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 August 31, 1999

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

For the transition period from                                  to

Commission File No.:        0-25592

                             PERIPHONICS CORPORATION
              (Exact Name of Registrant a specified in its charter)

           Delaware                                      11-2699509
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                       Identification No.)


             4000 Veterans Memorial Highway, Bohemia, New York 11716
                    (Address of principal executive offices)

        Registrant's telephone number, including are code: (516) 468-9000

         Check 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(s),  and (2) has been subject to such filing  requirements
for the past 90 days. Yes [X] No [ ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date: October 14, 1999

                              Class of               Number
                              Common Equity          of Shares
                              -------------          ---------

                              Common Stock,          13,334,390
                              Par value $.01







<PAGE>


                             PERIPHONICS CORPORATION
                                AND SUBSIDIARIES


                                      INDEX
<TABLE>
<CAPTION>



Part I. Financial Information                                                                 Page No.
-----------------------------                                                                 --------

Item 1. Financial Statements

<S>                                                                                               <C>
         Consolidated Balance Sheets - August 31, 1999                                            3
         and May 31, 1999

         Consolidated Statements of Earnings - Three Months                                       4
         Ended August 31, 1999 and August 31, 1998

         Consolidated Statements of Cash Flows -Three Months                                      5
         Ended August 31, 1999 and August 31, 1998

         Notes to Unaudited Consolidated Financial Statements                                     6-7

Item 2. Management's Discussion and Analysis of Financial                                         8-12
         Condition and Results of Operations

Part II. Other Information                                                                        13

         Signatures                                                                               14

</TABLE>


<PAGE>


                    PERIPHONICS CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except per share data)
<TABLE>
<CAPTION>

                                                                                               August 31, 1999  May 31, 1999
                                                                                                  (Unaudited)     (Audited)
                                                                                                  -----------     ---------
ASSETS
Current Assets:
<S>                                                                                                <C>          <C>
Cash and cash equivalents ......................................................................   $  19,409    $  26,564
Short-term investments .........................................................................      11,841        1,000

Accounts receivables, less allowance for doubtful
    accounts of $1,783 and $1,783, respectively ................................................      45,374       45,187
Inventories ....................................................................................      17,037       16,078
Deferred income taxes ..........................................................................       2,120        1,852
Prepaid expenses and other current assets ......................................................       1,947        1,833
                                                                                                   ---------    ---------
   Total current assets ........................................................................      97,728       92,514

Property, plant and equipment, net .............................................................      20,218       20,072
Other assets ...................................................................................         478          461
                                                                                                   ---------    ---------
TOTAL ASSETS ...................................................................................   $ 118,424    $ 113,047
                                                                                                   =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payables ..............................................................................   $   8,850    $   8,250
Accrued expenses and other current liabilities .................................................      23,718       23,483
                                                                                                   ---------    ---------
    Total current liabilities ..................................................................      32,568       31,733
Deferred income taxes ..........................................................................           7          104
                                                                                                   ---------    ---------
TOTAL LIABILITIES ..............................................................................      32,575       31,837
                                                                                                   ---------    ---------

Stockholders' Equity:
Preferred stock, par value $.01 per share, .....................................................        --           --
    1,000,000 shares authorized, none issued
Common stock, par value $.01 per share, ........................................................         140          140
    30,000,000 shares authorized, 14,108,390 issued and
    13,251,590 shares outstanding as of August 31, 1999; 13,999,190 shares
    issued and 13,142,390 shares outstanding as of May 31, 1999
Additional paid-in capital .....................................................................      45,423       44,718
Retained earnings ..............................................................................      46,784       42,850
                                                                                                   ---------    ---------
                                                                                                      92,347       87,708
Treasury stock at cost, 856,800 shares .........................................................      (6,498)      (6,498)
                                                                                                   ---------    ---------
    Total stockholders' equity .................................................................      85,849       81,210
                                                                                                   ---------    ---------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................................   $ 118,424    $ 113,047
                                                                                                   =========    =========

</TABLE>


<PAGE>


                    PERIPHONICS CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                      (In thousands, except per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                                               Three Months Ended
                                                                                                    August 31,
                                                                                               1999            1998
                                                                                               ----            ----

<S>                                                                                           <C>             <C>
System revenues...............................................................                $32,904         $22,166
Maintenance revenues..........................................................                 10,244           8,239
                                                                                               ------         -------
   Total revenues.............................................................                 43,148          30,405
                                                                                               ------          ------
Cost of system revenues.......................................................                 15,230          10,380
Cost of maintenance revenues..................................................                  5,228           4,360
                                                                                               ------          ------
   Cost of revenues...........................................................                 20,458          14,740
                                                                                               ------          ------
Gross profit..................................................................                 22,690          15,665
                                                                                               ------          ------
Operating expenses:
    Selling, general and administrative.......................................                 11,313           9,777
    Research and development..................................................                  5,053           4,610
    Expenses associated with pending merger ..................................                    805             --
                                                                                               ------          ------
                                                                                               17,171          14,387
                                                                                               ------          ------
Earnings from operations......................................................                  5,519           1,278
                                                                                               ------          ------
Other income:
    Interest and other income.................................................                    308             333
    Foreign exchange gain ....................................................                    133             234
                                                                                               ------          ------
                                                                                                  441             567
                                                                                               ------          ------
Earnings before provision for income taxes....................................                  5,960           1,845
Provision for income taxes....................................................                  2,026             729
                                                                                               ------          ------
Net earnings..................................................................               $  3,934        $  1,116
                                                                                               ======          ======

Per share data:
Basic earnings................................................................                $  0.30         $  0.08
                                                                                               ======          ======
Diluted earnings..............................................................                $  0.28         $  0.08
                                                                                               ======          ======

Weighted average shares:
Basic.........................................................................                 13,205          13,852
                                                                                               ======          ======
Diluted.......................................................................                 14,187          13,937
                                                                                               ======          ======
</TABLE>




<PAGE>


                    PERIPHONICS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                               Three Months Ended
                                                                                    August 31,
                                                                                  1999     1998
                                                                                  ----     ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>         <C>
Net earnings .............................................................   $  3,934    $  1,116
Adjustments to reconcile net earnings to net cash and cash
 equivalents used in operating activities:
   Depreciation and amortization .........................................      1,694       1,628
   Deferred income taxes .................................................       (365)       (202)
   Changes in operating assets and liabilities:
   Increase in accounts receivables ......................................       (187)       (331)
   Increase in inventories ...............................................       (959)     (1,970)
   (Increase) decrease in prepaid expenses and other current assets ......       (114)         95
   Increase in other assets ..............................................        (35)        (34)
   Increase (decrease) in accounts payable and accrued expenses
    and other current liabilities ........................................        835        (277)
                                                                             --------    --------
   Net cash and cash equivalents provided by operating activities ........      4,803          25
                                                                             --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property, plant and equipment .........................     (1,822)     (1,952)
      Proceeds from sales of short-term investments.......................      1,000       7,615
      Purchases of short-term investments.................................    (11,841)     (7,796)
                                                                             --------    --------
      Net cash and cash equivalents used in financing activities .........    (12,663)     (2,133)
                                                                             --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Purchase of treasury stock .........................................       --        (2,263)
      Proceeds from stock options exercised including related tax benefits        705        --
                                                                             --------    --------
      Net cash and cash equivalents provided by (used in) financing
       activities ........................................................        705      (2,263)
                                                                             --------    --------

NET DECREASE IN CASH AND CASH EQUIVALENTS ................................     (7,155)     (4,371)

CASH AND CASH EQUIVALENTS beginning of year ..............................     26,564      14,810
                                                                             --------    --------
CASH AND CASH EQUIVALENTS, end of period .................................   $ 19,409    $ 10,439
                                                                             ========    ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income Taxes .............................................................   $  1,010    $  2,183

</TABLE>


<PAGE>


                    PERIPHONICS CORPORATION AND SUBSIDIATIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION

In the opinion of Periphonics Corporation and subsidiaries (the "Company"),  the
accompanying unaudited consolidated financial statements contain all adjustments
(consisting  only of normal recurring  adjustments)  necessary to present fairly
the financial position, the results of operations,  and the cash flows at August
31, 1999 and for all periods presented.

Certain  information  and  footnote  disclosures  normally  included  in  annual
financial  statements  prepared in accordance with generally accepted accounting
principles  have been  omitted.  These  financial  statements  should be read in
conjunction with the Consolidated Financial Statements and Notes included in the
Company's May 31, 1999 Annual Report and Form 10-K as filed with the  Securities
and Exchange Commission.

The results of operations  for the three months ended August 31, 1999 and August
31, 1998 are not  necessarily  indicative  of the results to be expected for the
full year. Dollar amounts are presented in thousands except per share amount.

2. EARNINGS PER SHARE

In the third quarter of fiscal 1998, the Company adopted  Statement of Financial
Accounting  Standards No. 128  "Earnings  Per Share".  Basic income per share is
determined  using  the  weighted  average  number  of  shares  of  common  stock
outstanding  during each period.  Diluted  income per share further  assumes the
issuance of common shares for all dilutive securities including stock options.

3. INVENTORIES

Inventories consist of the following:

                                      August 31, 1999            May 31, 1999
                                      ---------------            ------------

       Raw material                       $ 7,527                  $ 8,730
       Work-in-proces                       9,510                    7,348
                                           ------                   ------
                                          $17,037                  $16,078
                                           ======                   ======


4. INDUSTRY SEGMENTS AND OPERATIONS BY GEOGRAPHIC AREA

In  1997,  the  Financial   Accounting  Standards  Board  issued  SFAS  NO.  131
"Disclosures  about  Segments of an Enterprise and Related  Information,"  which
established  standards for the way in which public business  enterprises  report
information about operating segments in annual financial statements.

The Company  operates  in two  reportable  segments:  sales and  maintenance  of
interactive voice response systems.  Summarized financial information concerning
the  Company's  reportable  segments  is  shown  in  the  following  table.  The
accounting  policies  of the  segments  are the same as those  described  in the
summary of significant  accounting  policies.  The  "Corporate"  Column includes
corporate related items not allocated to reportable segments and the elimination
of  intercompany  transactions.  Identifiable  assets  are  those  tangible  and
intangible assets used in operations in each reportable segment.


<TABLE>
<CAPTION>

Quarter Ended August 31, 1999                                 System      Maintenance       Corporate        Total
                                                              ------      -----------       ---------        -----
<S>                                                           <C>           <C>               <C>            <C>
Total Revenues                                                $32,904       $10,244           $  -           $43,148
                                                              =======       =======           ========       =======
Interest Income                                               $             $   -             $    308       $   308
                                                              =======       =======           ========       =======
Depreciation and amortization expense                         $   668       $   469           $    557       $ 1,694
                                                              =======       =======           ========       =======
Earnings before provision for income taxes                    $  5850       $ 3,777           $ (3,667)      $ 5,960
                                                              =======       =======           ========       =======
Income Tax Expense                                            $ 1,989       $ 1,284           $ (1,247)      $ 2,026
                                                              =======       =======           ========       =======
Capital Expenditures                                          $   666       $   649           $    507       $ 1,822
                                                              =======       =======           ========       =======
Identifiable assets                                           $59,690       $10,649           $ 48,085      $118,424
                                                              =======       =======           ========      ========

Quarter Ended August 31, 1998
Total Revenues                                                $22,166       $ 8,239           $    -         $30,405
                                                              =======       =======           ========       =======
Interest Income                                               $   -         $   -             $    333       $   333
                                                              =======       =======           ========       =======
Depreciation and amortization expense                         $   628       $   452           $    548       $ 1,628
                                                              =======       =======           ========       =======
Earnings before provision for income taxes                    $   902       $ 2,712           $ (1,769)      $ 1,845
                                                              =======       =======           ========       =======
Income Tax Expense                                            $   356       $ 1,071           $   (698)      $   729
                                                              =======       =======           ========       =======
Capital Expenditures                                          $   796       $   624           $    532       $ 1,952
                                                              =======       =======           ========       =======
Identifiable assets                                           $51,699       $10,123           $ 37,265       $99,087
                                                              =======       =======           ========       =======


</TABLE>






<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Results of Operations

Three Months Ended August 31, 1999 compared to Three Months Ended August 31,1998

     Total Revenues.  Total revenues  increased by 41.9% to $43.1 million in the
first three months of fiscal 2000 from $30.4 million in the comparable period of
the prior fiscal year.  System  revenues  increased by 48.4% to $32.9 million in
the first three months of fiscal 2000  compared  with $22.2  million in the same
period in the prior  fiscal year.  The increase in system  revenues was due to a
16.4% increase in domestic sales and a 111.5% increase in  international  sales.
The increase in system  revenues was  primarily due to an increase in unit sales
volume.  Maintenance  revenues  increased by 24.3% to $10.2 million in the first
three months of fiscal 2000 compared with $8.2 million in the same period of the
prior fiscal year, primarily due to additions to the service base.

     Gross Profit. The Company's gross profit increased by $7.0 million or 44.8%
to $22.7  million in the first three months of fiscal 2000  compared  with $15.7
million in the  comparable  period of the prior fiscal  year.  Gross profit as a
percentage  of total  revenues  increased  to 52.6% in the first three months of
fiscal  2000  compared  with 51.5% in the  comparable  period of the prior year.
Gross profit on system  revenues  increased by $5.9 million to $17.7  million in
the first  three  months of fiscal  2000  compared  with  $11.8  million  in the
comparable  period of the prior fiscal year. The gross margin on system revenues
increased to 53.7% in the first three months of fiscal 2000  compared with 53.2%
in the same  period  of the prior  fiscal  year.  The  Company  attributes  this
increase  primarily  to the product mix during the current  three month  period,
with a larger  percentage  of  higher  margin  standard  hardware  and  software
products and to an improved margin on custom programming revenues.

     Gross profit on maintenance revenues increased by $1.1 million, or 29.3% to
$5.0 million in the first three months of fiscal 2000 compared with $3.9 million
in the comparable  period of the prior fiscal year. Gross margins on maintenance
revenues  increased to 49.0% in the first three  months of fiscal 2000  compared
with 47.1% in the  comparable  period of the prior fiscal year.  The increase in
margin  was  attributed  to the  addition  of more  units  to the  service  base
partially offset by higher costs to support organizational growth.

     Selling,  General  and  Administrative   Expenses.   Selling,  General  and
Administrative   ("SG&A")  expenses  were  $11.3  million  (before  expenses  of
approximately  $0.8 million  associated  with the pending  merger),  or 26.2% of
total revenues,  compared with $9.8 million, or 32.2% of total revenues, for the
first  three  months  of  fiscal  2000 and  1999,  respectively.  SG&A  expenses
including expenses  associated with the pending merger with Nortel Networks were
$12.1 million,  or 28.1% of total revenues.  The increased  expense level can be
attributed  primarily to costs  associated with supporting an increased level of
sales volume.

     Research  and  Development  Expenses.   Research  and  Development  ("R&D")
expenses,  primarily  for new  products  and  features,  increased  9.6% to $5.1
million,  or 11.7% of total  revenues,  compared with $4.6 million,  or 15.2% of
total  revenues,  for the first three months of fiscal 2000. The increase in the
dollar amount of R&D expenses  reflects the continued  efforts of the Company to
broaden  the  scope  of  its  product  offerings  in  order  to  address  growth
opportunities  in the  marketplace.  R&D expenses are charged to  operations  as
incurred,  and no software development costs have been capitalized.  The Company
expects such  expenditures to continue to increase,  although such expenses as a
percentage of total revenues may vary from period to period.

     Other Income (Expense).  Other income was $0.4 million and $0.6 million for
the three  months  ended  August 31, 1999 and 1998,  respectively.  Interest and
other  income was $0.3  million for the three  months  ended August 31, 1999 and
1998,  respectively.  The Company had a foreign exchange gain of $0.1 million in
the three months ended August 31, 1999  compared to a foreign  exchange  gain of
$0.2  million for the three  months  ended  August 31,  1998.  To the extent the
Company is unable to match revenue received in foreign  currencies with expenses
paid in the same  currency,  it is  exposed  to  fluctuations  in  international
currency transactions.

     Income  Taxes.   Variations  in  the  customary  relationship  between  the
provision for income taxes and the statutory  income tax rate  primarily  result
from the utilization of research and  development  tax credits,  state and local
income taxes, and exempt income of the Company's foreign sales corporation.  The
Company's  effective  income tax rates were 34.0% and 39.5% for the three months
ended August 31, 1999 and August 31, 1998, respectively.

     Foreign Operations.  The Company's European subsidiary operated at a profit
of  approximately  $2.1 million during the three months ended August 31, 1999 as
compared to a profit of $0.7  million  during the three  months ended August 31,
1998.  This  profit was  attributed  to an increase  in gross  profit  primarily
attributable  to an increase of  approximately  203% in system  revenues  and an
increase  of  approximately  48% in  maintenance  revenues  offset  in  part  by
increased  SG&A  expenses to support the  expansion  of the sales and  marketing
effort.  Transfers from the Company's North American  operations to its European
subsidiary  are accounted  for at cost,  plus a reasonable  profit.  The cost of
revenues for the  Company's  European  subsidiary  includes  approximately  $0.7
million and $0.2 million of  intercompany  gross profit  earned by the Company's
North American operations on system revenues by the European subsidiary to third
parties  during  the three  months  ended  August 31,  1999 and August 31,  1998
respectively.

Liquidity and Capital Resources

     The Company's  principal cash  requirement to date has been to fund working
capital and  capital  expenditures  in order to support the growth of  revenues.
Historically,  the Company has primarily financed this requirement  through cash
flow from operations, bank borrowings and two Public Offerings for the Company's
Common Stock in 1995,  which  resulted in an  aggregate of $41.1  million of net
proceeds  to the  company.  Cash  flow  from  operations  was $4.8  million  and
breakeven for the three months ended August 31, 1999 and 1998, respectively. The
Company's  investing  activities  included  capital  expenditures  totaling $1.8
million  and $2.0  million  during the three  months  ended  August 31, 1999 and
August 31, 1998, respectively. The Company has not repurchased any shares of the
Company's  Common Stock since May 31,  1999.  At August 31, 1999 the Company had
working  capital  of $65.2  million,  including  $31.3  million of cash and cash
equivalents and short-term investments.  The Company expects its working capital
needs to increase along with future revenue growth.

     The  Company  believes  that its  existing  sources of working  capital and
borrowing  available  under its  revolving  line of credit will be sufficient to
fund its operations and capital expenditures for at least 12 months. The Company
does not currently have any material commitments for capital  expenditures.  The
Company has a $15.0 million  unsecured  line of credit with a bank which expires
on November 30, 1999. As of August 31, 1999 the Company had no borrowings  under
this line of credit.  Any borrowing under this line of credit will bear interest
at the prime rate or LIBOR plus 125 basis points.

     At August 31, 1999,  current  assets and current  liabilities  increased by
$5.2 million and $0.8 million,  respectively,  compared to May 31, 1999. Current
assets  increased  primarily  as a  result  of an  increase  in  cash  and  cash
equivalents and short term investments.  Current liabilities increased primarily
due to higher accounts payable.

     The average days sales outstanding (calculated by dividing the net accounts
receivable  at the balance  sheet date for each period by the average  sales per
day during the quarter  immediately  preceding  the balance sheet date) for this
period were  approximately  97 days. The average days sales  outstanding were 94
days, 107 days, and 111 days at May 31, 1999, 1998 and 1997 respectively.

     The  Company's  inventory  increased to $17.0 million as of August 31, 1999
from $16.1 million as of May 31, 1999.


Year 2000 Compliance

The Year 2000 (Y2K) issue exists because many computer  systems and applications
have used  two-digit date fields to designate a year. As the century date change
occurs,  date sensitive systems (if they have not been  appropriately  modified)
may not be able to recognize the year 2000 or may do so  incorrectly as the year
1900. This inability to recognize or properly interpret the year 2000 may result
in the incorrect processing of financial and operational information. This issue
is  discussed  below in regard to both the  Company's  products,  the  Company's
administrative/internal  systems and the possible  impact on the timing of sales
of the Company's systems.

The  Company  is in the final  stages of a program  to  inspect,  upgrade  where
necessary,  and  verify its  internal  information  systems  to address  any Y2K
compliance issues.  This program includes a focus on internal policies,  methods
and tools, as well as coordination with customers and suppliers. The Company has
completed substantially all upgrades to its mission critical information systems
to achieve  Y2K  compliance.  The  Company is  continuing  and will  continue to
further test its internal  information systems for Y2K compliance and expects to
continue  to conduct  such  tests  through  October  1999.  Because  most of the
expenses  associated with the Company's Y2K compliance upgrade program have been
made and will be incurred in the ordinary  course of business,  the Company does
not anticipate  that such expenses will have a material  impact on the Company's
financial condition.

As a result of the  program to upgrade  mission  critical  internal  information
systems to Y2K compliance, the Company believes that said systems are already or
will be Y2K compliant  prior to the year 2000.  The Company cannot be completely
certain that it has identified  and will resolve all Y2K compliance  issues with
its internal  information systems in a timely manner, in which case the expenses
associated  with such efforts could become be  significant,  or that such issues
will not have a material  adverse  effect on the Company's  business,  operating
results and financial condition.

The Company has made a thorough  analysis  and test of its products and believes
that its current products are Year 2000 compliant.  The Company's  assessment of
its current products is partially dependent upon the accuracy of representations
concerning Year 2000  compliance  made by suppliers,  such as Sun and Microsoft,
among  others.  Many of the  Company's  customers  are,  however,  using earlier
versions of the Company's  products,  which may not be Year 2000 compliant.  The
Company has  implemented  programs to  proactively  notify such customers of the
risks  associated  with using  these  products  and to actively  encourage  such
customers to upgrade to the Company's  current products and perform  application
audits.

The Company's products are generally  integrated within a customer's  enterprise
system,  which usually involves products and systems developed by other vendors.
A customer may mistakenly  believe that Year 2000  compliance  problems with its
enterprise  system are  attributable  to products  provided by the Company.  The
Company may, in the future,  be subject to claims based on Year 2000  compliance
issues related to a customer's  enterprise  system or other products provided by
third  parties,  custom  modifications  to the Company's  products made by third
parties,  or issues arising from the integration of the Company's  products with
other  products.  The Company has not been involved in any proceeding  involving
its  products or services in  connections  with Year 2000  compliance,  however,
there is no assurance  that the Company will not, in the future,  be required to
defend its products or services in such proceedings  against claims of Year 2000
compliance issues, and any resulting  liability of the Company for damages could
have a material adverse effect on the Company's business,  operating results and
financial condition.

Through  discussions  with  current  and  potential  customers,  the Company has
determined  that Y2K  readiness  issues for these  companies  may  influence the
timing  of  purchase  decisions  and  deployment  schedules.  Concerns  over Y2K
readiness  may cause some  customers  to  accelerate  the  purchase of new,  Y2K
compliant  systems or upgrades to existing  systems to ensure that they have Y2K
compliant  systems in place prior to year 2000.  Conversely,  some customers may
delay purchase  decisions  and/or  deployment  schedules due to the diversion of
resources  (people  and/or  budget) to Y2K  upgrade  projects  unrelated  to the
Company's products.  Similarly,  some customers may delay purchase decisions and
or deployment  schedules due to the need to stabilize their internal  operations
and reduce the risk of  introducing  new systems  immediately  prior to the year
2000  conversion  occurring  during  the  typical  peak  business  period of the
calendar fourth  quarter.  If Y2K concerns result in a net reduction in customer
orders and/or delays in deployments,  the Company's revenues for the period of a
few months  before and after January 1, 2000 could be reduced  thereby  having a
material adverse effect on the Company's financial results.

Recent Financial Accounting Standards Board Statements

In fiscal 1999, the Company adopted Statement of Financial  Accounting Standards
No.  130,  "Reporting  Comprehensive  Income"  ("SFAS  130")  and  Statement  of
Financial  Accounting  Standards  No.  131,  "Disclosures  About  Segments of an
Enterprise  and Related  Information"  ("SFAS  131").  Each of these  statements
required  additional   disclosure  in  the  Company's   consolidated   financial
statements.  SFAS 130 had no effect on the Company's financial statements as the
Company  had no  components  of  comprehensive  income.  SFAS 131 did not have a
material effect on the Company's  consolidated  financial position or results of
operations.

Effective June 1, 1998 and December 15, 1998, respectively,  the Company adopted
Statement  of Position  97-2  "Software  Revenue  Recognition"  ("SOP 97-2") and
Statement  of  Position  98-9  "Modification  of  SOP  97-2,   Software  Revenue
Recognition,   With  Respect  to  Certain   Transactions"   ("SOP  98-9").   The
implementation  of these  pronouncements  did not have a material  effect on the
Company's financial statements.  However, detailed implementation guidelines for
this standard  have not yet been issued.  Once issued,  such  detailed  guidance
could lead to unanticipated  changes in the Company's current revenue accounting
practices and material  adverse changes in the Company's  reported  revenues and
earnings.  In the event  implementation  guidance is  contrary to the  Company's
revenue accounting practices,  the Company believes it may be possible to change
its  current  business  practices  to comply  with this  guidance  and avoid any
material adverse effect on reported revenues and earnings. However, there can be
no assurance this will be the case.

Recent pronouncements of the Financial Accounting Standards Board ("FASB") which
are not  required to be adopted at this date  include,  Statement  of  Financial
Accounting Standards No. 133 "Accounting for Derivative  Instruments and Hedging
Activities"  ("SFAS 133") and  Statement of Financial  Accounting  Standards No.
137, "Accounting for Derivative Instruments and Hedging  Activities--Deferral of
the Effective Date of FASB Statement No. 133--an amendment of FASB Statement No.
133" ("SFAS 137").  SFAS 137 is effective for fiscal years  beginning after June
15, 2000.  Based upon current  data the  adoption of this  pronouncement  is not
expected  to have a  material  impact on the  Company's  consolidated  financial
statements.

Foreign Currency Transaction

The  Company  does  not  currently  engage  in  international  currency  hedging
transactions to mitigate its foreign currency exposure.  Included in the foreign
exchange gain (loss) are unrealized  foreign exchange gains and losses resulting
from  the  currency   remeasurement  of  the  financial  statements   (primarily
inventories,   accounts   receivable  and  intercompany  debt)  of  the  foreign
subsidiaries  of the  Company  into U.S.  dollars.  To the extent the Company is
unable to match revenue received in foreign currencies with expenses paid in the
same  currency,  it is  exposed to  possible  losses on  international  currency
transactions.

Inflation

In the opinion of  management,  inflation  has not had a material  effect on the
operations of the Company.

Certain Factors That May Affect Future Results

From time to time,  information provided by the Company,  statements made by its
employees  or  information  included  in its  filings  with the  Securities  and
Exchange Commission  (including this Form 10-Q) may contain statements which are
so-called   "forward-looking   statements"  and  not  historical  facts.   These
forward-looking  statements  are made pursuant to the safe harbor  provisions of
the Private  Securities  Litigation  Reform Act of 1995.  The  Company's  actual
future results may differ significantly from those stated in any forward-looking
statements.   Forward-looking   statements   involve   a  number  of  risks  and
uncertainties,  including,  but not limited to, product demand,  pricing market,
acceptance,  litigation,  risks in product and technology  development and other
risk factors detailed from time to time in the Company's Securities and Exchange
Commission  reports including this Form 10-Q for the fiscal quarter ended August
31, 1999 and its Form 10-K for the fiscal year ended May 31, 1999.

The  Company   undertakes  no  obligation  to  publicly  update  or  revise  any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.

With  particular  regard  to the  possible  variability  of  quarterly  results,
fluctuations  may  occur as a result  of  factors  including  the  length of the
revenues cycle, the timing of orders from and shipments to customers,  delays in
developments  and  customer  acceptance  of custom  software  applications,  new
product  introductions or announcements by the company and /or competitors,  and
the  hiring  and  training  of  additional  staff  as well as  general  economic
conditions.

Historically,  the size and timing of the Company's  revenues  transactions have
varied substantially from quarter to quarter,  with a substantial  percentage of
orders and deliveries occurring in the final weeks of a quarter, and the Company
expects such  variations  to continue in future  periods.  Because a significant
portion of the  Company's  overhead is fixed in the  short-term,  the  Company's
results of  operations  may be  materially  adversely  affected if revenues fall
below the Company's expectations. Generally, the Company's inventory of computer
and  telephony  hardware is  determined  by the  Company's  forecast of revenues
during the future  periods.  If  management's  forecast of product  revenues and
product  mix prove to be  inaccurate,  the  Company  may not have the  necessary
inventory  available  to  deliver  systems in a timely  manner  which may have a
material  adverse  effect on the  Company's  results of  operations  during such
period.


<PAGE>


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

On July 7, 1998 Lucent Technologies, Inc. ("Lucent") filed a patent infringement
action in the United States District Court in the District of Delaware  alleging
that Periphonics infringed some nine patents of Lucent. The Company believes the
claims  contained  in the lawsuit are without  merit and, in an answer  filed on
September 24, 1998, denied the substantive  elements of Lucent's lawsuit and set
forth affirmative defenses and made counterclaims against Lucent. The Company is
involved in certain other legal  matters in the normal  course of business.  The
Company's management does not believe that resolution of these matters will have
a material adverse effect on the Company's consolidated financial statements.

Item 2. Changes in Securities

          None

Item 3. Defaults Upon Senior Securities

         None

Item 4.  Submission of Matters to a Vote of Security Holders

         None

Item 5. Other Information

On August 24, 1999, the Company and Nortel  Networks Corp.  ("Nortel  Networks")
entered into a definitive  merger  agreement,  pursuant to which Nortel Networks
would  acquire the common  stock of the Company and the Company  would  become a
wholly owned subsidiary of Nortel Networks.

The  consideration  will consist of newly issued Nortel  Networks  common stock,
having an aggregate market value of approximately $436 million.  Under the terms
of the agreement, each share of the Company will be converted into a fraction of
a share of Nortel Networks. The exchange ratio is equal to $29.23 divided by the
average price of a Nortel Networks share during a certain period before closing,
in a range of 0.62 to 0.76.  During this time,  if the average  Nortel  Networks
share price is above  $47.15,  the exchange  ratio will be 0.62.  If the average
share price is below $38.46, the exchange ratio will be 0.76.

The  Company's  Board of  Directors  has  approved  the  merger  and the  merger
agreement.  The  completion  of  the  merger  is  subject  to  approval  of  the
Periphonics'   shareholders,   and  the  receipt  of  all  necessary  regulatory
approvals.

Item 6.  Exhibits and Reports on Form 8-K

On August 27, 1999, the Company filed a Form 8-K disclosing that it had entered
into a definitive merger agreement with Nortel Networks whereby Nortel Networks,
subject to the approval of the Company's shareholders, would acquire the Company
in a stock for stock transaction as described in Item 5 of this Form 10-Q.




<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.

                                             PERIPHONICS CORPORATION
                                             Registrant

                                          By: /s/ Peter J. Cohen
                                             -------------------
                                             Peter J. Cohen
                                             Chairman of the Board, President
                                             And Chief Executive Officer
                                            (Principal Operating Officer)



                                         By: /s/ Kevin J. O'Brien
                                            ---------------------
                                            Kevin J. O'Brien
                                            Chief Financial Officer, Vice
                                            President-Finance and Administration
                                            (Principal Accounting Officer),
                                            Secretary and Director


Date: October 15, 1999