<PAGE>




                       U.S. Securities and Exchange Commission
                               Washington, D.C.  20549

                                     Form 10-QSB


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

     For the quarterly period ended December 31, 1997

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

     For the transition period from _____________________ to __________________
                                          
                           Commission file number 0-12382
                                          
                                  Perceptronics, Inc.
         ----------------------------------------------------------------
         (Exact name of small business issuer as specified in its charter)


                  Delaware                                95-2577731
--------------------------------------------   --------------------------------
(State or other jurisdiction of incorporation  (IRS Employer Identification No.)
or organization)                              
                                          
                   21010 Erwin Street, Woodland Hills, CA  91367
                   ---------------------------------------------
                      (Address of principal executive offices)
                                          
                                   (818)884-7470
                            --------------------------
                            (Issuer's telephone number)

     Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 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        No   X
    ----      ----

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:  

     Common Stock:  $.001 par value, outstanding at December 31, 1997: 
4,469,287

     Transitional Small Business Disclosure Format (Check one):
          Yes          No    X
              -----        -----



                                       1

<PAGE>

                                       INDEX
                                          
                         PERCEPTRONICS, INC. AND SUBSIDIARY



PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements (unaudited)

    (a)   Consolidated condensed balance sheets, Perceptronics, Inc. and
          subsidiary, December 31, 1997 and March 31, 1997.
     
    (b)   Consolidated condensed statements of income, Perceptronics, Inc.
          and subsidiary, three and nine months ended December 31, 1997 and 
          1996.
     
    (c)   Consolidated condensed statements of cash flows, Perceptronics, Inc.
          and subsidiary, nine months ended December 31, 1997 and 1996.
     
    (d)   Notes to consolidated condensed financial statements.
     
Item 2.   Management's discussion and analysis of financial condition and
          results of operations.
     
         
PART II.  OTHER INFORMATION
     
Item 6.   Exhibits and Reports on Form 8-K.
     



                                       2

<PAGE>


Part I.   FINANCIAL INFORMATION

Item 1.   Financial Statements


                         PERCEPTRONICS, INC. AND SUBSIDIARY
                       CONSOLIDATED CONDENSED BALANCE SHEETS
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                  Dec. 31, 1997  March 31, 1997
                                                  -------------  --------------
<S>                                               <C>            <C>
CURRENT ASSETS 
   Cash and short-term investments...........     $    134,186   $    135,318
   Restricted cash ..........................            -             35,742
   Receivables 
      Billed - Note C........................          258,297        326,636
      Unbilled - Note C .....................        1,318,863      1,647,894
      Other receivables .....................           18,252         40,454
   Inventory - Note D........................          186,355        186,355
   Prepaid expenses .........................          126,178        221,919
                                                   -----------    -----------
      TOTAL CURRENT ASSETS ..................        2,042,131      2,594,318
   


EQUIPMENT & LEASEHOLD IMPROVEMENTS, at cost .          754,760        706,746
   Less accumulated depreciation and
      amortization ..........................          704,356        695,134
                                                   -----------    -----------
                                                        50,404         11,612

DEFERRED SOFTWARE DEVELOPMENT                                 
Net of Amortization of $278,097 December 31, 1997,
$271,442 March 31, 1997......................            2,219          8,874
DEFERRED TAXES...............................          932,566        932,566
OTHER ASSETS.................................           23,715         39,045
                                                   -----------    -----------
      TOTAL ASSETS ..........................      $ 3,051,035    $ 3,586,415
                                                   -----------    -----------
                                                   -----------    -----------
</TABLE>



             See notes to consolidated condensed financial statements

                                       3


<PAGE>


                      PERCEPTRONICS, INC. AND SUBSIDIARY
                     CONSOLIDATED CONDENSED BALANCE SHEETS
                                  (UNAUDITED) 
                                  (continued)


<TABLE>
<CAPTION>
                                                  Dec. 31, 1997   March 31, 1997
                                                  -------------   --------------
<S>                                               <C>             <C>
   LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES    
   Current Portion of long term debt ..........   $     39,559    $   124,307
   Short term loans payable ...................      1,144,064      1,587,569                       
   Accounts payable ...........................        748,372        834,491
   Accrued compensation .......................        220,528        150,341
   Notes to officers and directors ............          4,000          4,000
   Advance from customers......................            -           35,742
   Other accrued liabilities ..................        215,165        236,730
                                                  ------------    -----------
      TOTAL CURRENT LIABILITIES ...............      2,371,688      2,973,180

LONG TERM DEBT 
   Long term debt, net of current portion......        409,079        438,306

COMMITMENTS & CONTINGENCIES 

SHAREHOLDERS' EQUITY
   Common stock - par value $.001 ..............         4,469          4,469
   Additional paid-in capital ..................    12,231,218     12,231,218
   Retained deficit ............................   (11,965,419)   (12,060,758)
                                                  ------------    -----------
      TOTAL SHAREHOLDERS' EQUITY................       270,268        174,929
                                                  ------------    -----------
      TOTAL LIABILITIES & SHAREHOLDERS' 
           EQUITY............................... $   3,051,035    $ 3,586,415
                                                  ------------    -----------
                                                  ------------    -----------
</TABLE>


             See notes to consolidated condensed financial statements
                                          
                                       4

<PAGE>
                                          

                                          
                         PERCEPTRONICS, INC. AND SUBSIDIARY
                    CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                    (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                          
                                                         Three Months                      Nine Months
                                                       Ended December 31,               Ended December 31,
                                                      --------------------             --------------------
                                                      1997            1996             1997            1996
                                                      ----            ----             ----            ---- 
<S>                                               <C>            <C>              <C>              <C>
TOTAL REVENUES ............................       $  1,031,115   $  835,884       $ 2,578,524      $ 2,057,364

COST AND EXPENSES
   Cost of sales ..........................            706,653      573,504         1,752,395        1,660,704
   General and administrative .............            211,356      173,788           586,169          597,072
   Research and development ...............               -            -                 -               8,402       
                                                  ------------   ----------       -----------      -----------
TOTAL COST AND EXPENSES ...................            918,009      747,292         2,338,565        2,266,178


INCOME (LOSS) FROM OPERATIONS...............           113,105       88,592           239,959         (208,814)
     Interest expense.......................            59,075       60,742           143,470          120,389
                                                  ------------   ----------       -----------      -----------

INCOME (LOSS) BEFORE INCOME TAXES...........            54,030       27,850            96,489         (329,203)
     Income taxes...........................              (449)         -               1,151             -  
                                                  ------------   ----------       -----------      -----------
NET INCOME (LOSS)...........................         $  54,479    $  27,850       $    95,338      $  (329,203)
                                                  ------------   ----------       -----------      -----------
                                                  ------------   ----------       -----------      -----------

Basic earnings (loss) per common
share - Note F..............................         $   .01      $   .01         $     .02         $  (.08)
                                                  ------------   ----------       -----------      -----------
                                                  ------------   ----------       -----------      -----------

Diluted earnings (loss) per common
share - Note F..............................         $   .01      $   .01         $     .02         $  (.08)
                                                  ------------   ----------       -----------      -----------
                                                  ------------   ----------       -----------      -----------

Basic shares outstanding - Note F...........         4,469,287    3,863,732         4,469,287        3,863,732
                                                  ------------   ----------       -----------      -----------
                                                  ------------   ----------       -----------      -----------

Diluted shares outstanding - Note F.........         4,520,177    3,863,732         4,482,313        3,967,601
                                                  ------------   ----------       -----------      -----------
                                                  ------------   ----------       -----------      -----------
</TABLE>


              See notes to consolidated condensed financial statements

                            
                                          5

<PAGE>

                         PERCEPTRONICS, INC. AND SUBSIDIARY
                  CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                    (UNAUDITED)



<TABLE>
<CAPTION>
                                                               Nine Months
                                                             Ended December 31
                                                         -----------------------
                                                            1997            1996 
                                                            ----            ----
<S>                                                  <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES                 
   Net income (loss)...........................,      $    95,339       $(329,203)
   Non-cash items included in income:                
      Depreciation and amortization ............           15,877         111,920
   (Increase) decrease in:                           
      Receivables ..............................          419,572          16,571
      Inventory ................................             -             54,900
      Prepaid expenses .........................           95,741        (342,964)
      Other assets .............................           15,330            (300)
   Increase (decrease) in:                           
      Accounts payable .........................          (86,119)       (141,931)
      Accrued compensation .....................           70,187         (18,677)
      Other accrued liabilities ................          (21,565)         69,371
      Advance from customer.....................          (35,742)       (268,300)
                                                       ----------       ---------
          NET CASH FLOWS PROVIDED (USED) BY          
             OPERATING ACTIVITIES ..............          568,620        (848,613)
                                                     
CASH FLOWS FROM INVESTING ACTIVITIES                 
      Capital additions.........................          (48,014)           -
                                                       ----------       ---------
          NET CASH FLOWS (USED) BY INVESTING         
             ACTIVITIES.........................          (48,014)           -
                                                     
CASH FLOWS FROM FINANCING ACTIVITIES                 
   Net of proceeds and (payments) of export 
      financing ................................         (443,505)        853,012
   Settlement of note payable ..................         (500,000)           -
   Proceeds from new long term debt ............          400,000            -
   Principal payments on debt ..................          (13,975)        (44,621)
                                                       ----------       ---------
      NET CASH FLOWS (USED) BY FINANCING             
      ACTIVITIES................................         (557,480)        808,391
                                                                                
         DECREASE IN CASH AND CASH EQUIVALENTS .          (36,874)        (40,222)
                                                     
         CASH AND CASH EQUIVALENTS                      
           AT THE BEGINNING OF THE PERIOD ......          171,060         317,778
                                                       ----------       ---------
         CASH AND CASH EQUIVALENTS                      
           AT THE END OF THE PERIOD ............      $   134,186       $ 277,556
                                                       ----------       ---------
                                                       ----------       ---------
                                                     
 CASH PAID DURING THE PERIOD                         
   Interest ....................................      $   232,927       $  38,580
   Income taxes ................................      $     1,151       $    - 
</TABLE>

                                                     
              See notes to consolidated condensed financial statements
                                          

                                           6 

<PAGE>
                                          
                         PERCEPTRONICS, INC. AND SUBSIDIARY
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


NOTE A.  UNAUDITED, CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS

The unaudited, condensed, consolidated financial statements have been prepared
in conformity with generally accepted accounting principles and include  all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature. 
Results for the nine and three month periods ended December 31, 1997 are not
necessarily indicative of the operating results to be expected for the full
year.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with general accepted accounting principles
have been condensed or omitted.  It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended March 31, 1997. 

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern.  However, the Company has sustained substantial
operating losses in past years.  In addition, the Company continues to require
substantial amounts of working capital in its operations.  Further at December
31, 1997, current liabilities exceed current assets by $330,000.  The Company is
continuing to have difficulty in meeting its obligations as they become due.
Payments to vendors, totaling approximately $600,000 at December 31, 1997 were
past due and a number of vendors are requiring cash in advance or on delivery
terms for goods and services.  The Company's average monthly cash receipts have
been sufficient to meet current operating requirements but not sufficient to
allow the company to make satisfactory progress towards liquidating its past due
obligations.  In order to conserve cash, management has reduced staff, employee
benefits, and other operating expenditures. Even if the Company overcomes its
short-term liquidity problems, the ability of the Company to successfully cut
costs and generate sufficient revenues to produce adequate positive cash flows
cannot be predicted.  The Company's consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the Company to
continue as a going concern.

NOTE B.  SIGNIFICANT ACCOUNTING POLICIES

Perceptronics, Inc., (the "Company") designs, develops and manufactures
computer-based simulation systems for training and decision support.

PRINCIPLES OF CONSOLIDATION:  The consolidated financial statements include the
accounts of Perceptronics, Inc., (the "Company") and its wholly owned
subsidiary.  All significant intercompany transactions and balances have been
eliminated.

CASH EQUIVALENTS:  All highly liquid investments maturing in three months or
less when purchased are considered as cash equivalents.

INVENTORY:  Inventory is stated at cost, which is not in excess of market.  Cost
is determined principally by the first-in, first-out method.

                                       7

<PAGE>


EQUIPMENT AND LEASEHOLD IMPROVEMENTS:   Equipment and leasehold improvements are
stated at cost.  Depreciation of equipment is provided for by the straight-line
method over their estimated useful lives, which range from 3 to 5 years. 
Amortization of leasehold improvements is provided for by the straight-line
method over the shorter of the useful lives or the terms of the leases.

SOFTWARE DEVELOPMENT COSTS:  Software development costs are stated at the 
lower of cost or net realizable value.  Such costs are amortized on a 
product-by-product basis, commencing when a product is available for general 
release to customers.  The annual amortization expense is the greater of the 
amount computed using the straight-line method over the remaining estimated 
economic life of the product.

REVENUE RECOGNITION:  All sales were recorded using the 
percentage-of-completion (cost to cost) method of accounting.  Under this 
method, sales are recorded as costs (including general and administrative 
expenses) are incurred, plus a portion of the profit expected to be realized 
on each contract in the ratio that costs incurred to date bear to total 
estimated cost at completion.  General and administrative expenses in excess 
of rates billed on contracts are recorded in the period incurred.  Costs 
related to anticipated future losses on contracts are accrued and charged to 
expense in the period when the losses are identified.

INCOME TAXES:  Provisions for federal and state income taxes are calculated 
on reported financial statement income based on the current tax law.  Such 
provisions differ from the amounts currently payable because certain items of 
income and expense, known as temporary differences, are recognized in 
different tax periods for financial reporting purposes than for income tax 
purposes. Deferred income taxes are the result of the recognition of tax 
benefits that management expects to realize from the utilization of net 
operating loss carryforwards.  The amounts recorded are net of a valuation 
allowance and represent management's estimate of the amount that is more 
likely than not to be realized.

PER SHARE DATA:  Per share data is based upon the weighted average number of 
shares  of common stock and dilutive common stock equivalents outstanding 
using the treasury stock method.

NOTE C.   RECEIVABLES

Billed receivables at March 31, 1997 and December 31, 1997 are $326,636 and 
$258,297 respectively.  These balances represent amounts that have been 
invoiced on commercial and United States Government contracts that remain 
unpaid at the end of the respective periods.

Unbilled receivables at March 31, 1997 and December 31, 1997  are $1,647,894 
and $1,318,863 respectively.  These balances represent amounts recognized 
under the percentage-of-completion method of accounting that have not been 
billed because of the billing terms of the contracts.

The amount of contract retention  included in unbilled receivables was 
$96,000 at March 31, 1997 and  $147,424 at December 31, 1997. 

NOTE D.  INVENTORY

A summary of the components of inventory follows:

<TABLE>
<CAPTION>                                  December 31, 1997   March 31,  1997
                                           -----------------   ---------------
     <S>                                   <C>                 <C>
     Raw materials and component parts         $186,355          $186,355
                                               --------          --------
                                               $186,355          $186,355
                                               --------          --------
                                               --------          --------
</TABLE>


                                       8


<PAGE>


NOTE E - LONG TERM DEBT 

Long-term debt included the following at December 31 and  March 31, 1997:

<TABLE>
<CAPTION>
                                                                  DEC. 31, 1997      MARCH 31, 1997 
                                                                  -------------      --------------
<S>                                                               <C>                <C>
Note Payable - Small Business Administration, secured by
Company assets, payable in monthly installments of $782
including interest at 4% per annum, due November 2004.             $   56,135          $   60,739

Note Payable - Small Business Administration, secured by
company assets, payable in monthly installments of $278
including interest at 8% per annum, due December 1997.                      -               1,874

Unsecured Note Payable - Lockheed Martin Fairchild (LMF)
 resulting from PGTS contract settlement.                                   -             500,000

Note Payable - Bank guaranteed by Small Business
Administration, secured by company assets, payable
in monthly installments of $4,374 including interest
at prime rate plus 2.75 percentage points, due 
November 2002.                                                        192,503                -

Note Payable - Export customer bearing interest
at 12% annually payable monthly $2,000, principal
to be repaid by September 1999.                                       200,000                -
                                                                   ----------           ---------
                                                                      448,638             562,613
Current portion of long-term notes payable                             39,559             124,307
                                                                   ----------           ---------
                                                                    $ 409,079           $ 438,306
                                                                   ----------           ---------
                                                                   ----------           ---------
</TABLE>

On September 30, 1997 the Company reached a settlement with Lockheed Martin 
Fairchild to pay $500,000 to discharge an unsecured note in full including 
accrued interest. The funds required to discharge the Lockheed Martin 
Fairchild unsecured promissory note were obtained from other lenders. The 
Company entered into a $200,000 note with a bank which is guaranteed by SBA 
which bears interest at prime interest rate plus 2.75 percentage points with 
principal and interest payable monthly amortizing over five years. The 
Company also entered into a $200,000 note with an export customer that bears 
interest at  12  percent and is to be repaid in September 1999 or possibly 
earlier with proceeds from the final payment on the $1.5 million TOW PGTS 
contract expected to occur  by June 1998.  The Company funded $100,000 of the 
settlement from operating cash flow.   

                                       9

<PAGE>


Maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
        December 31,
        <S>          <C>
          1998       $    39,559
          1999           240,756
          2000            45,013
          2001            49,751
          2002            55,025
        Thereafter        18,535
                     -----------
                     $   448,638
                     -----------
                     -----------
</TABLE>


NOTE F.  NET INCOME PER SHARE

In February 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards ("SFAS")  No. 128, "Earnings per Share" 
which replaces the current methodology for calculating and presenting 
earnings per share.  Under SFAS No. 128, primary earnings per share will be 
replaced with a presentation of basic earnings per share and fully diluted 
earnings per share will be replaced with diluted earnings per share.  Basic 
earnings per share excludes dilution and is computed by dividing income 
available to common stockholders by the weighted average number of common 
shares outstanding for the period.  Diluted earnings per share is computed 
similarly to fully diluted earnings per share.  The statement is effective 
beginning in the Company's third quarter ended December 31, 1997, and 
accordingly, the financial statements for the third quarter  include a 
restatement of historical earnings per share to conform to the requirements 
of SFAS No. 128.  A reconciliation of shares used to compute earnings per 
share is as follows:

<TABLE>
<CAPTION>
                                             Quarter ended         Nine Months ended
                                              December 31,           December 31,
                                          1997        1996         1997         1996
                                       ---------    ---------    ---------    ---------
<S>                                    <C>          <C>          <C>          <C>
Weighted average common shares
  outstanding                          4,469,287    3,863,732    4,469,287    3,863,732

Dilutive stock options and warrants
  based on the treasury stock method      50,890        --          13,026      103,869
                                       ---------    ---------    ---------    ---------
Diluted shares                         4,520,177    3,863,732    4,482,313    3,967,601
                                       ---------    ---------    ---------    ---------
                                       ---------    ---------    ---------    ---------
</TABLE>


                                      10

<PAGE>

Item 2. Management's discussion and analysis of financial condition and results
        of operations.

GENERAL

Perceptronics , Inc., (the "Company") designs, develops and manufactures
computer-based simulation systems for training and decision support. These
systems include both hardware and software. The Company's simulators are used to
train personnel in the use of various military and commercial equipment,
including weapons, vehicles and aircraft. In the decision support area, the
Company's computer software systems are used to enhance command and control
operations, for process modeling and simulation, and for management of
concurrent engineering activities in product development and manufacturing. Much
of the Company's business is in the foreign defense industry where the Company
has built an international reputation.

RESULTS OF OPERATIONS

NET SALES.  Net sales for the nine months ended December 31, 1997 increased by
$517,000 or  25% compared to the comparable nine month period in the prior
fiscal year. Sales of training simulator systems increased $649,000 or 54% as a
result of increased export sales of TOW PGTS simulator systems. Simulation
network technology sales decreased $202,000 or 26% as a result of reduced
activity on U. S. Government cost reimbursable contracts. Science technology and
software product sales increased $70,000 primarily due to a contract for design
of a medication dispenser monitoring device. Net sales for the three months
ended December 31, 1997 increased by $191,000 or 23% compared to the comparable
three month period in the prior fiscal year. Sales of training simulator systems
increased by $245,000 or 48% in the current three month period primarily the
result of an export contract for TOW PGTS simulator systems. Simulation network
technology sales decreased by  $73,000 or 25% as a result of reduced activity on
U.S. Government cost reimbursable contracts. Science technology and software
product sales increased $19,000 primarily due to a contract for design of a
medication dispenser monitoring device.

COST OF SALES.  Cost of sales for the nine months ended December 31, 1997
increased 6%. Cost of sales as a percentage of sales decreased to 68% for the
nine month period from 81% in the comparable nine month period in the prior
fiscal year. The decrease in cost of sales as a percentage of sales in the nine
month period resulted from the increased sales of higher margin foreign
contracts and the reduced sales of lower margin U.S. government contracts. Cost
of sales for the three months ended December 31, 1997  increased 23% consistent
with the increase in sales for the three month period discussed above. Cost of
sales as a percentage of sales during the three month period remained constant
at 69% compared to the comparable three month period in the prior fiscal year. 

GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
decreased   2% in the nine month period and increased 22% in the three month
period compared to comparable periods in the prior fiscal year. The Company
continues to pursue cost reduction measures consistent with the level of
business as is evident by the 2% reduction for the nine month period in light of
a 25% increase in sales.

INTEREST EXPENSE. Interest expense increased 19% or $23,000 in the nine month
period ended December 31, 1997. Interest applicable to export financing
increased $90,000 as a result of higher borrowing levels during the period,
however this was substantially offset by reduced interest expense resulting from
the settlement of the unsecured note payable with Lockheed Martin Fairchild.
During the three month period ended December 31, 1997, interest expense
decreased $2,000 or 3%. Interest related to export financing increased $14,000
as a result of higher borrowing levels during the period, however this was
offset by reduced interest expense resulting from the settlement of the
unsecured note payable with Lockheed Martin Fairchild. 

BACKLOG.  The Company's firm contract backlog was $3.8 million at December 31,
1997, compared to $2.1 million at December 31, 1996. The term "firm contract
backlog" refers to the aggregate 


                                       11

<PAGE>


revenue remaining under contracts held by the Company and includes both 
funded and unfunded amounts. Included in the December 31, 1997 backlog is a 
contract with the Egyptian government for TOW PGTS training systems, $3.0 
million, which was signed in July 1997. The Egyptian contract has been 
audited and approved by the U. S. Government who is involved in funding the 
contract. The Company is currently arranging the necessary export financing 
required to perform on the contract and believes the financing will be in 
place in February 1998. Because of delays in starting the contract, a 
substantial portion of the Egyptian contract revenues will not be realized 
during this fiscal year. All other contracts in the December 31, 1997 backlog 
are funded and all contracts in the December 31, 1996 backlog were funded.

LIQUIDITY AND CAPITAL RESOURCES.

Cash balances were $134,000 at December 31, 1997, and the Company's principal
source of liquidity is cash flow generated by operations combined with the
export facilities discussed below. The Company had negative working capital of
$330,000 at December 31, 1997, compared to negative working capital of $379,000
at March 31, 1997. The Company has experienced severe liquidity problems and
continues to have difficulty in meeting its obligations as they come due. At
December 31, 1997,  payments to vendors totaling $600,000 are past due and are
being liquidated as positive cash flow permits. The Company is making good
progress in reducing this balance (ie. it was $750,000 at October 31, 1997),
however the lack of sufficient working capital continues to restrict the
Company's ability to expand its revenue base. See Note A of the Notes to
Consolidated Financial Statements which is hereby incorporated herein by
reference.

The Company's short-term strategy is to increase its domestic and foreign
defense contract revenue base in order to generate sufficient cash flow from
operations and to reduce current liabilities and improve financial ratios. The
Company's long-term strategy will be to continue to focus on the development of
commercial products derived from the Company's defense related technology  and
expertise in order to reduce the Company's dependence on defense contracts. The
Company's ability to pursue its long-term strategy will depend on generating
sufficient cash flow from operations to finance new product development. There
can be no assurance that this strategy will be successful. The Company is
exploring alternative sources for financing as well as potential business
combinations in order to meet the short and long-term objectives.

With respect to the current export contracts for TOW PGTS training systems, the
Company plans to utilize an export credit facility similar to export financing
used on previous  export contracts. In October 1997, an export credit facility
was obtained from a commercial lender in the amount of $833,000 which is
guaranteed by the U.S. Small Business Administration (SBA). In December 1997, an
export credit facility was obtained from the same commercial lender in the
amount of $400,000 which is guaranteed by the California Export Finance Office
(CEFO). Borrowings occur on the credit facilities as work progresses on the
contract. The borrowings on these facilities bear interest at 3.0 points above
prime rate and are secured by a lien placed on the Company's general assets. The
Company presently has applied for, and expects to receive, a similar export
credit facility from the same commercial lender which would be guaranteed by SBA
and CEFO to fund the production of TOW PGTS training systems under the contract
with the government of Egypt.  These borrowings are reported as short term loans
payable since repayment generally occures within twelve months.

The Company currently has a note payable with a bank which is guaranteed by SBA.
The face amount of the note is $200,000 and at December 31, 1997 the principal
balance outstanding  was $193,000. The note bears interest at prime rate plus
2.75 percentage points with principal and interest payable monthly amortizing
over five years. The Company also has a note payable with an export customer
that bears interest at 12 percent annually and is to be repaid in September 1999
or possibly earlier with proceeds from the final payment of a $1.5 million TOW
PGTS contract expected to occur by June 1998. Both notes were entered into in
conjunction with the settlement of an unsecured note payable with Lockheed
Martin Fairchild, which occurred on September 30, 1997.


                                      12  

<PAGE>


PART II.  OTHER INFORMATION

Item 6.   Exhibits and reports on Form 8-K

    (a)   The following exhibits are filed herewith:


          27    Financial Data Schedules.

    (b)   The Registrant filed no report on Form 8-K during the
          quarter ended December 31, 1997.
                                          
 
 
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.


                                             PERCEPTRONICS, INC.
                                             ----------------------------
                                             Registrant



Date: February 12, 1998                      /s/ ROBERT E. ANDERSON
      -----------------------------          ----------------------------
                                             Robert E. Anderson
                                             Senior Vice President Finance
                                             (Principal Financial & Accounting
                                             Officer)


                                      13

<PAGE>


                                 INDEX TO EXHIBITS





27        Financial Data Schedules - on Edgar filing only.













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