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 June 30, 2001

          [ ] 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 1-8191

                               PORTA SYSTEMS CORP.
                               -------------------
             (Exact name of registrant as specified in its charter)

                      Delaware                          11-2203988
                      --------                          ----------
          (State or other jurisdiction of            (I.R.S. Employer
           incorporation or organization)           Identification No.)

                   575 Underhill Boulevard, Syosset, New York
                   ------------------------------------------
                    (Address of principal executive offices)

                                      11791
                                      -----
                                   (Zip Code)

                                  516-364-9300
                                  ------------
                (Company'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 of 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 ______

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

      Common Stock (par value $0.01) 9,909,248 shares as of August 6, 2001


                                  Page 1 of 14
<PAGE>

PART I.- FINANCIAL INFORMATION

Item 1- Financial Statements

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                June 30,   December 31,
                                                                                  2001         2000
                                                                                --------   ------------
               Assets                                                          (Unaudited)
               ------
<S>                                                                             <C>         <C>
Current assets:
     Cash and cash equivalents                                                  $    654    $  2,366
     Accounts receivable -- trade, less allowance for doubtful accounts            6,098       7,425
     Inventories                                                                   6,079       7,150
     Prepaid expenses and other current assets                                     1,138       1,130
                                                                                --------    --------
                  Total current assets                                            13,969      18,071
                                                                                --------    --------
      Property, plant and equipment, net                                           4,045       4,555
      Goodwill, net                                                                9,960      10,357
      Other assets                                                                   661       1,191
                                                                                --------    --------
                  Total assets                                                  $ 28,635    $ 34,174
                                                                                ========    ========
                           Liabilities and Stockholders' Deficit
                           -------------------------------------
Current liabilities:
      Senior debt                                                               $ 21,170    $ 20,746
      Subordinated notes                                                           6,144       6,144
      Accounts payable                                                             7,344       7,173
      Accrued expenses                                                             4,690       5,385
      Accrued interest payable                                                     1,176         766
      Accrued commissions                                                          1,674       1,553
      Income taxes payable                                                           278         259
      Accrued deferred compensation                                                  196         196
      Short-term loans                                                                13           1
                                                                                --------    --------
                  Total current liabilities                                       42,685      42,223
                                                                                --------    --------

6% convertible subordinated debentures                                               379         376
Deferred compensation                                                                902         987
Income taxes payable                                                                 117         154
Other long-term liabilities                                                          883         918
Minority interest                                                                    155         308
                                                                                --------    --------
                  Total long-term liabilities                                      2,436       2,743
                                                                                --------    --------

                  Total liabilities                                               45,121      44,966
                                                                                --------    --------

Stockholders' deficit:

      Preferred stock, no par value; authorized 1,000,000 shares, none issued         --          --
      Common stock, par value $.01; authorized 20,000,000 shares, issued
       9,909,248 shares at June 30, 2001 and 9,817,165 shares at
          December 31, 2000                                                           99          98
       Additional paid-in capital                                                 76,048      75,980
       Accumulated deficit                                                       (86,878)    (81,135)
       Accumulated other comprehensive loss:
          Foreign currency translation adjustment                                 (3,817)     (3,797)
                                                                                --------    --------
                                                                                 (14,548)     (8,854)
        Treasury stock, at cost                                                   (1,938)     (1,938)
                                                                                --------    --------
                  Total stockholders' deficit                                    (16,486)    (10,792)
                                                                                --------    --------
                  Total liabilities and stockholders' deficit                   $ 28,635    $ 34,174
                                                                                ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                  Page 2 of 14
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
     Unaudited Consolidated Statements of Operations and Comprehensive Loss
                      (In thousands, except per share data)

                                                              Six Months Ended
                                                            June 30,    June 30,
                                                              2001        2000
                                                            --------    --------
Sales                                                      $ 15,957    $ 29,756
Cost of sales                                                11,618      20,470
                                                           --------    --------
     Gross profit                                             4,339       9,286

Selling, general and administrative expenses                  5,362       6,998
Research and development expenses                             2,621       3,067
                                                           --------    --------
         Total expenses                                       7,983      10,065
                                                           --------    --------
         Operating loss                                      (3,644)       (779)

Interest expense                                             (2,295)     (1,965)
Interest income                                                  25          56
Other income                                                     43          12
                                                           --------    --------

       Loss before income taxes and minority interest        (5,871)     (2,676)

Income tax expense                                              (17)        (61)
Minority interest                                               144         156
                                                           --------    --------

Net loss                                                   $ (5,744)   $ (2,581)
                                                           ========    ========
Other comprehensive loss, net of tax:
         Foreign currency translation adjustments               (20)        (98)
                                                           --------    --------

Comprehensive loss                                         $ (5,764)   $ (2,679)
                                                           ========    ========
Per share data:

Basic per share amounts:

         Net loss per share of common stock                $  (0.58)   $  (0.27)
                                                           ========    ========
         Weighted average shares outstanding                  9,872       9,722
                                                           ========    ========
Diluted per share amounts:

         Net loss per share of common stock                $  (0.58)   $  (0.27)
                                                           ========    ========
         Weighted average shares outstanding                  9,872       9,722
                                                           ========    ========

     See accompanying notes to unaudited consolidated financial statements.


                                  Page 3 of 14
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
     Unaudited Consolidated Statements of Operations and Comprehensive Loss
                      (In thousands, except per share data)

                                                             Three Months Ended
                                                            June 30,    June 30,
                                                              2001        2000
                                                            --------    --------
Sales                                                      $  8,915    $ 13,828
Cost of sales                                                 5,990      10,258
                                                           --------    --------
     Gross profit                                             2,925       3,570

Selling, general and administrative expenses                  2,784       3,863
Research and development expenses                             1,434       1,659
                                                           --------    --------
         Total expenses                                       4,218       5,522
                                                           --------    --------
         Operating loss                                      (1,293)     (1,952)

Interest expense                                             (1,292)     (1,031)
Interest income                                                   9          29
Other income                                                     15           7
                                                           --------    --------
       Loss before income taxes and minority interest        (2,561)     (2,947)
Income tax expense                                               (2)        (31)
Minority interest                                                52          91
                                                           --------    --------
Net loss                                                   $ (2,511)   $ (2,887)
                                                           ========    ========
Other comprehensive loss, net of tax:

         Foreign currency translation adjustments               (23)       (135)
                                                           --------    --------
Comprehensive loss                                         $ (2,534)   $ (3,022)
                                                           ========    ========
Per share data:

Basic per share amounts:
         Net loss per share of common stock                $  (0.25)   $  (0.30)
                                                           ========    ========
         Weighted average shares outstanding                  9,900       9,782
                                                           ========    ========
Diluted per share amounts:
         Net loss per share of common stock                $  (0.25)   $  (0.30)
                                                           ========    ========
         Weighted average shares outstanding                  9,900       9,782
                                                           ========    ========

     See accompanying notes to unaudited consolidated financial statements.


                                  Page 4 of 14
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                 Unaudited Consolidated Statements of Cash Flows
                                 (In thousands)


                                                              Six Months Ended
                                                             June 30,   June 30,
                                                               2001       2000
                                                             --------   --------
Cash flows from operating activities:
     Net loss                                                $(5,744)   $(2,581)
     Adjustments to reconcile net loss to net cash
       provided by operating activities:
         Non-cash financing expenses                             123         15
         Depreciation and amortization                         1,067        776
         Amortization of discount on convertible
           subordinated debentures                                 3         13
         Minority interest                                      (144)      (156)
Changes in assets and liabilities:
         Accounts receivable                                   1,327       (217)
         Inventories                                           1,071        248
         Prepaid expenses                                         (8)       (77)
         Other assets                                            405          3
         Accounts payable, accrued expenses and other
              liabilities                                       (131)      (517)
                                                             -------    -------
              Net cash used in operating activities           (2,031)    (2,493)
                                                             -------    -------
     Cash flows from investing activities:
         Capital expenditures, net                              (150)    (1,285)
                                                             -------    -------
                 Net cash used in investing activities          (150)    (1,285)
                                                             -------    -------
     Cash flows from financing activities:
         Proceeds from senior debt                               824      4,490
         Repayments of senior debt                              (400)      (982)
         Proceeds from exercised options and warrants             30        140
         Net proceeds of short term loans                         12        (39)
                                                             -------    -------
              Net cash provided by financing activities          466      3,469

     Effect of exchange rate changes on cash                       3       (117)
                                                             -------    -------
     Decrease in cash and cash equivalents                    (1,712)      (286)

     Cash and equivalents -- beginning of the year             2,366      3,245
                                                             -------    -------
     Cash and equivalents -- end of the period               $   654    $ 2,959
                                                             =======    =======
     Supplemental cash flow disclosures:
         Cash paid for interest expense                      $   899    $ 1,853
                                                             =======    =======
         Cash paid for income taxes                          $    99    $   109
                                                             =======    =======


     See accompanying notes to unaudited consolidated financial statements.


                                  Page 5 of 14
<PAGE>

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Management's  Responsibility For Interim Financial  Statements Including
        All Adjustments Necessary For Fair Presentation

      Management  acknowledges  its  responsibility  for the  preparation of the
accompanying  interim  consolidated   financial  statements  which  reflect  all
adjustments, consisting of normal recurring adjustments, considered necessary in
its opinion for a fair statement of its consolidated  financial position and the
results of its operations for the interim periods presented.  These consolidated
financial  statements  should  be  read  in  conjunction  with  the  summary  of
significant  accounting policies and notes to consolidated  financial statements
included  in the  Company's  annual  report to  stockholders  for the year ended
December 31, 2000. The audit opinion included in the December 31, 2000 Form 10-K
annual report contained an explanatory paragraph regarding the Company's ability
to continue as a going concern. Results for the first six months of 2001 are not
necessarily indicative of results for the year.

Note 2: Inventories

      Inventories  are stated at the lower of cost (on the average or  first-in,
first-out  methods) or market.  The composition of inventories at the end of the
respective periods is as follows:

                               June 30, 2001     December 31, 2000
                               -------------     -----------------
                                          (in thousands)
Parts and components               $3,398             $4,973
Work-in-process                       648                543
Finished goods                      2,033              1,634
                                   ------             ------
                                   $6,079             $7,150
                                   ======             ======

Note 3: Senior Debt

      On June 30, 2001, the Company's debt to its senior lender was $21,170,000.
During  the six and  three  months  ended  June 30,  2001,  the  Company  repaid
principal of $400,000 and $0, respectively. The Company borrowed $824,000 during
the six and  three-month  periods ended June 30, 2001.  The  agreement  with the
senior lender expires on September 5, 2001 and, accordingly, the senior debt has
been classified as a current liability at June 30, 2001.

      The Company's borrowings exceed the maximum borrowings under the borrowing
base  formula.  The senior  lender has agreed to allow the  Company to defer the
repayment of borrowings  in excess of the maximum  under the formula,  defer all
monthly  facility  fees  and  all  principal  payments  to  the  earlier  of the
termination  of the agreement on September 5, 2001 or the sale of one or more of
the divisions or assets of the Company. The agreement also precludes the Company
from making any payments on indebtedness to any subordinated creditors, although
it permits payment of accounts payable in the ordinary course of business.

      In April 2001, the Company and its senior lender agreed to add all current
and future interest due, which will be computed at 14%, to the principal balance
through the loan expiration date. As consideration, the Company agreed to reduce
the exercise price of the outstanding warrants to purchase approximately 570,000
shares of common stock held by its senior  lender to $0.25 per share.  The value
of the reduction in exercise price was $39,000 and recorded as interest  expense
and additional paid in capital.


                                  Page 6 of 14
<PAGE>

      Financial  debt  covenants  include an interest  coverage  ratio  measured
quarterly, limitations on the incurrence of indebtedness, limitations on capital
expenditures, and prohibitions on declarations of any cash or stock dividends or
the repurchase of the Company's  stock. As of June 30, 2001, the Company was not
in compliance with the interest coverage covenant. The Company has obtained from
the senior lender a waiver of  non-compliance  with the interest  coverage ratio
and the over advance under the line through the loan expiration date. The senior
lender has  prohibited  the  Company  from  making  payments  to the  holders of
subordinated  debt  as  long  as  the  indebtedness  to  the  senior  lender  is
outstanding.

Note 4: Subordinated Notes

      As  of  June  30,  2001,  the  Company  has   outstanding   $6,144,000  of
subordinated  notes, of which $900,000 was due on January 2, 2001 and $5,244,000
became due on July 2, 2001.  Pursuant to the Company's agreement with its senior
lender,  the Company is  prohibited  from paying  principal  and interest on the
subordinated notes.

      The Company is engaged in negotiations with respect to an extension of its
obligations on the subordinated notes, but it cannot give assurance that it will
be successful in entering into such an agreement.  In July 2001, the holder of a
subordinated  note in the  principal  amount  of  $500,000  commenced  an action
against the Company on its note. See Note 6.

Note 5: Segment Data

      The Company has three reportable segments:  Line Connection and Protection
Equipment  ("Line")  whose  products  interconnect  copper  telephone  lines  to
switching  equipment and provides fuse elements that protect telephone equipment
and personnel from electrical  surges;  Operating  Support Systems ("OSS") whose
products automate the testing,  provisioning,  maintenance and administration of
communication  networks and the  management of support  personnel and equipment;
and Signal Processing  ("Signal") whose products are used in data  communication
devices that employ high frequency transformer technology.

      The factors used to determine the above segments focused  primarily on the
types of products and services provided,  and the type of customer served.  Each
of these  segments  is  managed  separately  from  the  others,  and  management
evaluates segment performance based on operating income.

      There has been no  significant  change from December 31, 2000 in the basis
of measurement of segment revenues and profit or loss, and no significant change
in the Company's assets.

<TABLE>
<CAPTION>
                                 Six Months Ended              Three Months Ended
                         June 30, 2001   June 30, 2000   June 30, 2001   June 30, 2000
                         -------------   -------------   -------------   -------------
<S>                      <C>             <C>             <C>             <C>
Sales:
    Line                 $  7,316,000    $ 10,512,000    $  3,468,000    $  4,418,000
    OSS                     5,478,000      15,305,000       4,113,000       7,191,000
    Signal                  2,828,000       3,588,000       1,176,000       2,010,000
                         ------------    ------------    ------------    ------------
                         $ 15,622,000    $ 29,405,000    $  8,757,000    $ 13,619,000
                         ============    ============    ============    ============

Segment profit (loss):
    Line                 $    753,000    $  1,905,000    $    217,000    $    636,000
    OSS                    (2,684,000)       (727,000)       (370,000)     (1,278,000)
    Signal                    410,000         642,000          65,000         340,000
                         ------------    ------------    ------------    ------------
                         $ (1,521,000)   $  1,820,000    $    (88,000)   $   (302,000)
                         ============    ============    ============    ============
</TABLE>


                                  Page 7 of 14
<PAGE>

The following table reconciles segment totals to consolidated totals:

<TABLE>
<CAPTION>
                                       Six Months Ended                Three Months Ended
                                  June 30, 2001  June 30, 2000    June 30, 2001  June 30, 2000
                                  -------------  -------------    -------------  -------------
<S>                               <C>             <C>             <C>             <C>
Sales:
    Total revenue for reportable
         segments                 $ 15,622,000    $ 29,405,000    $  8,757,000    $ 13,619,000
    Other revenue                      335,000         351,000         158,000         209,000
                                  ------------    ------------    ------------    ------------
    Consolidated total revenue    $ 15,957,000    $ 29,756,000    $  8,915,000    $ 13,828,000
                                  ============    ============    ============    ============
Operating income (loss):
    Total segment Profit (loss)
    for reportable segments       $ (1,521,000)   $  1,820,000    $    (88,000)   $   (302,000)
    Corporate and unallocated       (2,123,000)     (2,599,000)     (1,205,000)     (1,650,000)
                                  ------------    ------------    ------------    ------------
    Consolidated total
    operating loss                $ (3,644,000)   $   (779,000)   $ (1,293,000)   $ (1,952,000)
                                  ============    ============    ============    ============
</TABLE>

Note 6: Legal Proceedings

      In July 2001, the holder of a subordinated note in the principal amount of
$500,000  commenced an action against the Company in the United States  District
Court for the Southern District of New York seeking payment of the principal and
accrued  interest on their  subordinated  notes which were payable in July 2001.
The payment of the note is subordinated to payment of the Company's  senior debt
and the Company believes that the subordination  provision of the note prohibits
payment by the Company.  The Company's  obligations under the subordinated notes
are reflected as current liabilities on the Company's balance sheet.

Note 7: New Accounting Standards

      In June 2001,  the Financial  Accounting  Standards  Board  finalized FASB
Statements No. 141, Business  Combinations (SFAS 141), and No. 142, Goodwill and
Other  Intangible  Assets (SFAS 142).  SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business  combinations  initiated  after June 30, 2001.  SFAS 141
also requires that the Company recognize  acquired  intangible assets apart from
goodwill if the  acquired  intangible  assets meet  certain  criteria.  SFAS 141
applies to all  business  combinations  initiated  after  June 30,  2001 and for
purchase  business  combinations  completed  on or after July 1,  2001.  It also
requires,  upon adoption of SFAS 142, that the Company  reclassify  the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

      SFAS 142 requires,  among other things,  that companies no longer amortize
goodwill,  but instead  test  goodwill  for  impairment  at least  annually.  In
addition,  SFAS 142 requires that the Company  identify  reporting units for the
purposes of assessing  potential  future  impairments of goodwill,  reassess the
useful  lives  of  other  existing  recognized   intangible  assets,  and  cease
amortization of intangible  assets with an indefinite useful life. An intangible
asset  with an  indefinite  useful  life  should be  tested  for  impairment  in
accordance  with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal  years  beginning  after  December  15,  2001 to all  goodwill  and other
intangible assets recognized at that date,  regardless of when those assets were
initially  recognized.  SFAS 142 requires the Company to complete a transitional
goodwill  impairment  test six months from the date of adoption.  The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.


                                  Page 8 of 14
<PAGE>

      The Company's previous business  combinations were accounted for using the
purchase  method.  As of June 30, 2001,  the net carrying  amount of goodwill is
$9,960,000. Amortization expense during the six-month period ended June 30, 2001
was $397,000. Currently, the Company is assessing but has not yet determined how
the  adoption of SFAS 141 and SFAS 142 will impact its  financial  position  and
results of operations.

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

      The  Company's  consolidated  statements  of  operations  for the  periods
indicated below, shown as a percentage of sales, are as follows:

                                       Six Months Ended   Three Months Ended
                                       ----------------   ------------------
                                           June 30,            June 30,
                                           --------            --------
                                        2001     2000       2001     2000
                                        ----     ----       ----     ----
Sales                                   100%     100%       100%     100%
Cost of Sales                            73%      69%        67%      74%
Gross Profit                             27%      31%        33%      26%
Selling, general and administrative
  expenses                               34%      24%        31%      28%
Research and development expenses        16%      10%        16%      12%
     Operating loss                     (23%)     (3%)      (14%)    (14%)
Interest expense -- net                 (14%)     (6%)      (14%)     (7%)
Other income                              0%       0%         0%       0%
Minority interest                         1%       0%         0%       0%
Income taxes                              0%       0%         0%       0%
Net loss                                (36%)     (9%)      (28%)    (21%)

      The  Company's  sales by product line for the periods  ended June 30, 2001
and 2000 are as follows:

                                             Six Months Ended
                                             ----------------
                                                  June 30,
                                                  --------
                                         2001                 2000
                                         ----                 ----
                                           (Dollars in thousands)

        Line                      $ 7,316     46%       $10,512     35%
        OSS                         5,478     34%        15,305     52%
        Signal                      2,828     18%         3,588     12%
        Other                         335      2%           351      1%
                                  -------    ---        -------    ---
                                  $15,957    100%       $29,756    100%
                                  =======    ===        =======    ===

                                            Three Months Ended
                                            ------------------
                                                  June 30,
                                                  --------
                                         2001                 2000
                                         ----                 ----
                                           (Dollars in thousands)

        Line                      $ 3,468     39%       $ 4,418     32%
        OSS                         4,113     46%         7,191     52%
        Signal                      1,176     13%         2,010     15%
        Other                         158      2%           209      1%
                                  -------    ---        -------    ---
                                  $ 8,915    100%       $13,828    100%
                                  =======    ===        =======    ===


                                  Page 9 of 14
<PAGE>

Results of Operations

      The Company's sales for the six months ended June 30, 2001 compared to the
six months ended June 30, 2000 decreased by $13,799,000  (46%) from  $29,756,000
in 2000 to  $15,957,000  in 2001.  Sales for the quarter  ended June 30, 2001 of
$8,915,000 decreased by $4,913,000 (36%) compared to $13,828,000 for the quarter
ended June 30, 2000.  The decrease in sales for the six and three month  periods
reflects lower levels of sales from all divisions.

      Line sales for the six months ended June 30 decreased from  $10,512,000 to
$7,316,000,  or $3,196,000  (30%) from 2000 to 2001.  Sales for the three months
ended June 30 decreased by $950,000 (22%) from  $4,418,000 in 2000 to $3,468,000
in 2001.  The decrease for the six and three months ended June 30, 2001 reflects
reduced  sales  primarily to  customers  in the United  Kingdom and Mexico and a
general slow down in the telecommunications industry.

      OSS sales for the six months ended June 30, 2001 were $5,478,000  compared
to the six months ended June 30, 2000 of  $15,305,000,  a decrease of $9,827,000
(64%).  OSS revenue  for the three  months  ended June 30,  2001 was  $4,113,000
compared to the three  months ended June 30, 2000 of  $7,191,000,  a decrease of
$3,078,000  (43%).  Both the  six-month  and three  months  ended June 30,  2001
include approximately $1,000,000 of revenue generated from the Company's initial
iScan order.  The decreased sales during the six and three months ended June 30,
2001  reflected  lower  shipments to Fujitsu  Telecommunications  Europe Limited
which provided approximately $11,000,000 and $5,100,000,  respectively, of sales
in the six and three months periods of 2000.  These shipments were made pursuant
to a contract which was completed during 2000.

      Signal  sales for the six  months  ended  June 30,  2001  were  $2,828,000
compared  to the six months  ended June 30,  2000 of  $3,588,000,  a decrease of
$760,000  (21%).  Sales for the three months ended June 30, 2001 were $1,176,000
compared to the three  months ended June 30, 2000 of  $2,010,000,  a decrease of
$834,000  (41%).  The  decrease  in sales  for the six and  three-month  periods
primarily  reflects customer requested shipping delays and a general slowdown in
the order rate from customers.

      Gross  margin for the six months  ended June 30, 2001 was 27%  compared to
31% for the six months  ended June 30,  2000.  This  decline in gross  margin is
attributable to the decreased level of sales. Due to the low level of sales, the
Company was unable to absorb  certain  fixed  expenses  associated  with the OSS
contracts  primarily in the first quarter of 2001.  Gross margin for the quarter
ended June 30, 2001 was 33% compared to 26% for the quarter ended June 30, 2000.
This improvement in gross margin is attributable to sales of iScan software at a
high  margin  and  a  reduced  level  of  expenses   reflecting   the  Company's
reorganization  of its OSS division,  which was somewhat offset by lower margins
from the line and signal business units due to reduced sales volumes.

      Selling, general and administrative expenses decreased by $1,636,000 (23%)
from $6,998,000 to $5,362,000 for the six months ended June 30, 2001 compared to
2000.  For the quarter ended June 30, 2001 selling,  general and  administrative
expenses decreased by $1,079,000 (28%) from 2000. The decrease from 2000 to 2001
for the six and three  months  primarily  reflects  reduced  professional  legal
expenses and decreased expenses  reflecting the Company's  reorganization of its
sales and marketing efforts of its OSS division.

      Research  and  development  expenses  decreased  by $446,000  (15%) and by
$225,000  (14%)  for the six and  three  months  ended  June 30,  2001  from the
comparable  periods in 2000. This decrease in research and development  expenses
for both the six and three months resulted from the Company's  efforts to reduce
its expenses, primarily related to the OSS business.


                                 Page 10 of 14
<PAGE>

Results of Operations (continued)

      As a result of the above,  for the six months ended June 30, 2001 compared
to 2000,  the  Company had an  operating  loss of  $3,644,000  in 2001 versus an
operating  loss of  $779,000  in 2000.  The  Company  had an  operating  loss of
$1,293,000  for the quarter ended June 30, 2001 as compared to an operating loss
of $1,952,000 for the quarter ended June 30, 2000.

      Interest  expense for the six months ended June 30, 2001  compared to June
30, 2000  increased by $330,000  (17%) from  $1,965,000 in 2000 to $2,295,000 in
2001.  Interest expense for the three-month period ending June 30, 2001 compared
to the same three months of 2000, increased by $261,000 (25%) from $1,031,000 in
2000 to $1,292,000 in 2001. This change is  attributable  primarily to increased
levels of borrowing  from and  increased  interest rate payable to the Company's
senior lender.

      As the  result  of the  foregoing,  the  Company  incurred  a net  loss of
$5,744,000,  $0.58 per share (basic and diluted),  for the six months ended June
30, 2001,  compared  with a net loss of  $2,581,000,  $0.27 per share (basic and
diluted),  for the six months  ended June 30,  2000.  The net loss for the three
months ended June 30, 2001 was $2,511,000,  $0.25 per share (basic and diluted),
compared with a net loss for the three months ended June 30, 2000 of $2,887,000,
$0.30 per share (basic and diluted).

Liquidity and Capital Resources


      At June 30, 2001,  the Company had cash and cash  equivalents  of $654,000
compared with  $2,366,000 at December 31, 2000.  The Company's  working  capital
deficit at June 30, 2001 was $28,716,000,  compared to a working capital deficit
of $24,152,000 at December 31, 2000. The working capital deficiency reflects the
current  liabilities to the senior and  subordinated  lenders  together with the
effect of the reduced level of business,  which resulted in reduced  receivables
and increased  accrued  liabilities.  During the six months ended June 30, 2001,
the Company used $2,031,000 in operations.


      As  of  June  30,  2001,  the  Company  has  senior  debt  of  $21,170,000
outstanding, all of which is shown as a current liability. The current agreement
with the  senior  lender was set to expire on July 3, 2001 and was  extended  to
September 5, 2001. The Company's  borrowings exceed the maximum borrowings under
the borrowing base formula. The senior lender has agreed to allow the Company to
defer the  repayment of  borrowings  in excess of the maximum under the formula,
defer all monthly facility fees and all principal payments to the earlier of the
termination  of the agreement on September 5, 2001 or the sale of one or more of
the  divisions or assets of the Company.  The senior  lender  prohibited us from
making any payments on indebtedness to any subordinated  creditors,  although it
has  consented  to the payment of  accounts  payable in the  ordinary  course of
business.  In April 2001,  the Company and its senior  lender  agreed to add all
current and future interest due, which will be computed at 14%, to the principal
balance through the loan expiration date. In addition, we were not in compliance
with the  interest  coverage  covenant and  borrowing  base  coverage  under the
agreement  and  obtained  a  waiver  from our  senior  lender  through  the loan
expiration date.


                                 Page 11 of 14
<PAGE>

Liquidity and Capital Resources (continued)

      As of June 30, 2001, we had outstanding  $6,144,000 of subordinated notes,
of which  $900,000  became due on January 2, 2001 and the balance of  $5,244,000
became due on July 2, 2001. We did not have the resources to pay, and we did not
pay,  either  the  principal  or  interest  on the  subordinated  notes  and are
restricted  by our senior  lender from making such  payments.  We are engaged in
negotiations  with the  holders of a majority  of the  outstanding  subordinated
notes or their representatives with respect to an extension of the maturity date
of the notes. The previously  announced  agreement in principal has not resulted
in an  agreement as of the date of this Form 10-Q,  and the Company  cannot give
any assurance that it will be able to negotiate such an extension. The holder of
a subordinated  note in the principal amount of $500,000 has commenced an action
seeking payment of the principal and interest on his note, as described below.

      Our cash  availability  during  2001 and  thereafter  may be affected by a
number of factors.  At June 30, 2001, we had no cash available  under our credit
facility  and we had  borrowed  more than the amount  available  to us under our
borrowing  base.  To the  extent  that  credit  is not  available,  we may  have
difficulty performing our obligations under our contracts, which could result in
the  cancellation  of  contracts  or the loss of future  business.  In addition,
$21,170,000  of senior debt becomes due on September 5, 2001 and  $7,230,000  of
subordinated  debt and interest  became due in July 2001.  We are  continuing to
negotiate  with our  senior  lender  with  respect  to an  extension  beyond the
September 5, 2001  maturity of our current  facility and with the holders of the
subordinated  notes with respect to an extension of the maturity of those notes.
We do not  presently  have the  ability  to pay these  debts  and,  if we cannot
finalize a  definitive  agreement  with the  holders of the  subordinated  debt,
obtain either an extension on the maturity of our senior debt or an  alternative
financing source or raise funds from the sale of one of our divisions, we may be
unable to meet these financial obligations.

      We are  addressing  our  need for  liquidity  by  seeking  to  extend  our
agreement  with our senior  lender,  finalize a  definitive  agreement  with the
holders  of the  subordinated  debt,  and sell of one or more of our  divisions.
Although we are  continuing  to explore the possible  sale of one or more of our
divisions,  we cannot assure you that we will be  successful  in these  efforts.
Because of our present stock price,  it is highly  unlikely that we will be able
to raise funds  through the sales of our equity  securities,  and our  financial
condition  prevents us from  issuing debt  securities.  In the event that we are
unable to extend our debt obligations and sell one or more of our divisions,  we
cannot assure you that we will be able to continue in  operations.  Furthermore,
we believe that our losses and our financial position may have an adverse effect
upon our ability to develop new business as competitors and potential  customers
question our ability to continue in business.

      The holder of a subordinated  note in the principal amount of $500,000 has
commenced an action  against the Company  seeking  payment of the  principal and
interest on the note. The Company believes that the  subordination  provision of
the note prohibits payment by the Company;  however, if the noteholder obtains a
judgment  against the Company and seeks to collect on the  judgment,  the senior
lender may seek to foreclose on the Company's  obligations to it. In such event,
or in the event that the Company is unable to extend its senior and subordinated
loan obligations or sell one or more of its divisions, the Company may be unable
to continue in operations.


                                 Page 12 of 14
<PAGE>

Forward Looking Statements

      Statements contained in this Form 10-Q include forward-looking  statements
that are subject to risks and uncertainties.  In particular,  statements in this
Form  10-Q  that  state  the  Company's   intentions,   beliefs,   expectations,
strategies,   predictions  or  any  other  statements  relating  to  our  future
activities   or  other  future  events  or   conditions   are   "forward-looking
statements."  Forward-looking statements are subject to risks, uncertainties and
other  factors,  including,  but not limited to,  those  identified  under "Risk
Factors,"  in our Form  10-K for the year  ended  December  31,  2000 and  those
described in  Management's  Discussion and Analysis of Financial  Conditions and
Results of Operations" in our Form 10-K and this Form 10-Q, and those  described
in any other filings by us with the Securities and Exchange Commission,  as well
as  general   economic   conditions  and  economic   conditions   affecting  the
telecommunications industry, any one or more of which could cause actual results
to differ materially from those stated in such statements.

PART II- OTHER INFORMATION

Item 1. Legal Proceedings


      In July  2001,  Ramon R.  Obed,  Donatella  Elser  and Henry  R.C.  Elser,
trustees under a trust for the benefit of Peter F.D. Elser,  commenced an action
in the  United  States  District  Court for the  Southern  District  of New York
against  the  Company  seeking  payment of the  principal  and  interest  of the
Company's  subordinated  note in the principal  amount of $500,000.  The Company
believes that the  subordination  provision of the note prohibits payment by the
Company. The Company's obligations under the subordinated notes are reflected as
current  liabilities  on the  Company's  balance  sheet.  Mr.  Peter F.D.  Elser
(deceased) is the father of Mr. Marco Elser, a director.  Mr. Marco Elser is one
of the class of beneficiaries. Mr. Marco Elser is not a trustee nor does he have
the power to direct the trustees of the trust or the right to vote or dispose of
the securities owned by the trust.


Item 3. Defaults Upon Senior Securities

      The Company has failed to pay the  principal and interest of $7,048,000 as
of June 30, 2001 on its  subordinated  notes.  Notes in the principal  amount of
$900,000 were due on January 2, 2001, and the remaining  notes, in the principal
amount of  $5,244,000,  were due on July 3,  2001.  The  subordinated  notes are
subordinated to payment of the Company's obligations to its senior lender, which
has prohibited the Company from paying the subordinated notes. See Notes 3 and 4
of Notes to Consolidated Financial Statements in this Form 10-Q.

Item 6. Exhibits and Reports on Form 8-K

        (a) Exhibits
            None

        (b) Reports on Form 8-K
            None


                                 Page 13 of 14
<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.

                                           PORTA SYSTEMS CORP.

         Dated August 9, 2001              By       /s/ William V. Carney
                                              ----------------------------------
                                                    William V. Carney
                                                    Chairman of the Board

         Dated August 9, 2001              By       /s/ Edward B. Kornfeld
                                              ----------------------------------
                                                    Edward B. Kornfeld
                                                    Senior Vice President
                                                    and Chief Financial Officer


                                 Page 14 of 14