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 June 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:

      Common Stock (par value $0.01) 9,298,713 shares as of August 3, 1998


                               Page 1 of 14 pages

<PAGE>

PART I.- FINANCIAL INFORMATION
Item 1- Financial Statements

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                             (Dollars in thousands)
                                                        June 30,    December 31,
                                                          1998         1997
                                                       ----------   ------------
                                                       (Unaudited)
                       Assets
Current assets:
  ash and cash equivalents                               $  4,877    $  5,091
  ccounts receivable, net                                  15,831      14,891
  nventories                                                8,103       8,159
  repaid expenses                                           1,703       1,266
                                                         --------    --------
         Total current assets                              30,514      29,407
                                                         --------    --------
  Property, plant and equipment, net                        4,420       4,667
  Deferred computer software, net                             313         543
  Goodwill, net                                            11,828      12,059
  Other assets                                              4,089       4,324
                                                         --------    --------
         Total assets                                    $ 51,164    $ 51,000
                                                         ========    ========
                                                                    
        Liabilities and Stockholders' Equity                        
                                                                    
Current liabilities:                                                
   Convertible subordinated debentures                   $    360    $  1,758
   Current portion of senior debt                           1,518       1,900
   Accounts payable                                         4,825       5,796
   Accrued expenses                                         7,085       8,656
   Accrued interest payable                                   574         398
   Accrued commissions                                      2,010       2,444
   Income taxes payable                                       995         853
   Accrued deferred compensation                            1,152       1,228
   Short-term loans                                            63         120
                                                         --------    --------
         Total current liabilities                         18,582      23,153
                                                         --------    --------
                                                                    
Senior debt                                                 9,483      12,978
12% subordinated debentures                                 5,475        --
Zero coupon senior subordinated                                     
   convertible notes                                         --         2,796
Notes payable net of current maturities                     3,084       3,084
Income taxes payable                                          640         649
Other long-term liabilities                                   513         487
Minority interest                                           1,115       1,040
                                                         --------    --------
         Total long-term liabilities                       20,310      21,034
                                                         --------    --------
         Total Liabilities                                 38,892      44,187
                                                         --------    --------
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 June 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              (3,900)     (4,027)
   Accumulated deficit                                    (56,518)    (57,799)
                                                         --------    --------
                                                           14,645       9,186
   Treasury stock, at cost                                 (2,066)     (2,066)
   Receivable for employee stock purchases                   (307)       (307)
                                                         --------    --------
         Total stockholders' equity                        12,272       6,813
                                                         --------    --------
         Total liabilities and stockholders' equity        51,164    $ 51,000
                                                         ========    ========
                                                                   
          See accompanying notes to consolidated financial statements.


                               Page 2 of 14 pages
<PAGE>

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

                                                             Six Months Ended
                                                         June 30,      June 30,
                                                           1998          1997
                                                         --------      ---------

Sales                                                    $ 30,943      $ 28,874
Cost of sales                                              17,622        18,095
                                                         --------      --------
  Gross profit                                             13,321        10,779

Selling, general and administrative expenses                6,967         5,892
Research and development expenses                           3,013         2,488
                                                         --------      --------
     Total expenses                                         9,980         8,380
                                                         --------      --------

     Operating income                                       3,341         2,399

Interest expense                                           (1,782)       (1,840)
Interest income                                               157            92
Other income                                                  712           202
Debt conversion expense                                      (945)         --
                                                         --------      --------

  Income before income taxes, minority interest
  and extraordinary item                                    1,483           853

Income tax expense                                           (200)          (23)
Minority interest                                             (76)           15
                                                         --------      --------

  Income before extraordinary item                          1,207           845

Extraordinary item                                             76            11
                                                         --------      --------

Net income                                               $  1,283      $    856
                                                         ========      ========

Per share data:

Basic per share amounts:

  Income before extraordinary item                       $   0.13      $   0.36
                                                         --------      --------
  Extraordinary item                                         0.01          0.00
                                                         --------      --------
  Net income per share of common stock                   $   0.14      $   0.36
                                                         ========      ========

  Weighted average shares outstanding                       9,220         2,348
                                                         ========      ========
Diluted per share amounts:

  Income before extraordinary item                       $   0.12      $   0.13
  Extraordinary item                                         0.01          0.00
                                                         --------      --------
  Net income per share of common stock                   $   0.13      $   0.13
                                                         ========      ========

  Weighted average shares outstanding                      10,075         6,398
                                                         ========      ========

     See accompanying notes to unaudited consolidated financial statements.


                               Page 3 of 14 pages
<PAGE>

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

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

Sales                                                  $ 14,651        $ 16,394
Cost of sales                                             8,017           9,629
                                                       --------        --------
  Gross profit                                            6,634           6,765

Selling, general and administrative
expenses                                                  3,500           3,305
Research and development expenses                         1,683           1,337
                                                       --------        --------
     Total expenses                                       5,183           4,642
                                                       --------        --------

     Operating income                                     1,451           2,123

Interest expense                                           (925)           (924)
Interest income                                              79              50
Other income                                                203              67
                                                       --------        --------

  Income before income taxes, minority
  interest and extraordinary item                           808           1,316

Income tax expense                                         (184)             (9)
Minority interest                                          (121)            (60)
                                                       --------        --------

  Income before extraordinary item                          503           1,247

Extraordinary item                                         --                 3
                                                       --------        --------

Net income                                             $    503        $  1,250
                                                       ========        ========


Per share data:

Basic per share amounts:

  Income before extraordinary item                     $   0.05        $   0.56
  Extraordinary item                                       0.00            0.00
                                                       --------        --------
  Net income per share of common stock                 $   0.05        $   0.56
                                                       ========        ========

  Weighted average shares outstanding                     9,299           2.214
                                                       ========        ========

Diluted per share amounts:

  Income before extraordinary item                     $   0.05        $   0.20
  Extraordinary item                                       0.00            0.00
                                                       --------        --------
  Net income per share of common stock                 $   0.05        $   0.20
                                                       ========        ========

  Weighted average shares outstanding                    10,345           6,288
                                                       ========        ========

     See accompanying notes to unaudited consolidated financial statements.


                               Page 4 of 14 pages
<PAGE>

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

                                                              Six Months Ended
                                                            June 30,    June 30,
                                                              1998        1997
                                                            --------    --------

Net income                                                   $1,283      $  856

Other comprehensive income (loss), net of tax:

   Foreign currency translation adjustments                     127        (202)
                                                             ------      ------

Comprehensive income                                         $1,410      $  654
                                                             ======      ======

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

Net income                                                   $  503       $1,250

Other comprehensive income (loss), net of tax:

   Foreign currency translation adjustments                     (15)         140
                                                             ------       ------

Comprehensive income                                         $  488       $1,390
                                                             ======       ======

     See accompanying notes to unaudited consolidated financial statements.


                               Page 5 of 14 pages
<PAGE>

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

                                                             Six  Months Ended
                                                           June 30,     June 30,
                                                             1998         1997
                                                           --------     --------
Cash flows from operating activities:
  Net income                                               $ 1,283      $   856
  Adjustments to reconcile net income
    to net cash provided by
    operating activities:
      Extraordinary gain                                       (76)         (11)
      Non-cash debt conversion expense                         945         --
      Non-cash financing expenses                              228          184
      Non-cash operating expenses                             --             13
      Write off of interest expense                            304         --
      Depreciation and amortization                          1,080        1,582
      Amortization of debt discounts                           108           20
      Minority interest                                         76           14
Changes in assets and liabilities:
      Accounts receivable                                     (940)         182
      Inventories                                               56       (1,137)
      Prepaid expenses                                        (437)         119
      Other receivables                                       --             31
      Deferred computer software                              --            (13)
      Other assets                                             (68)         865
      Accounts payable, accrued expenses
        and other liabilities                               (1,873)        (285)
                                                           -------      -------
        Net cash provided by
          operating activities                                 686        2,420
                                                           -------      -------

  Cash flows from investing activities:
      Proceeds from disposal of assets
        held for sale, net                                    --            500
      Capital expenditures                                    (297)        (216)
                                                           -------      -------
        Net cash provided by (used in)
          investing activities                                (297)         284
                                                           -------      -------

  Cash flows from financing activities:
      Proceeds from senior debt                                  6          299
      Repayments of senior debt                             (3,883)      (1,122)
      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                                             (57)          39
                                                           -------      -------
        Net cash used in financing activities                 (730)        (784)
                                                           -------      -------

  Effect of exchange rate changes on cash                      127         (227)
                                                           -------      -------

  Increase (decrease) in cash and
      cash equivalents                                        (214)       1,693

  Cash and equivalents - beginning
      of the year                                            5,091        2,584
                                                           -------      -------

  Cash and equivalents - end of
      the period                                           $ 4,877      $ 4,277
                                                           =======      =======

  Supplemental cash flow disclosures:
      Cash paid for interest expense                       $ 1,219      $ 1,399
                                                           =======      =======

      Cash paid for income taxes                           $    82      $    45
                                                           =======      =======

     See accompanying notes to unaudited consolidated financial statements.


                               Page 6 of 14 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 six 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 June
30, 1998 have been computed  using a standard cost system.  The  composition  of
inventories at the end of the respective periods is as follows:


                                        June 30, 1998     December 31,1997
                                        -------------     ----------------
                                               (in thousands)
      Parts and components                 $ 4,762            $ 5,349
      Work-in-process                        1,413              1,079
      Finished goods                         1,928              1,731
                                           -------            -------
                                           $ 8,103            $ 8,159
                                           =======            =======
                                                          
Note 3: 6% Convertible Subordinated Debentures and
        Zero Coupon Senior Subordinated Convertible Notes

      As of June 30,  1998,  the  Company  had  outstanding  $360,000  of its 6%
Convertible Subordinated Debentures due July 1, 2002 ("the Debentures"),  net of
original issue  discount  amortized to principal over the term of the debt using
the  effective  interest  rate  method,  of  $25,000.  The  face  amount  of the
outstanding Debentures was $385,000 at June 30, 1998.

      Interest on the Debentures is payable on July 1 of each year. The interest
accrued as of June 30,  1998  amounted  to  $92,400.  As of June 30,  1998,  the
Company was in default  under the  provisions of the  Debentures.  Subsequent to
June 30,  1998,  the Company  remedied  the default by paying the  interest  due
through July 1, 1998 to the paying agent.


                               Page 7 of 14 pages
<PAGE>

Note 4: Senior Debt

      On June 30, 1998, the Company's debt to its senior lender was $14,085,000.
During  the six and  three  months  ended  June 30,  1998,  the  Company  repaid
principal  of  $3,877,000  and  $934,000,  respectively.  Based  on  anticipated
principal  payments,  $1,518,000 has been  classified as a current  liability at
June 30, 1998.

      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 June 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  September 30, 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 14 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:

                                      Six Months Ended      Three Months Ended
                                          June 30,              June 30,
                                       1998       1997       1998       1997
                                      ------     ------     ------     ------
Sales                                  100%       100%       100%       100% 
Cost of Sales                           57%        63%        55%        59%
Gross Profit                            43%        37%        45%        41%
Selling, general and administrative                                    
   expenses                             22%        20%        24%        20%
Research and development expenses       10%         9%        11%         8%
   Operating income                     11%         8%        10%        13%
Interest expense - net                  (5%)       (6%)       (6%)       (5%)
Other income                             2%         1%         1%         0%
Debt conversion expense                 (3%)        0%         0%         0%
Minority interest                        0%         0%        (1%)        0%
Income taxes                            (1%)        0%        (1%)        0%
Extraordinary item                       0%         0%         0%         0%
Net income                               4%         3%         3%         8%
                                                                          
      The  Company's  sales by product line for the periods  ended June 30, 1998
and 1997 are as follows:

                                                       Six Months Ended
                                                           June 30,
                                                 1998                   1997
                                                 ----                   ----
                                                    (Dollars in thousands)

Line connection/protection
   equipment ("Line connection")              $10,600  34%          $13,347  46%
Operations Support Systems ("OSS")             15,743  51%           11,302  39%
Signal Processing                               4,520  15%            3,942  14%
Other                                              80   0%              283   1%
                                              -----------           -----------
                                              $30,943 100%          $28,874 100%
                                              ===========           ===========
                                                           
                                                       Three Months Ended
                                                           June 30,
                                                 1998                   1997
                                                 ----                   ----
                                                    (Dollars in thousands)

Line connection                               $ 5,830  40%          $ 6,552  40%
OSS                                             6,570  45%            7,310  45%
Signal Processing                               2,195  15%            2,339  14%
Other                                              53   0%              193   1%
                                              -----------           -----------
                                              $14,651 100%          $16,394 100%
                                              ===========           ===========


                               Page 9 of 14 pages
<PAGE>

Results of Operations

      The Company's sales for the six months ended June 30, 1998 compared to the
six months ended June 30, 1997  increased  $2,069,000  (7%) from  $28,874,000 in
1997 to  $30,943,000  in 1998.  Sales for the  quarter  ended  June 30,  1998 of
$14,651,000  decreased  by  $1,743,000  (11%)  compared to  $16,394,000  for the
quarter ended June 30, 1997. The increased sales for the six month period is due
to higher revenue from the OSS and Signal Processing  divisions for that period.
The  decrease  for the three  month  period is due to a decline  sales  from all
divisions for that period.

      The line  connection  equipment  sales for the six  months  ended  June 30
decreased from  $13,347,000  to  $10,600,000,  or $2,747,000  (21%) from 1997 to
1998.  Sales for the three months ended June 30 decreased by $722,000 (11%) from
$6,552,000  in 1997 to  $5,830,000  in 1998.  The  decrease for both the six and
three months ended June 30, 1998 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/protection  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 six and three 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 three and six months ended
June  30,  1998  from  the   comparable   periods  of  1997.   Orders  for  line
connection/protection  equipment from BT remain at the reduced rate. The decline
in  sales to BT was  somewhat  offset  by  increased  sales  of Line  connection
equipment in the United States and Mexico.

      OSS  revenue  for the six  months  ended  June 30,  1998  was  $15,743,000
compared  to the six months  ended June 30, 1997 of  $11,302,000  an increase of
$4,441,000  (39%).  OSS  revenue  for the three  months  ended June 30, 1998 was
$6,570,000  compared to the three  months ended June 30, 1997 of  $7,310,000,  a
decrease  of  $740,000  (10%)  due to a delay in  securing  an  anticipated  OSS
contract. The increased sales during the six months ended June 30, 1998 resulted
from the attainment of certain  milestones on OSS contracts  which are accounted
for using a percentage of completion method.  Furthermore,  OSS sales during the
first quarter of 1997 were at a reduced level since certain contract  milestones
were attained  later in the year,  resulting in  recognition  of revenue at such
later time.

      Signal  Processing  sales  for the six  months  ended  June 30,  1998 were
$4,520,000  compared  to the six months  ended June 30, 1997 of  $3,942,000,  an
increase of $578,000 (15%).  Sales for the three months ended June 30, 1998 were
$2,195,000  compared to the three  months ended June 30, 1997 of  $2,339,000,  a
decrease of  $144,000  (6%).  The  increased  revenue  for the six month  period
reflects  shipments on multiple year sales orders to certain military  customers
which were secured during the latter part of 1997. The decrease in sales for the
three month period reflects delays by customers in placing sales orders.

      Cost of sales for the six months and the quarter ended June 30, 1998, as a
percentage of sales compared to the same periods of 1997,  decreased from 63% to
57% and from 59% to 55%,  respectively.  The  improvement  in  gross  margin  is
attributed  to  the  Company's  continuing  effort  to  increase   manufacturing
productivity,  the sales product mix and the associated higher gross margin, and
the absorption of certain fixed expenses associated with the OSS contracts.


                              Page 10 of 14 pages
<PAGE>

Results of Operations (continued)

      Selling, general and administration expenses increased by $1,075,000 (18%)
from $5,892,000 to $6,967,000 for the six months ended June 30, 1998 compared to
1997.  The increase from 1997 to 1998 for the six months  reflects  higher sales
commissions,  primarily on OSS contracts,  based upon the increased revenues for
the first six  months of 1998.  For the  quarter  ended  June 30,  1998 and 1997
selling,  general and  administration  expenses increased by $195,000 (6%). This
increase  relates  primarily to the Company's  efforts to increase its sales and
marketing effectiveness in order to secure future business.

      Research  and  development  expenses  increased  by $525,000  (21%) and by
$346,000  (26%)  for the six and  three  months  ended  June 30,  1998  from the
comparable  periods in 1997,  respectively.  The increased expenses results from
the  Company's  efforts to develop new  products,  primarily  related to the OSS
business.

      As a result of the above,  for the six months ended June 30, 1998 compared
to  1997,  the  Company  had  operating  income  of  $3,341,000  in 1998  versus
$2,399,000 in 1997.  The Company had an operating  income of $1,451,000  for the
quarter ended June 30, 1998 as compared to $2,123,000 for the quarter ended June
30, 1997.

      Other income for the six months ended June 30, 1998 includes $400,000 from
the settlement of litigation and $167,000 of additional  funds received from the
settlement of the sale of the Israeli business.

      During  the six months  ended June 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.

      Income  tax  expense  increased  for the six months  ended  June 30,  1998
compared to 1997 by $177,000  from  $23,000 to $200,000 and for the three months
ended June 30, 1998  compared to 1997 by $175,000 from $9,000 to $184,000 due to
the limitation of the Company's NOL carryforwards.

      As the result of the  foregoing  the Company  generated  net income  after
extraordinary  items of $1,283,000,  $0.13 per share (basic) and $0.12 per share
(diluted)  for the six months ended June 30, 1998 compared with net income after
extraordinary  items of  $856,000,  $0.36 per share  (basic) and $0.13 per share
(diluted),  for the six  months  ended June 30,  1997.  Net income for the three
months ended June 30, 1998 was  $503,000,  $0.05 per share (basic and  diluted),
compared with net income for the three months ended June 30, 1997 of $1,250,000,
$0.56 per share (basic) and $0.20 per share (diluted).


                              Page 11 of 14 pages
<PAGE>

Liquidity and Capital Resources

      At June 30, 1998 the Company had cash and cash  equivalents  of $4,877,000
compared with $5,091,000 at December 31, 1997. The Company's  working capital at
June 30, 1998 was  $11,932,000,  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 June 30, 1998,  the Company's  loan and security  agreement with its
senior secured lender,  which expires August 1999,  provided the Company,  under
its revolving  line of credit and its letter of credit  facility,  with combined
availability  totaling  $9,000,000.  In  addition,  the Company has  $11,001,000
outstanding  as of June  30,  1998  under a term  loan  agreement.  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 customer's 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 14 pages
<PAGE>

PART II- OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders.

      The Company's  1998 Annual  Meeting of  Stockholders  was held on June 23,
1998. At the annual meeting,  the  stockholders (i) reelected its present board,
consisting of Messrs.  William V. Carney,  Seymour  Joffe,  Michael A. Tancredi,
Howard D. Brous, Warren H. Esanu, Herbert H. Feldman, Stanley Kreitman, Lloyd I.
Miller,  III and Robert  Schreiber  and (ii)  ratified  the  appointment  of BDO
Seidman, LLP as independent auditors for the year ended December 31, 1998.

      Each director  received at least  7,648,532  votes for his  election.  Set
forth below is the vote on the other matters approved at the meeting.

   Matter                  Votes for     Votes Against    Abstentions

Appointment of
  Auditors                 7,645,145        19,591           7,321


                              Page 13 of 14 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 August 11, 1998                By /s/ William V. Carney
                                                  ------------------------------
                                                  William V. Carney
                                                  Chairman of the Board

      Dated August 11, 1998                By /s/ Edward B. Kornfeld
                                                  ------------------------------
                                                  Edward B. Kornfeld
                                                  Senior Vice President
                                                  and Chief Financial Officer


                               Page 14 of 14 pages