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 -- December 31, 1997

                                       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 of                           (I.R.S. Employer 
Incorporation or Organization)                           Identification No.)

 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     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  February  12, 1998 --  2,125,000  shares $ .001 par value
common stock.



                                        1

<PAGE>



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                               Page
<S>                                                                                                             <C>  
PART I:           FINANCIAL INFORMATION...........................................................................3

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

Consolidated Balance Sheets.......................................................................................4

Consolidated Income Statement.....................................................................................6

Consolidated Statement of Stockholders' Equity of Productivity Technologies Corp..................................7

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..............................................................................13

ITEM 2.           LEGAL PROCEEDINGS..............................................................................13

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K...............................................................13

SIGNATURES.......................................................................................................14

</TABLE>


                                        2

<PAGE>



PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARY

PART I:           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 six months ended  December 31, 1997, 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
                                                                          December 31,                June 30,
                                                                              1997                      1997
------------------------------------------------------------------------------------- ------------------------
<S>                                                                           <C>                        <C>   
Assets

Current Assets
     Cash and cash equivalents                                                $49,308                 $843,709
     Short-term investments and accrued interest                            1,493,256                  929,204
     Contracts receivable                                                  14,153,748                9,199,302
     Notes Receivable                                                           -- --                  160,631
     Costs and estimated earnings in excess of
      billings on uncompleted contracts                                     5,466,163                8,640,731
     Inventories                                                              575,711                  619,242
     Prepaid expenses and other                                                67,081                  675,070
     Deferred income taxes                                                    616,618                  622,000
     Assets held for sale                                                       -- --                  937,549
Total Current Assets                                                       22,421,885               22,627,438
------------------------------------------------------------------------------------- ------------------------

Property and Equipment
     Land                                                                     591,514                  591,514
     Buildings and improvements                                             4,843,617                1,329,113
     Construction in progress                                                   -- --                4,142,725
     Machinery and equipment                                                3,149,613                1,909,879
     Transportation equipment                                                  31,500                   31,500
         Total Fixed Assets                                                 8,616,244                8,004,731
         Less accumulated depreciation                                        581,217                  337,350
------------------------------------------------------------------------------------- ------------------------
Net Property and Equipment                                                  8,035,027                7,667,381
------------------------------------------------------------------------------------- ------------------------

Other Assets
     Goodwill, net of accumulated amortization                              2,439,362                2,490,842
      of $165,363 and $10,923
     Non-competition agreement, net of amortization                           202,583                  211,083
     Other assets                                                             718,725                  412,988
Total Other Assets                                                          3,360,671                3,114,913
------------------------------------------------------------------------------------- ------------------------

Total Assets                                                              $33,817,582              $33,409,732
------------------------------------------------------------------------------------- ------------------------
</TABLE>




                                        4

<PAGE>



Productivity Technologies Corp. and Subsidiary
Consolidated Balance Sheets

<TABLE>
<CAPTION>

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

Current Liabilities
     Accounts payable                                                     $1,891,779              $2,472,828
     Accrued expenses
        Executive bonus agreement                                          1,498,000               1,254,842
        Commission payable                                                   671,904                 437,185
        Payroll and related withholdings                                     188,108                 271,930
        Other                                                                831,281                 968,220
     Billings in excess of costs and estimated
        earnings on uncompleted contracts                                  1,694,360               1,165,271
     Current maturities of long-term debt                                    712,216                 714,140
------------------------------------------------------------------------------------- ----------------------
Total Current Liabilities                                                  7,487,648               7,284,416


Deferred Income Taxes                                                        832,000                 832,000

Long Term Debt less current maturities                                    14,941,794              15,327,253
------------------------------------------------------------------------------------- ----------------------
Total Liabilities                                                         23,261,442              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 and 2,125,000 outstanding                            2,125                   2,125
     Additional paid-in capital                                            9,177,488               9,177,488
     Retained earnings                                                     1,376,527                 786,450
Total Stockholders' Equity                                                10,556,140               9,966,063
------------------------------------------------------------------------------------- ----------------------
Total Liabilities and Stockholders' Equity                               $33,817,582             $33,409,732
------------------------------------------------------------------------------------- ----------------------
</TABLE>

See accompanying notes to financial statements.


                                        5

<PAGE>



Productivity Technologies Corp. and Subsidiary
Consolidated Income Statement

<TABLE>
<CAPTION>


                                                             Quarter Ended                     Six Months Ended
                                                     December 31,     December 31,      December 31,      December 31,
                                                        1997              1996             1997              1996
---------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>               <C>              <C>               <C>   
Net sales                                            $11,336,341        $9,386,486      $20,688,827       $17,812,784
Cost of sales                                          7,873,789         7,156,886       14,508,869        13,482,236
---------------------------------------------------------------------------------------------------------------------
Gross profit                                           3,462,552         2,229,600        6,179,958         4,330,548
Selling, general and administrative
     expenses, excluding officers' bonuses             2,268,355         1,819,752        4,280,843         3,662,010
Officers' bonuses                                        404,758            65,755          659,824           136,115
---------------------------------------------------------------------------------------------------------------------
Income from operations                                   789,439           344,093        1,239,291           532,423
---------------------------------------------------------------------------------------------------------------------
Other income ( expenses)
     Interest income                                      36,954            17,877           62,452            37,034
     Interest expense                                  (282,335)         (208,174)        (574,186)         (396,027)
     Miscellaneous                                        52,175            14,516          145,020            33,715
---------------------------------------------------------------------------------------------------------------------
Total other expenses                                   (193,206)         (175,781)        (366,714)         (325,278)
---------------------------------------------------------------------------------------------------------------------
Income before income taxes                               596,233           168,312          872,577           207,145
Income taxes                                             172,000            60,500          282,500            85,000
---------------------------------------------------------------------------------------------------------------------
Net income                                              $424,233          $107,812         $590,077          $122,145
---------------------------------------------------------------------------------------------------------------------
Net income per share of
     common stock                                          $0.20             $0.05            $0.28             $0.06
Weighted average number of
     common shares outstanding                         2,125,000         2,125,000        2,125,000         2,125,000

</TABLE>

See accompanying notes to financial statements.

                                        6

<PAGE>




Consolidated Statement of Stockholders' Equity of Productivity Technologies
Corp. (Unaudited)

<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 -
December 31, 1997                                                                         $ 590,077          $590,077
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997              2,125,000          $2,125       $9,177,488       $1,376,527       $10,556,140
---------------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to financial statements.




                                        7

<PAGE>



Productivity Technologies Corp. and Subsidiary
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>


                                                                                        Six Months Ended
                                                                              December 31,           December 31,
                                                                                  1997                   1996
                                                                           -----------------------------------------
<S>                                                                               <C>                     <C> 
Cash Flows From Operating Activities
    Net Income                                                                    $590,077              $122,148
    Adjustments to reconcile net income to net cash
      provided by (used in) operating activities
    Depreciation                                                                   243,867               194,926
    Amortization                                                                    59,980                59,980
    Deferred income tax                                                              5,382              (109,647)
    Changes in operating assets and liabilities
      Contract receivable                                                       (4,954,446)              779,827
      Inventories, prepaid expenses and other                                      651,520                96,343
      Costs and estimated earnings in excess of
        billings on uncompleted contracts                                        3,703,657              (853,279)
      Accounts payable, accrued expenses and other                                (323,933)           (1,138,796)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                               $(23,896)            $(848,498)
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
      Collection of notes receivable                                              $160,631               $38,992
      Maturity of US securities in deposited trust fund                           (564,052)           (3,240,476)
      Expenditures for property and equipment                                      326,036            (2,084,379)
      Increase in notes receivable                                                (305,737)             (253,818)
-----------------------------------------------------------------------------------------------------------------
Net cash Provided by (used in) investing Activities                              $(383,122)          $(5,539,681)
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
      (Payments) borrowings  on long-term debt,
        capital leases and notes payable                                            (1,924)             (193,181)
      Proceeds from additional long-term debt                                     (385,459)            6,517,150
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used In) financing activities                              $(387,383)           $6,323,969
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                             $(794,401)             $(64,210)
Cash and cash equivalents at the beginning of the period                           843,709               512,179
Cash and cash equivalents at the end of the period                                 $49,308              $447,969
-----------------------------------------------------------------------------------------------------------------
Supplemental cash flow information
      Cash paid during the period for
        Interest                                                                  $574,186              $396,027
        Income Taxes                                                              $105,000               $85,000
-----------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.

                                        8

<PAGE>



Notes to Financial Statements (Unaudited)

1.       Basis of Presentation

The  accompanying  unaudited  financial  statements for the second quarter ended
December  31, 1997 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 second quarter ended December
31, 1997 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

Formation 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 originally selected March 31 as its fiscal year-end. 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,
through a merger, Atlas Technologies, Inc. (Atlas) as a wholly owned subsidiary.

The  accompanying  financial  statements  presented for the second quarter ended
December  31, 1997  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, including a new 59,000 square foot facility
which  started up in June 1997.  Atlas leases back a portion of a third plant in
nearby Linden, Michigan, which it recently sold.

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

                                        9

<PAGE>



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.

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 second  quarter ended  December 31, 1997 has
been computed based on the weighted  average number of common and diluted common
equivalent shares outstanding.

3.       Commitments

In  connection  with  the  merger  agreement,   Atlas  entered  into  employment
agreements  which  established  the  compensation  of the two  senior  executive
officers  of  Atlas.  The  employment   agreements  in  regard  to  annual  base
compensation  are  identical,  except  that one  agreement  expires on  December
31,1998, and the other expires on December 31, 2001. Each agreement requires the
executive to devote  substantially all of his business time and attention to the
affairs of PTC.  Annual base  compensation  under each  agreement  is  currently
$198,588, subject to cost of living increases annually after December 31, 1998.

The employment  agreements also provide for two bonus  arrangements based on the
earnings of Atlas before interest and taxes (as defined). Under one of the bonus
arrangements,  each of the two executives  mentioned in the above paragraph will
be paid  $208,333 for each of the six years  beginning  January 1, 1996 in which
the "Adjusted  Earnings" of Atlas (as defined in the related agreements) exceeds
$2,000,000.  Under  the  second  bonus  arrangement,  if during  the five  years
beginning  January 1, 1996, the "Average  Adjusted  Earnings" (as defined in the
related  agreements)  are at least  $2,626,000,  each  executive will be paid an
amount equal to the amount by which such average earnings exceed $2,626,000.  In
essence, under the second bonus arrangement each executive will be entitled to a
payment equal to 20% of the amount, if any, by which Atlas' accumulated Adjusted
Earnings for the five-year period exceed  $13,130,000.  Both bonus  arrangements
are also subject to various conditions described in the related agreements.  The
bonus arrangements do not terminate in the event of death of the executive,  but
payments  will be  reduced  by the  amount  of  insurance  benefits  paid to the
executive's  estate  pursuant to life insurance in effect.  For periods  through
December 31, 1997, a total of  $1,498,000  has been accrued  under the two bonus
arrangements.

4.       Contingencies

Atlas is undergoing an Internal  Revenue Service audit for the fiscal year ended
June  30,   1995.   The  primary   area  of  review   relates  to  research  and
experimentation  tax credits  claimed for the 1990  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 would be an adverse  effect upon the
financial statements of PTC.


                                       10

<PAGE>



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

Effective  May  23,  1996,  PTC  entered  into a  Merger  Agreement  with  Atlas
Technologies,  Inc.  whereby  Atlas  became a  wholly-owned  subsidiary  of PTC.
Financial  statements  after that date are those of the new reporting entity and
are not fully comparable to pre-merger periods.

Results of Operations

Net  consolidated  income for the quarter  ended  December 31, 1997 was $424,233
compared with $107,812 for the quarter ended  December 31, 1996.  Net income was
$590,077 for the six months ended  December 31, 1997  compared with $122,145 for
the six months ended  December 31, 1996.  Net income  consisted of $513,078 from
operations and extraordinary income of $31,500 after tax from a gain on the sale
of a plant in Linden, Michigan, during the prior quarter.

Sales (Revenue Recognition)

Unaudited   sales  revenues  for  the  quarter  ended  December  31,  1997  were
$11,336,341,  up 21% from the  quarter  ended  December  31,  1996  revenues  of
$9,386,486. Revenues for the six months ended December 31, 1997 were $20,688,827
up 16% from the six months  ended  December  31, 1996  revenues of  $17,812,784.
Increased  sales  resulted  primarily from Atlas' ability to process more orders
because of its increased capacity. The order backlog as of December 31, 1997 was
$18.2 million, essentially the same as the December 31, 1996 backlog.

Gross Margin

For the quarter ended  December 31, 1997,  gross margin was 30.5%  compared with
23.8% for the quarter ended December 31, 1996. For the six months ended December
31, 1997,  gross margin was 29.9%  compared  with 24.3% for the six months ended
December 31, 1996. The improvement in margins over comparable periods a year ago
reflects, primarily,  non-recurrence of costs incurred in 1996 for launching the
new destacker  product line, a more profitable  product mix and improved product
standardization efficiencies.

Gross profit for the quarter ended December 31, 1997 was $3,462,552, an increase
of 55%  compared  with  $2,229,600  for the quarter  ended  December  31,  1996.
Similarly, gross profit for the six months ended December 31, 1997 increased 43%
to  $6,179,958,  compared with  $4,330,548 for the six months ended December 31,
1996.

Selling, General and Administrative Expenses

Consolidated  selling,  general and  administrative  (SG&A)  expenses during the
quarter ended December 31, 1997, were $2,268,355,  up 25% from the quarter ended
December 31, 1996 of $1,819,752.  SG&A expenses of $4,280,843 for the six months
ended  December 31, 1997  increased by 17% compared with  $3,662,010 for the six
months ended  December  31, 1996.  Primary  factors for the SG&A  increase  were
higher foreign travel, international office expenses not present in early fiscal
1997,  increased  volume-related  sales  commissions,  increased  legal expenses
related  primarily to an arbitration  proceeding  filed by SWVA,  Inc. which was
settled in January 1998, and relocation  expenses incurred in the opening of the
new facility.

Officers' bonuses during the quarter ended December 31, 1997, were $404,758,  up
515% from the quarter ended December 31, 1996 of $65,755.  Officers' bonuses for
the six months ended December 31, 1997 of $659,824  increased 385% compared with
$136,115 for the six months ended December 31, 1996.  The employment  agreements
provide for two bonus arrangements based on the

                                       11

<PAGE>



earnings of Atlas before interest and taxes (as defined).  See Interim Financial
Statement Footnote C (Commitments) above for details.

Earnings from  operations  (net income before interest and income taxes) for the
quarter  ended  December 31, 1997 were  $789,439,  up 129% from $344,093 for the
quarter  ended  December 31, 1996.  For the six months ended  December 31, 1997,
earnings from operations of $1,239,291 increased 133% compared with $532,423 for
the six months ended  December  31, 1996.  Increased  earnings  from  operations
resulted  from the same  factors as  discussed  above  relative to gross  margin
improvements.

Interest  expense for the quarter ended  December 31, 1997 was $282,335,  up 36%
from $208,174 for the quarter ended  December 31, 1996. For the six months ended
December 31, 1997,  interest expense of $574,186  increased by 45% compared with
$396,027  for the six months ended  December 31, 1996.  The increase in interest
expense  was  caused by  higher  utilization  of the line of  credit to  finance
increased work in process, and higher accounts receivable, primarily as a result
of increased volume and the financing of the new facility in Fenton.

Liquidity and Capital Resources

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

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  payments  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  (IRB).  The  proceeds  were used for the
construction,  furnishing and equipping of the new 59,000 sq. ft.  manufacturing
and office building. The IRBs are state and federal tax exempt, which results in
the  floating  interest  rate  paid by  Atlas  being  significantly  lower  than
conventional construction or real-estate financing. IRB terms are as follow:

          1997    Interest only
          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.

At December 31, 1997,  Atlas had debt of  $10,944,716  under the line of credit,
$4,500,000  under the IRBs payable over 15 years, and other debt of $209,294 for
a total long term debt balance of $15,654,010. Total combined long-term debt and
line of credit balance was  $16,041,393 at December 31, 1996. PTC believes that,
as a result of the new loan  facility,  its credit  availability  is adequate to
support operations at current and near-term anticipated sales levels.


                                       12

<PAGE>



Working  capital at December 31, 1997 was  $14,934,237 and the current ratio was
3.0 to 1,  compared with  $15,343,022  and 3.1 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 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

                  On January  9, 1998,  settlement  was  reached in the  dispute
between  Atlas and SWVA,  Inc.  SWVA's  initial claim was for  $15,300,000.  The
settlement  provided  for a payment of $700,000 to SWVA,  of which  $200,000 has
been 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



                                       13

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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:     February 12, 1998            By:  /s/  Samuel N. Seidman
                                          -------------------------------------
                                           Samuel N. Seidman, President



Date:    February 12, 1998             By:  /s/  Jesse Levine
                                          -------------------------------------
                                          Jesse Levine, Chief Financial Officer




                                       14

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