<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                   March 31, 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 April 24, 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
                                                          Ended March 31
                                                     ---------------------
                                                         1998       1997
                                                        -------    -------
<S>                                                    <C>        <C>
Operating revenues:
    Local network services                              $ 2,825    $ 2,340
    Long distance and access services                    10,996     10,873
    Directory advertising, billing & other services         621        586
    Telecommunication equipment sales                       560        607
    Other operating revenues                              1,094      2,181
                                                        -------    -------
        Total Operating Revenues                         16,096     16,587
                                                        -------    -------
 
Operating expenses:
   Network and other operating expenses                   6,216      7,018
   Depreciation and amortization                          2,898      2,603
   State and local taxes                                    754        779
   Telecommunication equipment expenses                     537        550
                                                        -------    -------
        Total Operating Expenses                         10,405     10,950
                                                        -------    -------
   Net Operating Revenues                                 5,691      5,637

Other expense (income), net:
   Interest expense                                         462        420
   Interest income                                         (382)      (150)
   Sundry expense (income), net                            (904)        10
                                                        -------    -------
                                                           (824)       280
                                                        -------    -------
        Earnings before income taxes                      6,515      5,357

    Income Taxes                                          2,264      2,162
                                                        -------    -------
        Net earnings                                    $ 4,251    $ 3,195
                                                        =======    =======
Weighted average common shares outstanding               15,005     15,040
                                                        =======    =======
Earnings per share of common stock                      $   .28    $   .21
                                                        =======    =======
Dividends per share of common stock                     $   .15    $   .14
                                                        =======    =======
</TABLE>



See accompanying notes to condensed consolidated financial statements.

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

                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
          ASSETS                                                                            Mar. 31         Dec. 31
          ------                                                                              1998            1997
                                                                                           --------         --------
<S>                                                                                       <C>               <C>
Current Assets:                                                   
    Cash and temporary investments                                                         $ 33,428         $ 15,938
    Marketable securities available for sale                                                      -           16,847
  Accounts receivable:                                                                                     
       Customers                                                                              2,979            3,401
       Access service settlements and other                                                   6,167            5,995
       Prepaid Expenses                                                                           -               25
    Inventories of construction and operating materials and                                                
       supplies                                                                               3,455            3,360
    Prepaid taxes                                                                               755                -
                                                                                           --------        ---------
      Total current assets                                                                   46,784           45,566
                                                                                           --------        ---------
    Property, plant and equipment                                                                          
        Land                                                                                    475              475
        Buildings                                                                            10,543           10,543
        Equipment                                                                           124,017          122,492
                                                                                           --------        ---------
                                                                                            135,035          133,510
   Less accumulated depreciation and amortization                                            71,432           69,303
                                                                                           --------        ---------
                                                                                             63,603           64,207
   Construction in progress                                                                   7,652            6,990
                                                                                           --------        ---------
              Total property, plant and equipment, net                                       71,255           71,197
Investments                                                                                   7,733            7,499
Deferred financing costs                                                                        930              954
Prepaid pension cost                                                                          1,098              580
Other assets                                                                                  1,190            2,037
                                                                                           --------        ---------
                                                                                           $128,990         $127,833
                                                                                           ========        =========
                                                                                                           
               LIABILITIES AND SHAREHOLDERS' EQUITY                                                        
               ------------------------------------                                                        
Current liabilities:                                                                                       
    Current portion of long-term debt                                                      $    816         $    803
    Accounts payable                                                                          5,545            4,794
    Accrued legal settlement                                                                      -            3,180
    Dividend payable                                                                          3,001            2,101
    Deferred income taxes                                                                         -            5,289
    Other accrued liabilities                                                                 2,280            2,304
    Federal and state income taxes                                                            7,454              389
                                                                                           --------        ---------
              Total current liabilities                                                      19,096           18,860
                                                                                           --------        ---------
                                                                                                           
Long-term debt                                                                               26,830           27,037
Deferred income taxes                                                                         6,560            6,560
Postretirement benefits                                                                       4,826            4,764
Other liabilities                                                                             1,871            2,052
Shareholders' equity:                                                                                      
     Capital stock/Common stock                                                               2,350            2,350
     Capital in excess of par value                                                           2,215            2,215
     Retained earnings                                                                       65,750           64,501
     Unrealized gain (loss) on available for sale securities, net                                 -                2
     Less cost of treasury stock (1998 and 1997-35,000 shares)                                 (508)            (508)
                                                                                           --------        ---------
              Total shareholders' equity                                                     69,807           68,560
                                                                                           --------        ---------
                                                                                           $128,990         $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 Three Months
                                                                       Ended March  31
                                                                   ---------------------
                                                                       1998       1997
                                                                      -------    -------
<S>                                                                  <C>        <C>
Cash from operating activities:
    Net earnings                                                      $ 4,251    $ 3,195
    Adjustments to reconcile net earnings to net cash from
      operating activities:
 
      Depreciation and amortization                                     2,898      2,603
      Gain on sale of marketable securities                                (1)       (12)
      Equity (income) losses of affiliated companies                     (234)         -
      Provision for postretirement benefits other than pensions            62         65
      Changes in assets and liabilities:
         Accounts receivable                                              250     (1,589)
         Inventories of construction and operating materials &
           supplies                                                       (95)      (238)
         Prepaid federal and state taxes                                 (755)      (702)
         Accounts payable                                                 751        821
         Other accrued liabilities                                       (205)      (284)
         Federal and state income taxes                                 1,776      1,491
         Deferred financing costs, prepaid pension costs                  
           and other assets                                               353       (329)
         Other, net                                                        41        154
                                                                      -------    -------
            Total adjustments                                           4,841      1,980
                                                                      -------    -------
            Net cash from operating activities                          9,092      5,175
                                                                      -------    -------
 
Cash used for investing activities:
   Expenditures for property and equipment                             (3,136)    (3,702)
   Net salvage on retirements                                             164          2
                                                                      -------    -------
            Net capital additions                                      (2,972)    (3,700)
                                                                      -------    -------
 
Proceeds from redemption of marketable securites held to maturity           -        100
Purchase of marketable securities available for sale                        -        (55)
Proceeds from sale of marketable securities available for sale            105        149
Proceeds from sale of investment                                       13,561          -
                                                                      -------    -------
             Net cash used for investing activities                    10,694     (3,506)
                                                                      -------    -------
 
Cash used for financing activities:
    Cash dividends                                                     (2,102)    (1,955)
    Retirement of debt                                                   (194)      (189)
    Payment on capital lease obligations                                    -        (74)
                                                                      -------    -------
             Net cash used for financing activities                    (2,296)    (2,218)
                                                                      -------    -------
 
Net (decrease) increase in cash and temporary investments              17,490       (549)
 
Cash and temporary investments at beginning of period                  15,938     11,313
                                                                      -------    -------
Cash and temporary investments at end of period                       $33,428    $10,764
                                                                      =======    =======
Interest paid                                                         $   439    $   395
                                                                      =======    =======
Income taxes paid                                                     $   489    $   667
                                                                      =======    =======
</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. 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.



                                     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 March 31, 1998, the end of the
              three-month period reported herein.

       (b) Liquidity and Capital Resources
           -------------------------------

              Consolidated capital expenditure commitments for the purchase and
              installation of communications and other equipment at March 31,
              1998 amounted to approximately $2,665,000 with such amount being
              part of the 1998 Construction Program of $23 million to $26
              million.  Funds for financing construction expenditures in the
              three-month period ended March 31, 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 50% of capital

                                       4
<PAGE>
 
              additions. The balance of capital additions will be financed from
              new debt financing available from the Rural Utilities Service. At
              March 31, 1998, construction work in progress was $7,642,000. An
              additional $8,861,000 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, under Chapter 30 of the Pennsylvania Public
              Utility Code, must, prior to July 8, 1998, file a petition 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 or be subject to a show cause
              proceeding. The petition must include a proposed network
              modernization plan. Although North Pittsburgh has not determined
              the form and content of its petition, the ultimate filing of such
              petition is expected to be of significance to North Pittsburgh.
              However, it is not possible at this time to determine the PA PUC's
              disposition of any petition filed or the effect on North
              Pittsburgh's financial position or results of operations.

              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 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.

              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.

                                       5
<PAGE>
 
       2.  Results of Operations
           ---------------------

              Total operating revenues decreased $491,000 (3.0%) in the three-
              month period ended March 31, 1998 over the comparable period in
              1997.  This change was due to an increase in local network
              services of $485,000 (20.7%), offset by a decrease in other
              operating revenues of $1,087,000 (49.8%).  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 quarter 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 three-month period ended March
              31, 1998, decreased $545,000 (5.0%) over the preceding year.  That
              change is principally the result of a decrease in network and
              other operating expenses of $802,000 (11.4%), offset by an
              increase in depreciation and amortization of $295,000 (11.3%). The
              net decrease of $802,000 in network and other operating expenses
              consists of a decrease of $1,560,000 resulting from the sale of
              MCSI, offset by an increase of $500,000 primarily 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 decrease in total operating expenses resulted in net operating
              revenues increasing modestly between 1998 and 1997.
 
              Interest income increased $232,000 primarily due to increased
              levels of investment in temporary instruments.  The net increase
              in Sundry income (non-operating) of $914,000 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 three-month period
              ended March 31,1998, in conjunction with the increase in Sundry
              income, net, resulted in an increase of $1,158,000 (21.6%) in
              earnings before income taxes.



                                     ITEM 3
                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                 ABOUT MARKET RISK


       1.     This item is not applicable.


                                       6
<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  April 27, 1998             /s/ A. P. Kimble
    ------------------           ----------------------------------------
                                 A. P. Kimble, Vice President & Treasurer


Date  April 27, 1998             /s/ N. W. Barthlow
    ------------------           ----------------------------------------
                                 N. W. Barthlow, Vice President & Secretary

                                      
<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                                      Attached Hereto

 (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 - A Form 8-K was filed on January 28, 1998
                -------------------                       
             disclosing the sale of Conquest/SmarTalk stock and the death of
             Gerald A. Gorman, a director and former officer.