<PAGE>
=================================================================


                                  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 26, 1999 

                                       OR

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

For the transition period from                      to                  

Commission file number         0-25684                             

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

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

                 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, 1999 was 24,060,563 shares.

=================================================================
<PAGE>

                          PREMISYS COMMUNICATIONS, INC.

                                      INDEX

 PART I.  Financial Information                           Page No.

       Item 1.   Financial Statements

                 Condensed Consolidated Balance Sheet -
                 June 30, 1998 and March 31, 1999            3

                 Condensed Consolidated Statement of
                 Operations - Three and Nine Month
                 Periods ended March 31, 1998 and March      4
                 31, 1999

                 Condensed Consolidated Statement of         
                 Cash Flows - Nine Month Periods ended
                 March 31, 1998 and March 31, 1999           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              22

PART II.  Other Information

       Item 5.   Other Information                          24

       Item 6.   Exhibits and Reports on Form 8-K           24

       Signatures                                           25









<PAGE>



I.    FINANCIAL INFORMATION

ITEM 1.    Financial Statements


                          Premisys Communications, Inc.
                      Condensed Consolidated Balance Sheet
                      (in thousands except per share data)

                                                    June 30,    March
                                                                  31,
                                                      1998        1999
                                                   ---------   ---------
                                                              (unaudited)
                       ASSETS
 Current assets:
   Cash and cash equivalents                         $31,006     $13,514
   Short-term investments                             74,975      74,462
   Accounts receivable, net                           12,208      16,164
   Inventories                                         3,859       9,991
   Deferred tax assets                                 7,355       7,355
   Prepaid expenses and other assets                     962       1,180
                                                    ---------   ---------
     Total current assets                            130,365     122,666
 Property and equipment, net                           8,392       9,339
                                                    =========   =========
                                                    $138,757    $132,005
                                                    =========   =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

  Current liabilities:
    Accounts payable                                  $ 6,969     $ 8,178
    Accrued liabilities                                10,277       9,474
    Income taxes payable                                  735       4,832
                                                     ---------   ---------
      Total current liabilities                        17,981      22,484
                                                     ---------   ---------

  Put warrants                                            ---      10,625

                                                     ---------   ---------
  Stockholders' equity:
    Preferred Stock, $0.01 par value, 2,000 shares        ---         ---
      authorized; no shares issued or outstanding
    Common Stock, $0.01 par value, 100,000 shares
      authorized;  25,974 and 26,409 shares issued        260         264
      and outstanding
    Additional paid-in capital                         85,230      76,717
    Treasury Stock, 0 and 2,360 shares                    ---    (22,303)
    Retained earnings                                  35,286      44,218
                                                     ---------   ---------
      Total stockholders' equity                      120,776      98,896
                                                     =========   =========
                                                     $138,757    $132,005
                                                     =========   =========



See notes to condensed consolidated financial statements


<PAGE>




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

                                     Three Months Ended      Nine Months Ended
                                           March 31,             March 31,
                                     --------------------   -----------------
                                       1998       1999       1998      1999
                                     ----------  --------   --------  --------
Revenues                               $27,154   $26,734    $71,055   $77,139
Cost of revenues                         9,109    11,309     24,605    29,935
                                     ----------  --------   --------  --------

        Gross profit                    18,045    15,425     46,450    47,204
                                     ----------  --------   --------  --------

Operating expenses:
  Research and development               3,900     4,986     11,108    14,404
    Charge for in-process                4,431       ---      4,431       ---
    technologies
  Selling, general and                   7,714     7,542     19,877    21,415
    administrative
                                     ----------  --------   --------  --------

    Total operating expenses            16,045    12,528     35,416    35,819
                                     ----------  --------   --------  --------

Income from operations                   2,000     2,897     11,034    11,385
Interest and other income, net             923       873      2,506     2,793
                                     ----------  --------   --------  --------

Income before income taxes               2,923     3,770     13,540    14,178
Provision for income taxes               1,082     1,395      5,010     5,246
                                     ----------  --------   --------  --------

Net income                             $ 1,841   $ 2,375     $8,530    $8,932
                                     ==========  ========   ========  ========

Net income per share:
   Basic                                $ 0.07    $ 0.10     $ 0.33    $ 0.36
                                     ==========  ========   ========  ========
   Diluted                              $ 0.07    $ 0.10     $ 0.31    $ 0.35
                                     ==========  ========   ========  ========

Shares used in computing net income per share:
   Basic                                25,630    24,030     25,467    24,776
                                     ==========  ========   ========  ========
   Diluted                              27,507    24,628     27,457    25,599
                                     ==========  ========   ========  ========


See notes to condensed consolidated financial statements


<PAGE>



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


                                      Nine Months Ended March 31,
                                         1998         1999
                                       ----------   ----------

Cash flows from operating activities:
  Net income                           $   8,530    $   8,932
  Adjustments to reconcile net income
   to net cash provided by (used in)
   operating activities:
    Depreciation                           1,652        2,534
    Changes in assets and liabilities:
       Accounts receivable                 1,711      (3,956)
     Inventories                           2,992      (6,132)
     Prepaid expenses and other assets     2,712        (218)
     Accounts payable                        828        1,209
     Accrued liabilities                   3,084        (803)
            Income taxes payable           1,630        4,097
                                       ----------   ----------
Net cash provided by operating            23,139        5,663
  activities
                                       ----------   ----------

Cash flows from investing activities:
  Purchase of property and equipment     (2,664)      (3,481)
    Purchase of short-term investments  (30,365)          513
                                       ----------   ----------
Net cash used in investing activities   (33,029)      (2,968)
                                       ----------   ----------

Cash flows from financing activities:
   Proceeds from issuance of Common        2,557        2,116
  Stock, net
   Repurchase of Common Stock                ---     (22,303)
                                       ----------   ----------

Net cash provided by (used in)             2,557     (20,187)
  financing activities
                                       ----------   ----------

 Net decrease in cash                     (7,333)     (17,492)

Cash and cash equivalents at              28,923       31,006
  beginning of period
                                       ----------   ----------

Cash and cash equivalents at end of                
  period                               $  21,590    $  13,514
                                       ==========   ==========

Supplemental disclosures:
  Cash paid for income taxes           $      54    $   1,889


See notes to condensed consolidated financial statements


<PAGE>



                          Premisys Communications, Inc.
             Notes to Condensed Consolidated Financial Statements


NOTE 1 - Basis of Presentation
    The accompanying  unaudited condensed consolidated financial statements have
been prepared in accordance with generally  accepted  accounting  principles for
interim  financial  information and with the  instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not contain all of the information
and footnotes required by generally accepted accounting  principles for complete
financial statements.  In the opinion of management,  the accompanying unaudited
condensed consolidated financial statements have been prepared on the same basis
as the audited  consolidated  financial  statements and include all adjustments,
consisting  only  of  normal  recurring  adjustments,  necessary  for  the  fair
statement of the Company's  financial position as of March 31, 1999, the results
of its  operations for the three and nine month periods ended March 31, 1998 and
1999,  and its cash flows for the nine month  periods  ended  March 31, 1998 and
1999.  These  financial  statements  should  be read  in  conjunction  with  the
Company's audited financial statements as of June 30, 1997 and 1998 and for each
of the three years in the period ended June 30, 1998,  including  notes thereto,
included in the Company's Annual Report on Form 10-K.  Operating results for the
nine month period  ended March 31, 1999 are not  necessarily  indicative  of the
results that may be expected for the year ending June 30, 1999.

    The Company has a 52/53 week fiscal  accounting year that ends on the Friday
closest to June 30.  Accordingly,  fiscal periods shown herein as ending on June
30,  1998 and  March  31,  1998 and 1999 for  financial  statement  presentation
purposes actually reflect amounts for the fiscal periods ended on June 26, 1998,
March 27, 1998 and March 26, 1999.

NOTE 2 - Inventories (in thousands)
                                           June 30,   March 31,
                                             1998        1999
                                           ---------  -----------
                                                      (unaudited)
  Raw materials                             $  582      $ 1,220
  Work-in-process                              676        1,482
  Finished goods                             2,601        7,289
                                           ---------  -----------
                                           $ 3,859      $ 9,991
                                           =========  ===========

NOTE 3 - Earnings Per Share


                         March 31, 1998                    March 31, 1999
                 ------------------------------- -------------------------------
  Three Month       Net      Shares       Per       Net      Shares        Per
     Period        Income   (Denominator) Share    Income  (Denominator)  Share
     Ended       (Numerator)              Amount (Numerator)              Amount
                 ------------------------------- -------------------------------
                              (in thousands except per share data)
Basic EPS
Net income
(loss) available 
to common        $1,841      25,630       $0.07    $2,375     24,030       $0.10
stockholders

Effect of
Dilutive
Securities
Common stock                                       
equivalents      ----         1,877                  ----        598
                 ------------------                 ----------------

Diluted EPS
Net income
(loss)
available to     
common           
stockholders
and assumed
conversions      $1,841     27,507        $0.07   $2,375      24,628       $0.10
                 ==============================  ===============================

<PAGE>

                         March 31, 1998                    March 31, 1999
                 ------------------------------- -------------------------------
   Nine Month       Net      Shares       Per       Net      Shares        Per
     Period        Income   (Denominator) Share    Income  (Denominator)  Share
     Ended       (Numerator)              Amount (Numerator)              Amount
                 ------------------------------- -------------------------------
                              (in thousands except per share data)
Basic EPS
Net income
(loss) available 
to common        $8,530      25,467       $0.33    $8,932     24,776       $0.36
stockholders

Effect of
Dilutive
Securities
Common stock                                       
equivalents      ----         1,990                  ----        823
                 ------------------                 ----------------

Diluted EPS
Net income
(loss)
available to     
common           
stockholders
and assumed
conversions      $8,530     27,457        $0.31   $8,932      25,599       $0.35
                 ==============================  ===============================

      Options to purchase  712,587,  3,601,629,  833,410 and 2,179,583 shares of
Common Stock were  outstanding  during the three month  periods  ended March 31,
1998  and 1999 and the  nine  month  periods  ended  March  31,  1998 and  1999,
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 - Changes in Stockholders' Equity

                                           (in thousands)
    Stockholders' equity at June 30, 1998    $ 120,776
    Put warrants                              (10,625)
    Repurchase of stock                       (22,303)
    Issuance of stock                            2,116
    Net income                                   8,932
                                            =============
    Stockholders' equity at March 31, 1999    $ 98,896
                                            =============

      On August 31,  1998,  the  Company's  Board of  Directors  authorized  the
repurchase,  at  management's  discretion,  of up to 4.0  million  shares of the
Company's  Common Stock at market  prices not to exceed  $14.00 per share and as
the market and business  conditions  warrant.  As of March 26, 1999, the Company
had  repurchased for cash 2.4 million shares at market prices ranging from $6.69
to $10.94 per share. As of September 17, 1998,  pursuant to the authorized stock
repurchase program,  the Company sold 2.0 million put warrants and purchased 1.5
million call options.  On January 26, 1999, the Company dissolved the obligation
for 1.0 million put  warrants  and 0.75 million call options that were to expire
on January 29, 1999. As a result,  the Company currently has a maximum potential
obligation  related to the put warrants of $10.65  million.  The  remaining  1.0
million put warrants and 0.75 million call options expire on September 15, 1999.

NOTE 5 - Comprehensive income

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

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 and Section 27A of the Securities Act
of  1933.  These  forward-looking  statements  involve  a number  of  risks  and
uncertainties  which are described  throughout this Form 10-Q,  including demand
from and its  relationships  with its  strategic  partners and major  customers,
including ADC Telecommunications  ("ADC"),  Motorola, Inc. ("Motorola"),  Nortel
Networks,   Inc.  ("Nortel"),   Paradyne  Corporation   ("Paradyne"),   Teleport
Communications Group ("Teleport") and XEL Communications,  Inc. ("XEL"); limited
order backlog and quarterly fluctuations; delays and cancellations of actual and
projected  customer  orders;  new product  development and  introductions by the
Company and its competitors  including products based on the technology licensed
by the Company from Positron Fiber Systems Corporation ("Positron") and Switched
Network  Technologies  ("SNT");  deregulation of, and legislation  regarding the
domestic and  international  telecommunications  industry;  continued success of
competitive  local  exchange  carriers  ("CLECs")  in taking  market  share from
incumbent  carriers  in  the  U.S.  business   communications  services  market;
availability  and  market  acceptance  of the  SlimLine,  StreamLine  and  Q-155
products;  rapidly changing  technologies  and the Company's  ability to respond
thereto; the growth of demand for telecommunications  services such as wireless,
cellular  and the  Internet;  competition;  changes  in the mix of  products  or
customers or in the level of operating  expenses;  and other  factors  described
throughout this Form 10-Q,  including  under  "Revenues" and "Other Factors That
May Affect Future Operating Results," and in the Company's Annual Report on Form
10-K for the year  ended June 30,  1998.  The actual  results  that the  Company
achieves  may differ  materially  from those  described  in any  forward-looking
statements due to such risks and uncertainties. The Company has identified using
an asterisk  ("*")  various  sentences  within this Form 10-Q which contain such
forward-looking  statements,  and  words  such  as  "believes",   "anticipates",
"expects",  "intends,"  "will" and similar  expressions are intended to identify
forward-looking  statements, but are not the exclusive means of identifying such
statements.  In addition,  the section  labeled  "Other  Factors That May Affect
Future  Operating  Results",  which  does not  include  asterisks  for  improved
readability,  consists  primarily  of  forward-looking  statements.  The Company
undertakes no obligation  to revise any  forward-looking  statements in order to
reflect  events or  circumstances  that may arise after the date of this report.
Readers are urged to carefully review and consider the various  disclosures made
by the Company in this report and in the Company's  other reports filed with the
Securities  and Exchange  Commission,  including its Form 10-K,  that attempt to
advise interested parties of the risks and factors that may effect the Company's
business.

Revenues
                                  Three Months Ended March 31,
                                 --------------------------------
                                    1998     % Change    1999
            Revenues             $27,154,000   (2%)    $26,734,000

                                   Nine Months Ended March 31,
                                 --------------------------------
                                    1998     % Change    1999
            Revenues             $71,055,000    9%     $77,139,000


     Revenues consist  primarily of gross sales of products,  less discounts and
sales  returns and  allowances.  The decrease in revenues from the quarter ended
March 31, 1998 to the quarter  ended March 31, 1999 is  primarily  the result of
lower  average sales prices for both  platforms and modules.  While unit volumes
for  platforms  and modules grew  slightly in the quarter  ended March 31, 1999,
compared with the March 1998 quarter, the average sales prices of both platforms
and modules decreased during the quarter ended March 31, 1999 versus the quarter
ended March 31,  1998.  The  decrease in average  sales  prices is the result of
increased  pricing  competition  in  the  Company's  market.  Telecommunications
carriers  are  having to  compete  more on price  for local  access to small and
medium sized  businesses  and, as a result,  the carriers  are  demanding  price
reductions from access  equipment  suppliers.  The increase in revenues from the
nine month  period ended March 31, 1998 to the nine month period ended March 31,
1999 is the result of an increase in unit volumes of platforms and modules sold,
partially  offset by lower average sales prices for platforms and modules due to
the market forces  discussed  above.  The increase in unit volumes from the nine
month  period ended March 31, 1998 to the nine month period ended March 31, 1999
is primarily the result of an increase in shipments of the Company's products to
Teleport,  XEL and Nortel.  See "Other Factors That May Affect Future  Operating
Results - Indirect Channels of Distribution."  Revenues  increased slightly from
$25,395,000 in the quarter ended December 31, 1998 to $26,734,000 in the quarter
ended  March 31,  1999  primarily  as a result  of  increased  shipments  of the
Company's  products to Nortel and Other  Domestic  Customers,  mostly  offset by
lower shipments of the Company's products to ADC and Motorola.

      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,  1998 and 1999,  other
domestic  customers  as a group  and  international  customers  as a  group,  in
absolute  dollars and as a percentage  of total  revenues.  The category  "Other
Domestic  Customers"  is the  aggregate of all domestic  customers  individually
representing less than 10% of the Company's revenues for the reported period.


                              Three Months Ended March 31,
                        -----------------------------------------
                           1998       %         1999        %
                        -------------------  --------------------
ADC                     $ 5,716,000    21%   $   (a)         ---
Paradyne                  3,901,000    14%     7,737,000     29%
Alcatel                   3,831,000    14%       (a)         ---
DSC                       2,898,000    11%       (a)         ---
Teleport                    (a)        ---     3,362,000     13%
XEL                         (a)        ---     3,584,000     13%
Nortel                      (a)        ---     4,939,000     18%
Other Domestic           
Customers                10,419,000    38%     6,918,000     26%
International Customers     389,000     2%       194,000      1%
                        ===================  ====================
Total Revenues          $27,154,000   100%   $26,734,000    100%
                        ===================  ====================


                              Nine Months Ended March 31,
                        -----------------------------------------
                           1998       %         1999        %
                        -------------------  --------------------
ADC                     $21,171,000    30%   $   (a)         ---
Paradyne                  9,341,000    13%    23,182,000     30%
Motorola, Inc.              (a)        ---     8,164,000     11%
Teleport                    (a)        ---     7,974,000     10%
Other Domestic           
Customers                36,409,000    51%    35,709,000     46%
International Customers   4,134,000     6%     2,110,000      3%
                        ===================  ====================
Total Revenues          $71,055,000   100%   $77,139,000    100%
                        ===================  ====================

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

      The Company  sells a  substantial  majority  of its  products to a limited
number of customers  which  generally  resell the  Company's  products to public
carriers and end users. Customers  individually  representing 10% or more of the
Company's  revenues  for the three month  periods  ended March 31, 1998 and 1999
totaled 60% and 73% of the Company's total revenues,  respectively. For the nine
month  periods  ended  March  31,  1998  and  1999,   revenues  from   customers
individually  representing 10% or more of the Company's revenues totaled 43% and
51% of the Company's total revenues, respectively. The change in the percentages
from fiscal 1998 to 1999  reflects the growth of the  Company's  other  domestic
customers and the increased  acceptance of the Company's products.  *The loss of
any one or more of the Company's major  customers would have a material  adverse
effect  on  the  Company's   business  and  operating   results.   *Any  of  the
telecommunications  equipment  suppliers  that  market  and sell  the  Company's
products could elect to cease  marketing and selling the Company's  products and
there can be no assurance that these telecommunications equipment suppliers will
continue to place  orders  with the Company or that the Company  will be able to
obtain orders from new telecommunications  equipment suppliers or end users. See
"Other Factors That May Affect Future Operating  Results - Indirect  Channels of
Distribution," "-Limited Order Backlog" and "-Relationship with Paradyne."

    During  the three and nine  month  periods  ended  March  31,  1999,  direct
international  revenues  accounted  for 1% and  3% of  the  Company's  revenues,
respectively,  compared to 2% and 6% for the three and nine month  periods ended
March 31, 1998.  The  decrease in revenues for the three and nine month  periods
ended March 31, 1999 versus the  comparable  periods in fiscal 1998 is primarily
the result of uncertain economic  conditions in Asian and Russian  marketplaces,
areas where the Company has experienced success in the past, and secondarily the
result of a lack of product  that has all of the  features  and meets all of the
protocols  demanded  in  international  markets.  In order to sell its  products
internationally,  the Company must meet standards  established by  international
telecommunications  committees and authorities in various  countries.  While the
Company  continues its  homologation  efforts in various  countries to meet such
standards, international telecommunication industry deregulation has complicated
and slowed this  process.  *Accordingly,  the Company does not  anticipate  that
international  sales will  increase  significantly  in the near future either in
absolute dollars or as a percentage of revenues. *Conducting business outside of
the United States is subject to certain risks,  including longer payment cycles,
unexpected  changes  in  regulatory  requirements  and  tariffs,  more  volatile
economic  conditions,  risks  associated with foreign  currency  exchange rates,
difficulties in staffing and managing foreign operations,  greater difficulty in
accounts receivable collection and potentially adverse tax consequences.



Gross Profit
                                  Three Months Ended March 31,
                                 --------------------------------
                                    1998     % Change    1999
          Gross Profit           $18,045,000   (15%)   $15,425,000
  As a percentage of revenues        66%                  58%

                                   Nine Months Ended March 31,
                                 --------------------------------
                                    1998     % Change    1999
          Gross Profit           $46,450,000    2%     $47,204,000
  As a percentage of revenues        65%                  61%

      Cost of  revenues  consists of  component  costs,  compensation  costs and
overhead  related  to  the  Company's  manufacturing   operations  and  warranty
expenses.  Gross profit  decreased  from the quarter ended March 31, 1998 to the
quarter  ended  March 31,  1999  primarily  as a result of lower  product  gross
margins.  Gross profit increased from the nine month period ended March 31, 1998
to the nine month  period  ended March 31, 1999  primarily as a result of higher
unit shipment volumes partially offset by lower product gross margins. The gross
margin  decreased  from 66% and 65% in the quarter and nine month  periods ended
March 31, 1998 to 58% and 61% in the quarter and nine month  periods ended March
31,  1999  primarily  as a result  of:  (1)  increased  sales  of the  Company's
lower-margin  products  and (2) lower  average  sales prices for  platforms  and
modules.  *The Company expects its gross margins for the quarter ending June 30,
1999 to decline slightly from the levels  experienced in the quarter ended March
31, 1999 due  primarily  to  continuing  competitive  pressures on prices and to
increases in the mix of  lower-margin  products.  *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,
                                 --------------------------------
                                    1998     % Change    1999
    Research and development     
            expenses             $3,900,000     28%    $4,986,000
  As a percentage of revenues        14%                  19%

                                   Nine Months Ended March 31,
                                 --------------------------------
                                    1998     % Change    1999
    Research and development     
            expenses             $11,108,000    30%    $14,404,000
  As a percentage of revenues        16%                  19%

      Research and development expenses consist of personnel costs,  consulting,
testing, supplies and depreciation expenses. All software development costs have
been  expensed  in  the  period  in  which  they  were  incurred.  Research  and
development expenses increased  $1,086,000,  or 28%, from the three months ended
March 31, 1998 to the  comparable  period in fiscal 1999 and by  $3,296,000,  or
30%, from the nine month period ended March 31, 1998 to the comparable period in
fiscal 1999. This increase was due to the combination of increased  expenses for
personnel  and  equipment  associated  with  the  development  of the  Company's
SlimLine,  StreamLine and Q-155 products. Research and development expenses as a
percentage  of the  Company's  revenues  increased  in the three and nine  month
periods ended March 31, 1999 versus the comparable  periods ended March 31, 1998
due  primarily  to the  lower  than  expected  revenue  growth  in each of these
comparison  periods.  *In the quarter ending June 30, 1999, the Company  expects
that these  expenses will increase both in absolute  dollars and as a percentage
of revenues as compared to the quarter ended March 31, 1999. *These expectations
are subject to a number of risks,  including  the  Company's  ability to realize
expected revenue levels and meet spending expectations.

Charge for In-process Technologies

      The Company  expensed,  in the quarter ended March 31, 1998,  $4.4 million
for licensing cell and packet  technologies  and related  development  software.
This charge is shown  separately as "Charge for in-process  technologies" in the
Condensed  Consolidated Statement of Operations in this Form 10-Q. *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,
                                 --------------------------------
                                    1998     % Change    1999
      Selling, general and       
    administrative expenses      $7,714,000    (2%)    $7,542,000
  As a percentage of revenues        28%                  28%

                                   Nine Months Ended March 31,
                                 --------------------------------
                                    1998     % Change    1999
      Selling, general and       
    administrative expenses      $19,877,000    8%     $21,415,000
  As a percentage of revenues        28%                  28%

      Selling expenses consist  principally of compensation  costs for sales and
marketing personnel (including sales commissions and bonuses),  travel expenses,
customer support expenses, trade show expenses and advertising expenses. General
and  administrative  expenses  consist  primarily of  compensation  expenses for
administration,  finance, and general management personnel, as well as legal and
audit fees. Selling,  general and administrative expenses decreased $172,000, or
2%,  from the three  months  ended March 31,  1997 to the  comparable  period in
fiscal 1998 and increased by $1,538,000, or 8%, from the nine month period ended
March 31, 1998 to the comparable period in fiscal 1999. The decrease in expenses
from the quarter  ended  March 31,  1998 to the quarter  ended March 31, 1999 is
primarily the result of lower compensation, trade show and advertising expenses.
The increase  from the nine month period ended March 31, 1998 to the  comparable
period  in fiscal  1999 was  primarily  the  result of  increased  staffing  and
associated expenses,  and, to a lesser extent,  customer support expenses in the
first nine months of fiscal  1999  versus the first nine months of fiscal  1998.
There  was no  change in  selling,  general  and  administrative  expenses  as a
percentage of the Company's revenues between the three and nine month comparison
periods.  *The Company  expects that these  expenses will remain flat during the
fourth  quarter of fiscal 1999 as compared to the quarter  ended March 31, 1999.
*The  Company does not expect that these  expenses as a  percentage  of revenues
will increase during the next several quarters. *However, these expectations are
subject  to a number  of risks,  including  the  Company's  ability  to  realize
expected revenue levels and meet spending expectations.


Interest and Other Income, net
                                  Three Months Ended March 31,
                                 --------------------------------
                                    1998     % Change    1999
 Interest and other income, net   $ 923,000    (5%)    $ 873,000
  As a percentage of revenues        3%                   3%

                                   Nine Months Ended March 31,
                                 --------------------------------
                                    1998     % Change    1999
 Interest and other income, net  $ 2,506,000    11%    $2,793,000
  As a percentage of revenues        4%                   4%

           Interest  and other  income,  net  consists of  interest  income less
interest expense,  and, to a much lesser extent,  foreign currency exchange rate
gains and losses. The decrease in interest and other income, net, from the three
month  period ended March 31, 1998 as compared to the same period in fiscal 1999
was due to lower cash  balances  as cash was used for the  repurchase  of common
stock. The increase in interest and other income, net, for the nine month period
ended March 31, 1999 as compared to the same period ended March 31, 1998 was due
to increased  interest income from higher cash balances  invested in high grade,
marketable  fixed  income  securities  versus lower  yielding  bank money market
accounts.

Provision (Benefit) for Income Taxes
                                  Three Months Ended March 31,
                                 --------------------------------
                                    1998     % Change    1999
   Provision for income taxes    $1,082,000     29%    $1,395,000
   As a percentage of income         37%                  37%
          before taxes

                                   Nine Months Ended March 31,
                                 --------------------------------
                                    1998     % Change    1999
   Provision for income taxes    $5,010,000     5%     $5,246,000
   As a percentage of income         37%                  37%
          before taxes

           The Company's provision for income taxes represents estimated federal
and state income  taxes.  The  Company's  effective tax rate for the quarter and
nine month period ended March 31, 1999 remained at 37%,  which was less than the
combined  federal and state  statutory  rate as a result of tax-exempt  interest
income from the Company's municipal securities portfolio.

Net Income per Share
                                    Three Months Ended March 31,
                                   --------------------------------
                                       1998     % Change   1999
            Net income              $1,841,000    29%    $2,375,000
  Net income per share (diluted)      $0.07       43%      $0.10
 Shares used in computing diluted   27,507,000   (10%)   24,628,000
       net income per share

                                     Nine Months Ended March 31,
                                   --------------------------------
                                       1998     % Change   1999
            Net income              $8,530,000     5%    $8,932,000
  Net income per share (diluted)      $0.31       13%      $0.35
 Shares used in computing diluted   27,457,000    (7%)   25,599,000
       net income per share

      In  comparison  to the quarter  ended March 31,  1998,  net income for the
March 1999 quarter increased from $1,841,000 to $2,375,000 or 29%. Net income in
the nine month  period  ended March 31, 1999  increased  $402,000 or 5% from the
nine month period ended March 31, 1998. However, net income in the quarter ended
March 31,  1998 was  reduced by a $4.4  million  pre-tax  charge for  in-process
technologies  (see  "Charge For  In-Process  Technologies"  above).  This charge
reduced net income in the three and nine month  periods  ended March 31, 1998 by
$2.8 million or $0.10 per share. Without this charge, diluted earnings per share
would have  decreased from $0.17 in the March 1998 quarter to $0.10 in the March
1999  quarter  and from $0.41 in the nine month  period  ended March 31, 1998 to
$0.35 for the comparable period in fiscal 1999.


Liquidity and Capital Resources

                                  Nine Months Ended March 31,
                                    1998     % Change    1999
Net cash  provided by  operating
activities                       $23,139,000   (76%)   $5,663,000
Period end cash, cash
equivalents and short-term
investments                      $96,256,000   (9%)    $87,976,000
Period end working capital       $100,448,000  (0%)    $100,182,000


      At March 31, 1999, the Company had approximately $88 million of cash, cash
equivalents  and  short-term  investments.  Net cash  totaling  $5.7 million was
provided by  operating  activities  during the nine months ended March 31, 1999,
due  primarily  to net income of $8.9  million  and  increases  in income  taxes
payable and accounts  payable  aggregating  $5.3  million,  offset  partially by
increases in inventories and accounts receivable, aggregating $10.1 million.

        Cash used in investing activities during the nine months ended March 31,
1999  consisted  primarily of purchases of property and equipment  totaling $3.5
million.  Financing  activities  during the nine  months  ended  March 31,  1999
resulted  in a net  use of  cash of  $20.2  million.  The net use of cash is the
result of $22.3 million of cash used in the  repurchase of the Company's  Common
Stock  partially  offset by cash  provided by the  issuance  of Common  Stock in
connection with the Company's employee benefit plans.

      As of March 31, 1999, the Company's working capital was approximately $100
million.  Except  for the  potential  obligation  related  to put  warrants,  as
discussed  below and in the  Company's  Quarterly  Reports  on Form 10-Q for the
quarters  ended  September  30, 1998 and December  31, 1998,  the Company has no
significant capital spending or purchase  commitments other than normal purchase
commitments and commitments  under  facilities and capital leases.  *The Company
believes that its available  funds and  anticipated  cash flows from  operations
will satisfy the Company's  projected  working  capital and capital  expenditure
requirements for at least the next twelve months.

      On August 31,  1998,  the  Company's  Board of  Directors  authorized  the
repurchase,  at  management's  discretion,  of up to 4.0  million  shares of the
Company's  Common Stock at market  prices not to exceed  $14.00 per share and as
market and business  conditions  warrant.  As of March 26, 1999, the Company had
repurchased  for cash 2.4 million  shares at market prices ranging from $6.69 to
$10.94 per share.  As of September 17, 1998,  pursuant to the  authorized  stock
repurchase program,  the Company sold 2.0 million put warrants and purchased 1.5
million call options.  On January 26, 1999, the Company dissolved the obligation
for 1.0 million put  warrants  and 0.75 million call options that were to expire
on January 29, 1999. As a result,  the Company currently has a maximum potential
obligation  related to the put warrants of $10.65  million.  The  remaining  1.0
million put warrants and 0.75 million call options expire on September 15, 1999.


Other Factors That May Affect Future Operating Results

      As referenced in the first paragraph of this Item 2, this section consists
primarily of forward looking  statements and associated  risks but, for improved
readability, does not include asterisks.

      COMPETITION.   The  market  for  telecommunications   products  is  highly
competitive and subject to rapid  technological  change. The Company's principal
competition to date has been from major telecommunications  equipment suppliers,
such as Newbridge  Networks  Corporation and Tellabs,  Inc., which offer a broad
line of products  including  access devices for business  applications  and from
newer  companies,   such  as  Carriers  Access  Corporation   ("CAC")  and  Vina
Technologies  ("VINA").  The Company  has  experienced  and expects  substantial
additional  competition  from existing  competitors as they develop  products to
compete with the  functionality  and flexibility of the Company's  products.  As
shipments of the Company's SlimLine and StreamLine products increase, it expects
to face additional  competition from channel bank and CSU/DSU vendors as well as
with new startups  focusing on the access  equipment  market.  The Q-155 product
will likely compete with  broadband  access  products  offered or announced by a
number of vendors  including Fibex which was recently acquired by Cisco Systems.
Certain of the telecommunications equipment suppliers which market the Company's
products  have  recently  either  acquired or expressed an interest in acquiring
companies which have products or technologies that either do or may compete with
the Company's products. Other telecommunications equipment suppliers that market
and  distribute  the  Company's  products  may in the future  develop or acquire
products  that could be sold for selected  applications  for which the Company's
products are currently provided.  Successful  development or acquisition of such
products  could  reduce  the  level  of  demand  from  these  telecommunications
equipment  suppliers  for the  Company's  products.  In  addition,  the  Company
believes that there will be an increase in the intensity of price competition in
the markets  served by the  Company's  products.  Thus,  while unit  volumes are
expected to increase, the Company believes that the rate of increase of revenues
will be lower than the rate of increase in units. While the Company has recently
begun  selling  is  StreamLine  and  SlimLine  products,  which  are more  price
competitive  than its IMACS  platform,  these new products  must compete with an
increasing number of low priced integrated access devices ("IADs"). As a result,
the Company may find it more  difficult to achieve  expected  levels of revenues
and profitability.

      LIMITED ORDER BACKLOG.  The Company typically  operates with limited order
backlog,  and a majority  of its  revenues  in each  quarter  result from orders
booked in that quarter.  Also,  the Company has from  time-to-time  recognized a
majority of its  revenues  from sales  booked and shipped in the last month of a
quarter,  including  the  quarter  ended  March 31,  1999.  Due to the  delivery
requirements  of its  customers,  the Company  expects to continue to experience
limited order backlog.  The Company's  manufacturing  procedures are designed to
assure rapid response to customer demand, but may, in some circumstances, create
risk of excess or inadequate inventory,  which may have an adverse affect on the
Company's  business and operating  results.  The Company's  agreements  with its
customers  typically  allow  customers  to  cancel  orders  or  delay  scheduled
shipments without penalty until a relatively short period of time before planned
shipment. The Company has experienced  cancellation of orders from time to time,
and  expects to receive  order  cancellations  from time to time in the  future,
which could adversely  affect the Company's  revenues for a quarter or series of
quarters. Because a substantial portion of customer orders are filled within the
fiscal quarter of receipt,  and because of the ability of customers to revise or
cancel orders and change delivery  schedules without  significant  penalty,  the
Company  believes  that its  backlog  as of any  given  date is not  necessarily
indicative of actual revenues for any succeeding period.

      DEPENDENCE  ON KEY  PERSONNEL.  The  Company's  success  to date  has been
significantly  dependent on the  contributions  of its senior officers and other
key  employees.  The loss of the  services  of any one of the  Company's  senior
officers or key employees could have a material  adverse effect on the Company's
business  and  operating  results.  The  Company's  success  also  depends  to a
significant   extent  on  its   ability   to  attract   and  retain   additional
highly-skilled  technical,  managerial  and sales and marketing  personnel,  the
competition  for whom is  intense.  In December  1998,  Nicholas  Williams,  the
Company's  President  and CEO suffered  exposure to  sub-freezing  weather.  Mr.
Williams returned to work on a full-time basis in March 1999.

     INDIRECT CHANNELS OF DISTRIBUTION. Substantial portions of the sales of the
Company's  products are through  indirect  channels of  distribution.  Thus, the
Company's  ability to affect and judge the  timing and size of  individual  user
orders is more limited than for manufacturers  selling directly to the end users
of their  products.  Any of thc  strategic  partners  that  market  and sell the
Company's  products  could elect to cease  marketing  and selling the  Company's
products,  and there can be no  assurance  that these  strategic  partners  will
continue to place  orders  with the Company or that the Company  will be able to
obtain orders from new strategic partners or end users. See "-Relationship  with
Paradyne."  Strategic  partners  could  develop  products that could be sold for
selected  applications for which the Company's products are currently  provided,
which could reduce the level of demand from these  telecommunications  equipment
suppliers  for the  Company's  products.  See  "Competition."  In addition,  the
Company's  revenues for a given quarter may depend to a significant  degree upon
planned product shipments for a single carrier's  equipment  deployment project.
For example, in thc quarters ended September 30 and December 31, 1997, March 31,
1998  and  June  30,  1998,   shipments  of  the   Company's   products  to  MCI
Communications  Corporation ("MCI"), through ADC, one of the Company's strategic
distribution partners, represented more than 10% of the Company's total revenues
for such quarters.  Revenues derived from particular  carrier projects have been
and continue to be  difficult  to forecast due to a relatively  long sales cycle
and delays in the timing of such projects.  For example, the Company's financial
results  for the first  quarter  of fiscal  1999 were  adversely  affected  when
product shipments for MCI were lower than expected.  The Company's  business and
operating  results were also  adversely  affected in the quarter ended March 31,
1997 as a result of deployment delays by particular carriers. Similar delays may
occur in the  future  and would  have a  significant  impact if they did  occur.
Delays  can  be  caused  by  late  deliveries  by  other  vendors,   changes  in
implementation  priorities,  slower  than  anticipated  growth in demand for the
services that the equipment  supports or in the capital  expenditures of the end
user customer,  consolidation among carriers and delays in obtaining  regulatory
approvals for new tariffs.  See "-Mergers of the Company's  Customers." Revenues
can also be  affected by delays in initial  shipments  of new  products  and new
software releases developed by the Company. See "-Rapidly Evolving  Technology."
In developing countries,  delays and reductions in the planned deployment of the
Company's products can also be caused by sudden declines in the local economy or
capital  availability  and by new import  controls.  Suppliers of the  Company's
products have in the past and may in the future build  significant  inventory in
order to facilitate more rapid  deployment of anticipated  major projects or for
other reasons.  Decisions by such suppliers to sell from their  inventory  could
lead to reductions in purchases  from the Company.  These  reductions,  in turn,
could cause fluctuations in the Company's  operating results and have an adverse
effect on the Company's  business and operating  results in the periods in which
the inventory is utilized. In addition,  the Company has in the past experienced
delays as a result of the need to modify  its  products  to comply  with  unique
customer specifications.  There can be no assurance that any future delays would
not have an adverse effect.

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

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

      RAPIDLY EVOLVING TECHNOLOGY.  The  telecommunications  equipment market is
characterized  by  rapidly  changing   technologies  and  frequent  new  product
introductions,  which  include  cell and  packet  technologies  and new  digital
subscriber line  technologies  ("xDSL").  The Company's success will depend to a
substantial  degree  upon its  ability to respond to changes in  technology  and
customer requirements.  This will require the timely selection,  development and
marketing of new and cost effective  products and enhancements.  The Company has
licensed  certain  technology from Positron for inclusion in the Company's Q-155
products,  which were announced in June 1997. The Company began field trials for
this product in the quarter ending December 31, 1998 and shipped its first Q-155
product in the quarter  ended March 31, 1999.  Also,  in the quarter ended March
31,  1998,  the Company  licensed  cell and packet  technologies  from SNT.  The
Company intends to ship products based upon the SNT technology in calendar 1999.
However, there can be no assurance that the Company will be able to successfully
develop new products or new  enhancements  to existing  products on a timely and
cost-effective  basis. The Company may also experience delays in connection with
its product  development  efforts,  which can impact expected operating results.
For example, the Company's shipment of its new SlimLine product had been delayed
for several  quarters due to hardware and software  revisions  necessary to make
the product more acceptable in the marketplace.  In addition, failure to achieve
market  acceptance of new products  could have a material  adverse effect on the
Company's operating results.  The introduction of new and enhanced products also
requires that the Company  manage  transitions  from older  products in order to
minimize  disruptions in customer orders, avoid excess inventory of old products
and ensure that  adequate  supplies of new  products  can be  delivered  to meet
customer orders. In the past, certain of the Company's newly introduced products
have contained undetected errors and incompatibilities  with installed products,
which has resulted in losses and delays in market  acceptance of such  products.
As the functionality and complexity of the Company's  products continue to grow,
the  Company  has  experienced  and may in the future  experience  an  increased
incidence  of such  errors or  failures  as well as delays  in  introducing  its
products.

      RELATIONSHIP WITH PARADYNE.  The Company has a strategic relationship with
Paradyne,  formerly a wholly-owned  subsidiary of AT&T,  that involves the joint
development,  marketing and sale of the Company's IMACS product by Paradyne. The
Company's  agreement  with Paradyne  provides  Paradyne  exclusive  distribution
rights with respect to the products  covered by the agreement to AT&T  entities,
as defined under the  agreement.  At the time that the Company  entered into its
OEM agreement  with Paradyne,  Paradyne was a 100%-owned  subsidiary of AT&T. In
1996, AT&T separated into three  publicly-held  stand-alone  businesses,  one of
which - Lucent - would focus on the  communications  equipment  market.  In June
1996,  Lucent  concluded a stock purchase  agreement for the sale of Paradyne to
the Texas Pacific Group. In the quarter ended March 31, 1997, Paradyne announced
new products  which are  extensions  of its existing  line of CSU/DSU  products.
Premisys  believes that the higher  capacity  models of  Paradyne's  916x series
offer  features that are similar to those of the Company's  IMACS and StreamLine
products.  See "-Competition" and "-Rapidly Evolving Technology." In the quarter
ended December 31, 1997,  the Company  entered into an OEM agreement with Lucent
for the purchase of the SlimLine and StreamLine products directly from Premisys.
Although  sales to  Paradyne  declined  34% from  fiscal  1997 to  fiscal  1998,
shipments  to  Paradyne  represented  a  significant  portion  of the  Company's
revenues in fiscal 1998 and continue to represent a  significant  portion of the
Company's revenues in fiscal 1999. Neither Paradyne nor Lucent is subject to any
minimum  purchase  requirements,  and there can be no  assurance  that they will
continue to place orders with the Company.  Significant  reductions in shipments
to Paradyne could have a material  adverse effect on the Company's  business and
operating results.

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

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

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

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

      Internal  infrastructure  readiness:  An assessment  of internal  computer
software and hardware has been  completed  with the assistance of a third party.
The  Company  has  migrated  to  an  upgraded  version  of  its  enterprise-wide
accounting and  manufacturing  system,  which is Year 2000 compliant.  For other
systems,  the Company has identified all  non-compliant  systems,  established a
project for prioritized  system  compliance,  and is in the process of executing
under such  compliance  project.  Other systems are scheduled to be compliant no
later than August 1999. In addition to applications  and information  technology
hardware,  the Company is testing and developing  remediation plans for embedded
systems, facilities and other operations.

      Supplier  readiness:  This  program  is  focused  on  minimizing  the risk
associated with suppliers in two areas: (1) a supplier's  business capability to
continue  providing  products and services,  and (2)  compliance of a supplier's
products with Year 2000.  Suppliers have been  identified and contacted based on
their  criticality  to the Company.  The Company has received  responses  from a
significant  number of its preferred  suppliers.  Most of the respondents are in
the process of developing  remediation  plans.  Supplier issues that potentially
affect the Company's products are targeted to be resolved by July 1999.

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


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

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

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

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

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

      The Company,  in the normal  course of  business,  is subject to the risks
associated  with foreign  currency  exchange  rates,  fluctuations in the market
value of its fixed income securities available-for-sale, and changes in interest
rates. Please refer to Item 7A - "Quantitative and Qualitative Disclosures About
Market Risk" of the Company's  Form 10-K for the fiscal year ended June 26, 1998
for a more detailed discussion.

      There has been no significant  change in the Company's exposure to foreign
currency  fluctuations  during  the  quarter  ended  March 31,  1999  versus the
quarters ended June 30, September 30, and December 31, 1998.

      The fair market value of the Company's fixed income  securities  portfolio
at June  30,  1998  and  March  31,  1999  was  $89  million  and  $85  million,
respectively,  with the corresponding unrealized gain included as a component of
shareholders'  equity. The average weighted duration of the portfolio  increased
from 0.99 years at June 30, 1998 to 1.28 years at March 31, 1999.

      The following table presents the hypothetical change in the aggregate fair
market value of the  Company's  fixed income  securities  portfolio at March 31,
1999 which  would  result if the  Federal  Funds Rate  changed as shown.  Market
changes  reflect  immediate  hypothetical  parallel shifts in the yield curve of
plus or minus 50 basis points (BPS), 100 BPS and 150 BPS.

                            Decrease in Federal  Increase in Federal
                                Funds Rate            Funds Rate
                           -------------------------------------------
Change in Federal Funds    (150   (100     (50     50    100     150
Rate (BPS)                  BPS)   BPS)     BPS)   BPS   BPS     BPS
----------------------------------------------------------------------
Change in Securities       $1,651 $1,090   $529  ($545)($1,082)($1,610)
Valuation ($000's)

      The Company also has a potential  obligation related to put warrants.  See
Note 4, "Changes in Stockholders'  Equity," of "Notes to Condensed  Consolidated
Financial Statements" in this Form 10-Q.


<PAGE>




II.   OTHER INFORMATION

ITEM 5.  Other Information

In March 1999, Claude Dupuis, Vice President,  Premisys  Communications (Canada)
Inc.,  assumed the role of Senior Vice President,  Engineering,  replacing Boris
Auerbuch who has been acting in this capacity since October 1998. Boris Auerbuch
has resumed his role as Senior Vice President and Chief Technical Officer of the
Company.


ITEM   6.  Exhibits and Reports on Form 8-K

A.  Exhibits

    Exhibit No.  Description of Exhibit

27.01              Financial Data Schedule (Nine month period ended
                   March 26, 1999)


B.  Reports on Form 8-K

      None




<PAGE>




                                   SIGNATURES

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



                                      PREMISYS COMMUNICATIONS, INC.


          May 10, 1999                   /S/ Robert W. Dilfer
---------------------------------   --------------------------------
              Date                         Robert W. Dilfer
                                     Vice President and Controller
                                     (Duly Authorized Officer and
                                       Chief Accounting Officer)




<PAGE>





                                  Index to Exhibits




Exhibit No.      Description of Exhibit

27.01              Financial Data Schedule (Nine month period ended
                   March 26, 1999)


<PAGE>


Exhibit 27.01