<PAGE>
 
                                   FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D. C.  20549

(Mark One)

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

     For the quarterly period ended               September 30, 1998
                                    -------------------------------------------

                                       OR
 
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                        to
                               ----------------------   ------------------------
 
Commission File Number                              0-13716
                               -------------------------------------------------
 
 
                        NORTH PITTSBURGH SYSTEMS, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


         Pennsylvania                                    25-1485389
       -----------------                               -------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


             4008 Gibsonia Road, Gibsonia, Pennsylvania 15044-9311
--------------------------------------------------------------------------------
                   (Address of principal executive offices)
                                  (Zip Code)

 
                                 724 443-9600
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)


 
                                   No Change
--------------------------------------------------------------------------------
   (Former name, former address and former fiscal year, if changed since last
                                    report)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
                         YES     X        NO 
                             --------         -------


                      APPLICABLE ONLY TO CORPORATE USERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

                            Common Stock Outstanding
                            ------------------------

At October 23, 1998, the Registrant had 15,005,000 shares of common stock
outstanding, par value $.15625 per share, the only class of such stock issued.
<PAGE>
 
                                     PART I
                                     ITEM 1
                              FINANCIAL STATEMENTS
                NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
                     (Thousands - Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                      For the Three Months   For the Nine Months
                                                         Ended Sept. 30         Ended Sept. 30
                                                    ---------------------    -------------------
                                                        1998       1997        1998       1997
                                                    -----------  --------    --------   --------
<S>                                                   <C>        <C>        <C>          <C>
Operating revenues:                                                                   
   Local network services                              $ 3,009    $ 2,736    $ 8,817     $ 7,480 
   Long distance and access services                    10,972     10,482     33,769      32,466
   Directory advertising, billing & other services         646        526      1,837       1,637
   Telecommunication equipment sales                       609        738      2,035       2,232
   Other operating revenues                              1,093      1,452      3,206       6,571
                                                       -------    -------    -------     -------
        Total Operating Revenues                        16,329     15,934     49,664      50,386
                                                       -------    -------    -------     -------
                                                                                      
Operating expenses:                                                                   
  Network and other operating expenses                   6,767      6,353     19,119      20,929
  Depreciation and amortization                          2,972      2,660      8,792       7,951
  State and local taxes                                    732        701      2,188       2,190
  Telecommunication equipment expenses                     576        698      1,920       2,038
                                                       -------    -------    -------     -------
        Total Operating Expenses                        11,047     10,412     32,019      33,108
                                                       -------    -------    -------     -------
   Net Operating Revenues                                5,282      5,522     17,645      17,278

Other expense (income), net:                                                          
   Interest expense                                        453        424      1,372       1,239
   Interest income                                        (253)      (156)    (1,022)       (421)
   Sundry expense (income), net                           (336)      (543)    (1,435)       (807)
                                                       -------    -------    -------     -------
                                                          (136)      (275)    (1,085)         11
                                                       -------    -------    -------     -------
        Earnings before income taxes                     5,418      5,797     18,730      17,267

Income taxes                                             2,214      2,343      7,210       6,904
                                                       -------    -------    -------     -------
        Net earnings                                   $ 3,204    $ 3,454    $11,520     $10,363
                                                       =======    =======    =======     =======
Weighted average common shares outstanding                                            
                                                        15,005     15,005     15,005      15,023
                                                       =======    =======    =======     =======
Basic and diluted earnings per share of                                               
 common stock                                             $.21       $.23       $.77        $.69
                                                       =======    =======    =======     =======
Dividends per share of common stock                       $.15       $.14       $.50        $.42
                                                       =======    =======    =======     =======
</TABLE>



     See accompanying notes to condensed consolidated financial statements.

                                       1
<PAGE>
 
                NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
ASSETS                                                            Sept. 30      Dec. 31
------                                                       1998 (unaudited)    1997
                                                             ---------------  ----------
<S>                                                               <C>         <C>
Current Assets:
    Cash and temporary investments                                 $ 10,847   $  15,938
    Marketable securities available for sale                         13,075      16,847
    Accounts receivable:
       Customers                                                      3,402       3,401
       Access service settlements and other                           6,079       5,995
       Prepaid Expenses                                                   -          25
    Inventories of construction and operating materials and
       supplies                                                       3,303       3,360
    Prepaid taxes                                                       185           -
                                                                 ----------   ---------
      Total current assets                                           36,891      45,566
                                                                 ----------   ---------
    Property, plant and equipment
        Land                                                            475         475
        Buildings                                                    10,887      10,543
        Equipment                                                   128,549     122,492
                                                                 ----------   ---------
                                                                    139,911     133,510
   Less accumulated depreciation and amortization                    76,265      69,303
                                                                 ----------   ---------
                                                                     63,646      64,207
   Construction in progress                                          12,380       6,990
                                                                 ----------   ---------
              Total property, plant and equipment, net               76,026      71,197
Investments                                                           9,231       7,499
Deferred financing costs                                                881         954
Prepaid pension cost                                                    765         580
Other assets                                                          1,178       2,037
                                                                 ----------   ---------
                                                                   $124,972   $ 127,833
                                                                 ==========   =========
 
           LIABILITIES AND SHAREHOLDERS' EQUITY
           ------------------------------------
Current liabilities:
    Current portion of long-term debt                              $    843   $     803
    Accounts payable                                                  4,947       4,794
    Accrued legal settlement                                              -       3,180
    Dividend payable                                                  2,251       2,101
    Deferred income taxes                                                 -       5,289
    Other accrued liabilities                                         2,039       2,304
    Federal and state income taxes                                    1,993         389
                                                                 ----------   ---------
              Total current liabilities                              12,073      18,860
                                                                 ----------   ---------
 
Long-term debt                                                       26,400      27,037

Deferred income taxes                                                 7,230       6,560
Postretirement benefits                                               4,943       4,764
Other liabilities                                                     1,838       2,052

Shareholders' equity:
     Capital stock/Common stock                                       2,350       2,350
     Capital in excess of par value                                   2,215       2,215
     Retained earnings                                               68,518      64,501
     Other accumulated comprehensive income (loss)                      (87)          2
     Less cost of treasury stock (1998 and 1997-35,000 shares)         (508)       (508)
                                                                 ----------   ---------
              Total shareholders' equity                             72,488      68,560
                                                                 ----------   ---------
                                                                   $124,972   $ 127,833
                                                                 ==========   =========
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>
 
                NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                           For the Nine Months
                                                                              Ended Sept. 30
                                                                           -------------------
                                                                             1998       1997
                                                                           --------   --------
<S>                                                                        <C>        <C>
Cash from operating activities:
    Net earnings                                                           $ 11,520   $ 10,363
    Adjustments to reconcile net earnings to net cash from
      operating activities:
 
    Depreciation and amortization                                             8,792      7,951
    Gain on sale of marketable securities                                         -        (90)
    Equity (income) losses of affiliated companies                           (1,145)      (659)
    Gain on sale of MCSI                                                          -       (292)
    Provision for postretirement benefits other than pensions                   179        200
      Changes in assets and liabilities:
         Accounts receivable                                                    (85)    (1,768)
         Inventories of construction and operating materials &
           supplies                                                              57       (390)
         Prepaid federal and state taxes                                       (185)      (127)
         Accounts payable                                                       153      2,158
         Other accrued liabilities                                             (479)      (381)
         Federal and state income taxes                                      (2,955)       503
         Deferred financing costs, prepaid pension costs
           and other assets                                                     747        344
         Other, net                                                              63        (98)
                                                                           --------   --------
            Total adjustments                                                 5,142      7,351
                                                                           --------   --------
            Net cash from operating activities                               16,662     17,714
                                                                           --------   --------
 
Cash used for investing activities:
   Expenditures for property and equipment                                  (14,116)   (15,233)
   Net salvage on retirements                                                   457        286
                                                                           --------   --------
            Net capital additions                                           (13,659)   (14,947)
                                                                           --------   --------
   Proceeds from redemption of marketable securities held to
    maturity                                                                      -        250
   Purchase of marketable securities available for sale                     (14,320)      (235)
   Proceeds from sale of marketable securities available for sale             1,202        445
   Proceeds from sale of MCSI, net of cash sold                                   -      3,305
   Proceeds from sale of investment                                          13,561          -
   Investments in affiliated entities                                          (630)    (1,901)
   Distributions from affiliated entities                                        43         71
                                                                           --------   --------
             Net cash used for investing activities                         (13,803)   (13,012)
                                                                           --------   --------
 
Cash used for financing activities:
    Cash dividends                                                           (7,353)    (6,161)
    Retirement of debt                                                         (597)      (512)
    Proceeds from issuance of debt                                                -      6,903
    Purchase of treasury stock                                                    -       (508)
    Payment on capital lease obligations                                          -       (133)
                                                                           --------   --------
             Net cash used for financing activities                          (7,950)      (411)
                                                                           --------   --------
 
Net (decrease) increase in cash and temporary investments                     5,091      4,291
 
Cash and temporary investments at beginning of period                        15,938     11,313
                                                                           --------   --------
Cash and temporary investments at end of period                            $ 10,847   $ 15,604
                                                                           ========   ========
Interest paid                                                              $  1,306   $  1,170
                                                                           ========   ========
Income taxes paid                                                          $ 10,225   $  6,406
                                                                           ========   ========
</TABLE>


                                                                 
    See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1)         GENERAL
            -------

            The condensed consolidated financial statements included herein have
            been prepared by the Registrant, without audit, pursuant to the
            rules and regulations of the Securities and Exchange Commission.
            Consolidated herein are the financial results of the Registrant's
            wholly-owned subsidiaries, North Pittsburgh Telephone Company (North
            Pittsburgh), Penn Telecom, Inc. (Penn Telecom) and Pinnatech, Inc.
            (Pinnatech).  Also consolidated is the financial activity of
            Management Consulting Solutions, Inc. (MCSI) until its sale on July
            31, 1997.  Certain information and footnote disclosures normally
            included in financial statements prepared in accordance with
            generally accepted accounting principles have been condensed or
            omitted pursuant to such rules and regulations.  Nevertheless, the
            Registrant believes that its disclosures herein are adequate to make
            the information presented not misleading and, in the opinion of
            management, all adjustments (which consisted only of normal
            recurring accruals) necessary to present fairly the results of
            operations for the interim periods have been reflected.  It is
            suggested that these condensed consolidated financial statements be
            read in conjunction with the financial statements and the notes
            thereto included in the Registrant's latest annual report to the
            Securities and Exchange Commission on Form 10-K.

(2)         COMPREHENSIVE INCOME
            --------------------

            In 1998, the Registrant adopted Statement of Financial Accounting
            Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
            which establishes requirements for disclosure of comprehensive
            income. The objective of SFAS 130 is to report all changes in equity
            that result from transactions and economic events other than
            transactions with owners. Comprehensive income is the total of net
            income and all other non-owner changes in equity. Adoption of SFAS
            130 did not impact the Registrant's consolidated financial position,
            results of operations or cash flows for the three months and nine
            months ending September 30, 1998 and 1997. The reconciliation of net
            income to comprehensive income (loss) is as follows (in thousands):

<TABLE>
<CAPTION>
                                    For the Three Months        For the Nine Months
                                       Ended Sept. 30             Ended Sept. 30
                                    --------------------        -------------------
                                      1998     1997               1998      1997
                                    --------  -------           --------  --------
<S>                                 <C>       <C>               <C>       <C>
 
       Net income                    $3,204    $3,454           $11,520    $10,363
       Unrealized gain (loss) on                               
         marketable securities          (87)       14               (89)        (7)
                                     ------    ------           -------    -------
                                                               
       Comprehensive income          $3,117    $3,468           $11,431    $10,356
                                     ======    ======           =======    =======
 
</TABLE>


                                     ITEM 2

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


1.     Financial Condition
       -------------------

              (a)  General
                   -------

              There were no material changes in the Registrant's consolidated
              general financial condition from the end of its preceding fiscal
              year on December 31, 1997 to September 30, 1998, the end of the
              nine-month period reported herein.

                                       4
<PAGE>
 
              (b) Liquidity and Capital Resources
                  -------------------------------

              Consolidated capital expenditure commitments for the purchase and
              installation of communications and other equipment at September
              30, 1998 amounted to approximately  $1,381,000 with such amount
              being part of the 1998 Construction Program of $23 million to $26
              million.  Funds for financing construction expenditures in the
              nine-month period ended September 30, 1998 were generated from
              internal sources.  Based on its 1998 construction budget and
              projected cash flows, the Registrant anticipates cash flows
              provided by operating activities and cash reserves in 1998 to
              service long-term debt, to pay dividends and to finance
              approximately 70% of capital additions.  The balance of capital
              additions will be financed from debt financing available from the
              Rural Utilities Service.  At September 30, 1998, construction work
              in progress was $12,316,000.  An additional $4,622,000 is expected
              to be expended to complete these projects.

              In January 1998, the Registrant delivered shares of SmarTalk
              Teleservices, Inc. ("SmarTalk"), as well as cash, for transfer to
              another shareholder of Conquest Telecommunications Services Corp.
              ("Conquest") in accordance with an agreement reached in 1997 to
              settle certain claims.  In January 1998, the Registrant also sold
              its remaining shares of SmarTalk to Waterton Investment Group II,
              L.L.C. ("Waterton") for $14,311,000 in cash pursuant to an option
              agreement entered into by the Registrant and Waterton in December
              1997.

              The Registrant and its subsidiaries have not experienced any
              difficulty in the past meeting either long-term or short-term cash
              commitments.  Cash flow generated through regular operations has
              been adequate to not only finance a significant portion of the
              capital requirements of the Registrant as discussed above but also
              to meet principal and interest payments on long-term debt and all
              working capital requirements.  It is anticipated that future long-
              term interest and principal payments will be made from the same
              source of internally generated funds.

              (c)  Regulatory/Competition
                   ----------------------

              North Pittsburgh, as required under Chapter 30 of the Pennsylvania
              Public Utility Code, filed a petition on July 31, 1998 with the
              Pennsylvania Public Utility Commission ("PA PUC") for approval of
              an alternative form of regulation to replace traditional rate
              base/rate of return regulation.  This petition included a plan
              where North Pittsburgh will move to a more streamlined form of
              rate regulation under price caps in return for some pricing
              flexibility for services that are declared to be competitive.  In
              addition, North Pittsburgh filed a proposed network modernization
              plan in which North Pittsburgh will commit to certain benchmarks
              over a number of years to provide broadband services throughout
              its service area, if its petition is approved.

              North Pittsburgh expects that the filing of this petition for an
              alternative form of regulation under price caps will be of
              significance to North Pittsburgh.  This filing should provide
              North Pittsburgh with pricing flexibility to be a more responsive
              competitor in the ever-evolving telecommunications market.  Under
              Chapter 30 rules, the PA PUC must act on the petition within nine
              (9) months, or by May 1, 1999.  However, it is not possible at
              this time to determine the PA PUC's disposition of the filed
              petition and plan, or the effect on North Pittsburgh's financial
              position or results of operation.

              The Federal Communications Commission ("FCC") continues to work on
              Rulemakings that will spell out the specifics of the
              Telecommunications Act of 1996 ("the 1996 Act") and the PA PUC
              must then finalize its course of action to fully implement the
              1996 Act, or to the extent possible and permissible, change the
              manner in which such regulations are implemented in Pennsylvania
              before the impact on North Pittsburgh, a Rural Telephone Company
              under the 1996 Act, can be fully understood and measured.
              However, the clear intent of the 1996 Act is to open up the local
              exchange market to competition.  This appears to mandate, among
              other items, that North Pittsburgh, at some point in time, permit
              the resale of its services at wholesale rates, provide number
              portability, if feasible, provide

                                       5
<PAGE>
 
              dialing parity, provide interconnection to any requesting carrier
              for the transmission and routing of telephone exchange service and
              exchange access and provide access to network elements. The
              Company joined with 17 other rural companies in Pennsylvania to
              file a Petition with the PA PUC requesting a temporary suspension
              of the interconnection requirements of Section 251 of the 1996 Act
              for a two-year period following resolution of the FCC's Universal
              Service and Access Reform Orders. The Petition was filed February
              20, 1997 and the PA PUC approved the petition on July 10, 1997.

              In addition, the PA PUC is currently addressing a number of other
              regulatory issues regarding Universal Service, Access Reform, Bell
              Atlantic's request to enter the interLATA toll market and
              intercompany compensation regarding Internet traffic. The final
              outcome of these proceedings is still uncertain at this time, but
              it is expected that any major changes that are implemented by the
              Commission as a result of the final disposition of these issues
              may have some effect on North Pittsburgh's financial position and
              results of operations.

              The 1996 Act, FCC and PA PUC regulatory proceedings and the thrust
              towards a fully competitive marketplace have created some
              uncertainty in respect to the levels of North Pittsburgh's revenue
              growth in the future.  However, its unique location in a growing
              commercial/residential suburban traffic corridor to the north of
              the City of Pittsburgh, its state-of-the-art switching
              transmission and transport facilities and its extensive fiber
              network place North Pittsburgh in a solid position to meet
              competition and minimize any loss of revenues.  In addition, North
              Pittsburgh continues to make its network flexible and responsive
              to the needs of its customers to meet competitive threats.  New
              services, access line growth and anticipated usage growth is
              expected to lessen or offset any reductions in North Pittsburgh's
              revenue sources.

              In March, 1998, Penn Telecom received notification from the PA PUC
              that its application to provide competitive local exchange service
              in the areas presently served by GTE and Bell Atlantic in
              Pennsylvania had been approved.  Penn Telecom continues to expand
              its competitive local exchange operations into the GTE and Bell
              Atlantic areas.


2.     Results of Operations
       ---------------------

           Total operating revenues decreased $722,000 (1.4%) in the nine-month
           period ended September 30, 1998 over the comparable period in 1997.
           This change was due to an increase in local network services of
           $1,337,000 (17.9%), offset by a decrease in other operating revenues
           of $3,365,000 (51.2%). Increased local network service revenues were
           attributable to customer growth, growth in second lines and expanded
           penetration of enhanced services. The decrease in other operating
           revenues is primarily due to the cessation of operations and
           subsequent sale of MCSI on July 31, 1997. Long distance and access
           services increased only moderately for the nine-month period ended
           September 30, 1998 due to the implementation of a toll savings plan
           in July, 1997, and rate decreases on interstate switched access
           revenues beginning January 1, 1998. The introduction of the toll
           savings plan was a proactive step by the Registrant to retain present
           customers and thus preserve market share in the newly competitive
           intraLATA long distance market.

           Total operating expenses for the nine-month period ended September
           30, 1998 decreased $1,089,000 (3.3%) over the preceding year. That
           change is principally the result of a decrease in network and other
           operating expenses of $1,810,000 (8.7%), offset by an increase in
           depreciation and amortization of $841,000 (10.6%). The net decrease
           of $1,810,000 in network and other operating expenses consists of a
           decrease of $3,715,000 resulting from the sale of MCSI, offset by an
           increase of $1,500,000 due to the introduction of a data processing
           transition plan, increased marketing efforts and on-going increases
           in maintenance, customer service and other administrative expenses.
           The increase in depreciation and amortization is the direct result of
           the growth in fixed assets to serve current and future customer
           needs. The decrease in total operating revenues discussed above
           coupled with the

                                       6
<PAGE>
 
          decrease in total operating expenses resulted in net operating
          revenues increasing $367,000 (2.1%) between 1998 and 1997.

          Interest income increased $601,000 primarily due to increased levels
          of investment in temporary instruments. The net increase in Sundry
          income (non-operating) of $628,000 is primarily due to an increase in
          cellular partnership income in 1998 as compared to 1997 and receipts
          from a one-time insurance settlement.

          The increase in net operating revenues for the nine-month period ended
          September 30, 1998, in conjunction with the increase in Sundry income,
          net, resulted in an increase of $1,463,000 (8.5%) in earnings before
          income taxes.

          Fluctuations in the revenues and expenses for the three-month period
          ended September 30, 1998, as compared to the same quarterly period in
          1997 are generally attributable to the same reasons above in the year-
          to-date comparisons.

3.     Adoption of New Accounting Pronouncements
       -----------------------------------------

          The Registrant will implement SFAS No. 131, "Disclosures about
          Segments of an Enterprise and Related Information" in 1998. SFAS No.
          131 establishes standards for the way that public enterprises report
          information about operating segments in annual and interim financial
          statements. Because SFAS No. 131 has a disclosure-only effect on the
          notes to the Registrant's financial statements, adoption of SFAS No.
          131 has no impact on the Registrant's results of operations or
          financial condition. In the year of adoption, the disclosure
          requirements of SFAS No. 131 need not be applied to interim financial
          statements. The Registrant will implement SFAS No. 131 in its full
          year 1998 financial statements.

          In June, 1998, the Financial Accounting Standards Board issued SFAS
          No. 133, "Accounting for Derivative Instruments and Hedging
          Activities". The Registrant does not expect this pronouncement to
          impact the consolidated financial statements because the Registrant
          has not entered into derivative or hedging transactions.

4.     Year 2000
       ---------

          (a)  State of Readiness
               ------------------

          The Registrant has taken actions to understand the nature and extent
          of the work required in order to make its systems and infrastructure
          Year 2000 compliant. The Registrant began work last year to prepare
          its information technology (IT) and non-information technology (non-
          IT) systems, including updating and/or replacing existing legacy
          systems. The Registrant has formed a Corporate Year 2000 Task Force
          which is responsible for all Year 2000 activities and is being
          monitored by senior managment and the Board of Directors.

          There are six phases of the Registrant's Year 2000 program: Awareness,
          Inventory, Assessment, Renovation, Validation and Implementation. The
          Registrant has defined the six phases as follows:

          Awareness - Gain the commitment of management and staff to solving the
          problem. This phase has been completed.

          Inventory - Conduct a thorough inventory of all hardware and software
          systems. This phase will run until December, 1999 in order to maintain
          the inventory throughout the life of the project.

          Assessment and Planning - Decide which systems to retire, repair or
          replace. Prepare contingency plans.  This phase has been completed.

          Renovation - Perform upgrades to hardware and software. This phase is
          underway and is scheduled to be completed in April, 1999. The
          Registrant has contracted to outsource certain operational support,
          billing and accounting systems to a third party vendor. The software
          and hardware components of the systems selected have been certified as
          Year 2000 compliant.

                                       7
<PAGE>
 
           Validation - Test and certify new and renovated systems. This phase
           is underway and is scheduled to be completed in April, 1999.

           Implementation and Follow-up - New or renovated systems go into
           service. This phase is scheduled to be completed in December, 1999,
           and will include the resolution of any outstanding problems. The Year
           2000 Project will extend until March, 2000 in order to address the
           leap day of February 29, 2000 and to address any outstanding issues.
           
           The Registrant's Year 2000 issues related to third parties can be
           broken into two categories: third party vendors who supply products
           to the Registrant, and other telecommunications companies who provide
           joint service to our customers. The third party vendors have been
           providing the Registrant with Year 2000 solutions on an on-going
           basis. Year 2000 upgrades, repairs and testing are being performed as
           per vendor specifications. Other telecommunications service providers
           are implementing Year 2000 programs in much the same fashion as the
           Registrant and industry testing is being performed on an on-going
           basis.

           (b) Cost to Address Year 2000 Issues
               --------------------------------

           Expenditures related to Year 2000 remediation are not expected to
           exceed $3.5 million. These expenditures include costs related to the
           data processing transition plan, license fees for purchase of
           software and training and implementation costs. A portion of these
           costs are being capitalized and will be amortized over the estimated
           useful life of the asset beginning in approximately the second
           quarter of 1999, the anticipated completion date of the project. The
           remainder of these costs will be expensed as incurred.

           (c)   Risks of Year 2000 Issues
                 -------------------------

           The most reasonably likely worst case scenario is loss of services to
           other interconnecting companies who have not attained Year 2000
           compliance. This is unlikely to occur since the interconnecting
           companies realize their responsibility to comply. However, should
           this worst case scenario occur, the Registrant will give customers
           the option of rerouting service to a working carrier.

           (d) Contingency Plan
               ----------------

           The Registrant has developed a Corporate Year 2000 Contingency Plan
           to cover its primary business activities. This plan outlines the key
           areas of business, and the manner in which they will be supported in
           the event of a Year 2000 failure. This plan has been developed as a
           result of research into United States Telephone Association member
           telephone company responses to hurricanes, tornadoes, ice storms and
           other disasters. The Registrant has studied and modified these plans
           to cover operations during potential Year 2000 related failures. The
           Registrant has also updated and revised the existing Emergency
           Response Plan. The Registrant's Emergency Response Plan will form the
           core of our Contingency Plan if a major service outage should occur.

           Key components of the Contingency Plan are the preparations to revert
           to a manual operation, stockpiling and conservation of materials,
           increased staffing levels, data storage for processing at a later
           date, isolation of harmful network elements and positioning key
           personnel in areas where they will be most effective. Should there be
           a serious service affecting problem, the Emergency Response Plan will
           be activated until all services are restored. Events which could
           trigger activation of the Emergency Response Plan include widespread
           loss of gas or electric service, failures at various interconnecting
           companies or failure of internal switching or transmission systems.

                                       8
<PAGE>
 
                                     ITEM 3

                    QUANTITATIVE AND QUALITATIVE DISCLOSURES

                               ABOUT MARKET RISK


1.     This item is not applicable.

                                       9
<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.



                                 NORTH PITTSBURGH SYSTEMS, INC.
                                 ------------------------------
                                 (Registrant)



Date  November 5, 1998           /s/  H. R. Brown
      ----------------           -----------------------------------------------
                                 H. R. Brown, President



Date  November 5, 1998           /s/  A. P. Kimble
      ----------------           -----------------------------------------------
                                 A. P. Kimble, Vice President & Treasurer

                                       10
<PAGE>
 
                                    PART II


                               OTHER INFORMATION




Item 6.     Exhibits and Reports on Form 8-K

            (a)  Exhibits - Exhibit Index for Quarterly Reports on Form 10-Q.
                 --------
<TABLE>
<CAPTION>
 Exhibit
 Number             Subject                                                Applicability
-------             -------                                                -------------
<S>                 <C>                                                    <C>
   (2)              Plan of acquisition, reorganization,                   Not Applicable
                    arrangement, liquidation or
                    succession

   (3) (i)          Articles of Incorporation                              Provided in Quarterly Report
                                                                           on Form 10-Q for the quarter
                                                                           ended June 30, 1996 and
                                                                           Incorporated Herein by
                                                                           Reference.

   (3) (ii)         By-Laws                                                Provided in Quarterly Report
                                                                           on Form 10-Q for the quarter
                                                                           ended March 31, 1998 and
                                                                           Incorporated Herein by
                                                                           Reference.

    (4)             Instruments defining the rights of                     Provided in Registration of
                    security holders including indentures                  Securities of Certain
                                                                           Successor Issuers on Form
                                                                           8-B filed on June 25, 1985
                                                                           and Incorporated Herein by
                                                                           Reference.

   (10)             Material Contracts                                     Not Applicable

   (11)             Statement re computation of per                        Attached Hereto
                    share earnings

   (15)             Letter re unaudited interim financial                  Not Applicable
                    information

   (18)             Letter re change in accounting                         Not Applicable
                    principles

   (19)             Report furnished to security holders                   Not Applicable

   (22)             Published report regarding matters                     Not Applicable
                    submitted to a vote of security holders

   (23)             Consents of experts and counsel                        Not Applicable

   (24)             Power of attorney                                      Not Applicable

   (27)             Financial Data Schedule                                Attached Hereto

   (99)             Additional exhibits                                    Not Applicable

</TABLE> 
            (b)  Reports on Form 8-K - No reports on Form 8-K were filed during
                 -------------------
                 the quarter ended September 30, 1998.

                                       11