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, 2001

          |_| 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:

Common Stock (par value $0.01) 9,928,130 shares as of November 6, 2001

<PAGE>

PART I.- FINANCIAL INFORMATION
Item 1- Financial Statements

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

                                                    September 30,   December 31,
                                                        2001           2000
                                                    -------------   ------------
                                 Assets                      (Unaudited)
Current assets:
  Cash and cash equivalents                           $    442       $  2,366
  Accounts receivable - trade, less
    allowance for doubtful accounts                      5,909          7,425
  Inventories                                            5,907          7,150
  Prepaid expenses and other
    current assets                                         946          1,130
                                                      --------       --------
        Total current assets                            13,204         18,071
                                                      --------       --------
  Property, plant and equipment, net                     2,825          4,555
  Goodwill, net                                          9,761         10,357
  Other assets                                             622          1,191
                                                      --------       --------
        Total assets                                  $ 26,412       $ 34,174
                                                      ========       ========

                 Liabilities and Stockholders' Deficit

Current liabilities:

  Senior debt                                         $ 21,467       $ 20,746
  Subordinated notes                                     6,144          6,144
  6% convertible subordinated
    debentures                                             381             --
  Accounts payable                                       7,273          7,173
  Accrued expenses                                       4,240          5,385
  Accrued interest payable                               1,213            766
  Accrued commissions                                    1,681          1,553
  Income taxes payable                                     255            259
  Accrued deferred compensation                            196            196
  Short-term loans                                          89              1
                                                      --------       --------
        Total current liabilities                       42,939         42,223
                                                      --------       --------
6% convertible subordinated
  debentures                                                --            376
Deferred compensation                                      944            987
Income taxes payable                                       117            154
Other long-term liabilities                                900            918
Minority interest                                           75            308
                                                      --------       --------
        Total long-term liabilities                      2,036          2,743
                                                      --------       --------
        Total liabilities                               44,975         44,966
                                                      --------       --------
Stockholders' deficit:
  Preferred stock, no par value;
    authorized 1,000,000 shares,
    none issued                                             --             --
  Common stock, par value $.01;
    authorized 20,000,000 shares,
    issued 9,928,130 shares at
    September 30, 2001 and 9,817,165
    shares at December 31, 2000                             99             98
  Additional paid-in capital                            76,053         75,980
  Accumulated other comprehensive loss:
    Foreign currency translation
      adjustment                                        (4,000)        (3,797)
  Accumulated deficit                                  (88,777)       (81,135)
                                                      --------       --------
                                                       (16,625)        (8,854)
  Treasury stock, at cost                               (1,938)        (1,938)
                                                      --------       --------
        Total stockholders' deficit                    (18,563)       (10,792)
                                                      --------       --------
        Total liabilities and
          stockholders' deficit                       $ 26,412       $ 34,174
                                                      ========       ========

          See accompanying notes to consolidated financial statements.


                                  Page 2 of 15
<PAGE>

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

                                                         Nine Months Ended
                                                    September 30,  September 30,
                                                        2001           2000
                                                    -------------  -------------

Sales                                                 $ 21,996       $ 40,951
Cost of sales                                           16,154         28,813
                                                      --------       --------
  Gross profit                                           5,842         12,138
                                                      --------       --------
Selling, general and administrative
  expenses                                               7,452         10,277
Research and development expenses                        3,545          4,530
                                                      --------       --------
      Total expenses                                    10,997         14,807
                                                      --------       --------

  Operating loss                                        (5,155)        (2,669)

Interest expense                                        (3,459)        (3,087)
Interest income                                             29             88
Gain on sale of assets                                     684             --
Other income (expense)                                      62           (163)
                                                      --------       --------
  Loss before income taxes and
    minority interest                                   (7,839)        (5,831)

Income tax expense                                         (28)           (94)
Minority interest                                          225            188
                                                      --------       --------

Net loss                                              $ (7,642)      $ (5,737)
                                                      ========       ========
Other comprehensive loss, net of tax:

  Foreign currency translation
    adjustments                                           (203)          (249)
                                                      --------       --------

Comprehensive loss                                    $ (7,845)      $ (5,986)
                                                      ========       ========

Per share data:

Basic per share amounts:

      Net loss per share of common stock              $  (0.78)      $  (0.59)
                                                      ========       ========

  Weighted average shares outstanding                    9,854          9,747
                                                      ========       ========
Diluted per share amounts:

  Net loss per share of common stock                  $  (0.78)      $  (0.59)
                                                      ========       ========

  Weighted average shares outstanding                    9,854          9,747
                                                      ========       ========

     See accompanying notes to unaudited consolidated financial statements.


                                  Page 3 of 15
<PAGE>

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

                                                         Three Months Ended
                                                    September 30,  September 30,
                                                        2001           2000
                                                    -------------  -------------

Sales                                                 $  6,039       $ 11,195
Cost of sales                                            4,536          8,343
                                                      --------       --------
  Gross profit                                           1,503          2,852
                                                      --------       --------
Selling, general and administrative
  expenses                                               2,090          3,279
Research and development expenses                          924          1,463
                                                      --------       --------
      Total expenses                                     3,014          4,742
                                                      --------       --------

  Operating loss                                        (1,511)        (1,890)

Interest expense                                        (1,164)        (1,122)
Interest income                                              4             32
Gain on sale of assets                                     684             --
Other income (expense)                                      19           (175)
                                                      --------       --------

  Loss before income taxes and
    minority interest                                   (1,968)        (3,155)

Income tax expense                                         (11)           (33)
Minority interest                                           81             32
                                                      --------       --------

Net loss                                              $ (1,898)      $ (3,156)
                                                      ========       ========

Other comprehensive loss, net of tax:

  Foreign currency translation
    adjustments                                           (183)          (151)
                                                      --------       --------

Comprehensive loss                                    $ (2,081)      $ (3,307)
                                                      ========       ========

Per share data:

Basic per share amounts:

      Net loss per share of common
        stock                                         $  (0.19)      $  (0.32)
                                                      ========       ========

  Weighted average shares
    outstanding                                          9,925          9,796
                                                      ========       ========

Diluted per share amounts:

      Net loss per share of common stock              $  (0.19)      $  (0.32)
                                                      ========       ========

  Weighted average shares outstanding                    9,925          9,796
                                                      ========       ========

     See accompanying notes to unaudited consolidated financial statements.


                                  Page 4 of 15
<PAGE>

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

                                                          Nine Months Ended
                                                    September 30,  September 30,
                                                    -------------  -------------
                                                        2001           2000

Cash flows from operating activities:

  Net loss                                            $(7,642)       $(5,737)

  Adjustments to reconcile net loss
    to net cash used in operating
    activities:
      Non-cash financing expenses                          --             --
      Gain on sale of assets                             (684)            --
      Depreciation and amortization                     1,507          1,156
      Amortization of debt discounts                        5             42
      Minority interest                                  (225)          (188)
    Changes in assets and liabilities:
      Accounts receivable                               1,516          2,629
      Inventories                                       1,243            827
      Prepaid expenses                                    184           (587)
      Other assets                                        444            371
      Accounts payable, accrued
        expenses and other liabilities                   (573)        (2,118)
                                                      -------        -------
          Net cash used in operating
            activities                                 (4,225)        (3,605)
                                                      -------        -------

    Cash flows from investing activities:
      Proceeds from the sale of assets                  1,850             --
      Capital expenditures                               (178)        (1,091)
      Proceeds from exercised options
        and warrants                                       36            158
                                                      -------        -------
          Net cash used in investing
            activities                                  1,708           (933)
                                                      -------        -------

    Cash flows from financing activities:
      Proceeds from senior debt                         1,594          5,010
      Repayments of senior debt                          (874)        (1,382)
      Proceeds from subordinated notes                     --             80
      Proceeds (repayments) of
        short term loans                                   88            (42)
                                                      -------        -------
          Net cash provided by
            financing activities                          808          3,666
                                                      -------        -------

    Effect of exchange rates on cash                     (215)          (210)
                                                      -------        -------

    Decrease in cash and cash equivalents              (1,924)        (1,082)

    Cash and equivalents - beginning
      of the year                                       2,366          3,245
                                                      -------        -------

    Cash and equivalents - end of
      the period                                      $   442        $ 2,163
                                                      =======        =======

    Supplemental cash flow disclosures:
      Cash paid for interest expense                  $   916        $ 3,096
                                                      =======        =======

      Cash paid for income taxes                      $   103        $   147
                                                      =======        =======

     See accompanying notes to unaudited consolidated financial statements.


                                  Page 5 of 15
<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 on Form 10-K for the year ended December
31, 2000.  These  financial  statements  have been  prepared  assuming  that the
Company will  continue as a going concern and,  accordingly,  do not include any
adjustments  that might result from the outcome of the  uncertainties  described
within.  The audit  opinion  included in the  December 31, 2000 Form 10-K annual
report  contained an explanatory  paragraph  regarding the Company's  ability to
continue as a going  concern.  Results for the first nine months of 2001 are not
necessarily indicative of results for the year.

Note 2: Sale of Property

      During August 2001,  the Company sold its Glen Cove, New York facility for
$1,850,000  and  recognized a gain on the sale of  $684,000,  net of expenses of
$180,000.  Of the net  proceeds  of  $1,670,000,  $474,000  was  used to  reduce
outstanding principal and $350,000 to reduce outstanding interest obligations to
the Company's  senior  lender.  The Company  retained the remaining  proceeds of
$846,000 for working capital purposes.

Note 3: Inventories

      Inventories  are stated at the lower of cost (on the average or  first-in,
first-out  methods) or market.  The composition of inventories at the end of the
respective periods is as follows:

                                           September 30, 2001  December 31, 2000
                                           ------------------  -----------------
                                                      (in thousands)

             Parts and components                $3,350             $4,973
             Work-in-process                        854                543
             Finished goods                       1,703              1,634
                                                 ------             ------
                                                 $5,907             $7,150
                                                 ======             ======

Note 4: Senior Debt

      On  September  30,  2001,  the  Company's  debt to its  senior  lender was
$21,467,000.  During the nine and three months  ended  September  30, 2001,  the
Company  repaid  principal of $874,000 and  $474,000  respectively.  The Company
borrowed  $1,594,000 and $770,000 during the nine and three-month  periods ended
September 30, 2001,  respectively.  The agreement with the senior lender expires
on  December  5,  2001  at  which  time  the  remaining   balance  becomes  due.
Accordingly,  the senior  debt has been  classified  as a current  liability  at
September 30, 2001.


                                  Page 6 of 15
<PAGE>

      The Company's borrowings exceed the maximum borrowings under the borrowing
base  formula.  The senior  lender has agreed to allow the  Company to defer the
repayment of borrowings  in excess of the maximum  under the formula,  defer all
monthly  facility  fees  and  all  principal  payments  to  the  earlier  of the
termination  of the  agreement on December 5, 2001 or the sale of one or more of
the divisions or assets of the Company. The agreement also precludes the Company
from making any payments on indebtedness to any subordinated creditors, although
it permits payment of accounts payable in the ordinary course of business.

      In April 2001, the Company and its senior lender agreed to add all current
and future interest due, which will be computed at 14%, to the principal balance
through the loan expiration date. As consideration, the Company agreed to reduce
the exercise price of the outstanding warrants to purchase approximately 570,000
shares of common stock held by its senior  lender to $0.25 per share.  The value
of the reduction in exercise  price was $39,000,  which was recorded as interest
expense and additional paid in capital.

      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, 2001, the Company was
not in compliance with the interest coverage covenant.  The Company has obtained
from the senior  lender a waiver of  non-compliance  with the interest  coverage
ratio and the over advance under the line through the loan expiration  date. The
senior lender has prohibited the Company from making  payments to the holders of
subordinated  debt  as  long  as  the  indebtedness  to  the  senior  lender  is
outstanding.

Note 5: Subordinated Notes

      As of  September  30,  2001,  the Company has  outstanding  $6,144,000  of
subordinated  notes,  of  which  $900,000  became  due on  January  2,  2001 and
$5,244,000 became due on July 2, 2001.  Pursuant to the Company's agreement with
its senior lender,  the Company is prohibited from paying principal and interest
on the  subordinated  notes.  See Note 4. The Company is engaged in negotiations
with respect to an extension of its obligations on the  subordinated  notes, but
it cannot give  assurance  that it will be  successful  in entering into such an
agreement.  In July 2001,  the holder of a  subordinated  note in the  principal
amount of $500,000 commenced an action against the Company on its note.

Note 6: Segment Data

      The Company has three reportable segments:  Line Connection and Protection
Equipment  ("Line")  whose  products  interconnect  copper  telephone  lines  to
switching  equipment and provides fuse elements that protect telephone equipment
and personnel from electrical  surges;  Operating  Support Systems ("OSS") whose
products automate the testing,  provisioning,  maintenance and administration of
communication  networks and the  management of support  personnel and equipment;
and Signal Processing  ("Signal") whose products are used in data  communication
devices that employ high frequency transformer technology.

      The factors used to determine the above segments focused  primarily on the
types of products and services provided,  and the type of customer served.  Each
of these  segments  is  managed  separately  from  the  others,  and  management
evaluates segment performance based on operating income.

      There has been no  significant  change from December 31, 2000 in the basis
of measurement of segment revenues and profit or loss, and no significant change
in the Company's assets.


                                  Page 7 of 15
<PAGE>

<TABLE>
<CAPTION>
                                                       Nine Months Ended                             Three Months Ended
                                            September 30, 2001     September 30, 2000     September 30, 2001     September 30, 2000
                                            ------------------     ------------------     ------------------     ------------------
<S>                                            <C>                    <C>                    <C>                    <C>
Revenue:
  Line                                         $ 10,501,000           $ 14,801,000           $  3,184,000           $  4,289,000
  OSS                                             7,110,000             19,977,000              1,632,000              4,672,000
  Signal                                          3,914,000              5,668,000              1,086,000              2,080,000
                                               ------------           ------------           ------------           ------------
                                               $ 21,525,000           $ 40,446,000           $  5,902,000           $ 11,041,000
                                               ============           ============           ============           ============

Segment profit (loss):
  Line                                         $  1,079,000           $  2,382,000           $    326,000           $    477,000
  OSS                                            (3,876,000)            (2,697,000)            (1,192,000)            (1,970,000)
  Signal                                            643,000              1,146,000                224,000                504,000
                                               ------------           ------------           ------------           ------------
                                               $ (2,154,000)          $    831,000           $   (642,000)          $   (989,000)
                                               ============           ============           ============           ============
</TABLE>

The following table reconciles segment totals to consolidated totals:

<TABLE>
<CAPTION>
                                                       Nine Months Ended                             Three Months Ended
                                            September 30, 2001     September 30, 2000     September 30, 2001     September 30, 2000
                                            ------------------     ------------------     ------------------     ------------------
<S>                                            <C>                    <C>                    <C>                    <C>
Revenue:
  Total revenue for
  reportable segments                          $ 21,525,000           $ 40,446,000           $  5,902,000           $ 11,041,000
  Other revenue                                     471,000                505,000                137,000                154,000
                                               ------------           ------------           ------------           ------------
  Consolidated total
  revenue                                      $ 21,996,000           $ 40,951,000           $  6,039,000           $ 11,195,000
                                               ============           ============           ============           ============

Operating loss:
  Total segment profit
  (loss) for reportable
  segments                                     $ (2,154,000)          $    831,000           $   (642,000)          $   (989,000)
  Corporate and
  unallocated                                    (3,001,000)            (3,500,000)              (869,000)              (901,000)
                                               ------------           ------------           ------------           ------------
  Consolidated total
  operating loss                               $ (5,155,000)          $ (2,669,000)          $ (1,511,000)          $ (1,890,000)
                                               ============           ============           ============           ============
</TABLE>

Note 7: New Accounting Standards

      In June 2001,  the Financial  Accounting  Standards  Board  finalized FASB
Statements No. 141, Business  Combinations (SFAS 141), and No. 142, Goodwill and
Other  Intangible  Assets (SFAS 142).  SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business  combinations  initiated  after June 30, 2001.  SFAS 141
also requires that the Company recognize  acquired  intangible assets apart from
goodwill if the  acquired  intangible  assets meet  certain  criteria.  SFAS 141
applies to all  business  combinations  initiated  after  June 30,  2001 and for
purchase  business  combinations  completed  on or after July 1,  2001.  It also
requires,  upon adoption of SFAS 142, that the Company  reclassify  the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.


                                  Page 8 of 15
<PAGE>

      SFAS 142 requires,  among other things,  that companies no longer amortize
goodwill,  but instead  test  goodwill  for  impairment  at least  annually.  In
addition,  SFAS 142 requires that the Company  identify  reporting units for the
purposes of assessing  potential  future  impairments of goodwill,  reassess the
useful  lives  of  other  existing  recognized   intangible  assets,  and  cease
amortization of intangible  assets with an indefinite useful life. An intangible
asset  with an  indefinite  useful  life  should be  tested  for  impairment  in
accordance  with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal  years  beginning  after  December  15,  2001 to all  goodwill  and other
intangible assets recognized at that date,  regardless of when those assets were
initially  recognized.  SFAS 142 requires the Company to complete a transitional
goodwill  impairment  test six months from the date of adoption.  The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.

      The Company's previous business  combinations were accounted for using the
purchase  method.  As of September 30, 2001, the net carrying amount of goodwill
is $9,761,000. Amortization expense during the nine-month period ended September
30,  2001 was  $596,000.  Currently,  the Company is  assessing  but has not yet
determined  how the adoption of SFAS 141 and SFAS 142 will impact its  financial
position and results of operations.


                                  Page 9 of 15
<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,
                                         -----------------    ------------------
                                          2001       2000       2001       2000
                                         ------     ------     ------     ------
Sales                                     100%       100%       100%       100%
Cost of sales                              73%        70%        75%        75%
Gross profit                               27%        30%        25%        25%
Selling, general and
  administrative expenses                  34%        25%        35%        29%
Research and development
  expenses                                 16%        11%        15%        13%
  Operating loss                          (23%)       (6%)      (25%)      (17%)
Interest expense - net                    (16%)       (7%)      (19%)      (10%)
Gain on sale of assets                      3%         0%        12%         0%
Other income                                0%        (1%)        0%        (1%)
Minority interest                           1%         0%         1%         0%
Income taxes                                0%         0%         0%         0%
Net loss                                  (35%)      (14%)      (31%)      (28%)

      The Company's  sales by product line for the periods  ended  September 30,
2001 and 2000 are as follows:

                                                      Nine Months Ended
                                                      -----------------
                                                        September 30,
                                                        -------------
                                                 2001                 2000
                                                 ----                 ----
                                                  (Dollars in thousands)

Line connection/protection
  equipment ("Line")                       $10,501    48%        $14,801     36%
Operations Support
  Systems ("OSS")                            7,110    32%         19,977     49%
Signal Processing ("Signal")                 3,914    18%          5,668     14%
Other                                          471     2%            505      1%
                                           -------------         --------------
                                           $21,996   100%        $40,951    100%
                                           =============         ==============

                                                     Three Months Ended
                                                     ------------------
                                                        September 30,
                                                        -------------
                                                 2001                 2000
                                                 ----                 ----
                                                  (Dollars in thousands)

Line                                       $ 3,184    53%        $ 4,289     38%
OSS                                          1,632    27%          4,672     42%
Signal                                       1,086    18%          2,080     19%
Other                                          137     2%            154      1%
                                           -------------         --------------
                                           $ 6,039   100%        $11,195    100%
                                           =============         ==============


                                 Page 10 of 15
<PAGE>

Results of Operations

      The Company's  sales for the nine months ended September 30, 2001 compared
to the nine months ended  September 30, 2000  decreased  $18,955,000  (46%) from
$40,951,000  in 2000 to  $21,996,000  in  2001.  Sales  for  the  quarter  ended
September 30, 2001 of $6,039,000 represented a decrease of $5,156,000 (46%) from
sales of  $11,195,000  for the quarter ended  September 30, 2000.  The decreased
sales for the three and nine months were due to lower sales from all divisions.

      The line sales for the nine months ended  September  30, 2001  compared to
September 30, 2000  decreased  from  $14,801,000  to  $10,501,000  or $4,300,000
(29%).  Line sales for the third  quarter  decreased  by  $1,105,000  (26%) from
$4,289,000  in 2000 to  $3,184,000  in  2001.  The  decrease  in  sales  for the
nine-month  period is primarily  attributable to reduced sales in Mexico and the
United  Kingdom.  The decrease for the three  months  ended  September  30, 2001
reflects  reduced sales primarily to customers in the United  Kingdom.  Both the
nine and three month results were adversely  affected by the general slowdown in
the telecommunications industry.

      OSS sales for the nine months  ended  September  30, 2001 were  $7,110,000
compared to the nine months ended September 30, 2000 of $19,977,000,  a decrease
of $12,867,000  (64%).  Sales for the three months ended September 30, 2001 were
$1,632,000  compared to sales for the three months ended  September  30, 2000 of
$4,672,000,  a decrease of  $3,040,000  (65%).  The decrease in sales during the
nine and three  months  ended  September  30,  2001 was  negatively  impacted by
reduced  opportunities  in  Europe  and by delays we  encountered  in  obtaining
software from a vendor necessary to complete certain contracts.

      Signal sales for the nine months ended  September 30, 2001 were $3,914,000
compared to the nine months ended  September 30, 2000 of $5,668,000,  a decrease
of  $1,754,000  (31%).  Signal  processing  sales  for the  three  months  ended
September 30, 2001 were $1,086,000, compared to the three months ended September
30, 2000 of $2,080,000,  a decrease of $994,000 (48%). The decrease in sales for
the nine and  three-month  periods  primarily  reflects delays in the receipt of
certain  anticipated  contracts  and a general  slowdown  in the order rate from
customers.

      Gross margin for the nine months ended September 30, 2001 was 27% compared
to 30% for the nine months  ended  September  30,  2000.  This  decline in gross
margin is attributable to the decreased level of sales.  Due to the low level of
sales,  the Company was unable to absorb certain fixed expenses  associated with
the OSS contracts  primarily in the first quarter of 2001.  Gross margin for the
quarter  ended  September 30, 2001 was 25% compared to 25% for the quarter ended
September 30, 2000.

      Selling, general and administrative expenses decreased by $2,825,000 (27%)
from  $10,277,000  to  $7,452,000  for the nine months ended  September 30, 2001
compared to the nine months  ended  September  30,  2000.  Selling,  general and
administrative  expenses  decreased by $1,189,000  (36%) from  $3,279,000 in the
quarter ended  September 30, 2000 to  $2,090,000  in the  comparable  quarter of
2001.  The decrease  from 2000 to 2001 for the nine and three  months  primarily
reflects reduced  professional legal expenses and decreased expenses  reflecting
the  Company's  reorganization  of its sales and  marketing  efforts  of its OSS
division.

      Research and development expenses decreased by $985,000 (22%) for the nine
months ended September 30, 2001 and by $539,000 (37%) for the three months ended
September  30,  2001 from the  comparable  periods in 2000,  respectively.  This
decrease in research and development expenses for both the nine and three months
resulted from the Company's efforts to reduce its expenses, primarily related to
the OSS business.


                                 Page 11 of 15
<PAGE>

Results of Operations (continued)

      As a result of the above,  the Company had an operating loss of $5,155,000
for the nine months ended  September 30, 2001  compared to an operating  loss of
$2,669,000 in the  comparable  period of 2000. The Company had an operating loss
of  $1,511,000  for the  quarter  ended  September  30,  2001 as  compared to an
operating loss of $1,890,000 for the quarter ended September 30, 2000.

      Interest  expense for the nine months ended September 30, 2001 compared to
September  30, 2000  increased  by  $372,000  (12%) from  $3,087,000  in 2000 to
$3,459,000 in 2001. Interest expense for the three-month period ending September
30, 2001  compared to the same three  months of 2000,  increased by $42,000 (4%)
from  $1,122,000  in 2000 to  $1,164,000  in 2001.  This change is  attributable
primarily to  increased  levels of  borrowing,  including  capitalized  interest
expense,  from and  increased  interest  rate  payable to the  Company's  senior
lender.

      As the  result  of the  foregoing,  the  Company  incurred  a net  loss of
$7,642,000,  $0.78 per share  (basic  and  diluted)  for the nine  months  ended
September  30, 2001,  compared  with a net loss of  $5,737,000,  $0.59 per share
(basic and diluted),  for the nine months ended September 30, 2000. The net loss
for the three months ended  September 30, 2001 was  $1,898,000,  $0.19 per share
(basic  and  diluted),  compared  with a net loss  for the  three  months  ended
September 30, 2000 of $3,156,000, $0.32 per share (basic and diluted).

Liquidity and Capital Resources

      At  September  30,  2001 the  Company  had cash  and cash  equivalents  of
$442,000  compared  with  $2,366,000  at December  31,  2000.  The Company had a
working  capital  deficit at September  30, 2001 of  $29,735,000,  compared to a
working capital deficit of $24,152,000 at December 31, 2000. The working capital
deficiency  reflects  the  current  liabilities  to the senior and  subordinated
lenders  together  with the  effect  of the  reduced  level of  business,  which
resulted in reduced  receivables and increased accrued  liabilities.  During the
nine months ended September 30, 2001, the Company used $4,225,000 in operations.

      As of  September  30,  2001,  the Company  had senior debt of  $21,467,000
outstanding, all of which is shown as a current liability. The current agreement
with the senior lender  expires on December 5, 2001.  The  Company's  borrowings
exceed the maximum  borrowings  under the  borrowing  base  formula.  The senior
lender has agreed to allow the Company to defer the  repayment of  borrowings in
excess of the maximum under the formula, defer all monthly facility fees and all
principal  payments  to the  earlier  of the  termination  of the  agreement  on
December  5, 2001 or the sale of one or more of the  divisions  or assets of the
Company.   The  senior  lender   prohibited  us  from  making  any  payments  on
indebtedness  to any  subordinated  creditors,  although it has consented to the
payment of accounts  payable in the ordinary course of business.  In April 2001,
the Company and its senior lender agreed to add all current and future  interest
due,  which will be computed at 14%, to the principal  balance  through the loan
expiration  date.  In  addition,  we were not in  compliance  with the  interest
coverage covenant and borrowing base coverage under the agreement and obtained a
waiver from our senior lender through the loan expiration date.


                                 Page 12 of 15
<PAGE>

Liquidity and Capital Resources (continued)

      As of September 30, 2001, we had  outstanding  $6,144,000 of  subordinated
notes,  of which  $900,000  became  due on  January  2, 2001 and the  balance of
$5,244,000 became due on July 2, 2001. We did not have the resources to pay, and
we did not pay, either the principal or interest on the  subordinated  notes and
are  restricted  by our senior  lender from making such  payments.  We have been
engaged  in  negotiations  with the  holders of a  majority  of the  outstanding
subordinated notes or their  representatives with respect to an extension of the
maturity date of the notes. The previously  announced agreement in principal has
not resulted in an agreement and the Company  cannot give any assurance  that it
will be able to negotiate such an extension.  The holder of a subordinated  note
in the principal  amount of $500,000 has commenced an action seeking  payment of
the principal and interest on his note, as described below.

      Our cash  availability  during  2001 and  thereafter  may be affected by a
number of factors.  At September  30, 2001, we had no cash  available  under our
credit  facility and we had borrowed more than the amount  available to us under
our  borrowing  base.  To the extent that credit is not  available,  we may have
difficulty performing our obligations under our contracts, which could result in
the  cancellation  of contracts,  the loss of future  business or the ability to
satisfy  other  vendor  obligations.  In  addition,  $21,467,000  of senior debt
becomes due on December 5, 2001 and $7,278,000 of subordinated debt and interest
became due in July 2001. We are  continuing to negotiate  with our senior lender
with respect to an extension beyond the December 5, 2001 maturity of our current
facility  and with the  holders of the  subordinated  notes  with  respect to an
extension of the maturity of those notes.  We do not presently  have the ability
to pay these debts and, if we cannot  finalize a definitive  agreement  with the
holders of the subordinated  debt, obtain either an extension on the maturity of
our senior debt or an alternative  financing source or raise funds from the sale
of one of our divisions, we may be unable to meet these financial obligations.

      We are  addressing  our  need for  liquidity  by  seeking  to  extend  our
agreement with our senior lender,  to negotiate an agreement with the holders of
the  subordinated  debt, and sell one or more of our divisions.  Although we are
engaged in negotiations  with respect to a sale of one or more of our divisions,
we cannot assure you that we will be successful in these  efforts.  In the event
of a sale,  we do not believe that the net sales  proceeds  will provide us with
sufficient funds to enable us to pay all of our senior and subordinated debt. In
that event we will seek to obtain an agreement with our senior and  subordinated
lenders  to accept  equity for the amount due them which is in excess of the net
sales proceeds. The issuance of such equity would result in substantial dilution
to our present  stockholders.  Our failure to obtain such an agreement  with our
lenders would have a very material  adverse  effect upon our ability to continue
our operations.

      Because of our present stock price,  it is highly unlikely that we will be
able to  raise  funds  through  the  sales  of our  equity  securities,  and our
financial condition prevents us from issuing debt securities.  In the event that
we are  unable  to  extend  our  debt  obligations  and  sell one or more of our
divisions,  we cannot assure you that we will be able to continue in operations.
Furthermore,  we believe that our losses and our financial  position may have an
adverse  effect  upon our ability to develop new  business  as  competitors  and
potential  customers question our ability to continue in business.  We have been
informally  advised  by  one of  our  largest  customers  that,  because  of our
financial  position,  it will not place orders with us for OSS products until we
can demonstrate that we are financially viable. However, this customer continues
to place orders for OSS  maintenance  and modest orders for line test  products.
The  loss of this  customer  would  have a  material  adverse  effect  upon  our
operations.


                                 Page 13 of 15
<PAGE>

Liquidity and Capital Resources (continued)

      The holder of a subordinated  note in the principal amount of $500,000 has
commenced an action  against the Company  seeking  payment of the  principal and
interest on the note. The Company believes that the  subordination  provision of
the note prohibits payment by the Company;  however, if the noteholder obtains a
judgment  against the Company and seeks to collect on the  judgment,  the senior
lender may seek to foreclose on the Company's  obligations to it. In such event,
or in the event that the Company is unable to extend its senior and subordinated
loan obligations or sell one or more of its divisions, the Company may be unable
to continue in operations.

Forward Looking Statements

      Statements contained in this Form 10-Q include forward-looking  statements
that are subject to risks and uncertainties.  In particular,  statements in this
Form  10-Q  that  state  the  Company's   intentions,   beliefs,   expectations,
strategies,   predictions  or  any  other  statements  relating  to  our  future
activities   or  other  future  events  or   conditions   are   "forward-looking
statements."  Forward-looking statements are subject to risks, uncertainties and
other  factors,  including,  but not limited to,  those  identified  under "Risk
Factors,"  in our Form  10-K for the year  ended  December  31,  2000 and  those
described in  Management's  Discussion and Analysis of Financial  Conditions and
Results of Operations" in our Form 10-K and this Form 10-Q, and those  described
in any other filings by us with the Securities and Exchange Commission,  as well
as  general   economic   conditions  and  economic   conditions   affecting  the
telecommunications industry, any one or more of which could cause actual results
to differ materially from those stated in such statements.

PART II- OTHER INFORMATION

Item 3. Defaults Upon Senior Securities

      The Company has failed to pay the  principal and interest of $7,278,000 as
of September 30, 2001 on its subordinated  notes.  Notes in the principal amount
of  $900,000  were due on January  2,  2001,  and the  remaining  notes,  in the
principal amount of $5,244,000, were due on July 2, 2001. The subordinated notes
are  subordinated to payment of the Company's  obligations to its senior lender,
which has prohibited the Company from paying the subordinated notes. See Notes 4
and 5 of Notes to Consolidated Financial Statements in this Form 10-Q.

Item 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits

            None

      (b)   Reports on Form 8-K

            None


                                 Page 14 of 15
<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 8, 2001       By /s/ William V. Carney
                                      --------------------------
                                      William V. Carney
                                      Chairman of the Board

      Dated November 8, 2001       By /s/ Edward B. Kornfeld
                                      --------------------------
                                      Edward B. Kornfeld
                                      Vice President and Chief Financial Officer


                                 Page 15 of 15