, we acquired Inverse in a merger accounted for
as a pooling of interests. The combination with Inverse will affect the future
results of the operations reported by us. See Notes 1 and 5 of Notes to
Consolidated Financial Statements.

         We recognize revenue from the sale of service management products and
services including hardware, software, benchmark services and technical support.
We generally recognize revenue upon shipment or delivery of the product and
passage of title to the customer. For sales agreements that 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 three years. We
recognize revenue from services 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 parties for board assembly and other
production processes and we have manufacturing operations that perform final
assembly, testing and shipping of our product at our facilities in Rockville,
Maryland and Hudson, Massachusetts. 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 SEPTEMBER 30, 1999
COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1998

         REVENUE. We recognized $24.5 million in revenue for the three months
ended September 30, 1999, a 64.7% increase over revenue of $14.9 million for the
three months ended September 30, 1998. The increase was primarily due to the
continued acceptance of our Visual Uptime, Visual IP Insight and Visual Internet
Benchmark products with an increase in sales to service providers, particularly
AT&T and Sprint. Sales to service providers accounted for approximately 73% of
revenue for the three months ended September 30, 1999 as compared to
approximately 67% for the three months ended September 30, 1998.

         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 $16.3 million for the three
months ended September 30, 1999, as compared to $9.5 million for the three
months ended September 30, 1998, an increase of $6.8 million. Gross margin was
66.5% of revenue for the three months ended September 30, 1999, as compared to
64.1% of revenue for the three months ended September 30, 1998. The increase in
gross margin percentage was due primarily to changes in product sales mix. 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 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 $4.3 million for the
three months ended September 30, 1999 as compared to $3.6 million for the three
months ended September 30, 1998, an increase of $0.7 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. Research and development expense was
17.4% and 23.9% of revenue for the three months ended September 30, 1999 and
1998, 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 1999 and thereafter. The increase in absolute dollars

                                     - 10 -

<PAGE>   11

will support continued development of new or enhanced products and the
exploration of new or complementary technologies.

         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 $6.5 million for the three months ended September 30,
1999, as compared to $4.9 million for the three months ended September 30,
1998, an increase of $1.6 million. The increase in sales and marketing expense
was due primarily to continued growth in staffing, commissions, and marketing
programs. Sales and marketing expense was 26.3% and 33.0% of revenue for the
three months ended September 30, 1999 and 1998, 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 1999 and
thereafter. 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 $2.0 million for the three months ended
September 30, 1999 as compared to $1.4 million for the three months ended
September 30, 1998, an increase of $0.6 million. The increase in general and
administrative expense was due primarily to increases in staffing, professional
services and continued growth in corporate facilities and network
infrastructure. General and administrative expense was 8.2% and 9.5% of revenue
for the three months ended September 30, 1999 and 1998, respectively. We expect
that general and administrative expenditures will increase in absolute dollars,
and may decrease as a percentage of revenue, during the remainder of 1999 and
thereafter. The increase in absolute dollars is expected to be required for the
expansion of our administrative staff and internal systems to support expanding
operations.

         MERGER-RELATED COSTS. In connection with the Inverse acquisition, the
Company recorded merger-related costs of approximately $6.8 million. Transaction
costs totaled approximately $6.4 million and consisted primarily of fees for
investment bankers, attorneys, accountants and other direct transaction costs.
The remaining $0.4 million in non-recurring costs consisted primarily of the
write-off of certain assets as a result of the merger and the accrual of certain
employee benefits to conform the policies of Inverse with those of the Company.

         INTEREST INCOME, NET. Interest income, net, for the three months ended
September 30, 1999 was approximately $0.6 million as compared to $0.7 million
for the three months ended September 30, 1998. The decrease was primarily due
to increased interest expense related to capital leases and other borrowings.

         INCOME TAXES. Income taxes for the three months ended September 30,
1999 were $1.3 million. This income tax provision reflects the effect of
non-deductible merger-related costs incurred in the three months ended September
30, 1999. Excluding the merger-related costs, the Company's effective tax rate
was approximately 32%.

         NET INCOME (LOSS). Net loss for the three months ended September 30,
1999 was $4.0 million as compared to net income of $0.3 million for the three
months ended September 30, 1998, a decrease of $4.3 million. This decrease was
due primarily to the effect of merger-related costs and increases in operating
expenses during the three months ended September 30, 1999, offset by increases
in revenue and gross profit achieved in the three months ended September 30,
1999.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1998

         REVENUE. We recognized $64.3 million in revenue for the nine months
ended September 30, 1999, a 63.6% increase over revenue of $39.3 million for the
nine months ended September 30, 1998. The increase was primarily due to the
continued acceptance of our Visual Uptime, Visual IP Insight and Visual Internet
Benchmark products with an increase in sales to service providers, particularly
AT&T and Sprint. Sales to service providers accounted for approximately 71% of
revenue for the nine months ended September 30, 1999 as compared to
approximately 63% for the nine months ended September 30, 1998.

         GROSS PROFIT. Gross profit was $42.1 million for the nine months ended
September 30, 1999, as compared to $24.5 million for the nine months ended
September 30, 1998, an increase of $17.6 million. Gross margin was 65.5% of
revenue for the nine months ended September 30, 1999, as compared to 62.3% of
revenue for the nine months ended September 30, 1998. The increase in gross
margin percentage was due primarily to changes in product sales mix. 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 costs.

         RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was
$12.1 million for the nine months ended

                                     - 11 -

<PAGE>   12

September 30, 1999 as compared to $10.1 million for the nine months ended
September 30, 1998, an increase of $2.0 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. Research and development expense was 18.8% and
25.8% of revenue for the nine months ended September 30, 1999 and 1998,
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 1999 and thereafter. The increase in absolute dollars
will support continued development of new or enhanced products and the
exploration of new or complementary technologies.

         SALES AND MARKETING EXPENSE. Sales and marketing expense was $17.9
million for the nine months ended September 30, 1999, as compared to $14.8
million for the nine months ended September 30, 1998, an increase of $3.1
million. The increase in sales and marketing expense was due primarily to
continued growth in staffing, commissions, and marketing programs, which
offset the effect of the consolidation of Visual's and Net2Net's sales and
marketing functions subsequent to the May 15, 1998 merger. Sales and marketing
expense was 27.9% and 37.5% of revenue for the nine months ended September 30,
1999 and 1998, 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 1999 and thereafter. 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
was $5.6 million for the nine months ended September 30, 1999 as compared to
$4.1 million for the nine months ended September 30, 1998, an increase of $1.5
million. The increase in general and administrative expense was due primarily
to increases in staffing, professional services and continued growth in
corporate facilities and network infrastructure, which offset the effect of the
consolidation of Visual's and Net2Net's administrative functions subsequent to
the May 15, 1998 merger. General and administrative expense was 8.7% and 10.3%
of revenue for the nine months ended September 30, 1999 and 1998, respectively.
We expect that general and administrative expenditures will increase in
absolute dollars, and may decrease as a percentage of revenue, during the
remainder of 1999 and thereafter. The increase in absolute dollars is expected
to be required for the expansion of our administrative staff and internal
systems to support expanding operations.

         MERGER-RELATED COSTS. In connection with the Inverse acquisition, the
Company recorded merger-related costs of approximately $6.8 million. Transaction
costs totaled approximately $6.4 million and consisted primarily of fees for
investment bankers, attorneys, accountants and other direct transaction costs.
The remaining $0.4 million in non-recurring costs consisted primarily of the
write-off of certain assets as a result of the merger and the accrual of certain
employee benefits to conform the policies of Inverse with those of the Company.
In connection with the Net2Net acquisition on May 15, 1998, we recorded
merger-related costs of $7.3 million consisting of transaction costs,
integration expenses and restructuring charges. Transaction costs of $4.4
million consisted primarily of fees for investment bankers, attorneys,
accountants and other direct costs. Integration costs of $0.2 million consisted
of incremental and non-recurring costs necessary to integrate Net2Net and
Visual. The restructuring charge of $2.7 million included severance,
outplacement, and other costs relating primarily to the elimination of certain
field offices, the consolidation of our manufacturing, sales, marketing and
administrative functions and the discontinuance of certain product development
efforts. During the three months ended December 31, 1998, we reversed
approximately $2.3 million of the merger-related costs recorded during the three
months ended June 30, 1998. The reversal resulted from the payment of lower than
estimated costs in connection with the Net2Net transaction and subsequent
restructuring and included approximately $0.3 million in transaction costs and
approximately $2.0 million in restructuring costs. The lower than estimated
restructuring cost resulted from fewer than planned terminations and higher than
planned attrition, along with lower than estimated costs associated with exiting
certain contractual obligations.

         INTEREST INCOME, NET. Interest income, net, for the nine months ended
September 30, 1999 was approximately $1.6 million as compared to $1.8 million
for the nine months ended September 30, 1998. The decrease was primarily due to
increased interest expense related to capital leases and other borrowings.

         INCOME TAXES. Income taxes for the nine months ended September 30,
1999 were $2.6 million. This income tax provision reflects the effect of
non-deductible merger-related costs incurred in the three months ended September
30, 1999. Excluding the merger-related costs, the Company's effective tax rate
was approximately 32%.

         NET LOSS. Net loss for the nine months ended September 30, 1999 was
$1.2 million as compared to a net loss of $10.0 million for the nine months
ended September 30, 1998, an increase of $8.8 million. This increase was due
primarily to increases in revenue and gross profit achieved in the nine months
ended September 30, 1999 offset by increases in operating expenses.

                                     - 12-

<PAGE>   13



OCTOBER FINANCIAL RESULTS

         The Company acquired Inverse on September 30, 1999, and the
transaction was accounted for as a pooling of interests. For the month ended
October 31, 1999, the Company reported $8.5 million of revenue and net income of
$1.1 million, or $0.04 per share on a diluted basis. Basic net income per share
was $0.05 for the month ended October 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

         At September 30, 1999, our combined balance of cash, cash equivalents
and short-term investments was $54.9 million as compared to $52.2 million as of
December 31, 1998, an increase of $2.2 million. This increase is primarily
attributable to $1.4 million in proceeds from the exercise of stock options and
$5.3 million in cash provided from operations offset by capital expenditures of
$4.4 million.

         We require substantial working capital to fund our business,
particularly to finance inventories, accounts receivable, merger-related costs
research and development activities and capital expenditures. We currently have
commitments for capital expenditures for the remainder of 1999 that are not
expected to exceed $2.5 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 and extent of spending to support continued expansion
of internal systems and networks, the timing of introductions of new products
and enhancements to existing products and market acceptance of our products.

        In addition to our cash, cash equivalents, and short-term investments,
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) and a $1.0 million capital equipment line. 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. We also have an Accounts Receivable Agreement that provides for
the sale of accounts receivable up to $2.5 million. As of September 30, 1999,
there were no borrowings outstanding under the bank credit facility and there
were $0.6 million in borrowings under the Accounts Receivable Agreement. We
believe that our current cash position combined with our credit facilities are
sufficient to meet our capital expenditures 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.

YEAR 2000 COMPLIANCE

General

         Many of the world's computer systems (including those in
non-information technology equipment and systems) currently record years in a
two-digit format. If not addressed, such computer systems will be unable to
properly interpret dates beyond the year 1999, which could lead to business
disruptions. The potential costs and uncertainties associated with the Year
2000 issue will depend on a number of factors, including software, hardware and
the nature of the industry in which a company operates.

         We have instituted a company-wide project for addressing the Year 2000
issue (the "Project"). The Project is divided into four major sections -
Product Compliance, Oracle Implementation and System Infrastructure Upgrades,
Vendor Compliance and Customer Assessment. Each of these sections is discussed
separately below. We have engaged third party consultants to assist in program
management of the Project and in testing of critical business systems.

         Due to our recent acquisition of Inverse, we have expanded the Project
to include our new business locations. This expansion will extend the Project,
which will be completed during the fourth quarter of 1999.

Product Compliance

         We believe that the products currently being shipped by us have
already achieved Year 2000 compliance as defined within the requirements
established by the U.S. Government detailed in the Federal Acquisition
Regulations (FAR) - Section 39 - Final.

         Should a Year 2000 compliance issue arise in the future, we will take
whatever steps we deem necessary to address it in accordance with our product
warranties. However, we do not guarantee and specifically disclaim any
liability for the Year 2000

                                     - 13 -

<PAGE>   14

compliance of operating systems, hardware, software or other third-party
products not developed by us. It is the responsibility of any such third
parties to test and validate Year 2000 compliance.

         Although all previously shipped products are believed to be compliant,
we will not commit to perform tests on non-shipping product versions. Should
obsolete products be found non-compliant, we will not update them to make them
compliant.

         Visual IP Insight products have been successfully tested to ensure
that the system will behave correctly with respect to dates in the year 2000
and in the transition from December 31, 1999 to January 1, 2000. The Visual IP
InSight system is dependent on the customer's computer operating system and
some third party software. We have tested the interaction of these products
with the Visual IP InSight system on certain hardware platforms to assure that
it is compliant. Certain hardware platforms and versions of underlying
operating system software may have general Year 2000 compliance problems that
may impact customers use of the Visual IP InSight product. In this case,
customers will need to obtain Year 2000 compliant products from third-party
vendors, or use hardware platforms and operating system software recommended by
us. Customers are also responsible for verifying that all other products (that
is, other software, firmware, and hardware) that customers may choose to use
with Visual IP InSight properly handle date information.

Oracle Implementation and System Infrastructure Upgrades

         Early in 1998, in order to improve access to business information
through scaleable, integrated computing systems across the company, we began a
business systems replacement project. Our Enterprise Resources Planning ("ERP")
application software system replaced core legacy systems, making approximately
seventy-five (75) percent of our systems Year 2000 compliant. The
implementation of the ERP software was substantially completed in the first
quarter of 1999.

         We are currently evaluating the Year 2000 compliance of the remaining
application software, computer hardware, network equipment and miscellaneous
components of our internal business systems. The evaluation of the engineering
application development environment has been completed. The overall effort,
which is less significant than the replacement of the core systems with the ERP
software, will be substantially completed during the fourth quarter of 1999 and
may include the upgrade, repair or replacement of certain elements of these
systems.

Vendor Compliance

         This section of the Project, which included the process of identifying
and prioritizing critical suppliers at the direct interface level and
communicating with them about their plans and progress in addressing the Year
2000 problem, is nearly complete. Included were suppliers of parts for our
products and providers of mission-critical services. Remaining tasks include
the assessment of critical vendors utilized by Inverse and the expansion of our
contingency plans to encompass the Inverse business locations. We intend to
continually revise and update our contingency plans to reflect our assessment
of our current business environment.

Customer Assessment

         Based on the input provided as part of our sales forecasting
activities, we have been unable to assess the full impact that Year 2000 issues
may have upon our customers and their purchasing decisions over the next six
months.

Costs

         The estimated total cost of the Year 2000 compliance project,
exclusive of the ERP implementation, is approximately $400,000 of which
approximately $300,000 had been spent as of September 30, 1999. These costs are
expected to be incurred primarily in 1999 for the use of outside consultants,
setting up Year 2000 testing environments and the replacement of existing
software and hardware.

Risks

         The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our business,
financial condition and results of operations. Moreover, even if we
successfully remediate our Year 2000 issues, we can be materially and adversely
affected by failures of third parties to remediate their own year 2000 issues.
The failure of third parties with which we have financial or operational
relationships (such as our customers and vendors) to remediate their computer
and non-information technology systems issues in a timely manner could have a
material adverse effect on our business, financial condition and results of
operations. In addition, we believe that the purchasing patterns of customers
and potential customers may be significantly affected by Year 2000 issues. Due
to the general

                                     - 14 -

<PAGE>   15

uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party customers and vendors, we
are unable to determine at this time whether the consequences of year 2000
failures will have a material impact on our business, financial condition and
results of operations. Accordingly, we may experience business interruption or
shutdown, financial loss, damage to our reputation and legal liability. We
believe that, with the implementation of new business systems and completion of
the Project as scheduled, the possibility of significant interruptions of
normal operations should be reduced.

         Our expectations about future costs and the timely completion of our
Year 2000 Project are subject to uncertainties that could cause actual results
to differ materially from what has been discussed above. Factors that could
influence the amount of future costs and the effective timing of remediation
efforts include our success in identifying computer programs and
non-information technology systems that contain two-digit year codes, the
nature and amount of programming and testing required to upgrade or replace
each of the affected programs and systems, the rate and magnitude of related
labor and consulting costs, and the success of our vendors and customers in
addressing the Year 2000 issue.

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 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 period. 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 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 and other risk factors set forth in our Annual Report on Form
10-K for the year ended December 31, 1998 and Registration Statement No.
333-90105 on Form S-3 filed November 1, 1999, 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."

                                     - 15 -

<PAGE>   16



PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None

ITEM 2.  CHANGES IN SECURITIES

         On September 30, 1999, Visual acquired Inverse in a merger in which
Visual issued 4,110,897 shares of its common stock in exchange for all of the
outstanding preferred and common stock and the assumption of warrants of
Inverse under a transaction exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         None.

ITEM 5.  OTHER INFORMATION

         None

                                     - 16 -

<PAGE>   17



ITEM 6  (a) EXHIBITS

<TABLE>
<CAPTION>
                 EXHIBIT
                 NUMBER                                         EXHIBIT DESCRIPTION
                ---------                  --------------------------------------------------------------
                <S>                        <C>
                    3.1!                   Amended and Restated Certificate of Incorporation of the
                                           Registrant.
                    3.2*                   Restated by-laws of the Registrant.
                   10.1*                   1994 Stock Option Plan.
                   10.2*                   1997 Omnibus Stock Plan.
                   10.3*                   Amended and Restated 1997 Directors' Stock Option Plan.
                   10.4*                   Third Amended and Restated Stockholders and Registration
                                           Rights Agreement dated as of September 19, 1996, by and among
                                           the Company and certain stockholders.
                   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 Registrant and MCI
                                           Telecommunications Corporation (relating to Exhibit 10.5)
                   10.6*+                  Master Reseller Agreement, dated as of August 23, 1996,
                                           between Sprint/United Management Company and the Company.
                  10.6.1!                  Amendment No.2 To Agreement Between Visual Networks and
                                           Sprint/United Management Company dated as of August 12, 1999
                                           (relating to Exhibit 10.6)
                   10.7*+                  General Agreement for the Procurement of Equipment, Services
                                           and Supplies and the Licensing of Software, dated as of
                                           December 31, 1997, between the Company and AT&T Corp.
                    10.8*                  Lease Agreement, dated December 12,1996, by and between the
                                           Company and The Equitable Fire Assurance Society of The
                                           United States.
                  10.8.1*                  Lease Amendment, dated September 2, 1997, by and between the
                                           Company and The Equitable Life Assurances Society of The
                                           United States (relating 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).
                    10.9*                  Omitted.
                   10.10*                  Employment Agreement dated December 15, 1994, by and between
                                           the Company and Scott E. Stouffer, as amended.
                   10.11*                  Employment Agreement dated December 15, 1994, by and between
                                           the Company and Robert Troutman, as amended.
                   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 as of April
                                           5, 1999, to Silicon Valley Bank (relating to Exhibit 10.15).
</TABLE>

                                     - 17 -

<PAGE>   18

<TABLE>
                <S>                        <C>
                10.15.2##                  Equipment Term Note No. 1 of 2 issued by Visual as of April
                                           5, 1999, to Silicon Valley Bank (relating to Exhibit 10.15)
                10.15.3##                  Equipment Term Note No. 2 of 2 issued by Visual as of April
                                           5, 1999, to Silicon Valley Bank (relating to Exhibit 10.15)
                  10.16**                  Agreement and Plan of Merger dated April 15, 1998, by and
                                           among the Company, Visual Acquisition, Inc. and Net2Net.
                 10.17***                  Net2Net 1994 Stock Plan
                   10.20!                  1999 Employee Stock Purchase Plan
                 10.21###                  Agreement and Plan of Merger dated September 15, 1999, by and
                                           among Visual, Visual Acquisition Two, Inc. and Inverse
                                           Network Technology
                 10.22###                  Inverse Network Technology 1996 Stock Option Plan
                       27                  Financial Data Schedule.
</TABLE>

----------


!        Incorporated by reference 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 Registration
         Statement on Form S-1, No. 333-58443.

@@       Incorporated herein by reference to the Company's Registration
         Statement on Form S-3, No. 333-73229.

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

**       Incorporated herein by reference to Exhibit 2.1 to the Company's
         Current Form on Form 8-K dated May 19, 1998.

***      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, 1998.

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

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

+        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
         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.

         (b) REPORTS ON FORM 8-K

    The Company filed a Current Report on Form 8-K on September 22, 1999,
reporting as an Item 5 Event the execution of a definitive merger agreement
with Inverse.

                                     - 18 -

<PAGE>   19



                                   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/ SCOTT E. STOUFFER
                        -------------------------------------------------------
                               Scott E. Stouffer
                          Chief Executive Officer and President

                     By:   /s/ PETER J. MINIHANE
                        ------------------------------------------------------
                               Peter J. Minihane
                          Executive Vice President, Chief Financial Officer
                               and Treasurer (principal financial
                                 and accounting officer)

November 15, 1999

                                     - 19 -