<PAGE>   1

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

                                   FORM 10-QSB

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


                    FOR QUARTERLY PERIOD ENDED JUNE 30, 1998


                         Commission File Number 0-20734

                           NORRIS COMMUNICATIONS, INC.
             (Exact name of registrant as specified in its charter)


         Delaware                                                 None
(State or other jurisdiction of                        (I.R.S. Empl. Ident. No.)
incorporation or organization)


          13114 Evening Creek Drive South, San Diego, California        92128
          (Address of principal executive offices)                    (Zip Code)


                                 (619) 679-1504
              (Registrant's telephone number, including area code)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. YES  X   NO ___

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

Common Stock, par value $.001                              59,867,842
-----------------------------                              ----------
         (Class)                                  (Outstanding at July 31, 1998)

Transitional Small Business Disclosure Format (check one): YES ___  NO X


<PAGE>   2

                           NORRIS COMMUNICATIONS, INC.


                                      INDEX

<TABLE>
<CAPTION>
                                                                                 Page
<S>                                                                             <C>
PART I. FINANCIAL INFORMATION

         Item 1. Financial Statements:

                  Consolidated Balance Sheets as of June 30, 1998
                  and March 31, 1998 (unaudited)                                 3

                  Consolidated Statements of Operations for the three
                  months ended June 30, 1998 and 1997 (unaudited)                4

                  Consolidated Statements of Cash Flows for the three
                  Months ended June 30, 1998 and 1997 (unaudited)                5

                  Notes to Interim Consolidated Financial Statements             6

         Item 2. Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                          11

PART II. OTHER INFORMATION

         Item 1. Legal Proceedings                                               14
         Item 2. Changes in Securities                                           14
         Item 3. Defaults upon Senior Securities                                 14
         Item 4. Submission of Matters to a Vote of Security Holders             14
         Item 5. Other Information                                               14
         Item 6. Exhibits and Reports on Form 8-K                                14



SIGNATURES                                                                       15

</TABLE>



                                       2
<PAGE>   3

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:

NORRIS COMMUNICATIONS, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                                    UNAUDITED

<TABLE>
<CAPTION>
                                                                             JUNE 30, 1998         MARCH 31, 1998
                                                                                  $                     $
                                                                             -----------           -----------
<S>                                                                          <C>                   <C>   
ASSETS
CURRENT
Cash and cash equivalents                                                        645,122                62,370
Accounts receivable, less allowance for doubtful
   accounts of $953 and $953, respectively                                        10,503                54,659
Amounts received on research and development contract                            143,799               167,981
Inventory [note 4]                                                               168,254               180,751
Prepaid expenses and other                                                         9,658                10,240
                                                                             -----------           -----------
TOTAL CURRENT ASSETS                                                             977,336               476,001
                                                                             -----------           -----------
Property and equipment, net                                                      109,856               137,890
Other intangible assets, net of accumulated amortization of
   $10,374 and $9,764 respectively                                                14,035                14,645
                                                                             -----------           -----------
                                                                                 123,891               152,535
                                                                             -----------           -----------
    TOTAL ASSETS                                                               1,101,227               628,536
                                                                             ===========           ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable, trade                                                          582,479               682,927
Other accounts payable and accrued liabilities                                   660,297               655,781
Current portion of term note payable [note 5]                                     36,698                48,334
Convertible promissory notes [notes 5 and 12]                                  1,000,000                    --
                                                                             -----------           -----------
TOTAL CURRENT LIABILITIES                                                      2,279,474             1,387,042
                                                                             -----------           -----------
LONG-TERM [NOTE 5]
Secured notes payable                                                            475,000               500,000
Term note payable, net of current portion                                         90,084                90,084
                                                                             -----------           -----------
    TOTAL LIABILITIES                                                          2,844,558             1,977,126
                                                                             -----------           -----------
Commitments and contingencies [note 11]
PREFERRED STOCKHOLDERS' EQUITY
Series A, convertible voting preferred stock, $0.001 par value,
   redeemable at $10 plus accrued and unpaid dividends at 8%
   cumulative, 100,000 shares authorized, 99,500 outstanding
   [note 6]                                                                          100                   100
Additional paid-in-capital                                                     1,022,408             1,002,562
                                                                             -----------           -----------
TOTAL PREFERRED STOCKHOLDERS' EQUITY                                           1,022,508             1,002,662
                                                                             -----------           -----------
COMMON STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, $0.001 par value, authorized 120,000,000,
59,279,255 and 57,171,119 shares outstanding, respectively [note 7]               59,279                57,171
Additional paid-in capital                                                    31,492,698            31,333,437
Prepaid warrants [note 8]                                                        792,578               903,996
Contributed surplus                                                            1,592,316             1,592,316
Accumulated deficit                                                          (36,702,710)          (36,238,172)
                                                                             -----------           -----------
TOTAL COMMON STOCKHOLDERS' EQUITY (DEFICIENCY)                                (2,765,839)           (2,351,252)
                                                                             -----------           -----------
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)                     1,101,227               628,536
                                                                             ===========           ===========
</TABLE>


See notes to interim consolidated financial statements

                                       3
<PAGE>   4

NORRIS COMMUNICATIONS, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                    UNAUDITED


<TABLE>
<CAPTION>
                                                               Three months ended
                                                                    June 30,
                                                           1998                  1997
                                                            $                     $
                                                       -----------           -----------
<S>                                                    <C>                   <C>    
REVENUE:
   Product sales                                            22,496               162,208
   Development services                                     75,693               226,851
                                                       -----------           -----------
         Total revenues                                     98,189               389,059
                                                       -----------           -----------

COST OF REVENUES:
   Cost of product sales                                    36,892               154,900
   Cost of development services                             82,878               142,528
                                                       -----------           -----------
          Total cost of revenues                           119,770               297,428
                                                       -----------           -----------

Gross profit (loss)                                        (21,581)               91,631
                                                       -----------           -----------

OPERATING EXPENSES:
   Selling and administrative                              220,758               319,858
   Research and related expenditures                       145,848                52,871
                                                       -----------           -----------
          Total operating expenses                         366,606               372,729
                                                       -----------           -----------

Operating loss                                            (388,187)             (281,098)
                                                       -----------           -----------

OTHER INCOME (EXPENSE)
   Interest expense                                        (28,394)               (7,490)
   Interest income                                             907                 1,415
   Non-cash interest [note 12]                             (44,797)                   --
   Loss on disposal of property and equipment               (4,067)                   --
   Other income                                                 --               153,000
                                                       -----------           -----------
          Other income (expense)                           (76,351)              146,925
                                                       -----------           -----------

Loss before provision for income taxes                    (464,538)             (134,173)
Provision for income taxes                                      --                    --
                                                       -----------           -----------
NET LOSS                                                  (464,538)             (134,173)
                                                       ===========           ===========

NET LOSS PER COMMON SHARE                                    (0.01)                (0.01)
                                                       ===========           ===========

WEIGHTED AVERAGE COMMON SHARES                          58,446,738            25,678,434
                                                       ===========           ===========

</TABLE>

See notes to interim consolidated financial statements

                                       4
<PAGE>   5

NORRIS COMMUNICATIONS, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    UNAUDITED

<TABLE>
<CAPTION>
                                                                               For the three months ended
                                                                                      June 30,
                                                                              1998                1997
OPERATING ACTIVITIES                                                           $                    $
                                                                           ----------           ----------
<S>                                                                        <C>                  <C>      
Net loss                                                                     (464,538)            (134,173)
Adjustments to reconcile net loss to net cash
     used by operating activities:
     Depreciation and amortization                                             15,969               20,355
     Loss on disposal of property and equipment                                 4,067                   --
     Non-cash interest expense                                                 44,797                   --
Changes in assets and liabilities:
     Accounts receivable                                                       44,156             (147,925)
     Amounts received on research and development contract                     24,182                   --
     Inventory                                                                 12,497               43,655
     Prepaid expenses and other                                                   582                   --
     Accounts payable, trade                                                 (100,448)             (32,310)
     Other accounts payable and accrued liabilities                             4,516              (76,127)
     Advances on research and development contract                                 --              (80,412)
                                                                           ----------           ----------
Cash (used in) operating activities                                          (414,220)            (406,937)
                                                                           ----------           ----------
INVESTING ACTIVITIES
Purchase of property and equipment                                                 --               (2,332)
Proceeds on disposal of property and equipment                                  8,608               66,109
                                                                           ----------           ----------
Cash provided by investing activities                                           8,608               63,777
                                                                           ----------           ----------
FINANCING ACTIVITIES
Repayments under term note payable                                            (11,636)                  --
Proceeds from secured notes payable                                                --              500,000
Proceeds from convertible promissory notes                                  1,000,000                   --
                                                                           ----------           ----------
Cash provided by financing activities                                         988,364              500,000
                                                                           ----------           ----------
Net increase (decrease) in cash                                               582,752              156,840
Cash and cash equivalents, beginning of period                                 62,370              176,158
                                                                           ----------           ----------
Cash and cash equivalents, end of period                                      645,122              332,998
                                                                           ==========           ==========
SUPPLEMENTAL DISCLOSURES OF CASH INFORMATION: Cash paid
   during the period for:
       Interest                                                                28,394                7,490
SUPPLEMENTAL  SCHEDULE OF NONCASH INVESTING
   AND FINANCING ACTIVITIES:
   Conversion of secured notes payable to common stock                         25,000                   --
   Common stock issued on exercise of prepaid warrants                             --              913,346
   Accounts payable and accruals paid by issuance of common stock                  --              333,385

</TABLE>

See notes to interim consolidated financial statements



                                       5
<PAGE>   6

                           NORRIS COMMUNICATIONS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                  June 30, 1998



1. OPERATIONS

Norris Communications, Inc. (the "Company") was incorporated in the Province of
British Columbia, Canada on February 11, 1988 and on November 22, 1994, changed
its domicile from British Columbia to the Yukon Territory, Canada. The Company
further changed its domicile to Wyoming on August 30, 1997 and on September 4,
1997 reincorporated into Delaware. The Company is engaged through its
wholly-owned U.S. subsidiary in developing and exploiting advanced electronic
product designs and technologies for the portable computing, digital recording,
mobile office and telecommunication markets.

2. BASIS OF PRESENTATION

The accompanying interim consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, Norris Communications, Inc.
("NCI"), a California corporation, based in San Diego, California.

The interim consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future. The
Company has incurred significant losses and negative cash flow from operations
in each of the last three fiscal years and for the three month period ended June
30, 1998 and has an accumulated deficit of $36,706,710 at June 30, 1998. The
Company's operational plan involves focusing on licensing and product
development on a contract basis and for the Company's own account. The Company's
ability to continue as a going concern is in doubt and is dependent upon
achieving a profitable level of operations, and if necessary, obtaining
additional financing.

These interim consolidated financial statements do not give effect to any
adjustments which would be necessary should the Company be unable to continue as
a going concern and therefore be required to realize its assets and discharge
its liabilities in other than the normal course of business and at amounts
different from those reflected in the accompanying interim consolidated
financial statements.

These interim consolidated financial statements have been prepared in accordance
with accounting principles generally accepted for interim financial information
and the instructions to Form 10-QSB. They do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. The interim consolidated financial statements and notes
thereto should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the fiscal year ended March 31, 1998.

The Company has implemented Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." SFAS No. 128 provides for the calculation of
"Basic" and "Diluted" earnings per share ("EPS"). Basic EPS includes no dilution
and is computed by dividing income available to common stockholders, after
deduction for cumulative unpaid dividends, by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. The Company's losses for the periods presented
cause the inclusion of potential common stock instruments outstanding to be
antidilutive and, therefore, in accordance with SFAS No. 128, the Company is not
required to present a diluted EPS. Stock options, warrants, convertible notes
payable, redeemable convertible preferred stock and prepaid warrants exercisable
into 45,352,047 shares of common stock were outstanding as at June 30, 1998.
These securities were not included in the computation of diluted EPS because of
the losses, but could potentially dilute EPS in future years.

In the opinion of management, the interim consolidated financial statements
reflect all adjustments of a normal recurring nature necessary for a fair
statement of the results for interim periods. Operating results for the three
month period ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the fiscal year ending March 31, 1999.


                                       6
<PAGE>   7

                           NORRIS COMMUNICATIONS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                  June 30, 1998


3. RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board ("FASB") has issued SFAS No. 130
"Reporting Comprehensive Income", SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information" and SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 130 establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 131 supersedes SFAS
No. 14 "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards on the way that public companies report financial
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosure
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. SFAS No. 132 standardizes the disclosure requirements for pensions
and other postretirement benefits and requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis.

SFAS No. 130 and No. 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. SFAS No. 132 is effective for years beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated, unless such information is not readily available. The adoption
of these statements will have no material impact on the Company's consolidated
financial statements and the results of operations and financial position will
be unaffected by their implementation.

4. INVENTORY

Inventory of raw material and finished goods is recorded at the lower of cost
and net realizable value. Cost is determined on a first-in, first-out basis.
Inventories consist of the following:

<TABLE>
<CAPTION>
                                          June 30, 1998            March 31, 1998
                                          -------------            --------------
<S>                                       <C>                      <C>     
         Raw material                       $119,852                  $109,960
         Finished goods                       48,402                    70,791
                                           ---------                 ---------
                                            $168,254                  $180,751
                                            ========                  ========

</TABLE>

5. CONVERTIBLE, TERM AND SECURED DEBT

Convertible Promissory Notes

In June 1998, the Company completed the sale of $1,000,000 of 12% Convertible
Promissory Notes with Limited Guaranty ("notes") due May 15, 1999. The notes and
interest are convertible into shares of Common Stock at $0.0875 per share,
subject to certain future adjustments. At June 30, 1998 these Notes would have
been convertible into approximately 11.5 million shares of common stock.

Secured Notes Payable

In June 1997, the Company issued $500,000 of secured notes due September 30,
1999 with interest at 12%, payable quarterly in cash. The notes are
collateralized by the Company's issued and pending patents and FlashBack
technology. The notes are convertible in to shares of Common Stock at a
conversion price of $0.0875 per share, subject to certain future adjustments.
Upon conversion, the note holders receive a stock purchase warrant for the
number of converted shares exercisable at the conversion price for a period of
three years. At June 30, 1998, the $475,000 balance of these notes would have
been convertible into approximately 5.4 million common shares with warrants
issuable on conversion and exercisable into a like number of shares at $0.0875
per share. Subsequent to June 30, 1998, $25,000 of secured notes were converted
into 285,714 common shares and a warrant.



                                       7
<PAGE>   8

                           NORRIS COMMUNICATIONS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                  June 30, 1998


5. CONVERTIBLE, TERM AND SECURED DEBT (Cont'd)

Term Note Payable

A 10% unsecured term note was issued effective September 30, 1997 in connection
with the settlement of accrued balances owing related to the Company's former
facility lease. The Company made a principal payment of $25,000 in October 1997.
The note requires monthly payments of principal and interest of $5,000 for 38
months through November 1, 2000. At June 30, 1998, the note obligation was
$126,782 of which $36,698 was the current portion.

6. REDEEMABLE PREFERRED STOCK

The 99,500 shares of Series A Stock outstanding at June 30, 1998 are convertible
into shares of Common Stock computed by dividing $10.00 plus accrued and unpaid
dividends at 8% per annum by $0.0875, subject to certain future adjustments. At
June 30, 1998, the Series A Stock was convertible into approximately 12 million
common shares. Subsequent to June 30, 1998, a total of 2,500 shares of Series A
Stock were converted into 302,873 common shares.

7. COMMON STOCK

The following table summarizes common stockholders' equity transactions during
the three month period ended June 30, 1998 (see Note 6 for preferred stock
transactions):

<TABLE>
<CAPTION>
                                                              Additional
                                                               paid-in        Prepaid     Contributed   Accumulated
                                    Shares       Amount        capital        Warrants      Surplus        Deficit        Total
                                  ----------  ------------  ------------   ------------   ------------  ------------   ------------ 
<S>                               <C>         <C>           <C>            <C>            <C>           <C>            <C>          
Balance, March 31, 1998           57,171,119  $     57,171  $ 31,333,437   $    903,996   $  1,592,316  $(36,238,172)  $ (2,351,252)
Stock issued on exercise of
  prepaid warrants                 1,822,422         1,822       109,596       (111,418)            --            --             --
Stock issued on conversion of
  notes payable                      285,714           286        24,714             --             --            --         25,000
Noncash interest on convertible
  notes                                   --            --        44,797             --             --            --         44,797
Dividends on Series A preferred
  stock                                   --            --       (19,846)            --             --            --        (19,846)
Net loss                                  --            --            --             --             --      (464,538)      (464,538)
Balance, June 30, 1998            59,279,255        59,279    31,492,698        792,578      1,592,316  $(36,702,710)  $ (2,765,839)
                                ============  ============  ============   ============   ============  ============   ============
</TABLE>

8. PREPAID WARRANTS

At June 30, 1998, the Company had Prepaid Warrants outstanding of $792,578, net
of offering costs. The terms of the Prepaid Warrants, as amended, provide that
the face amount of the warrants or $888,108 is exercisable, without further cash
payment, into common shares of the Company at a fixed exercise price at $0.0875
per share, subject to certain future adjustments. The number of shares issuable
is increased for certain registration penalty shares and by 7% per annum. At
June 30, 1998, the Prepaid Warrants would have been convertible into
approximately 13.1 million common shares. The expiration date of the Prepaid
Warrants is January 2000 at which time they convert to common shares.


                                       8
<PAGE>   9

                           NORRIS COMMUNICATIONS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                  June 30, 1998

9. WARRANTS AND OPTIONS

At June 30, 1998, other warrants, in addition to the Prepaid Warrants, were
outstanding/exercisable into the following listed shares. Also see Note 5 for
additional warrants that may become issuable upon conversion of secured notes
payable.

<TABLE>
<CAPTION>
                               Number of       Exercise Price
Description                     Shares            U.S.$                       Expiration Date
-----------                   ----------       ---------------                ---------------
<S>                           <C>              <C>                            <C> 
Warrants                       200,000             2.00                       September 1998
Warrants                        33,750             4.00                       June 1999
Warrants                       450,000             1.75                       July 1999
Warrants                        82,100             4.00                       August 1999
Warrants                        20,570             0.25                       February 2000
Warrants                        25,000             0.25                       March 2000
Warrants                        27,500             0.25                       March 2001
Warrants                       571,429             0.0875                     June 2001
Warrants                       285,714             0.0875                     July 2001
Warrants                       401,924             0.25                       July 2001
Warrants                       400,000             0.25                       August 2001
Warrants                       150,000             0.15625                    October 2001
Warrants                     2,000,000             0.10                       June 2003
Warrants                       128,067             0.25                       October 2005
                             ---------          -------                       ------------
Total                        4,776,054
                             =========
</TABLE>

Subsequent to June 30, 1998, in connection with the conversion of $25,000 of
secured notes payable, the Company issued a stock purchase warrant on 285,714
common shares exercisable at $0.0875 per share until July 2001.

The following table summarizes stock option activity for the period:

<TABLE>
<CAPTION>
                                                Number of      Weighted Average
                                                 Shares         Exercise Price
<S>                                             <C>                <C>    
         Outstanding at March 31, 1998          2,735,340          $ 0.222
         Granted                                1,852,660          $0.0875
         Exercised                                     --
         Expired                                       --
         Canceled                                      --
                                                ---------
         Outstanding at June 30, 1998           4,588,000          $ 0.176
                                                =========
         Exercisable at June 30, 1998           3,568,158          $ 0.201
                                                =========
</TABLE>

Options outstanding are exercisable at prices ranging from $0.0875 to $3.65 and
expire over the period from 1998 to 2002 with an average life of 4.3 years.

10. INCOME TAXES

The Company has not provided a tax provision for the current period, due to
current losses. The Company has U.S. net operating loss carryforwards of
approximately $27,386,000 and $11,980,000 for federal and state tax purposes,
respectively, subject to certain limitations.

11. CONTINGENT LIABILITY

The Company has been notified by the Internal Revenue Service of a potential tax
liability of approximately $450,000 plus interest relating to the imposition of
withholding taxes on imputed interest from purported loans from the Company's
former Canadian parent company to operating subsidiaries. The Company intends to
vigorously contest this proposed tax liability and believes it has a number of
valid defenses, including that the purported loans were capital contributions.
The Company also believes that should the liability ultimately be sustained
through various appeals that the former Canadian parent company may have claims
for refunds of such withheld taxes if imputed from the subsidiaries. This matter
is in the early stages and the Company has engaged legal counsel to vigorously
contest this matter.



                                       9

<PAGE>   10

                           NORRIS COMMUNICATIONS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                  June 30, 1998


12. ACCOUNTING FOR CONVERTIBLE SECURITIES AT A DISCOUNT

The position of the Securities & Exchange Commission on convertible preferred
stock and convertible debt that are in the money at the time of issuance
requires recording the discount as a non-cash dividend or interest. The imputed
dividend or interest is recognized beginning with the issuance of the security
to the first date that conversion can occur and is adjusted for certain future
changes. The 12% Convertible Promissory Notes (note 5) issued in June 1998 were
convertible at a discount at the time of issuance. Therefore, the Company
recorded $44,797 as imputed noncash interest at issuance in the first fiscal
quarter.


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


                                       10
<PAGE>   11

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

THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A
VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW AND UNDER THE SUB-HEADING,
"BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
YEAR ENDED MARCH 31, 1998.

GENERAL

The Company has completed the transition from a manufacturing and sales
organization to an OEM provider of technology, product development services, and
technology licensing. The Company, as a consequence, anticipates that the
majority of its future revenues will be from license and royalty fees and from
contract development services for and sales to OEMs of custom digital products.

The Company is actively developing licensing, private label, and OEM
opportunities seeking to penetrate the digital sound recording and playback
market. The Company has a development and manufacturing agreement with Lanier
Worldwide, Inc. Under the terms of the Lanier agreement, the Company is
receiving NRE (non-recurring engineering expenses), upon the satisfaction of
certain milestones, to develop a new portable digital voice recorder and related
accessory products. The Lanier agreement contemplates that the products to be
developed will be completed in late calendar 1998, with the Company to provide
Lanier with manufactured product thereafter to be sold by Lanier's sales force
worldwide. As of June 30, 1998, the Company was on schedule, as amended by
Lanier, with respect to the product to be developed. The Company, as of such
date from inception, in connection therewith, had received NRE of approximately
$570,000. The agreement, as amended, is for an initial term terminating December
2001. The quantity of product to be purchased and sold by Lanier is to be
determined by Lanier according to periodic forecast reports submitted to the
Company.

The Company has incurred operating losses in each of the last three fiscal years
and these losses have been material. The Company incurred an operating loss of
$8.7 million in fiscal 1997 (including a restructuring charge of $2.2 million)
and $2.6 million in fiscal 1998 (including an inventory write-off of $1.3
million). The Company has reduced the level of its monthly cash operating costs
to approximately $120,000 per month. However, the Company may increase
expenditure levels in future periods to support its new FlashBack(TM) Audio
Technology and support OEM customers. Accordingly, the Company's losses are
expected to continue until such time as the Company is able to obtain supply,
licensing, royalty and development revenues sufficient to cover fixed cost of
operations. The Company continues to be subject to the risks normally associated
with any new business activity, including unforeseeable expenses, delays and
complications. Accordingly, there is no assurance the Company can or will report
operating profits in the future.

Management is focused on OEM Licensing with respect to the MicroOS(TM) file
system and contract development of private label and custom-designed products
for computers, dictation systems, computer peripherals and telecommunication
equipment. Revenue from licensing, royalties and development services, and
future product supply arrangements, if any, are expected to be subject to
significant month to month variability resulting from the limited market
penetration and license activity to date, the timing and delays associated with
OEM new product introductions and the seasonal nature of demand for consumer
electronic products. Development and OEM contracts may be delayed or terminated
by customers and are subject to a number of factors beyond the Company's
control. The termination of the Lanier agreement would have a material adverse
effect on operations. The markets for consumer electronic products are subject
to rapidly changing customer tastes and a high level of competition. Demand for
the Company's products is expected to be influenced by OEM market success,
technological developments and general economic conditions. Because these
factors can change rapidly, customer demand for the Company's technology can
also shift quickly. The Company may not be able to respond to technical
developments by competitors because of the time required and risks involved in
the development or introduction of new or improved technology and due to limited
financial resources.

RESULTS OF OPERATIONS

For the first three months of fiscal 1999, the Company reported revenues of
$98,189, a 75% decrease from revenues of $389,059 for the first three months of
fiscal 1998. Revenue for the first three months of fiscal 1998 included $22,496
of product sales to OEMs and development services of $75,693. Two customers
accounted for 95% of fiscal 1998's first three months of revenues and the loss
of a customer could have a material adverse impact on the Company. Product sales
in the first quarter of the prior year included sales to Sanyo under an
arrangement which has since been discontinued. The Company does not anticipate
any significant product sales in future periods until the Company can
successfully produce products under the Lanier agreement. The Company's
development arrangements are designed to produce limited current revenues while



                                       11
<PAGE>   12

creating proprietary OEM products to be sold to OEM customers or to be produced
under long-term license or royalty arrangements.

For the three months ended June 30, 1998, the Company reported a gross loss of
$21,581 as compared to a gross profit of $91,631 for the first three months of
fiscal 1998. Cost of sales consisted of $36,892 of product costs and $82,878 of
contract services consisting mostly of research and development labor being
funded primarily by the Lanier development agreement. There can be no assurance
the Company can attain positive gross margins in the future.

Total operating expenses (consisting of research and related expenditures and
selling and administrative expenses) for the three months ended June 30, 1998,
were $366,606 as compared to $372,729 for the three months ended June 30, 1998.
Selling and administrative costs aggregated $220,758 in the first three months
of fiscal 1999 compared to $319,858 in the prior period. The $99,100 reduction
was comprised primarily of a $22,000 decrease in compensation and related cost,
a $32,000 decrease in depreciation, amortization and business property tax, and
a $30,000 reduction in occupancy related costs. The Company continues its
efforts to control and minimize operating costs.

Research and related expenditures for the three months ended June 30, 1998 were
$145,848 as compared to $52,871, for the three months ended June 30, 1997. An
aggregate of $82,878 of development costs were incurred for contract development
work during the three months ended June 30, 1998 and are included in cost of
revenues. Research and development costs are subject to significant quarterly
variations depending on the use of outside services, the assignment of engineers
to development projects and the availability of financial resources.

The Company reported an operating loss of $388,187 for the three months ended
June 30, 1998, as compared to an operating loss of $281,098 for the three months
ended June 30, 1997. The Company's operating losses are impacted by the timing
and amount of product sales and the recognition of contract service revenues.
Accordingly, there is substantial uncertainty about future operating results and
the results for the first three months are not necessarily indicative of
operating results for future periods or the fiscal year.

The Company's interest expense for the three months ended June 30, 1998 was
$28,394, an increase from the $7,490 for the prior period resulting from the
interest bearing debt outstanding during fiscal 1999. The Company also incurred
during the first quarter $44,797 as a one time noncash interest expense on
convertible promissory notes convertible at a discount.

The Company reported a net loss for the first three months of the current fiscal
year of $464,538 compared to a net loss of $134,173 for the prior year's first
three months.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1998, the Company had a working capital deficit of $1,302,138
compared to a working capital deficit of $911,041 at March 31, 1998. The Company
had approximately $168,000 of working capital invested in inventories at June
30, 1998. The decrease in working capital was a result of the Company's
continuing losses which consumed working capital during the period.

In June 1998, the Company completed the sale of $1,000,000 of 12% Convertible
Promissory Notes with Limited Guaranty due May 15, 1999. The proceeds are being
applied for continued operating capital.

For the three months ended June 30, 1998, net cash increased by $582,752. Cash
used in operating activities was $414,220. Major components using cash were a
net loss of $464,538 reduced by $15,969 of aggregate depreciation and
amortization, $4,067 of loss on disposal of property and equipment and $44,797
of noncash interest, or a net loss use of cash of $399,597. The major change in
assets and liabilities providing cash from operating activities was a reduction
in inventory of $12,497 and a reduction in accounts receivable of $44,156 and a
reduction in amounts receivable from research and development contract of
$24,182. The major changes in assets and liabilities using operating cash a
reduction in accounts payable trade of $100,488.

Based on the Company's cash position assuming continuation of existing OEM
development arrangements and currently planned expenditures and level of
operations and no new product sales or development agreements, the Company
estimates it will require additional capital within the next twelve months to
meet its debts as they become due and to continue as a going concern. Given such
assumptions, the Company estimates that at current expenditure levels and
projected working capital requirements it will require a minimum of an
additional $750,000 to continue operating for the next twelve months. The
Company's OEM and licensing business may be able to generate the additional
funding required depending on the 


                                       12
<PAGE>   13

ability of OEM and licensing activities to generate additional revenues, however
there can be no assurance thereof. The failure to raise additional funds, if
required, could have a material adverse effect on the Company and could force
the Company to reduce or curtail operations.

The Company may, from time to time, seek additional funds through lines of
credit, public or private debt or equity financing. The Company estimates that
it will require additional capital to finance future developments and
improvements to its technology. There can be no assurances that additional
capital will be available when needed.

MANAGEMENT'S PLANS FOR IMPROVING OPERATIONS

Management has undertaken steps as part of a plan to improve operations with the
goal of sustaining Company operations for the next twelve months and beyond.
These steps include (i) focusing sales and marketing on the OEM markets, (ii)
focusing on the completion of the Lanier development agreement and planned OEM
products manufacturing and (iii) controlling overhead and expenses. There can be
no assurance the Company can attain profitable operations in the future.

FUTURE COMMITMENTS AND FINANCIAL RESOURCES

The Company has an obligation and agreement with Comdisco, Inc. providing for
future payments of approximately $515,000 from time to time based on agreed upon
percentages of future equity raised.

The Company expects to commence production during fiscal year 1999 pursuant to
future Lanier purchase orders from the portable digital recorder currently under
development. The Company may require significant working capital funds for the
production of these anticipated orders, if realized. The amount of such funds is
subject to a variety of factors including some beyond the Company's control.
These factors include the size and frequency of Lanier purchase orders, if any,
and the terms of any future contract manufacturing arrangement, lead times on
components and a variety of other factors.

The Company's plans for its FlashBack Audio(TM) technology are to continue to
develop the technology and seek OEM partnerships to exploit the technology. The
Company may require additional funds to continue development of this and other
technologies and the extent of such requirements is not presently determinable
by management.

If, in the future, operations of the Company increase significantly, the Company
may require additional funds. The Company might also require additional capital
to finance future developments, acquisitions or expansion of facilities. The
Company currently has no plans, arrangements or understandings regarding any
acquisitions.

YEAR 2000 COMPLIANCE

The Company, like most owners of computer software, will be required to modify
significant portions of its software so that it will function properly in the
year 2000. Preliminary estimates of the total costs to be incurred by the
Company to resolve this problem range from $10,000 to $20,000. Since the Company
mainly uses third party "off-the-shelf" software, it does not anticipate a
problem in resolving the year 2000 problem in a timely manner. Maintenance or
modification costs will be expensed as incurred, while the costs of new software
will be capitalized and amortized over the software's useful life.

BUSINESS RISKS

This report contains a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results or
those anticipated. In this report, the words "anticipates," "believes,"
"expects," "intends," "future" and similar expressions identify forward-looking
statements. Readers are cautioned to consider the specific and substantial
business risk factors described above and in the Company's Annual Report on Form
10-KSB for the year ended March 31, 1998 and not to place undue reliance on the
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements, to reflect events or circumstances that may arise
after the date hereof.



                                       13
<PAGE>   14

PART II.       OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in routine litigation incidental to the conduct of its
business. There are currently no material pending legal proceedings to which the
Company is a party or to which any of its property is subject.

ITEM 2. CHANGES IN SECURITIES

(a) and (b) NONE

(c) The following is a description of equity securities sold by the Company
during the first fiscal quarter ended June 20, 1998 that were not registered
under the Securities Act:

         In May and June of 1998, the Company completed the sale for cash of
         $1,000,000 of 12% Convertible Promissory Notes with Limited Guaranty
         ("Notes") due May 15, 1999 to six accredited investors. The Notes and
         interest are convertible into shares of Common Stock at $0.0875 per
         share, subject to certain adjustments. Accordingly, if converted at
         issue, these Notes would have been convertible into 11,428,571 shares
         of Common Stock. These securities were offered and sold without
         registration under the Act, in reliance upon the exemption provided by
         Regulation D thereunder and an appropriate legend was placed on the
         Notes.

         The securities were sold by the Company without an underwriter.
         However, in connection with the sale, the Company issued warrants on
         571,428 shares of Common Stock exercisable at $0.0875 per share and
         paid $55,760 in fees and expenses to Renwick Corporate Finance, Inc. as
         a finder's fee. The Company also granted warrants to Elwood G. Norris
         and Robert Putnam (officers, directors and shareholders of the Company)
         on an aggregate of 2,000,000 common shares exercisable at $0.10 per
         share for certain guarantees and inducements granted by them to
         purchasers of the Notes.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE

ITEM 5. OTHER INFORMATION

NONE

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

NONE



                                       14
<PAGE>   15

                                   SIGNATURES

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

                                        NORRIS COMMUNICATIONS, INC.


Date: August 12, 1998                        By: /s/RENEE WARDEN
                                                --------------------------------
                                             Renee Warden
                                             Controller
                                             (Principal Financial and Accounting
                                             Officer and duly authorized to sign
                                             on behalf of the Registrant)



                                       15