Washington, D. C. 20549
                                    FORM 10-K


  (Mark One)

  |  X  |  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934 
           For the fiscal year ended June 30, 1998
                                       OR
  |     |   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
            THE SECURITIES EXCHANGE ACT OF 1934
            For the transition period from _____________ to _____________

                         Commission file number 0-24212

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

            Delaware                                    13-3764753
-------------------------------            ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

                  509 Madison Avenue, New York, New York 10022
               --------------------------------------------------
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (212) 843-1480

    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)

Redeemable Common Stock Purchase Warrants   Units, each consisting of one share
-----------------------------------------   of Common Stock and two Redeemable
       (Title of class)                     Common Stock Purchase Warrants
                                            -----------------------------------
                                                    (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 definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     As of September 16, 1998,  the  aggregate  market value of the voting stock
held by non-affiliates of the Registrant was approximately $5,100,000.

     As of September 16, 1998,  there were 2,425,000  shares of the Registrant's
Common Stock outstanding.




<PAGE>

                             
                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS

     Productivity   Technologies   Corp.   (formerly  named  Production  Systems
Acquisition Corporation),  a Delaware corporation ("Company"),  was organized in
June 1993 as a Specified Purpose Acquisition  Company(R)  ("SPAC(R)"),  with the
objective  of  acquiring  an  operating  business  ("Target  Business")  in  the
production  systems industry  ("Production  Systems  Industry").  The Production
Systems Industry  consists of companies which produce the machinery,  components
and systems for manufacturing.

     On May 23, 1996, the Company acquired Atlas Technologies, Inc. ("Atlas"), a
Michigan-based  corporation  incorporated in 1974 and engaged in the manufacture
and  sale  of  equipment  to  automate  metal  stamping  press  operations.  The
acquisition was accomplished through the merger of a wholly-owned  subsidiary of
the Company into Atlas,  with Atlas being the  surviving  company and becoming a
wholly-owned subsidiary of the Company. The Company has no other subsidiaries or
operations.

                                Business of Atlas

     Metal  stamping  presses  are used to form a wide  variety  of sheet  metal
components  used in  automobiles,  appliances  and other consumer and industrial
products.  Atlas offers a complete  range of products  within  three  categories
critical  to the  operation  of  metal  stamping  presses:  quick  die  changing
equipment,  press automation  equipment,  and stacking and destacking equipment,
which, together, have historically accounted for approximately 85% to 90% of its
sales revenues.  It also sells material handling product lines and, on a turnkey
basis, fully integrated metal stamping systems comprised of components  provided
by Atlas and other manufacturers. During fiscal 1998, Atlas also began producing
and  selling  finger  tooling for use with its and third  party  transfer  press
automation equipment.

     Metal  stamping  involves  setting pieces of flat sheet metal over a shaped
die  which is set in a press and then  lowering  a  matching  die onto the sheet
metal to form it into the desired shape.  The sheet metal pieces  typically pass
through several stamping press  operations,  each performing a different shaping
function.  Atlas's  automation  provides the material  handling needs of the cut
sheets of steel  converted  from  rolled  coils of steel into what the  industry
calls blanks.  The blanks  require  stacking so they can be palletized and moved
into the next operation.  These blanks are then stationed into a destacker to be
cycled one at a time through  cleaning and washing stations and then loaded into
the first  forming  press onto a die.  The part  moves  from one die  station to
another within a multi-station transfer press or between presses within a tandem
line of presses until it reaches its desired shape.  To change the production of
a different  desired part the dies within the press must be changed over.  These
dies can weigh 5 to 50 tons. To assist in storage and retrieval of these dies or
other heavy loads, Atlas automated storage and retrieval  equipment  facilitates
the staging of the die for the moving and  change-over  of the press line by use
of the Atlas automatic die change carts.

     In recent  years,  the  increasing  complexity  and  precision  required in
stamped metal components,  such as automobile body and appliance parts,  coupled
with  the  large  variety  of  such   components   necessary  to  meet  consumer
preferences,  has required the  manufacturers  of such  products to increase the
flexibility  and  efficiency of the  machinery  used in their  manufacture.  The
presses must  accommodate  rapid  changes in  production  schedules  and produce
profitable batch runs of varying sizes.  Equipment such as that made by Atlas is
important to meet the needs of the manufacturers.

     Sales of Atlas products have  principally  been to two customer  segments -
automobile  and automotive  parts  manufacturers,  and appliance  manufacturers.
Other customers  include steel service centers and  manufacturers  of garden and
lawn equipment,  construction earth moving equipment, office furniture, heating,
air conditioning and ventilation (HVAC) equipment and aircraft. In Atlas's 1996,
1997 and 1998 fiscal years, the automotive  segment  accounted for approximately
86%, 90% and 90% of sales,  respectively,  and appliance manufacturers accounted

                                       2
<PAGE>

for  approximately 8%, 3%, and 0.5%  respectively.  In fiscal 1998, sales to the
construction  equipment  industry accounted for approximately 8% of total sales.
For such fiscal years, sales by Atlas to General Motors Corporation  represented
10%, 12%, and 27% respectively,  sales to Chrysler Corporation  represented 13%,
3%, and 10%, respectively,  and sales to The Ford Motor Company represented 11%,
9%, and 14% respectively,  of total sales. Sales are predominantly in the United
States and Canada but, in recent  years,  Atlas has  targeted  sales  efforts in
Mexico, Europe and Asia.  International sales for the 1996, 1997 and 1998 fiscal
years represented approximately 13%, 20%, and 30% of total sales in such years.

     Atlas uses three marketing channels: direct sales, with offices in Atlanta,
Illinois  and  at its  headquarters  in  Fenton,  Michigan;  commissioned  sales
representatives;  and original equipment  manufacturers  (OEMs)  specializing in
metal  presses  and  related   equipment.   Order  backlogs  were  approximately
$18,200,000,  $19,000,000,  and  $17,000,000  at June 30,  1996,  1997 and 1998,
respectively.

Products

     Atlas offers critical, high technology products based on proven designs and
engineering,  which it  believes  offer  superior  technology,  engineering  and
features to those offered by its competitors. Atlas products are modular and may
be used with  existing  systems as well as with  completely  new  systems.  As a
result of their modular design, a variety of pieces of equipment can be combined
to form an appropriate solution for a customer's metal stamping needs. Virtually
all  of its  products  are on a  made-to-order  basis.  Because  of  their  many
desirable  features,  Atlas  products are positioned at an  above-average  price
comparative to its competitors.  Generally, there is a large number of suppliers
that are capable of providing the materials and components used by Atlas.

     Atlas  personnel  perform  applications  engineering,   product  design  or
customization,  research and development,  procurement,  fabrication, machining,
assembly,  testing,  shipping  and  installation  of the products and systems it
sells. In 1993, Atlas began implementing a continuing program to achieve greater
standardization  in the  engineering  and design of its products.  To date,  the
program has resulted in faster order  fulfillment and  production,  and improved
fabrication.  Atlas believes that  significant  cost-reducing  improvements  can
still  be  made  in  the  manufacturing   process,   particularly  from  further
standardization and reduction of custom engineering.

     Quick die change equipment made by Atlas includes  automated die carts, die
tables  and high  rise  automated  storage-retrieval  systems  which are used to
maneuver   stamping   press  dies  and  molds  weighing  up  to  100  tons.  The
Atlas-developed  products  allow die swapping to be  accomplished  in minutes as
compared to hours if  conventional  equipment is used.  Atlas  storage-retrieval
systems  permit dies not in use to be stored in multiple level racks and readily
accessible  to die carts for die swapping.  Atlas's  equipment can be configured
for use with  either  manually  controlled  or fully  automated  presses.  Atlas
believes  that its  equipment is  instrumental  in  increasing  the "up-time" of
presses while also facilitating short run capability, gentle die handling, safer
and improved ergonomics and easier and more efficient die maintenance.

     Atlas's transfer press  automation  equipment is sold by it under the names
FLEX 2000 and FLEX  5000(R).  Transfer  presses use as many as ten dies within a
single press to progressively form the component (typically including tasks such
as drawing or forming,  trimming,  piercing and  flanging).  Unlike tandem press
lines,  which use  multiple  presses  arranged  in a line and  require  multiple
devices to move a component, transfer presses move the component being processed
from one die station to another using a single  automation  device.  Compared to
tandem presses,  transfer  presses  generally  operate at  significantly  higher
production rates,  require less floor space,  consume less energy and allow more
component  processes  per press.  Because of this,  and because  they have fewer
parts and require less expensive quick die change equipment than tandem presses,
transfer  presses  have  become the  preferred  type of press for new  purchases
although  many  tandem  presses  will  remain  in use for many  years and can be
retrofitted with automation and die change  equipment.  Transfer presses require
devices to hold the part during  transfer.  This is  accomplished by lifting the
sheet metal part with suction or vacuum cups or by lifting  from its  supporting
corners.  Transfer  tooling,  known as  "fingers,"  are the  extension  arms and
support  devices  used to  reach  into  the die and  lift  the part so it can be
transferred  into the next die and nested with  precision  and speed.  Atlas has
provided its own patented tooling, along with customer specified tooling in many
of its transfer applications, since the inception of the FLEX 5000(R). Atlas has
also designed  special  automated  methods to  accomplish  complete line tooling
change-over when used in conjunction with the Atlas FLEX 5000(R). This method of
change-over  increases part transfer accuracy and change-over uptime.  Atlas has
also  made  improvements  to  its  transfer  tooling  fingers  and  accessories,
increasing its overall market and sales capabilities.

                                       3
<PAGE>

     Stacking and  destacking  automation  equipment is used to handle the sheet
metal in the initial stages of the stamping process.  Stackers stack flat blanks
cut from the coiled  rolls  which are  delivered  to the  manufacturer  or steel
service centers.  Destacking  equipment feeds the flat blanks into the press and
includes  functions to scrub or roll-coat  the metal blanks and to queue them to
assure a steady flow.

Competition

     Atlas products are sold in specialized  markets that have limited customers
and few  competitors.  In many  instances,  Atlas products are procured  through
competitive  bidding.  Because  of the  capital  cost and the  need for  skilled
personnel, such as engineers, designers, mechanics and sales persons, entry into
this  industry is expensive  and  difficult to achieve and Atlas does not expect
competition to increase  significantly over present levels.  Primary competitors
of Atlas include ABB Flexible Automation,  Herwo Die Changing,  Orchid,  Hirotec
(Japan),  Verson All Steel  Press,  a division  of Allied  Products  Corp.,  HMS
Products Co.,  Automatic Feed Co. and Aisaku  (Japan).  Each of these  companies
offers components which compete with certain components  manufactured or sold by
Atlas.  A number  of the  competitors  are  well  established  with  substantial
financial  resources,  recognized brand names,  customer loyalty and established
market positions, strong engineering and distribution networks and comprehensive
manufacturing capabilities.

Trademarks and Patents

     Atlas has an agreement to use components in the FLEX 5000(R) transfer press
automation that it manufactures and sells that are based on patents owned by the
estate of Mr. John Maher.  The  agreement  grants Atlas an  exclusive  worldwide
license  to use  the  patents  for a term  equal  to the  life  of the  patents,
including any extensions as a result of modifications to the patents. Currently,
the patents registered with the United States Patent and Trademark Office expire
on various dates between June 23, 2005 and June 21, 2007.  Atlas is obligated to
pay the estate of Mr.  Maher a royalty  based on a portion of the sales price of
the FLEX 5000(R)  transfer  press  automation  as it relates to the value of the
patented  components.  For Atlas's  fiscal years ended June 30, 1996,  1997, and
1998 Atlas expensed approximately $320,000, $270,000, $202,000, respectively, in
license fees under this  agreement.  The agreement also provides that the estate
of Mr. Maher is responsible  for defending  Atlas for any patent  infringements.
Atlas  believes that the terms of the agreement with the estate of Mr. Maher are
industry  competitive.  A patent infringement suit has been brought by Atlas and
the estate of Mr. Maher against Orchid  International  Group, Inc. See Item 3 --
Legal Proceedings, below.

     Atlas has registered  with the United States Patent and Trademark  Office a
trademark on "FLEX 5000(R)."

     Atlas owns and has  registered  with the United States Patent and Trademark
Office four patents,  of which one is for a power and free roller conveyer,  one
is for certain apparatus and methods for forming workpieces, one is for magnetic
sheet  separator  constructions  and one is for the transfer arm for  supporting
workpieces.  Atlas also has registered  patents for the first of these in Canada
and Great  Britain.  Atlas has  applied  for three  United  States  patents  for
over-under conveyor,  finger tooling for transfer press automation equipment and
laser blank pallet carriers.

Management and Employees

     Ronald M. Prime is currently the Chief Executive Officer emeritus of Atlas.
Mr.  Prime will retire  from Atlas on  December  31,  1998.  Mr.  Prime has been
responsible  for  the  overall   operations  of  Atlas,   managing  the  project
management,  engineering,  manufacturing,  controls,  service,  purchasing,  and
finance departments.  Mr. Prime has also been active in product development,  as
well  as the  establishment  and  improvement  of  Atlas's  project  management,
engineering,  manufacturing,  and financial  processes.  From 1972 to 1984,  Mr.
Prime was President of Fluid & Electric Control Co.,  founding that business and
growing  it from one  person  to 150,  one of the  largest  industrial  controls
contractors in Michigan.  That company was merged with a predecessor of Atlas in
1984.  From  1970 to  1972,  Mr.  Prime  held  various  technical  and  controls
engineering positions.

                                       4
<PAGE>


     Michael D. Austin is currently the President and Chief Executive Officer of
Atlas and has been the  principal  officer  of Atlas,  chiefly  responsible  for
directing  the  sales  of the  company,  for  determining  the  overall  product
directions,   managing  product  research  and  development,  and  managing  the
application engineering departments.  From 1977 to 1996, Mr. Austin held various
other  management  positions at Atlas,  including  Vice President of Operations,
Sales Manager, and Controls Manager.  From 1973 to 1977, Mr. Austin held various
controls  engineering and management  positions at Fluid & Electric Control Co.,
including Chief Engineer.

     Neither Mr.  Prime nor Mr.  Austin  currently  performs  any  policy-making
functions for the Company.

     Atlas employs  approximately 200 persons. None of these persons is a member
of a union.  Atlas believes that its employee relations are good. Atlas believes
that its  location in Michigan is  beneficial  in its access and ability to hire
qualified personnel because of the highly industrialized nature of the area.


ITEM 2.  PROPERTIES

     Atlas  operates  from  manufacturing   facilities  in  Fenton  and  Linden,
Michigan.  It has  approximately  94,200 square feet of space in two  facilities
which it owns in Fenton. One of the Fenton facilities,  newly built in 1997, has
higher roofs and heavier cranes to facilitate  manufacturing of larger equipment
and provides  approximately  51,000 square feet of manufacturing space and 8,000
square feet of office  space.  This  facility  also is capable of expanding at a
later date to  approximately  130,000  square feet of  manufacturing  and 25,000
square  feet of office  space.  Both  Fenton  facilities  are used for  assembly
operations  and light and  medium  machining  operations  and  electrical  panel
construction. Project management, engineering and sales offices are also located
in Fenton.

     In  Linden,  Michigan,  at a  leased  location,  Atlas  has a  welding  and
fabrication and warehouse facility located in approximately 16,300 square feet.

     During the fiscal year,  Atlas reduced  staffing and office space leased in
Atlanta, Georgia.

     The  principal  executive  office of Atlas is  located  at 201 South  Alloy
Drive, Fenton, Michigan 48430, and its telephone number is (810) 629-6663.


ITEM 3.  LEGAL PROCEEDINGS

     In 1996,  Atlas and the estate of John  Maher,  the owner of the patent for
the  FLEX  5000(R)  licensed  to  Atlas,  initiated  an  action  against  Orchid
International  Group Inc. and Orchid Automation  ("Orchid") in the Federal Court
of Canada, Trial Division,  claiming infringement and wrongful sale, manufacture
and use by Orchid of the inventions protected by such patent and seeking,  among
other relief,  a declaration  that the patents are valid and have been infringed
by Orchid,  injunctive  relief and  damages of at least  $5,000,000  (Cdn).  The
defendant has filed an answer denying the material  allegations of the complaint
and asserting a counterclaim  requesting  that the patents be declared  invalid.
Discovery activities are presently being undertaken by the parties.

         During  the third  quarter  of fiscal  1998,  Atlas and the SWVA,  Inc.
("SWVA")  reached a settlement in connection with an outstanding  legal dispute.
SWVA's  initial  claim  under the dispute was for  $15,300,000.  The  settlement
provided  for a payment of $700,000  to SWVA,  of which  $210,000  was paid from
insurance proceeds.

         Except for the action against Orchid,  neither the Company nor Atlas is
currently involved in any material legal proceedings.

                                       5


<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

         Not Applicable.





 



                                      6

<PAGE>

                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Common Stock (Symbol: PRAC) and Warrants (Symbol: PRACW) are listed for
trading on the Nasdaq SmallCap Market. The Company's Units (Symbol: PRACU), each
consisting of one share of Common Stock and two Warrants,  are quoted on the OTC
Bulletin Board.

     The following table sets forth the range of high and low closing bid prices
for the Common Stock and Warrants,  as reported by the Nasdaq  SmallCap  Market,
and for the Units, as reported by the OTC Bulletin Board.  There was no material
trading in the Units during the periods  reported.  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  System.  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.

<TABLE>
<CAPTION>

                                                           Units        Common Stock                 Warrants
                                                      High      Low       High         Low       High       Low
                                                     -------- --------- ---------- ----------- --------- ---------
<S>                                                   <C>    <C>          <C>       <C>        <C>       <C>
Year ended June 30, 1997:
   First Quarter                                        9        9        6 3/8      4 5/8      1 7/8    1 3/16
   Second Quarter                                     8 3/4    7 1/4        5        3 1/4      1 1/2      1/2
   Third Quarter                                      6 7/8    6 5/8      4 3/8      2 1/2      1 1/4      1/2
   Fourth Quarter                                      --        --       3 1/4      1 3/4      1          3/8

Year ended June 30, 1998:
   First Quarter                                       --        --       4 5/8      1 3/4      1          3/8
   Second Quarter                                     6 5/8    6 3/8        5        3 7/16     1 1/2      5/8
   Third Quarter                                       --        --       5 7/8      3 3/4      1 9/16   1 3/16
   Fourth Quarter                                      --        --       6 7/16     3 1/2      1 3/4      5/8
</TABLE>

     As of  September  30,  1998,  the  Company  had 12 holders of record of its
Common Stock.  The Company  believes that there are in excess of 500  beneficial
holders of the Company's Common Stock.

     The Company  has not  declared or paid any  dividends  on its Common  Stock
since its inception.

Recent Sales of Unregistered Securities

     No securities  were issued by the Company during the fiscal year ended June
30, 1998. In September 1998,  150,000 shares of Common Stock were issued to each
of Messrs.  Prime and Austin pursuant to agreement reached during the year ended
June 30, 1998. Such shares were not registered under the Securities Act of 1933,
as amended (the "Act"),  pursuant to the  exemption  provided by Section 4(2) of
the Act as transactions by an issuer not involving a public offering.


                                       7
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

     The following  selected financial data have been derived from the Company's
and its predecessor's  consolidated financial statements which have been audited
by BDO Seidman, LLP, independent certified public accountants, at June 30, 1998,
1997 and 1996,  for the periods  July 1, 1995 to May 23,  1996,  May 24, 1996 to
June 30, 1996,  and for the years ended June 30, 1997 and 1998,  and by Dupuis &
Ryden,  independent certified public accountants,  at June 30, 1995 and 1994 and
for the years then ended.  The following data should be read in conjunction with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Report.

                  (Dollars in thousands, except per share data)


Consolidated Statements of Operations Data



<TABLE>
<CAPTION>
                                                         The Company                             Predecessor
                                            -------------------------------------    ------------------------------------ 
                                                                                      July 1
                                               Year          Year       May 24,         1995          Year          Year
                                              Ended         Ended            to           to         Ended         Ended
                                           June 30,      June 30,      June 30,      May 23,      June 30,      June 30,
                                               1998          1997         1996          1996          1995          1994
                                           --------       -------      --------      -------     ----------    -----------  
<S>                                       <C>             <C>         <C>         <C>           <C>           <C>       
Net sales                                 $36,040         $34,438     $   4,404   $   31,598    $   29,077    $   21,186
Cost of sales                              27,562          24,825         3,029       21,773        21,034        16,320
Gross profit                                8,478           9,613         1,375        9,825         8,043         4,866
Selling, general and                        8,538           7,081           729        6,007         5,119         4,872
administrative expenses
Officers' bonuses                               0             711           197        2,117           ---           ---
Bonus Restructuring Expense                 2,132             ---           ---          ---           ---           ---
Income (loss) from operations              (2,192)          1,821           448        1,701         2,924           (6)
Net income (loss)                          (2,012)            593           204          762         2,219         (297)
Basic earnings per share 
of common stock                            ($0.95)           $.28       $   .10
Weighted average common
shares                                      2,125           2,125         2,125
</TABLE>


Consolidated Balance Sheet Data

<TABLE>
<CAPTION>
                                                                    The Company                        Predecessor
                                                         ------------------------------------     --------------------
                                                         June 30,      June 30,     June 30,      June 30,      June 30,
                                                             1998          1997         1996          1995          1994
                                                         --------      --------   -----------     --------     ----------
<S>                                                       <C>           <C>       <C>           <C>            <C>      
Current assets                                            $15,272       $22,627   $   18,690    $   11,423     $   8,850
Current liabilities                                         5,470         7,284       13,642         8,321         7,246
Working capital                                             9,802        15,343        5,048         3,102         1,604
Property, plant and equipment,  net                         8,289         7,667        4,240         2,517         2,595
Total assets                                               26,809        33,410       26,023        14,550        11,774
Long-term debt, less current maturities                    11,254        15,327        2,228         2,717         1,666
Total liabilities                                          18,160        23,444       16,650        11,037         8,912
Stockholders' equity                                        8,649         9,966        9,373         3,513         2,862

</TABLE>


                                       8


<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
         AND RESULTS OF OPERATIONS

     The fiscal year ended June 30, 1998 is the second full year of consolidated
activities for Productivity  Technologies Corp. and its wholly-owned subsidiary,
Atlas Technologies, Inc.

     Currently,  automotive and auto-related suppliers and steel service centers
account for  approximately  90% of new orders and receive most of Atlas's recent
marketing  efforts.  At the same time,  Atlas  remains  familiar  and  maintains
quoting  activity with  non-automotive  customers,  including  producers of home
appliances,   heating  and  air  conditioning  systems,  off-road  vehicles  and
equipment,  and other manufacturers which use significant amounts of sheet metal
in their products.

Results of Operations

     The Company,  on a  consolidated  basis,  incurred a loss of  $2,012,350 or
$0.95 per share for the fiscal year ending June 30, 1998 due, in part,  to legal
settlements,  a bonus  restructuring  with senior executives of Atlas, and other
charges due to changes in  estimates.  Significant  expenses  included the bonus
restructuring  plan  charge of  $2,131,903  in one lump sum  rather  than over a
period from the present through  December 31, 2001, legal settlement and defense
costs  approximating  $750,000  during the fiscal year, and changes in estimates
resulting in the write down of work-in-process  and an increase in allowance for
bad debts approximating  $446,800.  These charges represented a combined pre-tax
charge  of  $3,328,741.  After  imputing  a 34%  federal  tax  benefit,  the net
after-tax effect of these charges approximated $2,196,969.

     Atlas's operating  performance before unusual charges was lower in revenues
and  earnings  margins  than  expected  at the  beginning  of the  year by Atlas
management.  Orders which were  received,  and the delivery dates of the orders,
tended to be concentrated  over a shorter period of time,  hindering the ability
of Atlas  management  to  schedule  production  and use  labor  optimally.  This
increased  Atlas's costs and reduced  profit  margins on  shipments.  Atlas also
experienced a reduction in new orders during the General  Motors  workers strike
in the summer of 1998.  Atlas  began to  produce  orders for GM in the third and
fourth  quarters of fiscal 1998, but had to suspend  production when GM canceled
orders due to a delay in certain plant expansion plans.

     Results  of  operations  for the year  ending  June 30,  1997 are not fully
comparable  to results for fiscal  1996.  PTC  acquired  Atlas on May 23,  1996.
Fiscal 1996 figures include  approximately eleven months of unconsolidated Atlas
operations. Consequently, fiscal 1996 data includes only 38 days of consolidated
PTC and Atlas activities.

Sales (Revenue and Cost Recognition)

     Sales are  recognized  using  the  percentage-of-completion  method,  which
measures the  percentage of contract  costs  incurred to date and compares these
costs to the 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
condition, estimated profitability,  and final contract settlement may result in
revisions to costs and income,  and are  recognized  in the period the revisions
are determined.

Fiscal Year 1998 Compared to Fiscal Year 1997

     Net sales for the fiscal year ending  June 30,  1998 were  $36,040,278,  an
increase of 5% over net sales of $34,437,625 for the fiscal year ending June 30,
1997.  Atlas management  believes the worldwide  customer demand is still strong
for automation to enhance stamping press line production speeds, quality, safety
and unit  cost  savings.  Despite  this,  Atlas's  backlog  as of June 30,  1998
approximated  $17,000,000,  a 10% decline versus the $19,000,000 backlog at June
30, 1997. Atlas  management  believes the decline in backlog as of June 30, 1998
was temporary, and caused in part by postponements in order placement due to the
GM strike and the delay in capital  spending leading up to the completion of the
merger of DaimlerBenz and Chrysler Corp.

                                       9
<PAGE>

     Cost of  products  sold for the  fiscal  year  ending  June 30,  1998  were
$27,562,608, a level approximating 76% of net sales, compared to $24,824,582, or
72% of net sales,  for the 1997 fiscal year.  Cost of sales relative to revenues
increased due to a less favorable product mix during fiscal 1998,  foreign sales
at lower margins,  and to a less efficient use of production and labor resources
necessitated  by the higher  concentration  in required  product  delivery dates
relative  to fiscal  1997.  Included  in cost of sales  during  fiscal 1998 were
expenses related to ISO 9000 certification efforts,  employee computer and other
training,  a change in estimate that resulted in a write down of work-in-process
and finished inventories  approximating  $447,000,  and research and development
costs in connection  with the final design phase of new  automation and material
handling products.

     Gross profits for the year ending June 30, 1998 were $8,477,670 compared to
$9,613,043  in fiscal  1997,  a decrease of 12% due to the reasons  cited in the
immediately  preceding paragraph on cost of sales.  Approximately 30% of Atlas's
sales in fiscal 1998 were foreign. In general, Atlas foreign sales during fiscal
1998 were at lower gross  margins due to higher  costs  associated  with foreign
marketing efforts, foreign redesign requirements, travel and shipping expenses.

     Selling,  general and  administrative  (SG&A)  expenses were  $8,538,166 in
fiscal 1998  compared to  $7,081,273  for fiscal  1997,  an increase of 21%. The
increase was primarily due to expenses of  approximately  $750,000 in connection
with the legal defense and  settlement of the SWVA  lawsuit,  higher  commission
expenses related to Atlas's increased volume, and travel and sales related costs
associated  with the first full year of Atlas's sales and  marketing  efforts in
the United Kingdom and China.

     The bonus restructuring plan agreed to between Atlas and Messrs.  Prime and
Austin,  senior  executives  and  former  owners of Atlas,  during  fiscal  1998
resulted in a charge of $2,131,903.  Under the bonus  restructuring  plan, Atlas
agreed to pay to the senior  executives  the  following:  (1) 300,000  shares of
common stock restricted from transfer or resale for a period of three years, and
(2) deferred compensation of $1,660,564 which is to be paid in four equal annual
installments in arrears.  In addition,  $810,000 accrued in previous years under
their employment  agreements was agreed to be paid in cash, of which $560,000 is
to be  placed  in an  escrow  account.  It is  expected  that part or all of the
balance in the escrow  account will be distributed at a later date to the senior
executives,  depending upon the future resolution of a dispute between Atlas and
the Internal  Revenue  Service related to research and  experimentation  credits
claimed by Atlas for the fiscal  years ended June 30,  1991  through  1995.  See
"Contingencies" below.

     Interest  expense  during  fiscal 1998 was  $1,057,725,  an increase of 13%
compared to $933,632 for 1997.  The increase in interest  expense for the period
was due to the first full year of interest payments on the $4,500,000 Industrial
Revenue Bond issued by Atlas in December 1996 for building  construction and the
purchase of equipment and other assets.

     The net loss during  fiscal year 1998 was  $2,012,350  compared to 1997 net
income of  $592,730.  The  reasons  for the net loss are  provided  in the above
paragraphs of this section.

     The  Company's  consolidated  statement  of cash flows  indicates  net cash
generated in operating  activities of $5,503,400 for the fiscal year ending June
30, 1998 which  resulted  primarily  from a  reduction  in  work-in-process  and
accounts  receivable.  Net cash used in investing  activities  included proceeds
from  the sale of a  facility  in  Linden,  Michigan  which  was  offset  by new
purchases of computers,  furniture  and  equipment in connection  with the newer
plant in Fenton,  Michigan.  The net proceeds generated by operating  activities
were  used to pay  down the  bank  line of  credit  and the net  effect  of cash
financing and usage activity  resulted in an increase of cash and equivalents of
$1,328,748 as of June 30, 1998 compared to June 30, 1997.

                                       10

<PAGE>

Fiscal Year 1997 (Consolidated) Compared to Fiscal Year 1996

     Net sales for the fiscal  year ending  June 30,  1997 were  $34,437,625,  a
decrease of 4% over net sales of $36,002,861  for fiscal year 1996. The decrease
resulted  primarily from two factors.  The first relates to shipments which were
delayed  by  a  customer  of  Atlas's  newly  designed  destacker.   Atlas  also
experienced  reduced  production  flow caused by the move to and start-up of the
new facility.  Customer demand for automation  solutions that enhance production
speeds,  quality,  safety and provide  piece part cost savings  remains  strong.
Atlas's backlog at June 30, 1997 approximated  $19.0 million, a 4% increase over
June 30, 1996 backlog of $18.2 million.

     Cost of  products  sold for the  fiscal  year  ending  June 30,  1997  were
$24,824,582,  representing  72% of revenues,  compared to  $24,802,193 or 69% of
revenues,  for fiscal  year 1996.  The  increase  in cost of sales  relative  to
revenues was primarily due to Atlas's  expensing,  during the first two quarters
of fiscal 1997,  costs  associated  with the  development  of its new destacking
equipment,  and additional  expenses from increases in foreign sales,  including
redesign  requirements for foreign orders,  project management,  foreign travel,
and overseas shipping expenses.

     Gross  profits  for  fiscal  year  ending  June 30,  1997 were  $9,613,043,
compared to 1996 gross profits of  $11,200,668,  a decrease of 14%. The decrease
was primarily due to development  expenses  related to the introduction of large
destacker equipment,  costs associated with increasing foreign market sales, and
lower overall sales levels.

     For fiscal 1997, selling,  general and administrative  (SG&A) expenses were
$7,081,273,  as compared to $6,736,106  for 1996, an increase of 5%.  Changes in
Atlas's SG&A included a reduction in legal  expenses of $148,000,  a decrease in
bad debt costs of $160,000 and an increase in goodwill  amortization  of $92,000
associated with the acquisition of Atlas by the Company. SG&A increases included
the Company's corporate  administrative and compensation expenses. The Company's
SG&A  expenses for the full 12 months of fiscal 1997 were  $679,446  compared to
$54,381 for approximately  one month during fiscal 1996. The Company's  expenses
increased in fiscal 1997  compared to 1996 due to the Company's  acquisition  of
Atlas in May, 1996. Corporate salaries for employees of the Company were $18,332
in fiscal year 1996 and $223,221 in fiscal year 1997. Corporate salaries in 1996
commenced  subsequent  to the  Company's  purchase of Atlas and covered  only 38
days,  from May 23, 1996 to June 30, 1996. In contrast,  the Company's  salaries
were paid for the entirety of fiscal year 1997.  Accounting  fees increased from
approximately  $8,000  in  fiscal  year  1996 to  $68,024  in 1997,  legal  fees
increased from $19,000 in 1996 to $29,960 in 1997, and travel related costs grew
from $13,237 to $60,057.  Professional  consulting and stock market related fees
increased  from $0 and $3,324,  respectively,  in 1996 to $60,976  and  $64,005,
respectively, in fiscal 1997.

     Officer bonuses to Ronald Prime and Michael  Austin,  executives and former
owners of  Atlas,  amounted  to a total of  $711,000  during  fiscal  1997.  The
bonuses,  which are  superseded in fiscal 1998,  were  contingent on the Company
achieving  certain  levels  of  financial  profitability  each year and were not
accrued if the Company did not meet the earnings targets.  Bonuses during fiscal
1996 were  $2,314,000,  of which $753,000 was expensed  subsequent to January 1,
1996 when the  employment  agreement  between the Company and Messrs.  Prime and
Austin commenced.

     Interest  expense for fiscal year  ending  June 30, 1997 was  $933,632,  an
increase of $363,450  relative to interest costs of $570,182 in fiscal 1996. The
significant  increase  in  interest  expense for the period was caused by higher
utilization of the line of credit to finance work-in-process, increased accounts
receivable,  distribution of officer bonuses and increases in borrowings related
to the  issuance of the  $4,500,000  Industrial  Revenue  Bond (IRB) in December
1996.  The IRB was issued to pay for  Atlas's new plant  construction  and asset
acquisitions.

     Net Income during fiscal year 1997 was $592,730 compared to 1996 net income
of  $967,428.  The  decrease  in net  income of 39% was  primarily  due to lower
volume,  higher cost of sales, higher interest charges,  and increased corporate
overhead absorption for the full 1997 fiscal year.

                                       11
<PAGE>

     The Company used net cash of $1,389,788  in operating  activities in fiscal
1997 to support an increase in customer  receivables  of $1,123,172  and work in
process  of  $417,420.  Cash used in  investing  activities  of  $4,438,338  was
employed to purchase the land,  building and  equipment  for the  Company's  new
plant.  Company financing  activities during fiscal 1997 provided  $6,159,656 of
cash, and included a $4,500,000 Industrial Revenue Bond offering issued by Atlas
in  December   1996  to  finance  new  plant   construction,   furnishings   and
manufacturing  equipment.  The balance derived from increased  borrowings on the
revolving  line of credit  and a term note to  finance  a boring  mill.  The net
result of  financing  and usage  activity  resulted  in an  increase of cash and
equivalents of $331,530 compared to the balance at the end of fiscal 1996.

Liquidity and Capital Resources

     The  Company  believes  Atlas's  future  short  term  capital   expenditure
requirements  can be met  from the  $14,000,000  asset-based  revolving  line of
credit.  Atlas borrowed from $7,200,000 to $12,700,000 under the revolver during
fiscal  1998.  Use of the  revolver  depends  on  project  invoicing.  Delays in
converting work in process into customer invoices typically require increases in
revolver  borrowings.  From time to time,  Atlas's  bank  allows  for  temporary
increases in the collateral requirements as stated in the current agreement. The
debt to officers  under the bonus  restructuring  plan is  subordinated  to bank
borrowings  and is included in  calculating  certain  debt ratios as required by
covenants in the banking agreements.

     The Company's working capital at June 30, 1998 was $9,801,888,  compared to
$15,343,022  as of  June  30,  1997.  The  decrease  was  due  primarily  to the
$4,100,450  repayment on the revolving credit line and an increase of $1,193,616
in expenditures for property and equipment.

     At June 30,  1998,  Atlas had  borrowings  outstanding  of  $13,306,187  on
various  loans and the  deferred  compensation  agreement,  of which the current
portion was $615,677.  Atlas's loans and deferred  compensation  agreement  were
comprised of the following:

     (i)  A  revolving  credit  agreement   expiring  in  September  1999,  with
          increased  maximum  debt  usage of  $14,000,000  based  on  collateral
          including  Atlas  receivables,   work-in-process,  and  other  assets.
          Interest  rates were at the bank prime rate less 1/4% or the 30, 60 or
          90 day LIBOR rate plus 230 basis points, at the option of the Company.
          Atlas  amortized  certain asset based debt with quarterly  payments of
          $37,360. Atlas's outstanding revolving line of credit at June 30, 1998
          was $7,199,165.

     (ii) A note with First  Chicago  NBD,  N.A. The note balance at fiscal year
          end 1998 was  $140,077.  The note bears  interest at the bank's  prime
          rate. The final note payment is due in January, 2002.

     (iii)Atlas had borrowings  outstanding of $30,562 from Concord  Commercial,
          a leasing company,  secured by certain Atlas equipment. The borrowings
          bear interest of 8.7% per annum.  Final  payment on the  borrowings is
          due in October, 1999.

     (iv) Atlas  had  outstanding  borrowings  of  $4,500,000  relating  to  the
          issuance  of the  Industrial  Revenue  Bonds.  The bonds are state and
          federal tax exempt.  Consequently,  the  floating  rate of interest is
          significantly   reduced  compared  to  conventional   construction  or
          real-estate financing. IRB terms are as follows for each fiscal year:

         1999-2001 -- $400,000 annual payments plus quarterly interest payments
        2002- 2012 -- $300,000 annual payments plus quarterly interest payments

     IRB  closing  costs of  $184,409  were  incurred  and booked as a long term
asset. These are being amortized over the 15 year life of the Industrial Revenue
Bonds.

                                       12
<PAGE>

     (v)  Deferred  compensation  due to officers of $1,660,564 which is payable
          over four equal annual installments in arrears, with the final payment
          due in July 2002.

     The Company believes that, as a result of the revolving  credit  agreement,
its  short-term  credit   availability  is  adequate  to  support  its  business
operations at current and near-term anticipated sales levels.

Contingencies

     Atlas is undergoing an Internal  Revenue  Service audit for the fiscal year
ended June 30, 1995.  The main area of review is a research and  experimentation
tax credit the Company has calculated and filed for over the past six years. The
Company had applied  approximately  $459,000 of credit towards Federal taxes due
for the  fiscal  periods  ended  June  30,  1997,  1996 and 1995 and had a carry
forward of  approximately  $23,000  expected to be used as a reduction in future
tax payments.  Management  believes this issue is a matter of  interpretation of
the research and experimentation  regulations.  Management believes that the IRS
may seek a  reduction  in the  amount  of  credit  calculated  which may have an
adverse  effect to the  financial  statements  of the  Company.  The  Company is
entitled to  indemnification  up to $560,000 (subject to certain  exclusions and
limitations) from the former principal  stockholders of Atlas for amounts it may
be required to pay as a result of such audit.

Year 2000 Compliance

     The Company is  installing  an  "enterprise  resource  planning"  system at
Atlas, which includes computer systems for its internal accounting and reporting
activities and its  manufacturing  operations and processes which are "Year 2000
compliant"  (which  means  that such  computer  systems  and  other  information
technology will accurately process date/time data regardless of whether the date
is in the twentieth or twenty-first  century).  The acquisition and installation
of the system are expected to cost  approximately  $340,000,  of which  $240,000
was  expended  in fiscal  1998.  Because the system is being  implemented  as an
overall upgrade to Atlas's  operations and not specifically to address Year 2000
compliance concerns,  management has not estimated the portion of the cost which
may be  allocable  to Year  2000  compliance.  Management  has not yet  assessed
whether or not the failure of Atlas's internal information technology to be Year
2000 compliant would have a material adverse effect upon the Company's financial
position,  liquidity  or results of  operations  although it is  confident  that
installation  and operation of the new system will be accomplished in advance of
December 31, 1999.

     The Company is also assessing its vendors, customers,  utilities, banks and
others with whom it does  business to determine if their failure to be Year 2000
compliant would have a material adverse effect upon the Company or its financial
position,  liquidity or results of operations.  To date, nothing has come to the
attention of management  that leads it to conclude  that the  likelihood of such
adverse effect reasonably  exists.  The Company's and Atlas's operations utilize
relatively little electronic data interchange with vendors,  customers and other
third  parties.  However,  to the extent that such third  parties,  particularly
utilities and banks,  may not be Year 2000 compliant,  the Company and Atlas may
be  adversely  effected,  although  the  magnitude  of  such  effect  cannot  be
estimated.  The  cost  to the  Company  of  making  its  third-party  Year  2000
compliance assessment is not expected to be material.

     Certain  Atlas  products  contain  processors  which  address  and  utilize
date/time  data.  Management  believes  that  such  processors  incorporated  in
equipment sold within the past five years are virtually all Year 2000 compliant.
However, it is not able to determine the compliance status of processors used in
equipment  sold in earlier  periods  with any  reasonable  degree of  certainty.
Although  such  equipment is beyond the warranty  periods  applicable to Atlas's
products, it is possible that customers who purchased equipment from Atlas which
is not Year 2000  compliant  may  nevertheless  assert  claims  against Atlas to
correct the compliance  deficiencies or for resulting damages.  While management
believes that Atlas would not be legally  responsible to such persons,  based on
the terms of its purchase orders and warranties,  there can be no assurance that
this position would prevail if challenged.  Management is unable to estimate the
potential  cost  that  the  Company  might  incur  if such  claims  are made and
successfully sustained or whether or not such cost would have a material adverse
effect upon its financial position, liquidity or results of operations.

                                       13
<PAGE>

Recent Accounting Standards

     In June 1997, the Financial  Accounting Standard Board issued SFAS No. 130,
"Reporting  Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related  Information."  These  statements are effective for
financial  periods  beginning  after  December 15, 1997 and require  comparative
information for earlier years to be restated.  Management has not determined the
impact,  if any,  these  statements  may  have  on  future  financial  statement
disclosures.

     Statement  of  Position  (SOP)  98-5,  "Reporting  on the cost of  Start-Up
Activities,"  was issued in April 1998 and SFAS 133,  "Accounting for Derivative
Instruments and Hedging  Activities,"  was issued in June 1998. These statements
are  effective in fiscal 2000 and are not expected to have a material  impact on
the consolidated financial statements.

Forward-Looking Statements

     When used in this and in future  filings by the Company with the Securities
and Exchange Commission,  in the Company's press releases and in oral statements
made with the approval of an authorized  executive  officer of the Company,  the
words  or  phrases  "will  likely   result,"   "plans,"  "will   continue,"  "is
anticipated,"   "estimated,"  "project"  or  "outlook"  or  similar  expressions
(including  confirmations by an authorized  executive  officer of the Company of
any such  expressions  made by a third party with  respect to the  Company)  are
intended  to  identify  "forward-looking  statements"  within the meaning of the
Private Securities  Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speaks only as of the date made. Such statements are subject to certain
risks and  uncertainties  that could cause actual  results to differ  materially
from historical earnings and those presently  anticipated or projected.  Factors
that may cause actual results to differ  materially  from those  contemplated by
such   forward-looking   statements   include,   among  others,  the  following:
competitive  pressures  in the  industry  in which the  Company is  engaged;  an
unfavorable  outcome of the IRS audit for the fiscal year ending June 30,  1995,
adverse changes in the Company's banking loan  requirements;  major fluctuations
in the strength of the U.S. dollar versus  international  currencies;  Year 2000
compliance;  and general economic  conditions.  The Company has no obligation to
publicly  release  the  result  of  any  revisions  which  may  be  made  to any
forward-looking  statements to reflect  anticipated or  unanticipated  events or
circumstances occurring after the date of such statements.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          Not Applicable.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          Financial Statements of the Company as set forth on page F-1
 
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
          FINANCIAL DISCLOSURE

          Not applicable.


                                       14
<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The current directors and executive officers of the Company are as follows:


Nominee                      Age      Director    Position
                                       Since
Ray J. Friant, Jr........    67         1993      Chairman of the Board
Samuel N. Seidman........    64         1993      President and Director
Joseph K. Linman.........    59         1993      Director and Vice President
John S. Strance..........    73         1993      Director and Vice President
Jesse A. Levine..........    31         1993      Director, Chief Financial 
                                                  Officer,  Vice President, 
                                                  Secretary and Treasurer
Alan H. Foster...........    72         1993      Director
Alan I. Goldman..........    61         1993      Director


     Ray J. Friant,  Jr. has been Chairman of the Board of the Company since its
inception.  Between 1988 and 1996, Mr. Friant was Managing  Director of Seidman,
Friant,  Levine Ltd.,  a crisis  management  company,  where he  specialized  in
corporate restructuring and reorganization.  In this capacity, he had management
control,  and successfully  restructured  and/or  stabilized the operations,  of
three public  companies,  CMI Corp.,  Mr. Gasket Co. and Advanced  Semiconductor
Materials   International  N.V.  ("ASM"),  which  companies  have  manufacturing
operations  in road  building  equipment,  automotive  aftermarket  products and
semiconductor  production  equipment,  respectively.  Since 1982, Mr. Friant has
also been President and Director of Friant  Associates,  Inc.,  specializing  in
corporate  turnarounds.  Mr. Friant was Group Vice President and General Manager
of  Gulf+Western  Industrial  Products  Group (IPG) from 1978 to 1982. IPG was a
group of ten companies involved in electronic  systems,  electronic  connectors,
electronic components,  electro-mechanical  components,  wire and cable, cutting
tools and  hardware  manufacturing.  From 1973 to 1978,  as an  employee  of ITT
Corp.,  Mr.  Friant  successfully   reorganized  several   multi-million  dollar
subsidiaries.  In  addition,  he had a number of special  worldwide  assignments
involving ITT Corp. headquarters  organization,  resource allocation for product
development,  and  management  succession.  At Western Union Corp.  from 1969 to
1972, Mr. Friant developed and implemented the business of  teleprocessing  at a
non-regulated subsidiary.  From 1953 to 1969, Mr. Friant was employed by General
Electric Co. ("GE"),  where he was  responsible for initiating GE's phased array
radar business,  for designing and implementing  GE's Program  Management System
for managing large,  complex military contracts and for the business  turnaround
of several  unsuccessful  organizations.  Mr. Friant earned B.S. degrees in both
Mechanical Engineering and Electrical Engineering from West Virginia University.
He also graduated  from General  Electric's  three-year  graduate level Advanced
Engineering program and General Electric Management School.

     Samuel N. Seidman has been  President  and a Director of the Company  since
its inception.  In 1970, Mr. Seidman  founded Seidman & Co., Inc., an investment
banking and  economic  consulting  firm,  and serves as its  President.  In this
capacity,  he has  provided  a  broad  range  of  investment  banking  services,
including financial analysis and valuations,  private financings,  and corporate
recapitalizations and debt restructurings. Mr. Seidman also serves as a director
of AMREP Corp.,  a real estate  development  corporation  listed on the New York
Stock Exchange.  He has acted as financial  advisor to  manufacturers of various
kinds of production systems and components for a number of industries, including
ASM, a  multi-national  producer  of  automated  equipment  and  systems for the
production of semiconductors,  traded on the Nasdaq National Market. Mr. Seidman
advised in the sale of ASM Fico Tooling,  Inc., a European-based  multi-national
manufacturer of specialized tooling for the semiconductor  industry. Mr. Seidman
was Co-Chairman of the Creditors'  Committee in the Chapter 11 reorganization of
Sharon Steel Corp., an integrated  manufacturer of finished steel products,  and
served as  financial  advisor  in  Chapter  11 to Chyron  Corp.,  a  specialized
production  systems company for video  productions  listed on the New York Stock
Exchange, and Mr. Gasket Co., a manufacturer of automobile aftermarket products.
Prior to founding  Seidman & Co., Mr.  Seidman  worked in  corporate  finance at

                                       15
<PAGE>


Lehman  Brothers.  Mr.  Seidman has served as  director  of numerous  public and
private  companies,  including Penn Engineering  Corporation,  a manufacturer of
equipment for steel production and metal processing which had been listed on the
American Stock Exchange.  Mr. Seidman earned a B.A. degree from Brooklyn College
and a Ph.D. in economics from New York  University.  He was a Fulbright  Scholar
and a member of the graduate  faculty of the City  University  of New York.  Mr.
Seidman's nephew, Jesse A. Levine, is Vice President, Secretary, Treasurer and a
Director of the Company.

     Joseph K.  Linman has been Vice  President  and a Director  of the  Company
since its inception.  Mr. Linman retired from the Ford Motor Company ("Ford") in
1989 after 25 years with that  company,  preceded  by two years with RCA Defense
Electronics.  During his career with Ford,  Mr. Linman held numerous  managerial
and  executive  positions  in  financial,  marketing,  technical,   governmental
relations and external affairs capacities,  including Chief Financial Officer of
Ford Latin America, S.A. de C.V., a wholly-owned Ford subsidiary responsible for
automotive  operations  in Latin  America,  South Africa and Egypt.  Mr.  Linman
served as a member of the boards of directors or  executive  committees  of Ford
subsidiary companies in nine countries and as a member of the advisory committee
of the Council of the  Americas  and the  Mexico-U.S.  Business  Committee  that
pioneered  the North  American  Free Trade  Agreement.  Mr. Linman earned a B.S.
degree  from  Oregon  State  University  and  an  M.B.A.   degree  from  Indiana
University.

     John S. Strance has been Vice  President and a Director of the Company from
its inception. He is currently a private investor. From 1986 to 1992, he was the
President   of  Star   Controls   Corporation,   a  provider  of   sophisticated
microprocessor  control  products for process  control and  automation  systems,
which he founded.  From 1983 to 1986, Mr. Strance was an independent  consultant
assessing  technology and market trends and identifying and evaluating companies
for acquisition.  From 1980 to 1983, Mr. Strance  performed the same services as
Director of Planning and Development for Gulf+Western Manufacturing, responsible
for product development using new technology.  From 1954 until 1980, Mr. Strance
held management  positions as president of several subsidiaries of Gulf+Western.
Mr.  Strance  has been  granted  13 U.S.  letters  patent for new  products  and
production  systems.  Mr.  Strance  earned B.S. and M.S.  degrees in  Mechanical
Engineering  from the  University  of Oklahoma  and the  Carnegie  Institute  of
Technology, respectively.

     Jesse A. Levine has been Secretary, Treasurer and a Director of the Company
since  its  inception,  Chief  Financial  Officer  since  June  1995  and a Vice
President since May 1996. Since January 1992, Mr. Levine has been Vice President
and then Senior Vice President of Seidman & Co., Inc., specializing in financial
and business  analysis,  corporate  finance,  private  placements  and corporate
advisory services.  From January 1991 to December 1991, Mr. Levine was Contracts
Administration  Manager of The Newman Group  Computer  Services  Corp.,  Inc., a
computer systems supplier.  Previously, Mr. Levine served as a commercial credit
analyst for Society Bank, Michigan. Mr. Levine earned a B.A. degree in economics
from the  University  of Michigan  and has been  elected a  chartered  financial
analyst. Samuel N. Seidman, the President of the Company, is Mr. Levine's uncle.

     Alan H.  Foster has been a Director  of the  Company  since its  inception.
Since 1986, he has been an Adjunct  Professor of Finance and Corporate  Strategy
at the University of Michigan.  In  conjunction  with the University of Michigan
School of  Engineering,  Mr.  Foster is  engaged  in the study of the  future of
"agile machines." Since 1978, Mr. Foster has been the principal of A.H. Foster &
Company,  a consulting firm which serves as a consultant in corporate finance to
foreign  governments  and domestic and  international  clients.  Currently,  Mr.
Foster is a director of Code-Alarm,  Inc., a manufacturer of automobile security
systems traded on the Nasdaq National Market.  For the last 12 years, Mr. Foster
has served  numerous times as a  court-appointed  trustee in bankruptcy for both
Chapter  7 and  Chapter  11  cases.  He  was  employed  by the  American  Motors
Corporation  from 1963 to 1978,  where he first  served as  Director,  Financial
Planning and Analysis and then as Vice  President and Treasurer for the last ten
of those  years.  From 1953 to 1963,  Mr.  Foster  worked at  Sylvania  Electric
Products  in various  capacities,  including  Manager,  Corporate  Planning  and
Control. Mr. Foster is the author of Practical Business Management, published in
1962.  Mr.  Foster  earned a B.S.B.A.  degree from Boston  College and an M.B.A.
degree from Harvard Business School.

                                       16

<PAGE>

     Alan I.  Goldman has been a Director of the  Company  since its  inception.
Since 1985,  Mr.  Goldman has been  self-employed  as an  investment  banker and
management  consultant,   specializing  in  mergers  and  acquisitions,  private
placements  and business and  organization  consulting.  From 1975 to 1985,  Mr.
Goldman  was Senior  Vice  President,  Finance  and Chief  Financial  Officer of
Management Assistance, Inc., a multi-national computer manufacturing,  marketing
and  maintenance  company and a purchaser  and user of  productions  systems and
components.  From  1970 to  1974,  Mr.  Goldman  was  Vice  President,  Finance,
Treasurer and Chief Financial Officer of Interway Corporation,  an international
company  engaged in trailer  and  container  leasing and fleet  management.  Mr.
Goldman is  presently a director  of  Substance  Abuse  Technologies,  Inc.  Mr.
Goldman earned a B.A. degree from Cornell  University and an M.B.A.  degree from
New York University.

     The  Company's  Board of Directors is divided into three  classes,  each of
which serves for a term of three years,  with only one class of directors  being
elected  in each  year.  The term of  office of the  first  class of  directors,
consisting of Messrs.  Goldman and Levine,  will expire at the annual meeting of
stockholders  to be held during the 2001 fiscal year;  the term of office of the
second class of directors, consisting of Messrs. Friant and Strance, will expire
at the annual  meeting of  stockholders  to be held during the 1999 fiscal year;
and the term of office of the third class of  directors,  consisting  of Messrs.
Seidman, Linman and Foster, will expire at the annual meeting of stockholders to
be held during the 2000 fiscal year.

Compliance with Section 16(a) of the Exchange Act

     Section 16(a) of the Exchange Act requires officers,  directors and persons
who beneficially own more than 10% of a registered class of equity securities of
the Company  ("10%  stockholders")  to file reports of ownership  and changes in
ownership with the Commission. Officers, directors and 10% stockholders also are
required  to furnish the  Company  with  copies of all Section  16(a) forms they
file.  Based  solely on its review of the copies of such forms  furnished to it,
and written  representations  that no other reports were  required,  the Company
believes that during the fiscal year ended June 30, 1998,  each of its officers,
directors  and 10%  stockholders  complied  with  the  Section  16(a)  reporting
requirements.


ITEM 11.  EXECUTIVE COMPENSATION

     In  November  1997,  the Board of  Directors  of the Company  approved  the
following annual salaries for its executive  officers,  effective as of December
1997:  Chairman  (presently  Mr.  Friant),  $40,000;  President  (presently  Mr.
Seidman),  $65,000; Chief Financial Officer,  Secretary and Treasurer (presently
Mr. Levine), $40,000; and Vice Presidents (presently Messrs. Linman, Strance and
Levine)  $15,000.  Such salaries are payable in equal monthly  installments.  An
officer holding more than one office will receive only the salary of the highest
paying  office.  All  of  such  officers,  in  their  capacities  as  directors,
participated in the deliberations of the Board of Directors concerning executive
officer compensation.  The Board also approved fees of $12,000 per year for each
director  who is not an employee of the Company  (presently  Messrs.  Foster and
Goldman),  which  is  payable  in equal  quarterly  installments.  In  addition,
non-employee  directors and officers other than Messrs.  Friant and Seidman will
be paid at the rate of $500 to $1,000 per day, as determined by the Chairman and
the  President,  for actual days spent by them in  consulting  or other  special
assignments  for the benefit of the Company or its  subsidiaries.  Officers  and
directors  are also  eligible  for other  compensation  and  benefits  as may be
approved by the Board from time to time,  including benefits under the Company's
1996  Performance  Equity  Plan  which was  adopted by the  stockholders  of the
Company  on May 21,  1996.  On July 30,  1996,  the Board of  Directors  awarded
options under such plan to the Company's officers as follows:  - Messrs.  Friant
and Seidman - 70,833.33 shares each; Messrs.  Linman and Strance - 42,500 shares
each; Mr. Levine - 28,333.33 shares. Such options are exercisable until July 30,
2001, at an exercise price of $5.00 per share. In November 1997, Messrs.  Foster
and Goldman each were granted  10,000  options and Mr. Levine was granted 20,000
options,  all of which are exercisable  until November 2002 at an exercise price
of $4.125 per share.

     The Company has no employment agreements with its executive
officers,  each of whom  presently  serves  at the  discretion  of the  Board of
Directors.

                                       17

<PAGE>

Atlas Employment Agreements

     Under the bonus restructuring plan, Messrs.  Ronald M. Prime and Michael D.
Austin have entered into employment agreements with Atlas under which they serve
as the  Chief  Executive  Officer  Emeritus  and  Chief  Executive  Officer  and
President of Atlas, respectively.

     The  employment  agreements  with  Messrs.  Prime and Austin are  identical
except that the term of Mr.  Prime's  agreement  will  terminate on December 31,
1998 and that of Mr. Austin will terminate on December 31, 2001.  Each agreement
requires the  executive  to devote  substantially  all of his business  time and
attention to the affairs of Atlas.  The agreements  provide for base salaries of
$198,588  per year  subject to  cost-of-living  increases  for Mr.  Austin after
December 31, 1998,  for six weeks vacation per year,  reimbursement  of business
expenses, use of an automobile and mobile telephone,  medical and life insurance
benefits and other benefits  generally made  available to other  employees.  The
agreements  also provide that each executive,  regardless of future  employment,
will  receive four annual  payments of $207,571  commencing  July 30, 1999.  The
executives  each  were  also  issued,  during  fiscal  1999,  150,000  shares of
restricted Common Stock of the Company, which has been valued in the fiscal 1998
financial   statements  at  market  value  less  a  30%  discount  for  lack  of
marketability.

     Each  employment   agreement  also  contains  provisions   restricting  the
disclosure of confidential information and non-competition covenants.

                                       18

<PAGE>



                           SUMMARY COMPENSATION TABLE
                                                                           
                                                                   Long-Term
                                                                 Compensation
                                                                    Awards   
  Name and Principal Position          Period       Salary ($)      Options (#)
----------------------------------  --------------  ----------   --------------
Samuel N. Seidman, President & CEO  7/1/97-6/30/98    75,000           ---
                                    7/1/96-6/30/97    65,000         70,833
                                    7/1/95-6/30/96     6,250           ---


                        AGGREGATE YEAR-END OPTION VALUES
                                 (June 30, 1998)


<TABLE>
<CAPTION>
                                    Number of unexercised options at     Value of unexercised in-the-money options at
                                           fiscal year-end(#)                           fiscal year-end($)
            Name                    Exercisable        Unexercisable        Exercisable              Unexercisable
-------------------------------- ------------------- ------------------- ------------------- ---------------------------
<S>                                    <C>             <C>                   <C>                   <C>              
Samuel N. Seidman                      70,833                ---                 ---                  ---

</TABLE>





                                       19


<PAGE>


Stock Price Performance Comparison

     The  following  table  compares  cumulative  total return of the  Company's
Common Stock (symbol PRAC) with the cumulative  total return of (i) the Standard
& Poor's  Midcap 400 index ("S&P  Index") and (ii) an industry  peer group index
("Peer  Index")  consisting  of  six  other  publicly  held  production  tooling
manufacturers. The table assumes $100 was invested on July 6, 1994 (the date the
Common Stock began trading on the OTC Bulletin Board) in shares of Common Stock,
stocks  comprising  the S&P Index and stocks  comprising  the Peer Index and the
reinvestment  of dividends.  The Peer Index includes  Bethlehem  Corp.,  DeVlieg
Bullard,  Inc., Farrell Corp.,  Hurco Companies,  Inc., Monarch Machine Tool Co.
and Thermwood Corp., equally weighted.


     Date        Peer Index        S&P Index          PRAC
   -------      ------------      ----------         -------
    7/6/94        $100.00*         $100.00*          $100.00
   6/30/95         119.71           119.65            106.25
   6/30/96         147.43           143.83            132.81
   6/30/97         128.44           180.49             65.63
   6/30/98         128.57           229.11            100.00




---------------------
*     6/30/94.

                                       20

<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following  table sets forth certain  information  regarding  beneficial
ownership  of the  Company's  Common  Stock,  as of  October 5, 1998 by (i) each
stockholder  known by the Company to be beneficial  owner of more than 5% of the
outstanding  Common  Stock,  (ii) each  director  of the  Company  and (iii) all
directors and officers as a group.  Except as otherwise  indicated,  the Company
believes that the beneficial  owners of the Common Stock listed below,  based on
information furnished by such owners, have sole investment and voting power with
respect to such shares,  subject to community  property  laws where  applicable.

                                          Number               Percentage
Name of Beneficial Owner                 of Shares         Beneficially Owned
--------------------------              -----------        ------------------
Ray J. Friant, Jr..................      218,083(1)                8.7%
  30 Boxwood Drive
  Convent Station, New Jersey 07960

Samuel N. Seidman..................      217,083(1)                8.7%
  520 Madison Avenue
  New York, New York 10022

Joseph K. Linman..................       114,250(1)                4.6%

John S. Strance...................       113,250(1)                4.6%

Jesse A. Levine...................        91,583(1)                3.7%

Alan H. Foster....................        31,250                   1.3%

Alan I. Goldman....................       36,250                   1.5%

All Officers and Directors
  as a group (7 persons)..........       821,749(1)               29.7%

Ronald M. Prime...................       163,000                   6.7%
6438 Brewer
Flint, Michigan 48507

Michael D. Austin.................       236,900                   9.7%
3246 Fieldstone Drive             
Flushing, Michigan 48433

-----------------------  
(1)  Includes  shares of Common  Stock  issuable  upon  immediately  exercisable
     Warrants  and  options  as  follows:   Mr.   Friant--91,833   shares;   Mr.
     Seidman--90,833  shares; Mr.  Linman--46,500  shares;  Mr.  Strance--44,500
     shares; Mr. Levine--48,333  shares; Mr. Foster - 10,000 shares; Mr. Goldman
     - 10,000 shares.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Seidman & Co., Inc., an affiliate of the Company,  makes  available to the
Company office space, as well as certain office,  administrative and secretarial
services as may be required by the Company. The Company paid Seidman & Co., Inc.
$5,000 per month for such services until May 22, 1996,  including  $8,000 during
the three  months  ended June 30,  1996.  During the fiscal years ended June 30,
1998 and 1997,  the Company paid Seidman & Co.,  Inc.  approximately  $40,000 in
each year for such services.  Samuel N. Seidman, a director and President of the
Company,  is President of Seidman & Co., Inc., and Jesse A. Levine,  a director,
Chief Financial Officer, Vice President, Secretary and Treasurer of the Company,


                                       21
<PAGE>


is Senior Vice  President of Seidman & Co., Inc.  Seidman & Co.,  Inc.  receives
reimbursement  for any  out-of-pocket  expenses  incurred in connection with the
Company's  business.  There  is no  limit on the  amount  of such  out-of-pocket
expenses  and  there  has  not  been  nor  will  there  be  any  review  of  the
reasonableness  of such  expenses by anyone  other than the  Company's  Board of
Directors,   which   includes   persons  who  have   received,   and  may  seek,
reimbursement.


                                       22
<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (a) The following documents are filed as part of this report:

          1.   The financial  statements of the Company and Atlas listed in Item
               8 are submitted as a separate section of this report.

          2.   Financial Statement Schedules
   
                       Schedule II -- Valuation  and  Qualifying  Accounts 

          3.   Exhibits as required by Item 601 of Regulation  S-K:  

Exhibit No.    Description

    3.1        Certificate of Incorporation(1)

    3.1.1      Amendment to Certificate of Incorporation filed May 28, 1996(2)

    3.2        By-laws(1)

    4.1        Form of Common Stock Certificate of the Company(1)

    4.2        Form of Warrant Certificate of the Company(1)

    4.3        Unit Purchase Option between GKN Securities Corp. and the 
               Company(1)

    4.4        Warrant Agreement between Continental Stock Transfer & Trust 
               Company and the Company(1)

   10.5        Letter Agreement between Seidman & Co., Inc. and the Company 
               regarding administrative support(1)

   10.6        Agreement of Merger dated as of December 18, 1995 (without 
               schedules or exhibits)(3)

   10.6.1      Amendment to Agreement of Merger dated December 18, 1995(3)

   10.7.1      Employment  Agreement  dated July 22, 1998 between Atlas  
               Technologies,  Inc.  ("Atlas") and Ronald M. Prime(5)

   10.8.1      Employment Agreement dated July 22, 1998 between Atlas 
               Technologies, Inc. and Michael D. Austin(5)

   10.9        1996 Performance Equity Plan of the Company(4)

   10.10       Agreement  dated July 22,  1998 by and  between the  Company,  
               Ronald M. Prime, Michael D. Austin and Atlas Technologies, 
               Inc.(5)

   10.11       Tax Escrow Agreement dated July 22, 1998 by and among the 
               Company,  Atlas  Technologies,  Inc., Ronald M. Prime, Michael D.
               Austin and NBD/First of Chicago(5)

   22          Subsidiaries of the Company(5)

   27          Financial Data Schedule (filed electronically only)(5)

-----------------------------
(Footnotes on next page)

                                       23
<PAGE>


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

(1)  Filed as Exhibit to Registration  Statement on Form S-1, No. 33-78188,  and
     incorporated herein by reference.

(2)  Filed as  Exhibit  to Report  on Form 8-K  (Event  dated May 23,  1996) and
     incorporated herein by reference.

(3)  Filed as Exhibit to Report on Form 8-K (Event dated  December 18, 1995) and
     incorporated herein by reference.

(4)  Filed as Exhibit to Report on Form 10-K for fiscal year ended June 30, 1997
     and incorporated herein by reference

(5)  Filed herewith.


    (b) During the last  quarter of the  period  covered by this  Report,  the
Company did not file any reports on Form 8-K.




                                       24
<PAGE>


                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                                      Index

Report of Independent Certified Public Accountants                         F-2


Financial Statements
      Consolidated Balance Sheets                                          F-4

      Consolidated Statements of Operations of The Company
            and Statement of Operations of the Predecessor                 F-6

      Consolidated Statements of Stockholders' Equity of The
            Company and Statement of Stockholders' Equity of
            the Predecessor                                                F-7

      Consolidated Statements of Cash Flows of The Company
            and Statement of Cash Flows of the Predecessor                 F-8


Notes to Financial Statements                                              F-10


Schedule II - Valuation and Qualifying Accounts                            F-25


                                         F-1

<PAGE>




Report of Independent Certified Public Accountants



Productivity Technologies Corp.
New York, New York

We have audited the  accompanying  consolidated  balance sheets of  Productivity
Technologies Corp. and Subsidiary ("The Company"), as of June 30, 1998 and 1997,
and the related consolidated statements of operations,  stockholders' equity and
cash flows for the years then ended and for the period May 24,  1996 to June 30,
1996 (collectively, the "Successor period"). We have also audited the statements
of operations,  stockholders' equity and cash flows of the Predecessor (see Note
1) for the period July 1, 1995 to May 23, 1996 ("Predecessor  period").  We have
also audited  Schedule II. These  financial  statements  and Schedule II are the
responsibility of the Companies'  managements.  Our responsibility is to express
an opinion on these financial statements and Schedule II based on our audits.

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

As discussed in Note 2 to the financial statements, all of the outstanding stock
of the  Predecessor  was  sold  in a  business  combination  accounted  for as a
purchase. As a result of the acquisition, the consolidated financial information
for the periods  after the  acquisition  is presented on a different  cost basis
than  that  for  the  period  before  the  acquisition  and,  therefore,  is not
comparable.


                                       F-2

<PAGE>




In our opinion,  The Company's  consolidated  financial  statements  referred to
above  present  fairly,  in all material  respects,  the  financial  position of
Productivity  Technologies  Corp.  and Subsidiary at June 30, 1998 and 1997, and
the results of their operations and their cash flows for the Successor period in
conformity  with  generally  accepted  accounting  principles.  Further,  in our
opinion,  the  Predecessor's  financial  statements  referred  to above  present
fairly,  in all material  respects,  the results of operations and cash flows of
the  Predecessor  for the  Predecessor  period,  in  conformity  with  generally
accepted accounting principles.

Also, in our opinion, Schedule II presents fairly, in all material respects, the
information set forth therein.



                                                               BDO SEIDMAN, LLP
                                                   CERTIFIED PUBLIC ACCOUNTANTS



Troy, Michigan
August 21, 1998


                                                    F-3

<PAGE>

                 Productivity Technologies Corp. and Subsidiary

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                            June 30,
                                                                                      1998           1997
---------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>
Assets (Note 6)

Current Assets
  Cash                                                                          $    2,172,457       $  843,709
  Short-term investments, including accrued interest                                   482,280          929,204
  Contract receivables, net of allowance for doubtful
    accounts of $110,000 and $45,500 (Note 3)                                        5,217,421        9,199,302
  Notes receivable                                                                      86,415          160,631
  Costs and estimated earnings in excess of
    billings on uncompleted contracts (Note 4)                                       5,435,957        8,640,731
  Inventories                                                                          628,481          619,242
  Prepaid expenses and other                                                           773,522          675,070
  Deferred income taxes (Note 9)                                                       475,000          622,000
  Assets held for sale (Note 5)                                                              -          937,549
---------------------------------------------------------------------------------------------------------------

Total Current Assets                                                                15,271,533       22,627,438
---------------------------------------------------------------------------------------------------------------

Property and Equipment
  Land                                                                                 591,514          591,514
  Buildings and improvements                                                         4,854,799        1,329,113
  Machinery and equipment                                                            3,676,415        1,909,879
  Transportation equipment                                                              31,500           31,500
  Construction in progress                                                                   -        4,142,725
---------------------------------------------------------------------------------------------------------------
                                                                                     9,154,228        8,004,731

  Less accumulated depreciation                                                        865,473          337,350
---------------------------------------------------------------------------------------------------------------

Net Property and Equipment                                                           8,288,755        7,667,381
---------------------------------------------------------------------------------------------------------------

Other Assets
  Goodwill, net of accumulated amortization
    of $237,562 and $113,884 (Note 2)                                                2,587,164        2,490,842
  Other assets                                                                         661,936          624,071
---------------------------------------------------------------------------------------------------------------

Total Other Assets                                                                   3,249,100        3,114,913
---------------------------------------------------------------------------------------------------------------
                                                                                $   26,809,388      $33,409,732
---------------------------------------------------------------------------------------------------------------
</TABLE>

                 See accompanying notes to financial statements.

                                       F-4

<PAGE>

                 Productivity Technologies Corp. and Subsidiary

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                            June 30,
                                                                                      1998           1997
---------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>
Liabilities and Stockholders' Equity

Current Liabilities
  Accounts payable                                                              $    1,970,769       $ 2,629,828
  Accrued Expenses
    Executive bonus agreement (Note 14)                                                810,000         1,254,842
    Commissions payable                                                                482,512           437,185
    Payroll and related withholdings                                                   240,329           271,930
    Other                                                                              770,096           811,220
  Billings in excess of costs and estimated
    earnings on uncompleted contracts (Note 4)                                         580,262         1,165,271
  Current maturities of long-term debt (Note 6)                                        615,677           714,140
----------------------------------------------------------------------------------------------------------------

Total Current Liabilities                                                            5,469,645         7,284,416

Deferred Income Taxes (Note 9)                                                               -           832,000

Executive Deferred Compensation Agreement (Note 14)                                  1,436,383                 -

Long-Term Debt, less current maturities (Note 6)                                    11,254,127        15,327,253
----------------------------------------------------------------------------------------------------------------

Total Liabilities                                                                   18,160,155        23,443,669
----------------------------------------------------------------------------------------------------------------

Commitments and Contingencies (Notes 11 and 14)

Stockholders' Equity (Notes 7 and 8)
  Common stock; $.001 par value, 20,000,000 shares
    authorized and 2,125,000 issued and outstanding                                      2,125             2,125
  Common stock to be issued (Note 14)                                                  695,520                 -
  Additional paid-in capital                                                         9,177,488         9,177,488
  Retained earnings (deficit)                                                       (1,225,900)          786,450
----------------------------------------------------------------------------------------------------------------

Total Stockholders' Equity                                                           8,649,233         9,966,063
----------------------------------------------------------------------------------------------------------------
                                                                                $   26,809,388       $33,409,732
----------------------------------------------------------------------------------------------------------------
</TABLE>

                 See accompanying notes to financial statements.

                                       F-5

<PAGE>


                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

              Consolidated Statements of Operations of The Company
                 and Statement of Operations of the Predecessor


<TABLE>
<CAPTION>
                                                                         The Company                            Predecessor
                                                   ---------------------------------------------------        ----------------
                                                     Year Ended           Year Ended        May 24, to            July 1, 1995
                                                  June 30, 1998        June 30, 1997     June 30, 1996         to May 23, 1996
------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                  <C>                <C>                   <C>           
Net Sales                                         $  36,040,278        $  34,437,625      $  4,404,192          $   31,598,669

Cost of Sales                                        27,562,608           24,824,582         3,029,113              21,773,080
------------------------------------------------------------------------------------------------------------------------------

Gross Profit                                          8,477,670            9,613,043         1,375,079               9,825,589

Selling, General and
  Administrative Expenses (Note 12)                   8,538,166            7,081,273           729,141               6,006,965

Officers' Bonuses (Notes 2 and 14)                            -              710,946           197,290               2,117,251
------------------------------------------------------------------------------------------------------------------------------

Income (Loss) From Operations Before
  Bonus Restructuring Expense                           (60,496)           1,820,824           448,648               1,701,373

Bonus Restructuring Expense (Note 14)                 2,131,903                    -                 -                       -
------------------------------------------------------------------------------------------------------------------------------

Income (Loss) From Operations                        (2,192,399)           1,820,824           448,648               1,701,373
------------------------------------------------------------------------------------------------------------------------------

Other Income (Expense)
  Interest expense                                   (1,057,725)            (933,632)          (57,331)               (512,851)
  Interest income                                       141,707              134,312            20,274                  33,837
  Gain (loss) on disposal of assets (Note 5)             89,628                    -                 -                  (2,976)
  Miscellaneous                                          56,439               21,226           (41,744)                151,198
------------------------------------------------------------------------------------------------------------------------------

Total Other Expense                                    (769,951)            (778,094)          (78,801)               (330,792)
------------------------------------------------------------------------------------------------------------------------------

Income (Loss) Before Income Taxes                    (2,962,350)           1,042,730           369,847               1,370,581

Income Tax Expense (Benefit) (Note 9)                  (950,000)             450,000           165,000                 608,000
------------------------------------------------------------------------------------------------------------------------------

Net Income (Loss)                                 $  (2,012,350)       $     592,730      $    204,847          $      762,581
------------------------------------------------------------------------------------------------------------------------------

Basic Earnings Per Share (Note 1)                 $        (.95)       $         .28      $        .10
------------------------------------------------------------------------------------------------------

Diluted Earnings Per Share (Note 1)               $        (.95)       $         .28      $        .10
------------------------------------------------------------------------------------------------------
</TABLE>
                 See accompanying notes to financial statements.

                                       F-6

<PAGE>

                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

         Consolidated Statements of Stockholders' Equity of The Company
            and Statement of Stockholders' Equity of the Predecessor

<TABLE>
<CAPTION>
                                                                     Common       Additional      Retained         Total
                                                   Common Stock      Stock To      Paid-In        Earnings       Stockholders'
                                               Shares      Amount    Be Issued     Capital        (Deficit)        Equity
------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>      <C>         <C>          <C>           <C>               <C>          
Balance, July 1, 1995 (Predecessor)            25,683   $  25,683   $        -   $    73,465   $   3,413,733     $   3,512,881

Distribution to former stockholder
 (Note 7)                                           -           -            -             -        (700,000)         (700,000)

Net income                                          -           -            -             -         762,581           762,581
------------------------------------------------------------------------------------------------------------------------------

Balance, May 23, 1996 (Predecessor)            25,683   $  25,683   $        -   $    73,465   $   3,476,314     $   3,575,462
------------------------------------------------------------------------------------------------------------------------------

Balance, May 24, 1996 (Company)             1,785,001   $   1,785   $        -   $ 7,351,741   $     (11,127)    $   7,342,399

Reclassification of common stock
  subject to possible redemption
  (Note 7)                                    339,999         340            -     1,825,747               -         1,826,087

Net income                                          -           -            -             -         204,847           204,847
------------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1996 (Company)            2,125,000       2,125            -     9,177,488         193,720         9,373,333

Net income                                          -           -            -             -         592,730           592,730
------------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1997 (Company)            2,125,000       2,125            -     9,177,488         786,450         9,966,063

Common stock to be issued (Note 14)                 -           -      695,520             -               -           695,520

Net loss                                            -           -            -             -      (2,012,350)       (2,012,350)
------------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1998 (Company)            2,125,000   $   2,125   $  695,520   $ 9,177,488   $  (1,225,900)    $   8,649,233
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                 See accompanying notes to financial statements.

                                    F-7

<PAGE>


                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

              Consolidated Statements of Cash Flows of The Company
                 and Statement of Cash Flows of the Predecessor


<TABLE>
<CAPTION>
                                                                               The Company                            Predecessor
                                                           -----------------------------------------------------     -------------
                                                             Year Ended          Year Ended        May 24, to          July 1, 1995
                                                          June 30, 1998       June 30, 1997     June 30, 1996       to May 23, 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                  <C>               <C>                  <C>    
Cash Flows From Operating Activities
 Net income (loss)                                      $  (2,012,350)       $     592,730     $     204,847          $     762,581
 Adjustments to reconcile net income (loss)
  to net cash provided by (used in)
  operating activities
   Depreciation                                               544,990              346,873            27,931                360,726
   Amortization                                               250,829              119,961            12,688                 15,235
   Provisions for losses on contract receivables               64,500             (117,971)                -                (68,649)
   Inventory net realizable value reserve                      80,000              (80,000)                -                200,000
   Deferred income taxes                                     (685,000)             (89,000)           46,000                164,000
   (Gain) loss on disposal of assets                          (89,628)                   -                 -                  2,976
   Changes in operating assets and liabilities
    Contract receivables                                    3,917,381           (1,123,172)       (3,565,732)              (133,052)
    Inventories, prepaid expenses and other                  (187,691)            (415,056)         (488,818)                95,028
    Costs and estimated earnings in excess of
     billings on uncompleted contracts-net effect           2,619,765             (417,420)        1,365,906             (4,037,969)
    Accounts payable, accrued expenses
     and other                                              1,000,604             (206,733)        1,271,862                174,259
-----------------------------------------------------------------------------------------------------------------------------------

Net Cash Provided By (Used In)
 Operating Activities                                       5,503,400           (1,389,788)       (1,125,316)            (2,464,865)
-----------------------------------------------------------------------------------------------------------------------------------

Cash Flows From Investing Activities
 Expenditures for property and equipment
  (including capitalized interest of
  $75,699 in fiscal 1997)                                  (1,193,618)          (4,554,364)          (49,549)              (466,828)
 Proceeds from sale of property
  and equipment                                             1,054,431                    -                 -                  3,400
 Proceeds from sale of short-term
  investments - net                                           446,924               36,051                 -                      -
 Purchase of Atlas                                           (220,000)                   -        (6,900,000)                     -
 Issuance of notes receivable                                (200,000)                   -                 -                      -
 Collections on notes receivable                              109,200               79,975             6,312                219,540
 Maturity of U.S. Government securities
  deposited in trust fund                                           -                    -         7,120,000                      -
-----------------------------------------------------------------------------------------------------------------------------------

Net Cash Provided By (Used In)
 Investing Activities                                          (3,063)          (4,438,338)          176,763               (243,888)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                 See accompanying notes to financial statements.

                                       F-8
<PAGE>


                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

              Consolidated Statements of Cash Flows of The Company
                 and Statement of Cash Flows of the Predecessor


<TABLE>
<CAPTION>
                                                                                  The Company                        Predecessor
                                                            ---------------------------------------------------     ---------------
                                                              Year Ended           Year Ended        May 24, to       July 1, 1995
                                                           June 30, 1998        June 30, 1997     June 30, 1996     to May 23, 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                  <C>                <C>            <C> 

Cash Flows From Financing Activities
 Net borrowings (payments) - revolving
  credit agreement                                            (4,100,450)             262,751                 -                  -
 Payments on long-term debt, capital
  leases and notes payable                                       (71,139)            (222,006)          (43,161)        (2,072,398)
 Proceeds from additions of long-term debt                             -            5,255,000                 -          1,500,000
 Net borrowings - line-of-credit                                       -              863,911           589,300          3,990,320
 Distribution to former stockholder                                    -                    -                 -           (700,000)
-----------------------------------------------------------------------------------------------------------------------------------

Net Cash Provided By (Used In)
 Financing Activities                                         (4,171,589)           6,159,656           546,139          2,717,922
----------------------------------------------------------------------------------------------------------------------------------

Net Increase (Decrease) In Cash                                1,328,748              331,530          (402,414)             9,169

Cash, at beginning of period                                     843,709              512,179           914,593             17,253
----------------------------------------------------------------------------------------------------------------------------------

Cash, at end of period                                     $   2,172,457        $     843,709     $     512,179       $     26,422
----------------------------------------------------------------------------------------------------------------------------------

Supplemental Cash Flow Information
 Cash Paid During the Period For
  Interest, net of amounts capitalized                     $   1,058,114        $     878,207     $      57,331       $    522,637
  Income taxes                                                   173,135              827,451                 -            570,175
----------------------------------------------------------------------------------------------------------------------------------

Supplemental Noncash Investing and
 Financing Activities
  Retirement of debt with proceeds from the
   revolving credit agreement                              $           -        $  11,036,864     $           -       $          -
  Construction in progress financed
   with accounts payable                                               -              157,000                 -                  -
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                 See accompanying notes to financial statements.

                                      F-9

<PAGE>

                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements


1.    Summary of Significant Accounting Policies

Formation of the Company and Basis of Presentation

Production  Systems  Acquisition  Corporation  ("PSAC") was 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").  PTC's
operating  results from inception  through May 23, 1996 are summarized below (in
thousands):

                                                                     June 1993
                                                                    (Inception)
                                          Year Ended     Year Ended    Through
                        April 1, 1996      March 31,       March 31,   March 31,
                       to May 23, 1996         1996            1995       1994
------------------------------------------------------------------------------

Interest income           $        56     $     503     $      343     $  -
Operating expenses                (54)         (266)          (250)      (2)
Income taxes                       (3)         (132)           (31)       -
-----------------------------------------------------------------------------

Net Income (Loss)        $        (1)    $      105     $       62    $  (2)
-----------------------------------------------------------------------------


The  above  operating  results  of PTC  are  not  included  in the  accompanying
financial statements.

                                      F-10

<PAGE>


                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements


The accompanying  consolidated financial statements for the years ended June 30,
1998 and 1997 and the period May 24 to June 30, 1996 include the accounts of PTC
and its  wholly-owned  subsidiary,  Atlas  (collectively,  "the  Company").  All
significant  intercompany  accounts and  transactions  have been eliminated upon
consolidation.


The accompanying  financial  statements presented for the period July 1, 1995 to
May 23, 1996 represent the financial statements of Atlas (the "Predecessor").

Nature of Business

The  Company is a  manufacturer  of  automated  industrial  systems,  machinery,
equipment,   components  and   engineering   services.   It  operates  with  two
manufacturing  plants,  sales and engineering  offices. The manufacturing plants
are located in Fenton, 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
Mexico,  Europe and Asia.  Export sales during the twelve  months ended June 30,
1998, 1997 and 1996 amounted to approximately 30%, 20% and 13%, respectively, of
annual sales.

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.




                                      F-11

<PAGE>


                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements



Use of Estimates

In  preparing  financial   statements  in  conformity  with  generally  accepted
accounting principles,  management is required to make estimates and assumptions
that  affect  (1)  the  reported  amounts  of  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 contract receivables. 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 and cash  equivalents,  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.

Revenue and Cost Recognition

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.

                                      F-12

<PAGE>

                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements

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. Beginning May 24, 1996,  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

Prior  to May  24,  1996  depreciation  was  computed  using  straight-line  and
accelerated methods over the estimated useful lives of the assets.

Intangible Assets

Goodwill,  representing  the  excess of cost over the fair  value of net  assets
acquired in the acquisition of Atlas, is being amortized over twenty-five  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.

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  the  Financial   Accounting  Standards  Board's
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per
Share". The following table presents the earnings per share calculations:

Period Ended June 30,                    1998           1997         1996
-----------------------------------------------------------------------------

Numerator for Basic and Diluted
      Earnings Per Share
      Net income (loss)           $   (2,012,350)  $   592,730   $   204,847

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

Denominator for Basic and Diluted
      Earnings Per Share
      Weighted average shares          2,125,000     2,125,000     2,125,000
-----------------------------------------------------------------------------

                                      F-13

<PAGE>
                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements


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
(1) there was a net loss in fiscal  1998 and  therefore  any  additional  shares
would be  antidilutive,  and (2) in fiscal 1997 and 1996 the  options'  exercise
price was greater than the average market price of the common shares.


Long-Lived Assets

Long-lived  assets,  such as goodwill 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,
1998.

Reclassifications

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

Recent Accounting Pronouncements

In June 1997,  the  Financial  Accounting  Standards  Board issued SFAS No. 130,
"Reporting  Comprehensive  Income", and SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related  Information."  These  statements are effective for
financial  periods  beginning  after  December 15, 1997 and require  comparative
information for earlier years to be restated.  Management has not determined the
impact,  if any,  these  statements  may  have  on  future  financial  statement
disclosures.


                                      F-14

<PAGE>

                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements



Statement  of  Position   (SOP)  98-5,   "Reporting  on  the  Cost  of  Start-Up
Activities",  was issued in April 1998 and SFAS 133,  "Accounting for Derivative
Instruments and Hedging  Activities",  was issued in June 1998. These statements
are  effective in fiscal 2000 and are not expected to have a material  impact on
the consolidated financial statements.

2.    Acquisition

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 14).

The  acquisition  has been accounted for using the purchase method of accounting
and, accordingly,  the purchase price has been allocated to the assets purchased
and  liabilities  assumed  based on the  estimated  fair  values  at the date of
acquisition.  The excess of the final  purchase  price over the  estimated  fair
value of net assets acquired of $2,824,726 was recorded as goodwill and is being
amortized on a straight-line basis over twenty-five years.

The total purchase price was allocated as follows:

Working capital                    $      2,238,011
Property and equipment                    4,218,818
Other assets                                363,985

Goodwill                                  2,824,726
Liabilities                              (2,188,480)
----------------------------------------------------
Purchase Price                     $      7,457,060
----------------------------------------------------

                                      F-15

<PAGE>

                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements


Since the purchase price assigned to the net assets  acquired was based on their
estimated  fair  values at the May 23,  1996  acquisition  date,  the  financial
statements  for periods  subsequent to May 23, 1996 are presented on a different
cost basis than those for prior periods and, therefore, are not comparable.

Pro forma  results of  operations,  as if the  acquisition  had occurred July 1,
1995, are unaudited and are reflected  below.  Pro forma  adjustments  primarily
include (1) additional  depreciation  and  amortization  on the excess  purchase
price  allocated to property and  equipment  and goodwill,  (2)  elimination  of
interest income on the portion of PTC's investment in U.S. government securities
deposited in a trust fund and liquidated upon consummation of the acquisition of
Atlas, (3) elimination of management  bonuses and professional  fees incurred by
Atlas prior to the merger that would not have been incurred in the normal course
of business had it not been stated that the Merger  Agreement  contemplated  the
net worth of Atlas at a specific level at the date of the merger, (4) additional
salaries for PTC's management and additional bonuses to Atlas' senior management
under new  employment  agreements,  and (5)  provision  for  income  taxes at an
effective  rate  of 43%.  This  pro  forma  financial  data  is not  necessarily
indicative of the results that would have occurred had the acquisition  occurred
July 1, 1995.

Year Ended June 30,                           1996
----------------------------------------------------------------------------

Net sales                              $  36,003,000

Net income                                 1,409,000

Basic earnings per common share                  .66
----------------------------------------------------------------------------

3.    Contract Receivables

The contract receivables consisted of:  
                               
June 30,                                  1998                     1997
---------------------------------------------------------------------------

Billed
      Completed contracts             $   2,816,422           $   1,458,721
      Uncompleted contracts               2,276,987               7,680,830
Unbilled                                    234,012                 105,251
---------------------------------------------------------------------------

Total Contracts Receivable                5,327,421               9,244,802
Less allowance for doubtful accounts       (110,000)                (45,500)
---------------------------------------------------------------------------

Total                                 $   5,217,421          $    9,199,302
---------------------------------------------------------------------------


                                      F-16

<PAGE>

                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements



4.    Costs and Estimated Earnings on Uncompleted Contracts

Costs  and  estimated  earnings  on  uncompleted   contracts  consisted  of  the
following:

June 30,                                1998                     1997
--------------------------------------------------------------------------

Costs incurred on uncompleted 
  contracts                         $   23,105,651         $    28,753,361
Estimated earnings                       7,762,175              10,512,171
--------------------------------------------------------------------------
                                        30,867,826              39,265,532
Less billings to date                   26,012,131              31,790,072
--------------------------------------------------------------------------

Total                              $     4,855,695         $     7,475,460
--------------------------------------------------------------------------

The above  totals are  included in the  accompanying  balance  sheets  under the
following captions:

June 30,                              1998                        1997
-------------------------------------------------------------------------

Costs and estimated earnings 
 in excess of billings on 
 uncompleted contracts             $    5,435,957        $      8,640,731

Billings in excess of costs 
 and estimated earnings on 
 uncompleted contracts                   (580,262)             (1,165,271)
-------------------------------------------------------------------------

Total                             $     4,855,695       $       7,475,460
-------------------------------------------------------------------------


                                      F-17
<PAGE>

                Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements


5.    Assets Held For Sale

The land and building held for sale at June 30, 1997 was sold during fiscal 1998
resulting in a gain of approximately $85,000.

6.    Long-Term Debt

Long-term debt consisted of:

Year Ended June 30,                                1998               1997
-----------------------------------------------------------------------------

$14,000,000 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 the bank's prime rate (which was
8.5% at June 30, 1998 and 1997) less
1/4% or the 30, 60, or 90 day LIBOR 
plus 230 basis points,  at the option of 
the Company. In addition, there is a 
commitment fee of 1/8% per annum on the 
unused portion of the revolving credit 
which is payable quarterly.  Principal 
payments on this agreement are due 
quarterly in the amount of $37,360 until 
September 30, 1999, at which time the 
entire balance is due.  Borrowings  under 
this agreement are  collateralized by 
substantially all assets of Atlas. The 
revolving credit agreement  also contains 
various financial covenants.  The Company 
was not in compliance with certain 
covenants as of June 30, 1998 and the bank
waived compliance with such covenants as 
of June 30, 1998.                            $ 7,199,165         $ 11,299,615

First mortgage note payable (1)                4,500,000            4,500,000

Other                                            170,639              241,778
------------------------------------------------------------------------------

Total                                         11,869,804           16,041,393

Less current maturities                          615,677              714,140
-----------------------------------------------------------------------------

Long-Term Debt                             $  11,254,127        $  15,327,253
-----------------------------------------------------------------------------

                                      F-18

<PAGE>

                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements


(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  1999-2001  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,  1998 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. The commission on the letter of credit is 1% annually, and is payable
     quarterly.   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: 1999 - $615,677;  2000 - $7,496,058;  2001 - $441,004; 2002 - $317,065;
2003 - $300,000 and $2,700,000  thereafter.  

7. Stockholders' 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  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.

At June 30,  1998,  4,210,000  shares  of common  stock  were  reserved  for (1)
issuance  upon  exercise  of the  warrants  described  above,  and  (2)  for the
securities underlying a purchase option granted the underwriter of the Offering.
This option,  which allows the  underwriter  the right to purchase up to 170,000
Units, is exercisable initially at $7.50 per Unit until June 23, 1999. Each Unit
consists of one share of PTC common stock and two Warrants.  The Units  issuable
upon  exercise of the purchase  option are  identical to those  described  above
except that the Warrants contained therein expire June 23, 1999.

No Warrants have been exercised or granted subsequent to May 23, 1996.

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.

In connection  with the May 23, 1996  acquisition  of Atlas,  a total of 339,999
shares of common stock that were previously subject to possible  redemption were
reclassified to permanent equity by the Company.

In accordance with the December 18, 1995 Merger Agreement, a $700,000
distribution was paid to a former shareholder in May 1996.

8.    Employee Benefit Plans

Atlas  previously  sponsored an Employee Stock Ownership Trust (ESOT) for all of
the Company's employees. Atlas elected to contribute $200,000 to the ESOT during
the period ended May 23, 1996. At May 23, 1996, the Company's stock owned by the
ESOT was acquired as part of the purchase  transaction.  The Company  liquidated
the ESOT during fiscal year 1997.

The  Company  has  a  401(k)  plan  covering  substantially  all  the  Company's
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  $148,700 for the year ended June 30, 1997. The Company made
no contributions for the year ended June 30, 1998, the period ended May 23, 1996
or for the Predecessor period.

                                      F-19
<PAGE>


                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements


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 330,000 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.  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 income and income per share  amounts  would
have been the pro forma amounts indicated below:

Year Ended June 30,                              1998                   1997
------------------------------------------------------------------------------

Net income (loss) - as reported             $  (2,012,350)        $    592,730
Net income (loss) - pro forma                  (2,081,456)             259,445
Basic earnings per share - as reported               (.95)                 .28
Basic earnings per share - pro forma                 (.98)                 .12
------------------------------------------------------------------------------

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
1998 and  1997,  respectively:  dividend  yield of 0% for both  years;  expected
volatility  of 68% and  23%;  risk-free  interest  rate of 6.0%  and  5.4%;  and
expected lives of 2 years for both years.

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


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

                                                                  Weighted-
                                                                  Average
                                                                  Exercise
                                                  Shares          Price
----------------------------------------------------------------------------

Outstanding and exercisable at July 1, 1996             -        $      -
Granted                                           255,000            5.00
Expired                                                 -               -
Exercised                                               -               -
---------------------------------------------------------------------------

Outstanding and exercisable at June 30, 1997      255,000        $   5.00
Granted                                            40,000            4.13
Expired                                                 -               -
Exercised                                               -               -
---------------------------------------------------------------------------

Outstanding And Exercisable at June 30, 1998      295,000       $    4.88
---------------------------------------------------------------------------


                                      F-20

<PAGE>


                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements


The  weighted-average  grant date fair value of options  during  fiscal 1998 and
1997 was approximately $1.73 and $1.31, respectively.

The following table summarizes  information  regarding stock options outstanding
and exercisable at June 30, 1998:

                                                         Weighted Average
                                 Options            -------------------------- 
                                 Outstanding        Remaining
      Range of                       and            Contractual    Exercisable
      Exercise Prices            Exercisable        Life           Price
------------------------------------------------------------------------------
$4.125 - $5.00                    295,000            3 years     $    4.88
------------------------------------------------------------------------------

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:

Year Ended June 30,                                    1998             1997
------------------------------------------------------------------------------

Current
      Accrual for executive bonus agreement        $   237,000   $   285,000
      Research credit carryforward                     137,000       218,000
      Other                                            101,000       119,000
------------------------------------------------------------------------------

Net Current Deferred Tax Asset                     $   475,000   $   622,000
------------------------------------------------------------------------------

Non-Current
      Depreciation and basis of assets             $  (569,000)  $  (715,000)
      Executive deferred compensation agreement        488,000             -
      Research credit carryforward                     119,000             -
      Other                                            (38,000)     (117,000)
------------------------------------------------------------------------------

Net Non-Current Deferred Tax Liability             $        -    $  (832,000)
------------------------------------------------------------------------------



                                      F-21

<PAGE>

                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements





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

                                 The Company                        Predecessor
                  --------------------------------------------   --------------
                    Year Ended      Year Ended     May 24, to     July 1, 1995
                   June 30, 1998  June 30, 1997  June 30, 1996  to May 23, 1996
-------------------------------------------------------------------------------
Federal
  Current          $  (315,000)   $  481,000     $  108,000        $   401,000
  Deferred            (685,000)      (89,000)        46,000            164,000

State
  Current               50,000        58,000         11,000             43,000
------------------------------------------------------------------------------

Total             $   (950,000)  $   450,000    $   165,000       $    608,000
------------------------------------------------------------------------------


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

                                 The Company                        Predecessor
                  --------------------------------------------   --------------
                    Year Ended      Year Ended     May 24, to     July 1, 1995
                   June 30, 1998  June 30, 1997  June 30, 1996  to May 23, 1996
-------------------------------------------------------------------------------

Tax expense 
  (benefit) at 
  statutory rate   $ (1,007,000)   $   355,000    $  126,000     $   466,000

Goodwill 
  amortization
  and other non-
  deductible items      62,000         55,000         6,000           70,000

State income taxes,
  net of federal 
  income tax benefit    33,000         38,000         7,000           28,000

Research credit              -        (40,000)            -                -

Other - net            (38,000)        42,000        26,000           44,000
-----------------------------------------------------------------------------

Income Tax Expense
  (Benefit)        $  (950,000)    $  450,000    $  165,000       $  608,000
-----------------------------------------------------------------------------


                                       F-22

<PAGE>

                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements



Atlas has tax research credit carryforwards totalling $256,000 that will begin
to expire in 2008.

10.   Major Customers

For the twelve months ended June 30, 1998, 1997 and 1996, the Company's sales to
its  major  customers  (each  representing  more  than 10% of total  net  sales)
amounted to approximately 50%, 44% and 64% of total annual sales,  respectively.
During 1998, there were three major customers  representing  27%, 14% and 10% of
total net sales; during 1997 there were three major customers  representing 20%,
12% and 12% of total net sales; and during 1996, there were four major customers
representing 30%, 13%, 11% and 10% of total net sales.

11.   Contingency

Atlas is undergoing an Internal  Revenue Service audit for the fiscal year ended
June 30,  1995.  The main area of review is a research and  experimentation  tax
credit the Company  has  calculated  and filed for over the past six years.  The
Company has applied  approximately  $459,000 of credit toward  Federal taxes due
for the fiscal periods ended June 1997,  1996 and 1995 and had a carryforward of
approximately $23,000 expected to be used as a reduction in future tax payments.
Management believes this issue is a matter of interpretation of the research and
experimentation  regulations.  Management  believes  that  the  IRS  may  seek a
reduction in the amount of credit calculated which may have an adverse effect to
the  financial   statements   of  the  Company.   The  Company  is  entitled  to
indemnification  up to $560,000 (subject to certain  exclusions and limitations)
from the former  principal  stockholders of Atlas for amounts it may be required
to pay as a result of such audit. 

12. Arbitration  Settlement

On October 1, 1996, the Company  received a "Demand For Arbitration" by a former
customer that  alleged,  among other  issues,  a  $15,400,000  claim for damages
resulting  from a breach of  contract  and breach of  warranties  related to the
design and manufacture of certain  industrial  equipment.  During fiscal 1998, a
"Settlement  Agreement  and  Release Of All Claims"  was  executed.  The Company
settled with the former  customer for $700,000,  of which $210,000 was recovered
from  insurance  coverage.  The net  expense of  $490,000  has been  included in
selling, general and administrative expenses during fiscal 1998.

                                      F-23

<PAGE>

                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                          Notes to Financial Statements


13.   Material Fourth Quarter Adjustments

During the fourth quarter of fiscal 1998, the Company made adjustments which are
material to the fourth quarter  results.  These  adjustments  include a $736,000
decrease in the $2,868,000 bonus  restructuring  expense previously  recorded in
the third quarter of fiscal 1998 and the following  changes in estimates:  (1) a
$381,000 write-off to reduce a cancelled  uncompleted  contract to its estimated
net realizable  value, (2) additional  allowances of $145,000 to reduce accounts
receivable  and  inventory  to their  estimated  net  realizable  value  and (3)
additional  reserves of $126,000 for  warranties and health  insurance  based on
anticipated future claims. The third quarter 10-Q will be amended to reflect the
bonus restructuring expense as a fourth quarter transaction.

14.   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 Merger  Agreement  (see Note 2). These  amended  employment  agreements  are
identical except that one agreement  expires 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,  will receive four annual
payments of $207,571  commencing July 30, 1999. Each executive will also receive
150,000  shares of  restricted  common stock of the Company to be 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  as of and for the year ended June 30, 1998 related to these  amended
agreements are the following.


Balance Sheet
  Executive Deferred Compensation Agreement                       $ 1,436,383
  Common stock to be issued                                           696,520
------------------------------------------------------------------------------

Statement of Operations
  Bonus restructuring expense                                     $ 2,131,903
------------------------------------------------------------------------------

The superseded  employment  agreements provided for two bonus calculations based
on  earnings  of the  Company.  These  bonus  calculations  were to be in effect
through  December 31, 2000 and December 31, 2001,  respectively.  As of June 30,
1998, there was $810,000 to be paid under these superseded agreements.


                                      F-24

<PAGE>
                 Productivity Technologies Corp. and Subsidiary
                               and the Predecessor

                 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, 1998 (Company)
  Allowance for doubtful accounts
    (deducted from contract receivables)            $    45,500        $    64,500          $        -         $ 110,000
  Inventory net realizable value reserve                120,000             80,000                   -           200,000
  Warranty reserve                                       24,078            622,717     (3)    (527,605)          119,190
-------------------------------------------------------------------------------------------------------------------------

Year Ended June 30, 1997 (Company)
  Allowance for doubtful accounts
    (deducted from contract receivables)           $   163,471         $   (78,753)    (1)  $  (39,218)        $  45,500
  Inventory net realizable value reserve               200,000                   -     (2)     (80,000)          120,000
  Warranty reserve                                      25,000             364,823     (3)    (365,745)           24,078
-------------------------------------------------------------------------------------------------------------------------

Period May 24, 1996 to June 30, 1996 (Company)
  Allowance for doubtful accounts
    (deducted from contract receivables)           $   163,471         $         -          $        -         $ 163,471
  Inventory net realizable value reserve               200,000                   -                   -           200,000
  Warranty reserve                                      25,000              11,160     (3)     (11,160)           25,000
-------------------------------------------------------------------------------------------------------------------------

Period July 1, 1995 to May 23, 1996 (Predecessor)
  Allowance for doubtful accounts
    (deducted from contract receivables)          $   232,120         $    180,337     (1)    $(248,986)      $  163,471
  Inventory net realizable value reserve                    -              200,000                    -          200,000
  Warranty reserve                                     25,000              122,756     (3)     (122,756)          25,000
-------------------------------------------------------------------------------------------------------------------------
</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-25



<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.

October 12, 1998                            PRODUCTIVITY TECHNOLOGIES CORP.

                                                  /s/ Samuel N. Seidman
                                            By: _____________________________
                                                Samuel N. Seidman
                                                President

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



/s/ Ray J. Friant, Jr.     Chairman of the Board              October 12, 1998
----------------------       
Ray J. Friant, Jr.

/s/ Samuel N. Seidman      Chief Executive Officer,           October 12, 1998
----------------------     President and Director
Samuel N. Seidman                               

                           Vice President and Director        
---------------------
Joseph K. Linman

/s/ John S. Strance        Vice President and Director        October 12, 1998
---------------------
John S. Strance

/s/ Jesse A. Levine        Vice President, Secretary,         October 12, 1998
---------------------      Treasurer and Director and
Jesse A. Levine            Chief Financial Officer

                           Director                           
---------------------
Alan H. Foster


                            Director                
---------------------
Alan I. Goldman

<PAGE>