<PAGE>   1

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                       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, 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>
        <S>                                        <C>
                         DELAWARE                                  52-1837515
             (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 November 10, 2000, 31,055,043 shares of the Registrant's Common
Stock, par value $.01 per share, were issued and outstanding.
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<PAGE>   2

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

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Part I. Financial Information
  Item 1. Financial Statements:
     Consolidated Balance Sheets -- September 30, 2000 and
      December 31, 1999.....................................    3
     Consolidated Statements of Operations -- Three and nine
      months ended September 30, 2000 and 1999..............    4
     Consolidated Statements of Cash Flows -- Nine months
      ended September 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....................   11
  Item 3. Qualitative and Quantitative Disclosure about
     Market Risk............................................   24
Part II. Other Information
  Items 1 - 6...............................................   25
  Signatures................................................   28
</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,
                                                                  2000             1999
                                                              -------------    ------------
<S>                                                           <C>              <C>
                                          ASSETS
Current Assets:
  Cash and cash equivalents.................................    $ 42,078         $ 54,629
  Accounts receivable, net of allowance of $1,144 and $754,
     respectively...........................................       7,763            9,374
  Inventory.................................................       8,979            7,998
  Other current assets......................................       3,031            2,472
                                                                --------         --------
       Total current assets.................................      61,851           74,473
Property and equipment, net.................................      13,270            8,566
Intangible assets, net......................................     354,767               --
Other assets................................................       3,942              115
                                                                --------         --------
       Total assets.........................................    $433,830         $ 83,154
                                                                ========         ========
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable and accrued expenses.....................    $ 21,197         $ 11,754
  Deferred revenue..........................................      15,997           11,798
  Current portion of long-term debt.........................         658              568
                                                                --------         --------
       Total current liabilities............................      37,852           24,120
Deferred income taxes.......................................       9,616               --
Long-term debt, net of current portion......................       1,015              782
                                                                --------         --------
       Total liabilities....................................      48,483           24,902
                                                                --------         --------
Stockholders' Equity:
  Common stock, $.01 par value, 50,000,000 shares
     authorized, 31,010,133 and 24,833,609 shares issued and
     outstanding as of September 30, 2000 and December 31,
     1999, respectively.....................................         310              248
  Additional paid-in capital................................     484,454           90,169
  Deferred compensation.....................................        (462)            (705)
  Accumulated other comprehensive loss......................          (8)              --
  Accumulated deficit.......................................     (98,947)         (31,460)
                                                                --------         --------
       Total stockholders' equity...........................     385,347           58,252
                                                                --------         --------
       Total liabilities and stockholders' equity...........    $433,830         $ 83,154
                                                                ========         ========
</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   FOR THE NINE MONTHS
                                                        ENDED SEPTEMBER 30,    ENDED SEPTEMBER 30,
                                                        --------------------   --------------------
                                                          2000        1999       2000        1999
                                                        ---------   --------   ---------   --------
<S>                                                     <C>         <C>        <C>         <C>
Revenue...............................................  $ 14,607    $24,522    $ 73,745    $64,320
Cost of revenue.......................................     7,507      8,226      26,292     22,204
                                                        --------    -------    --------    -------
  Gross profit........................................     7,100     16,296      47,453     42,116
                                                        --------    -------    --------    -------
Operating expenses:
  Research and development............................     8,182      4,266      19,490     12,083
  Write-off of purchased research and development.....        --         --      39,000         --
  Sales and marketing.................................    12,706      6,458      28,963     17,925
  General and administrative..........................     3,382      2,018       8,009      5,623
  Merger-related costs................................        --      6,776          --      6,776
  Amortization of acquired intangibles................    21,972         --      30,813         --
                                                        --------    -------    --------    -------
     Total operating expenses.........................    46,242     19,518     126,275     42,407
                                                        --------    -------    --------    -------
Loss from operations..................................   (39,142)    (3,222)    (78,822)      (291)
Interest income, net..................................       762        568       2,132      1,647
                                                        --------    -------    --------    -------
Income (loss) before income taxes.....................   (38,380)    (2,654)    (76,690)     1,356
Income tax benefit (expense)..........................     7,671     (1,319)      9,203     (2,602)
                                                        --------    -------    --------    -------
Net loss..............................................  $(30,709)   $(3,973)   $(67,487)   $(1,246)
                                                        ========    =======    ========    =======
Basic and diluted loss per share......................  $  (0.99)   $ (0.16)   $  (2.43)   $ (0.05)
                                                        ========    =======    ========    =======
Basic and diluted weighted average shares
  outstanding.........................................    30,967     24,611      27,801     24,456
                                                        ========    =======    ========    =======
</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,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Cash flows from operating activities:
  Net loss..................................................  $(67,487)  $(1,246)
  Adjustments to reconcile net loss to net cash provided by
     (used in) operating activities:
     Depreciation and amortization..........................    35,263     2,903
     Write-off of purchased research and development........    39,000        --
     Deferred taxes.........................................    (9,203)       --
  Changes in assets and liabilities:
     Accounts receivable....................................     1,611    (2,728)
     Inventory..............................................      (981)   (2,234)
     Other assets...........................................      (232)     (420)
     Accounts payable and accrued expenses..................     3,191    10,159
     Customer deposits......................................        --    (4,613)
     Deferred revenue.......................................    (3,555)    3,516
                                                              --------   -------
       Net cash provided by (used in) operating
        Activities..........................................    (2,393)    5,337
                                                              --------   -------
Cash flows from investing activities:
  Net maturities of short-term investments..................     5,555     1,002
  Expenditures for property and equipment...................    (7,245)   (4,402)
  Proceeds from sale leaseback transaction..................        --       750
  Merger-related transaction costs, net of cash acquired....   (10,085)       --
                                                              --------   -------
       Net cash used in investing activities................   (11,775)   (2,650)
                                                              --------   -------
Cash flows from financing activities:
  Exercise of stock options.................................     3,578     1,485
  Repurchase of common stock................................        --        (1)
  Net repayments under credit agreements....................    (1,658)     (480)
  Principal payments on capital lease obligations...........      (295)     (408)
                                                              --------   -------
       Net cash provided by financing activities............     1,625       596
                                                              --------   -------
Effect of exchange rate changes.............................        (8)       --
                                                              --------   -------
Net increase (decrease) in cash and cash equivalents........   (12,551)    3,283
Cash and cash equivalents, beginning of period..............    54,629    51,655
                                                              --------   -------
Cash and cash equivalents, end of period....................  $ 42,078   $54,938
                                                              ========   =======
Supplemental cash flow information:
  Cash paid for interest....................................  $    107   $   189
                                                              ========   =======
Supplemental disclosure of non-cash activities:
  5,413,530 shares of common stock issued for acquisition...  $395,121   $    --
                                                              ========   =======
</TABLE>

          See accompanying notes to consolidated financial statements.
                                        5
<PAGE>   6

                             VISUAL NETWORKS, INC.

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

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

     Visual Networks, Inc. ("Visual" or the "Company") designs, manufactures,
sells and supports comprehensive service management systems for providers and
users of new world connectivity services and out-sourced Web services. The
Company's operations are subject to certain risks and uncertainties, including
among others, failure of broadband access services to achieve market
penetration, successful incorporation of the Company's products into service
provider company infrastructure, long sales cycles, 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, inability to recruit and retain employees, limited protection of
intellectual property and proprietary rights, successful implementation of the
Company's restructuring plan, 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 ("SEC") 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 nine months ended September 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
was 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").

                                        6
<PAGE>   7
                             VISUAL NETWORKS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 and
accounts receivable. The Company primarily sells its products to large
telecommunications companies, Internet service providers and e-business
customers located in the United States. Three customers individually represented
23%, 17% and 12% of revenue, respectively, for the nine months ended September
30, 2000. For the nine months ended September 30, 1999, three customers
individually represented 27%, 23% and 10% of revenue, 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,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
Raw materials...............................................     $2,485          $  764
Work-in-progress............................................        661           2,230
Finished goods..............................................      5,833           5,004
                                                                 ------          ------
Total.......................................................     $8,979          $7,998
                                                                 ======          ======
</TABLE>

LONG-LIVED ASSETS

     The Company reviews its long-lived assets, including property and
equipment, identifiable intangibles, and goodwill whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows will be less
than the carrying amount of the assets. The Company's estimates of anticipated
net revenues, gross profits, the remaining estimated useful lives of tangible
and intangible assets, or both could be reduced significantly in the future. As
a result, the carrying amount of long-lived assets and intangibles including
goodwill could be reduced materially in the future.

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
                                        7
<PAGE>   8
                             VISUAL NETWORKS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

     The functional currencies of three of the Company's subsidiaries are the
Canadian and Singapore dollars and British pound, 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 INCOME (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). Because the Company has not had any significant
components of other comprehensive income (loss), the reported net income (loss)
does not differ materially from comprehensive income (loss) for the three and
nine months ended September 30, 2000 and 1999.

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 8,438,707 shares of common stock that were
outstanding at September 30, 2000, were not included in the computations of
diluted loss per share for the three and nine months ended September 30, 2000 as
their effect would be anti-dilutive. Options and warrants to purchase 3,512,837
shares of common stock that were outstanding at September 30, 1999, were not
included in the computations of diluted loss per share for the three and nine
months ended September 30, 1999 as their effect would be anti-dilutive.

(2) CREDIT AGREEMENTS

     The Company has a credit facility that 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 credit facility
expires on December 5, 2000, as amended. The agreement contains restrictive
financial covenants, including, but not limited to, restrictions related to
liquidity, profitability and net worth, as well as restrictions

                                        8
<PAGE>   9
                             VISUAL NETWORKS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

related to acquisitions, dispositions of assets, distributions and investments.
As of September 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
all of Avesta's assets including its intellectual property, and the payments of
cash dividends are restricted. The Avesta Facility matured in October 2000. As
of September 30, 2000, there were no borrowings outstanding under the Avesta
Facility. The Company did not renew the Avesta Facility upon expiration.

(3) 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 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.

(4) AVESTA TECHNOLOGIES MERGER

     On February 7, 2000, the Company entered into an agreement and plan of
merger (the "Merger") with Avesta. 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
5,413,530 shares of Visual common stock, options to purchase 673,338 shares and
warrants to purchase 445,463 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

                                        9
<PAGE>   10
                             VISUAL NETWORKS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

business combination. The purchase price has been allocated on a preliminary
basis as follows (unaudited, in thousands):

<TABLE>
<S>                                                           <C>
Completed technology........................................  $129,000
In-process technology.......................................    39,000
Assembled workforce.........................................     4,000
Trademarks..................................................    19,000
Goodwill....................................................   248,525
Net liabilities assumed.....................................    (4,259)
Deferred tax liability......................................   (41,373)
                                                              --------
Total.......................................................  $393,893
                                                              ========
</TABLE>

     Of the $393.9 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,
except per share data) 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>
                                                                 NINE MONTHS ENDED
                                                                   SEPTEMBER 30,
                                                              -----------------------
                                                                2000           1999
                                                              --------       --------
<S>                                                           <C>            <C>
Pro forma net revenues......................................  $ 79,555       $ 68,751
Pro forma net loss..........................................   (71,223)       (45,685)
Pro forma basic and diluted loss per share..................  $  (2.32)      $  (1.53)
</TABLE>

(5) RESTRUCTURING PLAN

     In October 2000, the Company announced a plan to realign its product
portfolio, consolidate its operations and devote resources to the markets and
products that offer the Company the greatest growth opportunities. The Company's
revised strategic focus and reorganization include plans to hire a president and
other executives, a workforce reduction of approximately 140 employees
throughout the Company and the closure of its facilities in Ottawa, Canada and
Sunnyvale, California. Upon finalization of these plans, Visual expects to
record a one-time restructuring charge that is not expected to exceed $13
million in the fourth quarter of 2000.

                                       10
<PAGE>   11

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 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.

     Our revenues have decreased significantly during the past few quarters
while our operating expenses have increased resulting in significant losses from
operations. During the past few quarters, we allowed our business strategy to
become less focused, which increased the complexity of our business and
adversely affected our results of operations. In an attempt to refocus our
efforts, we have announced a plan to realign our product portfolio, streamline
our operations and devote resources to the markets and products that offer us
the greatest growth opportunities. Our comprehensive, three-pronged plan will
seek to strengthen our business by:

     - realigning our product portfolio -- Visual UpTime, Visual IP Insight,
       Visual Trinity and Visual eWatcher to broadband and Web outsourcing;

     - strengthening our senior management team; and

     - concentrating our sales, marketing and R&D initiatives around service
       providers and their end-user customers.

     As a result of these initiatives, we have begun to:

     - consolidate our four research and development centers into two main
       centers in Rockville and New York;

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<PAGE>   12

     - search for a president and other executives to focus on day-to-day
       execution; and

     - reduce our workforce by 140 employees and close our facilities in Ottawa,
       Canada and Sunnyvale, California.

     Upon finalization of these plans, Visual expects to record a one-time
restructuring charge that is not expected to exceed $13 million in the fourth
quarter of 2000 as a result of our revised strategic focus and reorganization.
The failure to successfully implement our plans in a timely manner or achieve
the anticipated reductions in operating expenses derived from any portion of our
plan would have a material adverse effect on our business, financial condition
and results of operations.

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

     REVENUE.  We recognized $14.6 million in revenue for the three months ended
September 30, 2000, a 40.4% decrease over revenue of $24.5 million for the three
months ended September 30, 1999. Revenue for the three months ended September
30, 2000 was comprised of Visual UpTime revenue of $9.8 million, Visual IP
Insight revenue of $2.7 million and Trinity and eWatcher revenue of $2.1
million. Revenue for the three months ended September 30, 1999 was comprised of
Visual UpTime revenue of $21.6 million and Visual IP Insight revenue of $2.9
million. The overall decrease in revenue was primarily due to a decrease in
Visual Uptime revenue of $11.8 million, primarily from service providers, offset
by the effect of the acquisition of the Avesta Trinity and eWatcher products.
The decrease in sales of UpTime was primarily attributable to a change in
purchasing behavior of a major service provider. Sales to service providers
accounted for approximately 70% and 73% of revenue for the three months ended
September 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 $7.1 million for the three months ended
September 30, 2000, as compared to $16.3 million for the three months ended
September 30, 1999, a decrease of $9.2 million. Gross margin was 48.6% of
revenue for the three months ended September 30, 2000, as compared to 66.5% of
revenue for the three months ended September 30, 1999. The decrease in gross
margin percentage was due primarily to higher fixed costs supporting a lower
revenue base and approximately $1 million in inventory write-downs offset, in
part, by the addition of higher-margin software sales of Trinity and eWatcher.
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 $8.2 million for the
three months ended September 30, 2000, as compared to $4.3 million for the three
months ended September 30, 1999, an increase of $3.9 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 date of acquisition. Research and
development expense was 56.0% and 17.4% of revenue for the three months ended
September 30, 2000 and 1999, respectively. We expect that research and
development expenditures may decrease in absolute dollars as a result of our
plans to consolidate our research and development centers and the closure of our
Sunnyvale, California and Ottawa, Canada offices and may decrease as a
percentage of revenue, during the remainder of 2000.

     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 $12.7 million for the three months ended September 30,
2000, as compared to $6.5 million for the three months ended September 30, 1999,
an increase of $6.2 million. The increase in sales and marketing expense was due
primarily to continued growth in staffing, commissions, and
                                       12
<PAGE>   13

marketing programs and the costs of Avesta sales and marketing staff and
programs subsequent to the date of acquisition. Sales and marketing expense was
87.0% and 26.3% of revenue for the three months ended September 30, 2000 and
1999, respectively. We expect that sales and marketing expenditures may decrease
in absolute dollars, and may decrease as a percentage of revenue, during the
remainder of 2000. This decrease in absolute dollars is expected as a result of
our reduction in workforce and the closure of our Sunnyvale, California and
Ottawa, Canada offices.

     GENERAL AND ADMINISTRATIVE EXPENSE.  General and administrative expense
consists of finance, administration and general management activities. General
and administrative expense was $3.4 million for the three months ended September
30, 2000, as compared to $2.0 million for the three months ended September 30,
1999, an increase of $1.4 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 date of acquisition. General
and administrative expense was 23.2% and 8.2% of revenue for the three months
ended September 30, 2000 and 1999, respectively. We expect that general and
administrative expenditures may decrease in absolute dollars and may continue to
decrease as a percentage of revenue, during the remainder of 2000. The decrease
in absolute dollars is expected as a result of our reduction in workforce and
the closure of our Sunnyvale, California and Ottawa, Canada offices.

     AMORTIZATION OF ACQUIRED INTANGIBLES.  The Company recorded $22.0 million
in amortization of goodwill and other intangibles related to the acquisition of
Avesta during the three months ended September 30, 2000.

     INTEREST INCOME, NET.  Interest income, net, for the three months ended
September 30, 2000, was approximately $0.8 million as compared to $0.6 million
for the three months ended September 30, 1999, an increase of $0.2 million. The
increase was primarily due to decreased interest expense related to capital
leases and other borrowings.

     INCOME TAXES.  The income tax benefit for the three months ended September
30, 2000, was $7.7 million compared to expense of $1.3 million for the three
months ended September 30, 1999. The income tax benefit was calculated using an
effective tax rate of 12 percent.

     NET LOSS.  Net loss for the three months ended September 30, 2000, was
$30.7 million as compared to $4.0 million for the three months ended September
30, 1999, an increase of $26.7 million. This increase was due primarily to a
decrease in revenue and gross profit, increased operating expenses and the
amortization of goodwill and other intangible assets.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH
THE NINE MONTHS ENDED SEPTEMBER 30, 1999

     REVENUE.  We recognized $73.7 million in revenue for the nine months ended
September 30, 2000, a 12.8% increase over revenue of $64.3 million for the nine
months ended September 30, 1999. Revenue for the nine months ended September 30,
2000 was comprised of Visual UpTime revenue of $58.3 million, Visual IP Insight
revenue of $11.4 million and Trinity and eWatcher revenue of $4.0 million.
Revenue for the nine months ended September 30, 1999 was comprised of Visual
UpTime revenue of $57.7 million and Visual IP Insight revenue of $6.6 million.
The increase was primarily due to the acquisition of Trinity and eWatcher
products and an increase in Visual IP Insight revenue. Sales to service
providers accounted for approximately 76% and 71% of revenue for the nine months
ended September 30, 2000 and 1999, respectively.

     GROSS PROFIT.  Gross profit was $47.5 million for the nine months ended
September 30, 2000, as compared to $42.1 million for the nine months ended
September 30, 1999, an increase of $5.3 million. Gross margin was 64.3% of
revenue for the nine months ended September 30, 2000, as compared to 65.5% of
revenue for the nine months ended September 30, 1999. The decrease in gross
margin percentage was due primarily to higher fixed costs and approximately $1
million in inventory write-downs, offset, in part, by an increase in
higher-margin software sales including sales of Trinity and eWatcher.

     RESEARCH AND DEVELOPMENT EXPENSE.  Research and development expense was
$19.5 million for the nine months ended September 30, 2000, as compared to $12.1
million for the nine months ended September 30,
                                       13
<PAGE>   14

1999, an increase of $7.4 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 date of acquisition. Research and development expense
was 26.4% and 18.8% of revenue for the nine months ended September 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 nine months ended September 30, 2000.

     SALES AND MARKETING EXPENSE.  Sales and marketing expense was $29.0 million
for the nine months ended September 30, 2000, as compared to $17.9 million for
the nine months ended September 30, 1999, an increase of $11.0 million. The
increase in sales and marketing expense was due primarily to continued growth in
staffing, commissions, and marketing programs and the date of acquisition of
Avesta sales and marketing staff and programs subsequent to the acquisition.
Sales and marketing expense was 39.3% and 27.9% of revenue for the nine months
ended September 30, 2000 and 1999, respectively.

     GENERAL AND ADMINISTRATIVE EXPENSE.  General and administrative expense was
$8.0 million for the nine months ended September 30, 2000, as compared to $5.6
million for the nine months ended September 30, 1999, an increase of $2.4
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 date of acquisition. General and administrative expense was
10.9% and 8.7% of revenue for the nine months ended September 30, 2000 and 1999,
respectively.

     AMORTIZATION OF ACQUIRED INTANGIBLES.  The Company recorded $30.8 million
in amortization of goodwill and other intangibles related to the acquisition of
Avesta during the nine months ended September 20, 2000.

     INTEREST INCOME, NET.  Interest income, net, for the nine months ended
September 30, 2000, was approximately $2.1 million as compared to $1.6 million
for the nine months ended September 30, 1999, an increase of $0.5 million. The
increase was primarily due to decreased interest expense related to capital
leases and other borrowings and increased invested cash balances during the nine
months ended September 30, 2000.

     INCOME TAXES.  The income tax benefit for the nine months ended September
30, 2000, was $9.2 million compared to expense of $2.6 for the nine months ended
September 30, 1999.

     NET LOSS.  Net loss for the nine months ended September 30, 2000, was $67.5
million as compared to $1.2 million for the nine months ended September 30,
1999, an increase of $66.2 million. This increase was due primarily to an
increase in revenue and gross profit, offset by increased operating expenses,
the write-off of purchased research and development and the amortization of
goodwill and other intangible assets.

LIQUIDITY AND CAPITAL RESOURCES

     At September 30, 2000, our combined balance of cash and cash equivalents
was $42.1 million as compared to $54.6 million as of December 31, 1999, a
decrease of $12.5 million. This decrease is primarily attributable to $2.4
million in cash used in operations, $7.2 million in capital expenditures, $10.1
million in merger-related transaction costs, net of cash acquired, $2.0 million
in net repayments under credit agreements and capital lease obligations, offset
by $3.6 million in proceeds from the exercise of stock options and other stock
issuances and $5.6 million in maturities of short-term investments.

     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 $8.0
million. We currently anticipate that our cash requirements for our
restructuring plan are not expected to exceed $4.0 million in the fourth quarter
of 2000, $3.5 million in 2001 and $1.5 million thereafter. 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

                                       14
<PAGE>   15

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 credit
facility expires on December 5, 2000, as amended. 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 September 30, 2000, the Company had no borrowings outstanding under the
credit agreement.

     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 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,successful implementation of new
business strategic initiatives, failure of broadband access services to achieve
market penetration, lack of profitability, inability to sustain historical
revenue trends, successful incorporation of products into service provider
company infrastructure, long sales cycles, 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,
inability to recruit and retain employees, limited protection of intellectual
property and proprietary rights, integration of acquisitions, uncertainty of
future profitability and possible fluctuations in financial results. 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.

FAILURE OF BROADBAND ACCESS SERVICES TO ACHIEVE SIGNIFICANT MARKET PENETRATION
COULD IMPACT THE EFFECTIVENESS OF OUR NEW STRATEGIC BUSINESS INITIATIVES.

     Part of the new strategic business initiatives is to provide comprehensive
service management for new world networks running over broadband access
facilities such as DSL, fixed wireless, and cable. There is no assurance that
these access technologies will achieve broad-based market acceptance for mission
critical applications for the business customers of the service providers.
Failure of these technologies to achieve broad-based market acceptance could
adversely affect future revenues, financial condition, and results of
operations.

                                       15
<PAGE>   16

WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT AND WE MAY NOT BE
PROFITABLE IN THE FUTURE.

     Our limited history, operating losses and accumulated deficit make
predicting our future operating results difficult. Our company was organized in
1993 and we introduced Visual UpTime in mid-1995. Accordingly, we have only a
limited operating history upon which an evaluation of our product and prospects
can be based. As of September 30, 2000, we had an accumulated deficit of
approximately $98.9 million. Although we reported net income of $3.6 million for
1999, we incurred a consolidated net loss in the nine-month period ended
September 30, 2000, of approximately $67.5 million. The loss in the nine-month
period ended September 30, 2000, related primarily to the write-off of purchased
research and development and the amortization of acquired intangibles. We also
experienced losses of $9.2 million and $6.5 million in 1997 and 1998,
respectively. The loss in 1997 related primarily to our expenditures associated
with the development and marketing of the Visual UpTime product, the products of
Net2Net, and the products of Inverse. The loss in 1998 related primarily to the
effect of merger-related costs and the effect of the Net2Net and Inverse
operating losses prior to the respective dates of acquisition.

WE MAY NOT BE ABLE TO SUSTAIN HISTORICAL REVENUE TRENDS IN THE FUTURE.

     Our revenue in any period depends primarily on the volume and timing of
orders received during the period, which are difficult to predict. Our expense
levels are based, in part, on the expectation of future revenue. If revenue
levels are below expectations due to delays associated with customers'
decision-making processes or for any other reason, operating results are likely
to be materially and adversely affected. Results of operations may be affected
disproportionately by a reduction in revenue because a large portion of our
expenses are fixed and cannot be easily reduced without adversely affecting our
business. In addition, we currently intend to sustain funding of research and
product development efforts and sales, marketing and customer support operations
and to expand distribution channels. To the extent such expenses precede or are
not promptly followed by increased revenue, our business, financial condition
and results of operations could be adversely affected.

OUR SUCCESS DEPENDS ON SERVICE PROVIDER COMPANIES INCORPORATING OUR PRODUCT INTO
THEIR INFRASTRUCTURE.

     Network service companies have not typically offered products and services
that enable their customers to measure and test the level of service they
receive on their communications networks. If these companies do not want to
offer this type of service, our future revenues could be significantly lower
than anticipated. Our sales and marketing strategy depends on sales of Visual
UpTime, Visual IP Insight, Visual Trinity and Visual eWatcher to service
provider companies for them to deploy as part of their network infrastructure.
Although we expect that for 2001, a significant portion of our revenue will be
attributable to sales of Visual UpTime, Visual IP Insight, Visual Trinity and
Visual eWatcher to service providers, we cannot be sure that we will be
successful in demonstrating the value of our products to service provider
companies.

     We believe that the success of the provider deployment strategy depends on
a number of factors over which we may have little or no control, including:

     - acceptance of and satisfaction with our systems by service provider
       companies and their customers;

     - the realization of operating cost efficiencies when Visual Uptime, Visual
       IP Insight, Visual Trinity and/or Visual eWatcher is deployed;

     - our ability to convince the service providers of the operational benefits
       of Visual UpTime, Visual IP Insight, Visual Trinity and Visual eWatcher;

     - the demand generation for these systems from customers and support for
       the systems by the service provider companies' sales forces;

     - the competitive dynamics between service provider companies that provide
       communication networks for wide area use and the development of service
       for new world networks overall;

     - our successful development of systems and products that address the
       requirements for systems deployed as part of a service provider company's
       infrastructure;
                                       16
<PAGE>   17

     - the timing and successful completion of integration development work by
       service provider companies to incorporate our service management
       functionality into their operational infrastructure; and the absence of
       new technologies that make our products and systems obsolete before they
       become standardized in network systems.

     The failure of our products to become an accepted part of the service
provider companies' infrastructure or a slower than expected increase in the
volume of sales by us to these companies could have a material adverse effect on
our business, financial condition and results of operations.

OUR LONG SALES CYCLE REQUIRES US TO EXPEND SIGNIFICANT RESOURCES ON POTENTIAL
SALES OPPORTUNITIES THAT MAY NEVER BE CONSUMMATED.

     If we do not generate additional revenue from our sales and marketing
efforts, the expended resources and lack of increased revenues could have a
material adverse affect on our business, financial condition and results of
operations. Our future business prospects depend on growing the sales of our
products and services. The incorporation of our product into the infrastructure
of service providers under which we are emphasizing future sales is
characterized by a long sales cycle to turn opportunities into sales.

     The risks inherent in the long sales cycle for Visual UpTime, Visual IP
Insight, Visual Trinity and Visual eWatcher, many of which we have little or no
control over, include:

     - service provider companies' internal acceptance reviews;

     - service provider companies' budgetary constraints and technology
       assessment;

     - service provider companies' lengthy decision-making processes;

     - the attendant delays frequently associated with service provider
       companies' internal procedures to approve large capital expenditures; and

     - the substantial commitment of capital from service provider companies.

     Sales of Visual UpTime, Visual IP Insight, Visual Trinity and Visual
eWatcher generally involve significant testing by and education of both service
provider companies and their customers as well as a substantial commitment of
our sales and marketing resources. As a result, we may expend significant
resources pursuing potential sales opportunities that will not be consummated.
Even if providers deploy our products, curtailment or termination of service
provider company marketing programs, reduction in demand by service provider
customers, decreases in service provider company capital budgets or reduction in
the purchasing priority assigned to products such as Visual UpTime, Visual IP
Insight and Visual Trinity, particularly if significant and unanticipated by us,
could have a material adverse effect on our business, financial condition and
results of operations.

THE LOSS OF SPRINT, AT&T OR WORLDCOM AS A CUSTOMER COULD HARM OUR BUSINESS.

     Our provider deployment strategy depends predominantly on sales to service
provider companies. The loss of any one of Sprint, AT&T or Worldcom, which have
historically provided a majority of our revenue, would result in a substantial
loss of revenue that could have a material adverse effect on our business,
financial condition and results of operations. For the nine months ended
September 30, 2000, Sprint, AT&T and Worldcom accounted for 17%, 23% and 12%,
respectively, of our consolidated revenue. This concentration should continue as
our customer base will consist predominantly of service provider companies.

     Existing service provider company customers are not easily replaced because
of the relatively few participants in that market. High barriers to entry due to
extraordinary capital requirements and the likelihood that mergers of existing
providers may further reduce their number mean that replacing a significant
network provider company customer will be even more difficult in the future.

     Furthermore, the small number of customers means that the reduction, delay
or cancellation of orders or a delay in shipment of our products to any one
service provider company customer could have a material adverse effect on our
business, financial condition and results of operations.
                                       17
<PAGE>   18

     Our anticipated dependence on sizable orders from a limited number of
service provider companies will make the relationship between us and each
service provider company critically important to our business. As our
relationships with these service provider companies evolve over time, we will
make adjustments to product specifications, forecasts and delivery timetables in
response to service provider company demands and expectations. Further, because
none of our agreements contain minimum purchase requirements, there can be no
assurance that the issuance of a purchase order will result in significant
recurring business. Any inability to manage our service provider company
relationships successfully could have a material adverse effect on our business,
financial condition and results of operations.

THE TERMINATION OF THE SPRINT AND WORLDCOM MERGER MAY PROLONG THE TIME TO
PROFITABILITY WITH RESPECT TO TWO OF OUR MAJOR ACCOUNTS.

     Our organizational and strategic integration activities that we were
undertaking with respect to our Sprint and Worldcom accounts must now be
reversed as a result of the termination of the Sprint and Worldcom merger. This
activity may adversely affect the business relationships that we were
establishing in the combined company and may prolong our sales cycles. Either of
these may have a material adverse effect on our business, financial condition
and results of operations.

THE PENDING BREAK-UP OF AT&T COULD LENGTHEN SALES CYCLES AND ADVERSELY AFFECT
OUR BUSINESS.

     Potential disruption caused by the pending break-up of AT&T could result in
delays by AT&T's customers in ordering services based on our equipment and
delays in installation of services by AT&T. Both of these conditions could
adversely affect our business, financial condition and results of operations.

     The separation by AT&T of its Business unit, Broadband unit and Wireless
unit into three different companies could impact potential synergies realized
from integrated service management across multiple broadband access
technologies, which is an important strength of our systems.

THE CONSOLIDATION OF THE TELECOMMUNICATIONS INDUSTRY, PARTICULARLY WITH RESPECT
TO INTERNET SERVICE PROVIDERS, DSL PROVIDERS AND CLECS COULD RESULT IN A
LENGTHENED SALES CYCLE.

     Many companies in the telecommunications industry, particularly Internet
service providers, DSL providers and competitive local exchange carriers, are
consolidating with each other. As a result, management of these companies is
focused on internal integration and other issues and is less likely to focus on
the purchasing of additional equipment and services. This is likely to affect
our business by lengthening our sales cycle.

WE FACE GROWING COMPETITION THAT COULD MAKE IT DIFFICULT FOR US TO ACQUIRE AND
RETAIN CUSTOMERS.

     The market for service management systems for new world connectivity
services and out-sourced Web services is new and rapidly evolving. We expect
competition in this market to intensify in the future. Our competitors vary in
size and in the scope and breadth of the products and services that they offer.
Many of these competitors have greater financial, technical, marketing and other
resources than us, and some have well established relationships with our current
and potential customers. As a result, these competitors may be able to respond
to new or emerging technologies and changes in customer requirements more
effectively than us, or devote greater resources than us to the development,
promotion and sale of products. Increased competition may result in price
reductions, reduced profitability and loss of market share, any of which could
have a material adverse effect on our business, financial condition and results
of operations.

     We may experience competition from less expensive products and services
that provide only a portion of the functionality provided by our products and
services. In particular, as prices for network equipment components such as data
service units/channel service units decrease, customers may decide to purchase
these less expensive products even though they lack certain features offered by
our products, particularly when these units are integrated in customer routers
and switches. For example, we expect that participants with strong capabilities
in these various segments could partner with each other to offer products that
supply functionality approaching that provided by Visual UpTime. We are aware of
such arrangements between
                                       18
<PAGE>   19

Digital Link and NetScout, and NetScout and Paradyne. The success of such
products could have a material adverse effect on our business, financial
condition and results of operations.

     If we expand the scope of our products and services, we may encounter many
additional, market-specific competitors. These potential competitors include
companies that sell network management software such as Lucent Technologies,
Inc. -- OneVision Division and Telecordia Technologies, Inc., each of which has
announced products that could potentially compete with us in the future. The
success of such products could have a material adverse effect on our business,
financial condition and results of operations.

     We may experience competition from fault management companies, such as
Micromuse, that provide only a portion of the functionality provided by our
products and services. If the functionality of these systems is sufficient to
meet customer requirements, or these companies add functionality to match our
products and services, the success of such products could have a material
adverse effect on our business, financial condition and results of operations.

OUR DEFENSE OF THE LITIGATION RELATING TO OUR ALLEGED FALSE AND MISLEADING
STATEMENTS IN ADDITION TO A COMPETITOR'S PATENT INFRINGEMENT CLAIM MAY RESULT IN
COSTLY LITIGATION, DIVERT THE EFFORTS AND ATTENTION OF OUR MANAGEMENT AND BE
UNSUCCESSFUL.

     In July, August and September 2000, several purported class action
complaints were filed against us, Scott E. Stouffer, our Chairman and CEO, and
Michael Watters, former Chief Operating Officer, in the United States District
Court for the District of Maryland. The complaints allege that between February
7, 2000 and August 23, 2000, the defendants made false and misleading statements
which had the effect of inflating the market price of our 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. We believe that the plaintiffs'
claims are without merit and intend to defend these cases vigorously. We 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. We intend to
vigorously defend itself against these allegations and we believe that they
acted appropriately in connection with the matters at issue. We cannot presently
determine the ultimate outcome of this action and the effect, if any, on our
financial statements. A negative outcome could have a material adverse effect on
our financial position.

     Failure to prevail in the intellectual property litigation could result in
one or more of the following:

     - the payment of substantial monetary and punitive damages;

     - the reimbursement of the plaintiff's legal costs;

     - the requirement to stop selling one of our major products in its current
       form;

     - the redesign of that product;

     - the requirement to license certain technology from the plaintiff, which
       could include significant royalty payments; and

     - the indemnification of certain customers against the losses they may
       incur due to the alleged infringement.

     In addition, we may incur significant legal costs related to this
litigation.

                                       19
<PAGE>   20

OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND WE MUST ADAPT
QUICKLY TO THESE CHANGES TO COMPETE EFFECTIVELY.

     The market for our products is characterized by rapid changes, including
continuing advances in technology, frequent new product introductions, changes
in customer requirements and preferences and changes in industry standards. If
we are unable to develop and introduce new products and product enhancements in
a timely fashion that accommodate these changes, we will likely lose customers
and business which could have a material adverse effect on our business,
financial condition and results of operations. The introduction of new
technologies or advances in techniques for network services or the integration
of service level management functionality into other network hardware components
could render our products obsolete or unmarketable. There can be no assurance
that (i) our existing products will continue to compete successfully; (ii) our
future product offerings will keep pace with the technological changes
implemented by our competitors; (iii) our products will satisfy evolving
industry standards or preferences of existing or prospective customers; or (iv)
we will be successful in developing and marketing products for any future
technology. Failure to achieve any one of these objectives could have a material
adverse effect on our business, financial condition and results of operations.

OUR FUTURE SUCCESS DEPENDS ON CONTINUED MARKET ACCEPTANCE OF THE NEW WORLD
NETWORK SERVICES AND OUR ABILITY TO ADAPT TO NEW NETWORK TECHNOLOGIES THAT MAY
DEVELOP.

     Because our systems are deployed predominantly on new world networks such
as Frame Relay, ATM, IP, remote access and VPNs, our near-term success will
depend on the continued market acceptance of these technologies as preferred
networking solutions. If these services do not maintain widespread market
acceptance, the market for our products will be substantially reduced which
could have a material adverse effect on our business, financial condition and
results of operations. Although we are currently devoting significant resources
to the development of additional products, there can be no assurance that we
will complete the development of these or any future products in a timely
fashion, that we will successfully manage the transition from existing products,
that our future products will achieve market acceptance, or if market acceptance
is achieved, that we will be able to maintain such acceptance for a significant
period of time. If we are unable to develop products on a timely basis that
address changing customer needs and technologies, we may lose market share to
competitors or be required to substantially increase development expenditures.
Such an increase in research and development expenditures may have a material
adverse effect on our business, financial condition and results of operations.
There also can be no assurance that products or technologies developed by others
will not adversely affect our competitive position or render our products or
technologies noncompetitive or obsolete.

THE SUCCESS OF OUR BUSINESS DEPENDS ON THE WIDESPREAD ADOPTION OF NEW WORLD
NETWORKS BY BUSINESS AND CONSUMERS FOR E-COMMERCE AND COMMUNICATIONS.

     Because our service management products and services are based on providing
performance measurement and diagnostics for the Internet and corporate IP
networks, the Internet must be widely adopted, in a timely manner, as a means of
electronic commerce, or e-commerce, and communications. If such adoption should
not occur, our business, financial condition and results of operations could be
adversely affected. Because e-commerce and communications over the Internet are
new and evolving, it is difficult to predict the size of this market and its
sustainable growth rate. In addition, we believe that the use of the Internet
for conducting business transactions could be hindered for a number of reasons,
including, but not limited to:

     - security concerns including the potential for fraud or theft of stored
       data and information communicated over the Internet;

     - inconsistent quality of service, including well-publicized outages of
       popular web sites;

     - lack of availability of cost-effective, high-speed service;

     - limited numbers of local access points for corporate users;

     - delay in the development of enabling technologies or adoption of new
       standards;
                                       20
<PAGE>   21

     - inability to integrate business applications with the Internet;

     - the need to operate with multiple and frequently incompatible products;
       and

     - a lack of tools to simplify access to and use of the Internet.

IMPROVEMENTS TO THE INFRASTRUCTURE OF THE INTERNET COULD REDUCE OR ELIMINATE
DEMAND FOR OUR INTERNET PERFORMANCE MEASUREMENT PRODUCTS AND SERVICES.

     The demand for our service management products and services could be
reduced or eliminated if future improvements to the infrastructure of the
Internet lead companies to conclude that measuring and evaluating the
performance of their networks is no longer important to their business. The
Internet is a complex, heterogeneous network of communications networks with
multiple operators and vendors supplying and managing the underlying
infrastructure as well as connections to this infrastructure. Because the
inherent complexity of the Internet currently causes significant e-commerce
quality-of-service problems for companies, the vendors and operators that supply
and manage the underlying infrastructure are continuously seeking to improve the
speed, availability, reliability and consistency of the Internet. If these
vendors and operators succeed in significantly improving the performance of the
Internet, which would result in corresponding improvements in the performance of
companies' networks, demand for our products and services would likely decline
which could have a material adverse effect on our business, financial condition
and results of operations.

ERRORS IN OUR PRODUCTS OR SERVICES COULD DISCOURAGE CUSTOMERS AND DAMAGE OUR
REPUTATION.

     If our existing or future products or services contain errors that are not
detected before shipment, we could experience a loss of or delay in market
acceptance of our products, diversion of development resources, damage to our
reputation or increases in service or warranty costs, any of which could have a
material adverse effect upon our business, financial condition and results of
operations. Products and services as complex as those we offer may contain
undetected errors or failures when first introduced or as new versions are
released. There can be no assurance that, despite testing by us and by current
and potential customers, errors will not be found in new products and services
until commercial shipments have commenced.

OUR DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS MAKES THE PRICE WE PAY FOR
IMPORTANT COMPONENTS IN OUR PRODUCTS MORE VOLATILE.

     We purchase many key components used in the manufacture of our products
only from sole or limited sources. If a sole or limited source supplier raises
their prices, delays shipments or becomes unable or unwilling to supply a key
component, we may be forced to obtain these components from alternative sources
if they are available, which could impair our ability to deliver our products to
our customers in a timely and cost-effective manner, or could force us to
increase our prices or reduce our gross profit margins. Any of these events
could have a material adverse effect on our business, financial condition and
results of operations and could jeopardize our relationships with those
customers.

     The risks associated with being dependent on sole or limited source
suppliers of key components include the following:

     - we have not identified alternative suppliers for all of our key
       components and we may not be able to find alternative suppliers, if
       necessary, or find alternative components of comparable quality;

     - we will have to qualify alternative suppliers before we purchase
       components from them which will, even if successful, necessarily delay
       the process of procuring the replacement components;

     - most of our suppliers do not have long-term agreements with us, so these
       suppliers could suddenly increase component prices;

     - even minor delays in shipments of key components from suppliers, which we
       have experienced in the past, could delay the shipment of our products;

                                       21
<PAGE>   22

     - although all of our sole or limited source suppliers are based in the
       United States, some of them may manufacture or acquire components from
       outside of the United States and thus they may be unable to deliver their
       components if their own supplies are interrupted by events in other
       countries; and

     - some of the components, including dynamic random access memories and
       embedded communications processors, are subject to significant price
       fluctuations.

     Sole-source components presently include framers, certain semiconductors,
embedded communications processors, communication controllers and line interface
components.

WE MAY FACE DIFFICULTIES ASSIMILATING AND MAY INCUR COSTS ASSOCIATED WITH ANY
FUTURE ACQUISITIONS.

     We may seek to acquire or invest in businesses, products or technologies
that we feel could complement or expand our business, augment our market
coverage, enhance our technical capabilities or that may otherwise offer growth
opportunities. Acquisitions could create risks for us, including:

     - difficulties in assimilation of acquired personnel, operations and
       technologies;

     - unanticipated costs associated with the acquisition;

     - diversion of management's attention from our core business;

     - adverse effects on existing business relationships with channel partners
       of our products and services and our customers; and

     - use of substantial portions of our available cash to consummate the
       acquisition.

     Our failure to successfully assimilate companies or technologies acquired
by us or the occurrence of unanticipated costs that may arise in connection with
such acquisitions, could have a material adverse effect on our business,
financial condition and results of operations.

IF WE EXPAND OUR INTERNATIONAL ACTIVITIES, OUR BUSINESS WILL BE SUSCEPTIBLE TO
ADDITIONAL RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.

     We believe we must expand the sales and marketing activities for our
products and services outside the United States and hire additional
international personnel. Therefore, we expect to commit significant resources to
expand our international sales and marketing activities, which were less than
10% of our consolidated revenue for 1999 and prior periods. Conducting
international operations would subject us to risks we do not face in the United
States. These include, but are not limited to:

     - currency exchange rate fluctuations;

     - seasonal fluctuations in purchasing patterns;

     - unexpected changes in regulatory requirements;

     - maintaining and servicing computer hardware in distant locations;

     - longer accounts receivable payment cycles and difficulties in collecting
       accounts receivable;

     - difficulties in managing and staffing international operations;

     - potentially adverse tax consequences, including restrictions on the
       repatriation of earnings;

     - the burdens complying with a wide variety of foreign laws; and

     - reduced protection for intellectual property rights in some countries.

     The Internet and other IP services, such as Frame Relay and ATM, may not be
used as widely in other countries and the adoption of public data service for
transporting mission-critical applications may evolve slowly or may not evolve
at all. As a result, we may not be successful in selling our products and
services to customers in markets outside the United States. Failure to expand
our international activities successfully could have a material adverse effect
on our business, financial condition and results of operations.
                                       22
<PAGE>   23

THE LOSS OF KEY PEOPLE COULD JEOPARDIZE OUR GROWTH PROSPECTS.

     The loss of the services of Scott E. Stouffer, our Chairman, President and
Chief Executive Officer, and Peter J. Minihane, our Chief Financial Officer, or
any other key employee could adversely affect our ability to execute our
business plan and could have a material adverse effect on our business,
financial condition and results of operations. Our success depends to a
significant degree upon the continuing contributions of our key management and
technical employees, particularly Messrs. Stouffer and Minihane.

OUR INABILITY TO RECRUIT AND RETAIN EMPLOYEES MAY HURT OUR GROWTH PROSPECTS.

     We are actively seeking to fill a number of executive management positions.
If we fail to recruit and retain personnel, it could damage our ability to grow
and expand our business. Our future success depends on our ability to retain
highly skilled managerial, sales, marketing, customer support and product
development personnel. Intense competition for technically trained sales and
product development personnel makes recruiting qualified personnel difficult.
There can be no assurance that we will be successful in retaining our key
employees. Failure to retain key personnel could have a material adverse effect
on our business, financial condition and results of operations.

OTHERS MAY CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS.

     If others claim that our products infringe on their intellectual property
rights, whether the claims are valid or not, we may be forced to spend
significant sums in litigation, pay damages, delay product shipments, reengineer
our products or acquire licenses to the claimant's intellectual property. We
expect that these claims may become more common as the number of products in the
network management industry increases and the functionality of these products
further overlaps. If a claimant is successful in a lawsuit arising from such a
claim, it could have a material adverse effect on our business, financial
condition and results of operations.

WE MUST PROTECT OUR OWN INTELLECTUAL PROPERTY RIGHTS.

     Our success is dependent on our proprietary technology and intellectual
property rights. We hold three patents and also rely on copyright and trade
secret laws, trademarks, confidentiality procedures and contractual provisions
to protect our proprietary software, documentation and other proprietary
information. These protection methods may not be adequate to prevent competitors
from developing similar technology. Moreover, in the absence of patent
protection, our business may be adversely affected by competitors that develop
functionally equivalent technology. Litigation to enforce our intellectual
property rights, regardless of its success or failure, could be burdensome and
expensive and could involve a high degree of uncertainty. In addition, legal
proceedings may divert management's attention from growing our business.

     We may be subject to additional risk as we enter into transactions in
countries where intellectual property laws are not well developed or enforced
effectively. Legal protection of our rights may be ineffective in such
countries, and technology developed or used in such countries may not be
protectable in jurisdictions where protection is ordinarily available. Failure
to adequately protect our intellectual property rights could have a material
adverse effect on our business, financial condition and results of operations.

WE HAVE ANTI-TAKEOVER PROTECTIONS THAT MAY DELAY OR PREVENT A CHANGE IN CONTROL
THAT COULD BENEFIT OUR STOCKHOLDERS.

     Terms of our certificate of incorporation and bylaws make it more difficult
for another individual or company to acquire control of our company, even if a
change of control would benefit our stockholders. These terms include:

          - our board of directors, without stockholder approval, may issue up
            to 5,000,000 shares of preferred stock on terms that they determine.
            This preferred stock could be issued quickly with terms that delay
            or prevent the change in control of our company, make removal of
            management more difficult or depress the price of our stock;

                                       23
<PAGE>   24

          - certain provisions of our certificate of incorporation and bylaws
            and of Delaware law could delay or make more difficult a merger,
            tender offer or proxy contest;

          - we are subject to the anti-takeover provisions of Section 203 of the
            Delaware General Corporation Law which prohibits a publicly held
            Delaware corporation from engaging in a "business combination" with
            an "interested stockholder" for a period of three years after the
            date of the transaction in which the person became an interested
            stockholder, unless the business           combination is approved
            in a prescribed manner;

          - our board of directors is "staggered" so that only a portion of its
            members are elected each year;

          - only our board of directors, our chairman of the board, our
            president or stockholders holding a majority of our stock can call
            special stockholder meetings; and

          - special procedures must be followed in order for stockholders to
            present proposals at stockholder meetings.

     In addition, our credit facility with Silicon Valley Bank prohibits us from
engaging in a merger with or being acquired by another entity without their
consent, unless we are the surviving entity.

     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, successful implementation of new business
strategic initiatives, failure of broadband access services to achieve market
penetration, lack of profitability, inability to sustain historical revenue
trends, successful incorporation of products into service provider company
infrastructure, long sales cycles, 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, ability to
recruit and retain employees, limited protection of intellectual property and
proprietary rights, integration of acquisitions, uncertainty of future
profitability and possible fluctuations in financial results, and other risk
factors set forth in our Annual Report on Form 10-K for the year ended December
31, 1999, Registration Statement No. 333-33946 on Form S-4 filed April 4, 2000,
as amended and Registration Statement No. 333-49560 on Form S-3 filed November
8, 2000.

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."

                                       24
<PAGE>   25

                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     In July, August and September 2000, several purported class action
complaints were filed against the Company, Scott E. Stouffer, its Chairman and
CEO, and Michael Watters, former Chief Operating Officer, in the United States
District Court for the District of Maryland. The complaints allege that between
February 7, 2000 and August 23, 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

     None.

ITEM 5.  OTHER INFORMATION

     None.

                                       25
<PAGE>   26

ITEM 6.  (a) EXHIBITS

<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                         EXHIBIT DESCRIPTION
-----------                      -------------------
<C>    <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$$$++ Second Amendment, dated November 4, 1998, to the
             Reseller/Integration Agreement between the Company and MCI
             Telecommunications Corporation (relating to Exhibit 10.5).
   10.6!     Master Purchase Agreement, dated as of May 22, 2000, between
             Sprint/United Management Company and the Company.
   10.7*+    General Agreement for the Procurement of Equipment, Services
             and Supplies, dated November 26, 1997, between the Company
             and AT&T Corp.
   10.8*     Lease Agreement, dated December 12, 1996, by and between the
             Company and The Equitable Life Assurance Society of the
             United States.
 10.8.1*     Lease Amendment, dated September 2, 1997, by and between the
             Company and The Equitable Life Assurance Society of The
             United States (related to Exhibit 10.8).
 10.8.2$$$   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 (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!     Second Amendment to Loan and Security Agreement, effective
             October 5, 2000, by and between Silicon Valley Bank and the
             Company (relating to Exhibit 10.15).
10.15.2!     Amended and Restated Revolving Promissory Note issued by the
             Company on October 5, 2000, 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.
</TABLE>

                                       26
<PAGE>   27

<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                         EXHIBIT DESCRIPTION
------------                      -------------------
<C>    <S>   <C>
   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>

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

<TABLE>
<S>   <C>
*     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.
!     To be filed by amendment.
!!    Incorporated herein by reference to the Company's Quarterly
      Report on Form 10-Q for the three months ended June 30,
      2000.
</TABLE>

     (b) REPORTS ON FORM 8-K

     None.

                                       27
<PAGE>   28

                                   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
                                               Financial Officer, Treasurer and
                                              Director (principal financial and
                                                     accounting officer)

November 14, 2000

                                       28