<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 September 30, 1999
                                       ------------------

[ ]    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 or organization) (IRS Employer
                                                           Identification No.)

                  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 ___X___     No  __ ___

     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 November 1, 1999:  5,663,242

     Transitional Small Business Disclosure Format (Check one):
         Yes ______     No  __X__


<PAGE>



                                               INDEX

                                 PERCEPTRONICS, INC. AND SUBSIDIARY




PART I.        FINANCIAL INFORMATION

Item 1.       Financial Statements (unaudited)

    (a)       Consolidated balance sheets, Perceptronics, Inc. and subsidiary,
              September 30, 1999 and March 31, 1999.

    (b)       Consolidated statements of operations, Perceptronics, Inc. and
              subsidiary, three and six months ended September 30, 1999 and
              1998.

    (c)       Consolidated statements of cash flows, Perceptronics, Inc. and
              subsidiary, six months ended September 30, 1999 and
              1998.

    (d)       Notes to consolidated financial statements.


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



PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings

Item 2.       Changes in securities.

Item 4.       Submission of matters to a vote of security holders

Item 5.       Other Information

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



<PAGE>


Part I.        FINANCIAL INFORMATION

Item 1.       Financial Statements




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

<TABLE>
<CAPTION>

ASSETS                                                     Sept. 30, 1999     March 31, 1999
------                                                     --------------     --------------
<S>                                                        <C>                <C>

CURRENT ASSETS
     Cash and short-term investments .....................   $   54,726          $  150,801
     Restricted cash - Note B ............................            -             299,000
     Receivables
        Billed - Note C ..................................       73,957             133,881
        Unbilled - Note C ................................       81,404             151,580
        Other receivables ................................       11,999              17,854
     Inventory  - Note D .................................      172,222             172,222
     Pre-contract Costs ..................................      268,178             176,317
     Prepaid expenses ....................................       15,926              29,337
                                                             ----------          ----------
        TOTAL CURRENT ASSETS .............................      678,412           1,130,992


EQUIPMENT & LEASEHOLD IMPROVEMENTS, at cost ..............      822,036             817,963
     Less accumulated depreciation and amortization ......      767,422             747,631
                                                             ----------          ----------
                                                                 54,614              70,332

DEFERRED TAXES ...........................................      932,566             932,566
OTHER ASSETS .............................................       82,930              82,930
                                                             ----------          ----------
        TOTAL ASSETS .....................................   $1,748,522          $2,216,820
                                                             ==========          ==========

</TABLE>

                 See notes to consolidated financial statements



<PAGE>



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

<TABLE>
<CAPTION>

                                                                           Sept. 30, 1999     March 31, 1999
                                                                           --------------     --------------
<S>                                                                        <C>                <C>

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
     Current portion of long term debt - Note E .........................   $     86,672        $     96,629
     Short term debt ....................................................         54,000              54,000
     Accounts payable ...................................................        623,370             528,442
     Accrued compensation ...............................................        149,896             148,032
     Other accrued liabilities ..........................................        166,258             210,447
                                                                            ------------        ------------
        TOTAL CURRENT LIABILITIES .......................................      1,080,196           1,037,550

LONG TERM DEBT
     Long term debt, net of current portion - (Note E) ..................        128,582             157,654
     Other long term liabilities ........................................         92,000             172,500

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
     Common stock - par value $.001; authorized 15,000,000 shares;
     5,655,142 and 5,629,930 shares issued and outstanding ..............          5,655               5,630
     Additional paid-in capital .........................................     12,683,727          12,673,643
     Accumulated deficit ................................................    (12,241,638)        (11,830,157)
                                                                            ------------        ------------
        TOTAL SHAREHOLDERS'  EQUITY .....................................        447,744             849,116
                                                                            ------------        ------------

        TOTAL LIABILITIES & SHAREHOLDERS'
             EQUITY .....................................................   $  1,748,522        $  2,216,820
                                                                            ============        ============

</TABLE>


                 See notes to consolidated financial statements



<PAGE>



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

<TABLE>
<CAPTION>

                                                                         Three Months                       Six Months
                                                                       Ended September 30,               Ended September 30,
                                                                      1999            1998              1999             1998
                                                                -----------------------------      -----------------------------
<S>                                                             <C>               <C>              <C>               <C>

Net sales ....................................................  $    303,419      $ 1,475,150      $    685,829      $ 2,308,102
Cost of sales ................................................       310,281          990,273           628,853        1,491,296
                                                                ------------      -----------      ------------      -----------

Gross profit .................................................        (6,862)         484,877            56,976          816,806

Cost and expenses:
Selling, general and administrative...........................       233,648          305,130           440,958          550,009
Research and development .....................................            -             7,985                 -           14,441
                                                                ------------      -----------      ------------      -----------
Operating income (loss) ......................................      (240,510)         171,762          (383,982)         252,356

Interest expense .............................................         6,348           92,747            26,699          170,119
                                                                ------------      -----------      ------------      -----------

Income (loss) before taxes ...................................      (246,858)          79,015          (410,681)          82,237
Income tax provision .........................................           800              800               800              800
                                                                ------------      -----------      ------------      -----------

Net income (loss) ............................................  $   (247,658)     $    78,215      $   (411,481)     $    81,437
                                                                ============      ===========      ============      ===========

Earnings per share:
     Basic:
        Net income (loss) ....................................  $      (0.04)     $      0.02      $      (0.07)      $     0.02
                                                                ============      ===========      ============      ===========
     Diluted:
        Net income (loss) ....................................  $      (0.04)     $      0.02      $      (0.06)      $     0.02
                                                                ============      ===========      ============      ===========

     Weighted average common and common equivalent shares:

        Basic - Note F .......................................     5,655,142        4,996,625         5,642,536        4,938,292
                                                                ============      ===========      ============      ===========

        Diluted - Note F .....................................     6,123,260        5,101,226        6,365,458         5,177,531
                                                                ============      ===========      ============      ===========

</TABLE>


                 See notes to consolidated financial statements



<PAGE>



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

<TABLE>
<CAPTION>
                                                                           Six Months
                                                                        Ended September 30,
                                                                     1999                1998
                                                                 -------------------------------
<S>                                                              <C>                <C>

CASH FLOWS FROM OPERATING ACTIVITIES
     Net income (loss) ......................................    $  (411,481)           $ 81,437
     Adjustments to reconcile net income to net cash
         used in operating activities:
        Depreciation and amortization .......................         19,791              17,383

     Changes in assets and liabilities:
        Receivables .........................................        135,955            (664,939)
        Inventory ...........................................              -              17,141
        Prepaid expenses ....................................         13,411             (34,165)
        Pre-contract costs ..................................        (91,861)                  -
        Other assets ........................................              -                   -
        Accounts payable ....................................         94,928              44,173
        Accrued compensation ................................          1,864               7,311
        Advance from customers ..............................              -             404,510
        Other accrued liabilities ...........................        (44,189)            (34,478)
                                                                 -----------         -----------
            NET CASH USED IN
               OPERATING ACTIVITIES .........................       (281,582)           (113,225)

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital additions ......................................         (4,073)               (614)
                                                                 -----------         -----------
           NET CASH USED IN INVESTING ACTIVITIES ............         (4,073)               (614)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Exercise of stock options and warrants .................          5,109              16,000
     Net proceeds (repayment)- export financing .............              -             434,689
     Payment of long term debt ..............................        (39,029)           (239,050)
     Increase (decrease) in other long-term debt ............        (80,500)             48,402
     Proceeds from sale of common stock .....................          5,000             290,440
                                                                 -----------         -----------

           NET CASH PROVIDED (USED) IN
               FINANCING ACTIVITIES .........................       (109,420)            502,079

           NET INCREASE (DECREASE) IN CASH
               AND CASH EQUIVALENTS .........................       (395,075)            388,240

           CASH AND CASH EQUIVALENTS  AT
               THE BEGINNING OF THE PERIOD ..................        449,801             377,411
                                                                 ===========         ===========

           CASH AND CASH EQUIVALENTS AT
                 THE END OF THE PERIOD ......................      $  54,726           $ 765,651
                                                                 ===========         ===========

           CASH PAID DURING THE PERIOD
                 Interest ...................................      $  15,262           $ 147,554
                 Income taxes ...............................      $     800           $     800

</TABLE>



<PAGE>



                       PERCEPTRONICS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE A - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


The unaudited 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 three and six month period ended September 30, 1999 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 generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements are 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, 1999.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


DESCRIPTION OF THE COMPANY: Perceptronics, Inc., the "Company" designs,
develops, manufactures and markets computer-based simulation systems and
software for military and commercial 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 inter-company transactions and balances have been
eliminated.

BASIS OF PRESENTATION: The accompanying financial statements have been prepared
in conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has sustained
operating losses during the six-month period ended September 30, 1999 and
requires substantial amounts of working capital to support its operations. At
September 30, 1999, current liabilities exceed current assets by $402,000. The
Company continues to have difficulty in meeting its obligations as they become
due. Payments to vendors, totaling approximately $280,000 at September 30, 1999
are past due and certain vendors continue to require cash in advance or on
delivery terms for goods and services. The Company's cash flow during the
six-month period ended September 30, 1999 was not sufficient to meet current
operating requirements and the Company continues to have difficulty making
satisfactory progress toward liquidating its past due obligations. The ability
of the Company to operate its business and generate sufficient positive cash
flows is dependent on raising additional investment capital to fund development
of commercial software products. The Company announced that it seeks to divest
its PGTS training simulator manufacturing operation. Negotiations relating to
its PGTS contract with Egypt continue to be delayed. The Company has taken steps
to significantly reduce the staff at the manufacturing operation to reduce
costs. 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.

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


<PAGE>


RESTRICTED CASH: Represents short term investments that have been pledged as
collateral in conjunction with letters of credit guarantees required by the
foreign contract with the Government of Egypt.

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

PRE-CONTRACT COSTS: Costs incurred in connection with contracts which have not
been signed at the balance sheet date (but where recoverability is probable)
are accounted for as pre-contract costs. No revenues or profits have been
recognized on these costs. At September 30, 1999 and March 31, 1999 deferred
pre-contract costs were $268,178 and $176,317 respectively.

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.

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
carry-forwards. 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. Refer to Note F for a reconciliation of the shares
used to compute earnings per share.

USE OF ESTIMATES: Company management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
reported amounts of revenues and expenses, in conformity with generally
accepted accounting principles. Actual amounts could differ from these
estimates.




NOTE C - RECEIVABLES


Billed receivables at March 31, 1999 and September 30, 1999 are $133,881 and
$73,957 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. The Company expects to collect all amounts
within one year.


<PAGE>


Unbilled receivables at March 31, 1999 and September 30, 1999 are $151,580 and
$81,404 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 $70,000
at March 31, 1999 and at September 30, 1999.



NOTE D - INVENTORY


A summary of the components of inventory follows:

<TABLE>
<CAPTION>
                                                                Sept. 30,           March 31,
                                                                   1999                1999
                                                               ----------          ----------
         <S>                                                   <C>                 <C>

         Raw materials and component parts                       $172,222            $172,222
                                                               ----------          ----------
                                                                 $172,222            $172,222
                                                               ==========          ==========

</TABLE>


NOTE E - LONG TERM DEBT


Long-term debt included the following at September 30 and March 31, 1999:

<TABLE>
<CAPTION>
                                                                                          Sept. 30,         March 31,
                                                                                            1999              1999
                                                                                        -----------        ----------
<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.                                    $ 43,014          $ 46,908

Note Payable - Bank guaranteed by Small Business
Administration, secured by Company assets, payable in
monthly installments of $4,364 including interest at
prime rate plus 2.75 percentage points, due November 2002.                                 132,877           151,259

Note Payable - Consultant issued to resolve open accounts
payable balance.  Payable in monthly installments of $4,521
including interest at 8% per annum, due April 2000.                                         39,363            56,116
                                                                                        ----------         ---------
                                                                                           215,254           254,283
Current portion of long-term notes payable                                                  86,672            96,629
                                                                                        ----------         ---------
                                                                                          $128,582          $157,654
                                                                                        ==========         =========

</TABLE>



<PAGE>



Maturities of long-term debt are as follows:

<TABLE>
<CAPTION>

                  September 30,
                  <S>                <C>

                    2000             $         86,672
                    2001                       52,307
                    2002                       57,645
                    2003                        8,799
                    2004                        9,158
                    Thereafter                    673
                                           ----------
                                     $        215,254
                                     ================

</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, when adopted, will replace 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. 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 are computed similarly to fully diluted earnings per share. The
statement became effective beginning in the Company's third quarter ended
December 31, 1997. A reconciliation of shares used to compute earnings per
share for the three-month and six month periods ended September 30, 1999 and
1998 are as follows:

<TABLE>
<CAPTION>

                                                  Quarter ended                        Six months
                                                   September 30,                      September 30,
                                               1999             1998              1999             1998
                                               ----             ----              ----             ----
<S>                                          <C>             <C>               <C>              <C>
Weighted average common shares
     outstanding ........................    5,655,142       4,996,625         5,642,536        4,938,292

Diluted stock options and warrants
     based on treasury stock method .....      468,118         104,601           722,922          239,239
                                             ---------       ---------         ---------        ---------

Diluted shares ..........................    6,123,260       5,101,226         6,635,458        5,177,531
                                             =========       =========         =========        =========

</TABLE>



<PAGE>



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

GENERAL

Perceptronics, Inc., (the "Company"), has historically engaged in the design,
development and manufacture of 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 simulator business has been in the foreign
defense industry where the Company has built an international reputation. Refer
to the Liquidity and Capital Resources section below for a discussion of the
Company's plans to divest the training simulator system product line.

The Company is currently developing new commercial products in the area of
Internet Collaborative 3D. The product, called IC3D-TM- Framework, is directed
toward the rapidly growing market for multi-person, online, collaborative
interactions in 3D virtual environments accessed over the Internet. The major
market applications for IC3D-TM- Framework are entertainment, education,
e-commerce and business communication.

GOING CONCERN QUALIFICATION

The following discussion is based on the unaudited consolidated financial
statements contained elsewhere in this report. The unaudited financial
statements have been prepared in conformity with generally accepted accounting
principals, which contemplate continuation of the Company as a going concern.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of the liabilities that may result from the possible
inability of the Company to continue as a going concern. See Note B of Notes to
Consolidated Financial Statements.


RESULTS OF OPERATIONS

NET SALES. Net sales for the six-month period ended September 30, 1999 of
$686,000 decreased by $1,622,000 or 70% compared to the comparable six-month
period in the prior fiscal year. Sales of training simulator systems decreased
$1,698,000 or 99% as a result of the completion of a contract with the
Government of Egypt for TOW PGTS simulator systems during the previous fiscal
year ended March 31,1999. This contract had a total contract value of $3.0
million of which $1,622,000 was recognized in the six-month period ended
September 30, 1998. Training simulator system sales during the six-month period
ended September 30, 1999 amounted to only $5,000 consisting of small orders for
parts and maintenance. Simulation network technology sales, which represented
99% of net sales during the six-month period ended September 30, 1999, increased
$152,000 or 29%. This increase is the result of the U.S. Government SBIR Phase
II contract and the State of California contract that have been providing the
funding for the development and commercialization of the IC3D-TM- Framework
network software products for on-line, multi-user applications involving complex
3D environments.

Net sales for the three-months ended September 30, 1999 of $303,000, decreased
by $1,172,000 or 79% compared to the comparable three-month period in the prior
fiscal year. Sales of training simulator systems decreased $1,084,000 or 100%
because there were no sales during the three-month period ended September 30,
1999. During the three-month period ended September 30,


<PAGE>


1998, there were sales of $1,018,000 on the contract with the Government of
Egypt and $65,000 related to the sale of a PGTS simulator system to a foreign
customer. Simulation network technology sales, which represented 100% of net
sales in the three-month period ended September 30, 1999, decreased $18,000 or
6%.

COST OF SALES. Cost of sales for the six-month period ended September 30, 1999
decreased 58% as a result of the 70% decrease in sales discussed above. The
decrease in cost of sales is not proportional to the decrease in net sales
because of certain fixed and semi-fixed expenses. Cost of sales as a percentage
of sales during the six-month period ended September 30, 1999 was 92% compared
to 65% during the six-month period ended September 30, 1998. The higher
component (99%) of simulation network technology sales, which carry lower
margins than training simulator systems sales, and the fixed and semi-fixed
expenses contributed to the higher percentage of cost of sales to net sales
during the six-month period ended September 30, 1999.

Cost of sales for the three-month period ended September 30, 1999 decreased 69%
as a result of the 79% decrease in sales discussed above. Cost of sales as a
percentage of sales during the three-month period ended September 30, 1999 was
102% compared to 67% during the three-month period ended September 30, 1998. The
reason for the change is the same as for the six-month period.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $109,000 or 20% in the six-month period ended
September 30, 1999 compared to the comparable six-month period in the prior
fiscal year. The decrease was the result of reduced marketing expenses partially
offset by higher indirect payroll expenses which could not be directly absorbed
by contracts due to the lower sales level during the six-month period ended
September 30, 1999. Selling, general and administrative expenses decreased
$71,000 or 23% in the three-month period ended September 30, 1999 compared to
the comparable three-month period in the prior fiscal year. The reason for the
decrease is the same as for the six-month period.

The Company's management continues to pursue cost reduction measures consistent
with the level of business wherever opportunities can be identified. During the
three-month period ended September 30, 1999 the company moved its principal
office into a smaller space which will result in a substantial reduction in rent
expense going forward and the cancellation of the lease that previously existed.
Substantial reductions have also been made in personnel to reduce
payroll-related expenses.

INTEREST EXPENSE. Interest expense decreased 84% or $143,000 in the six-month
period ended September 30, 1999 compared to the comparable six-month period in
the prior fiscal year. Interest expense decreased significantly because of the
completion of the Egypt contract and the resulting repayment of the export
credit facility during the previous fiscal year ended March 31, 1999. In the
three-month period ended September 30, 1999, interest expense decreased 93% or
$86,000. There was no interest expense associated with the export credit
facility during the six-month and three-month periods ended September 30, 1999.

 BACKLOG. The Company's firm contract backlog was $46,000 at September 30, 1999,
compared to $2.3 million at September 30, 1998. The term "firm contract backlog"
refers to the aggregate revenue remaining under contracts held by the Company
and includes both funded and unfunded amounts. At September 30, 1999 all backlog
was funded.

LIQUIDITY AND CAPITAL RESOURCES.

The Company is experiencing severe liquidity problems due to a lack of revenues
and cash reserves. The Company's unrestricted cash balances were $55,000 at
September 30, 1999 and $5,000 at November 8, 1999. The Company had negative
working capital of $402,000 at September 30, 1999, compared to positive working
capital of $93,000 at March 31, 1999. The Company continues to have difficulty
in meeting all of its obligations as they come due. At


<PAGE>


September 30, 1999, vendor accounts totaling $280,000 are past due. The
lack of sufficient working capital continues to restrict the Company's ability
to expand its revenue base. See Note B of the Notes to Consolidated Financial
Statements, which is hereby incorporated herein by reference.

Recently the Company announced that it is seeking to divest its PGTS training
simulator development and manufacturing operation, and plans to concentrate its
efforts on the development of technology and total solutions for collaborative
interaction on the Internet and other networks, including its IC3D Framework
and 3Dconnect software. The Company's management believes that while the PGTS
training simulator systems product line has historically been a significant
portion of the Company's business and has provided the majority of the
Company's revenues, the product line offers less potential for future growth
than the Internet related products. There is no assurance that the Company will
be able to divest the PGTS product line or that any divestiture would improve
the Company's viability.

During the six-month period ended September 30, 1999, the Company's SBIR Phase
II software contract and the California Technology Investment Partnership
contract have provided funding that has enabled the Company to use it's defense
related technology in the development of commercial software products
associated with IC3D-TM- Framework. At September 30, 1999, these contracts had
been completed. The Company requires significant financing from external
sources to be able to continue at its reduced level of operations. There is no
assurance that the Company will be able to obtain such financing. The terms of
any financing could be onerous to the Company and dilutive to shareholders.
Even if the Company obtains financing, there is no assurance that the Company
will be able to successfully develop or market any IC3D-based products. The
Company continues to pursue U.S. Government sponsored development contracts
that have provided technical inputs to the commercial software products as well
as providing revenue and income. The Company is also exploring alternative
sources for financing such as strategic business alliances and potential
business combinations.

The Company currently has a $200,000 note payable with a bank that is
guaranteed by the SBA. At September 30,1999, the principal balance outstanding
was $133,000. 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 24-month note payable with a starting principal of $100,000
that bears interest at 8% per annum. At September 30, 1999, the outstanding
balance on this note payable was $39,000. The Company is behind two monthly
payments on this note as a result of the cash flow limitations previously
discussed.

The Company's operating activities used cash of $282,000 during the six-month
period ended September 30, 1999 resulting primarily from the operating loss
incurred during the period due to reduced sales levels and offset by the
collection of receivables.

The Company's investing activities used cash of $4,000 during the six-month
period ended September 30, 1999 as a result of the purchase of computer
equipment.

The Company's financing activities used cash of $109,000 during the six-month
period ended September 30, 1999, to reduce long-term debt.

On October 15, 1999 the Company was informed that it has been sued by Balter
Guth Aloni & Co., a law firm in Tel Aviv, Israel, for approximately $75,000 in
connection with amounts and interest allegedly owed for legal work performed
seven years ago. The Company's attorney in Israel has entered into settlement
discussions with the plaintiff; such discussions are continuing at present.


<PAGE>


YEAR 2000 COMPLIANCE

The year 2000 issue results from computer programs that do not differentiate
between the year 1900 and the year 2000 because they were written using two
digits rather than four to define the applicable year; accordingly computer
systems that have time-sensitive calculations may not properly recognize the
year 2000. The Company has conducted an initial review of its computer system
to identify whether the system is year 2000 compliant. The computer equipment
and software currently used by the Company is an older generation and will be
effected by the year 2000 problem. The Company has purchased a current
generation system and is in the process of replacing the existing computer
system. The implementation of the new system is in process and will be
completed during the third quarter. However, there can be no assurance that
software incompatibility with the year 2000 issue on the part of the Company's
customers and suppliers will not cause an interruption of operations or that
the Company will not have to incur substantial cost to avoid such occurrences.
Due to the Company's reduced level of operation the Company has not instituted
formal contingency plans related to year 2000 issues.


FORWARD LOOKING STATEMENTS

Except for the historical information contained herein, this report contains
forward-looking statements (identified by the words "estimate," "project,"
"anticipate," "plan," "expect," "intend," "believe," "hope," "strategy" and
similar expressions) which are based on Management's current expectations and
speak only as of the date made. These forward-looking statements are subject to
various risks, uncertainties and factors, including, without limitation, those
described below, that could cause actual results to differ materially from the
results anticipated in the forward-looking statements.

GOING CONCERN ISSUE AND SEVERE LIQUIDITY PROBLEMS. The Company's unaudited
financial statements for the six month period ended September 30, 1999 have
been prepared in conformity with generally accepted accounting principals,
which contemplate continuation of the Company as a going concern. See Note B
of Notes to Consolidated Financial Statements contained elsewhere herein. The
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. The Company's revenue
levels have significantly declined during the six month period ended September
30, 1999 and the backlog at September 30, 1999 is very low, and therefore may
be insufficient to fund continuing operations without the addition of new
contract awards or other forms of capital. The Company has also sustained
operating losses during the six-month period and requires substantial amounts
of working capital in its operations. As a result, the Company suffers from
limited cash resources, which restrict its ability to bid for, obtain and
perform contracts. Even if the Company overcomes its liquidity problems, there
can be no assurance that in the future the Company will be able to increase
revenues or operate profitably.

BUSINESS STRATEGY; IC3D-TM- FRAMEWORK SOFTWARE PRODUCT. The Company's current
business strategy is to focus on the development of commercial products derived
from the Company's defense-related technology and expertise in order to expand
its customer base and reduce its dependence on defense contracts. As part of
this strategy, the Company obtained a U.S. Government Department of Defense
SBIR Phase II Fast Track contract for $750,000 to develop and commercialize
networking software for commercial on-line, multi-player games involving
complex 3D environments ("IC3D-TM- Framework software"). The SBIR Phase II
contract was completed during the three-month period ended September 30, 1999.
The Company will require additional external funds to be able to fully
commercialize, market and exploit the IC3D-TM- Framework software. There can be
no assurance that all future funding requirements will be obtained and at
terms that will be advantageous from an economic standpoint. Furthermore,


<PAGE>


there can be no assurance that the Company will be successful in its
development efforts that the IC3D-TM- Framework software will be a
commercially feasible product, or that the Company will be able to
successfully market the IC3D-TM- Framework software.

PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. The simulation and Internet
software markets are characterized by rapid technological change and are highly
competitive. The Company's success is dependent on its ability to develop new
products and product enhancements to keep up with technological advances and to
meet customer needs. Any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development or introduction, could have a
material adverse effect on the Company's financial condition and results of
operations. The Company has limited manufacturing personnel, and marketing
capabilities and financial resources and will be dependent upon establishing
relationships with strategic and marketing partners to be able to fully exploit
the IC3D-TM- Framework software and other commercial products. There can be no
assurance that the IC3D-TM- Framework software or future new products will
achieve market acceptance, result in increased revenues, or be profitable. Such
products could also be subject to technological obsolescence and intense
competition from companies with greater resources than the Company.

DEPENDENCE ON ONE CUSTOMER AND ON FOREIGN SALES. The Company has historically
derived a substantial portion of its revenues from the sale of PGTS Training
Simulator systems primarily to a limited number of foreign customers. During
the six-month period ended September 30, 1999 training simulator sales only
comprised 1% of total sales compared to 74% in the comparable six-month period
of the prior fiscal year. The Company announced that it plans to divest its
training simulator product line. There is no assurance that the Company will be
able to divest the training simulator product line or that any divestiture
would improve the Company viability.

DEPENDENCE ON DEFENSE-RELATED BUSINESS. The Company has historically derived a
substantial portion of its revenues from U.S. and foreign government
defense-related contracts. As a result, the Company's business has been
impacted by reductions in the U.S. federal defense budget and this business
will continue to be subject to risks affecting the defense industry, including
changes in governmental appropriations and changes in national defense policies
and priorities. The Company has sought to reduce its dependence on
defense-related business by developing products with commercial applications,
such as the proposed IC3D-TM- Framework software networking products. As noted
above there can be no assurance that these products will achieve market
acceptance, resulting in increased revenues or be profitable.

MANAGEMENT OF GROWTH. Successful expansion of the Company's operations will
depend on, among other things, the ability to develop and commercialize new
products, to continue to effectively market existing products, to attract and
retain skilled management and other personnel and to secure adequate sources of
capital to finance growth at reasonable terms. To manage growth effectively,
the Company will have to continue to improve its operational, financial and
management information systems, procedures and controls.

COMPETITION. The Company expects to encounter intense competition in the area
of networked on-line computer software products from companies that have
substantially greater financial, manufacturing and marketing capabilities than
the Company. The Company could also experience competition from emerging
companies. There can be no assurance that the Company's products will be
competitive with existing or future products, or that the Company will be able
to establish or maintain a profitable price structure for its products. The
Company also experiences intense competition for U.S. and foreign government
contracts from companies such as SAIC, Litton, Lockheed Martin and TRW, which
have substantially greater resources than the Company. The Company's size and
financial condition impedes its ability to compete in many areas.


<PAGE>


PROTECTION OF INTELLECTUAL PROPERTY. The Company relies on a combination of
trademarks, trade secrets, and other intellectual property law, nondisclosure
agreements and other protective measures to preserve its proprietary rights
pertaining to its technology and products. Such protection, however, may not
preclude competitors from developing products or technology similar or superior
to the Company's. In addition, the laws of certain foreign countries do not
protect intellectual property rights to the same extent as the laws of the
United States. Although the Company continues to implement protective measures
and intends to defend its proprietary rights to the extent it has the financial
resources to do so, there can be no assurance that these efforts will be
successful. Furthermore, there can be no assurance that the Company's products
or technologies are not or will not be in violation of the patent rights of
third parties.


<PAGE>


PART II.       OTHER INFORMATION



Item 1.  Legal Proceedings

         On October 15, 1999 the Company was informed that it has been sued by
         Balter Guth Aloni & Co., a law firm in Tel Aviv, Israel, for
         approximately $75,000 in connection with amounts and interest allegedly
         owed for legal work performed seven years ago. The Company's attorney
         in Israel has entered into settlement discussions with the plaintiff;
         such discussions are continuing at present.

Item 2.  Change in Securities

         In April 1999 and July 1999, the Company issued warrants to purchase
         50,000 shares and 200,000 shares of Common Stock, respectively, at an
         exercise price of $.85 per share. The warrants were issued to a
         marketing consultant pursuant to an agreement for marketing services.
         In May 1999, the Company issued a warrant for 5,000 shares of Common
         Stock at an exercise price of $.95 per share to a financial consultant
         for services rendered. Each of these issuance's was made pursuant to
         Section 4(2) of the Securities Act of 1933 as a transaction not
         involving a public offering and each purchaser represented that he was
         acquiring the securities for his own account and not with the view
         towards the distribution thereof. The certificates representing the
         securities have a restrictive legend endorsed thereon reflecting the
         restrictions on transferability arising out of the Securities Act.

Item 4.  Submission of matters to a vote of security holders

         The Annual Meeting of Shareholders of Perceptronics, Inc. was held on
         September 14, 1999. All of management's nominees for director as listed
         in the proxy statement were elected. The Vote count for and withheld
         are summarized below.

<TABLE>
<CAPTION>
                                    Shares voted         Shares voted
                                       "For"              "Withheld"
                                    ------------         ------------
         <S>                        <C>                  <C>

         Dr. Gershon Weltman          3,780,285             56,525
         Steven P. Corda              3,780,285             56,525
         Dr. Amos Freedy              3,780,285             56,525
         Dr. John Lyman               3,779,985             56,825
         Robert Parker                3,779,985             56,825
         Stanley Schneider            3,780,285             56,528

</TABLE>


         The shareholders also voted to approve the 1999 Stock Option Plan and
         the 1999 Stock Option Plan for Non-Employee Directors. The vote count
         "yes" and "no" and "abstain" for the two plans are summarized below.

<TABLE>
<CAPTION>

                                                         Yes                 No                Abstain
                                                      ---------            -------            --------
         <S>                                          <C>                  <C>                <C>

         The 1999 Stock Option Plan                   1,478,811            120,017             19,371

         The 1999 Stock Option Plan for Non-
         Employee Directors                           1,468,580            125,726             23,893

</TABLE>


<PAGE>


Item 5.  Other information

         Effective September 27, 1999 Steven P. Corda resigned his position as a
         Director of the Company. Effective October 15, 1999 Thomas J.
         Lubaczewski resigned his position as Senior Vice President Training
         Systems and Chief Operating Officer and he may be involved in the
         acquisition of the training system operation. Effective October 22,
         1999 Robert E. Anderson resigned his position as Senior Vice President
         and Chief Financial Officer. Dr. Gershon Weltman has assumed the
         position of Secretary and Chief Financial Officer.

Item 6.  Exhibits and reports on Form 8-K

         (a)      The following exhibits are filed herewith:

                  10.1     1999 Stock Option Plan

                  10.2     1999 Stock Option Plan for Non-Employee Directors

                  27       Financial Data Schedules.

         (b)      The Registrant filed no reports on Form 8-K during the
                  quarter ended September 30, 1999.


<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.




                                   Perceptronics, Inc.
                                   ----------------------------
                                   Registrant


Date: November 15, 1999            /S/ Gershon Weltman
     ---------------------         ----------------------------
                                   Dr. Gershon Weltman
                                   Chief Executive Officer



<PAGE>





                                INDEX TO EXHIBITS






10.1     1999 Stock Option Plan

10.2     1999 Stock Option Plan for Non-Employee Directors

27       Financial Data Schedules - on Edgar filing only.