================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-Q


|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
    For the quarterly period ended June 30, 1999

    OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
    For the transition period from ___________ to ___________


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

                          Commission file number 1-5486

                          COYOTE NETWORK SYSTEMS, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          Delaware                                       36-2448698
-------------------------------             -----------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


               4360 Park Terrace Drive, Westlake Village, CA 91361
               (Address of principal executive offices) (Zip Code)

                                 (818) 735-7600
              (Registrant's telephone number, including area code)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  Registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.                           |X| YES      |_| NO

At August 12, 1999, the  Registrant  had issued and  outstanding an aggregate of
12,602,350 shares of its common stock.

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

<PAGE>

                          COYOTE NETWORK SYSTEMS, INC.
                                AND SUBSIDIARIES


                                                                           Page
PART I. FINANCIAL INFORMATION

        Item 1.    Financial Statements
                   Balance Sheets..........................................   2
                   Statement of Operations.................................   3
                   Statement of Cash Flows.................................   4
                   Notes to Financial Statements...........................   5
        Item 2.    Management's Discussion and Analysis of Financial Condition
                     and Results of Operations.............................   7


PART II.OTHER INFORMATION

        Item 1.    Legal Proceedings.......................................  11
        Item 2.    Changes in Securities and Use of Proceeds...............  11
        Item 6.    Exhibits and Reports on Form 8-K........................  11
        Signatures ........................................................  13




                                       1
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                  COYOTE NETWORK SYSTEMS, INC. AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                    June 30, 1999        March 31, 1999
                                        Assets                                       (Unaudited)
Current assets:
<S>                                                                                  <C>                   <C>
     Cash and cash equivalents                                                       $    1,344            $   1,225
     Receivables, net of allowance of $514 at June 30, 1999 and                          17,632               12,292
         $402 at March 31, 1999
     Inventories                                                                          1,642                2,130
     Notes receivable - current                                                           2,367                2,367
     Other current assets                                                                 4,601                4,323
                                                                                     ----------            ---------
         Total current assets                                                            27,586               22,337

Property and equipment, net                                                               9,074                8,192
Capitalized software development                                                          1,941                1,604
Intangible assets, net                                                                    5,562                5,620
Net assets of discontinued operations                                                      ---                   234
Notes receivable - non-current                                                              905                  871
Investments                                                                               1,550                1,550
Other assets                                                                                620                  620
                                                                                     ----------            ---------
                                                                                     $   47,238            $  41,028
                                                                                     ==========            =========
                          Liabilities and Shareholders' Equity
Current liabilities:
     Lines of credit                                                                 $      777            $   1,133
     Accounts payable                                                                     8,149                8,161
     Deferred revenue and customer deposits                                              12,164                7,811
     Accrued professional fees and litigation costs                                         489                  676
     Other accrued liabilities                                                            3,163                3,900
     Current portion of long-term debt and capital lease obligations                      1,147                1,315
                                                                                     ----------            ---------
         Total current liabilities                                                   $   25,889               22,996

Notes payable                                                                             9,049                8,183
Long-term debt                                                                            1,464                1,534
Capital lease obligations                                                                 1,785                1,830
Other liabilities                                                                           422                  428
Commitments and contingencies

Shareholders' equity:
     Preferred stock - $.01 par value:  authorized 5,000,000 shares;
        issued 600 and 700 shares, liquidation preference of $10,000 per share            6,000                7,000
     Common stock - $1 par value:  authorized 30,000,000 shares,
         issued 13,290,042 and 11,167,456 shares                                         13,290               11,167
     Additional paid-in capital                                                         114,852              109,649
     Accumulated deficit                                                               (119,756)            (116,002)
     Treasury stock at cost                                                              (5,757)              (5,757)
                                                                                     -----------           ----------
         Total shareholders' equity                                                       8,629                6,057
                                                                                     ----------            ---------

                                                                                     $   47,238            $  41,028
                                                                                     ==========            =========
</TABLE>

            See notes to condensed consolidated financial statements.


                                       2
<PAGE>

                  COYOTE NETWORK SYSTEMS, INC. AND SUBSIDIARIES
                 Condensed Consolidated Statements of Operations
                                   (Unaudited)
                    (In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                                            3 MONTHS ENDED
                                                                                   ------------------------------

                                                                                   June 30, 1999    June 30, 1998
<S>                                                                                   <C>               <C>
Net sales                                                                             $  10,405         $   7,193
Cost of goods sold                                                                        7,302             3,220
                                                                                      ---------         ---------
         Gross profit                                                                     3,103             3,973
                                                                                      ---------         ---------

Selling and administrative expenses                                                       4,080             2,940
Engineering, research and development                                                     2,220             1,937
                                                                                      ---------         ---------

         Total operating expenses                                                         6,300             4,877
                                                                                      ---------         ---------

Operating loss                                                                           (3,197)             (904)

Interest expense                                                                           (352)              (15)
Non-operating income (expense)                                                              105              (159)
                                                                                      ---------         ---------
Loss from continuing operations                                                          (3,444)           (1,078)

Loss from discontinued operations                                                          (310)            ---
                                                                                      ----------        -------

         Net loss                                                                     $  (3,754)        $  (1,078)
                                                                                      ==========        ==========

Loss per common share (basic & diluted):
         Continuing operations                                                        $    (.31)        $   (.11)
         Discontinued operations                                                           (.03)            ---
                                                                                      ----------        -------
         Net loss per common share (basic & diluted)                                  $    (.34)        $   (.11)
                                                                                      ==========        =========

Weighted average number of common shares outstanding (basic & diluted)                   11,207             9,467
                                                                                      =========         =========
</TABLE>







            See notes to condensed consolidated financial statements.


                                       3
<PAGE>

                  COYOTE NETWORK SYSTEMS, INC. AND SUBSIDIARIES
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                            3 MONTHS ENDED
                                                                                  ---------------------------------

                                                                                   June 30, 1999      June 30, 1998
Operating activities:
<S>                                                                                 <C>               <C>
     Net loss                                                                       $   (3,754)       $   (1,078)
Adjustments to reconcile loss to net cash
  provided (used) by operating activities:
     Depreciation and amortization                                                         465               276
     Net change in discontinued operations                                                 234              ---
     Changes in current assets and liabilities                                          (1,257)            1,703
                                                                                    -----------       ----------

Net cash provided (used) by operating activities                                        (4,312)              901
                                                                                    -----------       ----------

Investing activities:
     Purchases of property and equipment                                                (1,289)             (722)
     Increase in other assets                                                             (337)             ---
     Proceeds from sales of marketable securities                                         ---                 30
     Change in notes receivable                                                             40               340
     Increase in investments  in affiliate                                                (303)             ---
     Net change in discontinued operations                                                ---                (96)
     Other items                                                                          ---                  5
                                                                                    ----------        ----------

Net cash provided (used) by investing activities                                        (1,889)             (443)
                                                                                    -----------       -----------

Financing activities:
     Repayments of long-term debt and capital lease obligations                           (291)              (71)
     Common stock issued, net of expenses                                               10,226               300
     Redemption of preferred stock                                                      (4,000)             ---
     Increase in note payable                                                              741               590
     Decrease in borrowing on line of credit                                              (356)             ---
     Other items                                                                          ---                 (9)
                                                                                    ----------        -----------

Net cash provided by financing activities                                                6,320               810
                                                                                    ----------        ----------

Increase (decrease) in cash and cash equivalents                                           119             1,268

Cash and cash equivalents:
     At beginning of the period                                                          1,225             3,746
                                                                                    ----------        ----------

     At end of the period                                                           $    1,344        $    5,014
                                                                                    ==========        ==========
</TABLE>



            See notes to condensed consolidated financial statements.


                                       4
<PAGE>
                  COYOTE NETWORK SYSTEMS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1   BASIS OF PRESENTATION
--------------------------------------------------------------------------------

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  Operating  results for the three months ended June 30, 1999, are
not  necessarily  indicative  of the results that may be expected for the fiscal
year ending March 31, 2000. For further  information,  refer to the consolidated
financial  statements  and footnotes  thereto  included in the Company's  annual
report on Form 10-K for the fiscal year ended March 31, 1999.

The  computation  of loss per common share is  determined  by using the weighted
average number of shares of common stock outstanding during each period.


NOTE 2   DISCONTINUED OPERATIONS
--------------------------------------------------------------------------------

As of June 30, 1999,  the Company had  collected all cash related to the sale of
discontinued  operations  except $410,000 due under a note and the only asset of
discontinued operations was real estate related to the land and buildings of the
discontinued  APC operation.  The real estate was sold in July 1999,  yielding a
net gain of $20,000.


NOTE 3   ACQUISITIONS
--------------------------------------------------------------------------------

In December 1997, the Company entered into a letter of intent regarding a merger
with  NUKO  Information  Systems,  Inc.  ("NUKO").  NUKO  is a  manufacturer  of
compression and transmission technology for a variety of video applications. The
Company  subsequently was unable to reach agreement with NUKO on the transaction
and withdrew its offer in March 1998.  During  negotiations,  and in  accordance
with the terms of the letter of intent,  the Company  advanced  funds to support
NUKO's ongoing activity.  Including the interest,  the total funding advanced to
NUKO and now owed to the  Company of $1.9  million is secured by a pledge to the
Company of shares of stock owned by NUKO in iCompression,  Inc. (fka,  Internext
Compression, Inc.). In April 1998, NUKO filed a voluntary petition under Chapter
11 of the U.S.  Bankruptcy  Code. In May 1999, the Company  received an offer to
purchase  the  collateral  for a total  price of $1.9  million.  The Company has
accepted  this offer  subject to NUKO's  right of first  offer to  purchase  the
shares.   This  amount  is  included  in  notes  receivable  -  current  in  the
accompanying balance sheet. In July 1999, the Company received $1.9 million from
the sale of the  collateral,  which  provided full recovery of the principal and
interest owed on the loans.




                                       5
<PAGE>

NOTE 4   BUSINESS SEGMENT INFORMATION
--------------------------------------------------------------------------------

In addition to operating the telecom switching  equipment  business segment,  in
fiscal 1999, the Company acquired AGT (April 1998) and INET (September 1998) and
through these  subsidiaries  operates an  international  long distance  services
business  segment.  The  accounting  policies  are the  same  for all  segments;
however,  the Company  evaluates  performance  based on  operating  profit.  The
telecom switching  equipment  business segment consists solely of the operations
of CTL. Information by industry segment is as follows (in thousands):

<TABLE>
<CAPTION>
                                                      3 Months Ended
                                            ------------------------------------
                                            June 30, 1999         June 30, 1998
                                            ---------------       --------------

 Net Sales:
<S>                                           <C>                   <C>
          Switching equipment                 $    8,556            $   7,065
          Long distance services                   1,849                  128
                                              ----------            ---------
                                              $   10,405            $   7,193
                                              ==========            =========
 Operating Loss:
          Switching equipment                 $   (1,451)           $     (49)
          Long distance services                  (1,103)                (315)
          Corporate                                 (643)                (540)
                                              -----------           ---------
                                              $   (3,197)           $    (904)
                                              ===========           =========
 Depreciation and amortization:
          Switching equipment                 $      350            $     261
          Long distance services                     110                   12
          Corporate                                    5                    3
                                              ----------            ---------
                                              $      465            $     276
                                              ==========            =========
 Capital expenditures:
          Switching equipment                 $       31            $     542
          Long distance services                   1,253                  166
          Corporate                                    5                   14
                                              ----------            ---------
                                              $    1,289            $     722
                                              ==========            =========
 Identifiable assets:
          Switching equipment                 $   23,425            $  10,762
          Long distance services                  13,691                1,466
          Discontinued operations                  ---                  1,005
          Corporate                               10,122               10,394
                                              ----------            ---------
                                              $   47,238            $  23,627
                                              ==========            =========
</TABLE>

NOTE 5   SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------

Common Stock and Convertible Preferred Stock
----------------------------------------------

On May 27, 1999,  the Company  sold,  pursuant to Rule 506 under  Regulation  D,
1,767,000 shares of common stock at $6.00 per share in a private  placement with
new  and  existing  domestic  and  international  institutional  investors.  The
placement  agent received cash  commissions  of $352,000 and  commissions in the
form of common  stock  aggregating  131,148  shares and  five-year  warrants  to
purchase 176,700 shares at $6.00 per share. Of the net proceeds of approximately
$10.2  million,  $4.0 million  were used to redeem a portion of the  outstanding
Convertible  Preferred Stock and the balance is to be used for working  capital.
In connection  with this  redemption,  the conversion  price of the remaining $6
million  of  Convertible  Preferred  Stock  was fixed at $6.00 per share and the
Company issued the holder of the Convertible  Preferred Stock 18-month  warrants
to purchase  325,000  shares of common stock at $6.00 per share.  These warrants
may be exercised at any time until  December  30,  2000.

                                       6
<PAGE>

On July 15, 1999,  the Company filed a  registration  statement as to the common
stock  issued  in  the  private   placement  and  underlying  the  warrants  and
Convertible Preferred Stock referred to above.

Options and Warrants
--------------------------------------------

Since March 31, 1999,  the  Company's  Board of Directors has granted to certain
executives,  employees and non-employee directors options to purchase a total of
664,582 shares of the Company common stock.

In June 1999,  an officer  converted  350 Class B Units into  192,938  shares of
Company common stock in accordance with the terms of conversion available to the
holder.

In July  1999,  an officer  converted  38 Class B Units  into  21,000  shares of
Company common stock in accordance with the terms of conversion available to the
holder.

In June 1999, a warrant holder  exercised such warrants to acquire 31,500 shares
of Company common stock at an exercise price of $2.86 per share.

NOTE 6   RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------

In June 1999 Mr. Fiedler,  the Company's  Chairman and Chief Executive  Officer,
and Mr. Latham, the Company's President and Chief Operating Officer,  converted,
respectively, 350 and 38 Class B Units into 192,938 and 21,000 shares of Company
common stock.  These  conversions  were made in accordance  with the  conversion
terms available to holders of Class B Units.




                                       7
<PAGE>

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

Results of Operations for the Quarter Ended June 30, 1999
---------------------------------------------------------

For the first  quarter of fiscal  year 2000 we had  revenues  of $10.4  million,
representing  a $3.2  million,  or a 45% increase  over the first quarter of the
prior fiscal year and a 30% increase  over the previous  quarter.  Revenues from
the sale of DSS  Switches  and related  services  increased to $8.6 million from
$7.1 million in the prior year and from $6.1  million in the  previous  quarter.
The international  long distance service  subsidiaries that were acquired during
the prior fiscal year generated revenues of $1.8 million.

Shipments of switching  equipment were contracted to three new customers  during
the  quarter  and they  represented  $7.5  million  of the  switching  equipment
revenues.  We have granted  extended payment terms to these customers while they
are in the process of seeking lease  financing for their capital  purchases.  In
view of the extended payment terms and the comparatively short operating history
of these  customers,  we have  deferred  recognition  of profit of $5.6  million
attributable of these sales,  until payment is received or all contingencies are
removed.  Contingencies  were  removed and final  payment  has been  received on
equipment sales contracts in respect of which we had previously  deferred profit
of $1.6 million. This profit was recognized in the quarter ended June 30, 1999.

The revenue  generated from sales of switching  equipment is $8.6 million in the
quarter  with a gross  margin of 31%.  If the  gross  margin  for the  switching
equipment was not impacted by the profit  deferral  described  above,  the gross
margin on  revenue of $8.6  million  would be 77%  compared  to 55% in the first
fiscal  quarter of the prior  year.  The  international  long  distance  service
subsidiaries  that were acquired  during the prior fiscal year generated a gross
margin of $0.4  million  or 24% of long  distance  service  revenues  during the
quarter  ended June 30,  1999.  The total gross margin for all lines of business
for the first  fiscal  quarter is $3.1  million,  or 30% of total  revenues,  as
compared to $3.9 million or 55% of total  revenues for the first  quarter of the
prior fiscal year.

Selling and general  administrative  expenses for the first fiscal  quarter were
$4.1 million  compared to $2.9 million for the first quarter of the prior fiscal
year.  The increase is primarily  related to the additional  operating  expenses
incurred by the long distance  service  providers  acquired in fiscal 1999. As a
proportion of total revenues,  the selling and general  administrative  expenses
improved to 39% from 41% in the first quarter of the prior fiscal year.

Engineering,  research and development  expenses for the first quarter of fiscal
2000 are $2.2 million, or 21% of sales, as compared with $1.9 million, or 27% of
sales,  for the first  quarter of the prior  fiscal year.  We have  continued to
enhance  product  offerings to meet  current and  anticipated  customer  demand,
including further refinement of our client/server architecture on our switch and
the development of voice over Internet Protocol.

The operating loss for the quarter is $3.2 million versus a loss of $0.9 million
in the first quarter of the prior fiscal year. The increase in the loss over the
corresponding  quarter  of the prior year is  primarily  the result of the lower
gross margin due to the profit deferrals  referred to above and to the increased
operating expenses required to support the increase in revenues.

Interest  expense for the quarter is $0.4 million  versus $0.02  million for the
first  quarter of the prior  fiscal  year.  The  increased  expense is comprised
entirely of financing costs related to the operations of the international  long
distance service subsidiaries.

The loss from  discontinued  operations  in the  first  quarter  of fiscal  2000
consists  of  property  tax  expenses  related  to the  remaining  assets of the
discontinued operations. The assets were sold in July 1999.

The net loss for  continuing  operations for the first quarter of fiscal 2000 is
$3.4 million versus a net loss of $1.1 million for the corresponding  quarter of
the prior year.  The loss  represents a basic and fully  diluted loss per common
share of $0.31 versus a loss of $0.11 for the corresponding quarter of the prior
year. The loss from discontinued operations for the first quarter of fiscal 2000
is $0.3  million  and  increases  the basic and fully  diluted per share loss to
$0.34.


                                       8
<PAGE>

Liquidity and Capital Resources
-----------------------------------------------------------------

We used cash from operating  activities of $4.3 million during the first quarter
of fiscal 2000  compared to providing  $0.9 million  during the first quarter of
fiscal 1999. This deterioration in operating cash flow is due to the increase in
the operating loss and the increase in working  capital  required to support the
business growth achieved in the quarter.

We used cash for investing  activities of $1.9 million  during the first quarter
of fiscal 2000  compared to $0.4 million used for  investing  activities  in the
corresponding   quarter  of  fiscal  1999.  Capital  expenditures  on  equipment
purchases  and  software  of $1.6  million in the first  quarter of fiscal  2000
represented  an increase of $0.9 million from the  corresponding  quarter of the
prior fiscal year.  Purchases were primarily for additional  switching equipment
required to support the expansion of the  international  long distance  services
segment  of  the  business  and  software  for  certain  Internet  protocol  and
compression  capabilities.  Net cash used in investing activities in fiscal 2000
also included cash paid in connection with increases in investment in affiliates
of $0.3 million.

In May 1999, as part of our efforts to provide  additional  working capital,  we
received  $10.2 million in net proceeds from a private  placement.  From the net
proceeds of this  placement,  we paid $4 million to redeem 100 shares of the 700
shares  of 5%  Series A  Convertible  Preferred  Stock  which  were  issued  and
outstanding as at March 31, 1999.

As of June 30,  1999,  we have notes  payable of $9.0  million.  These notes are
secured by certain of our assets and by 708,692  shares of our common  stock and
bear interest at the bank's prime rate (currently  7.75%) plus 1/2%. These notes
were due on demand.  In July 1999,  the  payment  date was  extended to December
2001. In addition, we have capital lease obligations of $2.4 million at June 30,
1999, payable through 2004 and a note payable of $0.3 million due February 2000.

We also have a $2.2 million  revolving  line of credit secured  against  certain
trade receivables.  As at June 30, 1999, $0.8 million has been drawn against the
line,  which bears interest at the bank's prime rate plus 4%. The line of credit
expires on February 29, 2000.  We have a long-term  obligation  in the amount of
$1.6 million in  connection  with  principal  and  interest due on  subordinated
debentures, which bear interest of 11.25% per year. The debentures mature in the
year 2002 and interest only is due until such time.

In  July  1999,  we  received  $1.9  million  from  the  sale of our  shares  of
iCompression,  Inc. These shares were acquired in settlement of loans we made to
NUKO Information  Systems in fiscal 1998 and the $1.9 million received  provides
full recovery of the principal and interest due on the loans.

We are  currently  exploring  means of raising  capital  through debt and equity
financing to fund our immediate working capital needs. In addition, we will need
additional  capital to fund our future operations and acquisition  strategy.  We
believe that we will be able to continue to fund our operations and acquisitions
by obtaining  additional outside financing;  however,  there can be no assurance
that we will be able to obtain the needed  financing  when needed on  acceptable
terms or at all.

Forward Looking Statements
-----------------------------------------------------------------

All statements other than historical statements contained in this Report on Form
10-Q constitute  "forward looking  statements" within the meaning of the Private
Securities  Litigation  Reform Act of 1995.  Without  limitation,  these forward
looking statements include statements regarding new products to be introduced by
the Company in the future,  statements about the Company's business strategy and
plans,  statements about the adequacy of the Company's working capital and other
financial  resources,  and  in  general  statements  herein  that  are  not of a
historical  nature. Any Form 10-K, Annual and Quarterly Reports to Shareholders,
Form 10-Q,  Form 8-K or press release of the Company may include forward looking
statements.  In addition,  other  written or oral  statements  which  constitute
forward  looking  statements  have been made or may in the future be made by the
Company, including statements regarding future operating performance, short- and
long-term revenue and earnings estimates, backlog, the status of litigation, the


                                       9
<PAGE>

value of new  contract  signings,  and industry  growth rates and the  Company's
performance relative thereto. These forward-looking  statements rely on a number
of  assumptions  concerning  future  events,  and are  subject  to a  number  of
uncertainties  and other  factors,  many of which are  outside of the  Company's
control,  that  could  cause  actual  results  to  differ  materially  from such
statements.  These include, but are not limited to: risks associated with recent
operating  losses,  no assurance of  profitability,  the need to increase sales,
liquidity  deficiency  and in general  the other risk  factors  set forth in the
Company's  Annual  Report on Form 10-K for the fiscal year ended March 31, 1999.
The  Company  disclaims  any  intention  or  obligation  to update or revise any
forward looking statements whether as a result of new information, future events
or otherwise.



                                       10
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
--------------------------------------------------------------------------------

Please  see Note 7 to the  Consolidated  Financial  Statements  included  in the
Company's  Annual  Report on Form 10-K for the fiscal year ended March 31, 1999,
for information on various legal proceedings. There are no material developments
to report at this time.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS
--------------------------------------------------------------------------------

c)   Issuances of equity  securities not registered  under the Securities Act of
     1933  are  described  in  Note 5 of the  Condensed  Consolidated  Financial
     Statements.

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

a)   Exhibits:

     3.01 Restated  Certificate of  Incorporation,  as amended September 1, 1992
          (incorporated  herein by  reference  to  Exhibit  4.1 of  Registrant's
          Registration Statement on Form S-8 Reg. No. 333-63017).

     3.02 By-Laws of the Company incorporated herein by reference to Exhibit 3.2
          of the Company's Form 10-K for the year ended March 31, 1997.

     27   Financial Data Schedule

b)   Reports on Form 8-K:

     (1)  A Form 8-K was filed by the Company on May 5, 1999, which covered:

          Item 5. Other Events

          On April 20, 1999 the Company  announced it had cancelled its proposed
          acquisition of Apollo Telecom, Inc.

     (2)  A Form 8-K was filed by the Company on June 3, 1999, which covered:

          Item 5. Other Events

          On May  27,  1999,  the  Company  sold,  pursuant  to Rule  506  under
          Regulation D, 1,767,000 shares of common stock at $6.00 per share in a
          private  placement  with new and existing  domestic and  international
          institutional  investors.  Sunrise  Securities  Corp.,  the  placement
          agent,  received cash  commissions of $352,000 and  commissions in the
          form of common stock aggregating 131,148 shares and five-year warrants
          to purchase  176,700  shares at $6.00 per share.  The net  proceeds of
          approximately  $10.2 million are to be used for working capital and to
          redeem $4 million of the outstanding  Convertible  Preferred Stock. In
          connection with this redemption, the conversion price of the remaining
          $6 million of Convertible Preferred Stock was fixed at $6.00 per share
          and the Company issued the holder of the  Convertible  Preferred Stock
          18-month  warrants to purchase 325,000 shares of common stock at $6.00
          per share.

                                       11
<PAGE>

          The Company has agreed to use its best efforts to file a  registration
          statement as to the common stock issued in the private  placement  and
          underlying the warrants and  Convertible  Preferred  Stock referred to
          above.

     (3)  A Form 8-K/A was filed by the Company on June 18, 1999, which covered:

          Item 7 of the Current  Report on Form 8-K of Coyote  Network  Systems,
          Inc.  dated May 27,  1999,  filed  with the  Securities  and  Exchange
          Commission on June 3, 1999, is hereby  amended to refile  Exhibit 4.2.
          An incorrect copy of such exhibit was filed on June 3, 1999.

     (4)  A Form  8-K/A,  Amendment  No. 2 was filed by the  Company on June 22,
          1999, which covered:

          Item 7 of the Current Report on Form 8-K/A of Coyote Network  Systems,
          Inc.  dated May 27,  1999,  filed  with the  Securities  and  Exchange
          Commission on June 18, 1999, is hereby  amended to refile Exhibit 4.2.
          Such exhibit as filed June 18, 1999,  incorrectly  listed the title of
          Mr.  Daniel  W.  Latham.  Mr.  Latham's  title is  hereby  amended  to
          correctly read President and Chief Operating Officer of Coyote Network
          Systems, Inc.



                                       12
<PAGE>

                                   SIGNATURES
--------------------------------------------------------------------------------


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


                             COYOTE NETWORK SYSTEMS, INC.



                             By:   /s/ James J. Fiedler
                                   --------------------------------------------
                                   James J. Fiedler
                                   Chairman of the Board and
                                   Chief Executive Officer
                                   (Principal Executive Officer)


                             By:   /s/ Brian A. Robson
                                   --------------------------------------------
                                   Brian A. Robson
                                   Executive Vice President,
                                   Chief Financial Officer and Secretary
                                   (Principal Financial and Accounting Officer)


DATE:  August 16, 1999