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

                                    FORM 10-Q


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

                For the quarterly period ended September 24, 1999

                                       OR

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

For the transition period from                        to

Commission file number        0-25684

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

                  Delaware                               94-3153847
         (State or other jurisdiction of    (I.R.S. Employer Identification No.)
          incorporation or organization)

                    48664 Milmont Drive, Fremont, California
                 94538 (Address of principal executive offices)
                                   (Zip Code)

                                 (510) 353-7600
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes [ X ]            No

The number of shares  outstanding of the issuer's common stock, par value $0.01,
as of October 22, 1999 was 24,231,564 shares.


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


<PAGE>




                          PREMISYS COMMUNICATIONS, INC.

                                      INDEX

 PART I.   Financial Information                                   Page No.

           Item 1. Financial Statements

                   Condensed Consolidated Balance Sheet - June
                   30, 1999 and September 30, 1999                     3

                   Condensed Consolidated Statement of Operations
                   - Three Month Periods ended September 30, 1998      4
                   and 1999

                   Condensed Consolidated Statement of Cash Flows
                   - Three Month Periods ended September 30, 1998
                   and 1999                                            5

                   Notes to Condensed Consolidated Financial
                   Statements                                          6

           Item 2. Management's Discussion and Analysis of
                   Financial Condition and Results of Operations       9

           Item 3. Quantitative and Qualitative Disclosures About
                   Market Risk                                        21

 PART II.  Other Information

           Item 2. Changes in Securities and Use of Proceeds          23

           Item 5. Other Information                                  24

           Item 6. Exhibits and Reports on Form 8-K                   25

           Signatures                                                 26








<PAGE>



I.    FINANCIAL  INFORMATION

ITEM 1.     Financial Statements


                          Premisys Communications, Inc.
                      Condensed Consolidated Balance Sheet
                      (in thousands except per share data)
<TABLE>
<S>                                                         <C>             <C>

                                                             June 30,       September 30,
                                                               1999           1999
                                                                           (unaudited)
                             ASSETS
 Current assets:
   Cash and cash equivalents                                   $ 3,982       $ 6,415
   Short-term investments                                       80,452        73,642
   Accounts receivable, net                                      8,459        12,151
   Inventories                                                  15,231        10,501
   Deferred tax assets                                           7,895         7,895
   Prepaid expenses and other assets                             1,552         1,498
                                                             ----------    ----------
     Total current assets                                      117,571       112,102

 Property and equipment, net                                     9,053         9,035
                                                             ==========    ==========
                                                              $126,624      $121,137
                                                             ==========    ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

  Current liabilities:
    Accounts payable                                            $ 5,759       $ 3,510
    Accrued liabilities                                          10,020         9,244
    Income taxes payable                                          1,015         1,249
                                                             -----------   -----------
      Total current liabilities                                  16,794        14,003
                                                             -----------   -----------

  Put warrants                                                   10,625           ---
                                                             -----------   -----------

  Stockholders' equity:
    Common Stock, $0.01 par value, 100,000 shares
      authorized;  26,478 and 26,560 shares issued and              265           266
      outstanding
    Additional paid-in capital                                   78,336        85,747
    Treasury stock, 2,360 shares                               (22,303)      (22,303)
    Retained earnings                                            42,907        43,424
                                                             -----------   -----------
      Total stockholders' equity                                 99,205       107,134
                                                             ===========   ===========
                                                               $126,624      $121,137
                                                             ===========   ===========
</TABLE>



See notes to condensed consolidated financial statements


<PAGE>




                          Premisys Communications, Inc.
          Condensed Consolidated Statement of Operations - (unaudited)
                      (in thousands, except per share data)


                                        Three Months Ended September 30,

                                              1998         1999
                                              ----         ----
Revenues                                       $25,011     $21,676
Cost of revenues                                 8,388       9,802
                                           ------------  ----------
        Gross profit                            16,623      11,874
                                           ------------  ----------

Operating expenses:
  Research and development                       4,748       5,911
  Selling, general and administrative            6,493       5,922
                                           ------------  ----------
    Total operating expenses                    11,241      11,833
                                           ------------  ----------

Income from operations                           5,382          41

Interest and other income, net                     988         719
                                           ------------  ----------
Income before income taxes                       6,370         760
Provision for income taxes                       2,357         243
                                           ------------  ----------
Net income                                     $ 4,013       $ 517
                                           ============  ==========
Net income per share:
   Basic                                        $ 0.15      $ 0.02
   Diluted                                      $ 0.15      $ 0.02
                                           ============  ==========
Shares used in computing net income per share:
   Basic                                        25,910      24,165
   Diluted                                      27,025      24,820
                                           ============  ==========


See notes to condensed consolidated financial statements


<PAGE>



                          Premisys Communications, Inc.
          Condensed Consolidated Statement Of Cash Flows - (unaudited)
                                 (in thousands)



                                             Three Months Ended September 30,
                                                   1998            1999

Cash flows from operating activities:
  Net  income                                     $4,013          $  517
  Adjustments to reconcile net income to
  net cash  provided by operating
  activities:
      Depreciation                                   678           1,083
      Changes in assets and liabilities:
       Accounts receivable                       (2,490)         (3,692)
       Inventories                               (2,719)           4,730
       Prepaid expenses and other assets             336              54
       Accounts payable                              276         (2,249)
       Accrued liabilities                         (873)           (776)
       Income taxes payable                        2,340             234
                                             ------------   -------------
Net cash provided by (used in) operating           1,561            (99)
  activities
                                             ------------   -------------

Cash flows from investing activities:
  Purchase of property and equipment               (750)         (1,065)
  Sale (purchase) of short-term investments     (10,173)           6,810
                                             ------------   -------------
Net cash provided by (used in) investing        (10,923)           5,745
  activities
                                             ------------   -------------

Cash flows from financing activities:
   Proceeds from issuance of Common Stock,         1,317             485
  net
   Dissolution of  put warrants                      ---         (3,698)
   Repurchase of Common Stock                    (8,941)             ---
                                             ------------   -------------

Net cash used in financing activities            (7,624)         (3,213)
                                             ------------   -------------

Net increase (decrease)  in cash                (16,986)           2,433
Cash and cash equivalents at beginning of         31,006           3,982
  period
                                             ------------   -------------

Cash and cash equivalents at end of period       $14,020         $ 6,415
                                             ============   =============

See notes to condensed consolidated financial statements


<PAGE>



                          Premisys Communications, Inc.
              Notes to Condensed Consolidated Financial Statements


NOTE 1 - Basis of Presentation
     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally  accepted  accounting  principles for
interim  financial  information and with the  instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not contain all of the information
and footnotes required by generally accepted accounting  principles for complete
financial statements.  In the opinion of management,  the accompanying unaudited
condensed consolidated financial statements have been prepared on the same basis
as the audited  consolidated  financial  statements and include all adjustments,
consisting  only  of  normal  recurring  adjustments,  necessary  for  the  fair
statement of the Company's financial condition as of September 30, 1999, and the
results of its  operations  and its cash flows for the three month periods ended
September  30,  1998 and  1999.  These  financial  statements  should be read in
conjunction with the Company's audited financial  statements as of June 30, 1998
and 1999 and for each of the three  years in the  period  ended  June 30,  1999,
including notes thereto,  included in the Company's  Annual Report on Form 10-K,
as amended, for the year ended June 30,  1999.  Operating  results for the three
month period ended  September  30, 1999 are not  necessarily  indicative  of the
results that may be expected for the year ending June 30, 2000.

     The Company has a 52/53 week fiscal accounting year that ends on the Friday
closest to June 30.  Accordingly,  fiscal periods shown herein as ending on June
30, 1999 and September 30, 1998 and 1999 for  financial  statement  presentation
purposes actually reflect amounts for the fiscal periods ended on June 25, 1999,
September 25, 1998 and September 24, 1999, respectively.


NOTE 2 - Inventories (in thousands)
                                                 June 30,       September
                                                   1999            30,
                                                                   1999
                                                               (unaudited)
Inventories
  Raw materials                                    $ 1,376         $ 1,071
  Work-in-process                                    1,476             617
  Finished goods                                    12,379           8,813
                                                 -----------   -------------
                                                 ===========   =============
                                                  $ 15,231        $ 10,501
                                                 ===========   =============




<PAGE>




NOTE 3 - Earnings Per Share



                                    Three Month Period Ended
                      September 30, 1998               September 30, 1999
                   ---------------------------   ---------------------------
                   Net      Shares   Per         Net      Shares   Per
                   Income            Share       Income            Share
                                     Amount                        Amount
                   ---------------------------   ---------------------------
                             (in thousands except per share data)
Basic EPS
Net income
available
to common
stockholders       $4,013   25,910   $ 0.15      $  517   24,165   $ 0.02

Effect of
Dilutive
Securities
Common stock
equivalents        ----      1,115                  ----     655
                   ---------------               ----------------

Diluted EPS
Net income (loss)
available to
common
stockholders and
assumed
conversions        $4,013   27,025   $ 0.15      $  517   24,820   $ 0.02
                   ===========================   ===========================

Options to purchase  2,284,309 and  3,810,242  shares of Common Stock which were
outstanding  during the three month periods  ended  September 30, 1998 and 1999,
respectively,  were not included in the  computation  of Diluted EPS because the
exercise prices of the options were greater than the average market price of the
shares of Common Stock in each period.

NOTE 4 - Changes in Stockholders' Equity

                                                     (in thousands)
     Stockholders' equity at June 30, 1999              $ 99,205
     Put warrants                                         10,625
     Cost to dissolve put warrants                       (3,698)
     Issuance of stock                                       485
     Net income                                              517
                                                   ================
     Stockholders' equity at September 30, 1999        $ 107,134
                                                   ================



      On August 31,  1998,  the  Company's  Board of  Directors  authorized  the
repurchase,  at  management's  discretion,  of up to 4.0  million  shares of its
Common Stock at market  prices not to exceed  $14.00 per share and as market and
business conditions warrant.  The primary purpose of this repurchase program was
to increase stockholder value.

      In connection  with this  program,  on September 17, 1998 the Company sold
2.0 million put  warrants  to, and  purchased  1.5 million  call options from an
independent  third party. The Company used the proceeds from the sale of the put
warrants to purchase call options in a transaction not requiring any cash outlay
at the time. The put warrants  entitled the independent  party to sell shares of
the  Company's  common  stock to the  Company  at  specified  strike  prices and
exercise dates.

      On January 26, 1999,  the Company paid $762,000 to dissolve the obligation
for 1.0 million put  warrants  and 0.75 million call options that were to expire
on January 29,  1999.  On September  10, 1999,  the Company paid $3.7 million to
dissolve  the  remaining  1.0 million put warrants and 0.75 million call options
which  were to expire on  September  15,  1999.  The costs  associated  with the
dissolution of these put warrants are reflected as a component of  stockholders'
equity for the quarter ended March 31, 1999 and the quarter ended  September 30,
1999.

NOTE 5 - Comprehensive Income

      Statement  of  Financial   Accounting   Standards   No.  130,   "Reporting
Comprehensive   Income,"  requires   companies  to  report  in  their  financial
statements  comprehensive income which, in addition to net income,  includes all
changes in equity  during a period  from  non-owner  sources  including  foreign
currency  translation  adjustments  and  unrealized  gains and losses on certain
investments  in debt  and  equity  securities.  For the  periods  presented  the
Company's net income was the only material component of comprehensive income.

NOTE 6 - Subsequent Events

      On October 20, 1999,  Zhone  Technologies,  Inc.,  a Delaware  corporation
("Zhone"),  Zhone  Acquisition  Corp.,  a Texas  corporation  and a wholly owned
subsidiary of Zhone ("Merger  Sub"),  and the Company  entered into an Agreement
and Plan of Merger (the "Merger Agreement"). The Merger Agreement provides for a
cash tender offer  ("Offer") by Merger Sub for all of the issued and outstanding
shares of the  Company's  Common Stock  together with the  associated  rights to
purchase shares of Series A Junior Participating  Preferred Stock, at a price of
$10.00  per  share,  net to the seller in cash  without  interest.  The Offer is
conditioned  upon,  among other  things,  there being  validly  tendered and not
withdrawn, that number of shares which would constitute not less than 75% of the
outstanding shares of the Company's Common Stock,  calculated on a fully diluted
basis.  The Merger  Agreement also provides that the Offer will be followed by a
merger  ("Merger")  of the  Company  with and into the Merger  Sub, in which all
remaining  outstanding  shares of the Company's  Common Stock would be converted
into the right to receive  $10.00 per share,  net to the seller in cash  without
interest.

      The Merger and the Offer also are  conditioned  on the  expiration  of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
and other customary closing conditions.

      In connection  with the execution of the Merger  Agreement,  Zhone entered
into a  stockholders  agreement  ("Stockholders  Agreement")  pursuant  to which
Raymond Lin,  Nicholas  Williams and Boris  Auerbuch have agreed to tender their
shares in the Offer.  In  addition,  pursuant to an option  agreement  ("Company
Option  Agreement"),  the Company has granted Zhone an option to purchase  newly
issued shares of the Company's Common Stock under certain  circumstances if more
than 85  percent  but less  than 90  percent  of the  outstanding  shares of the
Company's Common Stock are tendered in the Offer.

      In connection  with the execution of the Merger  Agreement,  the Company's
Board of Directors  also  approved an amendment  to its Rights  Agreement  dated
September 18, 1998 with  ChaseMellon  Shareholder  Services,  L.L.C.  making the
Rights Agreement  inapplicable to the Offer, the Merger,  the Merger  Agreement,
the Stockholders Agreement and the Company Option Agreement.

      For further  information,  refer to the Company's report on Form 8-K filed
on October 26, 1999 as well as the Schedule  14D-1 filed with the Securities and
Exchange Commission by Zhone and the Schedule 14D-9 filed by the Company.


<PAGE>


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

      Results of Operations

     This Form 10-Q contains  forward-looking  statements  within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended,  and Section 27A
of the  Securities  Act of 1933, as amended.  These  forward-looking  statements
involve a number of risks and uncertainties which are described  throughout this
Form 10-Q,  including:  demand  from and its  relationships  with its  strategic
partners and major customers,  including ADC  Telecommunications  ("ADC"),  AT&T
Local Services  ("ALS") formerly  Teleport  Communications  Group  ("Teleport"),
Motorola,   Inc.  ("Motorola"),   Paradyne  Corporation   ("Paradyne")  and  XEL
Communications,  Inc. ("XEL"); competition;  limited order backlog and quarterly
fluctuations;  delays and cancellations of actual and projected customer orders;
new product  development  and  introductions  by the Company and its competitors
including products based on the technology licensed by the Company from Positron
Fiber  Systems  Corporation   ("Positron")  and  Switched  Network  Technologies
("SNT");  market  acceptance of the  SlimLine,  StreamLine  and Q-155  products;
rapidly  changing  technologies  and the  Company's  ability to respond to them;
deregulation  of, and  legislation  regarding  the  domestic  and  international
telecommunications  industry;  continued  success of competitive  local exchange
carriers  ("CLECs") in taking market share from  incumbent  carriers in the U.S.
business   communications   services   market;   the   growth  of   demand   for
telecommunications services such as wireless, cellular and the Internet; changes
in the mix of products or customers or in the level of operating  expenses;  and
other factors  described  throughout this Form 10-Q,  including under "Revenues"
and  "Other  Factors  That May  Affect  Future  Operating  Results,"  and in the
Company's  Annual  Report on Form 10-K,  as amended  for the year ended June 30,
1999. The actual results that the Company  achieves may differ  materially  from
any forward-looking statements due to such risks and uncertainties.  The Company
has  identified by asterisks  (*) (or italics in the  non-EDGAR  version of this
Form  10-Q)  various   sentences  within  this  Form  10-Q  which  contain  such
forward-looking   statements,  and  words  such  as  "believes,"  "anticipates,"
"expects,"  "intends,"  "will" and  similar  expressions  are also  intended  to
identify  forward looking  statements,  but these are not the exclusive means of
identifying  such  statements.  In addition,  the section labeled "Other Factors
That May Affect Future Operating  Results," which does not include asterisks for
improved  readability,  consists  primarily of  forward-looking  statements  and
associated   risks.   The  Company   undertakes  no  obligation  to  revise  any
forward-looking  statements in order to reflect events or circumstances that may
arise after the date of this report.  Readers are urged to carefully  review and
consider the various  disclosures  made by the Company in this report and in the
Company's  other  reports  filed with the  Securities  and Exchange  Commission,
including  its Form 10-K,  as amended,  for the year ended June 30,  1999,  that
attempt to advise  interested  parties of the risks and factors  that may affect
the Company's business.


Revenues
                                        Three Months Ended September 30,
                                      --------------------------------------
                                           1998       % Change     1999
Revenues                               $25,011,000     (13%)    $21,676,000

     Revenues consist  primarily of gross sales of products,  less discounts and
sales  returns and  allowances.  The decrease in revenues from the quarter ended
September  30, 1998 to the quarter  ended  September  30, 1999 is primarily  the
result of lower unit volumes for both IMACS  platforms  and  modules.  The lower
unit volumes were  partially  offset by an increase in average  sales prices for
both  platforms  and modules in the quarter ended  September 30, 1999,  compared
with the quarter ended  September 30, 1998. The increase in average sales prices
was  primarily  due to a more  favorable  mix of  customers  and products in the
quarter ended  September  30, 1999 versus the quarter ended  September 30, 1998.
*The Company  expects that  revenues in the December  1999 quarter will increase
somewhat  compared with those reported for the quarter ended September 30, 1999.
*However, the Company's expectations regarding future revenue levels are subject
to  numerous  risks and  uncertainties,  including  competition,  limited  order
backlog,  its relationships  with its strategic  partners,  the introduction and
acceptance  of new products and the level of capital  expenditures  by CLECs and
other  carriers.  See "Other  Factors That May Affect Future  Operating  Results
-Competition,"  "-Limited Order Backlog,"  "-Indirect Channels of Distribution,"
"-Rapidly  Evolving  Technology,"  "-Mergers  of the  Company's  Customers"  and
"-Risks Associated with Announcement of Acquisition by Zhone."

      The following table sets forth,  for the periods  indicated,  the revenues
generated by customers which accounted for 10% or more of the Company's revenues
in the quarters ended September 30, 1998 and 1999, other domestic customers as a
group and  international  customers  as a group,  in  absolute  dollars and as a
percentage of total revenues.  The category  "Other  Domestic  Customers" is the
aggregate of all domestic customers  individually  representing less than 10% of
the Company's revenues for the reported period.



                            Source of Revenues

                                   Three Months Ended September 30,
                            -----------------------------------------------


                                 1998          %          1999          %
                                 ----         --          ----         --
Motorola                      $3,157,000      13%      $4,978,000      23%
Paradyne                       9,037,000      36%       4,293,000      20%
ALS                             (a)           ---       4,058,000      19%
Other Domestic Customers      11,856,000      47%       7,408,000      34%
Direct International
Customers                        961,000       4%         939,000       4%
                            ======================   ======================
Total Revenues               $25,011,000     100%     $21,676,000     100%
                            ======================   ======================
(a) - Amounts  not  separately  provided  (but are  instead  included  in "Other
Domestic Customers") as revenues for the period were less than 10% of the total.

      The Company  sells a  substantial  majority  of its  products to a limited
number of customers  which  generally  resell the  Company's  products to public
carriers and end users.  For the  quarters  ended  September  30, 1998 and 1999,
customers  individually  representing  10%  or  more  of the  Company's  revenue
generated  49%  and  62% of the  Company's  total  revenues,  respectively.  The
increase in the  percentages  is primarily  the result of growth in sales to ALS
from the September,  1998 quarter to the September,  1999 quarter.  *The loss of
any one or more of the Company's major  customers would have a material  adverse
effect  on  the  Company's   business  and  operating   results.   *Any  of  the
telecommunications  equipment  suppliers  that  market  and sell  the  Company's
products could elect to cease marketing and selling the Company's products,  and
there can be no assurance that these telecommunications equipment suppliers will
continue to place  orders  with the Company or that the Company  will be able to
obtain orders from new telecommunications  equipment suppliers or end users. See
"Other  Factors  That May  Affect  Future  Operating  Results"  "-Limited  Order
Backlog," "-Quarterly  Fluctuations," "- Indirect Channels of Distribution," and
"-Relationship with Paradyne."

     In the quarter ended September 30, 1998 and the quarter ended September 30,
1999, direct international  revenues accounted for 4% of the Company's revenues.
Certain of the Company's  domestic  customers  also sell Premisys  products into
international markets. *The Company intends to expand its operations outside the
United  States and  anticipates  that  international  sales will increase in the
future both in absolute  dollars and as a percentage  of revenues.  However,  in
order to sell its  products  internationally,  the Company  must meet  standards
established by  international  telecommunications  committees and authorities in
various countries.  *Conducting business outside of the United States is subject
to  certain  risks,  including  longer  payment  cycles,  unexpected  changes in
regulatory  requirements and tariffs,  more volatile economic conditions,  risks
associated with foreign  currency  exchange rates,  difficulties in staffing and
managing  foreign   operations,   greater  difficulty  in  accounts   receivable
collection and potentially adverse tax consequences. See "Other Factors That May
Affect Future Operating Results - Industry Standards and Regulatory Matters."

Gross Profit
                                        Three Months Ended September 30,
                                      --------------------------------------
                                           1998       % Change     1999
Gross Profit                           $16,623,000     (29%)    $11,874,000
As a percentage of revenues                66%                      55%

     Cost of  revenues  consists  of  component  costs,  compensation  costs and
overhead  related  to  the  Company's  manufacturing   operations  and  warranty
expenses.  Gross profit decreased from the three months ended September 30, 1998
to the quarter ended  September 30, 1999  primarily  due to the  combination  of
lower unit shipment  volumes and higher  manufacturing  expenses  which resulted
primarily  from  a $2  million  inventory  reserve  taken  to  reflect  concerns
regarding market  willingness to purchase the Company's present SlimLine product
currently held in inventory.  The gross margin  decreased from the quarter ended
September  30, 1998 to the quarter ended  September  30, 1999,  due primarily to
higher manufacturing  expenses.  Product margins were unchanged from the quarter
ended  September 30, 1998 to the quarter ended  September 30, 1999. *The Company
expects its gross  margins for the  remainder of fiscal 2000 to decline from the
55%  reported  in the  quarter  ended  September  30,  1999,  due  primarily  to
anticipated changes in the mix of IMACS, StreamLine, SlimLine and Q-155 products
sold. *However, achievement of the Company's expectations is subject to a number
of  uncertainties,  including  customer  mix,  the mix of products  sold and the
Company's ability to realize expected revenue levels.

Research and Development Expenses
                                        Three Months Ended September 30,
                                      -------------------------------------
                                           1998       % Change     1999
Research and development expenses       $4,748,000      25%     $5,911,000
As a percentage of revenues                19%                     27%

      Research and development expenses consist of personnel costs,  consulting,
testing, supplies and depreciation expenses. All software development costs have
been  expensed  in  the  period  in  which  they  were  incurred.  Research  and
development  expenses  increased  $1,163,000,  or 25%,  from the  quarter  ended
September  30, 1998 to the quarter ended  September 30, 1999.  This increase was
primarily due to increased  personnel  expenses,  increased expenses for outside
services and materials  and increased  equipment  expenses  associated  with the
development  of the  Company's  Q-155  product.  The  increase in  research  and
development  expenses as a percentage of the Company's revenues from the quarter
ended  September 30, 1998 to the quarter ended  September 30, 1999 was primarily
the result of lower  revenues in the quarter  ended  September  30,  1999.  *The
Company expects that during the remaining quarters of fiscal 2000 these expenses
will  increase in absolute  dollars but decrease as a percentage  of revenues as
compared to the quarter  ended  September  30,  1999.  *These  expectations  are
subject  to a number  of risks,  including  the  Company's  ability  to  realize
expected revenue levels and meet spending expectations.

Selling, General and Administrative Expenses
                                        Three Months Ended September 30,
                                      -------------------------------------
                                           1998       % Change     1999
Selling, general and administrative     $6,493,000      (9%)    $5,922,000
expenses
As a percentage of revenues                26%                     27%

      Selling expenses consist  principally of compensation  costs for sales and
marketing personnel (including sales commissions and bonuses),  travel expenses,
customer support expenses, trade show expenses and advertising expenses. General
and  administrative  expenses  consist  primarily of  compensation  expenses for
administration,  finance, and general management personnel, as well as legal and
audit fees. Selling,  general and administrative expenses decreased $571,000, or
9%, from the quarter ended September 30, 1998 to the quarter ended September 30,
1999. This decrease was primarily a result of decreased legal, staffing,  travel
and advertising  expenses.  The increase in selling,  general and administrative
expenses  as a  percentage  of  the  Company's  revenues  in the  quarter  ended
September 30, 1999 versus the quarter ended September 30, 1998 was primarily the
result of lower revenues in the quarter ended  September 30, 1999.  *The Company
expects that during the  remaining  quarters of fiscal 2000 these  expenses will
increase  in  absolute  dollars  but  decrease  as a  percentage  of revenues as
compared to the quarter  ended  September  30,  1999.  *These  expectations  are
subject  to a number  of risks,  including  the  Company's  ability  to  realize
expected revenue levels and meet spending expectations.

Interest and Other Income, Net
                                        Three Months Ended September 30,
                                      -------------------------------------
                                          1998       % Change      1999
Interest and other income, net          $988,000       (27%)     $719,000
As a percentage of revenues                4%                       3%

      Interest and other income,  net consists of interest  income less interest
expense,  and, to a much lesser extent,  foreign currency gains and losses.  The
decrease in interest and other income,  net, for the quarter ended September 30,
1999 as  compared  to the  quarter  ended  September  30,  1998 was due to lower
average  cash  balances  for the  quarter  ended  September  30, 1999 versus the
quarter ended September 30, 1998. The lower average cash balance for the quarter
ended  September 30, 1999 was the direct  consequence  of the use of cash during
fiscal 1999 for the repurchase of Common Stock.

Provision for Income Taxes
                                        Three Months Ended September 30,
                                      -------------------------------------
                                           1998       % Change     1999
Provision for income taxes              $2,357,000     (90%)     $243,000
As a percentage of income before           37%                     32%
  income taxes

      The Company's provision for income taxes represents  estimated federal and
state income  taxes.  The  Company's  effective  tax rate for the quarter  ended
September  30, 1998 was 37%.  The  Company's  effective  income tax rate for the
quarter ended  September 30, 1999 was reduced to 32% as a larger  portion of the
Company's  pre-tax  income  came  from tax  exempt  income  from  the  Company's
municipal securities portfolio.


Net Income per Share
                                        Three Months Ended September 30,
                                      -------------------------------------
                                           1998       % Change     1999
Net income                              $4,013,000      (87%)    $517,000
Net income per share (diluted)             $.15         (87%)      $.02
Shares used in calculating diluted
  net income         per share          27,025,000      (8%)    24,820,000

      Net income  decreased  from the quarter  ended  September  30, 1998 to the
quarter ended September 30, 1999 primarily due to the reduction in revenues,  as
discussed  under  "Revenues,"  and the increase in  manufacturing  expenses,  as
discussed  under  "Gross  Profit," in the quarter  ended  September  30, 1999 as
compared to the quarter ended September 30, 1998.

Liquidity and Capital Resources
                                         Three Months Ended September 30,
                                           1998       % Change     1999

Net cash provided by (used in)
  operating activitie      s           $ 1,561,000     (106%)   $  (99,000)

Period-end cash, cash equivalents
  and short-term investments           $ 99,168,000     (19%)   $80,057,000

Period-end working capital             $108,421,000     (10%)   $98,099,000

      At September  30, 1999,  the Company had  approximately  $80.1  million of
cash,  cash  equivalents  and  short-term  investments.  Net cash  totaling $0.1
million was used in operating activities during the three months ended September
30, 1999,  most  significantly  due to decreases  in accounts  receivable  ($3.7
million),   accounts  payable  ($2.2  million)  and  accrued  liabilities  ($0.8
million),  offset  partially  by a decrease  in  inventory  ($4.7  million)  and
depreciation plus net income ($1.6 million).

      Cash  provided  by  investing  activities  during the three  months  ended
September  30, 1999  consisted  principally  of sales of  short-term  securities
totaling  $6.8  million.  Financing  activities  during the three  months  ended
September 30, 1999 resulted in a net use of cash of $3.2 million. The net use of
cash is the result of $3.7  million of cash used to dissolve the  Company's  put
warrant  obligations,  offset in part by  proceeds  from the  issuance of Common
Stock. See Note 4 - Changes in Stockholders' Equity.

      As of September 30, 1999, the Company's  working capital was approximately
$98.1  million.  The Company  has no  significant  capital  spending or purchase
commitments  other  than  normal  purchase  commitments  and  commitments  under
facilities and capital  leases.  *The Company  believes that its available funds
and anticipated cash flows from operations will satisfy the Company's  projected
working  capital  and  capital  expenditure  requirements  for at least the next
twelve months.



<PAGE>



Other Factors That May Affect Future Operating Results

      As referenced in the first paragraph of this Item 2, this section consists
primarily of forward looking  statements and associated  risks but, for improved
readability,  does not include asterisks (or italics in the non-EDGAR version of
this Form 10-Q).

      COMPETITION.   The  market  for  telecommunications   products  is  highly
competitive and subject to rapid  technological  change. The Company's principal
competition  for the market segment served by the Company's IMACS products comes
from major  telecommunications  equipment suppliers,  such as Newbridge Networks
Corporation  ("Newbridge"),  Tellabs,  Inc.  ("Tellabs") and World Access,  Inc.
("World Access"),  which offer a broad line of products including access devices
for business  applications.  The Company's principal  competition for the market
segment  served by the  Company's  SlimLine  and  StreamLine  products  includes
Carrier Access Corporation ("CAC"),  Adtran, Inc. ("Adtran"),  Vina Technologies
("Vina") and telecommunications equipment manufacturers selling channel bank and
CSU/DSU products. In addition,  the Company faces competition from companies who
provide  substitute,  as  opposed  to  direct  replacement,  solutions  for  the
Company's IMACS,  SlimLine and StreamLine products.  The primary competitors for
such substitute products include Advanced Fibre Communications ("AFC"),  Alcatel
U.S.A.,  Inc.  ("Alcatel"),  Lucent  Technologies  ("Lucent"),  Nortel  Networks
Corporation  ("Nortel")  and Reltec  Corporation  ("Reltec").  The  Company  has
experienced  and  expects  substantial   additional  competition  from  existing
competitors   as  they  continue  to  develop   products  to  compete  with  the
functionality  and  flexibility of the Company's  products.  As shipments of the
Company's  SlimLine  and  StreamLine  products  increase,  it  expects  to  face
additional competition from channel bank and CSU/DSU vendors as well as from new
startups  focusing on the access  equipment  market.  The Q-155 product competes
with  broadband  access  products  offered or  announced  by a number of vendors
including Fibex Systems ("Fibex"),  which was recently acquired by Cisco Systems
("Cisco"),   Accelerated  Networks,   Inc.,  Atmosphere  Networks,  Inc.,  other
telecommunications  equipment  manufacturers  selling  multiplexer  products and
digital loop  carriers  with the  Bellcore  Standard  GR-303  protocol and other
competitors, such as Pairgain Technologies, Inc. ("Pairgain") and Paradyne, that
provide bundled voice and data services and solutions for better  utilization of
bandwidth.  Certain of the  telecommunications  equipment suppliers which market
the Company's products have recently either acquired or expressed an interest in
acquiring  companies which have products or  technologies  that either do or may
compete  with  the  Company's  products.  Other   telecommunications   equipment
suppliers that market and  distribute  the Company's  products may in the future
develop or acquire  products  that could be sold for selected  applications  for
which the Company's products are currently provided.  Successful  development or
acquisition  of such  products  could  reduce  the  level of demand  from  these
telecommunications  equipment suppliers for the Company's products. In addition,
the Company  believes  that there will be an increase in the  intensity of price
competition in the markets served by the Company's  products.  Thus,  while unit
volumes are expected to increase, the Company believes that the rate of increase
of revenues will be lower than the rate of increase in units.  While the Company
has recently begun selling is StreamLine and SlimLine  products,  which are more
price competitive than its IMACS platform,  these new products must compete with
an increasing number of low priced integrated access devices.  As a result,  the
Company may find it more  difficult to achieve  expected  levels of revenues and
profitability.

      LIMITED ORDER BACKLOG.  The Company typically  operates with limited order
backlog,  and a majority  of its  revenues  in each  quarter  result from orders
booked in that quarter.  Also,  the Company has from  time-to-time  recognized a
majority of its  revenues  from sales  booked and shipped in the last month of a
quarter,  including in four out of the last five  quarters.  Due to the delivery
requirements  of its  customers,  the Company  expects to continue to experience
limited order backlog.  The Company's  manufacturing  procedures are designed to
assure rapid response to customer demand, but may, in some circumstances, create
risk of excess or inadequate inventory,  which may have an adverse effect on the
Company's  business and operating  results.  The Company's  agreements  with its
customers  typically  allow  customers  to  cancel  orders  or  delay  scheduled
shipments without penalty until a relatively short period of time before planned
shipment. The Company has experienced  cancellation of orders from time to time,
and  expects to receive  order  cancellations  from time to time in the  future,
which could adversely  affect the Company's  revenues for a quarter or series of
quarters. Because a substantial portion of customer orders are filled within the
fiscal quarter of receipt,  and because of the ability of customers to revise or
cancel orders and change delivery  schedules without  significant  penalty,  the
Company  believes  that its  backlog  as of any  given  date is not  necessarily
indicative of actual revenues for any succeeding period.

      INDIRECT  CHANNELS OF DISTRIBUTION.  Substantial  portions of the sales of
the Company's products are through indirect channels of distribution.  Thus, the
Company's  ability to affect and judge the  timing and size of  individual  user
orders is more limited than for manufacturers  selling directly to the end users
of their  products.  Any of thc  strategic  partners  that  market  and sell the
Company's  products  could elect to cease  marketing  and selling the  Company's
products,  and there can be no  assurance  that these  strategic  partners  will
continue to place  orders  with the Company or that the Company  will be able to
obtain orders from new strategic partners or end users. See "-Relationship  with
Paradyne."  Strategic  partners  could  develop  products that could be sold for
selected  applications for which the Company's products are currently  provided,
which could reduce the level of demand from these  telecommunications  equipment
suppliers for the Company's  products.  See "-  Competition."  In addition,  the
Company's  revenues for a given quarter may depend to a significant  degree upon
planned product shipments for a single carrier's  equipment  deployment project.
For example, in the quarters ended September 30 and December 31, 1997, March 31,
1998  and  June  30,  1998,   shipments  of  the   Company's   products  to  MCI
Communications  Corporation ("MCI"), through ADC, one of the Company's strategic
distribution partners, represented more than 15% of the Company's total revenues
for such quarters.  Revenues derived from particular  carrier projects have been
and continue to be  difficult  to forecast due to a relatively  long sales cycle
and delays in the timing of such projects.  For example, the Company's financial
results  for the first  quarter  of fiscal  1999 were  adversely  affected  when
product shipments for MCI were lower than expected.  In addition,  the Company's
financial  results  for the  quarter  ended  June 30,  1999 were also  adversely
affected  primarily as a result of the Company's  failure to obtain large orders
it had  expected  during  the  quarter  from  three of its major OEM  partners -
Paradyne,  Nortel and XEL. Similar delays may occur in the future and would have
a significant impact if they did occur.  Delays can be caused by late deliveries
by other vendors, changes in implementation priorities,  slower than anticipated
growth in demand for the services that the equipment  supports or in the capital
expenditures of the end user customer,  consolidation  among carriers and delays
in  obtaining  regulatory  approvals  for  new  tariffs.  See  "-Mergers  of the
Company's  Customers."  Revenues  can also be  affected  by  delays  in  initial
shipments of new products  and new software  releases  developed by the Company.
See  "-Rapidly  Evolving  Technology."  In  developing  countries,   delays  and
reductions  in the planned  deployment  of the  Company's  products  can also be
caused by sudden  declines in the local economy or capital  availability  and by
new import  controls.  Suppliers of the Company's  products have in the past and
may in the future build significant  inventory in order to facilitate more rapid
deployment of anticipated major projects or for other reasons. Decisions by such
suppliers to sell from their  inventory  could lead to  reductions  in purchases
from the Company.  These  reductions,  in turn, could cause  fluctuations in the
Company's operating results and have an adverse effect on the Company's business
and  operating  results in the periods in which the  inventory is  utilized.  In
addition, the Company has in the past experienced delays as a result of the need
to modify its products to comply with unique customer specifications.  There can
be no assurance that any future delays would not have an adverse effect.

      QUARTERLY FLUCTUATIONS. The Company's operating results may fluctuate on a
quarterly  and  annual  basis due to factors  such as the timing of new  product
announcements  and  introductions  by the Company,  its major  customers and its
competitors, delays in equipment deployment,  availability and market acceptance
of new or enhanced versions of the Company's products, changes in the product or
customer  mix  of  revenues,   changes  in  the  level  of  operating  expenses,
competitive  product  and  pricing  pressures,  the gain or loss of  significant
customers,  increased  research  and  development  expense  associated  with new
product   introductions,   component  shortages  (see  "-Dependence  on  Certain
Suppliers"),  and general  economic  conditions.  The Company's  planned product
shipments  for  a  single  carrier's  equipment  deployment  project  can  be  a
significant portion of a quarter's revenues,  and delays in the timing of such a
project (which have occurred in the past, including the quarters ended March 31,
1997 and June 30, 1999) or reductions in expected  shipments to a single carrier
(which  occurred in the quarter  ended  September 30, 1998) could and have had a
material adverse effect on the Company's business and operating results.  All of
the above factors are difficult for the Company to forecast,  and these or other
factors can  materially  adversely  affect the Company's  business and operating
results for one quarter or a series of quarters.  The Company's  expense  levels
are based in part on its expectations regarding future revenues and in the short
term are fixed to a large extent. Therefore, the Company may be unable to adjust
spending in a timely  manner to compensate  for any  unexpected  future  revenue
shortfall.  The Company has on several  occasions,  including the quarters ended
September  30, 1998,  December 31, 1998 and June 30, 1999,  experienced  such an
unforecasted  revenue  shortfall and was not able to  compensate  for it through
expense reductions.  Any significant decline in demand relative to the Company's
expectations  or any  material  delay of customer  orders  would have a material
adverse effect on the Company's  business and operating  results.  The Company's
operating  results  may also be affected  by  seasonal  trends.  Such trends may
include lower  revenues in the summer  months during the Company's  first fiscal
quarter when many businesses  experience lower sales, and in the Company's third
fiscal quarter,  as compared to its second fiscal quarter, as a result of strong
calendar year end  purchasing  patterns from certain of the Company's  strategic
customers.

      RAPIDLY EVOLVING TECHNOLOGY.  The  telecommunications  equipment market is
characterized  by  rapidly  changing   technologies  and  frequent  new  product
introductions,  which  include  cell and  packet  technologies  and new  digital
subscriber line  technologies  ("xDSL").  The Company's success will depend to a
substantial  degree  upon its  ability to respond to changes in  technology  and
customer requirements.  This will require the timely selection,  development and
marketing of new and cost effective  products and enhancements.  The Company has
licensed  certain  technology from Positron for inclusion in the Company's Q-155
products,  which was announced in June 1997.  The Company began field trials for
this product in the quarter ending December 31, 1998 and shipped its first Q-155
product in the quarter ended March 31, 1999.  However,  volume shipments of this
product have not yet  commenced.  As a result,  there is no  assurance  that the
market will accept this product.  Also, in the quarter ended March 31, 1998, the
Company licensed cell and packet  technologies  from SNT. The Company intends to
ship  products  based upon the SNT  technology  in the first quarter of calendar
2000.  However,  there  can be no  assurance  that the  Company  will be able to
successfully  develop this product,  other new products or  enhancements  to its
existing  products on a timely and  cost-effective  basis.  The Company may also
experience delays in connection with its product development efforts,  which can
impact expected  operating results.  For example,  the Company's shipment of its
new SlimLine  product had been delayed for several  quarters due to hardware and
software  revisions  necessary  to  make  the  product  more  acceptable  in the
marketplace.  In addition,  failure to achieve market acceptance of new products
could have a material  adverse effect on the Company's  operating  results.  For
example,  in addition to the delays in getting SlimLine  product to market,  the
lack of a remote management feature in the present SlimLine product has deterred
market willingness to purchase the product. The introduction of new and enhanced
products also requires that the Company manage  transitions  from older products
in order to minimize  disruptions in customer orders,  avoid excess inventory of
old products and ensure that adequate  supplies of new products can be delivered
to meet customer orders. In the past,  certain of the Company's newly introduced
products have contained undetected errors and  incompatibilities  with installed
products,  which has resulted in losses and delays in market  acceptance of such
products. As the functionality and complexity of the Company's products continue
to grow,  the  Company  has  experienced  and may in the  future  experience  an
increased  incidence of such errors or failures as well as delays in introducing
its products.

      DEPENDENCE  ON KEY  PERSONNEL.  The  Company's  success  to date  has been
significantly  dependent on the  contributions  of its senior officers and other
key  employees.  The loss of the  services  of any one of the  Company's  senior
officers or key employees could have a material  adverse effect on the Company's
business and operating  results.  The Company  recently lost the services of its
Senior Vice President of Operations,  Antonio Flores,  and Senior Vice President
of Sales,  Robert A. Fyffe, both of whom had been with the Company for more than
seven years.  Both positions have been filled and the Company expects little, if
any,  disruption in its  manufacturing  or sales operations as a result of these
departures.  The Company's  success also depends to a significant  extent on its
ability to attract and retain additional  highly-skilled  technical,  managerial
and sales and marketing personnel, the competition for whom is intense.

      MERGERS OF THE  COMPANY'S  CUSTOMERS.  A number of the largest CLECs which
use the Company's  products have either merged or announced  plans to merge with
larger  carriers over the next several  quarters.  MCI has merged with WorldCom,
Inc.  ("WorldCom"),  Teleport has merged with AT&T Corporation ("AT&T"), and GTE
Network  Services ("GTE") has announced an intention to merge with Bell Atlantic
Corporation ("Bell Atlantic"). The Company believes that part of the impetus for
each of these mergers is to increase the combined  carrier's  ability to compete
for local  access  markets.  In the long term,  the Company  believes  that this
should cause  capital  spending on local  access,  in which the type of products
provided by the  Company  serve a vital  function,  to grow.  However,  as these
mergers  are  implemented,  it is  likely  that  capital  expenditures  will  be
temporarily  deferred as the newly combined  companies  evaluate  inventories of
undeployed equipment, potential overlaps in network deployment plans, strategies
for  future  product   deployments,   and  assignment  of  responsibilities  for
deployments in targeted local markets.  This risk of a deferral in  expenditures
on local access,  including expenditures for the Company's products, has already
materialized in the case of MCI. The Company  anticipates that it also may see a
deferral  of  expenditures  for  its  products  by GTE in  connection  with  its
anticipated  merger. In addition,  the Company  anticipates that the slowdown in
expenditures  may persist for  multiple  quarters  following  the  mergers.  The
increased  buying power wielded by these merged carriers and by merged equipment
suppliers,  such as Alcatel and DSC Communications Corp. ("DSC"), is also likely
to place added  competitive  price pressure on equipment  manufacturers  such as
Premisys.

      RELATIONSHIP WITH PARADYNE.  The Company has a strategic relationship with
Paradyne,  formerly a wholly-owned  subsidiary of AT&T,  that involves the joint
development,  marketing and sale of the Company's IMACS product by Paradyne. The
Company's  agreement  with Paradyne  provides  Paradyne  exclusive  distribution
rights with respect to the products  covered by the agreement to AT&T  entities,
as defined under the  agreement.  At the time that the Company  entered into its
OEM agreement  with Paradyne,  Paradyne was a 100%-owned  subsidiary of AT&T. In
1996, AT&T separated into three  publicly-held  stand-alone  businesses,  one of
which - Lucent - would focus on the  communications  equipment  market.  In June
1996,  Lucent  concluded a stock purchase  agreement for the sale of Paradyne to
the Texas Pacific Group. In the quarter ended March 31, 1997, Paradyne announced
new products  which are  extensions  of its existing  line of CSU/DSU  products.
Premisys  believes that the higher  capacity  models of  Paradyne's  916x series
offer  features that are similar to those of the Company's  IMACS and StreamLine
products.  See "-Competition" and "-Rapidly Evolving Technology." In the quarter
ended December 31, 1997,  the Company  entered into an OEM agreement with Lucent
for the purchase of the SlimLine and StreamLine products directly from Premisys.
Shipments to Paradyne have  represented  a significant  portion of the Company's
revenues,  including  in fiscal 1999,  and  continue to represent a  significant
portion of the Company's revenues in fiscal 2000. Neither Paradyne nor Lucent is
subject to any minimum purchase requirements, and there can be no assurance that
they will continue to place orders with the Company.  Significant  reductions in
shipments  to Paradyne  could have a material  adverse  effect on the  Company's
business and operating results.

      LIMITED  PROTECTION OF  INTELLECTUAL  PROPERTY.  The Company relies upon a
combination  of  patent,   trade  secret,   copyright  and  trademark  laws  and
contractual  restrictions  to establish  and protect  proprietary  rights in its
products.  There  can be no  assurance  that  these  statutory  and  contractual
arrangements  will prove sufficient to deter  misappropriation  of the Company's
technologies or independent third-party development of similar technologies. The
telecommunications  industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent  infringement.
In the event of litigation to determine the validity of any  third-party  claims
asserting that the Company's  products  infringe or may infringe the proprietary
rights of such third  parties,  such  litigation,  whether or not  determined in
favor of the  Company,  could result in  significant  expense to the Company and
divert the efforts of the Company's  technical  and  management  personnel  from
productive  tasks.  In the event of an adverse  ruling in such  litigation,  the
Company  might  be  required  to  discontinue  the  use and  sale of  infringing
products,  expend significant resources to develop non-infringing  technology or
obtain licenses from third parties.

      INDUSTRY  STANDARDS AND REGULATORY  MATTERS.  The market for the Company's
products is also characterized by the need to meet a significant number of voice
and data  communications  regulations and standards,  including those defined by
the  Federal  Communications   Commission,   Underwriters   Laboratories,   Bell
Communications Research ("Bellcore") and, internationally, various countries and
international   standards   committees.   Regulations  can  be  changed  by  new
legislation, as occurred with the enactment of the Telecommunications Reform Act
of 1996; these changes can impact service offerings and  competitiveness  in the
communications marketplace, and thus could have an effect on the timing and size
of the industry's investment in access equipment.  New standards are evolving as
new  technologies,  such as ATM and xDSL,  are  deployed.  As  existing  and new
standards evolve, the Company will be required to modify its products or develop
and  support  new  versions  of its  products.  It is also  important  that  the
Company's  products  be easily  integrated  with  carriers'  network  management
systems.  The  failure  of the  Company's  products  to  comply,  or  delays  in
compliance,  with the various  existing and evolving  industry  standards  could
delay  introduction  of the  Company's  products,  which  could  have a material
adverse  effect on the Company's  business and operating  results.  In addition,
government  regulatory policies are likely to continue to have a major impact on
the pricing of existing as well as new public network services and therefore are
expected to affect demand for such services and the telecommunications  products
that support such services.

      DEPENDENCE ON CERTA1N SUPPLIERS.  Certain components used in the Company's
products are  currently  available  from only one  supplier.  In  addition,  the
Company relies on contract  manufacturers  to produce its printed  circuit board
assemblies and enclosures.  Use of contract manufacturers can expose Premisys to
supply  interruptions  due to production,  quality or financial  problems of its
contractors.  Shortages or delays in the delivery of the components  used in the
Company's  products  (which have  occurred  in the past) or  extended  delays in
deliveries  of printed  circuit board  assemblies or enclosures  could result in
delays in the  shipment of the  Company's  products  and/or  increase  component
costs.  Failure of the Company to order  sufficient  quantities  of any required
component in advance  could  prevent the Company from  increasing  production of
products in response to customer  orders in excess of amounts  projected  by the
Company.  Although the Company  typically  maintains  some reserve  inventory of
components and printed circuit board assemblies,  this inventory would not cover
a significant delay in the delivery of such items.

      YEAR 2000 RISKS. The Company has a formal Year 2000 Conformance Project in
place that focuses on four key  readiness  areas:  (1)  internal  infrastructure
readiness,   addressing   internal   information   systems  and  non-information
technology systems;  (2) supplier readiness,  addressing the preparedness of our
supplier  base;  (3)  product   readiness,   addressing  the  Company's  product
functionality,  which  includes  customer  support of the installed  base of the
Company's products;  and (4) customer readiness,  addressing the preparedness of
our  customer  base.  For each  readiness  area,  a task force has  performed  a
Company-wide   risk   assessment,    conducted    testing,    communicated  with
employees, suppliers, customers and other third party business partners to raise
awareness of the Year 2000 problem and is conducting remediation.  Following are
overviews of each readiness  area and the Company's  progress for becoming ready
for the Year 2000.

      Internal  infrastructure  readiness:  An assessment  of internal  computer
software and hardware has been  completed  with the assistance of a third party.
The  Company  has  migrated  to  an  upgraded  version  of  its  enterprise-wide
accounting and  manufacturing  system,  which is Year 2000 compliant.  For other
systems,  the Company has identified all  non-compliant  systems,  established a
project for prioritized  system  compliance,  and is in the process of executing
under such  compliance  project.  Other systems are scheduled to be compliant by
the  end  of  November,  1999.  In  addition  to  applications  and  information
technology  hardware,  the  Company is testing  remediation  plans for  embedded
systems, facilities and other operations.

      Supplier  readiness:  This  program  is  focused  on  minimizing  the risk
associated with suppliers in two areas: (1) a supplier's  business capability to
continue  providing  products and services,  and (2)  compliance of a supplier's
products with Year 2000.  Suppliers have been  identified and contacted based on
their criticality to the Company. The Company has received responses from all of
its preferred suppliers.  All of the Company's key suppliers have confirmed that
they are Year 2000 compliant. Approximately forty percent (40%) of the Company's
non-critical  suppliers have confirmed that they are Year 2000 compliant and the
remainder  assert that they will be Year 2000  compliant  by December  31, 1999.
Based on interactions  with and assurances from suppliers,  the Company believes
that supplier issues that  potentially  affect the Company's  products have been
resolved.

      Product readiness: The Company has completed a comprehensive program which
focused on identifying  and resolving Year 2000 issues existing in the Company's
products.  The program  encompassed a number of key efforts  including  testing,
evaluation,  engineering  and  manufacturing  implementation.  In addition,  the
program  focused  on  customer   support  of  the  installed   base,   including
coordination  of retrofit  activity  and testing  existing  customer  electronic
transaction  capability.  Based on these efforts,  the Company believes that its
products, both past and present, are Year 2000 compliant.

      Customer  readiness:  The  Company  sells  a  substantial  portion  of its
products to large,  publicly traded companies who themselves are addressing Year
2000 compliance issues. Premisys has been working directly with these customers,
who are also our  strategic  distribution  partners  or major  distributors,  to
resolve any issues  between them and the Company.  The Company has also reviewed
their readiness  statements as filed in public documents with the Securities and
Exchange Commission. Based on these efforts, the Company believes that Year 2000
issues will not  materially  affect  shipment  of  products to these  customers.
However,  there can be no assurances that  unforeseen  problems or problems with
customers  of  Premisys'  partners  or  distributors  will not  occur and have a
material impact on the Company's  revenues in the future.  In the event that any
of the Company's  significant  customers do not  successfully and timely achieve
Year  2000  compliance  of  their  own  products,  the  Company's  business  and
operations  could  be  adversely  affected.  Use of the  Company's  products  in
connection with customer  products which are not Year 2000 compliant,  including
non-compliant hardware and software, may result in inaccurate exchange of dates,
performance  problems or system  failure.  If the  businesses  of the  Company's
significant customers are materially and adversely affected by Year 2000 issues,
the Company's  business will also be  materially  and adversely  affected to the
extent that such  customers  delay,  postpone or cancel orders for the Company's
products  as they  divert  resources  to fixing  their own Year 2000  compliance
problems. In addition, the Company believes that the businesses of the Company's
strategic  partners may be  adversely  affected to the extent that the Year 2000
compliance  concerns  of their  own end user  customers  affect  the  purchasing
patterns of such customers in the short-term.  Such end user customers may defer
purchases  of  telecommunications  equipment  generally  until early in the next
millennium to avoid Year 2000  problems.  Any such  deferral of purchases  could
reduce demand for the Company's  products by the Company's  strategic  partners,
which could have a material adverse effect on the Company's business,  operating
results and financial condition.

     General Risk Factors:  The Company's  Year 2000 project is currently in the
remediation phase. The Company believes that, in spite of their assurances,  its
greatest  potential risks are associated with its suppliers.  In many cases, the
Company  is  relying  on  assurances   from  suppliers  that  new  and  upgraded
information systems and other products will be Year 2000 compliant.  The Company
plans to test such third-party products,  but cannot be sure that its tests will
be adequate or that, if problems are  identified,  they will be addressed by the
supplier in a timely and  satisfactory  way.  The Company is at the  remediation
phase for its  operations  and  infrastructure,  and,  while the Company  cannot
foresee any  significant  problems or issues,  it cannot predict  whether or not
significant problems or issues will be identified in the future. The Company has
determined  the extent of  contingency  planning  that may be  required,  but it
cannot be sure  that  additional  actions  will not be  necessary.  Based on the
status of the  assessments  made and  remediation  plans in process to date, the
Company believes that the total cost of remediation of all Year 2000 issues will
not exceed  $500,000.  However,  the Company has developed  remediation  for all
problems  and  has  either   completely   implemented  or  is  implementing  its
remediation plans. As the Year 2000 project continues,  the Company may discover
additional Year 2000 problems,  may not be able to develop,  implement,  or test
remediation plans, or may find that the costs of these activities exceed current
expectations.  Because the Company uses a variety of information systems and has
additional systems embedded in its operations and  infrastructure,  it cannot be
sure  that  all of its  systems  will  work  together  in a Year  2000-compliant
fashion.  Furthermore,  the  Company  cannot  be sure  that it will  not  suffer
business interruptions, either because of its own Year 2000 problems or those of
its  customers  or suppliers  whose Year 2000  problems may make it difficult or
impossible for them to fulfill their commitments to the Company.  If the Company
fails to  satisfactorily  resolve Year 2000 issues  related to its products in a
timely manner, it could be exposed to liability to third parties.

      RISKS FROM  CONVERSION TO SINGLE  EUROPEAN  CURRENCY.  On January 1, 1999,
certain member states of the European Economic  Community fixed their respective
currencies to a new currency, commonly known as the Euro. During the three years
beginning on January 1, 1999, business in these countries will be conducted both
in the  existing  national  currency,  such as the French  Franc or the Deutsche
Mark,  as well as the Euro.  Companies  operating in or  conducting  business in
these  countries  will need to ensure that their  financial  and other  software
systems  are  capable of  processing  transactions  and  properly  handling  the
existing  currencies  and  the  Euro.  Based  on the  current  level  of  direct
international  business  being  conducted by the  Company,  the Company does not
expect  that  introduction  and  use of the  Euro  will  materially  affect  the
Company's business.  However, if the Company encounters unexpected opportunities
and/or  difficulties,  the  Company's  business  could  be  adversely  affected,
including the inability to bill customers and to pay suppliers for  transactions
denominated  in the Euro  and the  inability  to  properly  record  transactions
denominated in the Euro in the Company's financial statements.

     RISKS ASSOCIATED WITH  ANNOUNCEMENT OF ACQUISITION BY ZHONE. On October 20,
1999,  the Company  announced  the  execution of a merger  agreement  with Zhone
Technologies,  Inc.,  pursuant to which a wholly-owned  subsidiary of Zhone will
make a cash  tender  offer for all of the issued and  outstanding  shares of the
Company's  Common Stock,  followed by a merger of the Company with and into such
subsidiary.  See Note 6 of Notes to Condensed  Consolidated Financial Statements
in Item 1 of this form 10-Q.  This intended  acquisition  by Zhone may result in
the  diversion of  management's  attention  from other  business  concerns,  the
disruption of the Company's  business,  the loss of key  employees,  the loss of
orders  for the  Company's  products  from  its  customers  and the  loss of key
distributor,  supplier or other business partner relationships.  There can be no
assurance  that the  Company  will  succeed  in  overcoming  these or any  other
significant risks encountered in connection with the proposed acquisition.

      STOCK PRICE  FLUCTUATIONS.  All of the above factors are difficult for the
Company to  forecast,  and these or other  factors,  such as changes in earnings
estimates by securities  analysts,  can  materially  affect the Company's  stock
price for one quarter or a series of  quarters.  Further,  the stock  market has
experienced  extreme  price  and  volume  fluctuations  that  have  particularly
affected the market  prices of  securities  of many high  technology  companies.
These  fluctuations,   as  well  as  general  economic,   political  and  market
conditions,  may materially  adversely  affect the market price of the Company's
Common Stock.  There can be no assurance that the trading price of the Company's
Common Stock will remain at or near its current level.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk.

            The following discussion about the Company's market risk disclosures
contains forward-looking  statements.  Forward-looking statements are subject to
risks and  uncertainties.  Actual  results  could differ  materially  from those
discussed in the forward-looking statements.

      The Company,  in the normal  course of  business,  is subject to the risks
associated  with foreign  currency  exchange  rates,  fluctuations in the market
value of its fixed income securities available-for-sale, and changes in interest
rates.  Please refer to Item 7A "Quantitative and Qualitative  Disclosures About
Market Risk" of the Company's  Form 10-K for the fiscal year ended June 26, 1999
for a more detailed discussion.

      There has been no significant  change in the Company's exposure to foreign
currency  fluctuations  during the quarter  ended  September 30, 1999 versus the
year ended June 30, 1999.

      The fair market value of the Company's fixed income  securities  portfolio
at September  30, 1999 was $73.6  million,  as compared to $81.4 million at June
30, 1999.  In both  comparison  periods the  corresponding  unrealized  gain was
immaterial.  The average duration of the portfolio  remained unchanged from 1.20
years at June 30, 1999 and September 30, 1999.

      The following table presents the hypothetical change in the aggregate fair
market value of the Company's fixed income securities portfolio at September 30,
1999 which  would  result if the  Federal  Funds Rate  changed as shown.  Market
changes  reflect  immediate  hypothetical  parallel shifts in the yield curve of
plus or minus 50 basis points (BPS), 100 BPS and 150 BPS.
                                  Decrease in Federal      Increase in Federal
                                      Funds Rate                Funds Rate
                             ---------------------------------------------------
Change in Federal Funds Rate
(BPS)                          (150 BPS)(100BPS)(50 BPS) 50 BPS  100 BPS 150 BPS
--------------------------------------------------------------------------------
Change in Securities            $1,337    $883   $428    ($441)   ($876)($1,304)
Valuation ($000's)


<PAGE>




II.   OTHER INFORMATION

ITEM 2.  Changes in Securities and Use of Proceeds.

Amendment of Rights Agreement

      The  Company's  Rights  Agreement  (the  "Rights  Agreement")  dated as of
September  18, 1998  between the Company and  ChaseMellon  Shareholder  Services
L.L.C., as Rights Agent (the "Rights Agent"), was amended by the First Amendment
to  Rights  Agreement,  dated as of  October  20,  1999 (the  "Amendment").  The
Amendment provides an exception to the definition of "Acquiring Person" for each
of Zhone Technologies, Inc. ("Zhone") and Zhone Acquisition Corp. ("Merger Sub")
and their respective subsidiaries, Affiliates and Associates (as such latter two
terms  are  defined  in  the  Rights   Agreement)  solely  by  virtue  of  their
acquisition,  or their right to acquire, Common Stock of the Company pursuant to
an  Agreement  and Plan of Merger  dated  October 20,  1999 by and among  Zhone,
Merger  Sub and  the  Company  (the  "Merger  Agreement"),  the  Company  Option
Agreement dated October 20, 1999 by and among Zhone,  Merger Sub and the Company
(the "Option Agreement"),  the Stockholders  Agreement dated October 20, 1999 by
and among Zhone,  Merger Sub and Raymond C. Lin,  Boris J. Auerbuch and Nicholas
J.  Williams  (the   "Stockholders   Agreement")  or  the  consummation  of  the
transactions  contemplated by the Merger Agreement,  the Option Agreement or the
Stockholders  Agreement.  The Amendment also provides that a "Distribution Date"
or a "Shares  Acquisition Date" shall not occur solely by reason of execution of
the Merger Agreement,  the Option Agreement or the Stockholders  Agreement,  the
consummation  of the Offer or the  Merger (as each term is defined in the Merger
Agreement) or the  consummation  of any other  transaction  contemplated  by the
Merger Agreement,  the Option Agreement or the Stockholders Agreement.  Finally,
the  Amendment  changes the  definition of the event(s) at the time of and after
which a holder of Rights under the Rights  Agreement cannot exercise his, her or
its Rights to the earlier of (i)  immediately  prior to the  Effective  Time (as
defined in the Merger  Agreement) of the Merger or (ii) the close of business on
September 18, 2008. The Amendment is filed as Exhibit 4.05 to the Company's Form
8-A/A which was filed on October 27, 1999 and the foregoing  description  of the
Amendment is qualified in its entirety by reference to Exhibit 4.05.

Issuance of Company Option

      In  connection  with the Merger  Agreement,  the  Company  entered  into a
Company  Option  Agreement with Zhone and Merger Sub under which the Company has
granted Zhone an option (the "Company  Option") to purchase  newly issued shares
of the  Company's  Common  Stock  under  certain  circumstances  if more than 85
percent  but less than 90 percent  of the  outstanding  shares of the  Company's
Common Stock are tendered in the Offer.  The Company Option allows Merger Sub to
purchase that number of shares (the "Company Option Shares") equal to the lowest
number of shares that, when added to the number of shares owned by Merger Sub at
the time of such  exercise,  shall  constitute  one  share  more than 90% of the
shares then  outstanding  (assuming  issuance of the Company Option Shares) at a
price  equal to $10.00 per share.  Zhone may not  exercise  the  Company  Option
unless and until it has  accepted  for  payment  pursuant  to the Offer,  shares
constituting more than 85% but less than 90% of the shares then outstanding.  In
addition,  Zhone may not exercise the Company  Option unless  immediately  after
such exercise Merger Sub would own more than 90% of the shares then outstanding.
Moreover,  Zhone may not exercise the Company Option after the earliest to occur
of (i) the  Effective  Time,  (ii) the date which is ten business days after the
occurrence  of the  Company  Option  Exercise  Event (as  defined in the Company
Option  Agreement)  (or such  later date on which the  closing of a purchase  of
shares pursuant to the Company Option  Agreement may be  consummated),  or (iii)
the termination of the Merger Agreement.  The Company has relied on Section 4(2)
of the  Securities  Act in connection  with the execution of the Company  Option
Agreement.   The  execution  of  the  Company  Option  Agreement  was  privately
negotiated,  and Zhone was a sophisticated  investor with access to all relevant
information  necessary to evaluate the investment.  No public offering or public
solicitation was used by the Company in connection with this agreement.

ITEM 5.  Other Information

            On  October  20,  1999,   Zhone   Technologies,   Inc.,  a  Delaware
corporation ("Zhone"), Zhone Acquisition Corp., a Texas corporation and a wholly
owned  subsidiary  of Zhone  ("Merger  Sub"),  and the Company  entered  into an
Agreement  and Plan of Merger (the  "Merger  Agreement").  The Merger  Agreement
provides for a cash tender  offer  ("Offer") by Merger Sub for all of the issued
and  outstanding  shares  of  the  Company's  Common  Stock  together  with  the
associated rights to purchase shares of Series A Junior Participating  Preferred
Stock,  at a price of  $10.00  per  share,  net to the  seller  in cash  without
interest. The Offer is conditioned upon, among other things, there being validly
tendered and not  withdrawn,  that number of shares which would  constitute  not
less  than  75%  of  the  outstanding  shares  of the  Company's  Common  Stock,
calculated on a fully diluted basis. The Merger Agreement also provides that the
Offer will be followed by a merger  ("Merger")  of the Company with and into the
Merger Sub, in which all remaining  outstanding  shares of the Company's  Common
Stock would be converted into the right to receive $10.00 per share,  net to the
seller in cash without interest.

      The Merger and the Offer also are  conditioned  on the  expiration  of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
and other customary closing conditions.

      In connection  with the execution of the Merger  Agreement,  Zhone entered
into a  stockholders  agreement  ("Stockholders  Agreement")  pursuant  to which
Raymond Lin,  Nicholas  Williams and Boris  Auerbuch have agreed to tender their
shares in the Offer.  In  addition,  pursuant to an option  agreement  ("Company
Option  Agreement"),  the Company has granted Zhone an option to purchase  newly
issued shares of the Company's Common Stock under certain  circumstances if more
than 85  percent  but less  than 90  percent  of the  outstanding  shares of the
Company's Common Stock are tendered in the Offer.

      In connection  with the execution of the Merger  Agreement,  the Company's
Board of Directors  also  approved an amendment  to its Rights  Agreement  dated
September 18, 1998 with  ChaseMellon  Shareholder  Services,  L.L.C.  making the
Rights Agreement  inapplicable to the Offer, the Merger,  the Merger  Agreement,
the Stockholders Agreement and the Company Option Agreement.

      For further  information,  refer to the Company's report on Form 8-K filed
on October 26, 1999 as well as the Schedule  14D-1 filed with the Securities and
Exchange Commission by Zhone and the Schedule 14D-9 filed by the Company.



<PAGE>



ITEM 6.  Exhibits and Reports on Form 8-K

A.   Exhibits

     Exhibit No.   Description of Exhibit
     2.1           Agreement and Plan of Merger dated as of October 20, 1999
                   by and among Zhone Technologies, Inc., Zhone Acquisition
                   Corp. and Premisys Communications, Inc. (incorporated by
                   reference to the Form 8-K of the Company filed October 26,
                   1999).
     2.2           Company Option Agreement dated as of October 20, 1999 by
                   and among Zhone Technologies, Inc., Zhone Acquisition
                   Corp. and Premisys Communications, Inc. (incorporated by
                   reference to the Form 8-K of the Company filed October 26,
                   1999).
     2.3           Stockholders  Agreement  dated as of October  20, 1999 by and
                   among Zhone  Technologies,  Inc., Zhone Acquisition Corp. and
                   Raymond C. Lin,  Boris J.  Auerbuch and Nicholas J.  Williams
                   (incorporated  by  reference  to the Form 8-K of the  Company
                   filed October 26, 1999).
     4.05          First Amendment to Rights Agreement,  dated as of October 20,
                   1999,  by  and  between  Premisys  Communications,  Inc.  and
                   ChaseMellon  Shareholder  Services,  L.L.C.  (incorporated by
                   reference  to Exhibit  4.05 to the  Company's  Report on Form
                   8-A/A (File No. 0-25684) filed on October 27, 1999).
     10.53         Employment  Agreement,  dated  March 25,  1999,  and  related
                   Secured  Promissory  Note,  dated  April  29,  1999,  between
                   Premisys Communications, Inc. and Claude DuPuis (incorporated
                   by reference to Exhibit 10 to the  Company's  Schedule  14D-9
                   filed on October 27, 1999).
     27.01         Financial Data Schedule

B.   Reports on Form 8-K

     The  Company  filed a report on Form 8-K on October  26,  1999.  The report
     covered  the  Company's  execution  of  the  Merger  Agreement  with  Zhone
     Technologies,  Inc.  and Zhone  Acquisition  Corp.  as  described in Item 5
     above.





<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.



                                           PREMISYS COMMUNICATIONS, INC.


          November 5, 1999                      /s/ Robert W. Dilfer
--------------------------------------    -------------------------------------
                Date                                Robert W. Dilfer
                                             Vice President and Controller
                                           (Duly Authorized Officer and Chief
                                                  Accounting Officer)




<PAGE>





                                Index to Exhibits

     Exhibit No.   Description of Exhibit
     2.1           Agreement and Plan of Merger dated as of October 20, 1999
                   by and among Zhone Technologies, Inc., Zhone Acquisition
                   Corp. and Premisys Communications, Inc. (incorporated by
                   reference to the Form 8-K of the Company filed October 26,
                   1999).
     2.2           Company Option Agreement dated as of October 20, 1999 by
                   and among Zhone Technologies, Inc., Zhone Acquisition
                   Corp. and Premisys Communications, Inc. (incorporated by
                   reference to the Form 8-K of the Company filed October 26,
                   1999).
     2.3           Stockholders  Agreement  dated as of October  20, 1999 by and
                   among Zhone  Technologies,  Inc., Zhone Acquisition Corp. and
                   Raymond C. Lin,  Boris J.  Auerbuch and Nicholas J.  Williams
                   (incorporated  by  reference  to the Form 8-K of the  Company
                   filed October 26, 1999).
     4.05          First Amendment to Rights Agreement,  dated as of October 20,
                   1999,  by  and  between  Premisys  Communications,  Inc.  and
                   ChaseMellon  Shareholder  Services,  L.L.C.  (incorporated by
                   reference  to Exhibit  4.05 to the  Company's  Report on Form
                   8-A/A (File No. 0-25684) filed on October 27, 1999).
     10.53         Employment  Agreement,  dated  March 25,  1999,  and  related
                   Secured  Promissory  Note,  dated  April  29,  1999,  between
                   Premisys Communications, Inc. and Claude DuPuis (incorporated
                   by reference to Exhibit 10 to the  Company's  Schedule  14D-9
                   filed on October 27, 1999).
     27.01         Financial Data Schedule






<PAGE>


Exhibit 27.01