<PAGE>

                                     UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549
                                      FORM 10-Q
      [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 No. 000-20068

                               PRECISION SYSTEMS, INC.                         
               --------------------------------------------------------
                (Exact name of registrant as specified in its charter)

                     Delaware                         41-1425909           
          ------------------------------- ---------------------------------
          (State or other jurisdiction of (IRS Employer Identification No.)
          incorporation or organization)

                11800 30th Court North, St. Petersburg, Florida  33716         
               --------------------------------------------------------
                       (Address of principal executive offices)

                                    (813) 572-9300                             
               --------------------------------------------------------
                 (Registrant's telephone number, including area code)

                                    Not applicable                             
               --------------------------------------------------------
                 (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 (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 [  ]

           APPLICABLE ONLY  TO REGISTRANTS TO CORPORATE ISSUERS:   Indicate the
      number  of shares outstanding of each of  the issuer's classes of capital
      stock as of the latest practicable date.

           Total number of shares  of outstanding capital stock as  of November
      9, 1998:

      Common Stock  . . . . . . . . . . . . . . . . . . . . . . . .  17,853,169<PAGE>


      <TABLE>
                                    PART I   FINANCIAL INFORMATION

       ITEM 1   FINANCIAL STATEMENTS

                               PRECISION SYSTEMS, INC. AND SUBSIDIARIES
                                                   
                            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                              (unaudited)
       <CAPTION>
                                              Three months ended         Nine months ended        
                                                 September 30,              September 30,         
                                          --------------------------- ---------------------------
                                              1998          1997          1998          1997     
                                          ------------- ------------- ------------- -------------      
       <S>                                <C>           <C>           <C>           <C>         
       Revenues                                                                                  
         Contract revenue  . . . . . . .  $    995,428  $  2,168,944  $  3,324,227  $  8,191,554 
         Service and support   . . . . .     4,587,435     6,270,975    15,797,654    17,655,180 
         License fee revenue . . . . . .     3,235,405     2,880,284     5,798,695     7,615,266 
                                          ------------- ------------- ------------- -------------
                                             8,818,268    11,320,203    24,920,576    33,462,000 
                                          ------------- ------------- ------------- -------------
       Cost of Sales, exclusive of                                                               
         depreciation and amortization                                                           
         shown separately below  . . . .     4,212,762     4,829,309    13,015,159    14,336,846 
                                          ------------- ------------- ------------- -------------
                                             4,605,506     6,490,894    11,905,417    19,125,154 
                                          ------------- ------------- ------------- ------------- 
       Operating Expenses                                                                         
         Selling, general, and                                                                   
          administrative . . . . . . . .     3,810,972     4,863,487    15,604,709    16,008,265 
         Research, engineering and                                                               
          development  . . . . . . . . .       581,723     1,312,268     2,815,430     3,547,634 
         Depreciation and amortization .       777,219     1,699,246     2,455,427     5,164,107 
                                          ------------- ------------- ------------- -------------
                                             5,169,914     7,875,001    20,875,566    24,720,006 
                                          ------------- ------------- ------------- -------------
       Operating loss  . . . . . . . . .      (564,408)   (1,384,107)     (8,970,149)  5,594,852)
       Interest income (expense), net  .      (114,912)       53,102      (608,941)       20,891 
                                          ------------- ------------- ------------- -------------
       Loss before income taxes  . . . .      (679,320)   (1,331,005)   (9,579,090)    (5,573,96)
       Income taxes  . . . . . . . . . .         -             -             -             -     
                                          ------------- ------------- ------------- -------------
       Net Loss  . . . . . . . . . . . .      (679,320)   (1,331,005)   (9,579,090)   (5,573,961)
       Preferred stock dividend                                                                  
         requirements  . . . . . . . . .      (178,462)     (178,454)     (525,920)     (433,873)
                                          ------------- ------------- ------------- -------------
       Net Loss Applicable to                                                                    
         Common Stock  . . . . . . . . .  $   (857,782) $ (1,509,459) $(10,105,010) $ (6,007,834)
                                          ============= ============= ============= =============
       Basic and Diluted Loss Per Share:                                                          
          Net loss . . . . . . . . . . .  $       (.04) $       (.08) $       (.54) $       (.33)
                                          ============= ============= ============= =============
          Net loss applicable to common                                                          
            stock  . . . . . . . . . . .  $       (.05) $       (.09) $       (.57) $       (.35)
                                          ============= ============= ============= =============
       </TABLE>                                                     <PAGE>


                         The accompanying notes are an integral part of these
                             condensed consolidated financial statements.<PAGE>


                           PRECISION SYSTEMS, INC. AND SUBSIDIARIES

                        CONDENSED CONSOLIDATED BALANCE SHEETS


                                                 September 30,   December 31,
                                                     1998            1997      
                        ASSETS                 ---------------- ---------------
      -----------------------------------------   (unaudited)  
                                                               
      Current Assets                                            
       Cash and cash equivalents  . . . . . . .$     2,338,418  $    4,582,757 
       Accounts and contracts receivable,      
         net  . . . . . . . . . . . . . . . . .      7,566,107       9,657,355 
       Supplies and other current assets  . . .      2,791,603       1,980,451 
       Costs and earnings in excess of                         
         billings on uncompleted contracts  . .      2,283,496       3,333,339 
                                               ---------------- ---------------
          Total current assets  . . . . . . . .     14,979,624      19,553,902 
                                               ---------------- ---------------
      Property, Plant and Equipment, Net  . . .      7,670,638       8,869,177 
      Intangible Assets, Net  . . . . . . . . .         42,419          52,474 
                                               ---------------- ---------------
                                               $    22,692,681  $   28,475,553 
                                               ================ ===============
                                               
                   LIABILITIES AND             
            STOCKHOLDERS' EQUITY (DEFICIT)
      -----------------------------------------
                                               
      Current Liabilities                                     
       Current portion of long-term debt  . . .$     9,115,309  $      294,375 
       Accounts payable   . . . . . . . . . . .      4,757,192       5,505,996 
       Accrued expenses   . . . . . . . . . . .      8,453,882       6,110,800 
       Billings in excess of costs and         
         earnings on uncompleted contracts  . .      2,124,590       2,780,251 
       Deferred revenue   . . . . . . . . . . .      1,050,367       1,270,825 
                                               ---------------- ---------------
         Total current liabilities  . . . . . .     25,501,340      15,962,247 
                                               ---------------- ---------------
      Long-term Debt  . . . . . . . . . . . . .        221,488       6,240,184 
                                               ---------------- ---------------

                 The accompanying notes are an integral part of these
                     condensed consolidated financial statements.<PAGE>


                       PRECISION SYSTEMS, INC. AND SUBSIDIARIES

                  CONDENSED CONSOLIDATED BALANCE SHEETS (continued)


                                                 September 30,   December 31,
                                                     1998            1997      
                                               ---------------- ---------------
                                                  (unaudited)
                                               
      Commitments and Contingencies . . . . . .
                                               
      Stockholders' Equity (Deficit)           
       Non-redeemable preferred stock   $.01   
         par value; authorized 50,000 shares:  
          Series A 6 percent Cumulative        
           Convertible Preferred Stock;        
           convertible at $4.76 per share;     
           issued and outstanding 10,000       
           shares; liquidation preference      
           $5,800,000 . . . . . . . . . . . . .            100             100 
          Series B 8 percent Cumulative        
           Convertible Preferred Stock;        
           convertible at $4.47 per share,     
           issued and outstanding 4,500 shares;
           liquidation preference $4,500,000  .             45              45 
       Common stock   $.01 par value;          
         authorized 30,000,000 shares, issued  
         17,986,106 and 17,906,025 shares,     
         respectively . . . . . . . . . . . . .        179,861         179,061 
       Additional paid-in capital   . . . . . .    113,728,453     114,000,071 
       Accumulated deficit  . . . . . . . . . .   (118,873,195)   (109,294,105)
       Treasury stock (132,937 shares) -       
         at cost  . . . . . . . . . . . . . . .       (422,360)       (422,360)
       Accumulated preferred stock             
         dividends  . . . . . . . . . . . . . .      2,201,121       1,675,201 
       Cumulative foreign currency translation 
         adjustment . . . . . . . . . . . . . .        169,578         312,609 
       Unearned compensation  . . . . . . . . .        (13,750)       (177,500)
                                               ---------------- ---------------
         Total stockholders' equity (deficit) .     (3,030,147)      6,273,122 
                                               ---------------- ---------------
                                               $    22,692,681  $   28,475,553 
                                               ================ ===============

                 The accompanying notes are an integral part of these
                     condensed consolidated financial statements.<PAGE>


                       PRECISION SYSTEMS, INC. AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (unaudited)

                                                       Nine months ended       
                                                         September 30,         
                                               --------------------------------
                                                     1998            1997      
                                               ---------------- ---------------
      Cash Flows   Operating Activities:       
       Net loss   . . . . . . . . . . . . . . .$    (9,579,090) $   (5,573,961)
       Adjustments to reconcile net loss to net
         cash used in operating activities:
          Depreciation and amortization . . . .      2,455,427       5,164,107 
          Provision for losses on accounts     
           receivable . . . . . . . . . . . . .         46,479         105,515 
          Amortization of unearned             
           compensation . . . . . . . . . . . .         88,750         120,117 
          Loss on sale of property, plant and  
           equipment  . . . . . . . . . . . . .        109,179           -     
          Change in current assets and         
          liabilities:
           Accounts and contracts receivable  .      2,047,805       3,601,397 
           Costs and estimated earnings in     
            excess of billings  . . . . . . . .      1,049,843      (3,868,179)
           Supplies and other current assets  .       (826,677)       (972,372)
           Accounts payable . . . . . . . . . .       (748,804)        663,839 
           Accrued expenses . . . . . . . . . .      2,451,752      (1,968,743)
           Billings in excess of earnings on   
            incomplete contracts  . . . . . . .       (655,661)       (868,132)
           Deferred revenue . . . . . . . . . .       (220,458)       (864,566)
                                               ---------------- ---------------
            Net cash used in operating         
              activities  . . . . . . . . . . .     (3,781,455)     (4,460,978)
                                               ---------------- ---------------
                                               
      Cash Flows   Investing Activities:       
       Purchase of property, plant and         
         equipment  . . . . . . . . . . . . . .     (1,363,277)     (1,969,522)
       Proceeds from sale of property,         
         plant and equipment  . . . . . . . . .        112,358           -     
                                               ---------------- ---------------
            Net cash used in investing         
              activities  . . . . . . . . . . .     (1,250,919)     (1,969,522)
                                               ---------------- ---------------
                                               

                 The accompanying notes are an integral part of these
                     condensed consolidated financial statements.<PAGE>


                       PRECISION SYSTEMS, INC. AND SUBSIDIARIES

             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                      (unaudited)


                                                       Nine months ended       
                                                         September 30,         
                                               --------------------------------
                                                     1998            1997      
                                               ---------------- ---------------
                                               
      Cash Flows   Financing Activities:       
       Proceeds from issuance of promissory    
         notes, net . . . . . . . . . . . . . .      3,000,000       5,974,130 
       Repayment of note payable  . . . . . . .       (228,869)     (1,998,116)
       Capital contributions, net   . . . . . .          -           4,400,000 
       Proceeds from issuance of common        
         stock  . . . . . . . . . . . . . . . .         16,904         175,262 
                                               ---------------- ---------------
            Net cash provided by financing     
              activities  . . . . . . . . . . .      2,788,035       8,551,276 
                                               ---------------- ---------------
                                               
      Net increase (decrease) in cash          
       and cash equivalents   . . . . . . . . .     (2,244,339)      2,120,776 
      Cash and cash equivalents at             
       beginning of period  . . . . . . . . . .      4,582,757       4,601,818 
                                               ---------------- ---------------
      Cash and cash equivalents at             
       end of period  . . . . . . . . . . . . .$     2,338,418  $    6,722,594 
                                               ================ ===============

                 The accompanying notes are an integral part of these
                     condensed consolidated financial statements.<PAGE>


                       PRECISION SYSTEMS, INC. AND SUBSIDIARIES

                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


      1.  BASIS OF PRESENTATION

          The interim condensed consolidated financial  statements of Precision
      Systems,  Inc.  (the  "Company") are  unaudited  and  should  be read  in
      conjunction with the audited financial statements and notes thereto as of
      and  for the  year ended  December 31,  1997,  the four  month transition
      period ended December 31, 1996,  and the years ended August 31,  1996 and
      1995.

          In  the opinion of the Company, all  adjustments necessary for a fair
      presentation  of  such  financial  statements have  been  included.  Such
      adjustments consist only of  normal recurring items. Interim results  are
      not  necessarily indicative  of  results for  a  full year.  The  interim
      financial  statements and notes thereto are presented as permitted by the
      Securities  and  Exchange  Commission  and  do  not  contain  information
      included in the Company's annual financial statements and notes thereto.

          Certain  amounts  for  previous  periods  have been  reclassified  to
      conform with the 1998 presentation.

      2.  BASIC AND DILUTED LOSS PER SHARE

          Basic and diluted loss per share for the three  and nine months ended
      September 30, 1998  and 1997, have been computed based  upon the weighted
      average  common  shares outstanding  of  17,846,796  and 17,599,755,  and
      17,815,650  and  17,089,298, respectively.  The  diluted  loss per  share
      calculation does  not include preferred convertible  securities and stock
      options,  which are common stock equivalents, as their inclusion would be
      anti-dilutive.
      
          The  following table  provides  information on  the  weighted average
      shares of dilutive securities which are not included in the  diluted loss
      per share calculation because their inclusion would be anti-dilutive:

                                  Three months ended      Nine months ended
                                    September 30,           September 30,      
                               ----------------------- -----------------------
                                   1998        1997        1998        1997    
                               ----------- ----------- ----------- -----------
                                                       
         Preferred convertible                         
          securities  . . . .    3,500,198   2,675,198   3,500,198   2,114,925 
         Stock options and                             
          restricted stock  .    1,432,068   2,285,560   1,403,419   1,994,316 
                               ----------- ----------- ----------- -----------
                                 4,932,266   4,960,758   4,903,617   4,109,241 
                               =========== =========== =========== ===========<PAGE>


                       PRECISION SYSTEMS, INC. AND SUBSIDIARIES

                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


      3.  LONG-TERM DEBT

                                                 September 30,   December 31,
                                                     1998            1997      
                                               ---------------- ---------------
                                                  (unaudited)  
                                               
          Notes payable to shareholders,       
           interest at 8 percent, unsecured,   
           and due January 1999 . . . . . . . .$     6,000,000  $    6,000,000 
                                               
          Note payable to shareholder, interest
           at 9.5 percent, unsecured and due on
           demand; on August 31, 1998, the     
           Company increased the available     
           funding for this note payable to    
           $5,000,000, of which an additional  
           $750,000 was borrowed subsequent to 
           September 30, 1998 . . . . . . . . .      3,000,000           -     
                                               
          Capital lease obligation, interest   
           rates varying from 6 percent to 9   
           percent; collateralized by assets   
           with net book value of approximately
           $400,000 and maturing through the   
           year 2001  . . . . . . . . . . . . .        336,797         534,559 
                                               ---------------- ---------------
                                                     9,336,797       6,534,559 
          Less current portion  . . . . . . . .     (9,115,309)       (294,375)
                                               ---------------- ---------------
                                               $       221,488 $     6,240,184 
                                               ================ ===============

      4.  RESTRUCTURING CHARGES

          During the nine  months ended  September 30,  1998, in  an effort  to
      reduce overhead and cut  costs, the Company terminated the  employment of
      approximately 58  individuals and closed several  offices world-wide. The
      effect  of  the restructuring  charges  associated  with these  headcount
      reductions and  office closings  was to  increase the  Company's selling,
      general and  administrative expenses  by approximately $2,500,000.  As of
      September 30, 1998, approximately $2,011,000 of such charges are included
      in accrued expenses on the Company's balance sheet.<PAGE>


      ITEM 2 - Management's Discussion And Analysis of 
               Financial Condition and Results of Operations

          Precision Systems, Inc. (the "Company" or "PSI") is a global  company
      that, together  with its subsidiaries,  Vicorp N.V. and  BFD Productions,
      Inc.,  delivers  telecommunications solutions  to  service  providers and
      corporations.   Vicorp's software and hardware  products support enhanced
      calling  and  prepaid services,  toll-free  services,  and advanced  call
      center applications.  BFD Productions is a service bureau specializing in
      audiotext and  Internet applications.   Headquartered in  St. Petersburg,
      Florida (USA), Precision  Systems meets  the needs of  customers in  more
      than thirty countries.

          The  following table  sets forth  for the  periods indicated  (i) the
      percentage  of  total  revenues  represented  by  certain  items  in  the
      financial  statements of the Company,  and (ii) the  percentage change in
      the dollar amount of such items from period to period.
      <TABLE>
       <CAPTION>
                                                                          Percentage Increase
                                                                              (Decrease)       
                                                                        ----------------------
                                      Percentage of     Percentage of   
                                         Revenue           Revenue         Three       Nine
                                       Three Months      Nine Months       Months     Months
                                          Ended             Ended          Ended       Ended
                                      September 30,     September 30,    September   September
                                   -----------------  -----------------   30, 1998   30, 1998  
                                      1998     1997     1998     1997     vs. 1997   vs. 1997  
                                   --------  -------- -------- -------- ----------- ----------
       <S>                         <C>       <C>      <C>      <C>      <C>         <C>
       Revenues:                                                        
         Contract revenue  . . . .     11.3%    19.2%    13.3%    24.4%    (54.1%)    (59.4%)         
         Service and support . . .     52.0%    55.4%    63.4%    52.8%    (26.8%)    (10.5%)
         License fee revenue . . .     36.7%    25.4%    23.3%    22.8%     12.3%     (23.9%)
                                   --------  -------- -------- --------
                                      100.0%   100.0%   100.0%   100.0%    (22.1%)    (25.5%)
                                   --------  -------- -------- --------
       Cost of Sales, exclusive                                         
         of depreciation and                                            
         amortization shown                                             
         separately below  . . . .     47.8%    42.7%    52.2%    42.8%    (12.8%)     (9.2%)
                                   --------  -------- -------- --------
                                       52.2%    57.3%    47.8%    57.2%    (29.0%)    (37.7%)
                                   --------  -------- -------- --------
       Operating Expenses:                                                 
         Selling, general and                                           
          administrative . . . . .     43.2%    43.0%    62.6%    47.8%    (21.6%)     (2.5%)
         Research, engineering                                          
          and development  . . . .      6.6%    11.6%    11.2%    10.7%    (55.7%)    (20.6%)
         Depreciation and                                               
          amortization . . . . . .      8.8%    15.0%     9.9%    15.4%    (54.3%)    (52.5%)
                                   --------  -------- -------- --------
       Operating loss  . . . . . .     (6.4%)  (12.3%)  (35.9%)  (16.7%)   (59.2%)     60.3% 
       Interest income                                                  
         (expense), net  . . . . .     (1.3%)    0.5%    (2.5%)    0.0%   (316.4%)  (3014.8%)
                                   --------  -------- -------- --------<PAGE>


       Loss before income                                               
         taxes . . . . . . . . . .     (7.7%)  (11.8%)  (38.4%)  (16.7%)   (49.0%)     71.9% 
       Net Loss  . . . . . . . . .     (7.7%)  (11.8%)  (38.4%)  (16.7%)   (49.0%)     71.9% 
       /TABLE
<PAGE>


      Three Months Ended September 30, 1998, Compared to
      Three Months Ended September 30, 1997

      Total Revenues

          Effective January 1, 1998, the Company adopted the American Institute
      of Certified  Public Accountants ("AICPA") Statement  of Position ("SOP")
      97-2, "Software Revenue Recognition." Adoption of SOP 97-2 did not have a
      material impact on the  financial condition or the results  of operations
      of the Company.

          Total revenues  decreased to  $8,818,268 for the  three months  ended
      September  30, 1998, compared to  $11,320,203 for the  three months ended
      September  30, 1997.  The  various components  of  revenue fluctuated  as
      explained below.

      Contract Revenue

          Contract   revenue,   consisting   primarily   of  telecommunications
      equipment  hardware sales,  decreased  to $995,428  for the  three months
      ended September 30, 1998 compared to $2,168,944 during the same period in
      1997.  The decrease  in contract revenue  during the three  months  ended
      September 30, 1998 versus  1997 is primarily due to certain BETEX product
      sales by Vicorp  completed during  the three months  ended September  30,
      1997, which  did not recur during  the same period in  1998. In addition,
      certain ESP  product sales to  MCI were completed  in 1997 which  did not
      recur during the same period in 1998.

      Service and Support

          Service  and   support  revenue,  consisting   primarily  of   custom
      development services, maintenance services,  and service bureau services,
      decreased  to $4,587,435 for the  three months ended  September 30, 1998,
      compared to $6,270,975 for the three months ended September 30, 1997.

          Service and  support provided to  MCI decreased to  $331,007 for  the
      three months ended September 30, 1998, compared to $498,383 for the three
      months  ended September 30, 1997. Maintenance  revenue generated from MCI
      regarding  its ESP equipment decreased  to $331,007 for  the three months
      ended September  30, 1998, compared  to $471,294  for the same  period in
      1997.  In addition, the Company generated  no service and support revenue
      relating  to its software development services provided to MCI during the
      three months  ended September  30,  1998, compared  to $27,089  generated
      during the same period in 1997.

          Service and support  revenue for Vicorp BETEX  products de7. Vicorp's
      service and  support revenue includes maintenance  and custom development
      services provided to its customers.<PAGE>


          Service and  support revenue for  BFD increased to  $919,006 for  the
      three months ended September 30, 1998, compared to $785,207 for the three
      months  ended  September 30,  1997.   BFD's  service and  support revenue
      primarily includes interactive voice response service bureau activity.

      License Fee Revenue

          License fee  revenue  increased to  $3,235,405 for  the three  months
      ended September 30,  1998, compared  to $2,880,284 for  the three  months
      ended September 30, 1997. License fee revenue for the three months  ended
      September  30, 1998,  relating to  the Company's  BETEX product  line was
      $1,146,638  and  $88,767  for  the  UniPort  product  line.  The  Company
      anticipates  generating  future license  fee  revenue for  its  BETEX and
      UniPort  products, although  no assurance  can be  given for  such future
      revenue. 

          The Company recognized  $2,000,000 in license fee revenue  during the
      three months ended September 30, 1998, relating to the sale of a computer
      software program (the "Sale")  developed by the Company to  a third-party
      computer  manufacturer,  including   the  transfer  of  certain   Company
      personnel and development and laboratory equipment.

      Cost of Sales

          Cost of sales decreased to $4,212,762 (48 percent of revenue) for the
      three months ended September 30, 1998, compared to $4,829,309 (43 percent
      of  revenue) for the three months ended September 30, 1997. Additionally,
      the  Company's  gross  margin  decreased  to $4,605,506  (52  percent  of
      revenue)  for  the three  months ended  September  30, 1998,  compared to
      $6,490,894 (57 percent of  revenue) for the three months  ended September
      30, 1997.  The primary reason  for the  decrease in  the Company's  gross
      margin dollar amount is  a decrease in  the Company's total revenue.  The
      decrease  in the Company's gross  margin percentage for  the three months
      ended September 30,  1998, relates  to lower margin  service and  support
      sales versus the same period in 1997. 

      Selling, General and Administrative Expenses
        
          Selling, general and  administrative expenses decreased to $3,810,972
      for the three months ended September 30, 1998, compared to $4,863,487 for
      the  three  months ended  September 30,  1997.  The decrease  in selling,
      general and administrative expenses for the three  months ended September
      30,  1998, is  primarily due  to  the Company's  efforts at  managing and
      controlling  costs  in order  to improve  the  alignment of  cost outlays
      against potential  revenue opportunities.  Specific  cost savings include
      payroll and related costs due to consolidation and elimination of certain
      functions   (i.e.  sales  and  marketing,  product  management,  customer
      service)  and  office  closings,  with related  headcount  reductions  of
      approximately  58 individuals during 1998.  The Company also improved its
      controls  and accountability  for  the use  of  third party  professional
      vendors  (legal,  public  relations, management  consultants,  etc.)  and
      independent contractors.<PAGE>


      Research, Engineering and Development
       
          Research,  engineering and  development  expenses d68  for  the three
      months ended September  30, 1997. The  decrease in research,  engineering
      and  development   expenses  primarily   relates  to  the   reduction  in
      development  work  associated  with   the  Company's  BETEX  and  UniPort
      products. However, resources will continue to be directed toward  product
      improvements  and  enhancements  for  future purchased  releases  of  the
      Company's products.  Additionally, the Company will  continue to evaluate
      its  different  product lines  to maximize  the  impact of  the research,
      engineering and development expenditures.

          The Company believes it operates in a highly competitive market; and,
      in  order to  maintain  a competitive  position,  the Company's  existing
      products must be continually improved and new products must be developed.
      The amount and  timing of future  research, engineering, and  development
      expenditures will depend upon,  among other factors, future new  contract
      revenue  and  the  Company's ability  to  fund  these  costs from  future
      operating cash flow and bank or other forms of financing.

      Depreciation and Amortization

          Depreciation and amortization was $777,219 for the three months ended
      September 30, 1998,  compared to  $1,699,246 for the  three months  ended
      September  30,  1997.  The  decrease  is  primarily  due  to amortization
      expenses  incurred during  the  three months  ended  September 30,  1997,
      relating  to  intangible  assets  acquired with  The  Renaissance  Group,
      Vicorp,  and BFD  acquisitions that  were written  off during  the fourth
      quarter of 1997 and,  therefore, created no amortization during  the 1998
      period.

      Income Tax Expense

          The  Company uses  the  asset  and liability  method to  account  for
      deferred  income taxes.  Under the  asset and liability  method, deferred
      income  taxes  are recognized  for  the  tax consequences  of  "temporary
      differences" by applying enacted statutory tax rates applicable to future
      years to differences between the financial statement carrying amounts and
      the tax basis of existing  assets and liabi the period that  includes the
      enactment date.
        
      Interest Income (Expense)

          For the three months ended September 30, 1998, net interest (expense)
      income was ($114,912) compared to $53,102 during the same period in 1997.
      The increase in net interest expense is primarily due to  the decrease in
      the  Company's interest  bearing  cash and  cash equivalent  amounts, the
      issuance of promissory  notes of  $6,000,000 on September  30, 1997  that
      bear interest  at 8  percent, and  the  issuance of  notes of  $3,000,000
      during 1998 that bear interest at 9.5 percent.<PAGE>


      Nine Months Ended September 30, 1998, Compared
      to Nine Months Ended September 30, 1997

      Total Revenues

          Effective January 1, 1998, the Company adopted the American Institute
      of Certified  Public Accountants ("AICPA") Statement  of Position ("SOP")
      97-2, "Software Revenue Recognition." Adoption of SOP 97-2 did not have a
      material impact on the  financial condition or the results  of operations
      of the Company.

          Total revenues  decreased to  $24,920,576 for the  nine months  ended
      September 30, 1998,  compared to  $33,462,000 for the  nine months  ended
      September  30, 1997.  The  various components  of  revenue fluctuated  as
      explained below.

      Contract Revenue

          Contract   revenue,   consisting   primarily   of  telecommunications
      equipment hardware  sales, decreased to  $3,324,227 for  the nine  months
      ended September 30, 1998,  compared to $8,191,554 during the  same period
      in 1997.  The decrease in contract  revenue during the  nine months ended
      September 30, 1998 versus  1997 is primarily due to certain BETEX product
      sales  by Vicorp  completed during  the nine  months ended  September 30,
      1997, which did not recur  during the same period in 1998.  Additionally,
      certain ESP  product sales to  MCI were completed  in 1997 which  did not
      recur during the same period in 1998.

      Service and Support

          Service  and   support  revenue,  consisting   primarily  of   custom
      development services, maintenance services,  and service bureau services,
      decreased  to $15,797,654 for the  nine months ended  September 30, 1998,
      compared to $17,655,180 for the nine months ended September 30, 1997.

          Service and support  provided to MCI decreased to $1,157,938  for the
      nine months ended September 30, 1998, compared to $1,519,207 for the nine
      months  ended September 30, 1997. Maintenance  revenue generated from MCI
      regarding its ESP equipment  decreased to $1,152,075 for the  nine months
      ended September 30,  1998, compared to $1,375,362 for the  same period in
      1997.  In addition, the Company's service and support revenue relating to
      its software development services provided to MCI decreased to $5,863 for
      the nine  months ended  September 30, 1998,  from $143,845  for the  same
      period in 1997.

          Service  and  support revenue  for  Vicorp  BETEX products  decreased
      toport revenue  includes  maintenance  and  custom  development  services
      provided to its customers.<PAGE>


          Service and support  revenue for BFD increased to $2,824,316  for the
      nine months ended September 30, 1998, compared to $2,675,461 for the nine
      months  ended  September 30,  1997.  BFD's  service  and support  revenue
      primarily includes interactive voice response service bureau activity.

      License Fee Revenue

          License fee revenue decreased to $5,798,695 for the nine months ended
      September  30, 1998,  compared to  $7,615,266 for  the nine  months ended
      September  30,  1997.  License fee  revenue  for  the  nine months  ended
      September 30, 1998, relating to its BETEX product line was $3,404,853 and
      $2,393,842  for  the  UniPort   product  line.  The  Company  anticipates
      generating future license fee revenue for its BETEX and UniPort products,
      although no assurance can be given for such future revenue.

          The  Company recognized $2,000,000 in license  fee revenue during the
      three months ended September 30, 1998, relating to the sale of a computer
      software program (the "Sale")  developed by the Company to  a third-party
      computer  manufacturer,  including   the  transfer  of   certain  Company
      personnel and development and laboratory equipment.

      Cost of Sales

          Cost  of sales decreased  to $13,015,159 (52 percent  of revenue) for
      the nine months  ended September  30, 1998, compared  to $14,336,846  (43
      percent  of  revenue)  for the  nine  months  ended  September 30,  1997.
      Additionally,  the Company's  gross margin  decreased to  $11,905,417 (48
      percent  of  revenue)  for the  nine  months  ended  September 30,  1998,
      compared to $19,125,154 (57 percent of revenue) for the nine months ended
      September 30, 1997. The primary reason for  the decrease in the Company's
      gross margin dollar amount is a decrease in the  Company's total revenue.
      The  decrease  in the  Company's  gross  margin percentage  is  primarily
      associated  with a  change  in  product mix.  A  greater portion  of  the
      Company's revenue for the  nine months ended September 30,  1998, related
      to lower margin service and support sales versus the same period in 1997.

      Selling, General and Administrative Expenses

          Selling, general and administrative expenses decreased to $15,604,709
      for the nine months ended September 30, 1998, compared to $16,008,265 for
      the  nine months  ended  September 30,  1997.  The decrease  in  selling,
      general and administrative expenses for  the nine months ended  September
      30,  1998, is  primarily due  to  the Company's  efforts at  managing and
      controlling  costs  in order  to improve  the  alignment of  cost outlays
      against potential  revenue opportunities. Specific  cost savings  include
      payroll and related costs due to consolidation and elimination of certain
      functions   (i.e.  sales  and  marketing,  product  management,  customer
      service)  and  office  closings,  with related  headcount  reductions  of
      approximately  58 individuals during 1998.  The Company also improved its
      controls  and accountability  for  the use  of  third party  professional
      vendors  (legal,  public  relations, management  consultants,  etc.)  and
      independent contractors. Offsetting these  cost saf 1998 of approximately
      $2,500,000  relating  to the  office  closings  and associated  headcount
      reductions.<PAGE>


      Research, Engineering and Development

          Research,   engineering  and   development  expenses   decreased   to
      $2,815,430  for the  nine months  ended September  30, 1998,  compared to
      $3,547,634  for the nine months ended September 30, 1997. The decrease in
      research, engineering  and development expenses primarily  relates to the
      reduction  in development  work associated with  the Company's  BETEX and
      UniPort products.  However, resources will continue to be directed toward
      product improvements  and enhancements  for future purchased  releases of
      the  Company's  products.  Additionally,  the Company  will  continue  to
      evaluate  its different  product  lines to  maximize  the impact  of  the
      research, engineering and development expenditures.
        
          The Company believes it operates in a highly competitive market; and,
      in order  to  maintain a  competitive  position, the  Company's  existing
      products must be continually improved and new products must be developed.
      The amount  and timing of  future research, engineering,  and development
      expenditures will depend  upon, among other factors,  future new contract
      revenue  and  the  Company's ability  to  fund  these  costs from  future
      operating cash flow and bank or other forms of financing.
        
      Depreciation and Amortization

          Depreciation  and amortization  was  $2,455,427 for  the  nine months
      ended  September 30,  1998, compared  to $5,164,107  for the  nine months
      ended September 30, 1997.  The decrease is primarily due  to amortization
      expenses  incurred  during the  nine  months  ended September  30,  1997,
      relating to intangible assets acquired with The Renaissance Group, Vicorp
      and BFD acquisitions  that were written off during the  fourth quarter of
      1997 and, therefore, created no amortization during the 1998 period.
        
      Income Tax Expense

          The  Company uses  the  asset  and liability  method to  account  for
      deferred income  tmporary differences" by applying  enacted statutory tax
      rates applicable  to future  years to  differences between  the financial
      statement  carrying  amounts and  the tax  basis  of existing  assets and
      liabilities. The  effect on deferred  taxes of a  change in tax  rates is
      recognized in income in the period that includes the enactment date.
        
      Interest Income (Expense)

          For the nine months ended September 30, 1998, net interest  (expense)
      income was ($608,941) compared to $20,891 during the same period in 1997.
      The increase  in net interest expense is primarily due to the decrease in
      the Company's interest-bearing cash  and cash equivalent amounts  and the
      issuance  of promissory notes of  $6,000,000 on September  30, 1997, that
      bear interest at  8 percent and  notes of $3,000,000  issued during  1998
      that bear interest at 9.5 percent.<PAGE>


      Litigation

          Reference is made to the legal proceedings  described at Part 1, Item
      3, in the Company's December 31, 1997, Form 10-K. The  Company is subject
      to  certain legal actions arising in the normal course of business. After
      taking  into consideration  legal counsel's  evaluation of  such actions,
      management is  of the opinion that  their final resolution will  not have
      any  significant adverse  effect  upon  the  Company's  business  or  its
      consolidated financial statements.

      Financial Position, Liquidity, and Capital Resources

          At September 30, 1998, the Company had working capital deficiency  of
      $10,521,716 compared to net working capital of $3,591,655 at December 31,
      1997. The  decrease  in net  working  capital is  due  in part  to  notes
      maturing  in  January  1999  issued  to  the  Company's  shareholders  in
      September 1997. The Company expects that in 1998, as in 1997, the Company
      will  require  additional  external  sources   of  capital  to  fund  its
      operations,  including  working capital  needs.   The Company's  Board of
      Directors  formed  a  special  committee  for  the  purpose of  analyzing
      additional  external  sources of  capital that  may  be available  to the
      Company and  that can be accessed  during 1998.  The  Company has already
      taken steps regarding the improvement of its cash flow and cash position,
      including:

          * Retained an  investment banking firm to  assist in  the development
            and  evaluation   of   future  strategic   initiatives,   including
            potential financing opportunities;

          * Analyzing opportunities to sell certain  non-core assets, including
            real estate; and

          * Implemented a restructuring plan to reduce operating expenses.

          In  April 1998, Precision  Systems, Inc. announced that  its Board of
      Directors approved  and the Company  entered into a  definitive agreement
      (the "Agreement") with various privately held  entities controlled by Roy
      M. Speer  to  acquire  a  controlling  interest  in  the  Company.    The
      transaction is valued  at approximately  $100 million and  is subject  to
      shareholder  and certain  antitrust  and regulatory  approvals and  other
      customary conditions.

          Under terms of  the Agreement, which was initially proposed  on March
      6,  1998,  the  Speer  entities  (Speer  Communication  Holdings  Limited
      Partnership, Speer  WorldWide Digital Transmission  and Vaulting  Limited
      Partnership,  Speer   Virtual  Media   Limited  Partnership,   and  Speer
      Productions Limited  Partnership) will  contribute  to Precision  Systems
      $15,000,000 in cash and their digital storage, audiovisual production and
      telecommunications  assets and  businesses in  Nashville,  Tennessee, and
      Washington,  D.C., in  exchange for  approximately 105,000,000  shares of
      Precision  Systems'  common  stock  (the  "Property  Contribution").  The
      Agreement  permits  Speer,  in  its  sole  discretion,  to  consummate an
      alternative  transaction in  lieu of  the Property  Contribution, whereby
      Speer may  elect to transfer all  of the assets and  liabilities of Speer
      Virtual Media Limited Partnership,  plus $36,000,000 in cash  in exchange
      for   41,000,000  shares  of  Common  Stock   of  the  Company(the  "Cash
      Contribution").<PAGE>


          The Agreement further contemplates that  all debt and preferred stock
      of the  Company held  by its  major stockholders  will be  converted into
      common stock  at the rate of $1.00 per share.  The agreement provides for
      a $5,000,000 line of credit to be made available by Speer upon signing of
      the  Agreement for  operating capital  requirements. As  of November  13,
      1998, the Company's  outstanding balance owed on  the line of  credit was
      $3,750,000.   After  the  transaction, Mr.  Speer  will control  over  80
      percent  of  the  outstanding stock  of  Precision  Systems.   Mr.  Speer
      currently  controls RMS  Limited Partnership,  an entity  that is  one of
      Precision Systems' major  stockholders.   RMS L.P.  will also  contribute
      certain real estate  in Nashville as part of the  transaction. Due to the
      "change in control"  nature of the Agreement, the  Company's shareholders
      will  vote,  among  other  matters,  by  proxy  statement  regarding  the
      Agreement.  As of  November  13, 1998,  the  Company's preliminary  proxy
      statement has been filed with the Securities and Exchange Commission (the
      "SEC") and is in the  final stages of review. Once SEC approval  has been
      obtained,   the  Company  will  mail  out  the  proxy  statement  to  its
      shareholders.

          The  Company's  accounts   and  contracts  receivable   decreased  to
      $7,566,107 as of  September 30, 1998, from $9,657,355  as of December 31,
      1997.  The decrease is primarily due to collection of certain receivables
      outstanding at  December 31,  1997, as  well as  an overall reduction  in
      revenue during the nine months ended September 30, 1998.

          The  Company's  supplies  and   other  current  assets  increased  to
      $2,791,603 as of September  30, 1998, from $1,980,451 as  of December 31,
      1997. The increase  is primarily due to  an increase in  certain deferred
      acquisition related costs relating to the pending Agreement with Speer.

          The Company's costs and earnings in excess of billings on uncompleted
      contracts decreasedciated  with the  completion of certain  BETEX product
      delivery contracts that were  in process for its customers.  Such amounts
      as  of September 30, 1998,  are expected to be fully  billed by March 31,
      1999.

          The  Company's  current  portion   of  long-term  debt  increased  to
      $9,115,309 as  of September 30,  1998, from $294,375  as of December  31,
      1997.  The Company's long-term debt decreased to $221,488 as of September
      30, 1998,  from $6,240,184 as of  December 31, 1997. The  increase in the
      current portion of long-term  debt and the decrease in long-term  debt is
      due to a reclassification  of $6,000,000 in promissory notes  maturing in
      January 1999 and to  the Company's borrowing of an  additional $3,000,000
      during 1998. If the Agreement with Speer is approved by the shareholders,
      the $6,000,000 of  debt and  related accrued interest  will be  converted
      into common stock at a rate  of $1 per share. In addition,  the repayment
      of the $3,000,000 loan from Speer may be forgiven, and the amount of cash
      required to be delivered  by Speer on the closing date  may be reduced by
      an amount equal to the principal and unpaid interest on the loan.<PAGE>


          The  Company's  accounts  payable   decreased  to  $4,757,192  as  of
      September 30, 1998, from $5,505,996 as of December 31, 1997. The decrease
      is primarily due to the timing of certain vendor payments.
        
          The  Company's  accrued  expenses   increased  to  $8,453,882  as  of
      September 30, 1998, from $6,110,800 as of December 31, 1997. The increase
      is  primarily  due  to  accrued restructuring  charges  of  approximately
      $2,011,000 as of  September 1998 and an  increase in accrued interest  on
      shareholder notes. The  accrued restructuring charges are  expected to be
      approximately $750,000 by December 31, 1998.

          The Company's billings in excess of costs and earnings on uncompleted
      contracts  decreased  to  $2,124,590  as  of  September  30,  1998,  from
      $2,780,251  as of December 31, 1997. The decrease is primarily associated
      with  the completion of  certain BETEX software  development contracts in
      process for its customers.

          The Company's deferred revenue  balance decreased to $1,050,367 as of
      September  30, 1998,  from  $1,270,825  as  of  December  31,  1997.  The
      Company's   deferred  revenue   balance   primarily  represents   prepaid
      maintenance contracts for services to be provided to its customers. 

          The  Company incurred  approximately $1,363,000  in  expenditures for
      capital  assets during the nine  months ended September  30, 1998. Future
      levels of carms  of financing which  may or may not  be available to  the
      Company upon acceptable terms and conditions. 

      Readiness for Year 2000

          The Company  is in the process  of developing a plan  to identify and
      resolve  all of its issues relating  to the "Year 2000" problems relating
      to its business. The Year 2000 problem is the result of computer programs
      being  written  using  two  digits  (rather  than  four)  to  define  the
      applicable year. Software programs  that have time-sensitive software may
      recognize a date using  "00" as the year 1900 rather  than the year 2000.
      This  could result  in a  major system  failure or  miscalculations. This
      issue affects the Company's internal information systems and could impact
      software systems  sold and delivered  to customers.  Various task  forces
      have been formed to assess the scope of the Company's risks in this  area
      and  bring  applications  into  compliance.  To  date,  the  Company  has
      experienced very few  problems relating  to Year 2000  testing and  those
      identified  have  been  fixed   in  the  Company's  day-to-day  operating
      environment. The Company has also started coordinating with vendors about
      their progress in identifying and addressing problems that their computer
      systems may face in correctly processing date information relating to the
      Year 2000.  The Company intends  to continue  its efforts to  monitor the
      Year  2000 compliance of  vendors. In the event  any third parties cannot
      timely  provide the  Company  with  products  that  meet  the  Year  2000
      requirements,  then the  Company's abilities  to offer  its  products and
      services could be materially adversely affected. The cost incurred by the
      Company  during  1998  to address  Year  2000  compliance  was less  than
      approximately  $500,000. The  Company estimates it  will incur  less than
      approximately $500,000 in direct costs during 1999 to support its<PAGE>


      compliance initiatives. Although  the Company expects  its systems to  be
      Year 2000 compliant on or before December 31, 1999, it cannot predict the
      outcome  or the success  of its Year  2000 programs, or  that third party
      systems are or will be Year 2000 compliant, or that the costs required to
      address the  Year 2000 issue will  not exceed its estimates,  or that the
      impact of a failure to achieve substantial Year 2000 compliance, will not
      have  a material  adverse effect on  the Company's  businesses, financial
      conditions, or results of operations. In addition, the Company's business
      may be materially  adversely affected  in the event  that its  customers'
      systems  are  not  Year  2000  compliant  to  the  extent  that  such (i)
      customers' systems  are not compatible  with those  products or  services
      offered by the Company  or (ii) customers delay  purchase of products  or
      services from the  Company while  such customers' systems  are made  Year
      2000 compliant. The Company has not adopted a contingency plan to address
      possible risks to its systems.

      Other Matters

          During the  three months  ended September  30,  1998, Willem  Huisman
      resigned  as Chairman of the Board, President and Chief Executive Officer
      and  Gregory L.  Baltzer resigned  as Chief  Opernneth M.  Clinebell, the
      Company's  Chief  Financial  Officer,  was  appointed  by  the  Board  of
      Directors as interim President and interim Chief Executive Officer.
        
      Forward-looking Information

          The foregoing discussion in  "Management's Discussion and Analysis of
      Financial Condition and Results  of Operations" contains  forward-looking
      statements that reflect management's current views with respect to future
      events and the financial  performance and condition of the  Company. Such
      statements  involve  risks  and  uncertainties,  and  there  are  certain
      important factors  that could cause  actual results to  differ materially
      from  those anticipated. Some of  the important factors  that could cause
      actual results to differ materially from those anticipated include:

          * The   Company  competes   in  an   industry   marked  by   frequent
            technological changes which will force the Company  to expend funds
            to develop new products and implement new technologies

          * The various markets into which  the Company sells its  products are
            undergoing significant changes with increasing demands  for product
            innovations

          * The  Company   must  be  successful   in  competing  against   many
            competitors, many of  which have significantly greater  assets than
            the Company

          * The Company  will be  required  to  properly estimate  costs  under
            fixed price contracts

          * Increased risk  of litigation in  the Company's industry  resulting
            from aggressive prosecutions of intellectual property claims<PAGE>


          * The Company's  ability to  retain its  larger customers,  including
            MCI

          * Availability of certain hardware and software  components which are
            incorporated with the  Company's products and are purchased  from a
            limited number of vendors

          * The Company's ability to hire and retain qualified personnel

          * Legislative  changes affecting the Company's markets, including the
            Telecommunications Act of 1996

          * Given the Company's  acquisition of Vicorp and  its large  presence
            in  international markets,  regulatory,  monetary and  inflationary
            factors  can negatively  impact  the  Company's operations  in  the
            future.

          * The  Company's reliance  on large  sales orders  that increase  the
            risk of significant  revenue fluctuations, from quarter  to quarter
            and year to year.

          * The Company's ability to generate sufficient  cash, from operations
            or from external sources, to fund its global operations.

          Many  of such  uncertainties are  outside the  Company's control  and
      could postpone,  delay, or  eliminate potential sales  opportunities and,
      therefore, affect the Company's operations. Due to such uncertainties and
      risk, readers are  cautioned not to place undue reliance on such forward-
      looking statements, which speak only as of the date hereof.
       <PAGE>


                             PART II   OTHER INFORMATION


      Item 1 - Legal Proceedings

          Reference is  made to the legal proceedings described at Part 1, Item
      3, in the Company's December 31, 1997, Form 10-K. The  Company is subject
      to certain legal actions arising in the  normal course of business. After
      taking  into consideration  legal counsel's  evaluation of  such actions,
      management is of the  opinion that their  final resolution will not  have
      any  significant  adverse  effect  upon  the  Company's  business or  its
      consolidated financial statements.

      Item 2 - Changes In Securities

          None

      Item 3 - Defaults Upon Senior Securities

          None

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

          None

      Item 5 - Other Information

          None

      Item 6 - Exhibits and Reports on Form 8-K

          (a)  Exhibits

               Exhibit 27 - Financial Data Schedule (for SEC use only)<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.


                                    PRECISION SYSTEMS, INC.


                                    By:  /S/ KENNETH M. CLINEBELL              
                                         ---------------------------
                                         Kenneth M. Clinebell
                                         President and Chief Financial Officer

      November 13, 1998

          Pursuant  to the requirements  of the Securities and  Exchange Act of
      1934,  this  report has  been signed  below by  the following  persons on
      behalf of the registrant and in the capacities indicated  on November 13,
      1998.


                  Signature                             Title
        -----------------------------  --------------------------------------

       
          /s/ KENNETH M. CLINEBELL     President and Chief Financial Officer
        -----------------------------  (Principal Financial Officer)
            Kenneth M. Clinebell

       

            /s/ CARLA K. NEWSOME       Controller
        -----------------------------  (Principal Accounting Officer)
              Carla K. Newsome<PAGE>