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


                                  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 March 27, 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 chapter)

           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 April 23, 1998 was 25,855,854 shares.

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                                       1
<PAGE>

<TABLE>
<CAPTION>

                                        PREMISYS COMMUNICATIONS, INC.

                                                  INDEX
                                                  -----
   PART I.     Financial Information                                                              Page No.
               ---------------------                                                              --------
<S>                        <C>                                                                        <C>
               Item 1.     Financial Statements 

                           Condensed Consolidated Balance Sheet - June 30, 1997 and March 31,
                           1998                                                                        3

                           Condensed Consolidated Statement of Operations - Three and Nine
                           Month Periods ended March 31, 1997 and March 31, 1998                       4
                                                                                                       
                           Condensed Consolidated Statement of Cash Flows - Nine Month Periods
                           ended March 31, 1997 and March 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                 18
                                                                                                       


  PART II.     Other Information
               -----------------
               Item 5.     Other Information                                                          19

               Item 6.     Exhibits and Reports on Form 8-K                                           19

                Signatures                                                                            20

</TABLE>


                                       2
<PAGE>


I.       FINANCIAL  INFORMATION

ITEM 1.  Financial Statements

<TABLE>
                                                   Premisys Communications, Inc.
                                                Condensed Consolidated Balance Sheet
                                            (in thousands except share and per share data)
<CAPTION>
                                                                                              June 30,            March 31,
                                                                                              --------            ---------
                                                                                                1997                1998
                                                                                              --------            ---------
                                                                                                                  (unaudited)
                                             ASSETS
   Current assets:
<S>                                                                                           <C>                 <C>      
      Cash and cash equivalents                                                               $  28,923           $  21,590
      Short-term investments                                                                     44,301              74,666
      Accounts receivable, net                                                                    7,658               5,947
      Inventories                                                                                 8,775               5,783
      Deferred tax assets                                                                         7,207               7,207
      Prepaid expenses and other assets                                                           3,793               1,081
                                                                                        ----------------     ---------------
         Total current assets                                                                   100,657             116,274
   Property and equipment, net                                                                    6,444               7,456
                                                                                        ----------------     ---------------
                                                                                               $107,101            $123,730
                                                                                        ================     ===============

                                                 LIABILITIES AND STOCKHOLDERS' EQUITY

   Current liabilities:
      Accounts payable                                                                        $   4,756           $   5,584
      Accrued liabilities                                                                         5,528               8,612
      Income taxes payable                                                                          ---               1,630
                                                                                         ---------------     ---------------
         Total current liabilities                                                               10,284              15,826
                                                                                         ---------------     ---------------


   Stockholders' equity:
      Preferred Stock, $0.01 par value, 2,000,000 shares authorized; no shares issued               ---                 ---
         or outstanding
      Common Stock, $0.01 par value, 100,000,000 shares authorized;  25,190,751 and
         25,704,230 shares issued and outstanding                                                   252                 257
      Additional paid-in capital                                                                 74,994              77,546
      Retained earnings                                                                          21,571              30,101
                                                                                         ---------------     ---------------
         Total stockholders' equity                                                              96,817             107,904
                                                                                         ---------------     ---------------
                                                                                              $ 107,101           $ 123,730
                                                                                         ===============     ===============
<FN>

See notes to condensed consolidated financial statements
</FN>
</TABLE>

                                                                    3
<PAGE>

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

<CAPTION>
                                                                       Three Months Ended                   Nine Months Ended
                                                                             March 31,                         March 31,
                                                                             ---------                         ----------
                                                                     1997               1998             1997            1998
                                                                     ----               ----             ----            ----
<S>                                                                    <C>               <C>              <C>             <C>    
Revenues                                                              $ 12,237         $  27,154        $  62,887       $  71,055
Cost of revenues                                                         4,324             9,109           21,623          24,605
                                                               ----------------   ---------------  ---------------  --------------
      Gross profit                                                       7,913            18,045           41,264          46,450
                                                               ----------------   ---------------  ---------------  --------------
Operating expenses:
   Research and development                                              2,607             3,900            7,445          11,108
    Charge for in-process technologies                                   4,000             4,431            4,000           4,431
   Selling, general and administrative                                   5,458             7,714           15,848          19,877
                                                               ----------------   ---------------  ---------------  --------------
      Total operating expenses                                          12,065            16,045           27,293          35,416
                                                               ----------------   ---------------  ---------------  --------------
Income (loss) from operations                                           (4,152)            2,000           13,971          11,034
Interest and other income, net                                             694               923            1,949           2,506
                                                               ----------------   ---------------  ---------------  --------------
Income (loss) before income taxes                                       (3,458)            2,923           15,920          13,540
Provision (benefit) for income taxes                                    (1,349)            1,082            6,209           5,010
                                                               ----------------   ---------------  ---------------  --------------
Net income (loss)                                                     $ (2,109)         $  1,841        $   9,711       $   8,530
                                                               ================   ===============  ===============  ==============
Net income (loss) per share:
   Basic                                                              $  (0.09)         $   0.07        $    0.40       $    0.33
                                                               ================   ===============  ===============  ==============
   Diluted                                                            $  (0.09)         $   0.07        $    0.37       $    0.31
                                                               ================   ===============  ===============  ==============
Shares used in computing net income (loss) per share:
   Basic                                                                24,764            25,630           24,582          25,467
                                                               ================   ===============  ===============  ==============
   Diluted                                                              24,764            27,507           26,497          27,457
                                                               ================   ===============  ===============  ==============
<FN>
See notes to condensed consolidated financial statements
</FN>
</TABLE>


                                       4
<PAGE>

<TABLE>
                                     Premisys Communications, Inc.
                        Condensed Consolidated Statement Of Cash Flows (unaudited)
                                            (in thousands)
<CAPTION>

                                                                          Nine Months Ended March 31,
                                                                          ---------------------------
                                                                          1997                  1998
                                                                          ----                  ---- 
<S>                                                              <C>                       <C>
Cash flows from operating activities:
   Net income                                                     $       9,711            $       8,530
    Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
      Depreciation                                                          857                    1,652
      Changes in assets and liabilities:
        Accounts receivable                                               7,876                    1,711
        Inventories                                                      (6,224)                   2,992
        Prepaid expenses and other assets                                (3,878)                   2,712
        Accounts payable                                                  1,227                      828
        Accrued liabilities                                               1,361                    3,084
        Income taxes payable                                               (580)                   1,630
                                                                  --------------           --------------
Net cash provided by operating activities                                10,350                   23,139
                                                                  --------------           --------------
Cash flows from investing activities:
   Purchase of property and equipment                                    (4,745)                  (2,664)
   Purchase of short-term investments                                   (12,925)                 (30,365)
                                                                  --------------           --------------
Net cash used in investing activities                                   (17,670)                 (33,029)
                                                                  --------------           --------------
Cash flows from financing activities:
   Proceeds from issuance of Common Stock, net                            3,338                    2,557
                                                                  --------------           --------------
Net cash provided by financing activities                                 3,338                    2,557
                                                                  --------------           --------------

Net increase (decrease) in cash                                          (3,982)                  (7,333)

                                                                  --------------           --------------
Cash and cash equivalents at beginning of period                         22,058                   28,923
                                                                  --------------           --------------
Cash and cash equivalents at end of period                        $      18,076            $      21,590
                                                                  ==============           ==============
Supplemental disclosures:
  Cash paid for income taxes                                      $      10,644            $          54
<FN>

See notes to condensed consolidated financial statements
</FN>
</TABLE>


                                                      5
<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 position as of March
31, 1998,  the results of its  operations  for the three and nine month  periods
ended  March 31,  1997 and 1998,  and its cash flows for the nine month  periods
ended  March 31, 1997 and 1998.  These  financial  statements  should be read in
conjunction with the Company's audited financial  statements as of June 30, 1996
and 1997 and for each of the three  years in the  period  ended  June 30,  1997,
including notes thereto,  included in the Company's  Annual Report on Form 10-K.
Operating  results  for the nine  month  period  ended  March  31,  1998 are not
necessarily  indicative  of the results that may be expected for the year ending
June 30, 1998.

       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, 1997 and March 31, 1997 and 1998 for financial  statement  presentation
purposes actually reflect amounts for the fiscal periods ended on June 27, 1997,
March 28, 1997 and March 27, 1998.


NOTE 2 - Inventories (in thousands)
                                                   June 30,            March 31,
                                                     1997                1998
                                                     ----                ----
                                                                     (unaudited)

Raw materials                                      $  2,010            $  1,075
Work-in-process                                       1,390               1,515
Finished goods                                        7,893               6,325
                                                   --------            --------
                                                     11,293               8,915
Less: Reserves                                       (2,518)             (3,132)
                                                   --------            --------
                                                   $  8,775            $  5,783
                                                   ========            ========

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, which replaces  primary EPS, is computed by
dividing net income (loss) available to common  stockholders  (numerator) by the
weighted average number of common shares  outstanding  (denominator)  during the
period.  Unlike the  computation of primary EPS, Basic EPS excludes the dilutive
effect of stock options. Diluted EPS replaces fully diluted EPS and 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  rather  than the higher of the
average or ending stock price as used in the  computation  of fully diluted EPS.
When there is a reported loss for a period presented,  the number of shares used
in  computing  basic and  diluted  EPS are equal and are the same as the  shares
reported for Basic EPS.

                                       6
<PAGE>

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

<CAPTION>

                                       March 31, 1997                             March 31, 1998
                            --------------------------------------     --------------------------------------
    Three Month Period      Net Income     Shares      Per Share       Net Income     Shares      Per Share
          Ended             (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      $(2,109)     $24,764      $(0.09)          $1,841       $25,630      $0.07

Effect of Dilutive
Securities
Common stock equivalents      ----         ----                          ----         1,877
                            ------------ ------------                  ------------ ------------

Diluted EPS
Net income (loss)
available to common
stockholders and assumed                                                                      
conversions                 $(2,109)      24,764       $(0.09)         $1,841        27,507      $0.07
                            ============ ============ ============     ============ ============ ============


                                       March 31, 1997                             March 31, 1998
                            --------------------------------------     --------------------------------------
    Nine Month Period       Net Income     Shares      Per Share       Net Income     Shares      Per Share
          Ended             (Numerator)  (Denominator)  Amount         (Numerator)  (Denominator)  Amount
                            ------------ ------------ ------------     ------------ ------------ ------------
                                                   (in thousands except per share data)
Basic EPS
Net income available
to common stockholders      $9,711        24,582       $0.40           $8,530        25,467      $0.33
                                                      

Effect of Dilutive
Securities
Common stock equivalents      ----         1,915                        ----          1,990
                            ------------ ------------                  ------------ ------------

Diluted EPS
Net income available to
common stockholders and
assumed conversions         $9,711        26,497       $0.37           $8,530        27,457      $0.31
                            ============ ============ ============     ============ ============ ============
</TABLE>

Options to purchase  1,660,916,  712,587,  226,420 and 833,410  shares of Common
stock were  outstanding  during the three month periods ended March 31, 1997 and
1998 and the nine month periods ended March 31, 1997 and 1998, respectively, but
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 common  shares
in each period.

NOTE 4 - Significant Events

       On March 12, 1998,  the Company  announced  the execution of a technology
license  agreement  with  Switched  Network  Technologies  ("SNT").  The Company
intends  to use  cell  and  packet  technologies  from  SNT in  future  Premisys
products.

       The  licensed   technologies  are  to  provide  Premisys  a  non-blocking
switching  core  expandable  to 11.6  Gbs,  ATM  interfaces  to OC-3 and  OC-12,
10/100MB  Ethernet/Fast  Ethernet interfaces,  and related software. The Company
intends to use these  technologies to develop  broadband ATM and IP multiservice
platforms.  If the  company is  unsuccessful  in  developing  the  product,  the
licensed technologies have no alternative future use.

                                       7
<PAGE>

       The Company paid a total of $4.4 million for licensing  SNT  technologies
and  related  software.  The  Company  expensed  these  fees  as a  purchase  of
in-process research and development in the current quarter ended March 31, 1998,
reducing its diluted  earnings per share for such quarter by $0.10.  The Company
also received  options to license future releases of SNT software for additional
fees, which it expects to exercise.

  NOTE 5 - Commitments

         In  January  1998,  the  Company  executed  a  lease  agreement  for an
additional  24,590 square feet of space in the facility located at 48664 Milmont
Drive,  Fremont,  CA.  The  agreement  begins  on April 1, 1998 and  expires  on
September 30, 2004. The future minimum rental payments under all building leases
are as follows (in thousands):

                                                              Amount
                                                            -----------
     Three months ending June 30,1998                       $      303
     Fiscal Year Ending June 30:
       1999                                                      1,231
       2000                                                      1,335
       2001                                                      1,375
       2002                                                      1,418
       2003                                                      1,461
      Thereafter                                                 1,952
                                                            -----------
      Total minimum lease payments                           $   9,075
                                                            ===========


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"),  Alcatel  Network
Systems, Inc. ("Alcatel"), DSC Communication Corporation ("DSC"), Motorola, Inc.
("Motorola") and Paradyne  Corporation  ("Paradyne");  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  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; 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,  1997.  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  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," "may" and similar  expressions are intended to identify  forward-looking
statements,  but 

                                       8
<PAGE>

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 affect the Company's business.


Revenues
                                     Three Months Ended March 31,
                         -----------------------------------------------------
                                1997             % Change           1998
                                ----             --------           ----
          Revenues           $12,237,000           122%         $27,154,000
                       
                                     Nine Months Ended March 31,
                         -----------------------------------------------------
                                1997             % Change           1998
                                ----             --------           ----
          Revenues           $62,887,000            13%         $71,055,000
                       
                     
         Revenues consist  primarily of gross sales of products,  less discounts
and sales returns and  allowances.  A majority of the revenue  increase from the
three and nine month periods ended March 31, 1997 to the  comparable  periods in
fiscal 1998 was  attributable  to an increase in unit volumes of  platforms  and
modules sold. An important contributor to the Company's unit growth has been its
success with domestic  CLECs.  Several  rapidly  growing CLECs have selected the
Company's products for providing services to business customers.  Sales to CLECs
have been realized  both through  distribution  partners and direct  sales.  The
increase  in unit  volumes in the  quarter  ended March 31, 1998 versus the same
period in fiscal 1997 was  primarily  due to an increase  in  shipments  to ADC,
Alcatel,  Other Domestic Customers and Paradyne. The increase in unit volumes in
the nine month period ended March 31, 1998 versus the same period in fiscal 1997
was  primarily due to an increase in shipments to Other  Domestic  Customers and
ADC, partially offset by a decrease in shipments to Paradyne,  Motorola and DSC.
See "Other Factors That May Affect Future Operating  Results - Indirect Channels
of  Distribution."  In the quarter  ended  March 31,  1998,  revenues  increased
$2,538,000,  or 10%,  to  $27,154,000  from  $24,616,000  in the  quarter  ended
December 31, 1997. This increase in revenues in the third quarter of fiscal 1998
versus  the  second  quarter  of  fiscal  1998 was due  primarily  to  increased
shipments  of the  Company's  products  to Other  Domestic  Customers,  Alcatel,
Paradyne  and  DSC,  partially  offset  by  decreases  in  shipments  to ADC and
International Customers. *The Company expects that revenues will increase in the
June 1998  quarter  over those  reported  for the quarter  ended March 31, 1998.
However,  these  expectations  are  subject  to a number  of  uncertainties,  in
particular the level of demand from ADC, Paradyne, Alcatel and their customers.

         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 nine month  periods  ended March 31,  1997 and 1998,  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.

                                       9
<PAGE>
<TABLE>
<CAPTION>
                                                           Three Months Ended March 31,
                                        --------------------------------------------------------------------
                                               1997              %                1998              %
                                        ------------------- ------------    ------------------ -------------
<S>                                           <C>          <C>                  <C>            <C>
ADC                                            $ (a)       less than10%           $ 5,716,000           21%
Paradyne                                         2,300,000          19%             3,901,000           14%
Alcatel                                          (a)       less than10%             3,831,000           14%
DSC                                              3,052,000          25%             2,898,000           11%
Motorola, Inc.                                   2,197,000          18%            (a)         less than10%
Other Domestic Customers                         3,748,000          31%            10,419,000           38%
International Customers                            940,000           7%               389,000            2%
                                        =================== ============    ================== =============
Total Revenues                                 $12,237,000         100%           $27,154,000          100%
                                        =================== ============    ================== =============

                                                            Nine Months Ended March 31,
                                        --------------------------------------------------------------------
                                               1997              %                1998              %
                                        ------------------- ------------    ------------------ -------------
ADC                                            $ 6,602,000          11%           $21,171,000           30%
Paradyne                                        20,791,000          33%             9,341,000           13%
DSC                                              7,560,000          12%            (a)         less than10%
Motorola, Inc.                                   7,809,000          12%            (a)         less than10%
Other Domestic Customers                        16,026,000          25%            36,409,000           51%
International Customers                          4,099,000           7%             4,134,000            6%
                                        =================== ============    ================== =============
Total Revenues                                 $62,887,000         100%           $71,055,000          100%
                                        =================== ============    ================== =============
<FN>

(a) - Amounts not  provided as revenues for the period were less than 10% of the total.
</FN>
</TABLE>

         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. Customers  individually  representing 10% or more of the
Company's  revenues  for the three month  periods  ended March 31, 1997 and 1998
totaled 62% and 60% of the Company's total revenues,  respectively. For the nine
month  periods  ended  March  31,  1997  and  1998,   revenues  from   customers
individually  representing 10% or more of the Company's revenues totaled 68% and
43% of the Company's total revenues, respectively. The change in the percentages
from fiscal 1997 to 1998  reflects the growth of the  Company's  other  domestic
customers and the increased acceptance of the Company's products. In the quarter
ended December 31, 1997, customers individually  representing 10% or more of the
Company's revenues represented 55% of the Company's total revenues. *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.  See "Other Factors That
May Affect  Future  Operating  Results -  Indirect  Channels  of  Distribution",
"-Limited Order Backlog" and "-Relationship with Paradyne."

       During the three and nine month  periods  ended  March 31,  1998,  direct
international  revenues  accounted  for 2% and  6% of  the  Company's  revenues,
respectively,  compared to 7% for the three and nine month  periods  ended March
31, 1997. The decline in direct  international  revenues between the three month
periods  is  primarily  due to lower  shipments  into the  Asia-Pacific  region.
Certain of the Company's  domestic  customers also resell 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.  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  

                                       10
<PAGE>

currency   exchange  rates,   difficulties  in  staffing  and  managing  foreign
operations, greater difficulty in accounts receivable collection and potentially
adverse tax consequences.

Gross Profit
                                          Three Months Ended March 31,
                                 -----------------------------------------------
                                     1997             % Change           1998
                                     ----             --------           ----
           Gross Profit           $7,913,000            128%         $18,045,000
    As a percentage of revenues       65%                                66%

                                          Nine Months Ended March 31,
                                 -----------------------------------------------
                                     1997             % Change           1998
                                     ----             --------           ----
           Gross Profit           $41,264,000            13%         $46,450,000
    As a percentage of revenues       66%                                65%

         Cost of revenues  consists of component costs,  compensation  costs and
overhead  related  to  the  Company's  manufacturing   operations  and  warranty
expenses.  Gross profit  increased  from the three and nine month  periods ended
March 31, 1997 to the comparable periods in fiscal 1998 primarily as a result of
higher unit shipment volumes. The gross margin was relatively unchanged from the
three and nine month periods ended March 31, 1997 to the  comparable  periods in
fiscal 1998.  *The Company  expects its gross  margins in the fourth  quarter of
fiscal 1998 to decline by two to four percentage points from the 66% reported in
the  quarter  ended  March 31,  1998 due  primarily  to changes in product  mix.
*However,  achievement of the Company's  expectations  is subject to a number of
risks,  including  customer  mix,  the mix of  products  sold and the  Company's
ability to realize expected revenue levels.


Research and Development Expenses (excluding charge for in-process technologies)

                                           Three Months Ended March 31,
                                    --------------------------------------------
                                       1997          % Change           1998
                                       ----          --------           ----
Research and development expenses   $2,607,000          50%          $3,900,000
   As a percentage of revenues          21%                              14%

                                            Nine Months Ended March 31,
                                    --------------------------------------------
                                       1997          % Change           1998
                                       ----          --------           ----
Research and development expenses   $7,445,000          49%         $11,108,000
   As a percentage of revenues          12%                              16%

         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  $1,293,000,  or 50%, from the three
months  ended  March 31,  1997 to the  comparable  period in fiscal  1998 and by
$3,663,000,  or 49%,  from the nine month  period  ended  March 31,  1997 to the
comparable  period in fiscal 1998.  This increase was due to the  combination of
increased expenses for personnel, outside services and materials used in product
development.  The decrease in research and development  expenses as a percentage
of the Company's  revenues between the three month periods was the result of the
sharp  decline in revenues  which  occurred in the three  months ended March 31,
1997. The increase in research and  development  expenses as a percentage of the
Company's  revenues  for the nine month  period ended March 31, 1998 as compared
with the comparable  period in fiscal 1997 was primarily the result of increased
research and development expenses for personnel,  outside services and materials
used in product development.  *In the fourth quarter of fiscal 1998, the Company
expects that these expenses will increase in absolute dollars as compared to the
quarter ended March 31, 1998. *However,  the Company expects that the

                                       11
<PAGE>
sequential rate of growth of these expenses will be less than the rate of growth
in revenues during the fourth quarter of fiscal 1998.  *These  expectations  are
subject  to a number  of risks,  including  the  Company's  ability  to  realize
expected revenue levels.

Charge for In-process Technologies

         As previously  announced,  the Company  expensed,  in the quarter ended
March 31, 1998,  $4.4 million for  licensing  cell and packet  technologies  and
related development software. (See Note 4 - "Significant Events" of the notes to
the condensed  consolidated  financial  statements  included in this Form 10-Q.)
This charge is shown  separately as "Charge for in-process  technologies" in the
Condensed  Consolidated  Statement of Operations  in this Form 10-Q.  The charge
related to the SNT  license in the quarter  ended  March 31, 1998  compares to a
charge  of  $4.0  million  incurred  in the  quarter  ended  March  31,  1997 in
connection with the licensing of SONET and SDH technologies from Positron.  *The
licensed  technologies  are to be used in products that the Company is currently
developing.  *If the Company is  unsuccessful  in  developing  the product,  the
technologies have no future alternative use. See"- Other Factors That May Affect
Future Operating Results - Rapidly Evolving Technology."


Selling, General and Administrative Expenses
                                                   Three Months Ended March 31,
                                              ----------------------------------
                                                 1997       % Change     1998
                                                 ----       --------     ----
 Selling, general and administrative expenses $5,458,000       41%    $7,714,000
          As a percentage of revenues             45%                     28%

                                                   Nine Months Ended March 31,
                                              ----------------------------------
                                                 1997       % Change     1998
                                                 ----       --------     ----
 Selling, general and administrative expenses $15,848,000      25%   $19,877,000
          As a percentage of revenues             25%                     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
$2,256,000, or 41%, from the three months ended March 31, 1997 to the comparable
period in fiscal  1998 and by  $4,029,000,  or 25%,  from the nine month  period
ended March 31, 1997 to the comparable  period in fiscal 1998.  These  increases
were primarily the result of increased staffing and associated expenses, and, to
a lesser extent, travel and customer support expenses.  The decrease in selling,
general and  administrative  expenses as a percentage of the Company's  revenues
between the three month  periods was the result of the sharp decline in revenues
which  occurred  in the three  months  ended  March 31,  1997.  The  increase in
selling,  general and  administrative  expenses as a percentage of the Company's
revenues  for the nine month  period  ended March 31, 1998 as compared  with the
comparable  period in fiscal 1997 was primarily the result of increased  selling
expenses for  compensation,  customer  support and travel.  *The Company expects
that these expenses will increase in absolute  dollars during the fourth quarter
of fiscal 1998 as compared to the quarter  ended March 31, 1998.  *However,  the
Company  expects that the  sequential  rate of growth of these  expenses will be
less than the rate of growth in  revenues  during the  fourth  quarter of fiscal
1998.  *These  expectations  are  subject  to a number of risks,  including  the
Company's ability to realize expected revenue levels.

                                       12
<PAGE>
Interest and Other Income, net
                                             Three Months Ended March 31,
                                    --------------------------------------------
                                        1997         % Change           1998
                                        ----         --------           ----
  Interest and other income, net      $ 694,000         33%          $ 923,000
    As a percentage of revenues          6%                              3%

                                             Nine Months Ended March 31,
                                    --------------------------------------------
                                        1997         % Change           1998
                                        ----         --------           ----
  Interest and other income, net     $ 1,949,000        29%         $ 2,506,000
    As a percentage of revenues          3%                              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 nine month  periods  ended  March 31, 1998 as compared to the same period in
fiscal 1997 was due to higher cash balances.
<TABLE>

Provision (Benefit) for Income Taxes
<CAPTION>
                                                                   Three Months Ended March 31,
                                                       -----------------------------------------------------
                                                              1997             % Change           1998
                                                              ----             --------           ----
<S>                                                       <C>                    <C>           <C>       
        Provision (benefit) for income taxes              $(1,349,000)           180%          $1,082,000
    As a percentage of income (loss) before taxes              39%                                37%


                                                                   Nine Months Ended March 31,
                                                       -----------------------------------------------------
                                                              1997             % Change           1998
                                                              ----             --------           ----
             Provision for income taxes                    $6,209,000            (19%)         $5,010,000
       As a percentage of income before taxes                  39%                                37%
</TABLE>

         The Company's  provision for income taxes represents  estimated federal
and state income taxes. The Company's  effective tax rate for the three and nine
month  periods  ended  March 31,  1998 was 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 and the utilization of research and
development tax credits  available in fiscal 1998. The decrease in the Company's
income  tax rate  from 39% in fiscal  1997 to 37% in  fiscal  1998 is due to the
extension of the federal research and development tax credit.
<TABLE>

Net Income (Loss) per Share
<CAPTION>
                                                                       Three Months Ended March 31,
                                                           -----------------------------------------------------
                                                                  1997             % Change           1998
                                                                  ----             --------           ----
<S>                                                           <C>                    <C>           <C>       
                    Net income (loss)                         $(2,109,000)           187%          $1,841,000
          Net income (loss) per share (diluted)                  $(0.09)             178%            $0.07
 Shares used in computing diluted net income (loss) per        24,764,000             11%          27,507,000
                          share

                                                                       Nine Months Ended March 31,
                                                           -----------------------------------------------------
                                                                  1997             % Change           1998
                                                                  ----             --------           ----
                       Net income                              $9,711,000            (12%)         $8,530,000
             Net income per share (diluted)                       $0.37              (16%)           $0.31
  Shares used in computing diluted net income per share        26,497,000             4%           27,457,000
</TABLE>

         Net income (loss) per share  (diluted)  increased by $0.16, or 178%, in
the quarter  ended March 31, 1998 and  decreased  by $0.06,  or 16%, in the nine
month  period  ended March 31,  1998 as  compared to the same  periods in fiscal
1997.  The increase in net income per share  (diluted)  between the  three-

                                       13
<PAGE>

month  comparative  periods  in  fiscal  1997 and 1998 was due  primarily  to an
increase in net income from the three month  period  ended March 31, 1997 to the
same period in fiscal  1998.  The decrease in net income per share from the nine
month  period ended March 31, 1997 as compared to the same period in fiscal 1998
is due  primarily  to a  decrease  in net income  and,  to a lesser  extent,  an
increase in shares  used in  calculating  net income per share  between the nine
month periods ended March 31, 1997 and 1998.


Liquidity and Capital Resources

                                                  Nine Months Ended March 31,
                                                  1997     % Change     1998
                                                  ----     --------     ----
Net cash provided by operating activities     $10,350,000   124%    $ 23,139,000
Period  end cash,  cash  equivalents  and 
short-term investments                        $69,827,000    38%    $ 96,256,000
Period end working capital                    $83,973,000    20%    $100,448,000


         At March 31, 1998, the Company had approximately $96.3 million of cash,
cash equivalents and short-term investments. Net cash totaling $23.1 million was
provided by  operating  activities  during the nine months ended March 31, 1998,
due   primarily  to  net  income  of  $8.5  million  and  increases  in  accrued
liabilities,  income  taxes  payable and  accounts  payable,  and  decreases  in
inventories,   prepaid  expenses  and  other  assets  and  accounts  receivable,
aggregating $12.2 million. 

         The decrease in accounts receivable for the nine months ended March 31,
1998 was due to several  factors.  In  comparing  the  operating  results of the
quarter  ended March 31, 1998 to the quarter  ended June 30,  1997,  the Company
improved shipment linearity, had higher early payments and improved collections.
For the  quarter  ended  March  31,  1998,  days  sales  outstanding,  based  on
quarter-end net balances, were 20 days versus 45 days for the quarter ended June
30, 1997. *The Company expects days sales outstanding,  based on quarter-end net
balances,  at the end of the June 1998  quarter to increase  to the  mid-to-high
thirties before the favorable impact, if any, of early payments.  However, these
expectations are subject to a number of  uncertainties,  in particular  revenues
levels, shipment linearity and customer payment patterns.

         Cash used in  investing  activities  during the nine months ended March
31, 1998 consisted  principally of purchases of short-term  securities  totaling
$30.4 million. Cash flows from financing activities during the nine months ended
March 31, 1998 consisted primarily of $2.6 million from the exercise of employee
stock options and the issuance of stock under the Company's  1995 employee stock
purchase plan.

         As of March 31, 1998, the Company's  working capital was  approximately
$100.4  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.

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.

         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 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   "-Relationship   with   Paradyne".   These
telecommunications equipment suppliers 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

                                       14
<PAGE>

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 and March 31,
1998,  shipments of the  Company's  products to one CLEC customer of ADC, one of
the Company's strategic distribution partners,  represented more than 10% of the
Company's  total  revenues for each quarter.  Revenues  derived from  particular
carrier  projects are often difficult to forecast due to a relatively long sales
cycle and delays in the timing of such  projects.  Such  delays  occurred in the
quarter ended March 31, 1997,  and materially  adversely  affected the Company's
business and operating  results for that  quarter.  Such delays 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 and delays in obtaining regulatory approvals for new tariffs.  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 fiscal 1997, a delay of the development and release of a new feature resulted
in a loss of a large,  forecasted shipment. 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. While such
delays have not to date had a material adverse effect on the Company's  business
or operating results, there can be no assurance that any future delays would not
have such an adverse effect.

         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,  including the
four  quarters of fiscal 1997,  recognized a majority of its revenues from sales
booked  and  shipped  in the  last  month  of a  quarter.  Due  to the  delivery
requirements  of its  customers,  the Company  expects to continue to experience
limited order backlog.  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 revenue for a quarter or series of quarters.

         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,  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) 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 

                                       15
<PAGE>

compensate for any unexpected  future  revenue  shortfall.  In the quarter ended
March 31, 1997, the Company  experienced such an unforecasted  revenue shortfall
and was not able to compensate for it through expense reduction,  which resulted
in a net loss.  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 products  and  enhancements  on a  cost-effective  basis.  For
example, the Company has licensed certain technology from Positron for inclusion
in the Company's Q-155 XTRA products,  which were announced in June 1997 and are
expected to begin  shipping in the quarter ending  September 30, 1998.  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  integrate the SNT or Positron  technology into new
products  within such time frames,  or at all. In  addition,  failure to achieve
market acceptance of the recently  introduced  SlimLine and StreamLine  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 Corporation ("AT&T"),
that involves the joint development, marketing and sale of most of the Company's
products 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 from the
three and nine month  periods  ended  March 31, 1997 to the  comparable  periods
ended March 31, 1998, shipments to Paradyne continued to represent a substantial
portion (14% and 13%,  respectively) of the Company's  revenues in the three and
nine month periods ended March 31, 1998. 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

                                       16
<PAGE>

reductions in shipments to Paradyne would have a material  adverse effect on the
Company's business and operating results.

         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,  which offer a broad line of
products including access devices for business applications. The Company expects
substantial  additional  competition  from existing  competitors as they develop
products to compete with the  functionality  and  flexibility  of the  Company's
products.  As Premisys begins shipping its SlimLine and StreamLine products,  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.  See
"-Relationship  With  Paradyne."  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  that market and distribute the
Company's  products may in the future  develop  products  that could be sold for
selected  applications for which the Company's products are currently  provided.
Successful, timely development of such products could reduce the level of demand
from these telecommunications equipment suppliers for the Company's 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's  success  also  depends  to a
significant   extent  on  its   ability   to  attract   and  retain   additional
highly-skilled  technical,   managerial,  sales  and  marketing  personnel,  the
competition for whom is intense.

         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

                                       17
<PAGE>

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  CERTAIN  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.  The Company also utilizes  independent  contractors
for some new product  developments.  Delays in completing  assigned  development
projects or design  errors could cause  delays in new product  releases and poor
market acceptance.

         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.

         YEAR 2000 RISKS.  Business  systems failures due to errors arising from
calculations  using  Year  2000  dates are a known  risk,  and the  Company  has
established  a  project  for  identifying  and  resolving   potential   problems
associated  with entering the Year 2000 and the new  millennium.  Based upon its
evaluation and current  efforts,  the Company believes that its computer systems
will be Year 2000  compliant  before the end of fiscal Q1,  1999.  However,  the
Company  believes  that the  purchasing  patterns  of  customers  and  potential
customers could be affected by Year 2000 issues as companies expend  significant
resources  to correct or patch  their  current  software  systems  for Year 2000
compliance.  These  resource  expenditures  may result in delays of purchases of
products offered by the Company, which could result in a material adverse effect
on the Company's business, operating results and financial condition.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk.

         Not applicable.

                                       18
<PAGE>

II.      OTHER INFORMATION

ITEM 5.  Other Information

In March,  1998,  Michael  Kazban  resigned  as the  Company's  Vice  President,
Business Management.


ITEM 6.  Exhibits and Reports on Form 8-K

A.     Exhibits

  Exhibit No.    Description of Exhibit
  -----------    ----------------------

     10.43       Third  Amendment  to Lease  Agreement  by and between  Premisys
                 Communications,  Inc. and Aetna Life Insurance  Company,  dated
                 January 8, 1998
     27.01       Financial  Data  Schedule  (Nine month  period  ended March 27,
                 1998)
     27.02       Restated  Financial  Data  Schedule  (Three  month period ended
                 September 27, 1997)
     27.03       Restated Financial Data Schedule (Year ended June 27, 1997)
     27.04       Restated Financial Data Schedule (Nine month period ended March
                 28, 1997)
     27.05       Restated  Financial  Data  Schedule  (Six  month  period  ended
                 December 27, 1996)
     27.06       Restated  Financial  Data  Schedule  (Three  month period ended
                 September 27, 1996)

B.     Reports on Form 8-K

         None


                                       19
<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.


        May 1, 1998                     /S/ Robert W. Dilfer
------------------------------     ---------------------------------------
            Date                             Robert W. Dilfer
                                        Vice President and Controller
                                     (Duly Authorized Officer and Chief 
                                            Accounting Officer)


                                       20
<PAGE>



                                Index to Exhibits
                                -----------------


   Exhibit No.   Description of Exhibit
   -----------   ----------------------

     10.43       Third  Amendment  to Lease  Agreement  by and between  Premisys
                 Communications,  Inc. and Aetna Life Insurance  Company,  dated
                 January 8, 1998
     27.01       Financial  Data  Schedule  (Nine month  period  ended March 27,
                 1998)
     27.02       Restated  Financial  Data  Schedule  (Three  month period ended
                 September 27, 1997)
     27.03       Restated Financial Data Schedule (Year ended June 27, 1997)
     27.04       Restated Financial Data Schedule (Nine month period ended March
                 28, 1997)
     27.05       Restated  Financial  Data  Schedule  (Six  month  period  ended
                 December 27, 1996)
     27.06       Restated  Financial  Data  Schedule  (Three  month period ended
                 September 27, 1996)

                                       21