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

                                    FORM 10-Q

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

For the quarterly period ended November 30, 1998

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

For the transition period from                 to

Commission File No.:  0-25592

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

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


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

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

     Check whether the Registrant (1) has filed all reports required to be filed
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months (or for such shorter period that the registrant was required
to file such  reports(s),  and (2) has been subject to such filing  requirements
for the past 90 days. Yes [X] No [ ]

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date: January 8, 1999

                Class of               Number
                Common Equity          of Shares

                Common Stock,         13,408,946
                Par value $.01



<PAGE>



                             PERIPHONICS CORPORATION
                                AND SUBSIDIARIES


                                      INDEX
<TABLE>
<CAPTION>

<S>                                                                                       <C>    
                                                                                          Page No.
Part I. Financial Information                                                                

Item 1. Financial Statements

         Consolidated Balance Sheets - November 30, 1998                                        4
         and May 31, 1998

         Consolidated Statements of  Earnings - Six Months                                      5
         Ended November 30, 1998 and November 30, 1997

         Consolidated Statements of  Earnings -Three Months                                     6
         Ended November 30, 1998 and November 30, 1997

         Consolidated Statements of Cash Flow - Six Months
         Ended November 30, 1998 and November 30, 1997                                          7

         Notes to Unaudited Consolidated Financial Statements                                   8

Item 2. Management's Discussion and Analysis of Financial                                      9-15
         Condition and Results of Operations

Part II. Other Information                                                                    16-17

         Signatures                                                                             18


</TABLE>

<PAGE>


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

                                                                                 November 30, 1998      May 31, 1998
<S>                                                                                  <C>                  <C>  

ASSETS
Current Assets:
Cash and cash equivalents .................................................           $10,124              $14,810
Short-term investments ....................................................            11,214               11,033
Accounts receivables, less allowance for doubtful
    accounts of $1,466 and $1,266, respectively ...........................            42,035               37,721
Inventories ...............................................................            15,987               14,066
Deferred income taxes .....................................................             1,855                1,687
Prepaid expenses and other current assets .................................             1,523                1,367
                                                                                      -------              -------
   Total current assets ...................................................            82,738               80,684

Property, plant and equipment, net ........................................            19,880               19,498
Other assets ..............................................................               472                  425
                                                                                      -------              ------- 
TOTAL ASSETS ..............................................................          $103,090             $100,607
                                                                                      =======              =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...........................................................           $ 8,687               $8,273
Accrued expenses and other current liabilities ............................            16,930               14,328
                                                                                      -------              -------
    Total current liabilities .............................................            25,617               22,601
Deferred income taxes .....................................................               ---                  146
                                                                                      -------              -------
TOTAL LIABILITIES .......................................................              25,617               22,747
                                                                                      -------              -------

Stockholders' Equity:
Preferred stock, par value $.01 per share,                                              ----                 ----
    1,000,000 shares authorized, none issued
Common stock, par value $.01 per share,                                                   139                 138
    30,000,000 shares authorized, 13,903,546 issued and
    13,400,946 shares outstanding as of November 30, 1998;
    13,843,305 shares issued and outstanding as of May 31, 1998
Additional paid-in capital ................................................            44,202              43,780
Retained earnings .........................................................            36,666              33,942
                                                                                      -------             -------
                                                                                       81,007              77,860
Treasury stock, 502,600 shares ............................................            (3,534)               ----   
                                                                                      --------            -------
    Total stockholders' equity ............................................            77,473              77,860
                                                                                      -------             -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................          $103,090            $100,607
                                                                                      =======             =======

</TABLE>


<PAGE>


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

<TABLE>
<CAPTION>

                                                                                                  Six Months Ended
                                                                                                     November 30,
                                                                                                1998               1997
<S>                                                                                         <C>                 <C>  

System revenues .................................................................             $49,824            $37,169
Maintenance revenues ............................................................              16,258             13,982
                                                                                               ------             ------
   Total revenues ...............................................................              66,082             51,151
                                                                                               ------             ------
Cost of system revenues .........................................................              24,460             18,609
Cost of maintenance revenues ....................................................               8,907              8,352
                                                                                               ------             ------
   Cost of revenues .............................................................              33,367             26,961
                                                                                               ------             ------
Gross profit ....................................................................              32,715             24,190
                                                                                               ------             ------
Operating expenses:
    Selling, general and administrative .........................................              19,830             16,466
    Research and development ....................................................               9,217              6,761
                                                                                               ------             ------
                                                                                               29,047             23,227
                                                                                               ------             ------
Earnings from operations ........................................................               3,668                963
                                                                                               ------             ------
Other income (expense):
    Interest and other income ...................................................                 660                710
    Foreign exchange gain (loss)................................................                   30                (62)
                                                                                               ------             ------  
                                                                                                  690                648
                                                                                               ------             ------
Earnings before provision for income taxes ......................................               4,358              1,611
Provision for income taxes ......................................................               1,634                604
                                                                                               ------             ------        
Net earnings ....................................................................            $  2,724            $ 1,007
                                                                                               ======             ======

Per share data:
Basic earnings ..................................................................            $    .20            $   .07
                                                                                               ======             ======
Diluted earnings ................................................................            $    .20            $   .07
                                                                                               ======             ======

Weighted average shares:
Basic ...........................................................................              13.610             13,724
                                                                                               ======             ======
Diluted .........................................................................              13,755             13,946
                                                                                               ======             ======
</TABLE>



<PAGE>


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

<TABLE>
<CAPTION>

                                                                                                  Three Months Ended
                                                                                                      November 30,
                                                                                                1998              1997
<S>                                                                                            <C>               <C>   

System revenues ..............................................................                  $27,658          $21,753
Maintenance revenues .........................................................                    8,019            6,838
                                                                                                 ------            -----
   Total revenues ............................................................                   35,677           28,591
                                                                                                 ------           ------
Cost of system revenues ......................................................                   14,080           10,752
Cost of maintenance revenues .................................................                    4,547            4,343
                                                                                                 ------            -----
   Cost of revenues ..........................................................                   18,627           15,095
                                                                                                 ------           ------
Gross profit .................................................................                   17,050           13,496
                                                                                                 ------           ------
Operating expenses:
    Selling, general and administrative ......................................                   10,053            9,017
    Research and development .................................................                    4,607            3,548
                                                                                                 ------           ------
                                                                                                 14,660           12,565
                                                                                                 ------           ------
Earnings from operations .....................................................                    2,390              931
                                                                                                 ------           ------
Other income (expense):
    Interest and other income ................................................                      327              331
    Foreign exchange (loss) gain .............................................                     (204)             218
                                                                                                 ------           ------
                                                                                                    123              549
                                                                                                 ------           ------
Earnings before provision for income taxes ...................................                    2,513            1,480
Provision for income taxes ...................................................                      905              555
                                                                                                 ------           ------
Net earnings .................................................................                 $  1,608          $   925
                                                                                                 ======           ======

Per share data:
Basic earnings ...............................................................                 $    .12          $   .07
                                                                                                 ======           ======
Diluted earnings .............................................................                 $    .12          $   .07
                                                                                                 ======           ======

Weighted average shares:
Basic ........................................................................                   13,449           13,727
                                                                                                 ======           ======
Diluted ......................................................................                   13,679           13,869
                                                                                                 ======           ======

</TABLE>


<PAGE>


                    PERIPHONICS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                               Six Months Ended
                                                                                                  November 30,
                                                                                               1998             1997 
<S>                                                                                       <C>                <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ..................................................................             $   2,724       $  1,007
Adjustments to reconcile net earnings to net cash and cash
    equivalents used in operating activities:
    Depreciation and amortization .............................................                 3,269          2,559
    (Increase) decrease in deferred income taxes ..............................                  (314)           167
    Changes in operating assets and liabilities:
    (Increase) decrease in accounts receivables ...............................                (4,314)         4,066
    Increase in inventories ...................................................                (1,921)        (1,818)
    Increase in prepaid expenses and other current assets .....................                  (156)          (133)
    Increase in other assets ..................................................                   (47)           (45)
    Increase (decrease) in accounts payable and accrued expenses
     and other current liabilities ............................................                 3,016         (4,130)
                                                                                               ------         ------
    Net cash and cash equivalents provided by operating activities ............                 2,257          1,673
                                                                                               ------         ------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property, plant and equipment ................................               (3,651)        (3,635)
     Proceeds from sales of short-term investments ............................                 7,615           ----
     Purchases of short-term investments ......................................                (7,796)       (10,690)
                                                                                               ------         ------
     Net cash and cash equivalents (used in) provided by investing
       activities .............................................................                (3,832)        14,325
                                                                                               ------         ------

CASH FLOW FROM FINANCING ACTIVITIES:
     Purchase of treasury stock................................................                (3,534)          ----
     Proceeds from stock options exercised ....................................                   423            787
                                                                                                -----         ------
     Net cash and cash equivalents (used in) provided by financing
       activities .............................................................                (3,111)           787
                                                                                                -----         ------   

NET DECREASE IN CASH AND CASH EQUIVALENTS .....................................                (4,686)       (11,865)

CASH AND CASH EQUIVALENTS beginning of period .................................                14,810         25,092
                                                                                               ------         ------
CASH AND CASH EQUIVALENTS, end of period ......................................               $10,124        $13,227
                                                                                               ======         ======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ......................................................................               $ -----          -----
Income Taxes ..................................................................               $ 1,423        $ 3,081


</TABLE>

<PAGE>



                    PERIPHONICS CORPORATION AND SUBSIDIATIES
            NOTES TO UNAUDITED CONSOLIDATION OF FINANCIAL STATEMENTS


1.      BASIS OF PRESENTATION

       In  the  opinion  of  Periphonics   Corporation  and  subsidiaries   (the
       "Company"),  the accompanying unaudited consolidated financial statements
       contain all adjustments (consisting only of normal recurring adjustments)
       necessary  to  present  fairly the  financial  position,  the  results of
       operations,  and the cash flows at November  30, 1998 and for all periods
       presented.

       Certain information and footnote  disclosures normally included in annual
       financial  statements  prepared in  accordance  with  generally  accepted
       accounting  principles  have been  omitted.  These  financial  statements
       should be read in conjunction with the Consolidated  Financial Statements
       and Notes  included in the  Company's May 31, 1998 Annual Report and Form
       10-K as filed with the Securities and Exchange Commission.

       The results of operations for the three and six months ended November 30,
       1998 and November 30, 1997 are not necessarily  indicative of the results
       to be  expected  for the full  year.  Dollar  amounts  are  presented  in
       thousands except per share amount.


2.     EARNINGS PER SHARE

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


3.     INVENTORIES

       Inventories consist of the following:


                               November 30, 1998                   May 31, 1998
                               -----------------                   ------------

         Raw material               $ 9,081                           $ 8,528
         Work-in-process              6,906                             5,538
                                     ------                            ------
                                    $15,987                           $14,066
                                     ======                            ======


4.     STOCKHOLDERS' EQUITY

       On September 23, 1998, the Board of Directors approved a plan to offer to
       the holders of certain outstanding stock options, excluding all executive
       officers and members of the Board of Directors, the opportunity to cancel
       their  existing  options  and  receive new options for the same number of
       shares  but with an  exercise  price per share at the then  current  fair
       market   value  and  with  new   vesting   requirements.   As  a  result,
       approximately  572,700 options with exercise prices ranging from $7.00 to
       $31.00 per share were exchanged for new options with an exercise price of
       $6.75 per share as of October 8, 1998.









<PAGE>


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



Results of Operations

Six Months Ended November 30, 1998 compared to Six Months Ended November 30,1997

         Total Revenues.  Total revenues  increased by 29.2% to $66.1 million in
the first six months of fiscal 1999 from $51.2 million in the comparable  period
of the prior fiscal year. System revenues increased by 34.0% to $49.8 million in
the first six months of fiscal  1999  compared  with  $37.2  million in the same
period in the prior  fiscal year.  The increase in system  revenues was due to a
36.8% increase in domestic sales and a 29.7%  increase in  international  sales.
The increase in system  revenues was  primarily due to an increase in unit sales
volume.  Maintenance  revenues  increased by 16.3% to $16.3 million in the first
six months of fiscal 1999  compared with $14.0 million in the same period of the
prior fiscal year,  primarily  due to additions to the  maintenance  base and an
increase in installation revenues.

     Gross Profit. The Company's gross profit increased by $8.5 million to $32.7
million in the first six months of fiscal 1999  compared  with $24.2  million in
the comparable  period of the prior fiscal year. Gross profit as a percentage of
total  revenues  increased  to 49.5% in the  first six  months  of  fiscal  1999
compared with 47.3% in the comparable  period of the prior year. Gross profit on
system  revenues  increased  by $6.8  million to $25.4  million in the first six
months of fiscal 1999 compared with $18.6  million in the  comparable  period of
the prior fiscal year. The gross margin on system revenues increased to 50.9% in
the first six months of fiscal  1999  compared  with 49.9% in the same period of
the prior fiscal year.  The Company  attributes  this increase  primarily to the
product mix during the current six month  period,  with a larger  percentage  of
higher margin standard  hardware and software products and to an improved margin
on custom programming revenues.

Gross profit on maintenance revenues increased by $1.8 million, or 30.6% to $7.4
million in the first six months of fiscal 1999 compared with $5.6 million in the
comparable  period  of the prior  fiscal  year.  Gross  margins  on  maintenance
revenues increased to 45.2% in the first six months of fiscal 1999 compared with
40.3% in the comparable  period of the prior fiscal year. The increase in margin
was attributed to higher installation revenues and the addition of more units to
the service  base  partially  offset by higher  costs to support  organizational
growth.

         Selling,  General and  Administrative  Expenses.  Selling,  General and
Administrative ("SG&A") expenses were $19.8 million, or 30.0% of total revenues,
compared  with  $16.5  million,  or 32.2% of total  revenues,  for the first six
months of fiscal 1999 and 1998, respectively. The increased expense level can be
attributed  primarily  to the  Company's  continued  expansion  of its sales and
marketing  efforts designed to increase its market  penetration and market share
on a global basis.


<PAGE>


         Research and Development  Expenses.  Research and  Development  ("R&D")
expenses,  primarily  for new products  and  features,  increased  36.3% to $9.2
million,  or 13.9% of total  revenues,  compared with $6.8 million,  or 13.2% of
total  revenues,  for the first six months of fiscal  1998.  The increase in the
dollar amount of R&D expenses  reflects the continued  efforts of the Company to
broaden  the  scope  of  its  product  offerings  in  order  to  address  growth
opportunities  in the  marketplace.  R&D expenses are charged to  operations  as
incurred,  and no software development costs have been capitalized.  The Company
expects such  expenditures to continue to increase,  although such expenses as a
percentage of total revenues may vary from period to period.

         Other Income (Expense).  Other income was $0.7 million and $0.6 million
for the six months ended November 30, 1998 and 1997, respectively.  Interest and
other income was $0.7 million in the six months ended  November 30, 1998 and the
six months ended November 30, 1997.  The Company had a foreign  exchange gain of
$0.03  million in the six months ended  November 30, 1998  compared to a foreign
exchange loss of $0.1 million for the six months ended November 30, 1997. To the
extent the Company is unable to match  revenue  received  in foreign  currencies
with  expenses  paid in the same  currency,  it is  exposed to  fluctuations  in
international currency transactions.

         Income  Taxes.  Variations in the  customary  relationship  between the
provision for income taxes and the statutory  income tax rate  primarily  result
from the utilization of research and  development  tax credits,  state and local
income taxes, and exempt income of the Company's foreign sales corporation.  The
Company's  effective  income  tax  rates  were  37.5% for the six  months  ended
November 30, 1998 and November 30, 1997.

         Foreign Operations. The Company's European subsidiary had earnings from
operations of  approximately  $2.9 million  during the six months ended November
30, 1998 as  compared to a loss of  approximately  $1.3  million  during the six
months ended November 30, 1997. These earnings were attributed to an increase in
gross profit  primarily  attributable  to an increase of  approximately  200% in
system  revenues and an increase of  approximately  23% in maintenance  revenues
offset in part by increased  SG&A expenses to support the expansion of the sales
and marketing effort.  Transfers from the Company's North American operations to
its European subsidiary are accounted for at cost, plus a reasonable profit. The
cost of revenues for the Company's European  subsidiary  includes  approximately
$0.9  million  and $0.2  million  of  intercompany  gross  profit  earned by the
Company's  North  American   operations  on  system  revenues  by  the  European
subsidiary  to third parties  during the six months ended  November 30, 1998 and
November 30, 1997, respectively.



<PAGE>


     Three  Months  Ended  November  30,  1998  compared to Three  Months  Ended
November 30, 1997

     Total Revenues.  Total revenues  increased by 24.8% to $35.7 million in the
second  quarter of fiscal 1999  compared  with $28.6  million in the  comparable
period of the prior  fiscal  year.  System  revenues  increase by 27.1% to $27.7
million in the second  quarter of fiscal 1999 compared with $21.8 million in the
comparable  period of the prior fiscal year. The increase in system revenues was
due  to  a  30.5%  increase  in  domestic  revenues  and  a  22.6%  increase  in
international  revenues. The increase in system revenues was primarily due to an
increase in unit sales volume.  Maintenance  revenues increased by 17.3% to $8.0
million in the second  quarter of fiscal 1999  compared with $6.8 million in the
comparable  period of the prior fiscal year,  primarily  due to additions to the
maintenance base and an increase in installation revenues.

     Gross Profit. The Company's gross profit increased by $3.6 million to $17.1
million in the second  quarter of fiscal 1999 compared with $13.5 million in the
comparable  period of the prior  fiscal year.  Gross  profit as a percentage  of
total revenues  increased to 47.8% in the second quarter of fiscal 1999 compared
with 47.2% in the  comparable  period of the prior year.  Gross profit on system
revenues  increased  by $2.6 million to $13.6  million in the second  quarter of
fiscal 1999 compared with $11.0  million in the  comparable  period of the prior
fiscal  year.  The gross  margin on system  revenues  decreased  to 49.1% in the
second  quarter of fiscal  1999  compared  with 50.6% in the same  period of the
prior fiscal year. The Company attributes this decrease primarily to the product
mix during the current three month period.

Gross profit on maintenance revenues increased by $1.0 million, or 39.2% to $3.5
million in the second  quarter of fiscal 1999  compared with $2.5 million in the
comparable  period  of the prior  fiscal  year.  Gross  margins  on  maintenance
revenues  increased to 43.3% in the second  quarter of fiscal 1999 compared with
36.5% in the comparable period of the prior fiscal year. This increase in margin
was attributed to higher installation revenues and the addition of more units to
the maintenance base partially  offset by higher cost to support  organizational
growth.

         Selling,  General and  Administrative  Expenses.  Selling,  General and
Administrative  ("SG&A")  expenses  were $10.1  million and $9.0 million for the
second  quarter  of fiscal  1999 and 1998,  respectively,  or 28.2% and 31.5% of
total  revenues,  respectively.  The  increased  expense level can be attributed
primarily  to the  Company's  continued  expansion  of its sales  and  marketing
efforts designed to increase its market penetration and market share on a global
basis.

         Research and Development  Expenses.  Research and  Development  ("R&D")
expenses,  primarily  for new products  and  features,  increased  29.8% to $4.6
million,  or 12.9% of total  revenues,  compared with $3.5 million,  or 12.4% of
total  revenues,  for the second  quarter of fiscal  1998.  The  increase in the
dollar amount of R&D expenses  reflects the continued  efforts of the Company to
broaden  the  scope  of  its  product  offerings  in  order  to  address  growth
opportunities  in the  marketplace.  R&D expenses are charged to  operations  as
incurred,  and no software development costs have been capitalized.  The Company
expects such  expenditures to continue to increase,  although such expenses as a
percentage of total revenues may vary from period to period.

<PAGE>

         Other Income (Expense).  Other income was $0.1 million and $0.5 million
for the three months ended  November 30, 1998 and 1997,  respectively.  Interest
and other income was $0.3  million in the three  months ended  November 30, 1998
and November 30, 1997.  The Company had a foreign  exchange loss of $0.2 million
in the three months ended November 30, 1998 compared to a foreign  exchange gain
of $0.2 million for the three months ended  November 30, 1997. To the extent the
Company is unable to match revenue received in foreign  currencies with expenses
paid in the same  currency,  it is  exposed  to  fluctuations  in  international
currency transactions.

         Income  Taxes.  Variations in the  customary  relationship  between the
provision for income taxes and the statutory  income tax rate  primarily  result
from the utilization of research and  development  tax credits,  state and local
income taxes, and exempt income of the Company's  foreign revenues  corporation.
The  Company's  effective  income  tax rates  were 36.0% and 37.5% for the three
months ended November 30, 1998 and 1997, respectively.

Liquidity and Capital Resources

          The  Company's  principal  cash  requirement  to date has been to fund
working  capital  and  capital  expenditures  in order to support  the growth of
revenues.  Historically,  the Company has primarily  financed  this  requirement
through cash flow from operations,  bank borrowings and two public offerings for
the  Company's  common  stock in 1995,  which  resulted in an aggregate of $41.1
million of net  proceeds  to the  company.  Cash flow from  operations  was $2.3
million and $1.7  million for the six months  ended  November 30, 1998 and 1997,
respectively.  At November  30,  1998 the  Company had working  capital of $57.1
million,  including  $21.3 million of cash and cash  equivalents  and short-term
investments.  The Company  expects its working  capital needs to increase  along
with future revenue growth.

          At November 30, 1998, current assets and current liabilities increased
by $2.1  million  and $3.0  million,  respectively,  compared  to May 31,  1998.
Current  assets  increased  primarily  as a result of an  increase  in  accounts
receivables and inventories offset by a decrease in cash and cash equivalents as
a result of the  repurchase of 175,600  shares the  Company's  Common Stock at a
cost approximately $3.5 million.  Current liabilities increased primarily due to
increased accrued expenses and other current liabilities.

          The average  days sales  outstanding  (calculated  by dividing the net
accounts  receivable  at the  balance  sheet date for each period by the average
sales per day during the quarter  immediately  preceding the balance sheet date)
for this period were  approximately 107 days. The average days sales outstanding
were  107  days,  111  days,  and 83  days  at  May  31,  1998,  1997  and  1996
respectively.

          The Company's  inventory increased to $16.0 million as of November 30,
1998 from $14.1 million as of May 31, 1998.

          The Company has a $15.0 million  unsecured  line of credit with a bank
which  expires on November 30, 1999.  As of November 30, 1998 the Company had no
borrowings  under this line of credit.  Any borrowings under this line of credit
will bear interest at the prime rate or LIBOR plus 125 basis points.

     The  Company  made  capital  expenditures  totaling  $3.7  million and $3.6
million  during the six months  ended  November  30, 1998 and November 30, 1997,
respectively.  Financing  activities  during the first six months of fiscal 1999
included the  repurchase of 502,600  shares of the  Company's  common stock at a
cost of  approximately  $3.5 million,  pursuant to authorization by its Board of
Directors during fiscal 1999 to repurchase up to 1,300,000 shares.

          The Company  believes that its existing sources of working capital and
borrowing  available  under its  revolving  line of credit will be sufficient to
fund its operations and capital expenditures for at least 12 months.

<PAGE>

Year 2000 Compliance

          The  Year  2000  issue  exists  because  many  computer   systems  and
applications  use two-digit date fields to designate a year. As the century date
change occurs, date sensitive systems may not be able to recognize the year 2000
or may do so  incorrectly  as the year 1900.  This  inability  to  recognize  or
properly  interpret  the year 2000 may  result in the  incorrect  processing  of
financial and operational information.

          The  Company  has   initiated  a  program  to  upgrade  its   internal
information  systems to address any year 2000  compliance  issues.  This program
includes  a  focus  on  internal  policies,   methods  and  tools,  as  well  as
coordination  with  customers and suppliers.  The Company  expects its Year 2000
program to be completed on a timely basis.  However,  there is no assurance that
the Company will  identify and resolve any and all Year 2000  compliance  issues
with its information  systems in a timely manner,  that the expenses  associated
with such efforts will not be  significant,  or that such issues will not have a
material  adverse  effect  on the  Company's  business,  operating  results  and
financial condition.

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

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

Recent Financial Accounting Standards Board Statements

          Recent  pronouncements  of the Financial  Accounting  Standards  Board
("FASB") which are not required to be adopted at this date include, Statement of
Financial  Accounting  Standards  No.  131,  "Disclosures  about  Segments of an
Enterprise  and  Related  Information  ("SFAS  131"),   Statement  of  Financial
Accounting  Standards No. 132,  "Employers  Disclosures about Pensions and Other
Postretirement  Benefits"  ("SFAS 132") and  Statement  of Financial  Accounting
Standards   No.133,   "Accounting   for  Derivative   Instruments   and  Hedging
Instruments".  SFAS 131 and SFAS 132 are  effective  for fiscal years  beginning
after  December  15, 1997 and SFAS 133 is effective  for fiscal years  beginning
after June 15,  1999.  The adoption of these  pronouncements  is not expected to
have a material impact on the Company's consolidated financial statements.

<PAGE>

          The Company adopted  Statement of Financial  Accounting  Standards No.
130  effective  June 1, 1998 and the  adoption  had no  effect on the  Company's
financial statements as the Company had no components of comprehensive income.

          In October of 1997, the Accounting  Standards  Executive  Committee of
the American  Institute  of Certified  Public  Accountants  issued  Statement of
Position  97-2  "Software  Revenue  Recognition"  ("SOP 97-2").  This  statement
provides  guidance on  applying  generally  accepted  accounting  principles  in
recognizing  revenues  on  software  transactions.   This  Statement  supercedes
Statement of Position 91-1 "Software Revenue  Recognition".  The Company adopted
SOP 97-2 effective June 1, 1998.

          Based upon  Periphonics'  reading and  interpretation of SOP 97-2, the
implementation  of SOP 97-2 has not had a material adverse affect on revenues or
earnings. However, detailed implementation guidelines for this standard have not
yet been issued. Once issued, such detailed guidance could lead to unanticipated
changes in the  Company's  current  revenue  accounting  practices  and material
adverse changes in the Company's  reported  revenues and earnings.  In the event
implementation   guidance  is  contrary  to  the  Company's  revenue  accounting
practices,  the  Company  believes  it may be  possible  to change  its  current
business  practices to comply with this guidance and avoid any material  adverse
effect on reported  revenues and  earnings.  However,  there can be no assurance
this will be the case.

Foreign Currency Transaction

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


Inflation

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



Certain Factors That May Affect Future Results

          From time to time,  information  provided by the  Company,  statements
made by its employees or information included in its filings with the Securities
and Exchange Commission  (including this Form 10-Q) may contain statements which
are so-called  "forward-looking  statements"  and not  historical  facts.  These
forward-looking  statements  are made pursuant to the safe harbor  provisions of
the Private  Securities  Litigation  Reform Act of 1995.  The  Company's  actual
future results may differ significantly from those stated in any forward-looking
statements.   Forward-looking   statements   involve   a  number  of  risks  and
uncertainties,  including,  but not limited to, product demand,  pricing, market
acceptance,  litigation,  risks in product and technology  development and other
risk factors detailed from time to time in the Company's Securities and Exchange
Commission  reports  including  this  Form  10-Q for the  fiscal  quarter  ended
November 30, 1998 and its Form 10-K for the fiscal year ended May 31, 1998.

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

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

<PAGE>

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


<PAGE>


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 2. Changes in Securities

         None

Item 3. Defaults Upon Senior Securities

         None

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

         (a)  On  October  23,  1998,   the  Company  held  its  Annual  Meeting
              of Stockholders (the "Meeting").

         (b)  At  the  Meeting,  the  Stockholders  of  the  Company  elected
              Peter Breitstone and Kevin J. O'Brien as Class I directors.

         (c)  At the Meeting, the Stockholders of the Company approved the 
              amendment of the Company's 1995 Stock  Purchase  Plan to 
              increase the number of shares reserved for issuance thereunder
              from 400,00 to 800,000.

         (d)  The Stockholders of the Company then ratified the selection of
              Deloitte & Touche LLP as the  Company's  independent  auditors
              for the fiscal year ending May 31, 1999.

     The following sets forth the results of voting on each matter voted upon at
the meeting:

     1. Election of Directors

                                                For           Against
               Peter  Breitstone            12,493,264        137,663
               Kevin J. O'Brien             12,494,876        136,051

     2. Amendment of the Company's 1995 Stock Purchase Plan

                         For          Against           Abstained
                      12,273,198      253,218            104,511


     3.  Ratification  of  Deloitte  & Touch  LLP as the  Company's  independent
auditors for the fiscal year ending May 31, 1999

                         For          Against           Abstained
                      12,529,648       75,850            25,429

<PAGE>

     Item 5. Other Information

             None

     Item 6. Exhibits and Reports on Form 8-K

             (a) Exhibits

                *10.1 1995 Stock Purchase Plan, as amended

                 27.1 Financial Data Schedule

             (b) Reports on Form 8-K

                 None


______________

     *Incorporated  by reference to the Company's 1998 Proxy  Statement as filed
with the Securities and Exchange Commission on October 22, 1998.

<PAGE>



                                   SIGNATURES

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

                                            PERIPHONICS CORPORATION
                                            Registrant


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


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


Date: January 13, 1999