SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                    FORM 10-Q

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

                For the quarterly period ended September 30, 1998

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

      For the transition period from.................to...................

                          Commission file number 1-8191

                               PORTA SYSTEMS CORP.
             (Exact name of registrant as specified in its charter)

           Delaware                                              11-2203988
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                   575 Underhill Boulevard, Syosset, New York
                    (Address of principal executive offices)

                                      11791
                                   (Zip Code)

                                  516-364-9300
                (Company's telephone number, including area code)

      Indicate by check mark whether the Registrant (1) has filed all reports
      required to be filed by Section 13 of 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 ______

      Indicate the number of shares outstanding of each of the issuer's classes
      of common stock as of the latest practicable date: 9,298,713 shares as of
      November 6, 1998


                               Page 1 of 13 pages
<PAGE>

PART I - FINANCIAL INFORMATION
Item 1- Financial Statements

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                             (Dollars in thousands)

                                                    September 30,   December 31,
                                                        1998           1997
                                                    -------------   ------------
                     Assets                          (Unaudited)
Current assets:
     Cash and cash equivalents                        $  2,699        $  5,091
     Accounts receivable, net                           18,623          14,891
     Inventories                                         8,154           8,159
     Prepaid expenses                                    1,888           1,266
                                                      --------        --------
                  Total current assets                  31,364          29,407
                                                      --------        --------
      Property, plant and equipment, net                 4,344           4,667
      Deferred computer software, net                      197             543
      Goodwill, net                                     11,712         12, 059
      Other assets                                       3,688           4,324
                                                      --------        --------
                  Total assets                        $ 51,305        $ 51,000
                                                      ========        ========
                                                                    
     Liabilities and Stockholders' Equity                                
Current liabilities:                                                
      Convertible subordinated debentures             $    362        $  1,758
      Current portion of senior debt                     1,300           1,900
      Accounts payable                                   5,642           5,796
      Accrued expenses                                   6,801           8,656
      Accrued interest payable                             315             398
      Accrued commissions                                2,236           2,444
      Income taxes payable                                 780             853
      Accrued deferred compensation                      1,198           1,228
      Short-term loans                                      27             120
                                                      --------        --------
                  Total current liabilities             18,661          23,153
                                                      --------        --------
                                                                    
Senior debt net of current maturities                   12,213          16,062
12% subordinated notes                                   5,554            --
Zero coupon senior subordinate convertible notes          --             2,796
Income taxes payable                                       794             649
Other long-term liabilities                                516             487
Minority interest                                        1,171           1,040
                                                      --------        --------
                  Total long-term liabilities           20,248          21,034
                                                      --------        --------
Stockholders' equity:                                               
      Preferred stock, no par value; authorized                     
          1,000,000 shares, none issued                   --              --
      Common  stock, par value $.01;                                
          authorized 20,000,000 shares,  issued                     
          9,298,713 and 8,644,304 shares at                         
          September 30, 1998 and December 31,                       
          1997, respectively                                93              86
      Additional paid-in capital                        74,970          70,926
      Accumulated other comprehensive loss:                         
               Foreign currency translation                         
                  adjustment                            (3,823)         (4,027)
      Accumulated deficit                              (56,471)        (57,799)
                                                      --------        --------
                                                        14,769           9,186
      Treasury stock, at cost                           (2,066)         (2,066)
      Receivable for employee stock purchases             (307)           (307)
                                                      --------        --------
                  Total stockholders' equity            12,396           6,813
                                                      --------        --------
                  Total liabilities and                             
                     stockholders' equity             $ 51,305        $ 51,000
                                                      ========        ========
                                                                   
     See accompanying notes to unaudited consolidated financial statements.


                               Page 2 of 13 pages
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                 Unaudited Consolidated Statements of Operations
                      (In thousands, except per share data)

                                                          Nine Months Ended
                                                    September 30,  September 30,
                                                        1998           1997
                                                    -------------  -------------

Sales                                                 $ 45,160       $ 45,934
Cost of sales                                           26,047         28,043
                                                      --------       --------
     Gross profit                                       18,913         17,891
                                                      --------       --------
                                                                    
Selling, general and administrative expenses            10,089          9,542
Research and development expenses                        4,807          3,756
                                                      --------       --------
         Total expenses                                 14,896         13,298
                                                      --------       --------
                                                                    
     Operating income                                    4,017          4,593
                                                                    
Interest expense                                        (2,663)        (2,729)
Interest income                                            205            174
Other income                                               981            244
Debt conversion expense                                   (945)          --
                                                      --------       --------
                                                                    
       Income before income taxes, minority                         
       interest, and extraordinary item                  1,595          2,282
                                                                    
Income tax expense                                        (209)           (31)
Minority interest                                         (133)          (164)
                                                      --------       --------
                                                                    
       Income before extraordinary item                  1,253          2,087
                                                                    
Extraordinary gain                                          76            115
                                                      --------       --------
                                                                    
Net income                                            $  1,329       $  2,202
                                                      ========       ========
                                                                    
Per share data:                                                     
                                                                    
Basic per share amounts:                                            
                                                                    
        Income before extraordinary item              $   0.14       $   0.89
        Extraordinary item                                0.00           0.05
                                                      --------       --------
         Net income per share of common stock         $   0.14       $   0.94
                                                      ========       ========
                                                                    
         Weighted average shares outstanding             9,247          2,338
                                                      ========       ========
                                                                    
Diluted per share amounts:                                          
                                                                    
        Income before extraordinary item              $   0.13       $   0.32
        Extraordinary item                                0.00           0.02
                                                      --------       --------
         Net income per share of common stock         $   0.13       $   0.34
                                                      ========       ========
                                                                    
         Weighted average shares outstanding             9,977          6,514
                                                      ========       ========
                                                                   
     See accompanying notes to unaudited consolidated financial statements.


                               Page 3 of 13 pages
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                 Unaudited Consolidated Statements of Operations
                      (In thousands, except per share data)

                                                         Three Months Ended
                                                    September 30,  September 30,
                                                        1998           1997
                                                    -------------  -------------

Sales                                                 $ 14,217       $ 17,060
Cost of sales                                            8,625          9,948
                                                      --------       --------
     Gross profit                                        5,592          7,112
                                                      --------       --------
                                                                    
Selling, general and administrative expenses             3,122          3,650
Research and development expenses                        1,794          1,268
                                                      --------       --------
         Total expenses                                  4,916          4,918
                                                      --------       --------
                                                                    
     Operating income                                      676          2,194
                                                                    
Interest expense                                          (881)          (889)
Interest income                                             48             82
Other income                                               269             42
                                                      --------       --------
                                                                    
       Income before income taxes, minority                         
       interest and extraordinary item                     112          1,429
                                                                    
Income tax expense                                          (9)            (8)
Minority interest                                          (57)          (179)
                                                      --------       --------
                                                                    
       Income before extraordinary item                     46          1,242
                                                                    
Extraordinary gain                                        --              104
                                                      --------       --------
                                                                    
Net income                                            $     46       $  1,346
                                                      ========       ========
                                                                    
Per share data:                                                     
                                                                    
Basic per share amounts:                                            
                                                                    
        Income before extraordinary item              $   0.01       $   0.53
        Extraordinary item                                --             0.05
                                                      --------       --------
         Net income per share of common stock         $   0.01       $   0.58
                                                      ========       ========
                                                                    
         Weighted average shares outstanding             9,299          2.338
                                                                    
Diluted per share amounts:                                          
                                                                    
        Income before extraordinary item              $   0.01       $   0.19
        Extraordinary item                                --             0.01
                                                      --------       --------
         Net income per share of common stock         $   0.01       $   0.20
                                                      ========       ========
                                                                    
         Weighted average shares outstanding             9,734          6,700
                                                      ========       ========

     See accompanying notes to unaudited consolidated financial statements.


                               Page 4 of 13 pages
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
            Unaudited Consolidated Statements of Comprehensive Income

                                                          Nine Months Ended
                                                    September 30,  September 30,
                                                        1998           1997
                                                    -------------  -------------

Net income                                            $ 1,329         $ 2,202
                                                                     
Other comprehensive income (loss),                                   
net of tax:                                                          
                                                                     
         Foreign currency translation                                
            adjustments                                   204            (419)
                                                      -------         -------

Comprehensive income                                  $ 1,533         $ 1,783
                                                      =======         =======
                                                                   
                                                         Three Months Ended
                                                    September 30,  September 30,
                                                        1998           1997
                                                    -------------  -------------

Net income                                            $    46         $ 1,346
                                                                  
Other comprehensive income (loss),                                
net of tax:                                                       
                                                                  
         Foreign currency translation                             
            adjustments                                    77            (217)
                                                      -------         -------
                                                                  
Comprehensive income                                  $   123         $ 1,129
                                                      =======         =======

     See accompanying notes to unaudited consolidated financial statements.


                               Page 5 of 13 pages
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                 Unaudited Consolidated Statements of Cash Flows
                                 (In thousands)

                                                          Nine Months Ended
                                                    September 30,  September 30,
                                                        1998           1997
                                                    -------------  -------------

Cash flows from operating activities:
     Net income                                        $ 1,329        $ 2,202
     Adjustments to reconcile net income                              
       to net cash provided by (used in)                              
       operating activities:                                          
         Extraordinary gain                                (76)          (115)
         Non-cash debt conversion expense                  945           --
         Non-cash financing expenses                       311            279
         Non-cash interest charges                         304           --
         Depreciation and amortization                   1,631          2,381
         Amortization of debt discounts                    189             30
         Minority interest                                 131           (164)
       Changes in assets and liabilities:                             
         Accounts receivable                            (3,732)        (2,354)
         Inventories                                         5           (426)
         Prepaid expenses                                 (622)          (330)
         Other receivables                                --               31
         Other assets                                      215            628
         Accounts payable, accrued expenses                           
            and other liabilities                       (1,383)          (309)
                                                       -------        -------
            Net cash provided by (used in)                            
               operating activities                       (753)         1,853
                                                       -------        -------
                                                                      
     Cash flows from investing activities:                            
         Proceeds from disposal of assets                             
           held for sale, net                             --              500
         Capital expenditures                             (503)          (434)
                                                       -------        -------
           Net cash provided by (used in)                             
              investing activities                        (503)            66
                                                       -------        -------
                                                                      
     Cash flows from financing activities:                            
         Proceeds from senior debt                           6            314
         Repayments of senior debt                      (4,455)        (1,933)
         Proceeds from 12% subordinated                               
           debentures and warrants                       6,000           --
         Repayment of Zero coupon senior                              
           subordinated convertible notes               (2,796)          --
         (Repayments of) proceeds from short                          
           term loans                                      (93)            92
                                                       -------        -------
           Net cash used in financing                                 
              activities                                (1,338)        (1,527)
                                                       -------        -------
                                                                      
     Effect of exchange rates on cash                      202             70
                                                       -------        -------
                                                                      
     Increase (decrease) in cash and                                  
       cash equivalents                                 (2,392)           462
                                                                      
     Cash and equivalents - beginning                                 
       of the year                                       5,091          2,584
                                                       -------        -------
                                                                      
     Cash and equivalents - end of                                    
       the period                                      $ 2,699        $ 3,046
                                                       =======        =======
                                                                     
                                                                     
                                                                     
     Supplemental cash flow disclosures:                             
         Cash paid for interest expense                $ 1,857        $ 2,298
                                                       =======        =======
                                                                      
         Cash paid for income taxes                    $   188        $    74
                                                       =======        =======
                                                                   
     See accompanying notes to unaudited consolidated financial statements.


                               Page 6 of 13 pages
<PAGE>

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Management's Responsibility For Interim Financial Statements Including 
        All Adjustments Necessary For Fair Presentation

      Management  acknowledges  its  responsibility  for the  preparation of the
accompanying  interim  consolidated   financial  statements  which  reflect  all
adjustments, consisting of normal recurring adjustments, considered necessary in
its opinion for a fair statement of its consolidated  financial position and the
results of its operations for the interim periods presented.  These consolidated
financial  statements  should  be  read  in  conjunction  with  the  summary  of
significant  accounting policies and notes to consolidated  financial statements
included  in the  Company's  annual  report to  stockholders  for the year ended
December 31, 1997. Results for the first nine months of 1998 are not necessarily
indicative of results for the year.

Note 2: Inventories

      Inventories  are  valued at lower of cost or  market.  Inventory  costs at
September  30,  1998  have been  computed  using a  standard  cost  system.  The
composition of inventories at the end of the respective periods is as follows:

                                           September 30, 1998   December 31,1997
                                           ------------------   ----------------
                                                      (in thousands)
      Parts and components                       $4,802              $5,349
      Work-in-process                             1,177               1,079
      Finished goods                              2,175               1,731
                                                 ------              ------
                                                 $8,154              $8,159
                                                 ======              ======

Note 3: 6% Convertible Subordinated Debentures and
        Zero Coupon Senior Subordinated Notes

      As of September 30, 1998, the Company had  outstanding  $362,000 of its 6%
Convertible Subordinated Debentures due July 1, 2002 ("the Debentures"),  net of
unamortized  original  issue discount of $23,000 which is amortized to principal
over the term of the debt using the  effective  interest  rate method.  The face
amount of the outstanding Debentures was $385,000 at September 30, 1998.

      Interest on the Debentures is payable on July 1 of each year. The interest
accrued as of September 30, 1998 amounted to $6,000.


                               Page 7 of 13 pages
<PAGE>

Note 4: Senior Debt

      On  September  30,  1998,  the  Company's  debt to its  senior  lender was
$13,513,000.  During the nine and three months  ended  September  30, 1998,  the
Company  repaid  principal of $4,455,000  and $572,000,  respectively.  Based on
anticipated  principal  payments,  $1,300,000  has been  classified as a current
liability at September 30, 1998.

      Effective  August 1, 1998,  the  Company  amended its  agreement  with its
senior  lender  whereby  the loan  amortization  shall  first be  applied to the
non-interest  bearing notes payable until the notes are paid in full and then to
the term loan, and to extend the expiration of the agreement to January 2, 2000.

      Financial  debt  covenants  include an interest  coverage  ratio  measured
quarterly, limitations on the incurrence of indebtedness, limitations on capital
expenditures, and prohibitions on declarations of any cash or stock dividends or
the repurchase of the Company's stock. As of September 30,1998,  the Company was
in compliance with the above covenants.

Note 5: 12% Subordinated Notes

      In January 1998, the Company raised  $6,000,000 from the private placement
of 60 units at $100,000 per unit.  Each unit consisted of (a) the Company's 12 %
Subordinated Note due January 3, 2000 (a "12% Note"), in the principal amount of
$100,000,  and (b) a  Series  B Common  Stock  Purchase  Warrant  (a  "Series  B
Warrant") to purchase  10,000  shares of Common Stock at $3.00 per share through
December 31, 2002. In the event that any 12% Note is  outstanding  one year from
the date on which such 12% Note is issued (the  "Anniversary Date of the Note"),
the Company shall issue to the holder of such 12% Note on the  Anniversary  Date
of the Note a Series C Warrant to  purchase  25 shares of Common  Stock for each
$1,000 principal amount of 12% Notes  outstanding on the Anniversary Date of the
Note.  The Series C Warrant  will have an  exercise  price  equal to the average
closing  prices of the Common Stock on each of the five  trading days  preceding
the  Anniversary  Date of the Note with respect to which the Series C Warrant is
being issued and will expire on December 31, 2003. The proceeds from the sale of
the Units was used  principally  to pay the remaining  principal  amount of Zero
Coupon Notes which had not been  converted of $2,796,000  (note 3) and to reduce
the Company's senior debt by  approximately  $2,950,000 (note 4). The balance of
such proceeds was added to working  capital.  The Series B and Series C Warrants
were valued at $630,000 and were recorded as part of additional paid in capital.
Accordingly,  the Company recorded the net 12% Note at a value of $5,370,000. In
connection with the private  placement of these units, the Company issued to its
investment banking firm 120,000 shares of common stock.

Note 6: Receivable for Employee Stock Purchases

      During the quarter  ended June 30, 1998,  the Board of Directors  approved
the exchange of certain notes receivable  issued by current and former employees
of the Company for the common stock of the Company  which is held as  collateral
for these notes. The notes were issued as payment for the shares pursuant to the
1984  compensation  plan. It is  anticipated  that this  transaction  will close
during the quarter  ended  December 31, 1998.  The exchange of the shares of the
Company's  common stock as full payment of the employee  notes will have only an
effect on the Company's balance sheet as a reclassification of equity.


                               Page 8 of 13 pages
<PAGE>

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

      The  Company's  consolidated  statements  of  operations  for the  periods
indicated below, shown as a percentage of sales, are as follows:

                                        Nine Months Ended    Three Months Ended
                                           September 30,        September 30,
                                           -------------        -------------
                                        1998         1997    1998          1997
                                        ----         ----    ----          ----
Sales                                   100%         100%    100%          100%
Cost of sales                            58%          61%     61%           58%
Gross profit                             42%          39%     39%           42%
Selling, general and                                                     
  administrative expenses                22%          21%     22%           21%
Research and development expenses        11%           8%     12%            8%
  Operating income                        9%          10%      5%           13%
Interest expense - net                   (5%)         (6%)    (6%)          (5%)
Other income                              2%           1%      1%            0%
Debt conversion expense                  (2%)          0%      0%            0%
Minority interest                         0%           0%      0%           (1%)
Income taxes                             (1%)          0%      0%            0%
Extraordinary item                        0%           0%      0%            1%
Net income                                3%           5%      0%            8%
                                                                     
      The Company's  sales by product line for the periods  ended  September 30,
1998 and 1997 are as follows:

                                                      Nine Months Ended
                                                         September 30,
                                                         -------------
                                                   1998              1997
                                                   ----              ----
                                                    (Dollars in thousands)

Line connection/protection
  equipment ("Line connection")               $ 17,503   39%    $ 18,204   40%
Operations Support Systems ("OSS")              21,263   47%      21,093   46%
Signal processing                                6,246   14%       6,203   13%
Other                                              148    0%         434    1%
                                              -------------     -------------
                                              $ 45,160  100%    $ 45,934  100%
                                              =============     =============

                                                      Three Months Ended
                                                         September 30,
                                                         -------------
                                                   1998              1997
                                                   ----              ----
                                                    (Dollars in thousands)

Line connection                               $  6,906   49%    $  4,857   29%
OSS                                              5,519   39%       9,790   57%
Signal Processing                                1,726   12%       2,261   13%
Other                                               66    0%         152    1%
                                              -------------     -------------
                                              $ 14,217  100%    $ 17,060  100%
                                              =============     =============


                               Page 9 of 13 pages
<PAGE>

Results of Operations

      The Company's  sales for the nine months ended September 30, 1998 compared
to the nine  months  ended  September  30,  1997  decreased  $774,000  (2%) from
$45,934,000  in 1997 to  $45,160,000  in  1998.  Sales  for  the  quarter  ended
September  30, 1998 of  $14,217,000  decreased by $2,843,000  (17%)  compared to
$17,060,000  for the quarter ended  September 30, 1997. The decreased  sales for
the three  months are due  primarily  to a 44%  decline in revenue  from the OSS
division that was somewhat  offset by increased  sales from the line  connection
business.

      The line  connection  sales for the nine months ended  September  30, 1998
compared to September 30, 1997  decreased  from  $18,204,000  to  $17,503,000 or
$701,000 (4%).  Line  connection  sales for the three months ended September 30,
increased by $2,049,000 (42%) from $4,857,000 in 1997 to $6,906,000 in 1998. The
decrease  for the  nine-month  period  reflects  changes in the  product mix and
reduced  unit   purchases   from  the  Company's   largest   customer,   British
Telecommunications  plc ("BT"). During 1997, the Company amended an agreement to
supply  certain line  connection  equipment to BT,  which  included  certain new
products.  The amended agreement  resulted in a lower selling price for existing
products and prices that  resulted in a reduced  gross margin for new  products.
Sales to BT  during  the nine  months  of 1997  were  made  pursuant  to the old
agreement,  while the amended agreement applied to sales in the 1998 periods. In
addition,  the number of units purchased by BT declined in the nine months ended
September  30,  1998  from  the  comparable  periods  of 1997.  Orders  for line
connection equipment from BT remain at the reduced rate. The decline in sales to
BT for the three months ended  September  30, 1998 was  significantly  offset by
increased sales of line connection equipment in the United States and Mexico.

      OSS  revenue  is  accounted  for on a  percentage  of  completion  method.
Historically, revenue recognition, as it relates to the OSS business, is subject
to  fluctuations  on a quarter to quarter  basis  because  the timing of revenue
recognition is dependent on securing milestones associated with large, long-term
contracts.  Such attainment of milestones do not have a correlation  with fiscal
quarters.  OSS  revenue  for the  nine  months  ended  September  30,  1998  was
$21,263,000 compared to the nine months ended September 30, 1997 of $21,093,000,
an increase of $170,000 (1%). For the three months ended September 30, 1998, OSS
revenue was $5,519,000  compared to revenue for the three months ended September
30, 1997 of $9,790,000,  a decrease of $4,271,000 (44%). The decrease in revenue
for the three months reflects the timing of the attainment of certain milestones
on  long-term  contracts  as well as a  slowdown  in  securing  significant  new
contracts  during the period.  For the nine-month  period revenue  remained at a
constant level.

      Signal  processing sales for the nine months ended September 30, 1998 were
$6,246,000  compared to the nine months ended  September 30, 1997 of $6,203,000,
an increase of $43,000 (1%).  Signal processing sales for the three months ended
September 30, 1998 were $1,726,000, compared to the three months ended September
30, 1997 of $2,261,000,  a decrease of $535,000 (24%). The decrease in sales for
the  three-month  period ended  September  30, 1998  reflects  delays by certain
military  customers  in the  placing  of orders.  Furthermore,  during the three
months ended September 30, 1997 non-recurring revenue was recognized for certain
engineering services.


                              Page 10 of 13 pages
<PAGE>

Results of Operations (continued)

      Cost of  sales  for  the  nine  months  ended  September  30,  1998,  as a
percentage of sales was 58% compared to the nine months ended September 30, 1997
of 61%. For the quarter ended  September 30, 1998, cost of sales as a percentage
of sales was 61% compared to the same period of 1997 of 58%. The  improvement in
gross margin for the nine-month  period is attributed to product mix and overall
greater  absorption  of  overhead  at the  Company's  manufacturing  facility in
Mexico.  For the  three-month  period,  the decline in gross margin reflects the
reduced level of revenue from the OSS business and  therefore,  the inability to
absorb the fixed operating costs and expenses of this business unit.

      Selling,  general and  administrative  expenses increased by $547,000 (6%)
from  $9,542,000  to  $10,089,000  for the nine months ended  September 30, 1998
compared to the nine months ended September 30, 1997. This increase reflects the
Company's efforts to increase its sales and marketing  effectiveness in order to
secure  future  business.  For the quarters  ended  September  30, 1998 and 1997
selling,  general and  administration  expenses decreased by $528,000 (14%) from
$3,650,000 to $3,122,000,  respectively.  This decrease resulted  primarily from
lower  commissions  associated with the decreased  revenues for the OSS business
for the quarter.

      Research and  development  expenses  increased by $1,051,000  (28%) and by
$526,000  (41%) for the nine and three months ended  September 30, 1998 from the
comparable periods in 1997, respectively. The increased expense for both periods
results from the Company's efforts to develop new products, primarily related to
the OSS business.

      As a result of the above,  for the nine months  ended  September  30, 1998
compared to the comparable nine months of 1997, the Company had operating income
of  $4,017,000  in 1998 versus  $4,593,000  in 1997.  The Company had  operating
income of  $676,000  for the  quarter  ended  September  30, 1998 as compared to
$2,194,000 for the quarter ended September 30, 1997.

      Other  income  for the nine  months  ended  September  30,  1998  includes
$400,000  from the  settlement  of  litigation,  $167,000  of  additional  funds
received from the settlement of the sale of the Israeli  business,  and $234,000
in conjunction with the settlement of various old outstanding  liabilities.  The
three  months  ended   September   30,  1998  includes  the  $234,000  from  the
above-mentioned settlement of liabilities.

      During the nine months ended September 30, 1998, the Company recorded debt
conversion  expense of  $945,000  as a result of the  conversion  of Zero Coupon
Notes and 6% Convertible Subordinated Debentures to common stock.

      During the nine months ended  September  30, 1998 and 1997,  respectively,
the Company recorded a $76,000 and $115,000 gain from the early extingushment of
its 6% Convertible  Subordinated Debt as a result of the exchange of the 6% Debt
for Zero Coupon Notes and common stock.

      Income tax expense  increased for the nine months ended September 30, 1998
compared to 1997 by $178,000  from $31,000 to $209,000 due to the  limitation on
the use of the Company's NOL  carryforwards.  The  limitation was created by the
change in ownership in 1997 due to the exchange of debt for equity.


                              Page 11 of 13 pages
<PAGE>

Results of Operations (continued)

      As the result of the  foregoing  the Company  generated  net income  after
extraordinary  items of $1,329,000,  $0.14 per share (basic) and $0.13 per share
(diluted) for the nine months ended  September 30, 1998 compared with net income
after extraordinary  items of $2,202,000,  $0.94 per share (basic) and $0.34 per
share  (diluted),  for the nine months ended  September 30, 1997. Net income for
the three months ended  September  30, 1998 was $46,000,  $0.01 per share (basic
and diluted),  compared with net income for the three months ended September 30,
1997 of $1,346,000, $0.58 per share (basic) and $0.20 per share (diluted).

Liquidity and Capital Resources

      At  September  30,  1998 the  Company  had cash  and cash  equivalents  of
$2,699,000  compared with $5,091,000 at December 31, 1997. The Company's working
capital at September 30, 1998 was  $12,703,000,  compared to working  capital of
$6,254,000  at December 31,  1997.  The improved  working  capital  reflects (i)
increased  accounts  receivable  (ii) reduced  balance of the 6% Debentures  and
(iii)  lower  balances  of  accounts  payable,   accrued  expenses  and  accrued
commissions.

      As of September 30, 1998, the Company's  loan and security  agreement with
its senior secured lender,  which expires January 2, 2000, provides the Company,
under its  revolving  line of credit  and its  letter of credit  facility,  with
combined availability totaling $9,000,000. In addition as of September 30, 1998,
the  Company  has  $10,676,000  outstanding  under  a term  loan  agreement  and
$2,837,000  outstanding  in  notes  payable.  Prior  to  the  expiration  of its
agreement with its senior  lender,  the Company will require either an extension
of such  agreement or secure a comparable  agreement  with  another  lender.  No
assurance  can be  give as to the  ability  of the  Company  to  obtain  such an
extension or alternative financing.

Year 2000 Issue

      Many existing  computer programs use only two digits to identify a year in
a date field. These programs were designed and developed without considering the
impact of the upcoming  change in the century.  If not corrected,  many computer
applications could fail or create erroneous results by or at the year 2000. This
is referred to the as the "Year 2000 Issue."  Management has initiated a Company
wide program to prepare the Company's computer systems and applications for year
2000 compliance including potential obligations to update its customers' systems
to the extent  required  under their  contracts.  The  Company  expects to incur
internal staff costs as well as other expenses  necessary to prepare its systems
for the year 2000. The Company  expects to both replace some systems and upgrade
others.  Maintenance  or  modification  costs will be expensed as incurred.  The
total cost of this effort is still being  evaluated,  but is not  expected to be
material to the Company.

Forward Looking Statements

      Statements contained in this Form 10-Q include forward-looking  statements
that are  subject  to risks  and  uncertainties.  Actual  results  could  differ
materially  from  those  currently  anticipated  due  to a  number  of  factors,
including  those  identified in this Form 10-Q,  the Company's  Annual Report on
From 10-K for the year ended December 31, 1997 and in other  documents  filed by
the Company with the Securities and Exchange Commission.


                              Page 12 of 13 pages
<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.

                                                  PORTA SYSTEMS CORP.

      Dated November 10, 1998                     By /s/William V. Carney
                                                     ---------------------------
                                                     William V. Carney
                                                     Chairman of the Board

      Dated November 10, 1998                     By /s/Edward B. Kornfeld
                                                     ---------------------------
                                                     Edward B. Kornfeld
                                                     Vice President and Chief 
                                                     Financial Officer


                              Page 13 of 13 pages