##### Table of Contents









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 March 31, 2000

OR



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

Commission File Number 000-23699



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VISUAL NETWORKS, INC.

(Exact name of registrant as specified in its
charter)


|                                                                         |  |                                                
|------------------------------------------------------------------------ |  | -----------------------------------------------
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Delaware(State or other jurisdiction of
	incorporation or organization)  |  | 52-1837515(I.R.S. Employer
	Identification No.)
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|2092 Gaither Road, Rockville, MD(Address of principal executive offices) |  | 20850-4013(Zip Code)                           

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 May 10, 2000, 25,158,668 shares of the
registrants Common Stock, par value $.01 per share, were
issued and outstanding.









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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION
|                              | Item 1: Financial Statements                                                                 
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Qualitative and Quantitative Disclosure About Market Risk                            
|PART II -- OTHER INFORMATION 
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 2. Changes in Securities                                                                
|                              | Item 3. Defaults Upon Senior Securities                                                      
|                              | Item 4. Submission of Matters to Vote of Security Holders                                    
|                              | Item 5. Other Information                                                                    
|                              | Item 6. (a) Exhibits                                                                         
|SIGNATURES                   



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VISUAL NETWORKS, INC.

QUARTERLY REPORT ON FORM 10-Q


FOR THE THREE MONTHS ENDED


MARCH 31, 2000


TABLE OF CONTENTS

|                              |                                                                                                |                                                                                     |  |    |   | 
|----------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- |  | -- | - | 
|                              |                                                                                                | Page                                                                               
|                              |                                                                                                |                                                                                    
|Part I. Financial Information |                                                                                                |                                                                                     |  |   
|                             
|                             
|                             
|                             
|                              | Item 1. Financial Statements:                                                                  |                                                                                     |  |    |  
|                             
|                             
|                             
|                             
|                              |                                                                                                | Consolidated Balance Sheets  March 31, 2000 and
	December 31, 1999                 |  |    | 3 | 
|                             
|                             
|                             
|                             
|                              |                                                                                                | Consolidated Statements of Operations  Three months
	ended March 31, 2000 and 1999 |  |    | 4 | 
|                             
|                             
|                             
|                             
|                              |                                                                                                | Consolidated Statements of Cash Flows  Three months
	ended March 31, 2000 and 1999 |  |    | 5 | 
|                             
|                             
|                             
|                             
|                              |                                                                                                | Notes to Consolidated Financial Statements                                          |  |    | 6 | 
|                             
|                             
|                             
|                             
|                              | Item 2. Managements Discussion and Analysis of
	Financial Condition and Results of Operations |                                                                                     |  | 9  |  
|                             
|                             
|                             
|                             
|                              | Item 3. Qualitative and Quantitative Disclosure about Market
	 Risk                            |                                                                                     |  | 12 |  
|Part II. Other Information    |                                                                                                |                                                                                     |  |   
|                             
|                             
|                             
|                             
|                              | Items 1  6                                                                                    |                                                                                     |  | 13 |  
|                             
|                             
|                             
|                             
|                              | Signatures                                                                                     |                                                                                     |  | 16 |  

2



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##### Table of Contents






PART I:  FINANCIAL INFORMATION




Item 1:  Financial Statements

VISUAL NETWORKS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except share data)


|                                       |                                                                                                                                                                                |                                            |        |              |        |  |       |         |        | 
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | ------------ | ------ |  | ----- | ------- | ------ | 
|                                       |                                                                                                                                                                                | March 31,                                  |        | December 31,
|                                       |                                                                                                                                                                                | 2000                                       |        | 1999        
|                                       |                                                                                                                                                                                |                                            |        |             
|                                      
|                                      
|                                      
|                                      
|ASSETS                                
|                                      
|                                      
|                                      
|                                      
|Current Assets:                        |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|                                      
|                                      
|                                      
|                                      
|                                       | Cash and cash equivalents                                                                                                                                                      |                                            | $      | 59,439       |        |  | $     | 54,629  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts receivable, net of allowance of $752 and $754,
	respectively                                                                                                          |                                            |        | 10,846       |        |  |       | 9,374   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Inventory                                                                                                                                                                      |                                            |        | 7,720        |        |  |       | 7,998   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Other current assets                                                                                                                                                           |                                            |        | 2,414        |        |  |       | 2,472   |       
|                                       |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|                                       |                                                                                                                                                                                | Total current assets                       |        |              | 80,419 |  |       |         | 74,473 | 
|                                      
|                                      
|                                      
|                                      
|Property and equipment, net            |                                                                                                                                                                                |                                            | 10,066 |              |        |  | 8,566 |        
|                                      
|                                      
|                                      
|                                      
|Other assets                           |                                                                                                                                                                                |                                            | 115    |              |        |  | 115   |        
|                                       |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|                                       |                                                                                                                                                                                | Total assets                               |        | $            | 90,600 |  |       | $       | 83,154 | 
|                                       |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|                                      
|                                      
|                                      
|                                      
|LIABILITIES AND STOCKHOLDERS EQUITY  
|                                      
|                                      
|                                      
|                                      
|Current Liabilities:                   |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts payable and accrued expenses                                                                                                                                          |                                            | $      | 9,991        |        |  | $     | 8,114   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Accrued compensation                                                                                                                                                           |                                            |        | 2,080        |        |  |       | 3,640   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred revenue                                                                                                                                                               |                                            |        | 11,420       |        |  |       | 11,798  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Current portion of long-term debt                                                                                                                                              |                                            |        | 588          |        |  |       | 568     |       
|                                       |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|                                       |                                                                                                                                                                                | Total current liabilities                  |        |              | 24,079 |  |       |         | 24,120 | 
|                                      
|                                      
|                                      
|                                      
|Long-term debt, net of current portion |                                                                                                                                                                                |                                            | 635    |              |        |  | 782   |        
|                                       |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|                                       |                                                                                                                                                                                | Total liabilities                          |        |              | 24,714 |  |       |         | 24,902 | 
|                                       |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|Stockholders Equity:                  |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|                                      
|                                      
|                                      
|                                      
|                                       | Common stock, $.01 par value, 50,000,000 shares authorized,
	25,255,028 and 24,833,609 shares issued and outstanding as of
	March 31, 2000 and December 31, 1999, respectively |                                            |        | 250          |        |  |       | 248     |       
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred compensation                                                                                                                                                          |                                            |        | (658         | )      |  |       | (705    | )     
|                                      
|                                      
|                                      
|                                      
|                                       | Additional paid-in capital                                                                                                                                                     |                                            |        | 92,213       |        |  |       | 90,169  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Accumulated deficit                                                                                                                                                            |                                            |        | (25,919      | )      |  |       | (31,460 | )     
|                                       |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|                                       |                                                                                                                                                                                | Total stockholders equity                 |        |              | 65,886 |  |       |         | 58,252 | 
|                                       |                                                                                                                                                                                |                                            |        |              |        |  |       |        
|                                       |                                                                                                                                                                                | Total liabilities and stockholders equity |        | $            | 90,600 |  |       | $       | 83,154 | 
|                                       |                                                                                                                                                                                |                                            |        |              |        |  |       |        

See accompanying notes to consolidated financial statements.

3



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##### Table of Contents



VISUAL NETWORKS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(In thousands, except per share data)


|                                            |                            |                          |        |        |        |   |        |        |        | 
|------------------------------------------- | -------------------------- | ------------------------ | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                            |                            |                         
|                                            |                            | For the three months    
|                                            |                            | ended March 31,         
|                                            |                            |                         
|                                            |                            | 2000                     |        | 1999  
|                                            |                            |                          |        |       
|Revenue                                     |                            | $                        | 30,494 |        |        | $ | 18,588 |       
|                                           
|                                           
|                                           
|                                           
|Cost of revenue                             |                            |                          | 9,295  |        |        |   | 6,477  |       
|                                            |                            |                          |        |        |        |   |        |       
|                                            | Gross profit               |                          |        | 21,199 |        |   |        | 12,111 |       
|                                            |                            |                          |        |        |        |   |        |       
|Operating expenses:                         |                            |                          |        |        |        |   |        |       
|                                           
|                                           
|                                           
|                                           
|                                            | Research and development   |                          |        | 5,057  |        |   |        | 3,816  |       
|                                           
|                                           
|                                           
|                                           
|                                            | Sales and marketing        |                          |        | 6,977  |        |   |        | 5,591  |       
|                                           
|                                           
|                                           
|                                           
|                                            | General and administrative |                          |        | 2,251  |        |   |        | 1,685  |       
|                                            |                            |                          |        |        |        |   |        |       
|                                            |                            | Total operating expenses |        |        | 14,285 |   |        |        | 11,092 | 
|                                            |                            |                          |        |        |        |   |        |       
|Income from operations                      |                            |                          | 6,914  |        |        |   | 1,019  |       
|                                           
|                                           
|                                           
|                                           
|Interest income, net                        |                            |                          | 677    |        |        |   | 562    |       
|                                            |                            |                          |        |        |        |   |        |       
|Income before income taxes                  |                            |                          | 7,591  |        |        |   | 1,581  |       
|                                           
|                                           
|                                           
|                                           
|Income taxes                                |                            |                          | (2,050 | )      |        |   | (506   | )     
|                                            |                            |                          |        |        |        |   |        |       
|Net income                                  |                            | $                        | 5,541  |        |        | $ | 1,075  |       
|                                            |                            |                          |        |        |        |   |        |       
|Basic income per share                      |                            | $                        | 0.22   |        |        | $ | 0.04   |       
|                                            |                            |                          |        |        |        |   |        |       
|Diluted income per share                    |                            | $                        | 0.20   |        |        | $ | 0.04   |       
|                                            |                            |                          |        |        |        |   |        |       
|Basic weighted average shares outstanding   |                            |                          | 24,940 |        |        |   | 24,288 |       
|                                            |                            |                          |        |        |        |   |        |       
|Diluted weighted average shares outstanding |                            |                          | 27,544 |        |        |   | 26,375 |       
|                                            |                            |                          |        |        |        |   |        |       

See accompanying notes to consolidated financial statements.

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VISUAL NETWORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(In thousands)


|                                                     |                                                                                               |                                       |                                                     |        |        |        |        |        |        |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------- | --------------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | -
|                                                     |                                                                                               |                                      
|                                                     |                                                                                               | For the three months                 
|                                                     |                                                                                               | ended March 31,                      
|                                                     |                                                                                               |                                      
|                                                     |                                                                                               | 2000                                  |                                                     | 1999  
|                                                     |                                                                                               |                                       |                                                     |       
|Cash flows from operating activities:                |                                                                                               |                                       |                                                     |        |        |        |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income                                                                                    |                                       | $                                                   | 5,541  |        |        | $      | 1,075  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income to net cash provided by (used
	 in) operating activities: |                                       |                                                     |        |        |        |        |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                               | Depreciation and amortization         |                                                     |        | 1,144  |        |        |        | 617    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Changes in assets and liabilities:                                                            |                                       |                                                     |        |        |        |        |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                               | Accounts receivable                   |                                                     |        | (1,472 | )      |        |        | (1,946 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                               | Inventory                             |                                                     |        | 278    |        |        |        | (691   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                               | Other assets                          |                                                     |        | 58     |        |        |        | (614   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                               | Accounts payable and accrued expenses |                                                     |        | 1,877  |        |        |        | 1,843  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                               | Customer deposits                     |                                                     |        |       |        |        |        | (4,613 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                               | Accrued compensation                  |                                                     |        | (1,560 | )      |        |        | (699   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                               | Deferred revenue                      |                                                     |        | (378   | )      |        |        | 2,987  |       
|                                                     |                                                                                               |                                       |                                                     |        |        |        |        |       
|                                                     |                                                                                               |                                       | Net cash provided by (used in) operating activities |        |        | 5,488  |        |        |        | (2,041 | )
|                                                     |                                                                                               |                                       |                                                     |        |        |        |        |       
|Cash flows from investing activities:                |                                                                                               |                                       |                                                     |        |        |        |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net purchases of short-term investments                                                       |                                       |                                                     |       |        |        |        | (153   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Expenditures for property and equipment                                                       |                                       |                                                     | (2,598 | )      |        |        | (1,278 | )     
|                                                     |                                                                                               |                                       |                                                     |        |        |        |        |       
|                                                     |                                                                                               |                                       | Net cash used in investing activities               |        |        | (2,598 | )      |        |        | (1,431 | )
|                                                     |                                                                                               |                                       |                                                     |        |        |        |        |       
|Cash flows from financing activities:                |                                                                                               |                                       |                                                     |        |        |        |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Exercise of stock options                                                                     |                                       |                                                     | 2,046  |        |        |        | 560    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repurchase of common stock                                                                    |                                       |                                                     |       |        |        |        | (1     | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net repayments under credit agreements                                                        |                                       |                                                     | (22    | )      |        |        | (18    | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Principal payments on capital lease obligations                                               |                                       |                                                     | (104   | )      |        |        | (86    | )     
|                                                     |                                                                                               |                                       |                                                     |        |        |        |        |       
|                                                     |                                                                                               |                                       | Net cash provided by financing activities           |        |        | 1,920  |        |        |        | 455    |  
|                                                     |                                                                                               |                                       |                                                     |        |        |        |        |       
|Net increase (decrease) in cash and cash equivalents |                                                                                               |                                       | 4,810                                               |        |        |        | (3,017 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of period       |                                                                                               |                                       | 54,629                                              |        |        |        | 51,655 |       
|                                                     |                                                                                               |                                       |                                                     |        |        |        |        |       
|Cash and cash equivalents, end of period             |                                                                                               | $                                     | 59,439                                              |        |        | $      | 48,638 |       
|                                                     |                                                                                               |                                       |                                                     |        |        |        |        |       
|Supplemental cash flow information:                  |                                                                                               |                                       |                                                     |        |        |        |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash paid for interest                                                                        |                                       | $                                                   | 23     |        |        | $      | 47     |       
|                                                     |                                                                                               |                                       |                                                     |        |        |        |        |       

See accompanying notes to consolidated financial statements.

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##### Table of Contents



VISUAL NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2000


(Unaudited)


(1) Nature of Operations and Summary of Significant
Accounting Policies

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

Financial Statement Presentation

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

These financial statements are unaudited and have been prepared
by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial
reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements, and it
is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto,
included in the Companys 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 months
ended March 31, 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 is a provider of
 service level management software solutions and Internet
measurement services. On February 7, 2000, the Company
entered into an agreement and plan of merger with Avesta
Technologies, Inc., a provider of fault management and
application performance monitoring software systems to e-business
 customers. See Note 3.

The accompanying consolidated financial statements have been
retroactively restated to reflect the combined financial position
 and combined results of operations and cash flows for all
periods presented, giving effect to the acquisitions of Net2Net
and Inverse as if they had occurred at the beginning of the
earliest period presented (hereafter, Visual, Net2Net and Inverse
 are collectively referred to as the Company).

Revenue Recognition

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

6



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##### Table of Contents



VISUAL NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

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 and recognizes software revenue in accordance with SOP
97-2. Effective December 15, 1998, the AICPA issued SOP
98-9, Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions. This SOP
 amends SOP 98-4, Deferral of Effective Date of a Provision
 of SOP 97-2, to extend the deferral of the application of
passages of SOP 97-2 provided by SOP 98-4 through fiscal years
beginning before March 15, 1999 and provides additional
guidance regarding the accounting for multiple element software
sales. The adoption of SOP 98-9 did not have a material effect on
 the Companys operating results or financial position.

Credit Risk

Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash, cash equivalents, short-term investments, and accounts
receivable. The Company primarily sells its products to large
telecommunications and Internet service providers and subscribers
 located in the United States. For the three months ended
March 31, 1999, two customers each represented 25% of
revenue. Two customers individually represented 33% and 19% of
revenue, respectively, for the three months ended March 31,
2000.

Inventory

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

|                 |  |             |       |              |  |   |       | 
|---------------- |  | ----------- | ----- | ------------ |  | - | ----- | 
|                 |  | March 31,   |       | December 31,
|                 |  | 2000        |       | 1999        
|                 |  |             |       |             
|                 |  | (unaudited) |       |             
|                
|                
|                
|                
|Raw materials    |  | $           | 655   |              |  | $ | 764   | 
|                
|                
|                
|                
|Work-in-progress |  |             | 2,399 |              |  |   | 2,230 | 
|                
|                
|                
|                
|Finished goods   |  |             | 4,666 |              |  |   | 5,004 | 
|                 |  |             |       |              |  |   |       | 
|                 |  | $           | 7,720 |              |  | $ | 7,998 | 
|                 |  |             |       |              |  |   |       | 

Income Taxes

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

Basic and Diluted Earnings Per Share

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

7



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##### Table of Contents



VISUAL NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

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

|                                    |                                              |                                                                         |   |        |        |  |   |        |        | 
|----------------------------------- | -------------------------------------------- | ----------------------------------------------------------------------- | - | ------ | ------ |  | - | ------ | ------ | 
|                                    |                                              |                                                                        
|                                    |                                              | For the three months                                                   
|                                    |                                              | ended                                                                  
|                                    |                                              | March 31,                                                              
|                                    |                                              |                                                                        
|                                    |                                              | 2000                                                                    |   | 1999  
|                                    |                                              |                                                                         |   |       
|Adjustments to net income:          |                                              |                                                                         |   |        |        |  |   |       
|                                   
|                                   
|                                   
|                                   
|                                    | Net income                                   |                                                                         | $ | 5,541  |        |  | $ | 1,075  |       
|                                    |                                              |                                                                         |   |        |        |  |   |       
|Weighted average share calculation: |                                              |                                                                         |   |        |        |  |   |       
|                                   
|                                   
|                                   
|                                   
|                                    | Basic weighted average shares outstanding:   |                                                                         |   |        |        |  |   |        |       
|                                   
|                                   
|                                   
|                                   
|                                    |                                              | Average number of shares of common stock outstanding during the
	period |   |        | 24,940 |  |   |        | 24,288 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Diluted weighted average shares outstanding: |                                                                         |   |        |        |  |   |        |       
|                                   
|                                   
|                                   
|                                   
|                                    |                                              | Treasury stock effect of options and warrants                           |   |        | 2,604  |  |   |        | 2,087  | 
|                                    |                                              |                                                                         |   |        |        |  |   |       
|                                    | Diluted weighted average shares outstanding  |                                                                         |   | 27,544 |        |  |   | 26,375 |       
|                                    |                                              |                                                                         |   |        |        |  |   |       
|Income per common share:            |                                              |                                                                         |   |        |        |  |   |       
|                                   
|                                   
|                                   
|                                   
|                                    | Basic income per share                       |                                                                         | $ | 0.22   |        |  | $ | 0.04   |       
|                                    |                                              |                                                                         |   |        |        |  |   |       
|                                    | Diluted income per share                     |                                                                         | $ | 0.20   |        |  | $ | 0.04   |       
|                                    |                                              |                                                                         |   |        |        |  |   |       

(2) New Accounting Pronouncements

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

In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 (SAB
101), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally
 accepted accounting principles to revenue recognition issues in
financial statements. SAB 101 is required to be adopted by
June 30, 2000, with retroactive effect to January 1,
2000. The Company does not expect that adoption will have a
material effect on the Companys financial position or
results of operations.

(3) Avesta Technologies Merger

On February 7, 2000, the Company entered into an agreement
and plan of merger (the Merger) with Avesta
Technologies, Inc. (Avesta), a provider of fault
management and application performance monitoring software
systems to e-business customers. Upon closing of the Merger, the
Company will acquire all of the outstanding preferred and common
stock of Avesta, and all of the outstanding stock options and
warrants will be converted into options and warrants to purchase
shares of the Companys common stock. At closing, Avesta
equity holders will receive an aggregate of 6,532,554 Visual
options, warrants and shares of common stock. In addition, Avesta
 equity holders will be 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 will be accounted for as a purchase business
combination. The Boards of Directors of Visual and

8



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##### Table of Contents



VISUAL NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Avesta have approved the Merger. The Merger will become effective
 subject to approval by Visual stockholders. The Merger is
expected to close promptly following shareholder approval.




Item 2.  Managements Discussion and
Analysis of Financial Condition and Results of Operations

Overview

We were incorporated in Maryland in August 1993 as Avail
Networks, Inc. and reincorporated in Delaware in
December 1994 as Visual Networks, Inc. From incorporation
through December 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. The combinations with Net2Net and Inverse will affect
the future results of the operations reported by us. See Note 1
of Notes to Consolidated Financial Statements. On
February 7, 2000, we entered into an agreement and plan of
merger with Avesta Technologies, Inc. to acquire all of their
outstanding preferred and common stock. The acquisition will be
accounted for as a purchase business combination. See Note 3 of
Notes to Consolidated Financial Statements.

We realize revenue from sales of hardware, software, benchmark
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 three years. Revenue from services is
recognized when the services are performed. Subscription fees for
 our benchmark reports are deferred and recognized upon delivery
of the reports.

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

Results of Operations for the Three Months Ended
March 31, 2000 Compared with the Three Months Ended
March 31, 1999

Revenue. We recognized $30.5 million in
revenue for the three months ended March 31, 2000, a 64.0%
increase over revenue of $18.6 million for the three months
ended March 31, 1999. The increase was primarily due to the
continued acceptance of our Visual Uptime, Visual IP Insight and
Visual Internet Benchmark

9



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##### Table of Contents



VISUAL NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

products with an increase in sales to service providers,
particularly AT&T. Sales to service providers accounted for
approximately 71% of revenue for the three months ended
March 31, 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
$21.2 million for the three months ended March 31,
2000, as compared to $12.1 million for the three months
ended March 31, 1999, an increase of $9.1 million.
Gross margin was 69.5% of revenue for the three months ended
March 31, 2000, as compared to 65.2% of revenue for the
three months ended March 31, 1999. The increase in gross
margin percentage was due primarily to an increase in
higher-margin software sales, which were partially offset by an
increase in lower-margin hardware sales. Our future gross margins
 may be adversely affected by a number of factors, including
product mix, the proportion of sales to providers, competitive
pricing, manufacturing volumes and an increase in component part
costs.

Research and Development Expense. Research and
development expense consists of compensation for research and
development staff, depreciation of test and development
equipment, certain software development costs and costs of
prototype materials. Research and development expense was
$5.1 million for the three months ended March 31, 2000
as compared to $3.8 million for the three months ended
March 31, 1999, an increase of $1.3 million. The
increase in research and development expense was due primarily to
 increased staffing levels and related support costs, and
purchases of materials and services used in the development of
new or enhanced products. Research and development expense was
16.6% and 20.5% of revenue for the three months ended
March 31, 2000 and 1999, respectively. We expect that
research and development expenditures will increase in absolute
dollars, and may decrease as a percentage of revenue, during the
remainder of 2000. The increase in absolute dollars will support
continued development of new or enhanced products and the
exploration of new or complementary technologies.

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 $7.0 million for the three months ended
March 31, 2000, as compared to $5.6 million for the
three months ended March 31, 1999, an increase of
$1.4 million. The increase in sales and marketing expense
was due primarily to continued growth in staffing, commissions,
and marketing programs. Sales and marketing expense was 22.9% and
 30.1% of revenue for the three months ended March 31, 2000
and 1999, respectively. We expect that sales and marketing
expenditures will increase in absolute dollars, and may decrease
as a percentage of revenue, during the remainder of 2000. This
increase in absolute dollars is expected to be incurred as
additional personnel are hired, field offices are opened and
promotional expenditures increase to allow us to increase our
market penetration and to pursue market opportunities.

General and Administrative Expense. General and
administrative expense consists of finance, administration and
general management activities. General and administrative expense
 was $2.3 million for the three months ended March 31, 2000
as compared to $1.7 million for the three months ended
March 31, 1999, an increase of $0.6 million. The
increase in general and administrative expense was due primarily
to increases in staffing, professional services and continued
growth in corporate facilities and network infrastructure.
General and administrative expense was 7.4% and 9.1% of revenue
for the three months ended March 31, 2000 and 1999,
respectively. We expect that general and administrative
expenditures will increase in absolute dollars, and may decrease
as a percentage of revenue, during the remainder of 2000. The
increase in absolute dollars is expected to be required for the
expansion of our administrative staff and internal systems to
support expanding operations.

Interest Income, Net. Interest income, net, for the
 three months ended March 31, 2000 was approximately
$0.7 million as compared to $0.6 million for the three
months ended March 31, 1999, an increase of

10



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##### Table of Contents



VISUAL NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

$0.1 million. The increase was primarily due to decreased
interest expense related to capital leases and other borrowings
and increased interest income related to the increased cash
balances.

Income Taxes. Income taxes for the three months
ended March 31, 2000 were $2.1 million, which
represents an effective tax rate of approximately 27%.

Net Income. Net income for the three months ended
March 31, 2000 was $5.5 million as compared to
$1.1 million for the three months ended March 31, 1999,
 an increase of $4.4 million. This increase was due
primarily to the increases in revenue and gross profit achieved
in the three months ended March 31, 2000, which more than
increases in operating expenses discussed above.

Liquidity and Capital Resources

At March 31, 2000, our combined balance of cash and cash
equivalents was $59.4 million as compared to
$54.6 million as of December 31, 1999, an increase of
$4.8 million. This increase is primarily attributable to
$2.0 million in proceeds from the exercise of stock options
and $5.5 million in cash provided from operations offset by
capital expenditures of $2.6 million.

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

In addition to our cash and cash equivalents, our other principal
 source of liquidity is our bank credit facility. The credit
facility includes a revolving line of credit providing for
borrowings up to the lesser of $7.0 million or 85% of
eligible accounts receivable (as defined in the credit facility).
 The agreement contains restrictive financial covenants,
including, but not limited to, restrictions related to liquidity,
 profitability and net worth, as well as restrictions related to
acquisitions, dispositions of assets, distributions and
investments. As of March 31, 2000, the Company had no
borrowings outstanding under the credit agreement

In June 1999, Inverse entered into an accounts receivable
purchase agreement (Accounts Receivable Agreement)
with a bank. The Accounts Receivable Agreement, as amended,
allows for the sale of Inverse accounts receivable of up to
$2.5 million to the bank, subject to certain limitations.
The Accounts Receivable Agreement matures on June 25, 2000,
and outstanding balances bear interest at the banks prime
rate plus 4%. The Accounts Receivable Agreement also provides for
 certain other administrative and facility fees. There were no
borrowings against the Accounts Receivable Agreement as of
March 31, 2000.

In January 1997, Inverse entered into an equipment financing
 agreement for up to $350,000 with a bank. The equipment loans
are repaid over 42 months with interest at a rate of
approximately 16% and are secured by the related equipment. In
June 1998, Inverse entered into an equipment financing
agreement for up to $1,000,000 with a bank. The equipment loans
are repaid over 48 months at a rate of the institutions
prime lending rate plus 0.5% and are secured by certain assets of
 Inverse.

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

11



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##### Table of Contents



VISUAL NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Factors That May Affect Future Results

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

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

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

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




Item 3.  Qualitative and Quantitative
Disclosure About Market Risk

See Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations 
Factors That May Affect Future Results.

12



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##### Table of Contents



VISUAL NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






PART II  OTHER INFORMATION




Item 1.  Legal Proceedings

None.




Item 2.  Changes in Securities

None.




Item 3.  Defaults Upon Senior Securities

None.




Item 4.  Submission of Matters to Vote of
Security Holders

None.




Item 5.  Other Information

None.

13



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##### Table of Contents






Item 6.  (a) Exhibits

|        |  |                     |  |                                                                                                                                                                                                                           
|------- |  | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |                     |  |                                                                                                                                                                                                                           
|        |  |                    
|Exhibit |  |                    
|Number  |  | Exhibit Description
|        |  |                    
|3.1     |  | $                   |  | Amended and Restated Certificate of Incorporation of the Company.                                                                                                                                                         
|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.                                                                                                                                                                   
|10.5    |  | *                  |  | Reseller/Integration Agreement, dated August 29, 1997, by and
        between the Company and MCI Telecommunications Corporation.                                                                                         
|10.5.1  |  | $$$               |  | Second Amendment, dated November 4, 1998, to the
        Reseller/Integration Agreement between the Company and MCI
        Telecommunications Corporation (relating to Exhibit 10.5).                                    
|10.6    |  | *                  |  | Master Reseller Agreement, dated as of August 23, 1996, between
        Sprint/United Management Company and the Company.                                                                                                 
|10.6.1  |  | ***                 |  | Amendment No. 7 to Agreement between the Company and
        Sprint/United Management Company dated as of March 23, 2000
        (relating to Exhibit 10.6).                                                              
|10.6.2  |  |                     |  | Amendment No. 8 to Agreement between the Company and
        Sprint/United Management Company dated as of March 29, 2000
        (related to Exhibit 10.6).                                                               
|10.7    |  | *                  |  | General Agreement for the Procurement of Equipment, Services and
        Supplies between the Company and AT&T Corp.                                                                                                      
|10.8    |  | *                   |  | Lease Agreement, dated December 12, 1996, by and between the
        Company and The Equitable Life Assurance Society of the United
        States.                                                                       
|10.8.1  |  | *                   |  | Lease Amendment, dated September 2, 1997, by and between the
        Company and The Equitable Life Assurance Society of The United
        States (related to Exhibit 10.8).                                             
|10.8.2  |  | $$$                 |  | Second Lease Amendment, dated February 8, 1999, by and between
        the Company and TA/Western, LLC, successor to The Equitable Life
        Assurance Society of The United States (relating to Exhibit
        10.8).
|10.8.3  |  | ***                 |  | Third Lease Amendment, dated January 10, 2000, by and between the
         Company and TA/Western, LLC (relating to Exhibit 10.8).                                                                                        
|10.9    |  | ***                 |  | 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.                                                                                                     
|10.12   |  | *                   |  | Terms of Employment, dated June 11, 1997, by and between the
        Company and Peter J. Minihane, as amended.                                                                                                           
|10.15   |  | %                   |  | Loan and Security Agreement, dated April 5, 1999, by and between
        Silicon Valley Bank and the Company.                                                                                                             
|10.15.1 |  | %                   |  | Revolving Promissory Note issued by the Company on April 5, 1999,
         to Silicon Valley Bank (relating to Exhibit 10.15).                                                                                            
|10.17   |  | **                  |  | Net2Net 1994 Stock Option Plan.                                                                                                                                                                                           
|10.20   |  | $$                  |  | 1999 Employee Stock Purchase Plan.                                                                                                                                                                                        
|10.21   |  | %%                  |  | Agreement and Plan of Merger, dated September 15, 1999, by and
        among the Company, Visual Acquisitions Two, Inc. and Inverse
        Network Technology.                                                           
|10.22   |  | %%%                 |  | Inverse Network Technology 1996 Stock Option Plan.                                                                                                                                                                        
|10.23   |  | @                   |  | Agreement and Plan of Merger, dated February 7, 2000, by and
        among Visual Networks, Inc., Visual Acquisitions Three, Inc. and
        Avesta Technologies, Inc.                                                   
|16.1    |  | *                   |  | Letter regarding change in certified accountants.                                                                                                                                                                         
|21.1    |  | ***                 |  | List of subsidiaries of the Company.                                                                                                                                                                                      
|27.1    |  |                     |  | Financial Data Schedule.                                                                                                                                                                                                  




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

14



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##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**  | 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 Exhibit 10.1 to the
	Companys Registration Statement on Form S-4,
	No. 333-33946.                                                                                                                                                                         
|   
|$   | Incorporated herein by reference to Exhibit 3.1 to the
	Companys Quarterly Report on Form 10-Q for the three
	months ended June 30, 1999.                                                                                                                                                     
|   
|$$  | Incorporated herein by reference to the Companys Definitive
	 Proxy Statement on Schedule 14A filed April 30, 1999.                                                                                                                                                                           
|   
|$$$ | Incorporated herein by reference to the Companys Annual
	Report on Form 10-K for the year ended December 31,
	1998.                                                                                                                                                                           
|   
|   | Portions of this Exhibit were omitted and have been filed
	separately with the Secretary of the Commission pursuant to the
	Companys Application Requesting Confidential Treatment
	under Rule 406 of the Securities Act, filed on
	December 22, 1997, January 28, 1998 and
	February 4, 1998.
|   
|  | Portions of this Exhibit were omitted and have been filed
	separately with the Secretary of the Commission pursuant to the
	Companys Application Requesting Confidential Treatment
	under Rule 24b-2 of the Securities Exchange Act of 1934.                                                 

(b)  Reports on Form 8-K

The Company filed a Current Report on Form 8-K on
February 18, 2000, reporting as an Item 5 Event the
execution of a agreement and plan of merger with Avesta
Technologies, Inc.

15



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##### Table of Contents






SIGNATURES

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



| |                      
| | ---------------------
| | VISUAL NETWORKS, INC.



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

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

May 12, 2000

16