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

                                  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 December 25, 1998 

                                       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 January 22, 1999 was 23,950,451 shares.



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


<PAGE>



                          PREMISYS COMMUNICATIONS, INC.
                                      INDEX


 PART I.   Financial Information                                   Page No.

           Item 1. Financial Statements

                   Condensed Consolidated Balance Sheet - June
                   30, 1998 and December 31, 1998                      3

                   Condensed Consolidated Statement of Operations
                   - Three and Six Month Periods ended December 3l,
                   1997 and December 31, 1998                          4

                   Condensed Consolidated Statement of Cash Flows
                   - Six Month Periods ended December 31, 1997
                   and December 31, 1998                               5

                   Notes to Condensed Consolidated Financial
                   Statements                                          6

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

            Item 3.Quantitative and Qualitative Disclosures About
                   Market Risk                                         21

 PART II.  Other Information

            Item 2.Submission of Matters to a Vote of Security
                   Holders                                             21

            Item 5.Other Information                                   22

            Item 6.Exhibits and Reports on Form 8-K                    22

            Signatures                                                 23





10.   

<PAGE>


FINANCIAL INFORMATION

ITEM 1.     Financial Statements

                          Premisys Communications, Inc.
                      Condensed Consolidated Balance Sheet
                      (in thousands except per share data)
                                                 June 30,    December 31,
                                                   1998         1998
                                                             (unaudited)
                             ASSETS
 Current assets:
   Cash and cash equivalents                     $31,006       $11,008
   Short-term investments                         74,975        77,782
   Accounts receivable, net                       12,208        15,776
   Inventories                                     3,859         7,649
   Deferred tax assets                             7,355         7,355
   Prepaid expenses and other assets                 962         1,348
                                               ----------    ----------
     Total current assets                        130,365       120,918

 Property and equipment, net                       8,392         9,063
                                               ==========    ==========
                                                $138,757      $129,981
                                               ==========    ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

  Current liabilities:
    Accounts payable                             $ 6,969       $ 6,077
    Accrued liabilities                           10,277        10,729
    Income taxes payable                             735         4,194
                                              -----------   -----------
      Total current liabilities                   17,981        21,000
                                              -----------   -----------

  Put warrants                                       ---        21,250
                                              -----------   -----------

  Stockholders' equity:
    Common Stock, $0.01 par value, 100,000 shares
      authorized;  25,974 and 26,239 shares issued
      and outstanding                                260           262
    Additional paid-in capital                    85,230        65,619
    Treasury Stock, 2,130 shares                     ---       (19,993)
    Retained earnings                             35,286        41,843
                                              -----------   -----------
      Total stockholders' equity                 120,776        87,731
                                              ===========   ===========
                                                $138,757      $129,981
                                              ===========   ===========

See notes to condensed consolidated financial statements


<PAGE>



<TABLE>

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

                                            Three Months Ended       Six Months Ended
                                               December 31,            December 31,
<S>                                         <C>          <C>          <C>       <C>
                                                1997        1998         1997       1998
Revenues                                       $24,616     $25,394    $43,901    $50,405
Cost of revenues                                 8,278      10,238     15,496     18,626
                                           ------------  ---------- ----------  ---------

        Gross profit                            16,338      15,156     28,405     31,779
                                           ------------  ---------- ----------  ---------

Operating expenses:
  Research and development                       4,184       4,670      7,208      9,418
  Selling, general and administrative            6,656       7,380     12,163     13,873
                                           ------------  ---------- ----------  ---------

    Total operating expenses                    10,840      12,050     19,371     23,291
                                           ------------  ---------- ----------  ---------

Income from operations                           5,498       3,106      9,034      8,488
Interest and other income, net                     870         932      1,583      1,920
                                           ------------  ---------- ----------  ---------

Income before income taxes                       6,368       4,038     10,617     10,408
Provision for income taxes                       2,356       1,494      3,928      3,851
                                           ------------  ---------- ----------  ---------

Net income                                      $4,012     $ 2,544    $ 6,689     $6,557
                                           ============  ========== ==========  =========

Net income (loss) per share:
   Basic                                        $ 0.16      $ 0.10     $ 0.26     $ 0.26
   Diluted                                      $ 0.15      $ 0.10     $ 0.24     $ 0.25
                                           ============  ========== ==========  =========

Shares used in computing net income (loss) per share:
   Basic                                        25,462      24,388     25,385     25,149
   Diluted                                      27,579      25,142     27,508     26,084
                                           ============  ========== ==========  =========
</TABLE>



See notes to condensed consolidated financial statements




<PAGE>



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


                                             Six Months Ended December 31,
                                                1997            1998

Cash flows from operating activities:
  Net income                                      $6,689          $6,557
  Adjustments to reconcile net income to
  net cash  provided by (used in) operating
  activities:
      Depreciation                                   992           1,555
      Changes in assets and liabilities:
       Accounts receivable                         2,351         (3,568)
       Inventories                                 1,273         (3,790)
       Prepaid expenses and other assets           3,034           (387)
       Accounts payable                            1,415           (892)
       Accrued liabilities                         4,747             453
       Income taxes payable                          627           3,459
                                             ------------   -------------
Net cash provided by operating activities         21,128           3,387
                                             ------------   -------------

Cash flows from investing activities:
  Purchase of property and equipment             (1,653)         (2,226)
  Purchase of short-term investments            (20,946)         (2,807)
                                             ------------   -------------
Net cash used in investing activities           (22,599)         (5,033)
                                             ------------   -------------

Cash flows from financing activities:
   Proceeds from issuance of Common Stock,         1,504           1,641
  net
   Repurchase of Common Stock                        ---        (19,993)
                                             ------------   -------------

Net cash provided by (used in) financing           1,504        (18,352)
  activities
                                             ------------   -------------

Net increase (decrease)  in cash                      33        (19,998)
Cash and cash equivalents at beginning of         28,923          31,006
  period
                                             ------------   -------------

Cash and cash equivalents at end of period       $28,956         $11,008
                                             ============   =============

Supplemental disclosures:
  Cash paid for income taxes                       $   1          $1,173

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 December 31, 1998,  the
results of its operations for the three and six month periods ended December 31,
1997 and 1998,  and its cash flows for the six month periods ended  December 31,
1997 and 1998. These financial statements should be read in conjunction with the
Company's audited financial statements as of June 30, 1997 and 1998 and for each
of the three years in the period ended June 30, 1998,  including  notes thereto,
included in the Company's Annual Report on Form 10-K.  Operating results for the
six month period ended December 31, 1998 are not  necessarily  indicative of the
results that may be expected for the year ending June 30, 1999.

   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, 1998 and December  31, 1997 and 1998 for  financial  statement  presentation
purposes actually reflect amounts for the fiscal periods ended on June 26, 1998,
December 26, 1997 and December 25, 1998.

NOTE 2 - Inventories (in thousands)
                                                  June 30,     December 31,
                                                    1998           1998
                                                               (unaudited)
  Inventories
     Raw materials                                  $  582         $ 1,467
     Work-in-process                                   676           1,472
     Finished goods                                  2,601           4,709
                                                  ---------     ------------
                                                   $ 3,859         $ 7,649
-------------------------------------------------===========---=============

NOTE 3 - Earnings Per Share

     The Company adopted  Statement of Financial  Accounting  Standards No. 128,
"Earnings Per Share" ("SFAS 128") during the second quarter of fiscal 1998. SFAS
128 requires  presentation  of both Basic EPS and Diluted EPS on the face of the
statement of  operations.  Basic EPS is computed by dividing  net income  (loss)
available to common stockholders by the weighted average number of common shares
outstanding  during  the  period.  Diluted  EPS  gives  effect  to all  dilutive
potential common shares  outstanding  during a period. In computing Diluted EPS,
the  average  stock  price for the period is used in  determining  the number of
shares assumed to be purchased  under the treasury stock method from exercise of
stock options.

   Following is a presentation  of the numerators and  denominators of the Basic
and Diluted EPS computations for the periods presented below:


<PAGE>


<TABLE>
<CAPTION>

                                        Three Month Period Ended
                             December 31, 1997               December 31, 1998
                    Net Income    Shares     Per Share   Net Income    Shares     Per Share
                   (Numerator)  (Denominator)  Amount   (Numerator) (Denominator)  Amount
                   -----------------------------------  ----------------------------------
                           (in thousands except per share data)
<S>                 <C>          <C>          <C>         <C>         <C>        <C>
    Basic EPS
Net income (loss)
available to common
stockholders          $4,012       25,462       $0.16      $2,544      24,388     $0.10

Effect of
Dilutive Securities
Common stock
equivalents             ----        2,117                    ----         754
                     ---------------------                 ------------------

   Diluted EPS
Net income (loss)
available to common
stockholders and
assumed conversions   $4,012       27,579       $0.15      $2,544      25,142     $0.10
                   ===================================     ============================



                                        Six Month Period Ended
                             December 31, 1997               December 31, 1998
                    Net Income    Shares     Per Share   Net Income    Shares     Per Share
                   (Numerator)  (Denominator)  Amount   (Numerator) (Denominator)  Amount
                   -----------------------------------  ----------------------------------
                           (in thousands except per share data)
    Basic EPS
Net income (loss)
available to common
stockholders          $6,689       25,385       $0.26      $6,557      25,149     $0.26

Effect of
Dilutive Securities
Common stock
equivalents             ----        2,123                    ----         935
                     ---------------------                 ------------------

   Diluted EPS
Net income (loss)
available to common
stockholders and
assumed conversions   $6,689       27,508       $0.24      $6,557      26,084     $0.25
                   ===================================     ============================
</TABLE>


      Options to purchase  615,161,  2,005,918,  748,623 and 2,138,912 shares of
Common stock were outstanding at the three month periods ended December 31, 1997
and  1998  and  the  six  month  periods  ended  December  31,  1997  and  1998,
respectively,  but were not included in the  computation  of Diluted EPS because
the options  exercise  price was greater  than the average  market  price of the
common shares in each period.


NOTE 4 - Significant Events

      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 the
Company's  Common Stock at market  prices not to exceed  $14.00 per share and as
the market and business  conditions warrant. As of January 29, 1999, the Company
had  repurchased for cash 2.3 million shares at market prices ranging from $6.69
to $10.94 per share. As of September 17, 1998,  pursuant to the authorized stock
repurchase program,  the Company sold 2.0 million put warrants and purchased 1.5
million call options.  On January 26, 1999, the Company dissolved the obligation
for 1.0 million put  warrants  and 0.75 million call options that were to expire
on January 29, 1999. As a result,  the Company currently has a maximum potential
obligation  related to the put warrants of $10.75  million.  The  remaining  1.0
million put warrants and 0.75 million call options expire on September 15, 1999.



<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"),  Motorola,  Inc.
("Motorola"),  Paradyne Corporation ("Paradyne"),  Teleport Communications Group
("Teleport") and XEL  Communications,  Inc.  ("XEL");  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");  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;
availability  and market  acceptance  of the SlimLine and  StreamLine  products;
rapidly changing  technologies and the Company's ability to respond thereto; the
growth of demand for telecommunications  services such as wireless, cellular and
the Internet; competition; 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 for the year
ended June 30, 1998.  The actual  results  that the Company  achieves may differ
materially  from those described in any  forward-looking  statements due to such
risks and  uncertainties.  The Company has  identified  using an asterisk  ("*")
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  intended  to  identify   forward-looking
statements,  but 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. 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, that attempt to advise interested
parties of the risks and factors that may effect the Company's business.

Revenues
                                        Three Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
              Revenues                 $24,616,000       3%     $25,394,000

                                         Six Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
              Revenues                 $43,901,000      15%     $50,405,000


The increase in revenues from the quarter ended December 31, 1997 to the quarter
ended  December  31,  1998 is the result of  first-time  sales of the  Company's
StreamLine  product in fiscal 1999 offset by lower  revenues  from the Company's
integrated multiple access  communications  systems ("IMACS").  While IMACS unit
volumes for  platforms and modules  increased in the quarter ended  December 31,
1998, compared with the December 1997 quarter,  the average sales prices of both
platforms and modules decreased during the same comparison periods. The decrease
in average sales prices is the result of increased  pricing  competition  in the
Company's  market.  Telecommunications  carriers  are having to compete  more on
price for local access to small and medium sized  businesses.  As a result,  the
carriers are demanding price  reductions from access  equipment  suppliers.  The
increase in revenues  from the six month period  ended  December 31, 1997 to the
six month  period ended  December  31, 1998 is the result of increased  revenues
from the  Company's  IMACS  product line and  first-time  sales of the Company's
StreamLine  product.  IMACS unit volumes for platforms and modules  increased in
the six month  period  ended  December  31, 1998 from the  comparable  period in
fiscal  1998,  while the average  sales prices for IMACS  platforms  and modules
decreased during the same comparison  periods due to the market forces discussed
above.  See "Other Factors That May Effect Future  Operating  Results - Indirect
Channels of  Distribution."  Revenues were flat from  $25,011,000 in the quarter
ended  September 30, 1998 to $25,395,000 in the quarter ended December 31, 1998.
*The Company  expects that revenues in the March 1999 quarter will be comparable
to those  reported for the quarter  ended  December 31,  1998.  *However,  these
expectations are subject to a number of uncertainties, which include but are not
limited to the  following:  the level of business  which the Company  expects to
ship through its strategic distribution partners, the growth in business shipped
direct to international customers; and the market acceptance and availability of
the  Company's  new products,  the SlimLine and  StreamLine.  In the prior three
quarters, shipments of the SlimLine and StreamLine products have been delayed or
curtailed  significantly  pending the resolution of design issues  identified in
customer and production  testing.  *There is a risk that additional issues which
will restrict the availability  and market  acceptance of these products will be
identified  as the unit volumes  produced  and shipped to customers  grow in the
March 1999 quarter.

      The following table sets forth,  for the periods  indicated,  the revenues
generated  from the Company's  customers  which  exceeded 10% of total  revenues
during the three and six month periods ended  December 31, 1997 and December 31,
1998,  other  domestic  customers  as a group and  international  customers as a
group, in absolute dollars and as a percentage of total revenues.


                               Source of Revenues

                                   Three Months Ended December 31,
                            -----------------------------------------------
                                1997        %            1998        %
                            ----------------------   ----------------------
Paradyne                      $2,772,000      11%     $ 6,408,000      25%
ADC                            8,447,000      34%                      17%
                                                        4,397,000
Motorola                       2,521,000      10%       3,111,000      12%
Teleport                        (a)           ---       3,048,000      12%
XEL                             (a)           ---       2,792,000      11%
Other Domestic Customers       8,528,000      35%       4,685,000      19%
International Customers        2,348,000      10%         953,000       4%
                            ======================   ======================
Total Revenues               $24,616,000     100%     $25,394,000     100%
                            ======================   ======================

                                    Six Months Ended December 31,
                            -----------------------------------------------
                                1997        %            1998        %
                            ----------------------   ----------------------
Paradyne                      $5,440,000      12%    $ 15,445,000      31%
ADC                           15,455,000      35%       6,625,000      13%
Motorola                       4,035,000       9%       6,093,000      12%
Other Domestic Customers      15,226,000      35%      20,326,000      40%
International Customers        3,745,000       9%       1,916,000       4%
                            ======================   ======================
Total Revenues               $43,901,000     100%     $50,405,000     100%
                            ======================   ======================


(a)Amounts not separately  provided (but are instead included in "Other Domestic
   Customers")  as  revenues  for the  period  represented  less than 10% of the
   period 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  December  31,  1997 and  1998,  customers
individually representing 10% or more of the Company's revenue generated 55% and
77% of the Company's  total  revenues,  respectively.  For the six month periods
ended December 31, 1997 and 1998,  customers  individually  representing  10% or
more of the Company's  revenue  generated 56% of the Company's  total  revenues.
During both comparison periods,  revenues from Paradyne increased while revenues
from  ADC  decreased.  The  increase  in  revenues  from  Paradyne  during  both
comparison periods was due to increased international equipment deployments. The
decrease in revenues  from ADC during both  comparison  periods was due to lower
shipments by ADC to one of its CLEC  customers.  *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  --  Indirect   Channels  of  Distribution,"
"-Slowdown in  Telecommunications  Carriers'  Capital  Expenditures,"  "-Limited
Order Backlog" and "-Relationship with Paradyne."

   During the quarter ended  December 31, 1998,  direct  international  revenues
accounted for 4% of the Company's  revenues,  compared to 9% for the same period
in fiscal 1998.  The Company  believes  this  reduction in direct  international
revenues is partly  attributable to the current economic  difficulty in Asia and
Russia and partly due to the lack, in Premisys'  products,  of product  features
and protocols that are unique to or required in countries  outside of the U.S.A.
Certain of the Company's  domestic  customers  also sell Premisys  products into
international  markets.  The Company is currently  refocusing  its marketing and
engineering  resources to provide more emphasis on developing  product  features
which are demanded in international  markets. *The Company intends to expand its
operations  outside the United States and anticipates that  international  sales
will  increase  in  the  future.   However,   in  order  to  sell  its  products
internationally,   the  Company  must  meet   international   telecommunications
standards.  *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 December 31,
                                      -------------------------------------
                                           1997       % Change     1998
            Gross Profit               $16,338,000      (7%)    $15,156,000
     As a percentage of revenues           66%                     60%

                                         Six Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
            Gross Profit               $28,405,000      12%     $31,779,000
     As a percentage of revenues           65%                     63%


      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 quarter ended December 31, 1997 to the
quarter  ended  December 31, 1998  primarily as a result of lower  product gross
margins.  Gross profit  increased  from the six month period ended  December 31,
1997 to the six month  period ended  December 31, 1998  primarily as a result of
higher unit shipment  volumes  partially  offset by lower product gross margins.
The product  gross margin  decrease from the quarter and six month periods ended
December 31, 1997 to the quarter and six month periods ended  December 31, 1998,
is primarily attributable to two factors: (1) the sale, during the quarter ended
December 31, 1998, of StreamLine  product to fulfill  SlimLine product orders at
the lower SlimLine  prices to certain  customers;  (2) lower prices on the IMACS
product  sold,  during the quarter  ended  December 31, 1998,  to certain of the
Company's large OEM and CLEC  customers.  *The Company expects its gross margins
for the  remainder  of fiscal 1999 to decline  significantly,  due  primarily to
continuing  competitive  pressures  and to increases in the mix of  lower-margin
SlimLine and StreamLine products.


Research and Development Expenses
                                        Three Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
  Research and development expenses     $4,184,000      12%     $4,670,000
     As a percentage of revenues           17%                     18%

                                         Six Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
  Research and development expenses     $7,208,000      31%     $9,418,000
     As a percentage of revenues           16%                     19%


      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  $486,000,  or 12%, from the three months ended
December 31, 1997 to the comparable period in fiscal 1999 and by $2,210,000,  or
31%, from the six month period ended December 31, 1997 to the comparable  period
in fiscal 1999. This increase was due to the  combination of increased  expenses
for personnel and equipment  associated  with the  development  of the Company's
SlimLine,  Streamline and Q-155 products. Research and development expenses as a
percentage  of the  Company's  revenues  increased  in the  three  and six month
periods ended December 31, 1998 versus the comparable periods ended December 31,
1997 1998 due  primarily  to the lower rate of revenues  change in each of these
comparison  periods.  *During the remaining quarters of fiscal 1999, the Company
expects that these expenses will increase in absolute dollars as compared to the
quarter  ended  December  31,  1998.  *However,  the Company  expects  that as a
percentage of revenues research and development expenses will remain the same or
increase  slightly  during  the  remaining   quarters  of  fiscal  1999.  *These
expectations are subject to a number of  uncertainties,  including the Company's
level of  revenues,  availability  and market  acceptance  of the  SlimLine  and
StreamLine  products and the level of personnel  dedicated to and the success of
research and development activities.

Selling, General and Administrative Expenses
                                        Three Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
 Selling, general and administrative    $6,656,000      11%     $7,380,000
              expenses
     As a percentage of revenues           27%                     29%

                                         Six Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
 Selling, general and administrative   $12,163,000      14%     $13,873,000
              expenses
     As a percentage of revenues           28%                     28%


      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 increased $724,000, or
11%, from the quarter ended  December 31, 1997 to the quarter ended December 31,
1998 and  increased  $1,710,000,  or 14% from the six months ended  December 31,
1997 to the six months ended  December 31, I998.  This  increase was primarily a
result of increased staffing,  primarily in sales and marketing,  and associated
expenses,  and,  to a lesser  extent,  occupancy,  travel and  customer  support
expenses. Selling, general and administrative expenses increased as a percentage
of the  Company's  revenues in the quarter  ended  December  31, 1998 versus the
quarter  ended  December 31, 1997 and remained flat between the six months ended
December  31, 1997 and 1998 due  primarily  to the  underlying  rate of revenues
change in each of these  comparison  periods.  *The  Company  expects that these
expenses will  increase  slightly in absolute  dollars  versus the quarter ended
December  31,  1998  during  the  remaining  quarters  of  fiscal  1999.  *These
expectations are subject to a number of  uncertainties,  including,  among other
things, the Company's level of revenues and the level of personnel  dedicated to
sales, marketing and administrative activities.


Interest and Other Income, net
                                        Three Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
   Interest and other income, net       $ 870,000        7%     $ 932,000
     As a percentage of revenues            4%                      4%

                                         Six Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
   Interest and other income, net      $ 1,583,000      21%     $1,920,000
     As a percentage of revenues            4%                      4%


      Interest and other income,  net consists of interest  income less interest
expense, and, to a much lesser extent,  foreign currency exchange rate gains and
losses.  The increase in interest and other  income,  net, for the three and six
month  periods  ended  December 31, 1998 as compared to the same  periods  ended
December 31, 1997 was due to increased interest income from higher cash balances
invested in high grade, marketable fixed income securities versus lower yielding
bank money market accounts.

Provision for Income Taxes
                                        Three Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
     Provision for income taxes         $2,356,000     (37%)    $1,494,000
  As a percentage of income before         37%                     37%
                taxes



<PAGE>


                                         Six Months Ended December 31,
                                      -------------------------------------
                                           1997       % Change     1998
     Provision for income taxes         $3,928,000      (2%)    $3,851,000
  As a percentage of income before         37%                     37%
                taxes


      The Company's provision for income taxes represents  estimated federal and
state income  taxes.  The  Company's  effective tax rate for the quarter and six
month period ended  December 31, 1998  remained at 37%,  which was less than the
combined  federal and state  statutory  rate as a result of tax-exempt  interest
income from the Company's municipal securities portfolio.


Net Income per Share
                                           Three Months Ended December 31,
                                         -------------------------------------
                                             1997       % Change      1998
               Net income                 $4,012,000      (37%)    $2,544,000
     Net income per share (diluted)          $0.15        (33%)      $0.10
  Shares used in computing diluted net    27,579,000      (9%)     25,142,000
            income per share

                                            Six Months Ended December 31,
                                         -------------------------------------
                                             1997       % Change      1998
               Net income                 $6,689,000      (2%)     $6,557,000
     Net income per share (diluted)          $0.24         3%        $0.25
  Shares used in computing diluted net    27,508,000      (5%)     26,084,000
            income per share


      Net income per share  decreased  from $0.15 in the quarter ended  December
31, 1997 to $0.10 in the quarter  ended  December 31, 1998,  due  primarily to a
decrease of 37% in net income between the three-month periods ended December 31,
1997 and 1998.  Net income per share  increased  slightly  from $0.24 in the six
month  period  ended  December  31, 1997 to $0.25 in the six month  period ended
December 31, 1998,  due  primarily to a decrease in shares used in computing net
income per share resulting from stock repurchases made by the Company during the
six month period ended December 3 l, 1998.

Liquidity and Capital Resources
                                         Six Months Ended December 31,
                                          1997       % Change      1998
Net  cash   provided   by   operating0
activities                             $21,128,000     171%     $ 3,387,000
Period  end  cash,  cash  equivalents
and short-term investments             $94,203,000      40%     $88,790,000
Period end working capital             $97,905,000      14%     $99,918,000


      At December 31, 1998, the Company had approximately $88.8 million of cash,
cash equivalents and short-term investments.  Net cash totaling $3.4 million was
provided by operating  activities during the six months ended December 31, 1998,
most  significantly  due to net income of $6.6 million and an increase in income
taxes payable of $3.5 million,  offset partially by increases in inventories and
accounts receivable, aggregating $7.4 million.

      Cash used in investing activities during the six months ended December 31,
1998 consisted of purchases of short-term  securities  totaling $2.8 million and
purchases of property and equipment totaling $2.2 million.  Financing activities
during the six months ended  December 31, 1998  resulted in a net use of cash of
$18.4  million.  The net use of cash is the result of $20.0 million of cash used
in the  repurchase  of the  Company's  Common  Stock  partially  offset  by cash
provided  by the  issuance  of Common  Stock in  connection  with the  Company's
employee benefit plans.

      As of December 31, 1998, the Company's  working capital was  approximately
$99.9 million.  Except for the potential obligation related to put warrants,  as
discussed  below  and in the  Company's  Quarterly  Report  on Form 10-Q for the
quarter  ended  September  30,  1998,  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.

      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 the
Company's  Common Stock at market  prices not to exceed  $14.00 per share and as
the market and business  conditions warrant. As of January 29, 1999, the Company
had  repurchased for cash 2.3 million shares at market prices ranging from $6.69
to $10.94 per share. As of September 17, 1998,  pursuant to the authorized stock
repurchase program,  the Company sold 2.0 million put warrants and purchased 1.5
million call options.  On January 26, 1999, the Company dissolved the obligation
for 1.0 million put warrants and 0.75 million call options  which were to expire
on January 29, 1999. As a result,  the Company currently has a maximum potential
obligation  related to the put warrants of $10.75  million.  The  remaining  1.0
million put warrants and 0.75 million call options expire on September 15, 1999.


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  but does not include  asterisks  for
improved readability.

     COMPETITION.   The  market  for   telecommunications   products  is  highly
competitive and subject to rapid  technological  change. The Company's principal
competition to date has been from major telecommunications  equipment suppliers,
such as Newbridge  Networks  Corporation and Tellabs,  Inc., which offer a broad
line of products  including  access devices for business  applications  and from
recent startup companies,  such as Carriers Access Corporation  ("CAC") and Vina
Technologies  ("VINA").  The Company  has  experienced  and expects  substantial
additional  competition  from existing  competitors as they 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
with new startups  focusing on the access  equipment  market.  The Q-155 product
will likely compete with  broadband  access  products  offered or announced by a
number of vendors.  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 may be
adapted  to  compete  with  the   Company's   products  in  the  future.   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.

      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  the quarter  ended  December 31, 1998.  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 affect 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.

     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.  In December,  1998,  Nicholas  Williams,  the
Company's  President  and CEO suffered  exposure to  sub-freezing  weather.  Mr.
Williams is currently  being  treated for frostbite and is expected to return to
work on a full-time  basis at or near the end of the March 1999 quarter.  In the
meantime,  Mr.  Williams  has been working  from his home in  coordination  with
Premisys' senior  management team to manage strategic  opportunities  and issues
and day-to-day  operations.  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.

      INDIRECT  CHANNELS OF DISTRIBUTION.  Substantially all 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 thc 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 10% 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.  The Company's  business and
operating  results were also  adversely  affected in the quarter ended March 31,
1997 as a result of deployment delays by particular  carriers.  Such delays that
have  occurred  in the  past,  and have had a  material  adverse  effect  on the
Company,  may occur in the future  and would  have a similar  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  "-Slowdown  In  Telecommunications  Carriers'
Capital  Expenditures" and "-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 thc planned  deployment of the
Company's products can also be caused by sudden declines in thc 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.  Such  delays  had a  material  adverse  effect on the
Company's business and operating results in the quarter ended December 31, 1998,
and there can be no  assurance  that any  future  delays  would not have such an
adverse effect.

      TELECOMMUNICATIONS CARRIERS' CAPITAL EXPENDITURES.  Currently, the primary
targeted  end  user   customers  for  the  Company's   products  are  CLECs  and
interexchange carriers ("IXCs").  These carriers have been expanding their local
networks at a rapid pace in the past two years to provide  services to small and
medium-sized  businesses  that have  historically  been served  inadequately  by
incumbent local exchange carriers ("ILECs').  Based on industry information,  it
now appears likely that the pace of capital  expenditure growth by the CLECs and
IXCs will slow  significantly for basic network  infrastructure but increase for
access equipment. The Company believes that the reason for this shift is because
it is expected that end user demand for new services  will grow. . However,  the
Company  believes  that  there will be an  increase  in the  intensity  of price
competition  for these  markets.  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
introduced  its  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 ("IADs").  As a result
of the anticipated slowdown in telecommunications carriers' capital expenditures
and  related  increase  in  price  competition,  the  Company  may  find it more
difficult to achieve expected levels of revenues and profitability.

      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 Company's  products
serve a vital function,  to grow significantly.  However,  over the next several
quarters,  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  on-net  versus  off-net  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
Teleport  in  connection  with  its  merger  and  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.  In
addition,  the increased  buying power  wielded by these merged  carriers and by
merged  equipment  suppliers,  such  as  Alcatel  and DSC  Communications  Corp.
("DSC"),  is likely to place  added  competitive  price  pressure  on  equipment
manufacturers such as Premisys.

      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  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 quarter ended March 31, 1997) 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, and December 31,
1998,  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.  For example, the
Company's shipment of new SlimLine product has been delayed for several quarters
due to hardware  and  software  revisions  necessary  to make the  product  more
acceptable in the  marketplace.  In addition,  the Company has licensed  certain
technology from Positron for inclusion in the Company's  Q-155  products,  which
were  announced in June 1997. The Company began field trials for this product in
the quarter ending  December 31, 1998 and expects to begin shipping this product
by the end of the quarter  ending March 31,  1999.  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 calendar 1999.
However, there can be no assurance that the Company will be able to successfully
develop new products or new  enhancements  to existing  products on a timely and
cost-effective  basis. In addition,  failure to achieve market acceptance of new
products  could  have a  material  adverse  effect  on the  Company's  operating
results.  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.

      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.
Although  sales to  Paradyne  declined  34% from  fiscal  1997 to  fiscal  1998,
shipments  to  Paradyne  continued  to  represent a  significant  portion of the
Company's  revenues in fiscal 1998 and are  expected to continue to  represent a
significant  portion of the Company's  revenues in fiscal 1999. Neither Paradyne
nor Lucent are 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.

      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.

      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.

      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.  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  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 is  systematically
performing a Company-wide risk assessment,  conducting  testing and remediation,
and  communicating  with employees,  suppliers,  customers and other third party
business  partners to raise  awareness of the Year 2000  problem.  Following are
overviews of each readiness area and the Company's progress thereon for becoming
ready for the Year 2000.

      Internal infrastructure  readiness: An assessment of internal and 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 no
later than May 1999.  In addition to  applications  and  information  technology
hardware,  the Company is testing and developing  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 a
significant  number of its preferred  suppliers.  Most of the respondents are in
the process of developing  remediation  plans.  Supplier issues that potentially
affect the Company's products are targeted to be resolved by July 1999.

      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 are Year 2000 compliant.


      Customer readiness: The Company sells a substantial portion of its product
to large,  publicly  traded  companies who themselves  are addressing  Year 2000
compliancy 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 product  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  affects  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
millenium 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 and Risk Factors:  The Company's Year 2000 project is currently in
the remediation  phase. The Company  believes that 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 not yet  determined  the extent of
contingency planning that may be required. Based on the status of the assessment
made and  remediation  plans developed to date, the Company is not in a position
to state the total cost of  remediation  of all Year 2000 issues,  however,  the
Company believes such costs will not exceed $500,000.  However,  the Company has
not yet developed remediation for all problems, developed all contingency plans,
or completely  implemented or tested any of 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 or contingency 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. The Company is still assessing the impact that
the  introduction  and  use of the  Euro  will  have on the  Company's  internal
systems.  The Company does not presently expect that introduction and use of the
Euro will materially affect the Company's business but has not yet completed its
assessment.  If the Company encounters  unexpected  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.

      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 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, 1998
for a more detailed discussion.

      There has been no significant  change in the Company's exposure to foreign
currency  fluctuations  during the quarter  ended  December  31, 1998 versus the
quarters ended June 30 and September 30, 1998.

      The fair market value of the Company's fixed income  securities  portfolio
at  December  31, 1998 was $84  million,  as compared to $89 million at June 30,
1998. In both comparison periods the corresponding  unrealized gain was included
as a component of shareholders'  equity.  The average  weighted  duration of the
portfolio  increased  from .99 years at June 30,  1998 to 1.28 years at December
31, 1998.

      The following table presents the hypothetical change in the aggregate fair
market value of the Company's fixed income securities  portfolio at December 31,
1998 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   (150     (100    (50 BPS) 50 BPS  100 BPS 150 BPS
(BPS)                            BPS)    BPS)
--------------------------------------------------------------------------------
Change in Securities           $1,635  $1,079    $523   ($540)  ($1,071)($1,595)
Valuation ($000's)

II.   OTHER INFORMATION

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


At the Company's  Annual Meeting of  Stockholders  held on December 9, 1998 (the
"Annual Meeting"), the following individuals were elected to the Company's Board
of Directors by the votes indicated:

                            FOR            WITHHELD
Boris J. Auerbuch           23,050,552     611,761
Edward A. Keible, Jr.       23,080,360     581,953
Raymond C. Lin              23,050,921     611,392
Marino R. Polestra          23,080,463     581,850
Lip-Bu Tan                  23,081,538     580,775
Nicholas J. Williams        23,050,921     611,392


In addition, the Company's 1994 Stock Option Plan was amended to increase the
number of shares of Common Stock reserved for issuance thereunder from 5,200,000
to 6,460,000. The following votes were cast in connection with such amendment:
                                                                   BROKER
        FOR                AGAINST             ABSTAIN           NON-VOTES
     15,873,458           7,769,768            19,087                0


Finally,  the  appointment  of  PricewaterhouseCoopers  LLP as auditors  for the
fiscal year ended June 30, 1999 was ratified by the following vote:
                                                                   BROKER
        FOR                AGAINST             ABSTAIN           NON-VOTES
     23,605,057            48,589               8,667                0


ITEM 5. Other Information

In December,  1998,  Boris  Auerbuch,  Senior Vice President and Chief Technical
Officer of the Company, assumed the responsibilities of Andrew Aczel, the Senior
Vice President, Engineering who resigned October, 1998.

In December,  1998, Nicholas Williams,  the Company's President and CEO suffered
exposure to  sub-freezing  weather.  Mr. Williams is currently being treated for
frostbite and is expected to return to work at or near the end of the March 1999
quarter.

ITEM 6.  Exhibits and Reports on Form 8-K
A.       Exhibits

         Exhibit No.     Description of Exhibit
         10.02           Registrant's 1994 Stock Option Plan and related
                         documents. (1)

         27.01           Financial Data Schedule


         (1) - Incorporated  by reference to Exhibit 4.04 in  Registrant's  Form
         S-8 Registration Statement filed January 15, 1999 (File No. 333-70739)

B.    Reports on Form 8-K
         None



<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.


     February 8, 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
10.02           Registrant's 1994 Stock Option Plan and related documents. (1)
27.01           Financial Data Schedule

(1) -  Incorporated  by  reference  to  Exhibit  4.04 in  Registrant's  Form S-8
Registration Statement filed January 15, 1999 (File No. 333-70739)



<PAGE>



Exhibit 27.01