U.S. SECURITIES AND EXCHANGE COMMISSION
                             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 [FEE REQUIRED]

     For the fiscal year ended June 30, 1999

                                       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
           (Title of class)                  of Common Stock and two Redeemable
                                               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 23, 1999,  the  aggregate  market value of the voting stock
held by non-affiliates of the Registrant was approximately $4,950,000.

     As of September 23, 1999, there were 2,475,000 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 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 operates in a single industry segment, the manufacture of metal
forming and handling  automation  equipment.  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 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'  products  stack cut sheet metal  blanks for feeding  into the
presses,   move   components   from  one  press  station  to  another  within  a
multi-station  transfer press or between presses within a tandem line of presses
and facilitate the changing of dies on a press.

     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  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  markets -
automobile  and  automotive  parts  manufacturers,  and,  to  a  lesser  extent,
appliance  manufacturers.  Other customers  include  manufacturers of garden and
lawn equipment,  office  furniture,  heating,  air  conditioning and ventilation
(HVAC)  equipment  and  aircraft.  In Atlas' 1997,  1998 and 1999 fiscal  years,
automotive  industry customers  accounted for approximately 90%, 90%, and 96% of
sales,  respectively.  For such fiscal years,  sales by Atlas to General  Motors
Corporation   represented   12%,   27%,   and   14%,   respectively,   sales  to
DaimlerChrysler Corporation (formerly Chrysler Corporation) represented 3%, 10%,
and 7%,  respectively,  and sales to The Ford Motor Company represented 9%, 14%,
and 8%,  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 1997, 1998 and 1999 fiscal
years represented  approximately 30%, 30% and 40%, respectively,  of total sales
in such years.

                                                                          Page 2

<PAGE>



     Atlas uses three  marketing  channels:  direct  sales,  with offices at its
headquarters in Fenton,  Michigan,  Atlanta,  Georgia,  Porthcawl,  South Wales,
U.K.,  and Beijing,  China;  commissioned  sales  representatives;  and original
equipment  manufacturers  (OEMs)  specializing  in  metal  presses  and  related
equipment.  Order  backlogs were  approximately  $19,000,000,  $17,000,000,  and
$16,000,000 at June 30, 1997, 1998, and 1999, respectively. The Company believes
substantially  all of the June 30, 1999 backlog will be produced  during  fiscal
2000.

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 manufactured 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.  The raw materials and components used by Atlas
in the  manufacturing  process are readily available and,  generally,  there are
numerous suppliers that are capable of providing these materials and components.

     Atlas  personnel  perform  applications  engineering,   product  design  or
customization,  procurement, fabrication, machining, assembly, testing, shipping
and  installation  of the  products  and systems it sells.  Atlas  continues  to
implement a 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.

     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' 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.

     Transfer press  automation  equipment is sold by Atlas 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 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 refitted  with  automation
equipment.

     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.  Destacking
equipment  feeds  the flat  blanks  into the  press and  includes  functions  to
wash/scrub  or  roll-coat  the metal blanks and to queue them to assure a steady
flow.

Competition

     Atlas management  believes 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

                                                                          Page 3

<PAGE>

present  levels.  Primary  competitors of Atlas include ABB Flexible  Automation
(Sweden),  Herwo Die Changing (Sweden),  Orchid International (Canada),  Hirotec
(Japan),  Verson All Steel  Press,  a division  of Allied  Products  Corp.,  HMS
Products 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,
capable   engineering,    strong   distribution   networks   and   comprehensive
manufacturing capabilities.

Trademarks and Patents

     Atlas has an agreement to use components in the FLEX 5000(R) transfer press
automation  equipment 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)  as it  relates  to the value of the  patented
components.  For Atlas' fiscal years ended June 30, 1997,  1998,  and 1999 Atlas
expensed  approximately  $270,000,  $202,000,  and  $241,000,  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. [A
patent  infringement  suit  brought  by Atlas and the  estate of Mr.  Maher,  as
plaintiffs,  currently is in process against Orchid International, as defendant.
See Item 3, Legal  Proceedings,  below.]  Atlas  believes  that the terms of the
agreement with the estate of Mr. Maher are industry competitive.

     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,  one for a power  and  free  roller  conveyer,  one for a
transfer  arm for  supporting  workpieces,  one for a magnetic  sheet  separator
construction,  and one for apparatus and methods for forming  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 certain  apparatus  and
methods  for forming  workpieces,  magnetic  sheet  separator  constructions,  a
tooling gage, and finger tooling for transfer press automation equipment.

Atlas Management and Employees

     Atlas employs  approximately 185 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,  Michigan.  It has
approximately  94,200  square feet of space in two  facilities  which it owns in
Fenton.  One of the  Fenton  facilities,  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.  Operations  performed  in  the  two  Fenton  facilities  include
fabrication,  machining,  assembly,  electrical panel  construction and testing.
Project management, engineering, Atlas finance, service, quality, purchasing and
sales offices are also located in Fenton.

     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

                                                                          Page 4

<PAGE>

     In 1996,  Atlas and the estate of John  Maher,  the owner of the patent for
the FLEX  5000(R)  Transfer  which is  licensed  to Atlas,  initiated  an action
against  Orchid  International  Group Inc.  ("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.
Currently,  the case is moving through the discovery phase which is scheduled to
be completed by December 30, 1999.  Trial is expected  during the calendar  year
2000.

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

         Not Applicable.

                                                                          Page 5


<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) are
quoted on the OTC Bulletin  Board.  The following  table sets forth the range of
high and low closing bid prices for Common  Stock and  Warrants,  as reported by
the Nasdaq  Small Cap Market.  As measured  by daily  volume,  there has been no
material  trading in the Units since the quarter  ended June 30,  1996.  The OTC
Bulletin  Board is an  inter-dealer  automated  quotation  system  sponsored and
operated by the NASD for equity  securities  not  included  in the Nasdaq  Stock
Market. Such  over-the-counter  market quotations reflect  inter-dealer  prices,
without retail mark-up,  mark-down or commission and may not necessarily reflect
actual transactions.

<TABLE>
<CAPTION>
                                         Units         Common Stock             Warrants
                                         -----         ------------             --------
                                     High      Low     High     Low      High      Low
                                     ----      ---     ----     ---      ----      ---
<S>                                  <C>      <C>    <C>       <C>      <C>      <C>
Year ended June 30, 1998:
                                      --       --     4 5/8    1 3/4        1      3/8
   First Quarter
                                     6 5/8    6 3/8       5    3 7/16   1 1/2      5/8
   Second Quarter
                                      --       --     5 7/8    3 3/4    1 9/16   1 3/16
   Third Quarter
                                      --       --     6 7/16   3 1/2    1 3/4      5/8
   Fourth Quarter

Year ended June 30, 1999:
                                      --       --     4 1/4    2 3/8        1      1/2
   First Quarter
                                      --       --         3    1 5/8      5/8      1/4
   Second Quarter
                                      --       --     2 3/4    1 7/8      3/8      1/4
   Third Quarter
                                      --       --     2 5/8    1 5/8      1/4      1/8
   Fourth Quarter
</TABLE>



     As of  September  13,  1999,  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.

                                                                          Page 6

<PAGE>




Recent Sales of Unregistered Securities

     During the  quarter  ended March 31,  1999,  the  Company  negotiated  with
Messrs.  William  Rogner and David Hense for their  employment  at Atlas.  Under
their employment  agreements,  the Company issued to each of Messrs.  Rogner and
Hense up to 25,000 shares of common stock restricted from transfer or resale for
a period of two years. These securities were not registered under the Securities
Act of 1933, as amended (the "Act").  Each of the  transactions is claimed to be
exempt from a registration  under the Act pursuant to Section 4(2) of the Act as
a transaction by an issuer not involving a public offering.


                                                                          Page 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, 1999,
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, 1998 and 1999. Dupuis &
Ryden, independent certified public accountants, audited the year ended June 30,
1995.  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)

<TABLE>
<CAPTION>
Consolidated Statements of Operations Data
                                                                          The Company                              Predecessor
                                                     --------------------------------------------------       ----------------------
                                                                                                              July 1
                                                         Year          Year          Year        May 24,        1995            Year
                                                        Ended         Ended         Ended            to           to           Ended
                                                     June 30,      June 30,      June 30,       June 30,      May 23,       June 30,
                                                         1999          1998          1997           1996         1996          1995
                                                      --------      --------      --------       --------      -------      --------
<S>                                                  <C>           <C>            <C>           <C>           <C>           <C>
Net sales                                            $ 34,001      $ 36,040       $ 34,438      $  4,404      $ 31,598      $ 29,077
Cost of sales                                          24,610        27,563         24,825         3,029        21,773        21,034
Gross profit                                            9,391         8,478          9,613         1,375         9,825         8,043
Selling, general and administrative                     7,526         8,538          7,081           729         6,007         5,119
Officers' bonuses                                          --            --            711           197         2,117            --
Bonus restructuring expense                                --         2,132             --            --            --            --
Income (loss) from operations                           1,865        (2,192)         1,821           448         1,701         2,924
Net income (loss)                                         974        (2,012)           593           204           762         2,219

Net income per share of common stock                                              $    .40      ($  0.95)     $    .28      $    .10
Weighted average common shares                          2,432         2,125          2,125         2,125
</TABLE>


<TABLE>
<CAPTION>
Consolidated Balance Sheet Data
                                                                             The Company                           Predecessor
                                                                --------------------------------------       -----------------------
                                                                June 30,       June 30,       June 30,       June 30,       June 30,
                                                                    1999           1998           1997           1996          1995
                                                                --------       --------       --------       --------       --------
<S>                                                               <C>           <C>            <C>            <C>            <C>
Current assets                                                    19,148        $15,272        $22,627        $18,690        $11,423
Current liabilities                                                5,330          5,470          7,284         13,642          8,321
Working capital                                                   13,818          9,802         15,343          5,048          3,102
Property, plant and equipment, net                                 7,844          8,289          7,667          4,240          2,517
Total assets                                                      30,108         26,809         33,410         26,023         14,550
Long-term debt, less current  maturities                          13,951         11,254         15,327          2,228          2,717
Total liabilities                                                 20,391         18,160         23,444         16,650         11,037
Stockholders' equity                                               9,717          8,649          9,966          9,373          3,513
</TABLE>

                                                                          Page 8


<PAGE>


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


     The fiscal year ended June 30, 1999 is the third full year of  consolidated
activities for Productivity  Technologies Corp. and its wholly owned subsidiary,
Atlas  Technologies,  Inc.  Currently,  automotive  and auto  related  suppliers
account for approximately 96% of new orders and receive most of Atlas' marketing
efforts.  Atlas also continues to serve its customer base in the  non-automotive
sector,  including  producers of home appliance and heating and air conditioning
systems,  off-road vehicles and construction equipment,  and other manufacturers
which utilize significant amounts of sheet metal to mass produce their products.

Results of Operations

     The  Company's  consolidated  net earnings were $974,290 or $0.40 per share
for the fiscal year ended June 30,  1999.  Slow order  bookings in the first two
quarters of the fiscal year contributed to softer than anticipated  revenues and
earnings  during the first  three  quarters of the fiscal  year.  In response to
slower than anticipated  order bookings,  the Company initiated a cost reduction
program in January  1999 and  further  accelerated  this  program in April 1999.
During the third and fourth  quarters,  order bookings  substantially  improved.
Atlas also  improved  the cost of many of its  products  during the year through
increased  standardization  and other  product  development  activities.  Higher
bookings  in the  second  half of the  fiscal  year,  combined  with  the  lower
operating  costs  achieved as a result of the cost reduction  program,  provided
strong fourth quarter revenues and net earnings.

     In general,  order  bookings  during the year continued to be uneven due to
the nature of the business.  A significant amount of business derives from large
contracts  which are placed with Atlas on a periodic  basis.  In fiscal  1999, a
greater percentage of orders derived from larger sized orders.

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 in which such
revisions are determined.

Fiscal Year 1999 Compared to Fiscal Year 1998

     Net  sales   revenues  for  the  fiscal  year  ended  June  30,  1999  were
$34,001,248,  a decrease  of 6%  compared  to net sales of  $36,040,278  for the
fiscal  year  ended June 30,  1998.  Approximately  40% of Atlas'  sales were to
foreign  customers during this period,  compared to approximately 30% during the
previous year. Atlas' backlog as of June 30, 1999 approximated $16,000,000, a 6%
decline versus the $17,000,000 backlog at June 30, 1998.

     Atlas  management  believes  the  declines in revenues  and order  bookings
during fiscal 1999,  and backlog at June 30, 1999,  were due to a lack in growth
of capital  spending  by North  American  automakers  including  General  Motors
Corporation,   Ford  Motor  Company,  and  DaimlerChrysler  Corporation.   Atlas
management  believes other factors  included  Atlas' slower than expected market
entry into certain geographic markets in Europe, continued economic difficulties
and  depressed  market  conditions  in certain  Asian  markets which the Company
serves, and a general slowdown in domestic capital spending activity for machine
tools  and  equipment  due to the  uncertain  outcome  of Autumn  1999  contract
negotiations  in the U.S. and Canada between  members of the United Auto Workers
(UAW) and GM, Ford, and DaimlerChrysler.

                                                                          Page 9


<PAGE>


     Cost of  products  sold  for the  fiscal  year  ended  June 30,  1999  were
$24,609,631,  a level  approximating  72% of net  sales  revenues,  compared  to
$27,562,608,  or 76% of net sales  revenues,  for the 1998 fiscal year.  Cost of
sales  relative to sales  revenues  improved by 4% and was due to an increase in
Atlas product line standardization and an operating cost reduction program begun
in January 1999.

     Gross  profits  for the year ended June 30,  1999 were  $9,391,617,  an 11%
increase from the  $8,477,670  gross profit of a year  earlier.  The increase in
gross  profits is related to the above  described  decline in costs of  products
sold from fiscal 1998 to 1999. Atlas engineered,  designed, and obtained greater
product line  standardization  in fiscal 1999 than existed for its product lines
in fiscal 1998, and implemented an operating cost reduction program beginning in
January 1999. The decline in costs of products sold and the related  increase in
gross  profits in fiscal 1999 would have been  greater if Atlas had not incurred
expenses to obtain,  in December  1998,  ISO 9001  certification  and additional
quality related awards,  implement a new enterprise  resource  planning  ("ERP")
computer system, and higher warranty costs associated with the launch of several
new products.  A portion of ISO 9001 certification and ERP implementation  costs
were charged to specific products being delivered and therefore to cost of sales
in 1999

     Selling,  general and  administrative  (SG&A)  expenses in fiscal 1999 were
$7,526,448  compared  to  $8,538,166  in fiscal  1998,  a decrease  of 12%.  The
decrease primarily resulted from the non-recurrence of approximately $750,000 in
legal  expenses  associated  with a lawsuit  settlement in fiscal 1998, the cost
reduction program initiated in the third and fourth quarters of fiscal 1999, and
cost savings  associated  with the  retirement of Ronald M. Prime,  former Atlas
CEO, in December 1998.

     A bonus restructuring expense of $2,131,903 was incurred in 1998. There was
no such expense in fiscal 1999.

     Income from operations were $1,865,169 in fiscal 1999 as compared to a loss
from  operations  of  $2,192,399  in  fiscal  1998.  As part of the  1998  bonus
restructuring  plan, Atlas made  distributions  to Messrs.  Prime and Michael D.
Austin in fiscal 1999 as follows:  (1) 300,000 shares of common stock restricted
from  transfer  or resale for a period on three  years,  and (2)  payment of the
first of four equal  payments  of  deferred  compensation  which  equal,  in the
aggregate,  $1,660,564.  In  addition,  $560,000  held in escrow was released to
Messrs.  Prime and Austin  during fiscal 1999.  The escrow  related to a dispute
between  Atlas and the Internal  Revenue  Service  (IRS) related to research and
experimentation  credits  claimed by Atlas for fiscal  years ended June 30, 1991
though 1995. As noted above,  Atlas resolved the dispute with the IRS during the
fiscal year.

     Interest expense during fiscal 1999 was $835,619, compared to $1,057,725 in
fiscal 1998, a decrease of 21%. The decrease in interest  expense for the period
was due to an overall  reduction in use of Atlas' working capital line of credit
and slightly lower interest rates during the fiscal year.

     Income before tax during  fiscal 1999 was  $1,074,290 as compared to a loss
before tax of $2,962,350 for fiscal 1998. The increase in pre-tax income was due
to the factors  described  above,  including  higher gross  margins from product
standardization,  lower fixed and interest costs, and  non-recurrence of lawsuit
and  bonus  restructuring  charges.  Income  tax for the  fiscal  year  1999 was
$100,000 as compared to an income tax benefit of $950,000  for fiscal year 1998.
Included  in the tax  for  1999  were  tax  credits  of  approximately  $246,000
associated  with research and development  activities.  As outlined in detail in
the Company's  Form 10K for the fiscal year ended June 30, 1998,  Atlas reported
charges in fiscal 1998 related to legal settlements and bonus restructuring.  In
the fiscal year ended June 30, 1999, the Company  incurred none of these charges
against earnings. In addition, the Company settled a dispute with the IRS during
the fiscal year in connection  with credits which Atlas claimed  previously  for
fiscal years ended June 30, 1991  through  1996.  As a result of the  settlement
with the IRS, the Company  utilized  available  tax credits in fiscal 1999 which
improved net earnings relative to those reported in 1998.

     Net income during the fiscal year 1999 was  $974,290,  as compared to a net
loss of  $2,012,350  for fiscal 1998.  Fiscal 1999 earnings per share were $0.40
based upon 2,431,986 weighted average shares outstanding, compared to a loss per
share in fiscal 1998 of ($0.95) based upon  2,125,000  weighted  average  shares
outstanding.

                                                                         Page 10


<PAGE>

Fiscal Year 1998 Compared to Fiscal Year 1997

     Net sales for the  fiscal  year ended June 30,  1998 were  $36,040,278,  an
increase of 5% over net sales of $34,437,625  for the fiscal year ended June 30,
1997.  During  the  first  half of fiscal  1998,  new  order  closings  improved
slightly,  which  contributed  to the overall 5% increase in revenue  recognized
during fiscal 1998. Atlas' backlog as of June 30, 1998 approximated $17,000,000,
a 10% decline versus the $19,000,000 backlong at June 30, 1997. Atlas management
believed  the  decline in backlog as of June 30,  1998 was  primarily  caused by
order  postponements  due to the GM  strike  and the delay in  capital  spending
leading up to the completion of the merger of Daimler Benz and Chrysler Corp.

     Cost of  products  sold  for the  fiscal  year  ended  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 margins  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 one time 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 ended June 30, 1998 were $8,477,670  compared to
$9,613,043  in fiscal  1997, a decrease of 12%,  principally  due to the reasons
cited in the immediately preceding paragraph.  Approximately 30% of Atlas' 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  costs and  settlement  of a lawsuit,  higher  commission
expenses related to Atlas' increased volume,  and travel and sales related costs
associated with the first full year of Atlas' 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  in the  aggregate:  (1)
300,000 shares of common stock  restricted  from transfer or resale for a period
of three years,  (2) deferred  compensation of $1,660,564 which is to be paid in
four equal annual  installments in arrears,  and (3) cash of $810,000 (earned in
previous years under their employment agreements),  of which $560,000 was placed
in an escrow  account  pending the  subsequent  resolution of a dispute  between
Atlas and the IRS related to research  and  experimentation  credits  claimed by
Atlas for the fiscal years ended June 30, 1991 through 1995.

     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  greater   utilization   of  Atlas'   line  of  credit  to  finance
work-in-process,  increased  accounts  receivable,  and 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.

Liquidity and Capital Resources

     The Company believes it has sufficient  capital to meet short and long term
funding needs.  Management expects the financing  facilities currently in place,
including  the  Company's  $16,000,000  revolving  line of  credit,  along  with
anticipated  cash  available  from  operations,  will be sufficient  for funding
general  operations  and  any  required

                                                                         Page 11


<PAGE>


current year asset  purchases.  Atlas  borrowing  requirements  from the line of
credit ranged from $6,500,000 to $10,200,000 during the year ended June 30, 1999

     The Company's working capital at June 30, 1999 was $13,818,002  compared to
$9,801,888  at June 30, 1998 and the current ratio at June 30, 1999 was 3.6 to 1
compared  with 2.8 to 1 at June  30,  1998.  Increases  in  work-in-process  and
accounts receivable (coupled with the long-term  classification of the Company's
revolving  line of credit) and increased  operating  income  contributed  to the
improved ratios versus those of the prior year.

     The Company's operations utilized cash of $4,483,461 during the fiscal year
ending  June  30,  1999.  Cash  was  used  primarily  to  fund  an  increase  in
work-in-process  and  accounts  receivable  which in turn  resulted  from  large
customer orders with shipping requirements between April and September 1999. Net
cash provided by investing  activities of $25,812  resulted from collection of a
note  receivable  from the sale of  property  and short  term  investments  less
expenditures  made for  property  plant  and  equipment.  Net cash  provided  by
financing  activities  of  $2,529,592  was used to fund  increases  in  accounts
receivable and work-in process.

     During the fiscal year ended June 30, 1999,  Atlas  entered into a new debt
financing  agreement  with Bank One N.A.,  the successor to the recent merger of
Bank One and First  Chicago  NBD. The bank  consolidated  all of Atlas' long and
short term debts,  bundling  the various  notes and lines of credit into one new
three  year  committed  line of credit,  with  increased  maximum  debt usage of
$16,000,000   based  on  collateral   including   the   company's   receivables,
work-in-process inventories, and other assets.

     At June 30, 1999 Atlas had borrowings outstanding of $15,835,779,  compared
to $13,306,187 at June 30, 1998. Borrowings at June 30, 1999 included:

     (i)  Outstanding   borrowings   under  a   revolving   line  of  credit  of
          $10,186,140.  This  borrowing  was  under  the  Company's  $16,000,000
          revolving  credit  agreement  expiring  in  January  2001.  As  noted,
          collateral   for   this   facility   includes   Atlas'    receivables,
          work-in-process,  and other assets and Atlas'  compliance with certain
          financial  covenants.  The interest  rate on this  facility is, at the
          Company's  option,  either (a) the bank's prime rate less 1/4%, or (b)
          the 30,  60,or 90 day London  Inter-Bank  Overnight  Rate (LIBOR) rate
          plus 230 basis points. No principal payments on outstanding borrowings
          are due until January 31, 2002.

     (ii) Outstanding  borrowings  of  $4,100,000  relating  to the  issuance of
          Industrial  Revenue Bonds.  The bonds are state and federal tax exempt
          and,  consequently,  the floating rate of interest is reduced compared
          to conventional  construction or real estate financing.  IRB terms are
          as follows for each fiscal year:

          1999-- 2001 $400,000 annual principal payments plus quarterly interest
          payments.

          2002-- 2012 $300,000 annual principal payments plus quarterly interest
          payments.

    (iii) A note  with  Bank One for  specific  production  machinery.  The note
          balance at fiscal June 30, 1999 was $105,907.  The note bears interest
          at bank prime rate. The final note is due January 2002.

     (iv) Other  borrowings  outstanding of $7,349 at 8.7% interest from Concord
          Commercial

     (v)  Deferred  compensation  due officers of  $1,436,383  payable in annual
          installments with 6.1% interest with final payment due July 2002.

     The  Company  believes  that,  as a  result  of its  loan  facilities,  its
short-term credit  availability is adequate to support Atlas' business operation
at current and near-term anticipated sales levels.

                                                                         Page 12


<PAGE>


Contingencies

     Atlas has accrued  certain  financial  reserves  for  contingencies  of bad
debts,  product  warranty and health  insurance run off costs. The latter is for
Atlas' partially  self-funded  health claims incurred prior to June 30, 1999 but
not yet paid.

Year 2000 Compliance

     The Company is installing an enterprise resource planning ("ERP") 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
approximately $290,000 was expended through June 30, 1999. 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.  Atlas 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  since it believes that  installation and operation of the
new system will be accomplished in advance of December 31, 1999.

     The Company is also  assessing  its major  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'
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  affected,  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'
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.

Recent Accounting Standards

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

Forward-Looking Statements

     Various  statements  in this  Report  concerning  the  manner  in which the
Company intends to conduct its future  operations and potential  trends that may
affect future results of operations are forward-looking  statements. The Company
may be unable to  realize  its plans and  objectives  due to  various  important
factors. These factors include but are not limited to the potential softening of
the domestic and foreign markets for automobiles and automotive  parts

                                                                         Page 13


<PAGE>


resulting in reduced demand for the Company's  automation  equipment;  potential
technological   developments  in  the  metal  forming  and  handling  automation
equipment markets which render the Company's automation equipment noncompetitive
or obsolete; the Company's failure to prevail in its patent suit against Orchid;
the  failure  of the  Company's  older  automation  equipment  to be  Year  2000
compliant;  and the  tightening  of credit  availability  generally or under the
Company's  credit  facility  which  renders the Company  unable to access needed
working capital.

                                                                         Page 14


<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  Company  is  exposed  to  interest  rate risk  primarily  through  its
borrowing  activities.  The  Company  does not enter into  financial  instrument
transactions  for trading or  speculative  purposes or to manage  interest  rate
exposure.  Therefore,  a 10% adverse  change in interest rates on the portion of
the Company's debt bearing  interest at variable rates would result in an annual
increase  in  interest  expense  of  approximately  $100,000  at June  30,  1999
borrowing levels.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Financial Statements of the Company as set forth on page F-1 herein.


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

     Not applicable.

                                                                         Page 15


<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The current directors and executive officers of the Company are as follows:
                                  Director
Nominee                     Age    Since        Position
-------                     ---    -----        --------
Ray J. Friant, Jr.........  68      1993      Chairman of the Board
Samuel N. Seidman.........  65      1993      President and Director
Michael D. Austin.........  47      1999      Director, Atlas President and CEO
Joseph K. Linman..........  60      1993      Director and Vice President
John S. Strance...........  74      1993      Director and Vice President
Jesse A. Levine...........  32      1993      Director, Chief Financial Officer,
                                               Vice President, Secretary and
                                              Treasurer
Alan H. Foster............  73      1993      Director
Alan I. Goldman...........  62      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
Lehman  Brothers.  Mr.  Seidman has served as  director  of numerous  public and
private  companies,

                                                                         Page 16

<PAGE>


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.

     Michael D. Austin is currently the President and Chief Executive Officer of
Atlas.  From 1996 to 1998, Mr. Austin held the position of Atlas President,  and
was primarily  responsible  for directing the marketing and sales  activities of
the company,  for determining the overall product  directions,  managing product
research and development,  and managing the application  engineering department.
From 1977 to 1996, Mr. Austin held various other management  positions at Atlas,
including Vice  President of Operations,  Vice President of Sales and Marketing,
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.  Mr.  Austin serves on the Board of Advisors for the
Society of  Manufacturing  Engineers,  the Board of Directors  of the  Precision
Metalforming  Association,  the  Flint-Genesee  Economic  Growth  Alliance,  the
Genesee Area Focus Council,  the Manufacturer's  Innovation Council, and several
regional  universities and colleges.  Mr. Austin holds a U.S. patent for certain
apparatus and methods for forming workpieces.

     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

                                                                         Page 17

<PAGE>


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.

     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 two 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 was elected for a three year term at an
annual  meeting  two  years  ago.  The term of  office  of the  second  class of
directors,  consisting  of Messrs.  Friant and Strance,  was elected for a three
year term at the last annual  meeting.  Mr. Austin joined the Board of Directors
during fiscal 1999 as part of the second class of directors.  The term of office
of the third  class of  directors,  consisting  of Messrs.  Seidman,  Linman and
Foster, will expire at the next annual meeting of stockholders.  In each case, a
director will hold office until the next annual meeting of stockholders at which
his class of directors is to be elected.

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, 1999,  each of its officers,
directors  and 10%  stockholders  complied  with  the  Section  16(a)  reporting
requirements,  except that Michael D. Austin,  the President and Chief Executive
Officer  of  Atlas,  did not  timely  file a Form 4 to  report  his open  market
purchases  of 19,000  shares  of the  Company's  common  stock in  November  and
December 1998. His failure to timely file was  inadvertent,  he did not sell any
shares within six months before or after such purchases or otherwise during this
period of noncompliance,  and he has since filed a Form 5 with the SEC to report
such purchases.

ITEM 11. EXECUTIVE COMPENSATION

     In  November  1997,  the Board of  Directors  of the Company  approved  the
following annual salaries for its executive  officers of the Company  (excluding
direct employees of Atlas),  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.

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

                                                                         Page 18

<PAGE>

Atlas Employment Agreements

     In May 1996,  Mr.  Michael D. Austin  entered into an employment  agreement
with Atlas  (subsequently  amended in June 1998) under which he currently serves
as the Chief Executive  Officer and President of Atlas. The term of Mr. Austin's
agreement will terminate on December 31, 2001. The agreement requires Mr. Austin
to devote substantially all of his business time and attention to the affairs of
Atlas. The agreement  provides for a base salary of $198,588 per year subject to
cost-of-living  increases  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.

     As part of the fiscal  1998 bonus  restructuring  agreement,  Atlas also is
scheduled to pay to Mr.  Austin  deferred  compensation  of $718,192  payable in
annual  installments  with 6.1% interest  with final payment due July 2002.  See
Liquidity and Capital Resources in Section 7 above.

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

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                         Annual Compensation                     Long Term Compensation
                                                         -------------------                     ----------------------
Name and                                                                                   Restricted             Securities
Principal Position         Period                 Salary ($)            Bonus ($)       Stock Awards (#)      Underlying Options (#)
------------------         ------                 ----------            ---------       ----------------      ----------------------

<S>                        <C>                     <C>                  <C>                <C>                    <C>
Samuel N. Seidman          7/1/98 to 6/30/99        65,000                  --                --                     --
                           7/1/97 to 6/30/98        75,000                  --                --                     --
                           7/1/96 to 6/30/97         6,250                  --                --                     --

Michael D.                 7/1/98 to 6/30/99       201,179                  --                --                     --
Austin                     7/1/97 to 6/30/98       196,888              718,192            150,000                   --
                           7/1/96 to 6/30/97       190,743              355,473               --                     --
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                        AGGREGATE YEAR-END OPTION VALUES
                                 (June 30, 1999)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                         Number of unexercised options at fiscal year end (#)    Value of unexercised in the money options at
                                                                                           fiscal year end ($)
Name                            Exercisable            Unexercisable            Exercisable             Unexercisable
----                            -----------            -------------            -----------             -------------
<S>                                <C>                      <C>                      <C>                     <C>
Samuel N. Seidman                  70,833                    --                      0                       --

Michael D. Austin                    --                      --                      --                      --

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                         Page 19


<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 September 13, 1999 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.

Name of Beneficial Owner                        Number           Percentage
                                               of Shares     Beneficially Owned
                                               ---------     ------------------

Michael D. Austin  .....................       268,900              9.8%

Ray J. Friant, Jr.......................       218,083(1)            8.1%

Samuel N. Seidman.......................       217,083(1)            8.1%

Ronald Prime (3)........................       150,000               5.7%

Joseph K. Linman........................       114,250(1)            4.4%

John S. Strance.........................       113,250(1)            4.4%

Jesse A. Levine.........................        91,583(1)(2)         3.6%

Alan H. Foster..........................        21,250               0.9%

Alan I. Goldman.........................        21,250               0.9%

All Officers and Directors
  as a group (8 persons) (3)............       1,215,649(1)         45.9%

----------
(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.

(2)  Includes 4,000 shares gifted by Mr. Levine to a related minor.

(3)  Mr. Prime was formerly a principal of Atlas.  Mr. Prime  retired from Atlas
     on December 31, 1998 and was and is not a Company director.

                                                                         Page 20


<PAGE>


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.
approximately  $40,000 in fiscal years ended June 30, 1997,  1998,  and 1999 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,  is
Senior Vice President of Seidman & Co., Inc.

                                                                         Page 21


<PAGE>


                                     PART IV


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

(a)    1.       Financial Statements as listed on page F-1.
       2.       Financial Statement Schedules as listed on page F-1.
       3.       Exhibits as listed on page E-1.

(b)    Reports on Form 8-K.

       No  current  reports  on Form 8-K were  filed by the  Company  during the
       quarter ended June 30, 1999.




                                                                         Page 22


<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Company  has  duly  caused  this  report  to be  signed  on  its  behalf  by the
undersigned herewith duly authorized.


September 13, 1999                           PRODUCTIVITY TECHNOLOGIES CORP.


                                             By:  /s/  Samuel N. Seidman
                                                  ----------------------------
                                                       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 Company
and in the capacities and on the dates indicated.

<TABLE>
<S>                              <C>                                            <C>
/s/  Ray J. Friant, Jr.          Chairman of the Board                          September 13, 1999
-----------------------
Ray J. Friant, Jr.

 /s/  Samuel N. Seidman          Chief Executive Officer, President             September 13, 1999
-----------------------          and Director (Principal Executive
Samuel N. Seidman                Officer)


 /s/  Michael D. Austin          Director                                       September 13, 1999
-----------------------
Michael D. Austin


 /s/  Joseph K. Linman           Vice President and Director                    September 13, 1999
-----------------------

Joseph K. Linman


  /s/  John S. Strance           Vice President and Director                    September 13, 1999
-----------------------
John S. Strance


  /s/  Jesse A. Levine           Vice President, Secretary,                     September 13, 1999
-----------------------          Treasurer and Director and Chief
Jesse A. Levine                  Financial Officer (Principal
                                 Financial and Accounting Officer)
</TABLE>

                                                                         Page 23

<PAGE>



                                  Productivity Technologies Corp. and Subsidiary


                                                                           Index
================================================================================


Report of Independent Certified Public Accountants                          F-2


Financial Statements
      Consolidated Balance Sheets                                           F-3
      Consolidated Statements of Operations                                 F-5
      Consolidated Statements of Stockholders' Equity                       F-6
      Consolidated Statements of Cash Flows                                 F-7


Notes to Financial Statements                                               F-8


Schedule II - Valuation and Qualifying Accounts                             F-23

                                      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, 1999 and 1998,
and the related consolidated statements of operations,  stockholders' equity and
cash flows for each of the three  years in the period  ended June 30,  1999.  We
have also audited the schedule listed in the accompanying index. These financial
statements and the schedule are the responsibility of the Company's  management.
Our  responsibility  is to express an opinion on these financial  statements and
the schedule 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.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of  Productivity
Technologies  Corp. and Subsidiary at June 30, 1999 and 1998, and the results of
their  operations and their cash flows for each of the three years in the period
ended June 30, 1999 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


Troy, Michigan
August 12 ,1999



                                      F-2
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                                     Consolidated Balance Sheets

================================================================================


<TABLE>
<CAPTION>
June 30,                                                     1999         1998
==================================================================================
<S>                                                      <C>           <C>
Assets (Note 5)

Current Assets
   Cash                                                  $   244,400   $ 2,172,457
   Short-term investments, including accrued interest        392,059       482,280
   Contract receivables, net of allowance for doubtful
     accounts of $110,000 (Note 3)                         7,310,072     5,217,421
   Costs and estimated earnings in excess of
     billings on uncompleted contracts (Note 4)            9,714,477     5,435,957
   Inventories                                               641,615       628,481
   Prepaid expenses and other                                414,366       859,937
   Deferred income taxes (Note 8)                            431,000       475,000
----------------------------------------------------------------------------------

Total Current Assets                                      19,147,989    15,271,533
----------------------------------------------------------------------------------

Property and Equipment
   Land                                                      591,514       591,514
   Buildings and improvements                              4,854,799     4,854,799
   Machinery and equipment                                 3,848,921     3,676,415
   Transportation equipment                                   31,500        31,500
----------------------------------------------------------------------------------

                                                           9,326,734     9,154,228
   Less accumulated depreciation                           1,483,000       865,473
----------------------------------------------------------------------------------

Net Property and Equipment                                 7,843,734     8,288,755
----------------------------------------------------------------------------------

Other Assets
   Goodwill, net of accumulated amortization
     of $340,521 and $237,561 (Note 2)                     2,484,204     2,587,164
   Other assets                                              632,053       661,936
----------------------------------------------------------------------------------

Total Other Assets                                         3,116,257     3,249,100
----------------------------------------------------------------------------------

                                                         $30,107,980   $26,809,388
==================================================================================
</TABLE>

                                 See accompanying notes to financial statements.


                                      F-3
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                                     Consolidated Balance Sheets

================================================================================

<TABLE>
<CAPTION>
June 30,                                                                 1999            1998
==================================================================================================
<S>                                                                   <C>             <C>
Liabilities and Stockholders' Equity

Current Liabilities
   Accounts payable                                                   $  1,879,817    $  1,970,769
   Accrued Expenses
     Commissions payable                                                   795,959         482,512
     Payroll and related withholdings                                      239,536         240,329
     Executive bonus agreement (Note 11)                                        --         810,000
     Other                                                               1,291,567         770,096
   Billings in excess of costs and estimated
     earnings on uncompleted contracts (Note 4)                            348,049         580,262
   Current maturities of executive deferred compensation
     agreements (Note 11)                                                  326,706              --
   Current maturities of long-term debt (Note 5)                           448,353         615,677
--------------------------------------------------------------------------------------------------

Total Current Liabilities                                                5,329,987       5,469,645

Executive Deferred Compensation Agreements, less current maturities
(Note 11)                                                                1,109,677       1,436,383

Long-Term Debt, less current maturities (Note 5)                        13,951,043      11,254,127
--------------------------------------------------------------------------------------------------

Total Liabilities                                                       20,390,707      18,160,155
--------------------------------------------------------------------------------------------------

Stockholders' Equity (Notes 6 and 7)
   Common stock; $.001 par value, 20,000,000 shares
     authorized; 2,475,000 and 2,125,000 issued and outstanding              2,475           2,125
   Common stock to be issued (Note 11)                                          --         695,520
   Additional paid-in capital                                            9,966,408       9,177,488
   Deficit                                                                (251,610)     (1,225,900)
--------------------------------------------------------------------------------------------------

Total Stockholders' Equity                                               9,717,273       8,649,233
--------------------------------------------------------------------------------------------------

                                                                      $ 30,107,980    $ 26,809,388
==================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.


                                      F-4
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                           Consolidated Statements of Operations

================================================================================


<TABLE>
<CAPTION>
Year Ended June 30,                          1999           1998             1997
====================================================================================
<S>                                     <C>             <C>             <C>
Contract Revenues Earned                $ 34,001,248    $ 36,040,278    $ 34,437,625

Cost of Revenues Earned                   24,609,631      27,562,608      24,824,582
------------------------------------------------------------------------------------

Gross Profit                               9,391,617       8,477,670       9,613,043

Selling, General and
    Administrative Expenses (Note 10)      7,526,448       8,538,166       7,081,273

Officers' Bonuses (Notes 2 and 11)                --              --         710,946
------------------------------------------------------------------------------------

Income (Loss) From Operations Before
    Bonus Restructuring Expense            1,865,169         (60,496)      1,820,824

Bonus Restructuring Expense (Note 11)             --      (2,131,903)             --
------------------------------------------------------------------------------------
Income (Loss) From Operations              1,865,169      (2,192,399)      1,820,824
------------------------------------------------------------------------------------

Other Income (Expense)
    Interest expense                        (835,619)     (1,057,725)       (933,632)
    Interest income                           82,466         141,707         134,312
    Gain on disposal of assets                    --          89,628              --
    Miscellaneous                            (37,726)         56,439          21,226
------------------------------------------------------------------------------------

Total Other Expense                         (790,879)       (769,951)       (778,094)
------------------------------------------------------------------------------------

Income (Loss) Before Income Taxes          1,074,290      (2,962,350)      1,042,730

Income Tax Expense (Benefit) (Note 8)        100,000        (950,000)        450,000
------------------------------------------------------------------------------------
Net Income (Loss)                       $    974,290    $ (2,012,350)   $    592,730
====================================================================================
Basic Earnings Per Share (Note 1)       $        .40    $       (.95)   $        .28
====================================================================================
Diluted Earnings Per Share (Note 1)     $        .40    $       (.95)   $        .28
====================================================================================
</TABLE>

                                 See accompanying notes to financial statements.


                                      F-5
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                 Consolidated Statements of Stockholders' Equity

================================================================================

<TABLE>
<CAPTION>

                                       Common Stock          Common    Additional      Retained          Total
                               --------------------        Stock To       Paid-In      Earnings   Stockholders'
                               Shares         Amount      Be Issued       Capital      (Deficit)        Equity
===============================================================================================================
<S>                           <C>         <C>           <C>            <C>           <C>            <C>
Balance, July 1, 1996         2,125,000   $     2,215   $        --    $ 9,177,488   $   193,720    $ 9,373,333

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

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

Common stock to be issued
 (Note 11)                           --            --       695,520             --            --        695,520

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

Balance, June 30, 1998        2,125,000         2,125       695,520      9,177,488    (1,225,900)   $ 8,649,233

Common stock issued             350,000           350      (695,520)       788,920            --         93,750

Net income                           --            --            --             --       974,290        974,290
---------------------------------------------------------------------------------------------------------------

Balance, June 30, 1999        2,475,000   $     2,475   $        --    $ 9,966,408   $  (251,610)   $ 9,717,273
===============================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.


                                      F-6
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                           Consolidated Statements of Cash Flows

================================================================================

<TABLE>
<CAPTION>
Year Ended June 30,                                               1999         1998           1997
======================================================================================================
<S>                                                          <C>            <C>            <C>
Cash Flows From Operating Activities
    Net income (loss)                                        $   974,290    $(2,012,350)   $   592,730
    Adjustments to reconcile net income (loss) to net cash
      (used in) provided by operating activities
        Depreciation                                             617,527        544,990        346,873
        Amortization                                             171,827        250,829        119,961
        Provisions for losses on contract receivables                 --         64,500       (117,971)
        Inventory net realizable value reserve                   100,000         80,000        (80,000)
        Deferred income taxes                                     44,000       (685,000)       (89,000)
        Gain on disposal of assets                                    --        (89,628)            --
        Changes in operating assets and liabilities
          Contract receivables                                (2,092,651)     3,917,381     (1,123,172)
          Inventories, prepaid expenses and other                279,106       (187,691)      (415,056)
          Costs and estimated earnings in excess of
             billings on uncompleted contracts-net effect     (4,510,733)     2,619,765       (417,420)
          Accounts payable, accrued expenses
             and other                                           (66,827)     1,000,604       (206,733)
------------------------------------------------------------------------------------------------------

Net Cash (Used In) Provided By Operating Activities           (4,483,461)     5,503,400     (1,389,788)
------------------------------------------------------------------------------------------------------

Cash Flows From Investing Activities
    Expenditures for property and equipment (including
       capitalized interest of  $75,699 in fiscal 1997)         (172,506)    (1,193,618)    (4,554,364)
    Collections on notes receivable                              108,097        109,200         79,975
    Proceeds from sale of short-term  investments-net             90,221        446,924         36,051
    Proceeds from sale of property and equipment                      --      1,054,431             --
    Purchase of Atlas                                                 --       (220,000)            --
    Issuance of notes receivable                                      --       (200,000)            --
------------------------------------------------------------------------------------------------------

Net Cash Provided By (Used In) Investing Activities               25,812         (3,063)    (4,438,338)
------------------------------------------------------------------------------------------------------
</TABLE>

                                 See accompanying notes to financial statements.


                                      F-7
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                           Consolidated Statements of Cash Flows

================================================================================


<TABLE>
<CAPTION>
Year Ended June 30,                                        1999            1998           1997
==================================================================================================
<S>                                                      <C>            <C>                <C>
Cash Flows From Financing Activities
    Net borrowings (payments) - revolving
      credit agreement                                   2,986,975      (4,100,450)        262,751
    Payments on long-term debt                            (457,383)        (71,139)       (222,006)
    Proceeds from additions of long-term debt                   --              --       5,255,000
    Net borrowings - line-of-credit                             --              --         863,911
--------------------------------------------------------------------------------------------------

Net Cash Provided By (Used In) Financing Activities      2,529,592      (4,171,589)      6,159,656
--------------------------------------------------------------------------------------------------

Net (Decrease) Increase In Cash                         (1,928,507)      1,328,748         331,530

Cash, at beginning of year                               2,172,457         843,709         512,179
--------------------------------------------------------------------------------------------------

Cash, at end of year                                  $    244,400    $  2,172,457    $    843,709
==================================================================================================

Supplemental Cash Flow Information
    Cash Paid During the Year For
      Interest, net of amounts capitalized            $    763,320    $  1,058,114    $    878,207
      Income taxes                                          56,687         173,135         827,451
==================================================================================================

Supplemental Noncash Investing and
    Financing Activities
      Issuance of shares under employment contracts   $     93,750    $         --    $         --
      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 in financial statements.


                                      F-8
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                                   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").

     The accompanying  consolidated financial statements 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.

     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 Canada, Mexico, Europe and
     Asia.  Export sales during the twelve months ended June 30, 1999,  1998 and
     1997 amounted to approximately 28%, 30%, and 20%,  respectively,  of annual
     sales.



                                      F-9
<PAGE>

                                  Productivity Technologies Corp. and Subsidiary

                                                   Notes to Financial Statements

================================================================================

     Short-term Investments

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

     Use of Estimates

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

     Concentrations of Credit Risk

     Financial   instruments   which   potentially   subject   the   Company  to
     concentrations of credit risk consist principally of 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.



                                      F-10
<PAGE>

                                  Productivity Technologies Corp. and Subsidiary

                                                   Notes to Financial Statements

================================================================================

     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.

     Inventories

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

     Property and Equipment

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

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

     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.



                                      F-11
<PAGE>


     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:

            Year Ended June 30,             1999           1998           1997
     ---------------------------------------------------------------------------
     Numerator for Basic and Diluted
     Earnings Per Share
           Net Income (loss)             $   974,290   $(2,012,350)  $   592,730
     ===========================================================================
     Denominator for Basic and Diluted
     Earnings Per Share
           Weighted average shares
              outstanding                  2,431,986     2,125,000     2,125,000
     ===========================================================================

     Options to purchase  shares of common stock were  outstanding  (see Notes 6
     and 7) but were not  included in the  computation  of diluted  earnings per
     share because (1) in fiscal 1999 and 1997, the options'  exercise price was
     greater than the average market price of the common  shares,  and (2) there
     was a net loss in fiscal 1998 and therefore any additional  shares would be
     antidilutive.



                                      F-12
<PAGE>

                                  Productivity Technologies Corp. and Subsidiary

                                                   Notes to Financial Statements

================================================================================


     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, 1999.

     Reclassifications

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

     Recent Accounting Pronouncements

     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 Company's 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 11).



                                      F-13
<PAGE>

                                  Productivity Technologies Corp. and Subsidiary

                                                   Notes to Financial Statements

================================================================================

3.   Contract Receivables

     The contract receivables consisted of:

          June 30,                                1999              1998
     ==========================================================================
     Billed
        Completed contracts                     $ 1,575,972    $ 2,816,422
        Uncompleted contracts                     5,577,034      2,276,987
     Unbilled                                       267,066        234,012
     --------------------------------------------------------------------------
     Total Contracts Receivable                   7,420,072      5,327,421
     Less allowance for doubtful accounts          (110,000)      (110,000)
     --------------------------------------------------------------------------
     Total                                      $ 7,310,072    $ 5,217,421
     ==========================================================================


4.   Costs and Estimated Earnings on Uncomplete Contracts

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


           June 30,                                  1999             1998
     ===========================================================================
     Costs incurred on uncompleted contracts      $19,018,174   $23,105,651
     Estimated Earnings                             8,649,123     7,762,175
     ---------------------------------------------------------------------------
                                                   27,667,297    30,867,826
     Less billings to date                         18,300,869    26,012,131
     ---------------------------------------------------------------------------
     Total                                        $ 9,366,428   $ 4,855,695
     ===========================================================================

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

            June 30,                                1999            1998
     ===========================================================================
     Costs and estimated earnings in excess
       of billings on uncompleted contracts      $ 9,714,477    $ 5,435,957
     Billings in excess of costs and estimated
       earnings on uncompleted contracts            (348,049)      (580,262)
     ---------------------------------------------------------------------------
     Total                                       $ 9,366,428    $ 4,855,695
     ===========================================================================



                                      F-14
<PAGE>

                                  Productivity Technologies Corp. and Subsidiary

                                                   Notes to Financial Statements

================================================================================

5.   Long-Term Debt

     Long-term debt consisted of:

          June 30,                                      1999               1998
     ===========================================================================
     $16,000,000 revolving credit agreement with a
     bank.  The amount that may be borrowed  under
     this   agreement   is  limited  to  specified
     percentages of contract receivables,  work in
     process and property and  equipment of Atlas.
     The revolving credit  agreement  provides for
     outstanding  borrowings to bear interest at a
     rate  equal  to (a)  the  bank's  prime  rate
     (which was 8% at June 30, 1999) less 1/4%, or
     (b) the 30, 60, or 90 day LIBOR rate plus 230
     basis  points,  at the Company's  option.  No
     principal payments on outstanding  borrowings
     are due until January 31, 2002, at which time
     the entire balance is due.  Borrowings  under
     this   agreement   are    collateralized   by
     substantially   all  assets  of  Atlas.   The
     revolving   credit  agreement  also  contains
     various financial covenants.

                                                     $10,186,140     $ 7,199,165

     First mortgage note payable (1)                   4,100,000       4,500,000

     Other                                               113,256         170,639
     ---------------------------------------------------------------------------

     Total                                            14,399,396      11,869,804

     Less current maturities                             448,353         615,677
     ---------------------------------------------------------------------------

     Long-Term Debt                                  $13,951,043     $11,254,127
     ===========================================================================



                                      F-15
<PAGE>

                                  Productivity Technologies Corp. and Subsidiary

                                                   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,  1999  was
          approximately  4.0%.  To enhance  the  marketability  of the bonds and
          guarantee  payment of the bonds on the  Company's  behalf,  a bank has
          issued its letter of credit through December 2001, whereby a fee of 1%
          is charged  annually.  Also, the bonds are secured by a first mortgage
          note collateralized by substantially all assets of the Company.

     Scheduled  maturities of long-term debt for future years ending June 30 are
     as follows: 2000 - $448,353;  2001 - $441,004;  2002 - $10,510,039;  2003 -
     $300,000; 2004 - $300,000 and $2,400,000 thereafter.

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

     At June 30, 1999,  3,700,000  shares of common stock were  reserved for the
     issuance upon exercise of the warrants described above.

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


                                      F-16
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                                   Notes to Financial Statements

================================================================================

7.   Employee Benefit Plans


     The Company has a 401(k) plan covering  substantially  all  employees.  The
     plan allows for eligible  employees to defer a portion of their salary.  In
     addition,  discretionary  contributions  may be  made by the  Company.  The
     Company contributed $154,400 and $148,700 for the years ended June 30, 1999
     and 1997, respectively. The Company made no contribution for the year ended
     June 30, 1998.

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

     No data has been  presented  for the year ended June 30, 1999 because there
     were no options granted during the year.

     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.



                                      F-17
<PAGE>



     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
     Granted                                                    --       --
     Expired                                                    --       --
     Exercised                                                  --       --
     ---------------------------------------------------------------------------
     Outstanding and Exercisable at June 30, 1999          295,000    $4.88
     ===========================================================================

     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, 1999:

                                                           Weighted Average
                                       Options     -----------------------------
                                   Outstanding        Remaining
            Range of                       And      Contractual      Exercisable
     Exercise Prices                Exercisable            Life            Price

     $4.125-$5.00                       295,000        2 years        $   4.88
     -==========================================================================



                                      F-18
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                                   Notes to Financial Statements

================================================================================


8.   Income Taxes

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

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

               June 30,                               1999           1998
     ===========================================================================

     Current
       Inventory net realizable value reserve       $ 102,000    $  68,000
       Research credit carryforward - net             100,000       34,000
       Accrual for executive bonus agreement               --      237,000
       Other                                          229,000      136,000
     ---------------------------------------------------------------------------

     Net Current Deferred Tax Asset                 $ 431,000    $ 475,000
     ===========================================================================

     Non-Current
       Depreciation and basis of assets             $(582,000)   $(569,000)
       Executive deferred compensation agreement      377,000      488,000
       Research credit carryforward - net             210,000       30,000
       Other                                           (5,000)      51,000
     ---------------------------------------------------------------------------

     Net Non-Current Deferred Tax Liability         $      --    $      --
     ===========================================================================

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

     Year Ended June 30,              1999         1998             1997
     ===========================================================================

     Federal
       Current                    $  41,000      $(315,000)      $ 481,000
       Deferred                      44,000       (685,000)        (89,000)

     State
       Current                       15,000         50,000          58,000
     --------------------------------------------------------------------------

     Total                        $ 100,000      $(950,000)      $ 450,000
     ==========================================================================


                                      F-19
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                                   Notes to Financial Statements

================================================================================


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

     Year Ended June 30,                 1999          1998            1997
     ===========================================================================
     Tax expense (benefit)
        at statutory rate            $   365,000    $(1,007,000)   $   355,000

     Goodwill amortization
       and other non-deductible
       items                              59,000         62,000         55,000

     State  income  taxes,  net of
     federal income tax benefit           10,000         33,000         38,000

     Research credit - net              (246,000)            --        (40,000)

     Other - net                         (88,000)       (38,000)        42,000
     ---------------------------------------------------------------------------

     Income Tax Expense
       (Benefit)                     $   100,000    $  (950,000)   $   450,000
     ===========================================================================

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

     Atlas has tax research credit carryforwards totaling approximately $618,000
     that will begin to expire in 2012. Based on management's,  estimates, these
     credit  carryforwards  have been  reduced  by 50% for  financial  statement
     purposes to reflect their estimated future value.


                                      F-20
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                                   Notes to Financial Statements

================================================================================


9.   Major Customers

     For the twelve  months ended June 30, 1999,  1998 and 1997,  the  Company's
     sales to its major customers (each  representing more than 10% of total net
     sales)  amounted to  approximately  30%, 50% and 44% of total annual sales,
     respectively. During 1999, there were two major customers each representing
     15% of total net sales;  during  1998,  there were  three  major  customers
     representing  27%,  13% and 10% of total net sales;  and during  1997 there
     were  three  major  customers  representing  20%,  12% and 12% of total net
     sales.

10.  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.


11.  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  expired on December 31, 1998, and
     the other  expires on  December  31,  2001.  Each  agreement  requires  the
     executive to devote substantially all of his business time and attention to
     the affairs of the Company.  Annual  compensation  under each  agreement is
     $198,588,  subject to cost of living increases for one of the officers. The
     amended  agreements also provide that each executive,  regardless of future
     employment,  will receive four annual payments of $207,571  commencing July
     30, 1999. Each executive also received 150,000 shares of restricted  common
     stock of the Company issued during fiscal 1999. The restricted common stock
     has  been  valued  at  market  value  less  a  30%  discount  for  lack  of
     marketability.  Included in the accompanying financial statements as of and
     for the  years  ended  June  30,  1999 and 1998  related  to these  amended
     agreements are the following:


                                      F-21
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                                   Notes to Financial Statements

================================================================================


                                                     1999           1998
     ===========================================================================
     Balance Sheet
       Current maturities of executive
         deferred compensation agreement          $  326,706     $       --
       Executive Deferred Compensation
         Agreement, less current maturities         1,109,677      1,436,383
       Common stock to be issued                          --        696,520
     ===========================================================================
     Statement of Operations
         Bonus restructuring expense              $       --     $2,131,903
     ===========================================================================

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



                                      F-22
<PAGE>


                                  Productivity Technologies Corp. and Subsidiary

                                 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, 1999
    Allowance for doubtful accounts
      (deducted from contract receivables)                         $ 110,000        $      --            $      --         $ 110,000
    Inventory net realizable value reserve                           200,000          100,000                   --           300,000
    Warranty reserve                                                 119,190          960,499(3)          (879,689)          200,000
====================================================================================================================================
Year Ended June 30, 1998
    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
    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
====================================================================================================================================
</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-23
<PAGE>


EXHIBIT INDEX

      Exhibit No.   Description
      -----------   -----------


          3.1       Certificate of Incorporation*

          3.1.1     Amendment  to  Certificate  of  Incorporation  filed May 28,
                    1996**

          3.2       By-laws*

          4.1       Form of Common Stock Certificate of the Company*

          4.2       Form of Warrant Certificate of the Company*

          4.3       Unit Purchase  Option between GKN  Securities  Corp. and the
                    Company*

          4.4       Warrant Agreement between Continental Stock Transfer & Trust
                    Company and the Company*

          10.1      Employment  Agreement  dated  May  23,  1996  between  Atlas
                    Technologies, Inc. ("Atlas") and Ronald M. Prime***

          10.2      Employment  Agreement  dated  May  23,  1996  between  Atlas
                    Technologies, Inc. and Michael D. Austin***

          10.3      Bonus  Restructuring  Agreement  dated June 30, 1998 between
                    Atlas Technologies, Inc. and Messrs. Michael D. Austin
                    and Ronald Prime****

          10.4      1996 Performance Equity Plan of the Company***

          27        Financial Data Schedule *****

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

**     Filed  as  Exhibit  to  Report  on  Form  8-K  filed  June 7,  1996,  and
       incorporated herein by reference.

***    Filed as  Exhibits to Report on Form 10-K for fiscal year ended March 31,
       1996 and incorporated herein by reference

****   Filed as  Exhibits to Report on Form 10-K for fiscal year ended March 31,
       1998 and incorporated herein by reference

*****  Filed herewith.


                                      E-1