<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                               Amendment No. 1 to
                                   FORM 10-K/A

[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities and
     Exchange Act of 1934
     For the fiscal year ended June 30, 2002

     OR

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities and
     Exchange Act of 1934
     For the transition period from ________ to _______

                        Commission file number 0-24242

                         PRODUCTIVITY TECHNOLOGIES CORP.
                         -------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                            13-3764753
            --------                                            ----------
(State or Other Jurisdiction of                              (I.R.S. Employer
 Incorporation or Organization)                             Identification No.)

           201 South Main Street, 8th Floor, Ann Arbor, Michigan 48104
           -----------------------------------------------------------
                    (Address of Principal Offices)(Zip Code)

        Registrant's Telephone Number, Including Area Code (734) 996-1700
                                                           --------------

    Securities registered pursuant to Section 12(b) of the Exchange Act: None
      Securities registered pursuant to Section 12(g) of the Exchange Act:

                     Common Stock, par value $.001 per share
                     ---------------------------------------
                                (Title of class)

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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

State the approximate aggregate market value of the voting stock held by
nonaffiliates of the registrant at October 3, 2002: $247,500

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

        Class                                Outstanding at September 30, 2002
   ----------------                          ---------------------------------
Common stock, $.001 par value                           2,475,000 shares

Documents Incorporated by Reference: Not applicable

<PAGE>

                                     PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Financial Statements and Schedules are as listed on pages F-1 and
F-32.

In July 2001, the Company dismissed BDO Seidman as its auditors. The Company was
unable at that time to reach an agreement with BDO Seidman as to appropriate
compensation for BDO Seidman to re-certify its audit report dated September 12,
2000, except for Note 5, which is as of October 13, 2000. Management considered
the $40,000 fee proposed to be charged by BDO Seidman to perform a "keep
current" review of the Company and re-certify its audit report to be excessive.
In the experience of advisers to the Company, an auditor would typically charge
a fee less than $10,000 for such procedures. However, BDO Seidman refused to
reduce its fee to a level management considered to be acceptable. Accordingly,
BDO Seidman was not engaged to re-certify its report.

The Company had sought to comply with the requirements of providing audited
financial and cash flow statements for the year ended June 30, 2000 by
incorporating by reference the financial statements and the signed report of BDO
Seidman dated September 12, 2000, except for Note 5 which is as of October 13,
2000, which were included in the Company's annual report on Form 10-K for the
year ended June 30, 2000. However, the staff of the Securities and Exchange
Commission has advised the Company that it will not accept this method of
presenting the financial information for such period. Accordingly, the Company
has amended its 10-K to present in this Item 8 the Company's results for the
year ended June 30, 2000 as unaudited.

The presentation of unaudited results is considered to be deficient under the
rules of the Securities and Exchange Commission. The Company intends to rectify
this deficiency by having its current auditor, Doeren Mayhew, perform a new
audit for the year ended June 30, 2000 in a timely manner. Upon completion of
this audit, the Company intends to further amend its 10-K to include such
audited results therein.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      1.  Audited Financial Statements as of and for the years ended June 30,
             2002 and 2001 as listed on page F-1.
         2.  Unaudited Financial Statements for the year ended June 30, 2000 and
             accompanying Financial Statement Schedule as listed on page F-32.
         3.  Exhibits as listed on the Exhibit Index.

(b)      Reports on Form 8-K.
         None

                                   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.

November 14, 2002

PRODUCTIVITY TECHNOLOGIES CORP.

/s/ Jesse A. Levine
------------------------
    Jesse A. Levine
    Vice President, Secretary, Treasurer and Chief Financial Officer

                                       2

<PAGE>

                                 CERTIFICATIONS

I, Samuel N. Seidman, the Chairman, Chief Executive Officer and President of
Productivity Technologies Corp., certify that:


1. I have reviewed this amendment to annual report on Form 10-K/A of
Productivity Technologies Corp.;

2. Based on my knowledge, this amendment to annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this amendment to annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report.

Date: November 14, 2002

/s/ Samuel N. Seidman
------------------------
    Samuel N. Seidman
    Chairman, Chief Executive Officer and President

                                       3

<PAGE>

I, Jesse A. Levine, the Vice President, Secretary, Treasurer and Chief Financial
Officer of Productivity Technologies Corp., certify that:

1. I have reviewed this amendment to annual report on Form 10-K/A of
Productivity Technologies Corp.;

2. Based on my knowledge, this amendment to annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this amendment to annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report.

Date: November 14, 2002

/s/ Jesse A. Levine
------------------------
    Jesse A. Levine
    Vice President, Secretary, Treasurer and Chief Financial Officer


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
<S>    <C>
  3.1   Certificate of Incorporation. (1)
  3.2   Amendment to Certificate of Incorporation filed May 28, 1996. (2)
  3.3   By-laws. (1)
  4.1   Form of Common Stock Certificate of the Company. (1)
 10.3   1996 Performance Equity Plan of the Company. (3)
 10.4   Asset Purchase Agreement dated as of February 23, 2000 among WCS Acquisition Corp.,
         Productivity Technologies Corp., Westland Control Systems, Inc. and Thomas G. Lee. (4)
 16.1   Letter regarding change in certifying accountant. (5)
 21.1   List of Subsidiaries. (6)
 99.1   Certification of Chief Executive Officer and Chief Financial Officer as to
         Annual Report on Form 10-K pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (6)
 99.2   Certification of Chief Executive Officer and Chief Financial Officer as to Amendment No. 1 to
         Annual Report on Form 10-K/A pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (7)
 --------------------------
</TABLE>
(1) Filed as an exhibit to Registration Statement on Form S-1, No. 33-78188,
    and incorporated herein by reference.
(2) Filed as an exhibit to Report on Form 8-K filed June 7, 1996 and
    incorporated herein by reference.
(3) Filed as an exhibit to Report on Form 10-K for fiscal year ended March 31,
    1996 and incorporated herein by reference.
(4) Filed as an exhibit to Report on Form 8-K/A dated May 3, 2000 and
    incorporated herein by reference.
(5) Filed as an exhibit to Report on Form 8-K dated July 31, 2001 and
    incorporated herein by reference.
(6) Filed as an exhibit to the original Report on Form 10-K for fiscal year
    ended June 30, 2002 and incorporated herein by reference.
(7) Filed herewith.

                                       4

<PAGE>

                                 C O N T E N T S

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>                                                                                                      <C>
         CONSOLIDATED FINANCIAL STATEMENTS

           Report of independent certified public accountants                                            F-1

           Consolidated balance sheets at June 30, 2002 and 2001                                         F-3

           Consolidated statements of operations for the years ended June 30, 2002 and 2001              F-4

           Consolidated statements of shareholders' equity for the years ended June 30, 2002 and 2001    F-5

           Consolidated statements of cash flows for the years ended June 30, 2002 and 2001              F-6

           Notes to consolidated financial statements                                                    F-7 to F-31
</TABLE>


                                      F-1

<PAGE>

               Report of Independent Certified Public Accountants

To the Board of Directors and Shareholders of
      Productivity Technologies Corp. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Productivity
Technologies Corp. and Subsidiaries (the "Company") as of June 30, 2002 and
2001, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Productivity Technologies Corp. and Subsidiaries as of June 30, 2002 and 2001,
and the consolidated results of their operations and their cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has experienced recurring losses
from operations, has a working capital deficit and is in forbearance with its
financial institution. These factors raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to this matter are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

                                  DOEREN MAYHEW

August 23, 2002, except as to Note 5,
     which is as of October 11, 2002
Troy, Michigan

                                       F-2

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                     ASSETS

                                                                                          June 30,
                                                                                   2002                 2001
                                                                              ------------           ------------
<S>                                                                           <C>                    <C>
Current Assets
   Cash                                                                        $  4,971,837            $    766,052
   Short-term investments, including accrued interest                               149,720                 243,136
   Contract receivables, net of allowance for doubtful
      accounts of $250,198 in 2002 and $340,000 in 2001 (note 3)                  2,898,107               5,533,773
   Costs and estimated earnings in excess of billings on
      uncompleted contracts (note 4)                                              1,773,141               7,172,626
   Inventories                                                                    1,211,249               1,463,559
   Prepaid expenses and other current assets                                        352,542                 356,102
   Deferred income taxes (note 9)                                                   282,000                 287,000
                                                                               ------------            ------------

          Total current assets                                                   11,638,596              15,822,248

Property and Equipment
   Land                                                                             591,514                 591,514
   Buildings and improvements                                                     4,917,459               4,911,665
   Machinery and equipment                                                        4,223,506               4,444,679
   Transportation equipment                                                          21,000                  21,000
                                                                               ------------            ------------

                                                                                  9,753,479               9,968,858
   Less accumulated depreciation                                                  3,042,568               2,738,043
                                                                               ------------            ------------

          Net property and equipment                                              6,710,911               7,230,815

Other Assets
   Goodwill (note 5)                                                              4,926,448               6,521,888
   Patents (note 5)                                                                 451,875                 686,859
   Deferred income taxes (note 9)                                                   468,000               1,051,000
   Other assets                                                                     297,959                 444,512
                                                                               ------------            ------------

          Total other assets                                                      6,144,282               8,704,259
                                                                               ------------            ------------

          Total assets (note 6)                                                $ 24,493,789            $ 31,757,322
                                                                               ============            ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
   Current portion of long-term debt (note 6)                                  $ 12,190,338            $  9,831,899
   Accounts payable                                                               2,193,920               4,973,710
   Accrued expenses
      Commissions payable                                                           189,000                 248,000
      Warranty reserve                                                              315,000                 315,000
      Royalties payable                                                                   -                 265,398
      Payroll and related withholdings                                              370,178                 173,501
      Interest                                                                    1,122,552                 414,535
      Other                                                                         367,148                 251,393
   Billings in excess of costs and estimated earnings
      on uncompleted contracts (note 4)                                             750,970                 251,701
   Current maturities of executive deferred compensation
      agreements (note 12)                                                          974,933                 630,282
                                                                               ------------            ------------

          Total current liabilities                                              18,474,039              17,355,419

Long-Term Debt, Less Current Maturities (note 6)                                  3,800,000               7,710,000

Executive Deferred Compensation Agreements, Less Current
   Maturities (note 12)                                                                   -                 344,651

Shareholders' Equity (notes 7 and 8)
   Common stock; $.001 par value; 20,000,000 shares authorized;
         2,475,000 shares issued and outstanding                                      2,475                   2,475
   Additional paid-in capital                                                     9,966,408               9,966,408
   Deficit                                                                       (7,749,183)             (3,621,681)
                                                                               ------------            ------------

          Total shareholders' equity                                              2,219,700               6,347,202
                                                                               ------------            ------------

          Total liabilities and shareholders' equity                           $ 24,493,739            $ 31,757,272
                                                                               ============            ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                          Year Ended
                                                                           June 30,
                                                                   2002              2001
                                                              --------------    --------------
<S>                                                           <C>               <C>
Revenues Earned                                               $   24,767,655    $   27,992,387

Cost of Revenues Earned                                           18,260,764        22,154,991
                                                              --------------    --------------

Gross Profit                                                       6,506,891         5,837,396

Selling, General and Administrative
  Expenses                                                         6,452,908         8,004,219

Impairment of Intangible Assets (note 5)                           2,087,308                 -
                                                              --------------    --------------

Loss From Operations                                              (2,033,325)       (2,166,823)

Other Income (Expenses)
  Interest expense                                                (1,668,519)       (1,605,164)
  Loss on disposal of equipment                                       (8,629)                -
  Interest income                                                     56,912            53,705
  Miscellaneous income                                                74,387            32,491
                                                              --------------    --------------

           Total other income (expenses)                          (1,545,849)       (1,518,968)
                                                              --------------    --------------

Loss Before Income Taxes (Benefit)                                (3,579,174)       (3,685,791)

Income Taxes (Benefit) (note 9)                                      548,328          (572,000)
                                                              --------------    --------------

Net Loss                                                      $   (4,127,502)   $   (3,113,791)
                                                              ==============    ==============

Basic Loss Per Share (note 1)                                 $        (1.67)   $        (1.26)
                                                              ==============    ==============

Diluted Loss Per Share (note 1)                               $        (1.67)   $        (1.26)
                                                              ==============    ==============
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       F-4

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                   FOR THE YEARS ENDED JUNE 30, 2002 AND 2001

<TABLE>
<CAPTION>
                                      Common                        Additional
                                      Stock           Common         Paid-in
                                      Shares          Stock          Capital         Deficit         Total
                                  --------------   ------------   --------------  ------------    -----------
<S>                               <C>              <C>            <C>              <C>            <C>
Balance - July 1, 2000                 2,475,000   $      2,475   $    9,966,408  $   (507,890)   $ 9,460,993

Net Loss                                       -              -                -    (3,113,791)    (3,113,791)
                                  --------------   ------------   --------------  ------------    -----------

Balance - June 30, 2001                2,475,000          2,475        9,966,408    (3,621,681)     6,347,202

Net Loss                                       -              -                -    (4,127,502)    (4,127,502)
                                  --------------   ------------   --------------  ------------    -----------

Balance - June 30, 2002                2,475,000   $      2,475   $    9,966,408  $ (7,749,183)   $ 2,219,700
                                  ==============   ============   ==============  ============    ===========
</TABLE>

           See accompanying notes to consolidated financial statements

                                       F-5

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             Year Ended
                                                                                               June 30,
                                                                                        2002              2001
                                                                                   --------------    --------------
<S>                                                                                <C>               <C>
Cash Flows From Operating Activities:
    Net loss                                                                       $ (4,127,502)     $ (3,113,791)
        Adjustments to reconcile net loss to net cash provided
            from operating activities:
            Depreciation                                                                619,653           664,849
            Amortization                                                                103,119           387,011
            Loss on disposal of property and equipment                                    8,629                 -
            Provisions for losses on contract receivables                               (89,802)          237,500
            Impairment of intangible assets                                           2,087,308                 -
            Inventory net realizable value reserve                                      (50,000)           50,000
            Deferred income taxes                                                       588,000          (572,000)
            Changes in assets and liabilities:
                Decrease in contract receivables                                      2,725,468         4,159,640
                Decrease in inventories, prepaid expenses,
                  other current assets, and other assets                                407,420           317,369
                Decrease in costs and estimated earnings in excess of
                  billings on uncompleted contracts - net                             5,898,754         2,776,873
                Decrease in accounts payable and accrued expenses                    (2,083,739)         (248,435)
                                                                                   --------------    --------------
                        Total adjustments
                                                                                     10,214,810         7,772,807
                                                                                   --------------    --------------
              Net cash provided from operating activities                             6,087,308         4,659,016

Cash Flows From Investing Activities:
    Purchase of property and equipment                                                 (108,378)         (187,386)
    Purchase of patent                                                                 (315,000)                -
    Proceeds from sale of short-term investments - net                                   93,416            66,949
                                                                                   --------------    --------------
              Net cash used in investing activities                                    (329,962)         (120,437)

Cash Flows From Financing Activities:
    Net payments on revolving credit agreement                                         (677,662)       (3,880,148)
    Payments on long-term debt                                                         (873,899)         (431,004)
                                                                                   --------------    --------------
              Net cash used in financing activities                                  (1,551,561)       (4,311,152)
                                                                                   --------------    --------------

Net Increase in Cash                                                                  4,205,785           227,427

Cash - Beginning                                                                        766,052           538,575
                                                                                   --------------    --------------
Cash - Ending                                                                      $  4,971,837      $    766,002
                                                                                   ==============    ==============

<CAPTION>
                         Supplemental Disclosure of Cash Flow Information
                         ------------------------------------------------
<S>                                                                                <C>               <C>
Cash paid during the year for interest                                             $    960,502      $  1,624,558
                                                                                   ==============    ==============

Cash paid during the year for income taxes                                         $          -      $          -
                                                                                   ==============    ==============
</TABLE>

          See accompanying notes to consolidated financial statements

                                       F-6

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 1 - Nature of Business and Significant Accounting Policies

         Nature of Business

         The Company is a manufacturer of automated industrial systems,
         machinery, equipment, custom electrical control panels and engineering
         services. It operates with three manufacturing plants, sales and
         engineering offices. Two of the manufacturing plants are located in
         Fenton, Michigan and the third plant is located in Westland, Michigan.

         Sales of products have principally been to automobile and automotive
         parts manufacturers and appliance manufacturers. Other customers
         include manufacturers of garden and lawn equipment, office furniture,
         heating, ventilation and air conditioning equipment and aircraft. Sales
         to automotive-related customers have accounted for the majority of
         total annual sales. Sales are predominantly in the United States but,
         in recent years, the Company has targeted sales efforts in Canada,
         Mexico, Europe and Asia. Export sales during the year ended June 30,
         2002 and 2001, amounted to approximately 23% and 24%, of annual sales.

         The Company operates in one segment. This is based on the fact that the
         Company's chief operating decision maker, the Company's chief executive
         officer, regularly reviews operating results, assesses performance and
         makes decisions about resources at the parent company level.

         Estimates

         The preparation of the consolidated financial statements in conformity
         with accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that
         affect the reported amounts of assets and liabilities and the
         disclosure of contingent assets and liabilities at the date of the
         consolidated financial statements and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from those estimates. Such management estimates include an allowance
         for doubtful accounts receivable, recognition of profit under long-term
         contracts, valuation allowances against deferred income taxes,
         estimates related to recovery of long lived assets and accruals of
         product warranty and other liabilities.

                                       F-7

<PAGE>


                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 1 - Nature of Business and Significant Accounting Policies - Continued

         Principles of Consolidation

         The accompanying consolidated financial statements include the accounts
         of PTC and its wholly-owned subsidiaries, Atlas and Westland
         (collectively, "the Company"). All significant intercompany balances
         and transactions have been eliminated upon consolidation.

         Cash Equivalents and Short-term Investments

         Cash equivalents are money market investments. Short-term investments,
         representing U.S. Treasury Bills with maturities of twelve months or
         less, are carried at cost, which approximates market value.

         Concentrations of Credit Risk

         Financial instruments, which potentially subject the Company to
         concentrations of credit risk, consist principally of cash, cash
         equivalents, short-term investments and contract receivables. While a
         significant portion of the Company's accounts receivable is
         concentrated with a few customers as shown below, the Company attempts
         to minimize its credit risk by reviewing all customers' credit
         histories before extending credit and by monitoring customers' credit
         exposure on a continuing basis. The Company establishes an allowance
         for possible losses on contract receivables, if necessary, based upon
         factors surrounding the credit risk of specific customers, historical
         trends and other information. The Company's inability to collect on its
         contract receivables could have a material adverse effect on the
         Company's operations.

         The following individual customers accounted for 10% or more of total
         revenue for the fiscal years ended:

                                                      June 30,
                                               2002              2001
                                         ----------------  ---------------

         Ford Motor Company                     22%               24%
         Dana Corporation                       16%                -
         The Trane Company                       4%               23%

                                       F-8

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 1 - Nature of Business and Significant Accounting Policies - Continued

         Concentrations of Credit Risk - Continued

         The following individual customers accounted for 10% or more of total
         accounts receivable for the fiscal years ended:

                                                            June 30,
                                                       2002         2001

                                                    ----------   ----------
           Ford Motor Company                           35%          36%
           Dana Corporation                             17%           -
           BMW Manufacturing Ltd.                        5%          17%
           The Trane Company                             -           23%

         Fair Values of Financial Instruments

         The carrying amounts of the Company's cash, short-term investments,
         contract receivables, accounts payable and accrued expenses approximate
         fair value because of the short-term maturity of these items. The
         carrying amounts of the revolving credit agreement and long-term debt
         pursuant to the Company's bank credit agreements approximate fair value
         because the interest rates on the majority of the loans outstanding
         change with market rates.

         Revenue and Cost Recognition

         Atlas Technologies, Inc.

         Revenues earned consist primarily of contract revenues from fixed price
         contracts, and the related contract costs, are recognized using the
         percentage-of-completion method, measured by the percentage of contract
         costs incurred to date to total estimated costs for each contract. The
         Company estimates the status of individual contracts when progress
         reaches a point where experience is sufficient to estimate final
         results with reasonable accuracy.

         Contract costs include all direct material and labor costs and those
         indirect costs related to contract performance, such as indirect labor,
         supplies, repairs and depreciation costs. Provisions for estimated
         losses on uncompleted contracts are made in the period in which such
         losses are determined.

                                       F-9

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001

Note 1 - Nature of Business and Significant Accounting Policies - Continued

         Revenue and Cost Recognition - Continued

         Changes in job performance, job conditions, estimated profitability,
         and final contract settlement may result in revisions to costs and
         income, and are recognized in the period the revisions are determined.

         The amount of earnings, which the Company will ultimately realize,
         would differ in the near term from the amounts estimated in the
         accompanying consolidated financial statements if total actual costs
         upon completion of a contract are either higher or lower than the
         amount estimated.

         Westland Control Systems, Inc.

         Revenues are recognized upon product shipment.

         Inventories

         Inventories are stated at the lower of cost (first-in, first-out) or
         market and primarily include raw materials and spare parts.

         Property and Equipment

         Property and equipment are stated at cost. Depreciation is computed on
         the straight-line and accelerated methods, generally using the
         following estimated useful lives:

           Building and improvements                           20 - 40 years
           Machinery and equipment                              3 - 10 years
           Transportation equipment                             2 - 5 years

         Goodwill and Intangible Assets

         The Company evaluates the recoverability of goodwill on an annual basis
         or in certain circumstances as required under Statement of Financial
         Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible
         Assets".

                                      F-10

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 1 - Nature of Business and Significant Accounting Policies - Continued

         Goodwill and Intangible Assets - Continued

         Intangible assets are evaluated whenever events or changes in
         circumstances indicate that the carrying value of the asset may be
         impaired. An impairment loss is recognized when the fair value or the
         estimated future cash flows expected to result from the use of the
         asset, including disposition, is less than the carrying value of the
         asset.

         The patents are amortized over their estimated useful lives of six to
         seventeen years using the straight-line method.

         Warranty

         The Company warrants under certain circumstances that its products meet
         certain agreed-upon manufacturing and material specifications. The
         Company records a warranty liability based on anticipated future
         claims.

         Health Insurance

         The Company was self-insured for certain losses relating to employee
         medical benefits. The Company discontinued its self-insured plan for
         the majority of health benefits during the year ended June 30, 2001 and
         now uses a third party insurer. The Company continues to be
         self-insured for vision and dental insurance.

         Income Taxes

         The Company follows the asset and liability method of accounting for
         income taxes specified by Statement of Financial Accounting Standards
         (SFAS) No. 109, "Accounting for Income Taxes". Under the asset and
         liability method of accounting for income taxes, deferred tax assets
         and liabilities are recognized based on the estimated future tax
         consequences attributable to differences between the consolidated
         financial statement carrying amounts of existing assets and liabilities
         and their respective tax bases and operating loss and tax credit carry
         forwards. Items giving rise to deferred taxes include depreciation
         expense, goodwill impairment, and deferred executive compensation.
         Deferred tax assets and liabilities are measured using enacted tax
         rates in effect for the year in which those temporary differences are
         expected to be recovered or settled. The effect on deferred tax assets
         and liabilities of a change in tax rates is recognized in the period
         that includes the enactment date.

                                      F-11

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 1 - Nature of Business and Significant Accounting Policies - Continued

         Loss Per Share

         Loss per share reflected in the consolidated statement of operations is
         presented in accordance with SFAS No. 128, "Earnings per Share". The
         following presents the loss per share calculations:

<TABLE>
<CAPTION>
                                                                                              June 30,
                                                                                      2002              2001
                                                                               -----------------  -----------------
            <S>                                                                <C>                <C>
            Numerator for basic and diluted earnings per share
               Net loss                                                        $      (4,127,502) $      (3,113,791)

            Denominator for basic and diluted earnings per share
               Weighted average shares outstanding                                     2,475,000          2,475,000
</TABLE>

         Options to purchase shares of common stock were outstanding (see Notes
         7 and 8), but were not included in the computation of diluted earnings
         per share because there was a net loss in fiscal 2002 and 2001;
         therefore any additional shares would be antidilutive.

         Long-Lived Assets

         Long-lived assets, such as goodwill, patent and property and equipment,
         are evaluated for impairment when events or changes in circumstances
         indicate that the carrying amount of the assets may not be recoverable
         through the estimated undiscounted future cash flows from the use of
         these assets. When any such impairment exists, the related assets will
         be written down to fair value.

         Recent Accounting Pronouncements

         In July 2001, the Financial Accounting Statements Board (FASB) issued
         SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and
         Other Intangible Assets. (See note 5 for additional analysis on SFAS
         142.) SFAS No. 141 requires that all business combinations be accounted
         for under a single method, the purchase method. Use of the
         pooling-of-interests method is no longer permitted, although poolings
         initiated prior to June 30, 2001 are grandfathered. The Company adopted
         the provisions of SFAS No. 141 during the first quarter of fiscal 2002
         without a material impact on the Company's financial position or
         results of operations.

                                      F-12

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 1 - Nature of Business and Significant Accounting Policies - Continued

         Recent Accounting Pronouncements - Continued

         In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
         Retirement Obligations, which addresses financial accounting and
         reporting for obligations associated with the retirement of tangible
         long-lived assets and the associated asset retirement costs. The
         standard applies to legal obligations associated with the retirement of
         long-lived assets that result from the acquisition, construction,
         development and normal use of the asset.

         SFAS No. 143 requires that the fair value of a liability for an asset
         retirement obligation be recognized in the period in which it is
         incurred if a reasonable estimate of fair value can be made. The fair
         value of the liability is added to the carrying amount of the
         associated asset, and this additional carrying amount is depreciated
         over the life of the asset. The liability is accreted at the end of
         each period through charges to operating expense. If the obligation is
         settled for other than the carrying amount of the liability, the
         Company will recognize a gain or loss on settlement. The Company is
         required to adopt the provisions of SFAS No. 143 in the first quarter
         of fiscal year 2004. To accomplish this, the Company must identify all
         legal obligations for asset retirement obligations, if any, and
         determine the fair value of these obligations on the date of adoption.
         The determination of fair value is complex and will require the Company
         to gather market information and develop cash flow models.
         Additionally, the Company will be required to develop processes to
         track and monitor these obligations. The adoption of this statement is
         not expected to have a material impact on the Company's financial
         position or results of operations.

         In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment
         or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121,
         Accounting for the Impairment of Long-Lived Assets and for Long-Lived
         Assets to be Disposed Of, addressing financial accounting and reporting
         for the impairment or disposal of long-lived assets. This statement is
         effective for the fiscal year beginning July 1, 2002. The adoption of
         this statement will not have a significant impact on the Company's
         financial position or results of operations.

                                      F-13

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 1 - Nature of Business and Significant Accounting Policies - Continued

         Recent Accounting Pronouncements - Continued

         In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
         Statements No.'s 4, 44, and 64, Amendment of FASB Statement No. 13, and
         Technical Corrections. Among other things, this statement rescinds FASB
         Statement No. 4, Reporting Gains and Losses from Extinguishment of
         Debt, which required all gains and losses from early extinguishment of
         debt to be aggregated and, if material, classified as an extraordinary
         item, net of the related income tax effect.

         As a result, the criteria in APB Opinion No. 30, Reporting the Results
         of Operations Reporting the Effects of Disposal of a Segment of a
         Business, and Extraordinary, Unusual and Infrequently Occurring Events
         and Transactions, will now be used to classify those gains and losses.
         The statement became effective in the first quarter of fiscal 2003 and
         will effect the transaction noted in Note 15.

         In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
         Associated with Exit or Disposal Activities, which supercedes Emerging
         Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
         Certain Employee Termination Benefits and Other Costs to Exit an
         Activity (including Certain Costs Incurred in a Restructuring). SFAS
         No. 146 addresses financial accounting and reporting for costs
         associated with exit or disposal activities and requires that a
         liability be recognized when it is incurred and should initially be
         measured and recorded at fair value. This statement is effective for
         exit or disposal activities that are initiated after December 31, 2002
         and the adoption will not have an impact on the Company's historical
         financial position or results of operations.

                                      F-14

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 2 - Going Concern

         The Company's consolidated financial statements have been prepared
         assuming the Company will continue as a going concern. The Company has
         suffered recurring losses from operations and is in forbearance with
         its financial institution.

         Cash from operating activities was $6,087,308 for fiscal year 2002
         compared to $4,659,016 in fiscal year 2001. The Company's future
         success will depend heavily on its ability to generate cash from
         operating activities and to meet its obligations as they become due.

         The Company continues to focus on initiatives that specifically
         address the need to increase and maintain cash provided from operating
         activities. Some of these initiatives have included, job cost
         initiatives, staff reductions and general and administrative cost
         controls. If the Company is not sufficiently successful in maintaining
         cash provided from operating activities and restructuring its credit
         arrangements, it may need to sell additional common stock or sell
         assets outside of the ordinary course of business in order to meet its
         obligations. Currently, the Company has initiated discussions with a
         financial institution to provide a replacement facility to repay
         amounts to its existing lender and to provide working capital. There
         is no assurance that the Company will be able to maintain cash flows
         from operations, obtain new institutional lending, sell additional
         common stock, or sell its assets for amounts at or in excess of book
         value.

         The Company's ability to restructure its credit agreements and obtain
         additional cash if and when needed could have a material adverse effect
         on its financial position, results of operations and its ability to
         continue in existence. The consolidated financial statements do not
         include any adjustments that might result from the outcome of this
         uncertainty.

                                      F-15

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 3 - Contract Receivables

         The contract receivables consist of the following:

<TABLE>
<CAPTION>
                                                                                                             June 30,
                                                                                                      2002              2001
                                                                                               -----------------  -----------------
                 <S>                                                                           <C>                <C>
                 Billed
                    Completed contracts                                                         $      1,400,790  $       2,502,770
                    Uncompleted contracts                                                              1,747,515          3,371,003
                                                                                                ----------------  -----------------

                       Total contract receivables                                                      3,148,305          5,873,773

                 Less allowance for doubtful accounts                                                   (250,198)          (340,000)
                                                                                                ----------------  -----------------

                       Total                                                                    $      2,898,107  $       5,533,773
                                                                                                ================  =================


Note 4 - Costs and Estimated Earnings on Uncompleted Contracts

         Costs incurred on uncompleted contracts                                                $     24,633,492  $      28,888,443

         Estimated earnings on uncompleted contracts                                                   9,187,627         10,168,707
                                                                                                ----------------  -----------------

                       Total costs and estimated earnings incurred
                        on uncompleted contracts                                                      33,821,119         39,057,150

         Less billings to date                                                                        32,798,948         32,136,225
                                                                                                ----------------  -----------------

                       Total                                                                    $      1,022,171  $       6,920,925
                                                                                                ================  =================

         Included in the accompanying consolidated balance sheet under the following captions:

                 Costs and estimated earnings in excess of
                    billings on uncompleted contracts                                           $      1,773,141  $       7,172,626

                 Billings in excess of costs and estimated
                    earnings on uncompleted contracts                                                   (750,970)          (251,701)
                                                                                                ----------------  -----------------

                       Total                                                                    $      1,022,171  $       6,920,925
                                                                                                ================  =================
</TABLE>

                                      F-16

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 5 - Goodwill and Other Intangible Assets

         Goodwill

         The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
         on July 1, 2001. As defined by SFAS No. 142, the Company has identified
         two reporting units: 1) Atlas Technologies, Inc. (Atlas) and 2)
         Westland Control Systems, Inc. (Westland), which constitute components
         of the Company's business that include goodwill.

         For the fiscal year ended June 30, 2002, the Company completed the
         transitional and annual impairment tests and for the fourth quarter of
         fiscal 2002, Productivity Technologies Corp. and Subsidiaries recorded
         a charge to earnings of $1,595,440, or $.65 per diluted share, for the
         write-down of goodwill related its Westland reporting unit. The
         impairment charge is included in the caption "Impairment of Intangible
         Assets" in the statement of operations for the year ended June 30,
         2002.

         This writedown resulted from management's consideration of factors
         related to the performance of the Westland reporting unit, including
         lower than projected sales, operating losses and negative cash flows.
         Based on these considerations and others, the Company updated its
         operating and cash flow projections for the Westland business. An
         analysis of the projected discounted future cash flows indicated that
         future recoverability of goodwill related to the Westland operations
         was uncertain. Accordingly, an impairment charge was recorded.

         The changes in the carrying amount of goodwill for fiscal 2002, are as
         follows

<TABLE>
<CAPTION>
                                                      Westland           Atlas            Total
                                                  ----------------  ---------------  ----------------
           <S>                                    <C>               <C>              <C>
           Balance as of June 30, 2001            $      4,273,690  $     2,248,198  $      6,521,888
           Impairment adjustment                        (1,595,440)               -        (1,595,440)
                                                  ----------------  ---------------  ----------------

           Balance as of June 30, 2002            $      2,678,250  $     2,248,198  $      4,926,448
                                                  ================  ===============  ================
</TABLE>

                                      F-17

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001



Note 5 - Goodwill and Other Intangible Assets

         Goodwill - Continued

         Had the provisions of SFAS 142 been applied for the year ended June 30,
         2001, the Company's net loss and net loss per share would have been as
         adjusted follows:

           Net loss, as reported                                   $ (3,113,791)
           Add back goodwill amortization                               342,020
                                                                   ------------

           Adjusted net loss                                       $ (2,771,771)
                                                                   ============


           Net loss per share:
           Basic and diluted net loss per share, as reported       $      (1.26)
           Add back amortization of goodwill                                .14
                                                                   ------------

           Basic and diluted net loss per share, as adjusted       $      (1.12)
                                                                   ============

         Patents and Other Intangible Assets

         Intangible assets excluding goodwill consist of the following:

<TABLE>
<CAPTION>
                                                   June 30, 2002                                June 30, 2001
                                    --------------------------------------------  --------------------------------------------
                                        Gross                          Net           Gross                           Net
                                       Carrying     Accumulated        Book         Carrying     Accumulated         Book
                                        Amount      Amortization       Value         Amount      Amortization        Value
                                    -------------  -------------  --------------  -------------  -------------   -------------
                 <S>                <C>            <C>            <C>             <C>            <C>             <C>

                 Patent - Atlas     $     315,000  $      13,125  $      301,875  $           -  $           -   $           -
                 Patent - Westland        258,132        108,132         150,000        750,000         63,141         686,859
                 Non-compete
                    agreements            348,750        194,542         154,208        348,750        158,792         189,958
                 IRB closing fees         138,785         52,940          85,845        138,785         43,687          95,098
                                    -------------  -------------  --------------  -------------  -------------   -------------

                       Total        $   1,060,667  $     368,739  $      691,928  $   1,237,535  $     265,620   $     971,915
                                    =============  =============  ==============  =============  =============   =============
</TABLE>

                                      F-18

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 5 - Goodwill and Other Intangible Assets

         Patents and Other Intangible Assets - Continued

         At June 30 2002, the Company evaluated its patents and other intangible
         assets for impairment. The Company has determined that the Westland
         patent carrying amount is not recoverable and its carrying amount
         exceeds its fair value. The impairment loss is a result of a lack of
         sales opportunities afforded by the patent and a lack of corresponding
         cash flows generated by the patent. As a result, an impairment loss of
         $491,868 has been recognized in the statement of operations in the
         caption "Impairment of Intangible Assets" for the year ended June 30,
         2002.

         All of the Company's patents and other intangible assets are subject to
         amortization. Amortization expense totaled $103,119 and $387,011,
         respectively for the years ended June 30, 2002 and 2001.

         Estimated future amortization expense is as follows:

                 2003                                             $      105,360
                 2004                                                    105,360
                 2005                                                    105,360
                 2006                                                    105,360
                 2007                                                    105,360

                                      F-19

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 6  -  Notes Payable and Long-Term Debt

<TABLE>
<CAPTION>
                                                                                                       June 30,
                                                                                                2002              2001
                                                                                           -------------     --------------
           <S>                                                                             <C>              <C>
           Revolving credit agreements with a bank. The agreements are in
               forbearance at June 30, 2002. The amount that may be borrowed
               under this agreement was limited to specified percentages of
               contract receivables, work-in process and property and equipment
               of Atlas. The revolving credit agreements provide for outstanding
               borrowings to bear interest at a rate equal the bank's prime rate
               less 1/4% to plus 1%, (the bank's prime rate was 4.75% at June 30,
               2002). Borrowings under this agreement are secured by
               substantially all assets of Atlas                                           $   7,180,338     $    7,858,000

           First mortgage note payable - see item (1) on page F-22                             3,000,000          3,300,000
                                                                                           -------------     --------------

                           Total - this page                                                  10,180,338         11,158,000
</TABLE>

                                      F-20

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 6  -  Notes Payable and Long-Term Debt - Continued

<TABLE>
<CAPTION>
                                                                                                       June 30,
                                                                                               2002               2001
                                                                                           -------------     --------------
           <S>                                                                             <C>               <C>
                       Total - from previous page                                          $  10,180,338     $   11,158,000

           $3,600,000 term loan with a bank used for the purchase of Westland.
               This agreement is in forbearance at June 30, 2002. The agreement
               provides for outstanding borrowings to bear interest at a rate
               equal to the bank's prime rate (which was 4.75% at June 30, 2002)
               plus 1 1/4% payable monthly. Minimum principal payments on the
               outstanding borrowings are due as follows: February 2003 -
               $900,000; February 2004 - $900,000; and February 2005 -
               $1,260,000. Borrowings under this agreement are secured by
               substantially all assets of the Company                                         3,060,000          3,600,000

           Subordinated term loans with the former owner of Westland. The
               agreements provide for outstanding borrowings to bear interest at
               a rate of 9.25%. Principal payments were to commence in five
               equal installments beginning in February 2001, the term notes are
               unsecured (see note 15)                                                         2,750,000          2,750,000

           Other                                                                                       -             33,899
                                                                                           -------------     --------------

                       Total                                                                  15,990,338         17,541,899

           Less current portion of long-term debt                                             12,190,338          9,831,899
                                                                                           -------------     --------------

                       Total debt reflected as long-term                                   $   3,800,000     $    7,710,000
                                                                                           =============     ==============
</TABLE>

                                      F-21

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 6  -  Notes Payable and Long-Term Debt - Continued

           (1)   In January 1997, the Company borrowed $4,500,000 in
                 connection with variable rate industrial revenue bonds issued
                 by The Economic Development Corporation of the County of
                 Genesee. The note is payable in amounts of $400,000 per year
                 for fiscal years 2000-2001 and then $300,000 per year through
                 fiscal 2012. Interest is payable quarterly and is set weekly by
                 the remarketing agent at a level which allows the bonds to be
                 sold at par. The interest rate at June 30, 2002 was
                 approximately 4%. To enhance the marketability of the bonds and
                 guarantee payment of the bonds on the Company's behalf, a bank
                 has issued its Letter of Credit through December 2001, whereby
                 a fee of 1% is charged annually. Also, the bonds are secured by
                 a first mortgage note secured by substantially all assets of
                 the Company.

           The amounts of long-term debt coming due during the five years ending
           June 30, 2007 and thereafter are as follows:

                 2003                                              $  12,190,338
                 2004                                                    850,000
                 2005                                                    850,000
                 2006                                                    300,000
                 2007                                                    300,000
                 Thereafter                                            1,500,000

           Interest expense for the years ended June 30, 2002 and 2001, amounted
           to $1,668,519 and $1,605,164, respectively.

           In May 2002, the Company received notice of cancellation by the bank
           of their interest rate swap due agreement due to the forbearance
           described below which resulted in a loss of $388,000 for the year
           ended June 30, 2002.

           The Company's revolving credit agreement and term loan with a bank
           impose financial levels of tangible capital funds, specified leverage
           ratios (debt to equity), and fixed expense coverage. At June 30,
           2002, the Company was in forbearance with the bank for the majority
           of its financing resulting in all debt associated with the bank to be
           classified as current liabilities in the amount of $10,240,338.
           Should the Company not be able to find a suitable replacement credit
           agreement with another lender the potential exercise of the current
           banks rights under default could have a material adverse effect on
           the Company's operations including the discontinuance of Company
           operations.

                                      F-22

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 7  -  Shareholders' Equity

           On July 5, 1994, PTC consummated its Offering of 1,700,000 units
           ("Units"). (425,000 shares had been previously issued for $25,000).
           Each Unit consisted of one share of PTC's common stock, $.001 par
           value, and two Redeemable Common Stock Purchase Warrants
           ("Warrants"). Each Warrant entitled the holder to purchase from PTC
           one share of common stock at an exercise price of $5.00 during the
           period commencing May 24, 1996, and ending June 24, 2002. The expired
           Warrants would have been redeemable at a price of $.01 per Warrant
           upon 30 days notice at any time, only in the event that the last sale
           price of the common stock is at least $8.50 per share for 20
           consecutive trading days ending on the third day prior to date on
           which notice of redemption is given.

           PTC also issued 300,000 warrants to certain investors, which are
           identical to the Warrants discussed above. No Warrants have been
           exercised or granted subsequent to May 23, 1996.

           At June 30, 2001, 3,700,000 shares of common stock were reserved for
           the issuance upon exercise of the warrants described above.

           The Company is authorized to issue 1,000,000 shares of preferred
           stock ($.001 par value) with such designations, voting and other
           rights and preferences as may be determined from time-to-time by the
           Board of Directors. No preferred stock has been issued by the
           Company.

           Effective as of the close of business on May 4, 2001, the Company's
           Common Stock was delisted for trading on the NASDAQ SmallCap Market.
           Trading in the Company's Common Stock, Warrants and Units is now
           conducted in the over-the-counter markets on the NASD Electronic
           Bulletin Board. The OTC Bulletin Board is an inter-dealer automated
           quotation system sponsored and operated by the NASD for equity
           securities not included in the NASDAQ Stock Market. Such
           over-the-counter market quotations reflect inter-dealer prices,
           without retail mark-up, mark-down or commission and may not
           necessarily reflect actual transactions. The delisting could have a
           material adverse effect upon the Company in a number of ways,
           including its ability to raise additional capital. In addition, the
           absence of a trading system may adversely affect the ability of
           broker-dealers to sell the Company's Common Stock, and consequently
           may limit the public market for such Stock and have a negative effect
           upon its trading price. There can be no assurance that the Company's
           Common Stock will be relisted on the NASDAQ National Market at any
           future date or that such stock will be listed or traded on any market
           or trading system.

                                      F-23

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 8  -  Employee Benefit Plans

           The Company has a 401(k) plan covering substantially all employees.
           The plan allows for eligible employees to defer a portion of their
           salary. In addition, discretionary contributions may be made by the
           Company. The Company made no contributions for the year ended June
           30, 2001.

           PTC adopted a Performance Equity Plan in 1996 to enable the Company
           to offer to selected personnel an opportunity to acquire an equity
           interest in the Company through the award of incentives such as stock
           options, stock appreciation rights and/or other stock-based awards.
           The total number of shares of common stock reserved and available for
           distribution under the Plan is 530,000 shares. The Company has
           adopted the disclosure-only provisions of SFAS No. 123, "Accounting
           for Stock-Based Compensation". Accordingly, no compensation cost has
           been recognized for the Plan.

           At June 30, 2002 the Company has selected not to perform a
           Black-Scholes valuation of the options granted and outstanding to
           management and employees. The lowest strike price of these options
           granted to management approximate $1.50 which is considerably above
           the Company's share price trading range in the past two years. Given
           the strike price is considerably higher the last year's trading
           range, relatively short time to maturity, relatively low volatility
           in comparison to strike price and thinly traded quantity of the
           stock. The Black-Scholes model would indicate only a nominal option
           value. Thus, the Company elected to not perform the Black Scholes
           analysis of the outstanding options.

           A summary of the status of the Company's stock options for the years
           ended June 30, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                       Weighted
                                                                        Average          Exercise
                                                                        Shares             Price
                                                                     -------------     -------------
               <S>                                                   <C>               <C>
              Outstanding and exercisable - beginning                      289,167     $        3.00
              Granted                                                            -                 -
              Expired                                                            -                 -
              Exercised                                                          -                 -
                                                                     -------------     -------------

              Outstanding and exercisable - ending                         289,167     $        3.00
                                                                     =============     =============
</TABLE>

                                      F-24

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 8  -   Employee Benefit Plans - Continued

        The following summarizes information regarding stock options outstanding
        and exercisable at June 30, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                    Weighted Average
                                                             ------------------------------
                   <S>                    <C>                <C>               <C>
                                             Options
                                           Outstanding        Remaining
                       Range of                and           Contractual        Exercisable
                    Exercise Prices        Exercisable          Life               Price
                   ----------------        -----------       -----------        -----------
                   $ 1.375 - $ 5.00          289,167           2 years          $      3.00
</TABLE>

Note 9  -  Income Taxes

           Deferred income taxes reflect the net tax effects of temporary
           differences between the carrying amounts of assets and liabilities
           for financial reporting and the amounts used for income tax purposes.

           Significant components of the Company's deferred tax assets and
           (liabilities) are as follows:

<TABLE>
<CAPTION>
                                                                          June 30,
                                                                   2002              2001
                                                              --------------    ---------------
             <S>                                               <C>              <C>
             Current
                Warranty accrual                              $      107,100    $       107,100
                Inventory net realizable value reserve                34,000             51,000
                Other                                                140,900            128,900
                                                              --------------    ---------------

                       Net current deferred tax asset         $      282,000    $       287,000
                                                              ==============    ===============
</TABLE>

                                      F-25

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001



Note 9  -  Income Taxes - Continued

<TABLE>
<CAPTION>
                                                                                             June 30,
                                                                                     2002            2001
                                                                                -------------   -------------
<S>                                                                             <C>             <C>
                 Non-Current
                    Depreciation and basis of assets                            $   (796,000)   $    (700,000)
                    Impairment of intangible assets                                  570,000                -
                    Research credit carry forward                                  1,165,000          935,000
                    Net operating loss carry forwards                              2,145,000        1,915,000
                    Executive deferred compensation agreement                        302,800          302,800
                    Other                                                             38,700           10,800
                    Valuation allowance                                           (2,957,500)      (1,412,600)
                                                                                -------------   -------------

                       Net non-current deferred tax asset                       $    468,000    $   1,051,000
                                                                                =============   =============
</TABLE>


              At June 30, 2002, the Company had aggregated net operating losses
              of approximately $6,309,000 for income tax purposes which begin to
              expire in 2020. In addition, the Company had tax research credit
              carry forwards of approximately $1,165,000, which will begin to
              expire in 2012.

              For financial reporting purposes, due to prior year operating
              losses, and uncertainty in realization the Company has increased
              its valuation allowance from $1,412,600 to $2,957,500 against the
              net operating loss carry forwards and other deferred tax assets.
              The amount of the remaining deferred tax asset considered
              realizable could be reduced in the near term if estimates of
              future taxable income during the carry forward period are reduced.

              The significant components of income tax expense (benefit) is as
follows:

<TABLE>
<CAPTION>
                                                                                             June 30,
                                                                                     2002            2001
                                                                                 ------------     -----------
                 <S>                                                            <C>               <C>
                 Federal
                    Current                                                      $   (39,672)     $        -
                    Deferred                                                         588,000        (572,000)
                                                                                 ------------     -----------

                           Total income taxes (benefit)                          $   548,328      $ (572,000)
                                                                                 ============     ===========
</TABLE>

                                      F-26

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001



Note 9  - Income Taxes - Continued

        The reconciliation of income tax computed at the federal statutory rate
        (34%) to income tax expense benefit is as follows:
<TABLE>
<CAPTION>
                                                                                June 30,
                                                                          2002            2001
                                                                     ------------    -------------
            <S>                                                      <C>             <C>
            Tax expense benefit at statutory rate                    $ (1,217,000)   $  (1,253,000)
            Valuation allowance, tax research credit
              valuation and other non-deductible items                  1,781,000          699,000
            Other - net                                                   (15,672)         (18,000)
                                                                     -------------   --------------

                    Total income tax benefit                         $    548,328    $    (572,000)
                                                                     =============   ==============
</TABLE>


Note 10 - Operating Lease Commitments

          The Company entered into a new building leasing agreement in April
          2001 with the term beginning July 2001 and ending June 2007 for its
          Westland subsidiary. Rent expense for the years ended June 30, 2002
          and 2001, totaled $275,486 and $244,862, respectively. Minimum rental
          payments under this noncancelable lease, which contains a five-year
          renewal option, at June 30, 2002, are as follows:

<TABLE>
                 <S>                                                                 <C>
                 2003                                                                $     214,867
                 2004                                                                      214,867
                 2005                                                                      214,867
                 2006                                                                      214,867
</TABLE>

                                      F-27

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001



Note 11 - Export Sales

          A breakdown of export sales, based on shipment destination, is as
follows:

<TABLE>
<CAPTION>
                                                                              June 30,
                                                                       2002              2001
                                                                 --------------    ---------------
                 <S>                                             <C>               <C>
                 United States                                   $   19,053,264    $    21,313,623
                 France                                               1,217,595                  -
                 Brazil                                               1,569,391                  -
                 China                                                1,464,331          1,109,200
                 Mexico                                                 769,624          1,371,605
                 England                                                443,691          2,746,052
                 Germany                                                136,726          1,073,016
                 Canada                                                 109,586            290,023
                 Other foreign countries                                  3,447             88,868
                                                                 --------------    ---------------

                        Total                                    $   24,767,655    $    27,992,387
                                                                 ==============    ===============
</TABLE>


Note 12 - Bonus Restructuring

          During fiscal 1998, the Company amended the employment agreements of
          two executive officers of Atlas that were previously entered into in
          connection with the acquisition of Atlas. These amended employment
          agreements are identical except that one agreement expired on December
          31, 1998, and the other expires on December 31, 2001. Each agreement
          requires the executive to devote substantially all of his business
          time and attention to the affairs of the Company. Annual compensation
          under the remaining agreement is $198,588, subject to cost of living
          increases for one of the officers. The amended agreements also provide
          that each executive, regardless of future employment, will receive
          four annual payments of $207,571 commencing July 30, 1999.

                                      F-28

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 12 - Bonus Restructuring - Continued

          Each executive also received 150,000 shares of restricted common stock
          of the Company issued during fiscal 1999. The restricted common stock
          has been valued at market value less a 30% discount for lack of
          marketability. Included in the accompanying consolidated financial
          statements as of and for the years ended June 30, 2002 and 2001
          related to these amended agreements are the following:

<TABLE>
<CAPTION>
                                                                                             June 30,
                                                                                       2002              2001
                                                                                  ------------     -------------
                 <S>                                                              <C>              <C>
                 Consolidated Balance Sheet

                   Current maturities of executive
                     deferred compensation agreements                             $    974,933     $     630,282
                                                                                  ============     =============

                 Executive deferred compensation
                 agreements, less current maturities                              $          -     $     344,651
                                                                                  ============     =============
</TABLE>

Note 13 - Legal Proceedings

          The Company is a party to routine litigation matters in the ordinary
          course of its business. No such pending matters, individually or in
          the aggregate, if adversely determined, are believed by management to
          be material to the business or financial condition of the Company.
          (see Note 15 for additional legal proceedings)

Note 14 - Quarterly Results of Operations (Unaudited)

          The following tables present Productivity Technologies Corp. and
          Subsidiaries condensed operating results for each of the eight fiscal
          quarters for the period ended June 30, 2002. The information for each
          of these quarters is unaudited. In the opinion of management, all
          necessary adjustments, which consist only of normal and recurring
          accruals, have been included to fairly present the unaudited quarterly
          results. This data should be read together with Productivity
          Technologies Corp. and Subsidiaries consolidated financial statements
          and the notes there to, the Independent Auditors Report and
          Managements Discussions and Analysis of Financial Condition and
          Results of Operations.

                                      F-29

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001


Note 14 - Quarterly Results of Operations (Unaudited) - Continued

          The Independent Auditors Report contains an explanatory paragraph that
          states that our recurring losses from operations, working capital
          deficit, and forbearance with our financial lender raise substantial
          doubt about our ability to continue as a going concern. Our
          consolidated financial statements do not include any adjustments that
          might result from any the outcome of that uncertainty.

<TABLE>
<CAPTION>
                                                                  Three months ended (In thousands)
                                   =================================================================================================
                                    June 30,      March 31,   Dec. 31,    Sept. 30,     June 30,     March 31,   Dec. 31,  Sept. 30,
                                      2002          2002        2001        2001          2001         2002       2000       2000
                                   =========      =========   ========    =========     ========     ========    ========  =========
<S>                                <C>            <C>         <C>         <C>           <C>          <C>         <C>       <C>
Revenues                           $   5,414      $   5,837   $  6,057    $   7,460     $   8,531    $   4,205   $ 6,980   $  8,276
Cost of revenues                       3,604          4,512      4,591        5,554         6,138        3,858     5,687      6,472
Net income (loss)                     (3,396)          (325)      (324)         (83)         (862)      (1,231)     (728)      (293)
Net income (loss) per share:
Basic                                  (1.37)         (0.13)     (0.13)       (0.03)        (0.35)       (0.50)    (0.29)     (0.12)
Diluted                                (1.37)         (0.13)     (0.13)       (0.03)        (0.35)       (0.50)    (0.29)     (0.12)
Shares used in computing per
share amounts:
Basic                                  2,475          2,475      2,475        2,475         2,475        2,475     2,475      2,475
Diluted                                2,475          2,475      2,475        2,475         2,475        2,475     2,475      2,475
</TABLE>

          During the fourth quarter ended June 30, 2002 the Company recorded
          material forth quarter adjustments for the impairment of intangibles
          ($2,087,308), the increase in the valuation allowance for deferred
          taxes ($588,000) and the recording of additional interest expense
          ($377,000) related to the unwinding of a swap agreement.

                                      F-30

<PAGE>

                         PRODUCTIVITY TECHNOLOGIES CORP.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001



Note 15 - Subsequent Events

          Legal Proceedings

          In March 2001, the Company filed suit as plaintiff in the State of
          Michigan Sixth Judicial District Court in Oakland County, Michigan
          against Thomas G. Lee, the former owner and operator of Westland. On
          September 3, 2002, PTC settled the lawsuit with Mr. Lee. Under the
          settlement terms, PTC and Westland agreed to pay Mr. Lee approximately
          $1.4 million in full consideration for approximately $3.2 million
          outstanding in principal and accrued interest due to Mr. Lee which was
          in dispute. The subordinated security interest of Mr. Lee in assets of
          Atlas and Westland as initially negotiated at the time of PTC's
          purchase of Westland in February 2000 shall continue. $458,000 of the
          $1.4 million was paid to Mr. Lee at settlement closing. The balance of
          $950,000 is scheduled to be paid over approximately 40 months from
          closing, at $25,000 per month including principal and interest
          starting in the third month after settlement closing through the 39th
          month after settlement closing. A balance of approximately $5,700 is
          scheduled to be paid in the 40th month after settlement closing. In
          addition, Westland is scheduled to pay Mr. Lee $50,000 in the 12th and
          24th months after settlement closing. All of the settlement amounts
          scheduled to be paid as outlined above, approximating $950,000, remain
          subordinated to the existing or a successor senior lender under
          existing loan agreements and any extensions or modifications. In
          addition, Mr. Lee shall be obligated to subordinate his continuing
          security interest in the assets of Atlas to a new senior lender.

                                      F-31

<PAGE>

                                    CONTENTS

<TABLE>
<CAPTION>
<S>                                                                                              <C>
Consolidated statement of operations for the year ended June 30, 2000 (unaudited)                F-33

Consolidated statement of cash flows for the year ended June 30, 2000 (unaudited)                F-34

Notes to unaudited consolidated financial statements                                             F-36

Schedule II - Valuation and Qualifying Accounts for the year ended June 30, 2000 (unaudited)     F-53
</TABLE>

                                      F-32

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                 Unaudited Consolidated Statements of Operations

--------------------------------------------------------------------------------



<TABLE>
<CAPTION>

                                                       Year Ended June 30, 2000
--------------------------------------------------------------------------------
<S>                                                                 <C>
Revenues Earned                                                     $33,230,195

Cost of Revenues Earned                                              26,334,826
--------------------------------------------------------------------------------

Gross Profit                                                          6,895,369

Selling, General and
 Administrative Expenses                                              6,332,966
--------------------------------------------------------------------------------

Income From Operations                                                  562,403
--------------------------------------------------------------------------------

Other Income (Expense)
 Interest expense                                                    (1,307,732)
 Interest income                                                         66,843
 Gain on disposal of assets                                                 650
 Miscellaneous                                                           58,556
--------------------------------------------------------------------------------

Total Other Expense                                                  (1,181,683)
--------------------------------------------------------------------------------

Loss Before Income Taxes                                               (619,280)

Income Tax Expense (Benefit) (Note 8)                                  (363,000)
--------------------------------------------------------------------------------

Net Loss                                                            $  (256,280)
--------------------------------------------------------------------------------

Basic Earnings (Loss) Per Share (Note 1)                            $      (.10)
--------------------------------------------------------------------------------

Diluted Earnings (Loss) Per Share (Note 1)                          $      (.10)
--------------------------------------------------------------------------------
</TABLE>
     See accompanying notes to unaudited consolidated financial statements.

                                      F-33

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                 Unaudited Consolidated Statements of Cash Flows

--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
                                                       Year Ended June 30, 2000
--------------------------------------------------------------------------------
<S>                                                              <C>
Cash Flows From Operating Activities
 Net loss                                                          $  (256,280)
 Adjustments to reconcile net loss to net cash
  provided by operating activities
    Depreciation                                                       601,654
    Amortization                                                       318,640
    Provisions for losses on contract receivables                       (7,500)
    Inventory net realizable value reserve                            (200,000)
    Deferred income taxes                                             (335,000)
    Gain on disposal of assets                                            (650)
    Changes in operating assets and liabilities, net
     of acquisition
       Contract receivables                                         (1,813,341)
       Inventories, prepaid expenses and other                        (461,647)
       Costs and estimated earnings in excess of
        billings on uncompleted contracts-net effect                  (331,370)
       Accounts payable, accrued expenses
        and other                                                    2,549,674
------------------------------------------------------------------------------

Net Cash Provided By Operating Activities                               64,180
------------------------------------------------------------------------------

Cash Flows From Investing Activities
 Purchase of Westland                                               (3,890,621)
 Expenditures for property and equipment                              (356,198)
 Proceeds from sale of short-term  investments-net                      81,974
 Collections on notes receivable                                        18,566
 Proceeds from sale of property and equipment                              650
 ------------------------------------------------------------------------------

Net Cash Used In Investing Activities                               (4,145,629)
------------------------------------------------------------------------------
</TABLE>
     See accompanying notes to unaudited consolidated financial statements.

                                      F-34

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                 Unaudited Consolidated Statements of Cash Flows

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                        Year Ended June 30, 2000
--------------------------------------------------------------------------------
<S>                                                                   <C>
Cash Flows From Financing Activities
 Proceeds from additions of long-term debt                            3,600,000
 Net borrowings (payments) on revolving
    credit agreement                                                  1,552,008
 Payments on long-term debt                                            (776,384)
--------------------------------------------------------------------------------

Net Cash Provided By Financing Activities                             4,375,624
--------------------------------------------------------------------------------

Net Increase In Cash                                                    294,175

Cash, at beginning of year                                              244,400
--------------------------------------------------------------------------------

Cash, at end of year                                                 $  538,575
--------------------------------------------------------------------------------

Supplemental Cash Flow Information
 Cash Paid During the Year For
   Interest                                                          $1,219,447
--------------------------------------------------------------------------------

Supplemental Noncash Investing and
 Financing Activities
   Purchase of Westland with notes payable                           $2,750,000
--------------------------------------------------------------------------------
</TABLE>
     See accompanying notes to unaudited consolidated financial statements.

                                      F-35

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------

1. Summary of     Formation of the Company and Basis of Presentation
   Significant
   Accounting     Production Systems Acquisition Corporation ("PSAC") was
   Policies       incorporated in June 1993 with the objective of acquiring an
                  operating business engaged in the production systems industry.
                  PSAC originally selected March 31 as its fiscal year-end. PSAC
                  completed an initial public offering ("Offering") of common
                  stock in July 1994 and raised net proceeds of approximately
                  $9.0 million.

                  In December 1995, PSAC entered into a Merger Agreement with
                  Atlas Technologies, Inc. ("Atlas") whereby Atlas would become
                  a wholly-owned subsidiary of PSAC. (The acquisition was
                  consummated May 23, 1996 - see Note 2). Subsequently, PSAC
                  changed its corporate name to Productivity Technologies Corp.
                  ("PTC").

                  On February 23, 2000, PTC, through a wholly-owned subsidiary
                  formed for this purpose, purchased substantially all of the
                  assets of Westland Control Systems, Inc. ("Westland") - see
                  Note 2.

                  The accompanying consolidated financial statements include the
                  accounts of PTC and its wholly-owned subsidiaries, Atlas and
                  Westland (collectively, "the Company"). All significant
                  intercompany accounts and transactions have been eliminated
                  upon consolidation.

                  Nature of Business

                  The Company is a manufacturer of automated industrial systems,
                  machinery, equipment, electrical components and engineering
                  services. It operates with three manufacturing plants, sales
                  and engineering offices. Two of the manufacturing plants are
                  located in Fenton, Michigan and the third is located in
                  Canton, Michigan.

                  Sales of products have principally been to automobile and
                  automotive parts manufacturers and appliance manufacturers.
                  Other customers include manufacturers of garden and lawn
                  equipment, office furniture, heating, ventilation and air
                  conditioning equipment and aircraft. Sales to automotive-
                  related customers have accounted for the majority of total
                  annual sales. Sales are predominantly in the United States
                  but, in recent years, the Company has targeted sales efforts
                  in Canada, Mexico, Europe and Asia. Export sales during the
                  twelve months ended June 30, 2000 amounted to approximately
                  15% of annual sales.

                                      F-36

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------


                  Short-term Investments

                  Short-term investments, representing U.S. Treasury Bills with
                  maturities of twelve months or less, are carried at cost,
                  which approximates market.

                  Use of Estimates

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the reported
                  amounts of (1) assets and liabilities and the disclosure of
                  contingent assets and liabilities as of the date of the
                  financial statements, and (2) revenues and expenses during the
                  reporting period. Actual results could differ from those
                  estimates.

                  Concentrations of Credit Risk

                  Financial instruments which potentially subject the Company to
                  concentrations of credit risk consist principally of cash and
                  contract receivables. At times, the amount of cash on deposit
                  in banks may be in excess of the respective financial
                  institutions FDIC insurance limit. The Company attempts to
                  minimize its credit risk by reviewing all customers' credit
                  histories before extending credit and by monitoring customers'
                  credit exposure on a continuing basis. The Company establishes
                  an allowance for possible losses on contract receivables, if
                  necessary, based upon factors surrounding the credit risk of
                  specific customers, historical trends and other information.

                  Fair Values of Financial Instruments

                  The carrying amounts of the Company's cash, short-term
                  investments, contract receivables, accounts payable and
                  accrued expenses approximate fair value because of the short
                  maturity of these items.

                  The carrying amounts of the revolving credit agreement and
                  long-term debt pursuant to the Company's bank credit
                  agreements approximate fair value because the interest rates
                  on the majority of the loans outstanding change with market
                  rates.

                                      F-37

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------




                  Revenue and Cost Recognition

                  Revenues earned consist primarily of contract revenues from
                  fixed price contracts, and the related contract costs, are
                  recognized using the percentage-of-completion method, measured
                  by the percentage of contract costs incurred to date to total
                  estimated costs for each contract. The Company estimates the
                  status of individual contracts when progress reaches a point
                  where experience is sufficient to estimate final results with
                  reasonable accuracy.

                  Contract costs include all direct material and labor costs and
                  those indirect costs related to contract performance, such as
                  indirect labor, supplies, repairs and depreciation costs.
                  Provisions for estimated losses on uncompleted contracts are
                  made in the period in which such losses are determined.
                  Changes in job performance, job conditions, estimated
                  profitability, and final contract settlement may result in
                  revisions to costs and income, and are recognized in the
                  period the revisions are determined.

                  The amount of earnings which the Company will ultimately
                  realize would differ in the near term from the amounts
                  estimated in the accompanying financial statements if total
                  actual costs upon completion of a contract are either higher
                  or lower than the amount estimated.

                  Inventories

                  Inventories are stated at the lower of cost (first-in, first-
                  out) or market and include mainly raw materials and spare
                  parts.

                  Property and Equipment

                  Property and equipment are stated at cost. Depreciation is
                  computed on the straight-line method, generally using the
                  following estimated useful lives:

                            Building and improvements  20 - 40 years
                            Machinery and equipment     3 - 10 years
                            Transportation equipment    2 -  5 years

                                      F-38

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------


                  Intangible Assets

                  Goodwill, representing the excess of cost over the fair value
                  of net assets acquired in the acquisitions of Atlas and
                  Westland, is being amortized over twenty-five and twenty
                  years, respectively, using the straight-line method. The
                  patent is amortized over its estimated useful life of
                  approximately 17 years using the straight-line method.

                  Warranty

                  The Company warrants under certain circumstances that its
                  products meet certain agreed-upon manufacturing and material
                  specifications. The Company records a warranty liability based
                  on anticipated future claims.

                  Health Insurance

                  The Company is self-insured for certain losses relating to
                  employee medical benefits. The Company has purchased stop-loss
                  coverage in order to limit its exposure to any significant
                  levels of medical claims. Self-insured losses are accrued
                  based upon the Company's estimates of the aggregate liability
                  for uninsured claims incurred using certain assumptions
                  followed in the insurance industry and the Company's
                  historical experience.

                  Income Taxes

                  Income taxes are calculated using the liability method
                  specified by Statement of Financial Accounting Standards
                  (SFAS) No. 109, "Accounting for Income Taxes".

                  Earnings Per Share

                  Earnings per share reflected in the consolidated statements of
                  operations are presented in accordance with SFAS No. 128,
                  "Earnings per Share". The following table presents the
                  earnings per share calculations:

                                      F-39

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


                  Year Ended June 30,                      2000
                  ---------------------------------------------------
                  <S>                                  <C>
                  Numerator for Basic and
                  Diluted   Earnings Per Share
                       Net income (loss)               $  (256,280)
                  ---------------------------------------------------

                  Denominator for Basic and
                  Diluted Earnings Per Share

                       Weighted average shares
                       outstanding                  2,475,000

                  ---------------------------------------------------

</TABLE>


                  Options to purchase shares of common stock were outstanding
                  (see Notes 6 and 7) but were not included in the computation
                  of diluted earnings per share because there was a net loss in
                  fiscal 2000; therefore any additional shares would be
                  antidilutive.

                  Long-Lived Assets

                  Long-lived assets, such as goodwill, patent and property and
                  equipment, are evaluated for impairment when events or changes
                  in circumstances indicate that the carrying amount of the
                  assets may not be recoverable through the estimated
                  undiscounted future cash flows from the use of these assets.
                  When any such impairment exists, the related assets will be
                  written down to fair value. No impairment of the Company's
                  long-lived assets has occurred through June 30, 2000.

                  Reclassifications

                  Certain prior year amounts have been reclassified to conform
                  with current year presentation.

                                      F-40

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------



                  Recent Accounting Pronouncements

                  In June 1998, the Financial Accounting Standards Board
                  ("FASB") issued Statement of Financial Accounting Standards
                  No. 133, Accounting for Derivative Instruments and Hedging
                  Activities ("SFAS 133"). The FASB issued SFAS No. 137 in June
                  1999 to delay the effective date of SFAS 133 to the first
                  quarter of the fiscal year beginning after June 15, 2000 (July
                  1, 2000 for the Company). The adoption of SFAS 133, as amended
                  by SFAS 137, will not have any effect on the Company's results
                  of operations or its financial position.

2.  Acquisitions  On February 23, 2000, PTC, through a wholly-owned subsidiary
                  formed for this purpose, purchased substantially all of the
                  assets of Westland pursuant to an Asset Purchase Agreement
                  entered into on such date for cash of $3,750,000, notes
                  payable to seller of $2,750,000 (see Note 5), and related
                  acquisition costs of $140,621. Additional consideration of up
                  to $2,300,000 may be due the seller dependant upon Westland's
                  average earnings before interest and taxes during the period
                  of January 1, 2000 through December 31, 2002.

                  The acquisition has been accounted for using the purchase
                  method of accounting and, accordingly, the purchase price has
                  been allocated to the assets purchased based on the estimated
                  fair values at the date of acquisition. The excess of the
                  purchase price over the estimated fair value of assets
                  acquired of $4,580,621 was recorded as goodwill and is being
                  amortized on a straight-line basis over twenty years.

                  The purchase price was allocated as follows:

                  Working capital                                    $ 1,200,000
                  Equipment                                              110,000
                  Patent                                                 750,000
                  Goodwill                                             4,580,621
                  --------------------------------------------------------------

                  Purchase Price                                     $ 6,640,621
                  --------------------------------------------------------------


                                      F-41

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------



                  Unaudited proforma financial information as if the acquisition
                  of Westland had taken place July 1, 1999 is as follows:

                                                           2000
                  ------------------------------------------------

                  Revenues                          $38,491,000
                  Net income                            464,000
                  ------------------------------------------------

                  Earnings Per Share - Basic
                  and Diluted                               .19
                  ------------------------------------------------

                  These unaudited proforma results have been prepared for
                  comparative purposes only and include certain adjustments,
                  such as additional amortization expense as a result of
                  goodwill and patent, a decrease in wages for Westland's seller
                  based on his new employment agreement, an increase in interest
                  expense related to the financing of the acquisition, and the
                  related effect on income tax expense. They do not purport to
                  be indicative of the results of operations that would have
                  resulted had the acquisition occurred on the date indicated,
                  or that may result in the future.

                  On May 23, 1996, PTC acquired all the outstanding shares of
                  Atlas for cash of $6,900,000, and related acquisition costs of
                  approximately $337,060. During fiscal 1998, a final purchase
                  price adjustment resulted in $220,000 of additional goodwill.
                  The acquisition, which was pursuant to a Merger Agreement
                  dated December 18, 1995, also included certain employment
                  agreements with bonus arrangements involving the principal
                  shareholders of Atlas (see Note 10).


3.  Contract      The contract receivables consisted of:
    Receivables

                                                  June 30, 2000
                  --------------------------------------------------

                  Billed
                    Completed contracts             $ 2,695,656
                    Uncompleted contracts             7,337,757
                  --------------------------------------------------

                  Total Contracts Receivable         10,033,413
                  Less allowance for
                   doubtful accounts                   (102,500)
                  --------------------------------------------------

                  Total                             $ 9,930,913
                  --------------------------------------------------

                                      F-42

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------


4.  Costs and     Costs and estimated earnings on uncompleted contracts
    Estimated     consisted of the following:
    Earnings on
    Uncompleted
    Contracts
<TABLE>
<CAPTION>
                                                                       June 30, 2000
                  --------------------------------------------------------------------
                  <S>                                                    <C>
                  Costs incurred on uncompleted contracts                $16,510,836
                  Estimated Earnings                                       7,245,332
                  --------------------------------------------------------------------

                                                                          23,756,168
                  Less billings to date                                   14,058,370
                  --------------------------------------------------------------------

                  Total                                                  $ 9,697,798
                  --------------------------------------------------------------------


</TABLE>

                  The above totals are included in the accompanying balance
                  sheets under the following captions:
<TABLE>
<CAPTION>


                                                                       June 30, 2000
                  ---------------------------------------------------------------------
                  <S>                                                     <C>
                  Costs and estimated earnings in excess
                   of billings on uncompleted contracts                   $ 9,756,686
                  Billings in excess of costs and estimated
                   earnings on uncompleted contracts                          (58,888)
                  ---------------------------------------------------------------------

                  Total                                                   $ 9,697,798
                  ---------------------------------------------------------------------


</TABLE>

                                      F-43

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------


5.  Long-Term     Long-term debt consisted of:
    Debt

<TABLE>
<CAPTION>


                                                     June 30, 2000
  -----------------------------------------------------------------
  <S>                                                  <C>
  $16,000,000 revolving credit agreement with a
  bank. The amount that may be borrowed under
  this agreement is limited to specified
  percentages of contract receivables, work in
  process and property and equipment of Atlas.
  The revolving credit agreement provides for
  outstanding borrowings to bear interest at a
  rate equal to (a) the bank's prime rate
  (which was 9.5% at June 30, 2000) less 1/4%,
  or (b) the 30, 60, or 90 day LIBOR rate plus
  230 basis points, at the Company's option. No
  principal payments on outstanding borrowings
  are due until January 31, 2002, at which time
  the entire balance is due. Borrowings under
  this agreement are collateralized by
  substantially all assets of Atlas.

                                                       $11,738,148


 First mortgage note payable (1)                         3,700,000

 $3,600,000 term loan with a bank used for the
  purchase of Westland. The agreement provides
  for outstanding borrowings to bear interest
  at a rate equal to the bank's prime rate
  (which was 9.5% at June 30, 2000) plus 1 1/4%
  payable monthly. Minimum principal payments
  on the outstanding borrowings are due as
  follows: February 2002 - $540,000; February
  2003 - $900,000; February 2004 - $900,000;
  and February 2005 - $1,260,000. Borrowings
  under this agreement are collateralized by
  substantially all the assets of the Company.           3,600,000               -



</TABLE>

                                      F-44

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


                                                                       June 30, 2000
                  ---------------------------------------------------------------------
                  <S>                                                      <C>
                  Term loans with the former owner of Westland.
                   The agreements provide for outstanding
                   borrowings to bear interest at a rate of
                   9.25%. Principal payments are required to be
                   made in five equal installments beginning in            2,750,000
                   February 2001.


                  Other                                                       64,903
                  ---------------------------------------------------------------------

                  Total                                                   21,853,051

                  Less current maturities                                    991,004
                  ---------------------------------------------------------------------

                  Long-Term Debt                                         $20,862,047
                  ---------------------------------------------------------------------

</TABLE>
                  (1)  In January 1997, the Company borrowed $4,500,000 in
                       connection with variable rate industrial revenue bonds
                       issued by The Economic Development Corporation of the
                       County of Genesee. The note is payable in amounts of
                       $400,000 per year for fiscal years 2000-2001 and then
                       $300,000 per year through fiscal 2012. Interest is
                       payable quarterly and is set weekly by the remarketing
                       agent at a level which allows the bonds to be sold at
                       par. The interest rate at June 30, 2000 was approximately
                       4.0%. To enhance the marketability of the bonds and
                       guarantee payment of the bonds on the Company's behalf, a
                       bank has issued its letter of credit through December
                       2001, whereby a fee of 1% is charged annually. Also, the
                       bonds are secured by a first mortgage note collateralized
                       by substantially all assets of the Company.

                  Scheduled maturities of long-term debt for future years ending
                  June 30 are as follows: 2001 - $991,004; 2002 - $13,152,047;
                  2003 - $1,750,000; 2004 -$1,750,000; 2005 - $2,110,000; and
                  $2,100,000 thereafter.

                                      F-45

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------

                  The Company's revolving credit agreement and term loan with a
                  bank impose financial levels of tangible capital funds,
                  specified leverage ratios (debt to equity), and fixed expense
                  coverage. At June 30, 2000, the Company was not in compliance
                  with the financial covenants specified in the agreements. On
                  October 13, 2000, the Company obtained a waiver from the bank
                  waiving its acceleration rights as a result of the Company's
                  noncompliance. In addition, the financial covenants were
                  amended to provide for less stringent requirements through
                  June 30, 2001. Based on projections for the year ending June
                  30, 2001 made in fiscal 2000, management believed operations
                  would provide sufficient funds to enable the Company to meet
                  the amended requirements. Accordingly, amounts payable under
                  the revolving credit agreement and term loan were classified
                  as long-term in the accompanying balance sheet.


6. Stockholders'  On July 5, 1994, PTC consummated its Offering of 1,700,000
   Equity         units ("Units"). (425,000 shares had been previously issued
                  for $25,000.) Each Unit consisted of one share of PTC's common
                  stock, $.001 par value, and two Redeemable Common Stock
                  Purchase Warrants ("Warrants"). Each Warrant entitles the
                  holder to purchase from PTC one share of common stock at an
                  exercise price of $5.00 during the period commencing May 24,
                  1996, and ending June 24, 2001. The Warrants will be
                  redeemable at a price of $.01 per Warrant upon 30 days notice
                  at any time, only in the event that the last sale price of the
                  common stock is at least $8.50 per share for 20 consecutive
                  trading days ending on the third day prior to date on which
                  notice of redemption is given.

                  PTC also issued 300,000 warrants to certain investors, which
                  are identical to the Warrants discussed above. No Warrants
                  have been exercised or granted subsequent to May 23, 1996.

                  At June 30, 2000, 3,700,000 shares of common stock were
                  reserved for the issuance upon exercise of the warrants
                  described above.

                  The Company is authorized to issue 1,000,000 shares of
                  preferred stock ($.001 par value) with such designations,
                  voting and other rights and preferences as may be determined
                  from time to time by the Board of Directors. No preferred
                  stock has been issued by the Company.


7. Employee       The Company has a 401(k) plan covering substantially all
   Benefit Plans  employees. The plan allows for eligible employees to defer
                  a portion of their salary. In addition, discretionary
                  contributions may be made by the Company. The Company
                  contributed $154,400 for the year ended June 30, 1999. The
                  Company made no contributions for the years ended June 30,
                  2000 and 1998.

                  PTC adopted a Performance Equity Plan in 1996 to enable the
                  Company to offer to selected personnel an opportunity to
                  acquire an equity interest in the Company through the award of
                  incentives such as stock options, stock appreciation rights
                  and/or other stock-based awards. The total number of shares of
                  common stock reserved and available for distribution under the
                  Plan is 530,000 shares.

                                      F-46

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------


                  The Company has adopted the disclosure-only provisions of SFAS
                  No. 123, "Accounting for Stock-Based Compensation".
                  Accordingly, no compensation cost has been recognized for the
                  Plan. If the Company had elected to recognize compensation
                  cost based on the fair value of the options granted at grant
                  date as prescribed by SFAS No. 123, net loss and earnings per
                  share amounts would have been the pro forma amounts indicated
                  below:


                                    Year Ended June 30, 2000
                  ---------------------------------------------

                  Net loss - as reported           $(256,280)
                  Net loss - pro forma              (312,996)
                  Basic earnings per share - as
                  reported                              (.10)
                  Basic earnings per share -
                  pro forma                             (.13)
                  ---------------------------------------------

                  The fair value of each option grant is established on the date
                  of the grant using the Black-Scholes option-pricing model with
                  the following assumptions for 2000: dividend yield of 0%;
                  expected volatility of 54%; risk-free interest rate of 6.0%;
                  and expected lives of 3 years.

                  The effects of applying SFAS No. 123 in the above pro forma
                  disclosure are not necessarily indicative of future amounts.

                                      F-47

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------

                  A summary of the status of the Company's stock options is as
                  follows:


<TABLE>
<CAPTION>
                                                                              Weighted-
                                                                                Average
                                                                               Exercise
                                                             Shares               Price
          -----------------------------------------------------------------------------
                 <S>                                          <C>                   <C>
          Outstanding and exercisable at June 30, 1999       295,000               4.88
          Granted                                            150,000               1.38
          Expired                                           (155,833)              5.00
          Exercised                                                -                  -
          -----------------------------------------------------------------------------
          Outstanding and Exercisable at June 30, 2000       289,167              $3.00
          ------------------------------------------------------------------------------

</TABLE>


                  The weighted-average grant date fair value of options during
                  fiscal 2000 was approximately $.57.

                  The following table summarizes information regarding stock
                  options outstanding and exercisable at June 30, 2000:



                                                          Weighted Average
                                         Options    ----------------------------
                                     Outstanding       Remaining
                         Range of            And     Contractual     Exercisable
                  Exercise Prices    Exercisable            Life           Price
                  --------------------------------------------------------------
                  $1.375-$5.00           289,167         3 years           $3.00
                  --------------------------------------------------------------

                                      F-48

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------


8. Income Taxes   Deferred income taxes reflect the net tax effects of
                  temporary differences between the carrying amounts of assets
                  and liabilities for financial reporting and the amounts used
                  for income tax purposes.

                  Significant components of the Company's deferred tax assets
                  and (liabilities) are as follows:

<TABLE>
<CAPTION>


                                                                     June 30, 2000
                  ------------------------------------------------------------------
                  <S>                                                    <C>
                  Current
                   Warranty accrual                                      $ 150,000
                   Inventory net realizable value reserve                   34,000
                   Research credit carryforward - net                            -
                   Other                                                   132,000
                  ------------------------------------------------------------------

                  Net Current Deferred Tax Asset                         $ 316,000
                  ------------------------------------------------------------------

                  Non-Current
                   Depreciation and basis of assets                      $(590,000)
                   Research credit carryforward - net                      422,000
                   Net operating loss carryforwards                        365,000
                   Executive deferred compensation agreement               258,000
                   Other                                                    (5,000)
                  ------------------------------------------------------------------

                  Net Non-Current Deferred Tax Asset                     $ 450,000
                  ------------------------------------------------------------------

</TABLE>

                  Significant components of income tax expense (benefit) are
                  as follows:


<TABLE>
<CAPTION>

                                     Year Ended June 30, 2000
                  ------------------------------------------------
                  <S>                               <C>
                  Federal
                   Current                          $ (28,000)
                   Deferred                          (335,000)
                   ------------------------------------------------

                  Total                             $(363,000)
                  ------------------------------------------------
</TABLE>

                                      F-49

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------


                  The reconciliation of income tax computed at the federal
                  statutory rate (34%) to income tax expense (benefit) is as
                  follows:

<TABLE>
<CAPTION>




                                       Year Ended June 30, 2000
                  ------------------------------------------------
                  <S>                     <C>
                  Tax expense (benefit)
                   at statutory rate                  $(211,000)

                  Research credit - net                (112,000)

                  Goodwill amortization
                   and other non-deductible
                   items                                 60,000

                  Other - net                          (100,000)
                  ------------------------------------------------
                  Income Tax Expense
                   (Benefit)                          $(363,000)
                  ------------------------------------------------

</TABLE>

                  During fiscal 1999, the Internal Revenue Service (IRS)
                  completed its audit for the fiscal year ended June 30, 1995.
                  The main area of review was research and experimentation (R&E)
                  tax credits the Company had calculated and filed for in fiscal
                  years 1990 through 1995. Due to this ongoing IRS audit and the
                  uncertainty of its outcome, the Company included significant
                  reserves when estimating R&E tax credits to be realized in
                  fiscal 1998 and 1997. As a result of the IRS audit completed
                  during fiscal 1999, the Company believes it can more
                  accurately estimate its R&E tax credits. As a result,
                  management has reduced its reserves related to the prior
                  years' R&E tax credits by $141,000, and recorded this change
                  in estimate during 1999 as a reduction in income tax expense.

                  The Company has tax research credit carryforwards totaling
                  approximately $844,000 that will begin to expire in 2012.
                  Based on management's, estimates, these credit carryforwards
                  have been reduced by 50% for financial statement purposes to
                  reflect their estimated future value.

                  In addition, the Company has net operating loss carryforwards
                  totaling approximately $1,074,000 that will begin to expire in
                  2020.

                                      F-50

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------

9.  Export Sales  A breakdown of sales, based on shipment location, is as
    and Major     follows:
    Customers

<TABLE>
<CAPTION>


                                             Year Ended June 30, 2000
                  -----------------------------------------------------
                  <S>                                     <C>
                  United States                           $28,182,300
                  Mexico                                    2,456,648
                  England                                   1,936,793
                  Canada                                      161,046
                  Other foreign countries                     493,408
                  -----------------------------------------------------
                                                          $33,230,195
                  -----------------------------------------------------

</TABLE>

                  For the year ended June 30, 2000, the Company's sales to its
                  major customers (each representing more than 10% of total net
                  sales) amounted to approximately 54% of total annual sales.
                  During 2000, there were three major customers representing
                  16%, 18% and 20% of total net sales, respectively.


                                      F-51

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

--------------------------------------------------------------------------------


10. Bonus          During fiscal 1998, the Company amended the employment
    Restruct-      agreements of two executive officers of Atlas that were
    uring          previously entered into in connection with the Merger
                   Agreement (see Note 2). These amended employment agreements
                   are identical except that one agreement expired on December
                   31, 1998, and the other expires on December 31, 2001. Each
                   agreement requires the executive to devote substantially all
                   of his business time and attention to the affairs of the
                   Company. Annual compensation under each agreement is
                   $198,588, subject to cost of living increases for one of the
                   officers. The amended agreements also provide that each
                   executive, regardless of future employment, is entitled to
                   receive four annual payments of $207,571 commencing July 30,
                   1999. Each executive also received 150,000 shares of
                   restricted common stock of the Company issued during fiscal
                   1999. The restricted common stock has been valued at market
                   value less a 30% discount for lack of marketability. Included
                   in the accompanying financial statements for the year ended
                   June 30, 2000 related to these amended agreements are the
                   following:

<TABLE>
<CAPTION>


                                                                    2000
                   -------------------------------------------------------
                   <S>                                       <C>
                   Balance Sheet
                     Current maturities of executive         $   348,560
                       deferred compensation agreement
                     Executive Deferred Compensation             759,792
                       Agreement, less current maturities
                     Common stock to be issued                         -
                    ------------------------------------------------------
                    Statement of Operations
                      Bonus restructuring expense            $         -
                    ------------------------------------------------------


</TABLE>

                   The amended agreements described above superseded two
                   previously existing employment agreements, which provided for
                   two bonus calculations based on earnings of the Company. As
                   of June 30, 1998, there was $810,000 to be paid under these
                   superseded agreements; this amount was paid in fiscal year
                   1999, and no future amounts are payable.

11. Material       During fiscal 2000, the Company made an adjustment which is
    Fourth         material to the fourth quarter results. This adjustment was
    Quarter        a write-down in inventory (net of reserve) of $582,000, as
    Adjustment     a result of a physical inventory taken in July 2000.

12. Stockholders'
    Equity

<TABLE>
<CAPTION>
                                 Common Stock        Common    Additional                   Total
                              -------------------   Stock To     Paid-In                Stockholders'
                                Shares    Amount   Be Issued    Capital     (Deficit)      Equity
                             ----------------------------------------------------------------------
<S>                           <C>          <C>      <C>        <C>          <C>          <C>
Balance, June 30, 1999        2,475,000    $2,475   $    -     $9,966,408   $(251,610)   $9,717,273

Net loss                              -         -        -              -    (256,280)     (256,280)
---------------------------------------------------------------------------------------------------
Balance, June 30, 2000        2,475,000    $2,475   $    -     $9,966,408   $(507,890)   $9,460,993
---------------------------------------------------------------------------------------------------
</TABLE>

                                      F-52

<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                 Schedule II - Valuation and Qualifying Accounts


<TABLE>
<CAPTION>
                                                                           Additions
                                                        Balance at        Charged to                          Balance
                                                         Beginning          Cost and                           at End
Description                                              of Period          Expenses           Deductions   of Period
---------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                 <C>             <C>                   <C>
Year Ended June 30, 2000
Allowance for doubtful accounts
   (deducted from contract receivables)                     $110,000       $       -      (1)   $  (7,500)   $102,500
   Inventory net realizable value reserve                    300,000               -      (2)    (200,000)    100,000
   Warranty reserve                                          200,000         960,597      (3)    (720,597)    440,000
---------------------------------------------------------------------------------------------------------------------

</TABLE>


(1)  Accounts deemed to be uncollectible (net of accounts collected that were
     previously deducted).
(2)  Inventory disposed of, charged to reserve.
(3)  Actual warranty charges incurred, charged to reserve.

                                      F-53