<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     January 31, 1998
                                         ------------------------
                                         OR
(   )     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
          OF THE SECURITIES EXCHANGE ACT OF 1934

          For the transition period from          to
                                         --------    --------

                           Commission File Number   1-8342
                                                --------

                                 PICO PRODUCTS, INC.
--------------------------------------------------------------------------------
               (Exact name of registrant as specified in its charter)

              NEW YORK                                        15-0624701
------------------------------------         -----------------------------------
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                         Identification No.)

12500 Foothill Blvd.
Lakeview Terrace, California                                   91342
-----------------------------------------        -------------------------------
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code:(818) 897-0028
                                                   --------------

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
requirement 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  March 12, 1998.

Common Stock, $0.01 par value                4,185,913
-----------------------------         ------------------------
            Class                       Number of Shares


                                          1
<PAGE>

                                 PICO PRODUCTS, INC.

                                        INDEX

                                                                      Page No.
                                                                      --------
PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

          Condensed Consolidated Balance Sheets -
          January 31, 1998 and July 31, 1997                           3-4

          Condensed Consolidated Statements
          of Income - Three and Six Months
          Ended January 31, 1998 and 1997                              5

          Condensed Consolidated Statements
          of Cash Flows - Six Months
          Ended January 31, 1998 and 1997                              6

          Notes to Condensed Consolidated Financial
          Statements                                                   7-12

Item 2.   Management's Discussion and Analysis
          of Results of Operations and Financial
          Condition                                                    13-16

PART II   OTHER INFORMATION

Item 1.   Legal Proceedings                                            17

Item 2.   Changes in Securities                                        17

Item 3.   Default on Senior Securities                                 17

Item 4.   Submission of Matters to a Vote of Security
           Holders                                                     17

Item 5.   Other Information                                            17

Item 6.   Exhibits and Reports on Form 8-K                             18-24


                                          2
<PAGE>

                           PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
                                 PICO PRODUCTS, INC.
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                     (Unaudited)
<TABLE>
<CAPTION>
                                                 January 31,     July 31,
                                                    1998           1997
                                                 -----------    -----------
<S>                                              <C>            <C>
ASSETS:

CURRENT ASSETS:

  Cash and cash equivalents                      $    71,010    $    22,286
  Accounts receivable (less allowance
     for doubtful accounts:  January 31, 1998,
     $220,000; July 31, 1997, $200,000)            4,585,653      5,621,232

  Inventories (Note 2)                            13,203,316     11,961,229
  Prepaid expenses and other current
       assets                                        214,503        339,760
                                                 -----------    -----------

     TOTAL CURRENT ASSETS                         18,074,482     17,944,507
                                                 -----------    -----------
PROPERTY, PLANT AND EQUIPMENT:

  Buildings                                          217,255        217,255
  Leasehold improvements                             186,689        279,842
  Machinery and equipment                          2,831,987      2,900,270
                                                 -----------    -----------
                                                   3,235,931      3,397,367
  Less accumulated depreciation
     and amortization                              2,364,526      2,431,779
                                                 -----------    -----------
                                                     871,405        965,588
                                                 -----------    -----------
OTHER ASSETS:
  Patents and licenses (less accumulated
     amortization: January 31, 1998, $71,144
     July 31, 1997, $68,156)                         150,066        153,054
  Excess of cost over net assets of
     businesses acquired (less accumulated
     amortization; January 31, 1998, $410,490
     July 31, 1997, $395,970)                        166,945        181,465
  Deposits and other non-current assets              201,362        235,614
  Debt issuance costs (less accumulated
     amortization; January 31, 1998, $92,758;
     July 31, 1997; $43,760)                         483,347        415,683
                                                 -----------    -----------
                                                   1,001,720        985,816
                                                 -----------    -----------
                                                 $19,947,607    $19,895,911
                                                 -----------    -----------
                                                 -----------    -----------
</TABLE>

See notes to condensed consolidated financial statements.

                                          3
<PAGE>

                                PICO PRODUCTS, INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                    (continued)
                                    (Unaudited)
<TABLE>
<CAPTION>
                                                  January 31,     July 31,
                                                     1998           1997
                                                 -----------    -----------
<S>                                              <C>            <C>
LIABILITIES AND SHAREHOLDERS'DEFICIENCY
---------------------------------------

CURRENT LIABILITIES:

Notes payable (Notes 6&7)                         $9,261,619     $9,425,299

Current portion of long-term debt                    133,321        132,902
Accounts payable                                   3,498,968      3,348,977
Accrued expenses:
     Legal and accounting                            169,355        212,976
     Payroll and payroll taxes                       387,101        486,397
     Other accrued expenses                          398,074        395,552
     Restructuring costs                             282,907        580,035
                                                 -----------    -----------

     TOTAL CURRENT LIABILITIES                    14,131,345     14,582,138

LONG-TERM DEBT (Note 7)                            5,520,601      4,915,286

RESTRUCTURING COSTS                                   97,186        298,744

COMMITMENTS AND CONTINGENCIES                          -              -
       (Note 5)

REDEEMBABLE PREFERRED STOCK, $.01 par
 value; authorized 500,000 shares; issued
 and outstanding 1,165 shares at January 31,
 1998 and 1,000 shares at July 31, 1997            1,057,390        917,086
SHAREHOLDERS' DEFICIENCY:

 Common shares, $.01 par value; authorized
  15,000,000 shares issued and outstand-
  ing 4,185,913 shares at January 31, 1998
  and July 31, 1997                                   41,859         41,859
  Additional paid-in capital                      22,986,545     22,715,292
 Stock subscriptions receivable                     (105,000)      (105,000)
 Accumulated deficit                             (23,665,284)   (23,381,874)
 Cumulative translation adjustment                  (117,035)       (87,620)
                                                 -----------    -----------

TOTAL SHAREHOLDERS' DEFICIENCY                      (858,915)      (817,343)
                                                 -----------    -----------
                                                 $19,947,607    $19,895,911
                                                 -----------    -----------
                                                 -----------    -----------
</TABLE>

See notes to condensed consolidated financial statements.


                                          4
<PAGE>

                                 PICO PRODUCTS, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                     (Unaudited)

 <TABLE>
<CAPTION>
                                  Three Months Ended                  Six Months Ended
                                      January 31,                        January 31,
                              ----------------------------      -----------------------------
                                 1998             1997              1998             1997
                              -----------      -----------      ------------      -----------
<S>                           <C>              <C>              <C>              <C>
SALES                         $6,460,687       $8,867,254       $14,648,077      $18,565,442
COSTS AND EXPENSES:
 Cost of sales                 4,691,395        6,701,854        10,604,959       14,031,926
 Selling and admini-
   strative expenses           1,525,305        2,177,345         3,329,776        4,207,367
                              -----------      -----------      ------------      -----------
TOTAL COSTS AND
  EXPENSES                     6,216,700        8,879,199        13,934,735       18,239,293
                              -----------      -----------      ------------      -----------
INCOME (LOSS) FROM
 OPERATIONS                      243,987          (11,945)          713,342          326,149

INTEREST INCOME                    3,961            3,834             7,948            7,668

INTEREST EXPENSE                (467,581)        (317,624)         (936,904)        (558,699)
                              -----------      -----------      ------------      -----------
LOSS BEFORE
  INCOME TAXES                  (219,633)        (325,735)         (215,614)        (224,882)
                              -----------      -----------      ------------      -----------

INCOME TAX PROVISION               -0-              -0-               -0-              -0-

NET LOSS                        (219,633)        (325,735)         (215,614)        (224,882)
                              -----------      -----------      ------------      -----------
DIVIDENDS ON PREFERRED
  STOCK                           34,884           24,333            67,796           24,333
                              -----------      -----------      ------------      -----------
NET LOSS ATTRIBU-
 TABLE TO COMMON
 STOCK                        $ (254,517)      $ (350,068)       $ (283,410)      $ (249,215)
                              -----------      -----------      ------------      -----------
                              -----------      -----------      ------------      -----------
BASIC AND DILUTED
 NET LOSS PER COMMON
 SHARE (NOTE 4)               $     (.06)            (.09)       $     (.07)      $     (.06)
                              -----------      -----------      ------------      -----------
                              -----------      -----------      ------------      -----------
</TABLE>
 
See notes to condensed consoldidated financial statements.


                                          5
<PAGE>

                                 PICO PRODUCTS, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (Unaudited)
<TABLE>
<CAPTION>
                                                      Six Months Ended
                                                         January 31,
                                                  -------------------------
                                                     1998           1997
                                                  ----------     ----------
<S>                                               <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                        $ (215,614)    $ (224,882)
  Adjustments to reconcile net loss
     to net cash provided by (used in)
     operating activities:

     Depreciation and amortization                   239,286        199,799
     Changes in operating assets
       and liabilities                              (644,918)    (5,622,743)
                                                  ----------     ----------

NET CASH USED IN
  OPERATING ACTIVITIES                              (621,246)    (5,647,826)
                                                  ----------     ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                               (50,607)      (159,620)
                                                  ----------     ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (payments) under a
     line of credit agreement                       (163,680)       201,522
  Issuance of long-term debt                         985,000      5,000,000
  Issuance of preferred stock                        165,000      1,000,000
  Private placement financing costs                 (116,162)      (449,613)
  Principal payments on long-term debt              (149,581)       (54,168)
  Proceeds from exercise of stock options               -            15,800
  Dividend paid on preferred stock                      -           (14,000)
                                                  ----------     ----------

NET CASH PROVIDED BY FINANCING
  ACTIVITIES                                         720,577      5,699,541
                                                  ----------     ----------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                48,724       (107,905)
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF PERIOD                                 22,286        159,669
                                                  ----------     ----------
CASH AND CASH EQUIVALENTS AT
  END OF PERIOD                                   $   71,010     $   51,764
                                                  ----------     ----------
                                                  ----------     ----------
</TABLE>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

During the six month ended January 31, 1997, the Company financed the purchase
of office and test lab equipment totaling approximately $87,000.

See notes to condensed consolidated financial statements.

                                          6
<PAGE>

                                 PICO PRODUCTS, INC.
                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                     (Unaudited)

(1)  GENERAL

Pico Products, Inc. and its subsidiaries (the "Company") design, manufacture and
distribute products and systems for the pay TV and cable TV industry (CATV),
broadband communications and other signal distribution markets.  These other
distribution markets include "private" cable TV systems such as those found in
hotels, schools, hospitals and large apartment complexes.  Private cable systems
are referred to in the industry as master antenna (MATV) or satellite master
antenna (SMATV) systems.  These systems receive satellite and "off-air" (or
broadcast) signals at a single source known as the "headend".  The signals are
processed and then distributed by coaxial or fiber optic cable to the consumer.
Also included in other signal distribution markets are wireless cable or MMDS
(multichannel multipoint distribution systems) and business-to- business or
direct-to-home (DTH) communications by satellite.  The Company also sells pay TV
security products and home satellite market products.

The accompanying unaudited condensed consolidated financial statements include
the accounts of Pico Products, Inc. and its wholly owned subsidiaries, and
include all adjustments which are, in the opinion of the Company's management,
necessary to present fairly the Company's financial position as of January 31,
1998, and the results of its operations and its cash flows for the three and
six- month periods ended January 31, 1998 and 1997. All such adjustments are of
a normal recurring nature.  All significant intercompany accounts and
transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
(GAAP) have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC).  The preparation of interim
financial statements in conformity with GAAP, as modified by SEC rules and
regulations, requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.  Actual results
could differ from these estimates.  These condensed consolidated financial
statements should be read in conjunction with the financial statements and
related notes contained in the Company's Annual Report on Form 10-K for the
fiscal year ended July 31, 1997.


                                          7
<PAGE>

The results of operations for the interim periods shown in this Report are not
necessarily indicative of the results to be expected for the fiscal year.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share."  SFAS
128 replaces the presentation of primary earnings per share with a presentation
of basic earnings per share based upon the weighted average number of common
shares for the period.  It also requires dual presentation of basic and diluted
earnings per share for companies with complex capital structures.  SFAS 128 has
been adopted by the Company for the fiscal quarter ending January 31, 1998 and
earnings per share for all prior periods have been restated.

(2)  INVENTORIES

The composition of inventories was as follows:

<TABLE>
<CAPTION>
                                  January 31,           July 31,
                                      1998                1997
                                  -----------         -----------
<S>                               <C>                 <C>
Raw materials                     $ 4,494,279         $ 4,634,967
Work in process                     1,159,859             606,218
Finished goods                      7,549,178           6,720,044
                                  -----------         -----------

                                  $13,203,316         $11,961,229
                                  -----------         -----------
                                  -----------         -----------
</TABLE>

(3)  INCOME TAXES

No provision for U.S. Federal and state regular income taxes or foreign income
taxes has been recorded for the three and six-month periods ended January 31,
1998 and 1997 due to the Company's U.S. Federal, state, and foreign net
operating loss carryforward positions and a tax holiday granted to one of the
Company's foreign subsidiaries.


                                          8
<PAGE>

(4) EARNING PER SHARE - SFAS 128 Disclosures.

Note 4. EARNINGS PER SHARE:

 <TABLE>
<CAPTION>
                               Three Months Ended                 Six Months Ended
                                  January 31,                        January 31,
                         ------------------------------     ------------------------------
                             1998             1997              1998             1997
                         -------------    -------------     -------------    -------------
<S>                      <C>              <C>               <C>              <C>
Basic and
Diluted Loss
per Share:

Net Loss                 $ (219,633)      $ (325,735)       $ (215,614)      $ (224,882)

Plus Dividends
on Preferred
Stock                    $   34,884       $   24,333        $   67,796       $   24,333

Net Loss
Attributable to
Common Stock             $ (254,517)      $ (350,068)       $ (283,410)      $ (249,215)

Weighted
Average Shares
Outstanding               4,185,913        4,062,637         4,185,913        4,062,637

Basic and
Diluted Loss
per Share:               $     (.06)      $     (.09)       $     (.07)      $     (.06)
</TABLE>
 
Due to a Net Loss Attributable to Common Stock, shares issuable upon exercise of
stock options and warrants have not been included in the calculation of Diluted
Loss per Share.  At January 31, 1998, the Company had 2,290,215 shares issuable
upon the exercise of outstanding stock options and warrants at prices ranging
from $1.10 to $3.19.

(5)  LITIGATION AND CONTINGENCIES

INFORMATION REQUEST

On March 6, 1995, a subsidiary of the Company received a Joint Request for
Information (the "Information Request") from the United States Environmental
Protection Agency, Region II (the "EPA"), under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), with
respect to the release and/or threatened release of hazardous substances,
hazardous wastes, pollutants or contaminants into the environment at the
Onondaga Lake Site, Syracuse, Onondaga County, New York.  The Company has
learned that the EPA added the Onondaga Lake Site to the Superfund National
Priorities List on December 6, 1994, and has completed an onsite assessment of
the degree of hazard.  The EPA has indicated that the


                                          9
<PAGE>

Company is only one of 26 companies located in the vicinity of Onondaga Lake or
its tributaries that have received a similar Information Request.

The Information Request related to the activities of the Company's Printed
Circuit Board Division, which was sold to a third party in 1992, and which
conducted operations within the specified area.  Under the Agreement of Sale
with the buyer, the Company retained liability for environmental obligations
which occurred prior to the sale.

The Company has provided all information requested by the EPA.  The Information
Request does not designate the Company as a potentially responsible party, nor
has the EPA indicated the basis upon which it would designate the Company as a
potentially responsible party.  The Company is therefore unable to state whether
there is any material likelihood for liability on its part, and, if there were
to be any such liability, the basis of any sharing of such liability with
others.

In March 1997, the Company received a follow-on request for additional
information in this matter and has provided all information requested.

EAGLE LITIGATION

On July 30, 1997, Eagle Comtronics, Inc. ("Eagle") filed a motion in the United
States District Court for the Northern District of New York to amend the
complaint for patent infringement it had filed in 1979 against the Company.
This 1979 action had been settled by Consent Judgment in 1988, pursuant to which
the Company and Eagle entered into a License Agreement providing for specified
royalty payments from Eagle to the Company.  Eagle's motion sought the District
Court's permission to proceed against the Company under various legal theories
for breach of the License Agreement, based on Eagle's allegation that the
Company, in violation of the License Agreement's "most favored nation" clause,
granted a license to a third party (Arrow Communication Laboratories, Inc.) on
more favorable terms than those provided to Eagle.  Eagle sought damages of
approximately $1,600,000 plus interest and attorneys fees.  The Company believed
that Eagle's motion was procedurally improper and that, even if the amended
complaint were allowed by the District Court, it had meritorious defenses to the
claims stated in the amended complaint.

The Company responded to Eagle's motion, and Eagle promptly withdrew the motion
to file an amended complaint.  At the same time Eagle filed a complaint in New
York State Supreme Court similar to the proposed amended federal complaint.
Management believes that the Company has meritorious defenses to Eagle's action
and that such suit will not have any material adverse effect on the Company.


                                          10
<PAGE>

OTHER

The Company is involved, from time to time, in certain other legal actions
arising in the normal course of business.  Management believes that the outcome
of other litigation will not have a material adverse affect on the Company's
consolidated financial statements.

(6)  DEBT COVENANTS

On October 31, 1997, the Company negotiated new, less restrictive covenants
related to Pico Macom's revolving line of credit.  These covenants require a
certain minimum net income for the fiscal year and limit certain financial
ratios.

As described below, the Company completed a private placement financing.  The
November 21, 1996 and September 12, 1997 financing agreements require the
Company to meet financial covenants which are very similar to the financial
covenants relating to Pico Macom's bank revolving line of credit.

At January 31, 1998 the Company was in technical violation of several of the
financial covenants related to the subordinated debt issued in connection with
the private placement financing.  These covenants provided for achieving certain
quarterly sales, earnings and related ratio tests.  The holders of the
subordinated debt have agreed to waive these violations as of January 31, 1998.

The Company is in compliance with all of the loan covenants held by its senior
lender and anticipates continuing in compliance.

(7)  NEW FINANCING

On September 12, 1997 the Company completed a private placement financing
totaling $1,650,000 with two U.S.-based institutional investors to provide funds
for general working capital requirements.  The private placement provides for an
investment of up to $1,485,000 of three-year 10 percent junior subordinated
debentures and $165,000 of three-year 10 percent redeemable preferred stock.  In
connection with the financing, the Company has agreed to issue to the investors
warrants for up to 1,442,000 shares of its common stock, of which 300,000 shares
are subject to call provisions.  These call provisions permit the Company at any
time up to 90 days after all of its obligations under the debentures are fully
paid to purchase from the


                                          11
<PAGE>

investors up to 300,000 shares of the warrant shares, at $3.00 per share, or if
the warrants have not been exercised, to repurchase such unexercised warrants
subject to call at $3.00 per warrant share less the per share exercise price.

As of March 15, 1998, the Company had received cash of $985,000 of the total
subordinated debenture financing facility, with $500,000 still available to fund
the Company's operating needs.  The remaining $150,000 of the private placement
facility represents the refinancing of previously issued subordinated notes
payable by the Company which were purchased by one of the institutional
investors in June 1997. Additionally, the Company issued to the investors
warrants for 1,004,641 shares of its common stock, of which 209,010 shares are
subject to the above call provisions.  Warrants to purchase an additional
437,359 shares, of which 90,990 will be subject to call, will be issued to the
investors when the balance of the financing is funded.

The warrants issued in conjunction with this financing are exercisable at any
time prior to the later of the date which is (i) three years after the
obligations under the debentures are satisfied in full, or (ii) 6 years from the
date of issuance, at a price equal to the average trading price of the Company's
common stock over the 90-day period commencing December 13, 1997.

As a condition to the financing, one of the investors requested that the
Company's Board of Directors participate in the financing.  On November 5, 1997,
four members of the Company's Board of Directors executed a participation
agreement with such investor for an amount up to $335,000.


                                          12
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
          OF OPERATIONS AND FINANCIAL CONDITION

The following discussion compares the operations of the Company for the three
and six-month periods ended January 31, 1998 with the operations for the three
and six-month period ended January 31, 1997, as shown by the unaudited condensed
consolidated statements of income included in this quarterly report.

RESULTS OF OPERATIONS

Sales (in thousands):

<TABLE>
<CAPTION>

                                        1998           1997         %Decrease
                                        ----           ----         ---------
<S>                                   <C>            <C>            <C>
Six Months Ended January 31           $14,648        $18,565         (21.1%)
Quarter Ended January 31                6,461          8,867         (27.1%)
</TABLE>
The decrease for the six and three-months ended January 31, 1998 and 1997 was
primarily due to decreased demand for Satellite Master Antenna Television
(SMATV) products in the Middle East, an industry-wide downturn in demand for
single channel pay TV decoders, partially offset by sales of the Company's new
high pass filter used in two-way interactive communications systems, and the
impact of the closure of the Company's Hong Kong subsidiary. Management believes
that shipments of the new high pass filter will remain strong throughout fiscal
year 1998.  In addition, the lack of availability of product for certain high
demand product sourced from Taiwan adversely impacted sales performance.

Cost of Sales (in thousands):

<TABLE>
<CAPTION>

                                        1998           1997         %Decrease
                                     ---------      ---------       ---------
<S>                                  <C>            <C>             <C>
Six Months Ended January 31           $10,605        $14,032         (24.4%)
   As a percentage of sales             72.3%          75.6%         ( 4.2%)
Quarter Ended January 31                4,691          6,702         (30.0%)
   As a percentage of sales             72.4%          75.6%         ( 4.0%)
</TABLE>
The dollar decrease in cost of sales was primarily attributable to the decrease
in sales volume.  The decrease in cost of sales as a percentage of sales was
primarily due to better exchange rates with the Company's Taiwanese vendors and
the decrease in sales of high cost products through the Company's Hong Kong
subsidiary.

Included as a reduction to cost of sales, for both the three and six- months
ended January 31, is a favorable adjustment to certain inventory valuation
reserves due to the disposition of certain inventory items at higher than
expected sales value.


                                          13
<PAGE>

Selling and Administration
Expenses (in thousands)
<TABLE>
<CAPTION>
                                        1998           1997         %Decrease
                                     ---------      ---------       ---------
<S>                                  <C>            <C>             <C>
Six Months Ended January 31           $ 3,330        $ 4,207         (20.9%)
   As a percentage of sales             22.7%          22.7%         (  -  )
Quarter Ended January 31                1,525          2,177         (29.9%)
   As a percentage of sales             23.6%          24.6%         ( 4.1%)
</TABLE>

The decrease in selling and administration costs from 1997 to 1998 is a result
of the closure of the Company's Hong Kong, Thailand and Taiwan subsidiaries
during the fourth quarter of Fiscal 1997 and first quarter of Fiscal 1998.  In
addition, the Company favorably settled certain obligations related to the
closure of its Hong Kong Subsidiary.

Interest expense (in thousands):

<TABLE>
<CAPTION>
                                        1998           1997         %Decrease
                                     ---------      ---------       ---------
<S>                                  <C>            <C>             <C>
Six Months Ended January 31            $937           $559             67.6%
Quarter Ended January 31                468            318             47.2%
</TABLE>

The increase in interest expense is due to increased borrowing under the
Company's bank line of credit and private placement financing completed in
September 1997 and November 1996.

Income Taxes:

No provision for U.S. Federal and state regular income taxes or foreign income
taxes has been recorded for the three and six-month periods ended January 31,
1998 and 1997 due to the Company's U.S. Federal, state, and foreign net
operating loss carryforward positions and a tax holiday granted to one of the
Company's foreign subsidiaries.

Summary:

The Company has recorded a net loss for three and six-months ended January 31,
1998 of $254,517 and $283,410.  A return to profitability is contingent upon a
resurgence of demand for the Company's product coupled with effective inventory
management, cost control and accurate forecasting of demand for the Company's
product.

LIQUIDITY AND CAPITAL RESOURCES

As of January 31, 1998, the Company had working capital of approximately $3.9
million and a ratio of current assets to current
liabilities of approximately 1.28:1, compared with working capital of
approximately $3.4 million and a ratio of 1.23:1 as of July 31, 1997.



                                          14
<PAGE>

The increase in working capital was primarily due to the private placement in
September 1997(as described below).  During the six months ended January 31,
1998 and 1997, cash used for capital expenditures was approximately $51,000 and
$160,000 respectively.  No significant capital expenditures for the remainder of
fiscal year 1998 are expected at this time.

Pico Macom has an $11,000,000 revolving bank line of credit which is secured by
substantially all of Pico Macom's assets, including all trade accounts
receivable and inventories.  The line provides for interest at the prime rate
plus 1.25% (9.75% at January 31, 1998).

The revolving line of credit is used to fund operating expenses, product
purchases and letters of credit for import purchases.  The line has a $1,500,000
sublimit for outstanding letters of credit.  The amount available to borrow at
any one time is based upon various percentages of eligible accounts receivable
and eligible inventories as defined in the agreement, which is subject to review
and renewal on December 31, 1998.  The credit facility is subject to certain
financial tests and covenants.  At January 31, 1998, Pico Macom had
approximately $9.3 million in revolving loans outstanding, and the unused
portion of the borrowing base was approximately $453,000.

On September 12, 1997 the Company completed a private placement financing
totaling $1,650,000 with two U.S.-based institutional investors to provide funds
for general working capital requirements.  The private placement provides for an
investment of up to $1,485,000 of three-year 10 percent junior subordinated
debentures and $165,000 of three-year 10 percent redeemable preferred stock.  In
connection with the financing, the Company has agreed to issue to the investors
warrants for up to 1,442,000 shares of its common stock, of which 300,000 shares
are subject to call provisions. These call provisions permit the Company at any
time up to 90 days after all of its obligations under the debentures are fully
paid to purchase from the investors up to 300,000 shares of the warrant shares,
at $3.00 per share, or if the warrants have not been exercised, to repurchase
such unexercised warrants subject to call at $3.00 per share less the per share
exercise price.

As of December 15, 1997 the Company had received cash of $985,000 of the total
subordinated debenture financing facility, with $500,000 still available to fund
the Company's operating needs.  The remaining $150,000 of the private placement
facility represents the refinancing of previously issued subordinated notes
payable by the Company which were purchased by one of the institutional
investors in June 1997.  Additionally, the Company issued to  the  investors
warrants for 1,004,641 shares of its common stock, of which 209,010 shares are
subject to the above call provisions. Warrants to purchase an additional 437,359
shares, of which


                                          15
<PAGE>

90,990 will be subject to call, will be issued to the investors when the balance
of the financing is funded.

The warrants issued in conjunction with this financing are exercisable at any
time prior to the later of the date which is (i) three years after the
obligations under the debentures are satisfied in full, or (ii) 6 years from the
date of issuance, at a price equal to the average trading price of the Company's
common stock over the 90-day period commencing December 13, 1997.

As a condition to the financing, one of the investors requested that the
Company's Board of Directors participate in the financing.  On November 5, 1997,
four members of the Company's Board of Directors executed a participation
agreement with such investor for $335,000.

As discussed in Note 6 to the Financial Statements the Company was in 
technical violation of several of the financial covenants related to the
subordinated debt. In order to achieve compliance with the covenants in 
subsequent quarters it will be critical to reverse recent negative sales 
trends and to continue improvement in cost containment. In the event that the 
Company fails to next certain covenants under the subordinated debt, 
management will seek to obtain a waiver. However, there can be no assurances 
that the subordinated lender would grant a waiver of any covenant violations.

Profitability of operations is subject to various uncertainties including
general economic conditions and the actions of actual or potential competitors
and customers.  The Company's future depends on the growth of the cable TV
market in the United States and internationally.  In the United States, a number
of factors could affect the future profitability of the Company, including
changes in the regulatory climate for cable TV, changes in the competitive
structure of the cable and telecommunications industries or changes in the
technology base of the industry.  Internationally, the Company's profitability
depends on its ability to penetrate new markets in the face of competition from
other United States and foreign companies.

FORWARD LOOKING STATEMENTS

Statements which are not historical facts, including statements about our
confidence, strategies and expectations, technologies and opportunities,
industry and market segment growth, demand and acceptance of new and existing
products, and return on investments in products and markets, are forward looking
statements that involve risks and uncertainties, including without limitation,
the effect of general economic and market conditions, industry market conditions
caused by changes in the supply and demand for our products, the continuing
strength of the markets we serve, competitor pricing, maintenance of our current
momentum and other factors.


                                          16
<PAGE>

                              PART II OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

Incorporated by reference from financial statement footnote number 5 of Part I.

ITEM 2    None.

ITEM 3.   DEFAULT ON SENIOR SECURITIES

          None.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On January 17, 1998, the Company held its 1997 annual meeting of shareholders.
Management's nominees for director were elected by the following votes:

<TABLE>
<CAPTION>
Nominee                       Votes For            Votes Withheld
-------                       ---------            --------------
<S>                           <C>                  <C>
Charles G. Emley, Jr.         3,053,493                260,313
E. B. Leisenring, Jr.         3,045,403                268,383
Pierson G. Mapes              3,052,253                261,533
William W. Mauritz            3,052,403                261,383
</TABLE>

Management's proposal to ratify the appointment of Deloitte and Touche LLP as
the Company's independent accountants for the fiscal year ending July 31, 1998,
was approved by the following vote:

<TABLE>
<CAPTION>
For                           Against                  Abstain
---                           -------                  -------
<S>                           <C>                      <C>
3,181,486                     120,610                  11,690
</TABLE>

There were no broker non-votes.


ITEM 5.   OTHER INFORMATION.

          None.


                                          17
<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:  (Note - A Key To Index of Exhibits Incorporated By
               Reference is provided at the end of this Item 6.)

     3(a)k     Restated Certificate of Incorporation of the Company, as filed on
               September 5, 1997.

     3(b)c     By-Laws of the Company, as amended on December 17, 1987.

     3(c)      Amendment to By-Laws of the Company, adopted November 14,
               1997.

     4(a)b     1981 Non-Qualified Stock Option Plan

     4(b)a     1982 Incentive Stock Option Plan

     4(c)d     1992 Incentive Stock Plan

     4(f)g     Amendment to 1992 Incentive Stock Plan.

     4(g)h     Amendment to 1981 Non-Qualified Stock Option Plan.

     4(h)i     Investment Agreement between the Company and certain of its
               subsidiaries, and Allied Capital Corporation and certain of its
               affiliated companies, dated November 21, 1996.

     4(i)i     Subordinated Secured Debenture issued by the Company and certain
               of its subsidiaries, payable to Allied Capital Corporation, dated
               November 21, 1996.  The Company has issued subordinated secured
               debentures in substantially the same form as this debenture to
               the following parties for the following amounts:

<TABLE>
<CAPTION>
                         Holder                          Amount
               ---------------------------------       ----------
               <S>                                     <C>
               Allied Investment Corporation           $2,300,000
               Allied Investment Corporation II        $1,450,000
               Allied Capital Corporation II           $  550,000
</TABLE>
     4(j)i     Letter Agreement covering the issuance and sale by the Company of
               Preferred Stock to The Sinkler Corporation, dated November 21,
               1996.


                                          18
<PAGE>

     4(k)i     Stock Purchase Warrant issued by the Company to Allied Capital
               Corporation, dated November 21, 1996.  The Company has issued
               warrants in substantially the same form as this warrant to the
               following parties for the following number of shares:

<TABLE>
<CAPTION>
                         Holder                            Shares
               ---------------------------------       --------------
               <S>                                     <C>
               Allied Investment Corporation              358,484
               Allied Investment Corporation II           226,001
               Allied Capital Corporation II               85,724
               The Sinkler Corporation                    155,863
               Shipley Raidy Capital Partners, LP          20,000
</TABLE>

     4(l)i     Stock Purchase Warrant issued by the Company to Allied Capital
               Corporation, dated November 21, 1996.  The Company has issued
               warrants in substantially the same form as this warrant to the
               following parties for the following percentage of shares:

<TABLE>
<CAPTION>
                                                        Percentage of
                         Holder                            Shares
               ---------------------------------       ---------------
               <S>                                     <C>
               Allied Investment Corporation                  6.9%
               Allied Investment Corporation II              4.35%
               Allied Capital Corporation II                 1.65%
               The Sinkler Corporation                        3.0%
</TABLE>

     4(m)i     Registration Rights Agreement between the Company, Allied Capital
               Corporation and certain of its affiliated companies, Scimitar
               Development Capital Fund and Scimitar Development Capital "B"
               Fund, Shipley Raidy Capital Partners, LP, and The Sinkler
               Corporation, dated November 21,1996.

     4(n)j     Amended and Restated 1996 Incentive Stock Plan.

     4(o)k     Investment Agreement between the Company and certain of its
               subsidiaries, and Allied Capital Corporation and certain of its
               affiliated companies, dated September 12, 1997.

     4(p)k     Junior Subordinated Secured Debenture issued by the Company and
               certain of its subsidiaries, payable to Allied Capital
               Corporation, dated September 12, 1997.  The Company has issued
               junior subordinated secured debentures in substantially the same
               form as this


                                          19
<PAGE>

               debenture to the following parties for the following amounts:

<TABLE>
<CAPTION>
                         Holder                          Amount
               ---------------------------------       ----------
               <S>                                     <C>
               Allied Investment Corporation            $374,300
               Allied Capital Corporation II            $394,000
</TABLE>

     4(q)k     Letter Agreement covering the issuance and sale by the Company of
               Preferred Stock and issuance of warrants to purchase shares of
               Common Stock to The Sinkler Company, dated September 12, 1997.

     4(r)k     Stock Purchase Warrant issued by the Company to Allied Capital
               Corporation, dated September 12, 1997.  The Company has issued
               warrants in substantially the same form as this warrant to the
               following parties for the following number of shares:

<TABLE>
<CAPTION>
                         Holder                            Shares
               ---------------------------------       --------------
               <S>                                     <C>
               Allied Investment Corporation               258,944
               Allied Capital Corporation II               272,572
               The Sinkler Corporation                     114,200
</TABLE>

     4(s)k     Stock Purchase Warrant -- Subject to Call issued by the Company
               to Allied Capital Corporation, dated    September 12, 1997.  The
               Company has issued warrants in substantially the same form as
               this warrant to the following parties for the following number of
               shares:

<TABLE>
<CAPTION>
                         Holder                            Shares
               ---------------------------------       --------------
               <S>                                     <C>
               Allied Investment Corporation               68,024
               Allied Capital Corporation II               71,604
               The Sinkler Corporation                     30,000
</TABLE>

     4(t)k     First Amendment to Investment Agreement between the Company and
               Allied Capital Corporation and certain of its affiliated
               companies (original agreement dated November 21, 1996) -
               amendment dated September 12, 1997.


                                          20
<PAGE>

     10(q)(l)  Amendment No. 5 to the Loan and Security Agreement between Pico
               Macom, Inc. and HSBC Business Loans, Inc., as successor to Marine
               Midland Business Loans, Inc., dated May 25, 1994 -- Amendment
               dated October 31, 1997.

     10(r)     Employment agreement dated January 8, 1998 between the Company
               and Charles G. Emley, Jr.

     11.1      Computation of Per Share Earnings.  Incorporated by reference
               from financial statement footnote Number 4 of Part 1

     27        Financial Data Schedule (included only in the EDGAR filing).

     (b)       Reports on Form 8-K:
               None.


                                          21
<PAGE>

KEY TO INDEX OF EXHIBITS INCORPORATED BY REFERENCE

a    Previously filed by the Company as an exhibit to the Company's Registration
     Statement on Form S-1, File No. 2-77439 and incorporated by reference.

b    Previously filed by the Company as an exhibit to the Company's Registration
     Statement on Form S-18, File No. 2-72318 and incorporated by reference.

c    Previously filed by the Company as an exhibit to the Company's Form 10-K
     for the fiscal year ended July 31, 1988 and incorporated by reference.

d    Previously filed by the Company as an exhibit to the Company's Form 10-Q
     for the fiscal quarter ended January 31, 1993 and incorporated by
     reference.

e    Not used.

f    Not used.

g    Previously filed by the Company as an exhibit to the Company's Form 10-K
     for the fiscal year ended July 31, 1994 and incorporated by reference.

h    Previously filed by the Company as an exhibit to the Company's Form 10-Q
     for the fiscal quarter ended January 31, 1996 and incorporated by
     reference.

i    Previously filed by the Company as an exhibit to the Company's Form 10-Q
     for the fiscal quarter ended October 31, 1996 and incorporated by
     reference.

j    Previously filed as an appendix to the Company's definitive proxy statement
     dated December 4, 1996 and incorporated by reference.

k    Previously filed by the Company as an exhibit to the Company's Form 10-K
     for the fiscal year ended July 31, 1997 and incorporated by reference.

l    Previously filed by the Company as an exhibit to the Company's Form 10-Q
     for the fiscal quarter ended October 31, 1997 and incorporated by
     reference.

     Copies of all exhibits incorporated by reference are available at no charge
     by written request to Assistant Corporate Secretary, Pico Products, Inc.,
     12500 Foothill Blvd., Lakeview Terrace, California  91342.


                                          22
<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.

                                             PICO PRODUCTS, INC.



DATE:  March 17, 1998                        /s/ E. James Selzer
                                             -----------------------------------
                                             Chief Financial Officer



DATE:  March 17, 1998                        /s/Charles G. Emley, Jr.
                                             -----------------------------------
                                             Chairman and Chief Executive
                                             Officer





                                          23
<PAGE>

                               INDEX TO EXHIBITS FILED

     3(c)      Amendment to By-Laws of the Company, adopted November 14, 1997.

     10(r)     Employment agreement dated January 8, 1998 between the Company
               and Charles G. Emley, Jr.

     11.1      Computation of Per Share Earnings. Incorporated by reference from
               financial statement footnote number 4 of Part 1.

     27        Financial Data Schedule (included only in the EDGAR filing).






                                          24