U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

(Mark One)

[ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 or  15(d)  OF THE SECURITIES 
         EXCHANGE ACT OF 1934.

For the quarterly period ended -- March 31, 1998

                                       OR

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

For the transition period from _____________  to  _______________________


                         Commission file number 0-24242

                         PRODUCTIVITY TECHNOLOGIES CORP.
        -----------------------------------------------------------------  
        (Exact name of small business issuer as specified in its charter)

     Delaware                                13-3764753
------------------------------       ------------------------------------
(State or Other Jurisdiction         (I.R.S. Employer Identification No.)
  of Incorporation or Organization)
 
     509 Madison Avenue, New York, New York              10022
--------------------------------------------          ----------
    (Address of Principal Offices)                    (Zip Code)

Registrant's Telephone Number, Including Area Code       (212) 843-1480
                                                   --------------------------

                                       Not Applicable
-----------------------------------------------------------------------------
              Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report

     Indicate  by check  whether  the  registrant:  (1) has  filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes   X    No ___

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes _____ No  _____

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common  stock,  as of May 17, 1998 --  2,125,000 shares, $ .001 par value common
stock.



<PAGE>



                                TABLE OF CONTENTS

                                                                        Page

PART I:  FINANCIAL INFORMATION............................................3

ITEM 1.  INTERIM FINANCIAL STATEMENTS.....................................3

Unaudited and Audited Consolidated Balance Sheets.........................4

Unaudited Consolidated Income Statements..................................6

Unaudited Consolidated Statement of Stockholders' Equity..................7

Unaudited Consolidated Statement of Cash Flows............................8

Notes to Financial Statements (Unaudited).................................9

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
         CONDITION AND  RESULTS OF OPERATIONS.............................11

PART II: OTHER INFORMATION................................................14

ITEM 2.  LEGAL PROCEEDINGS................................................14

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.................................14

SIGNATURES................................................................15

                                       2

<PAGE>


PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARY

PART 1.  FINANCIAL INFORMATION

ITEM 1. INTERIM FINANCIAL STATEMENTS.

The  consolidated  financial  statements  have been prepared in accordance  with
generally accepted accounting  principles for interim financial  information and
in accordance  with  instruction to Form 10-Q and Article 10 of Regulation  S-X.
Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been  omitted  from the  accompanying  interim  financial  statements.  The
information  furnished  in  the  accompanying  balance  sheets,   statements  of
operations,  stockholders'  equity and cash flows, reflect all adjustments which
are, in the opinion of  management,  necessary  for a fair  presentation  of the
aforementioned  financial statements for the interim periods.  Operation results
for the nine months ended March 31, 1998 are not  necessarily  indicative of the
results that may be expected for the year ending June 30, 1998.

The  aforementioned   consolidated   financial  statements  should  be  read  in
conjunction with Productivity  Technologies Corp. and Subsidiary's Form 10-K for
the  fiscal  year  ended  June  30,  1997.  Information  provided  includes  the
consolidated  audited  financial  statements,  including  footnotes for the year
ended June 30,  1997 and  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations.

                                       3

<PAGE>


Productivity Technologies Corp. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                           Unaudited                 Audited
                                                                            March 31,                June 30,
                                                                                 1998                    1997
--------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                      <C>
Assets

Current Assets
     Cash and cash equivalents                                               $875,501                $843,709
     Short-term investments and accrued interest                            2,661,476                 929,204
     Contracts receivable                                                   7,889,808               9,199,302
     Notes Receivable                                                           -- --                 160,631
     Costs and estimated earnings in excess of
      billings on uncompleted contracts                                     5,364,267               8,640,731
     Inventories                                                              651,642                 619,242
     Prepaid expenses and other                                               121,230                 675,070
     Deferred income taxes                                                                            622,000
     Assets held for sale                                                       -- --                 937,549
--------------------------------------------------------------------------------------------------------------
Total Current Assets                                                       18,942,677              22,627,438
--------------------------------------------------------------------------------------------------------------

Property and Equipment
     Land                                                                     591,514                 591,514
     Buildings and improvements                                             4,848,505               1,329,113
     Construction in progress                                                   -- --               4,142,725
     Machinery and equipment                                                3,392,151               1,909,879
     Transportation equipment                                                  31,500                  31,500
--------------------------------------------------------------------------------------------------------------
         Total Fixed Assets                                                 8,863,670               8,004,731
         Less accumulated depreciation                                        724,131                 337,350
--------------------------------------------------------------------------------------------------------------
Net Property and Equipment                                                  8,139,539               7,667,381
--------------------------------------------------------------------------------------------------------------

Other Assets
     Goodwill, net of accumulated amortization                              2,413,622               2,490,842
      of $209,982 and $67,838
     Non-competition agreement, net of amortization                           198,333                 211,083
     Other assets                                                             680,461                 412,988
--------------------------------------------------------------------------------------------------------------
Total Other Assets                                                          3,292,416               3,114,913
--------------------------------------------------------------------------------------------------------------

Total Assets                                                              $30,374,632             $33,409,732
--------------------------------------------------------------------------------------------------------------
</TABLE>

                                       4




<PAGE>


Productivity Technologies Corp. and Subsidiary
Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                          Unaudited                 Audited
                                                                          March 31,                June 30,
                                                                               1998                    1997
------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                    <C>
Liabilities and Stockholders' Equity

Current Liabilities
     Accounts payable                                                    $1,352,053              $2,472,828
     Accrued expenses
        Executive bonus agreement                                           810,000               1,254,842
        Commission payable                                                  558,064                 437,185
        Payroll and related withholdings                                    281,743                 271,930
        Other                                                               605,290                 968,220
     Billings in excess of costs and estimated
        earnings on uncompleted contracts                                 1,385,733               1,165,271
     Current maturities of long-term debt                                 1,127,330                 714,140
------------------------------------------------------------------------------------------------------------
Total Current Liabilities                                                 6,120,213               7,284,416

Deferred Income Taxes                                                       832,000                 832,000

Long Term Debt less current maturities                                   13,422,759              15,327,253
------------------------------------------------------------------------------------------------------------

Total Liabilities                                                        20,374,972              23,443,669
------------------------------------------------------------------------------------------------------------

Stockholders' Equity
     Preferred Stock, $.001 par value, 1,000,000 authorized
        and none outstanding
     Common Stock, $.001 par value, 20,000,000
        shares authorized, 2,425,000 and 2,125,000 outstanding                2,425                   2,125
     Additional paid-in capital                                          10,410,938               9,177,488
     Retained earnings                                                     (413,703)                786,450
Total Stockholders' Equity                                                9,999,660               9,966,063
------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity                              $30,374,632             $33,409,732
------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.

                                       5
<PAGE>


Productivity Technologies Corp. and Subsidiary
Unaudited Consolidated Income Statements
<TABLE>
<CAPTION>
                                                             Quarter Ended                 Nine Months Ended
                                                         -----------------------       ---------------------------
                                                         March 31,     March 31,       March 31,         March 31,
                                                           1998          1997            1998              1997

<S>                                                   <C>              <C>             <C>              <C>        
Net sales                                             $9,097,216       $7,565,805      $29,786,043      $25,378,589
Cost of sales                                          7,006,476        5,206,821       21,515,345       18,689,057
--------------------------------------------------------------------------------------------------------------------
Gross profit                                           2,090,740        2,358,984        8,270,698        6,689,532
Selling, general and administrative
     expenses, excluding officers' bonuses             2,324,258        1,629,979        6,605,101        5,291,989
--------------------------------------------------------------------------------------------------------------------
Income (loss) operations                                (233,518)         729,005        1,665,597        1,397,543
--------------------------------------------------------------------------------------------------------------------
Other income ( expenses)
     Interest income                                      28,641           73,057           91,093          110,091
     Interest expense                                  (251,763)        (310,132)         (825,949)        (706,159)
     Miscellaneous                                      (26,856)           5,928           118,165           39,643
--------------------------------------------------------------------------------------------------------------------
Total other expenses                                   (249,978)        (231,147)         (616,691)        (556,425)
--------------------------------------------------------------------------------------------------------------------
Income (loss) officers' before bonuses and unusual
bonus restructuring charges                            (483,496)         497,858         1,048,906          841,118
--------------------------------------------------------------------------------------------------------------------
Officers' Bonuses and unusual bonus restructuring 
charges                                                2,868,059          258,540        2,868,059         394,655  
--------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                    (3,351,555)          239,318       (1,819,153)         446,463
Income taxes                                           (901,500)           91,000         (619,000)         176,000
--------------------------------------------------------------------------------------------------------------------
Net income (loss)                                   ($2,450,055)         $148,318      ($1,200,153)        $270,463
--------------------------------------------------------------------------------------------------------------------
Net income (loss) per share of
     common stock                                        $(1.15)            $0.07           $(0.56)           $0.13
Weighted average number of
     common shares outstanding                         2,128,226        2,125,000        2,126,099        2,125,000

</TABLE>


                                       6

See accompanying notes to financial statements.


<PAGE>


Unaudited Consolidated Statement of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                    Additional                          Total
                                           Common Stock              Paid-In         Retained       Stockholders'
                                       Shares         Amount         Capital         Earnings          Equity
--------------------------------------------------------------------------------------------------------------------

<S>                                     <C>              <C>          <C>              <C>              <C>       
Balance, June 30, 1997                   2,125,000        $2,125       $9,177,488       $ 786,450        $9,966,063

Net Income, July 1 -March 31, 1998                                                    ($1,200,153)     ($ 1,200,153)
                                                                                                         
Partial Bonus settlement                  300,000           $300       $1,233,450                       $ 1,233,750 
--------------------------------------------------------------------------------------------------------------------

Balance, March 31, 1998                 2,425,000         $2,425      $10,410,938      ($413,703)        $9,999,659
--------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.



                                       7


<PAGE>


Productivity Technologies Corp. and Subsidiary
Unaudited Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>

                                                                                       Nine Months Ended
                                                                               --------------------------------
                                                                                March 31,             March 31,
                                                                                    1998                  1997
----------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                      <C>
Cash Flows From Operating Activities
     Net Income                                                               ($1,200,154)             $270,463
     Adjustments to reconcile net income to net cash
       provided by (used in) operating activities
     Depreciation                                                                 386,781               299,735
     Amortization                                                                  89,969              (386,304)
     Deferred income tax                                                         (756,753)                  210
     Changes in operating assets and liabilities
       Contract receivable                                                      1,309,494             1,792,249
       Inventories, prepaid expenses and other                                    521,441              (136,109)
       Costs and estimated earnings in excess of
         billings on uncompleted contracts                                      3,496,926              (245,948)
       Accounts payable, accrued expenses and other                            (2,217,924)           (1,756,740)
----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                            $1,629,779             $(162,444)
----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
       Collection of notes receivable                                            $160,631              $240,606
       Maturity of US securities in deposited trust fund                      (1,732,272)           (2,071,050)
       Expenditures for property and equipment                                     78,610           (3,483,422)
       Increase in notes receivable                                               152,598             (124,806)
----------------------------------------------------------------------------------------------------------------
Net cash Provided by (used in) investing Activities                          $(1,340,433)          $(5,438,672)
----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
       (Payments) borrowings  on long-term debt,                                                    (7,188,588)
         capital leases and notes payable                                        413,190              (152,177)
       Proceeds from additional long-term debt                                (1,904,494)           12,830,419
       Stock distribution Bonus Restructuring                                  1,233,750                --
----------------------------------------------------------------------------------------------------------------
Net cash provided by (used In) financing activities                            $(257,554)            $5,489,684
Net increase (decrease) in cash and cash equivalents                              $31,792            $(111,433)
Cash and cash equivalents at the beginning of the period                          843,709               512,179
Cash and cash equivalents at the end of the period                               $875,501              $400,746
----------------------------------------------------------------------------------------------------------------
Supplemental cash flow information
       Cash paid during the period for
         Interest                                                                $825,949              $706,159
         Income Taxes                                                          ($619,000)              $176,000
----------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.

                                       8
<PAGE>


Unaudited Notes to Financial Statements

1.       Basis of Presentation

The  accompanying  unaudited  financial  statements  for the third quarter ended
March  31,  1998  have been  prepared  in  accordance  with  generally  accepted
accounting   principles  for  interim   financial   information   and  with  the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.  The consolidated  balance
sheet at June 30, 1997 has been derived from the audited consolidated  financial
statements at that date. Operating results for the third quarter ended March 31,
1998 are not necessarily  indicative of the results that may be expected for the
year ending June 30, 1998 or any other interim period. For further  information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report for the period ended June 30, 1997.

2.       Summary of Significant Accounting Policies

History of the Company and Basis of Presentation

Production Systems Acquisition  Corporation (PSAC) was incorporated in June 1993
with the objective of acquiring an operating  business engaged in the production
systems  industry.  PSAC completed an initial public  offering  ("Offering")  of
common stock in July 1994 and raised net proceeds of approximately $9.0 million.
In May 1996, PSAC changed its name to Productivity  Technologies Corp. ("PTC" or
the "Company") and acquired Atlas Technologies, Inc. ("Atlas") as a wholly owned
subsidiary.

The  accompanying  financial  statements  presented  for the third quarter ended
March  31,  1998  include  the  consolidated  accounts  of PTC  and  Atlas.  All
significant  inter-company  accounts and transactions  have been eliminated upon
consolidation.


Nature of Business

Atlas, PTC's sole operating  subsidiary,  is a leading designer and manufacturer
of quick die change,  robotic  transfer and  stacking/destacking  equipment  for
automation  of  metal  stamping  operations,  primarily  in the  automotive  and
appliance  industries.  Atlas operates three manufacturing  plants and has sales
offices in Michigan,  Georgia,  Europe and China.  Two plants are owned by Atlas
and are located in Fenton,  Michigan. Atlas leases a portion of a third plant in
nearby Linden, Michigan.

Sales of products have  principally  been to  automobile  and  automotive  parts
manufacturers and appliance manufacturers. Other customers include manufacturers
of garden and lawn equipment,  office  furniture,  heating,  ventilation and air
conditioning equipment and aircraft.  Sales to automotive related customers have
accounted for the majority of sales during the past three years.

Revenue and Cost Recognition

Contract   revenues  from  fixed  price  contracts  are  recognized   using  the
percentage-of-completion  method.  Under  that  method,  during  the  applicable
accounting  period,  the percentage of completion is developed for each contract
by comparing the cost  incurred  with the projected  total cost of the completed
contract.  The resulting  percentage is applied to the total  contract  price to
provide  commensurate  revenue  recognition.  For these purposes,  the projected
total cost of each contract is assumed to be the  estimated  cost upon which the
contract price was quoted until contract work has progressed to a point at which
cost of remaining work can be estimated with reasonable accuracy.


                                       9
<PAGE>

Contract  costs include all direct  material and labor costs and those  indirect
costs related to contract performance, such as indirect labor, supplies, repairs
and depreciation costs. Provisions for estimated losses on uncompleted contracts
are made in the  period in which  such  losses  are  determined.  Changes in job
performance,  job  condition,   estimated  profitability,   and  final  contract
settlement may result in revisions to costs, revenue recognition and income, and
are recognized in the period the revisions are determined.

Revenues from  time-and-material  contracts are recognized currently as the work
is performed.


Net Income Per Common Share

Net income per common share for the third  quarter ended March 31, 1998 has been
computed based on the new number of common and diluted common  equivalent shares
outstanding after the bonus  restructuring  agreement between PTC and executives
of Atlas.


3.       Commitments

In connection with the merger agreement through which Atlas was acquired, and as
revised under the bonus restructuring agreement referred to below, Atlas entered
into employment agreements, which established the compensation of the two senior
executive officers of Atlas. The employment agreements require the executives to
devote  substantially all of their business time and attention to the affairs of
PTC.  Annual base  compensation  under each  agreement  is  currently  $198,588,
subject to annual cost of living increases.

4. Unusual Onetime Bonus Restructuring Charges Incurred During the Quarter Ended
March 31, 1998.

Effective in the third  quarter,  PTC and the two senior  executive  officers of
Atlas  agreed to  restructure  the  bonus  agreements  which  were a part of the
original  employment  agreements executed when PTC purchased Atlas in May, 1996.
The  structure  and terms of the bonus  payments  under the original  employment
agreements  have been  described  in detail  in prior 10K  reports  filed by the
Company.

From  January 1, 1996 through  December  31,  1997,  PTC accrued or paid bonuses
approximating $2,133,000 to the two senior executives,  comprising the following
amounts:  (1)  Approximately  $208,000 and  $418,000  were paid under one of the
bonus  arrangements  to the two senior  executives  during the six month  period
ended  June 30,  1996 and the year  ended June 30,  1997,  respectively.  (2) An
additional  $208,000 was accrued under this bonus  arrangement  but was not paid
for the six month  period  from July 1, 1997  through  December  31,  1997.  (3)
Finally,  approximately $1,300,000 was accrued but not paid under a second bonus
arrangement for the period from January 1, 1996 through December 31, 1997.

During  the third  quarter  ended  March 31,  1998,  the PTC board of  directors
negotiated with the two senior  executives a bonus  restructuring  plan by which
the  bonuses  are to be paid in one lump sum rather  than over a period from the
present through December 31, 2001. The bonus  restructuring plan was intended to
(1) pay the executives an amount equal, on a present value basis, to what future
bonuses might be worth to PTC and the  executives if PTC and the  executives did
not  modify  the prior  bonus  arrangements,  (2) allow PTC  earnings  in future
periods  to grow  unencumbered  by bonus  payments  to the  executives,  and (3)
continue  providing a  performance-based  incentive to the senior  executives of
Atlas to increase future earnings


                                       10

<PAGE>

Under the bonus  restructuring,  PTC agreed to pay to the senior  executives the
following: (1) 300,000 shares of common stock restricted from transfer or resale
for a period of three years, (2) deferred compensation of $1,660,564 which is to
be paid in four equal annual installments in arrears,  and (3) cash of $810,000,
of which  $560,000 is to be placed in an escrow  account.  Although  the 300,000
shares  under  the  bonus  restructuring  have not been  issued,  they have been
treated as being  outstanding as of the end of the third quarter  because of the
contractual  obligation relating to their issuance.  It is expected that part or
all of the balance in the escrow  account will be distributed at a later date to
the senior executives, depending upon the future resolution of a dispute between
Atlas and the Internal  Revenue Service related to research and  experimentation
credits  claimed by Atlas for the fiscal years ended June 30, 1991 through 1995.
See Contingencies paragraph immediately following.

5.       Contingencies

Atlas is  undergoing an Internal  Revenue  Service  audit  primarily  related to
research  and  experimentation  tax credits  claimed for the 1991  through  1995
fiscal years. Atlas had applied $383,000 of credit towards federal taxes due for
the fiscal  period  ended June 1995 and had carried  forward  $481,400  with the
intention of applying the credits in payment of  alternative  minimum  taxes for
1996 and 1997.  In the event that the IRS should seek a reduction  in the amount
of eligible  credits,  and prevail upon appeal,  there may be an adverse  effect
upon the financial  statements of PTC. Due to the $560,000  escrow funded by the
Atlas senior  executives and discussed in the immediately  preceding  paragraph,
PTC believes Altas has a maximum potential exposure of $187,000 plus interest in
the  event  of an  adverse  IRS  ruling  in  connection  with the  research  and
experimentation  credits.  The Company  believes that Atlas has strong  evidence
which  supports the level of research  and  experimentation  credits  claimed in
prior years.


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


Results of Operations

For the quarter ended March 31, 1998, PTC  experienced an operating loss (before
taxes and onetime  bonus  restructuring  charges) of $483,496,  compared with an
operating  profit of $497,858 for the quarter ended March 31, 1998.  Income from
operations was $1,048,906 for the nine months ended March 31, 1998 compared with
$841,118 for the nine months ended March 31, 1997.  The  operating  loss for the
current  quarter  included  charges in excess of  $600,000  in legal  settlement
expenses and defense  fees.  

The  net  consolidated  loss  income  after  taxes  and  unusual  onetime  bonus
restructuring  charges  for the quarter  ended  March 31,  1998 was  $2,450,055,
compared with net income of $148,318 for the quarter  ended March 31, 1997.  The
net loss was  $1,200,153  for the nine months ended March 31, 1998 compared with
net income of $270,463 for the nine months ended March 31, 1997.  The  operating
loss for the nine months ended March 31, 1998 included legal settlement expenses
and  defense  fees of more than  $500,000  and the onetime  bonus  restructuring
charge of $2,868,059.

Sales (Revenue Recognition)

Unaudited  sales revenues for the quarter ended March 31, 1998 were  $9,097,216,
up 20% from quarter  ended March 31, 1997 revenues of  $7,565,805.  Revenues for
the nine months ended March 31, 1998 were  $29,786,043,  an increase of 17% from
nine months  ended  March 31, 1997  revenues  of  $25,378,589.  Increased  sales
resulted  primarily  from  increased  orders in the prior backlog and from Atlas
having greater  production  capacity as a result of the opening of a third plant
in June 1997.  The order  backlog as of March 31, 1998 was $11.7  million,  down
from the March 31, 1997 backlog of $20.4 million.  Atlas recently removed orders
in excess  of $ 2.8  million  from its  backlog.  The  customers  of the  orders
currently  are  re-evaluating  the projects for which the orders had been placed
with Atlas Atlas expected to process the customers'  orders during the third and
fourth quarters of fiscal 1998, and their delay or  cancellation  had a material
adverse effect on third quarter earnings.


                                       11

<PAGE>

Gross Margin

For the quarter ended March 31, 1998,  the gross margin was 23.0%  compared with
31.2% for the quarter ended March 31, 1997.  For the nine months ended March 31,
1998,  the gross margin was 27.8%  compared with 26.4% for the nine months ended
March 31, 1997.  The decline in gross margin during the third quarter was due to
cost overruns in certain projects in their final stages of completion. The delay
of two substantial orders which initially were scheduled into, then subsequently
removed from, production compounded  difficulties in the production schedule and
also  contributed to the gross margin declines  associated with cost overruns on
certain existing work. The improvement in margins over the comparable nine month
period a year ago primary  reflects a more  profitable  product mix and improved
product standardization efficiencies. In addition, the Company incurred research
costs during the nine month period in 1997 in  connection  with a launching of a
new Destacker product line. A similar level of research costs in connection with
a new product  launch were not  incurred  during the nine month period in fiscal
1998.

Gross profit for the quarter  ended March 31, 1998 was  $2,090,740 a decrease of
11% compared with $2,358,984 for the quarter ended March 31, 1997. As with gross
margins discussed above, the decline in gross profit was due to cost overruns in
certain  projects  in  their  final  stages  of  completion.  The  delay  of two
substantial  orders which  initially  were  scheduled  into,  then  subsequently
removed from, production compounded  difficulties in the production schedule and
also contributed to the decline in gross profit during the quarter. Gross profit
for the nine months ended March 31, 1998 increased 24% to  $8,270,698,  compared
with  $6,689,532 for the nine months ended March 31, 1997. The increase in gross
profit  compared with the nine month period one year ago is principally due to a
more profitable  product mix and improved product  standardization  efficiencies
during fiscal 1998.

Selling, General and Administrative Expenses

Consolidated  selling,  general and  administrative  (SG&A)  expenses during the
quarter  ended March 31, 1998,  were  $2,324,258,  up 43% from the quarter ended
March 31, 1997 of  $1,629,979.  SG&A expenses of $6,605,101  for the nine months
ended March 31, 1998  increased by 25%  compared  with  $5,291,989  for the nine
months ended March 31, 1997. Factors for the increase in SG&A expenses include a
significant  increase  in  international  travel,  higher  volume-related  sales
commissions, legal defense expenses and a legal settlement incurred in the third
quarter in excess of $600,000,  relocation  costs in connection with the opening
and move to a new production  facility,  higher expenses associated with a sales
office overseas, and the launch of new flex finger tooling products.

Officers'  bonuses during the quarter ended March 31, 1998,  were  restructured.
Under  the  bonus  restructuring,  PTC is to pay to the  senior  executives  the
following: (1) 300,000 shares of common stock restricted from transfer or resale
for a period of three years, (2) deferred  compensation of $1,660,564 which will
be paid in four equal  annual  installments  in  arrears,  and (3) cash of up to
$810,000,  of which $560,000 will be placed in an escrow account. It is expected
that part or all of the balance in the escrow  account will be  distributed at a
later date to the senior  executives,  depending upon the future resolution of a
dispute  between Atlas and the Internal  Revenue Service related to research and
experimentation  credits  claimed by Atlas for the fiscal  years ending June 30,
1991 through 1995.

Interest  expense for the quarter  ended March 31, 1998 was  $251,763,  down 19%
from  $310,132 for the quarter  ended March 31, 1997.  For the nine months ended
March 31, 1998,  interest  expense of $825,949  increased  by 17% compared  with
$706,159 for the nine months ended March 31, 1997.  Increased  interest  expense
was due to higher utilization of the line of credit to finance increased work in
process, and an increase in accounts receivable, primarily as a result of higher
volumes during 1998.  Interest  expenses also  increased due to higher  carrying
costs associated with the production plant opened in June, 1997.


                                       12

<PAGE>

Losses from operations prior to federal income tax and the unusual onetime bonus
restructuring  charges  for the  quarter  ended  March 31,  1998 were  $483,496,
compared with a profit of $497,858 for the quarter ended March 31, 1997. For the
nine  months  ended March 31,  1998,  earnings  from  operations  of  $1,048,906
increased  25% compared  with $841,118 for the nine months ended March 31, 1997.
Increased  earnings from operations  resulted from the same factors as discussed
above relative to gross margin  improvements and sales volumes,  The increase in
earnings from operations would have been larger had the company not incurred the
one time legal defense and settlement  expenses  exceeding  $600,000  during the
quarter.

Losses from operations after the unusual onetime bonus restructuring charges and
federal  taxes (net income after bonus  restructuring  and income taxes) for the
quarter ended March 31, 1998 were $2,450,055, compared with a profit of $148,318
for the quarter ended March 31, 1997.  For the nine months ended March 31, 1998,
losses from operations  were  $1,200,153  compared with a profit of $270,463 for
the nine months ended March 31, 1997.  Losses from operations  after the unusual
onetime  bonus  restructuring  charges and income taxes  resulted  from one time
legal defense and settlement  costs and the unusual onetime bonus  restructuring
charges.


Liquidity and Capital Resources

Atlas believes its principal  long-term  capital  requirement  has been and will
continue to be the funding of working capital.

During  the  fiscal  year ended June 30,  1997,  Atlas  entered  into a new debt
financing  agreement  with First of Chicago  NBD. The bank  consolidated  all of
Atlas' long- and short-term borrowings,  bundling the various notes and lines of
credit into one new two-year  committed line of credit,  with increased  maximum
debt of $14,500,000 based on collateral of the Company's  accounts  receivables,
work-in-process  inventory, and other assets. Interest rates were reduced to the
bank prime rate and the  amortization  schedule of certain  asset-based debt was
modified to quarterly  payments of $62,500.  These  changes  reduced the overall
annual principal payment requirements, improving the Company's current ratio and
working capital.

Atlas also  entered  into an  agreement  with  First of Chicago  NBD to fund the
construction of the new facility and equipment through the sale of $4,500,000 in
tax exempt  Industrial  Revenue  Bonds  (IRBs).  The proceeds  were used for the
construction,  furnishing and equipping of the  manufacturing  facilitiy and the
adjacent offices.  The IRBs are state and federal tax exempt, which results in a
floating  interest  rate paid by Atlas  which is lower than that which  would be
available with conventional construction or real estate financing. IRB terms are
as follows:

               1998 $400,000  annual  payment plus quarterly  interest  payments
               1999 $400,000  annual  payment plus quarterly  interest  payments
               2000 $400,000  annual  payment plus quarterly  interest  payments
               2001 - 2011  $300,000  annual  payment  plus  quarterly  interest
               payments.

IRB closing  costs of $184,409  were  incurred in 1996 and booked as a long-term
asset. These are being amortized over the 15-year life of the IRBs.


                                       13
<PAGE>

At March 31,  1998,  Atlas  had debt of  $8,200,365  under  the line of  credit,
$4,500,000 under the IRBs payable over 15 years, a deferred compensation plan of
$1,660,564  to be paid over four  equal  annual  installments  and other debt of
$189,160.  The total  combined  long-term  debt and line of credit  balance  was
$14.550,089  at March 31,  1998.  The  Company  believes  that  future cash flow
requirements  will  be  reduced  due to the  restructuring  of the  prior  bonus
arrangements,  and the Company is expected to report  higher  future cash flows.
Management  believes that the current loan  facility will provide  adequate cash
resources to support  operations  at current and  near-term  future  anticipated
sales levels.

Working capital at March 31, 1998 was $12,822,464 and the current ratio was 3.10
to 1, compared with $15,343,022 and 3.10 to 1, respectively, at June 30, 1997.

Forward-Looking Statements

When used in this and in future  filings  by the  Company  with the SEC,  in the
Company's  press  releases and in oral  statements  made with the approval of an
authorized  executive officer of the Company,  the words or phrases "will likely
result,"  "expects,"  "plans," "will continue," "is  anticipated,"  "estimated,"
"project'" or "outlook" or similar  expressions ( including  confirmations by an
authorized  executive  officer of the Company of any such  expressions made by a
third   party  with   respect  to  the   Company)   are   intended  to  identify
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform Act of 1995.  The  Company  wishes to caution  readers not to
place  undue  reliance  on any such  forward-looking  statements,  each of which
speaks only as of the date made.  Such  statements  are subject to certain risks
and  uncertainties  that could cause actual  results to differ  materially  from
historical earnings and those presently  anticipated or projected.  Factors that
may cause actual results to differ  materially  from those  contemplated by such
forward-looking  statements include, among others, the following; (a) an adverse
outcome  from the IRS  audit for the  fiscal  year  ending  June 30,  1995;  (b)
competitive  pressures  in the  production  systems  industry;  and (c)  general
economic  conditions.  The company  has no  obligation  to publicly  release the
result of any revisions,  which may be made to any forward-looking statements to
reflect anticipated or unanticipated events or circumstances.


PART II: OTHER INFORMATION


ITEM 2.  LEGAL PROCEEDINGS

During the third  quarter of fiscal 1998,  Atlas and the Steel of West  Virginia
(SWVA)  reached a settlement in connection  with an  outstanding  legal dispute.
SWVA's  initial  claim  under the dispute was for  $15,300,000.  The  settlement
provided  for a payment of $700,000  to SWVA,  of which  $210,000  was paid from
insurance proceeds.


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

        A.        Exhibits

                  27   Financial Data Schedule (filed electronically only).

        B.        Reports on Form 8-K

                  None


                                       14

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                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                       PRODUCTIVITY TECHNOLOGIES CORP.


Date: May 20, 1998                     By:  /s/  Samuel N. Seidman
                                          ---------------------------
                                          Samuel N. Seidman, President



Date: May 20, 1998                     By:  /s/  Jesse Levine
                                          ----------------------
                                          Jesse Levine, Chief Financial Officer


                                       15

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