<PAGE>

                                                                    EXHIBIT 99.1

               Productivity Technologies Corp. and Subsidiaries


                                                                           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-9


          Schedule II - Valuation and Qualifying Accounts          F-26



                                      F-1
<PAGE>

Report of Independent Certified Public Accountants


To the Board of Directors of
Productivity Technologies Corp.
Ann Arbor, Michigan

We have audited the accompanying consolidated balance sheets of Productivity
Technologies Corp. and Subsidiaries (the "Company") as of June 30, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
2000. 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 Subsidiaries at June 30, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 2000 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
September 12, 2000, except for
Note 5 which is as of October 13, 2000


                                      F-2
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                     Consolidated Balance Sheets

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

<TABLE>
<CAPTION>

June 30,                                                                            2000             1999
---------------------------------------------------------------------------------------------------------
<S>                                                                          <C>              <C>
Assets (Note 5)

Current Assets
 Cash                                                                        $   538,575      $   244,400
 Short-term investments, including accrued interest                              310,085          392,059
 Contract receivables, net of allowance for doubtful                           9,930,913        7,310,072
  accounts of $102,500 and $110,000 (Note 3)
 Costs and estimated earnings in excess of                                     9,756,686        9,714,477
  billings on uncompleted contracts (Note 4)
 Inventories                                                                   1,917,230          641,615
 Prepaid expenses and other                                                      202,140          414,366
 Deferred income taxes (Note 8)                                                  316,000          431,000
---------------------------------------------------------------------------------------------------------

Total Current Assets                                                          22,971,629       19,147,989
---------------------------------------------------------------------------------------------------------

Property and Equipment
 Land                                                                            591,514          591,514
 Buildings and improvements                                                    4,864,018        4,854,799
 Machinery and equipment                                                       4,305,900        3,848,921
 Transportation equipment                                                         21,000           31,500
---------------------------------------------------------------------------------------------------------

                                                                               9,782,432        9,326,734
 Less accumulated depreciation                                                 2,074,154        1,483,000
---------------------------------------------------------------------------------------------------------

Net Property and Equipment                                                     7,708,278        7,843,734
---------------------------------------------------------------------------------------------------------

Other Assets
 Goodwill, net of accumulated amortization                                     6,863,908        2,484,204
  of $541,439 and $340,521 (Note 2)
 Patent, net of accumulated amortization of $18,150 and $-0-                     731,850                -
  (Note 2)
 Deferred income taxes (Note 8)                                                  450,000                -
 Other assets                                                                    512,172          632,053
---------------------------------------------------------------------------------------------------------

Total Other Assets                                                             8,557,930        3,116,257
---------------------------------------------------------------------------------------------------------

                                                                             $39,237,837      $30,107,980
---------------------------------------------------------------------------------------------------------
</TABLE>
                     See accompanying notes to consolidated financial statements

                                      F-3
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                     Consolidated Balance Sheets

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



<TABLE>
<CAPTION>

June 30,                                                                           2000               1999
----------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                 <C>
Liabilities and Stockholders' Equity

Current Liabilities
 Accounts payable                                                           $ 4,457,290        $ 1,879,817
 Accrued Expenses
  Commissions payable                                                           573,404            795,959
  Warranty reserve                                                              440,000            200,000
  Royalties payable                                                             367,772            373,983
  Payroll and related withholdings                                              316,524            239,536
  Other                                                                         601,563            717,584
 Billings in excess of costs and estimated                                       58,888            348,049
  earnings on uncompleted contracts (Note 4)
 Current maturities of executive deferred compensation                          348,560            326,706
  agreements (Note 11)
 Current maturities of long-term debt (Note 5)                                  991,004            448,353
----------------------------------------------------------------------------------------------------------

Total Current Liabilities                                                     8,155,005          5,329,987


Executive Deferred Compensation Agreements, less current
 maturities (Note 11)                                                           759,792          1,109,677



Long-Term Debt, less current maturities (Note 5)                             20,862,047         13,951,043
----------------------------------------------------------------------------------------------------------

Total Liabilities                                                            29,776,844         20,390,707
----------------------------------------------------------------------------------------------------------


Stockholders' Equity (Notes 6 and 7)
 Common stock; $.001 par value, 20,000,000 shares
  authorized; 2,475,000 issued and outstanding                                    2,475              2,475
 Additional paid-in capital                                                   9,966,408          9,966,408
 Deficit                                                                       (507,890)          (251,610)
----------------------------------------------------------------------------------------------------------

Total Stockholders' Equity                                                    9,460,993          9,717,273
----------------------------------------------------------------------------------------------------------

                                                                            $39,237,837        $30,107,980
----------------------------------------------------------------------------------------------------------
</TABLE>
                    See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                           Consolidated Statements of Operations

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



<TABLE>
<CAPTION>

Year Ended June 30,                                              2000                 1999               1998
-------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                  <C>                <C>
Revenues Earned                                           $33,230,195          $34,001,248        $36,040,278

Cost of Revenues Earned                                    26,334,826           24,609,631         27,562,608
-------------------------------------------------------------------------------------------------------------

Gross Profit                                                6,895,369            9,391,617          8,477,670

Selling, General and
 Administrative Expenses (Note 10)                          6,332,966            7,526,448          8,538,166
-------------------------------------------------------------------------------------------------------------

Income (Loss) From Operations Before
 Bonus Restructuring Expense                                  562,403            1,865,169            (60,496)

Bonus Restructuring Expense (Note 11)                               -                    -         (2,131,903)
-------------------------------------------------------------------------------------------------------------

Income (Loss) From Operations                                 562,403            1,865,169         (2,192,399)
-------------------------------------------------------------------------------------------------------------

Other Income (Expense)
 Interest expense                                          (1,307,732)            (835,619)        (1,057,725)
 Interest income                                               66,843               82,466            141,707
 Gain on disposal of assets                                       650                    -             89,628
 Miscellaneous                                                 58,556              (37,726)            56,439
-------------------------------------------------------------------------------------------------------------

Total Other Expense                                        (1,181,683)            (790,879)          (769,951)
-------------------------------------------------------------------------------------------------------------

(Loss) Income Before Income Taxes                            (619,280)           1,074,290         (2,962,350)

Income Tax Expense (Benefit) (Note 8)                        (363,000)             100,000           (950,000)
-------------------------------------------------------------------------------------------------------------

Net (Loss) Income                                         $  (256,280)         $   974,290        $(2,012,350)
-------------------------------------------------------------------------------------------------------------

Basic Earnings Per Share (Note 1)                         $      (.10)         $       .40        $      (.95)
-------------------------------------------------------------------------------------------------------------

Diluted Earnings Per Share (Note 1)                       $      (.10)         $       .40        $      (.95)
-------------------------------------------------------------------------------------------------------------
</TABLE>
                    See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                 Consolidated Statements of Stockholders' Equity

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



<TABLE>
<CAPTION>

                                        Common Stock       Common    Additional                     Total
                                   --------------------   Stock To     Paid-In                  Stockholders'
                                      Shares    Amount   Be Issued     Capital     (Deficit)        Equity
-------------------------------------------------------------------------------------------------------------
<S>                                  <C>        <C>      <C>         <C>          <C>           <C>
Balance, July 1, 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

Net loss                                     -        -          -             -     (256,280)       (256,280)
-------------------------------------------------------------------------------------------------------------

Balance, June 30, 2000               2,475,000   $2,475  $  -         $9,966,408  $  (507,890)    $ 9,460,993
-------------------------------------------------------------------------------------------------------------
</TABLE>
                    See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                           Consolidated Statements of Cash Flows

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



<TABLE>
<CAPTION>
Year Ended June 30,                                                     2000                1999              1998
------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                 <C>               <C>
Cash Flows From Operating Activities
 Net income (loss)                                               $  (256,280)        $   974,290       $(2,012,350)
 Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities
    Depreciation                                                     601,654             617,527           544,990
    Amortization                                                     318,640             171,827           250,829
    Provisions for losses on contract receivables                     (7,500)                  -            64,500
    Inventory net realizable value reserve                          (200,000)            100,000            80,000
    Deferred income taxes                                           (335,000)             44,000          (685,000)
    Gain on disposal of assets                                          (650)                  -           (89,628)
    Changes in operating assets and liabilities, net
     of acquisition
       Contract receivables                                       (1,813,341)         (2,092,651)        3,917,381
       Inventories, prepaid expenses and other                      (461,647)            279,106          (187,691)
       Costs and estimated earnings in excess of
        billings on uncompleted contracts-net effect                (331,370)         (4,510,733)        2,619,765
       Accounts payable, accrued expenses
        and other                                                  2,549,674             (66,827)        1,000,604
------------------------------------------------------------------------------------------------------------------

Net Cash Provided By (Used In) Operating Activities                   64,180          (4,483,461)        5,503,400
------------------------------------------------------------------------------------------------------------------

Cash Flows From Investing Activities
 Purchase of Westland                                             (3,890,621)                  -                 -
 Expenditures for property and equipment                            (356,198)           (172,506)       (1,193,618)
 Proceeds from sale of short-term  investments-net                    81,974              90,221           446,924
 Collections on notes receivable                                      18,566             108,097           109,200
 Proceeds from sale of property and equipment                            650                   -         1,054,431
 Purchase of Atlas                                                         -                   -          (220,000)
 Issuance of notes receivable                                              -                   -          (200,000)
------------------------------------------------------------------------------------------------------------------

Net Cash (Used In) Provided By Investing Activities               (4,145,629)             25,812            (3,063)
------------------------------------------------------------------------------------------------------------------
</TABLE>
                    See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                           Consolidated Statements of Cash Flows

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

Year Ended June 30,                                                  2000                1999               1998
----------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                <C>                 <C>
Cash Flows From Financing Activities
 Proceeds from additions of long-term debt                      3,600,000                   -                  -
 Net borrowings (payments) on revolving
    credit agreement                                            1,552,008           2,986,975         (4,100,450)
 Payments on long-term debt                                      (776,384)           (457,383)           (71,139)
----------------------------------------------------------------------------------------------------------------

Net Cash Provided By (Used In) Financing Activities             4,375,624           2,529,592         (4,171,589)
----------------------------------------------------------------------------------------------------------------

Net Increase (Decrease) In Cash                                   294,175          (1,928,507)         1,328,748

Cash, at beginning of year                                        244,400           2,172,457            843,709
----------------------------------------------------------------------------------------------------------------

Cash, at end of year                                           $  538,575         $   244,400        $ 2,172,457
----------------------------------------------------------------------------------------------------------------

Supplemental Cash Flow Information
 Cash Paid During the Year For
   Interest                                                    $1,219,447         $   763,320        $ 1,058,114
   Income taxes                                                         -              56,687            173,135
----------------------------------------------------------------------------------------------------------------

Supplemental Noncash Investing and
 Financing Activities
   Purchase of Westland with notes payable                     $2,750,000         $         -        $         -
   Issuance of shares under employment contracts                        -              93,750                  -
----------------------------------------------------------------------------------------------------------------
</TABLE>
                    See accompanying notes to consolidated financial statements.

                                      F-8
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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

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

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

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

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

                  Nature of Business

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

                  Sales of products have principally been to automobile and
                  automotive parts manufacturers and appliance manufacturers.
                  Other customers include manufacturers of garden and lawn
                  equipment, office furniture, heating, ventilation and air
                  conditioning equipment and aircraft. Sales to automotive-
                  related customers have accounted for the majority of total
                  annual sales. Sales are predominantly in the United States
                  but, in recent years, the Company has targeted sales efforts
                  in Canada, Mexico, Europe and Asia. Export sales during the
                  twelve months ended June 30, 2000, 1999 and 1998 amounted to
                  approximately 15%, 40%, and 30%, respectively, of annual
                  sales.

                                      F-9
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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


                  Short-term Investments

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

                  Use of Estimates

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

                  Concentrations of Credit Risk

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

                  Fair Values of Financial Instruments

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

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

                                      F-10
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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




                  Revenue and Cost Recognition

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

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

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

                  Inventories

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

                  Property and Equipment

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

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

                                      F-11
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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


                  Intangible Assets

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

                  Warranty

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

                  Health Insurance

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

                  Income Taxes

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

                  Earnings Per Share

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

                                      F-12
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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

<TABLE>
<CAPTION>


                  Year Ended June 30,                      2000              1999               1998
                  ------------------------------------------------------------------------------------
                  <S>                                  <C>               <C>               <C>
                  Numerator for Basic and
                  Diluted   Earnings Per Share
                       Net income (loss)               $  (256,280)      $   974,290       $(2,012,350)
                  --------------------------------------------------------------------------------------

                  Denominator for Basic and
                  Diluted Earnings Per Share

                       Weighted average shares
                       outstanding                  2,475,000         2,431,986          2,125,000

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

</TABLE>


                  Options to purchase shares of common stock were outstanding
                  (see Notes 6 and 7) but were not included in the computation
                  of diluted earnings per share because (1) in fiscal 1999, the
                  options' exercise price was greater than the average market
                  price of the common shares, and (2) there was a net loss in
                  fiscal 2000 and 1998; therefore any additional shares would be
                  antidilutive.

                  Long-Lived Assets

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

                  Reclassifications

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

                                      F-13
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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



                  Recent Accounting Pronouncements

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

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

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

                  The purchase price was allocated as follows:

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

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


                                      F-14
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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



                  Unaudited proforma financial information as if the acquisition
                  of Westland had taken place July 1, 1998 is as follows:

                                                           2000             1999
                  --------------------------------------------------------------

                  Revenues                          $38,491,000      $41,279,000
                  Net income                            464,000        1,224,000
                  --------------------------------------------------------------

                  Earnings Per Share - Basic
                  and Diluted                               .19              .50
                  --------------------------------------------------------------

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

                  On May 23, 1996, PTC acquired all the outstanding shares of
                  Atlas for cash of $6,900,000, and related acquisition costs of
                  approximately $337,060. During fiscal 1998, a final purchase
                  price adjustment resulted in $220,000 of additional goodwill.
                  The acquisition, which was pursuant to a Merger Agreement
                  dated December 18, 1995, also included certain employment
                  agreements with bonus arrangements involving the principal
                  shareholders of Atlas (see Note 11).


3.  Contract      The contract receivables consisted of:
    Receivables

                  June 30,                                 2000            1999
                  -------------------------------------------------------------

                  Billed
                    Completed contracts             $ 2,695,656     $ 1,575,972
                    Uncompleted contracts             7,337,757       5,577,034
                  Unbilled                                    -         267,066
                  --------------------------------------------------------------

                  Total Contracts Receivable         10,033,413       7,420,072
                  Less allowance for
                   doubtful accounts                   (102,500)       (110,000)
                  -------------------------------------------------------------

                  Total                             $ 9,930,913     $ 7,310,072
                  -------------------------------------------------------------

                                      F-15
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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


4.  Costs and     Costs and estimated earnings on uncompleted contracts
    Estimated     consisted of the following:
    Earnings on
    Uncompleted
    Contracts
<TABLE>
<CAPTION>
                  June 30,                                                      2000              1999
                  --------------------------------------------------------------------------------------
                  <S>                                                    <C>               <C>
                  Costs incurred on uncompleted contracts                $16,510,836       $19,018,174
                  Estimated Earnings                                       7,245,332         8,649,123
                  --------------------------------------------------------------------------------------

                                                                          23,756,168        27,667,297
                  Less billings to date                                   14,058,370        18,300,869
                  --------------------------------------------------------------------------------------

                  Total                                                  $ 9,697,798       $ 9,366,428
                  --------------------------------------------------------------------------------------


</TABLE>

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


                  June 30,                                                       2000              1999
                  --------------------------------------------------------------------------------------
                  <S>                                                     <C>               <C>
                  Costs and estimated earnings in excess
                   of billings on uncompleted contracts                   $ 9,756,686       $ 9,714,477
                  Billings in excess of costs and estimated
                   earnings on uncompleted contracts                          (58,888)         (348,049)
                  --------------------------------------------------------------------------------------

                  Total                                                   $ 9,697,798       $ 9,366,428
                  --------------------------------------------------------------------------------------


</TABLE>

                                      F-16
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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


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

<TABLE>
<CAPTION>


  June 30,                                                2000              1999
  ---------------------------------------------------------------------------------
  <S>                                                  <C>             <C>
  $16,000,000 revolving credit agreement with a
  bank. The amount that may be borrowed under
  this agreement is limited to specified
  percentages of contract receivables, work in
  process and property and equipment of Atlas.
  The revolving credit agreement provides for
  outstanding borrowings to bear interest at a
  rate equal to (a) the bank's prime rate
  (which was 9.5% at June 30, 2000) less 1/4%,
  or (b) the 30, 60, or 90 day LIBOR rate plus
  230 basis points, at the Company's option. No
  principal payments on outstanding borrowings
  are due until January 31, 2002, at which time
  the entire balance is due. Borrowings under
  this agreement are collateralized by
  substantially all assets of Atlas.

                                                       $11,738,148     $10,186,140


 First mortgage note payable (1)                         3,700,000       4,100,000

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



</TABLE>

                                      F-17
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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

<TABLE>
<CAPTION>


                  June 30,                                                      2000              1999
                  --------------------------------------------------------------------------------------
                  <S>                                                      <C>              <C>
                  Term loans with the former owner of Westland.
                   The agreements provide for outstanding
                   borrowings to bear interest at a rate of
                   9.25%. Principal payments will be made in
                   five equal installments beginning in February           2,750,000                 -
                   2001.


                  Other                                                       64,903           113,256
                  --------------------------------------------------------------------------------------

                  Total                                                   21,853,051        14,399,396

                  Less current maturities                                    991,004           448,353
                  --------------------------------------------------------------------------------------

                  Long-Term Debt                                         $20,862,047       $13,951,043
                  --------------------------------------------------------------------------------------

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

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

                                      F-18
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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

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


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

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

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

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


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

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

                                      F-19
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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


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


                  Year Ended June 30,                   2000               1998
                  -------------------------------------------------------------

                  Net loss - as reported           $(256,280)        (2,012,350)
                  Net loss - pro forma              (312,996)        (2,081,456)
                  Basic earnings per share - as
                  reported                              (.10)              (.95)
                  Basic earnings per share -
                  pro forma                             (.13)              (.98)
                  --------------------------------------------------------------

                  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 2000 and 1998, respectively:
                  dividend yield of 0% for both years; expected volatility of
                  54% and 68%; risk-free interest rate of 6.0% for both years;
                  and expected lives of 3 years and 2 years.

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

                                      F-20
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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

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


<TABLE>
<CAPTION>


                                                                              Weighted-
                                                                                Average
                                                                               Exercise
                                                             Shares               Price
          -----------------------------------------------------------------------------
          <S>                                              <C>               <C>
          Outstanding and exercisable at July 1, 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
          Granted                                            150,000               1.38
          Expired                                           (155,833)              5.00
          Exercised                                                -                  -
          -----------------------------------------------------------------------------
          Outstanding and Exercisable at June 30, 2000       289,167              $3.00
          ------------------------------------------------------------------------------

</TABLE>


                  The weighted-average grant date fair value of options during
                  fiscal 2000 and 1998 was approximately $.57 and $1.73,
                  respectively.

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



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

                                      F-21
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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


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

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

<TABLE>
<CAPTION>


                  June 30,                                                    2000               1999
                  ------------------------------------------------------------------------------------
                  <S>                                                    <C>               <C>
                  Current
                   Warranty accrual                                      $ 150,000          $  68,000
                   Inventory net realizable value reserve                   34,000            102,000
                   Research credit carryforward - net                            -            100,000
                   Other                                                   132,000            161,000
                  ------------------------------------------------------------------------------------

                  Net Current Deferred Tax Asset                         $ 316,000          $ 431,000
                  ------------------------------------------------------------------------------------

                  Non-Current
                   Depreciation and basis of assets                      $(590,000)         $(582,000)
                   Research credit carryforward - net                      422,000            210,000
                   Net operating loss carryforwards                        365,000                  -
                   Executive deferred compensation agreement               258,000            377,000
                   Other                                                    (5,000)            (5,000)
                  ------------------------------------------------------------------------------------

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

</TABLE>

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


<TABLE>
<CAPTION>

                  Year Ended June 30,                     2000               1999              1998
                  ------------------------------------------------------------------------------------
                  <S>                               <C>                 <C>               <C>
                  Federal
                   Current                          $ (28,000)          $  41,000         $(315,000)
                   Deferred                          (335,000)             44,000          (685,000)

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

                  Total                             $(363,000)          $ 100,000         $(950,000)
                  ------------------------------------------------------------------------------------
</TABLE>

                                      F-22
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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


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

<TABLE>
<CAPTION>




                  Year Ended June 30,                      2000               1999                1998
                  -------------------------------------------------------------------------------------
                  <S>                     <C>                          <C>                 <C>
                  Tax expense (benefit)
                   at statutory rate                  $(211,000)         $ 365,000         $(1,007,000)

                  Research credit - net                (112,000)          (246,000)                  -

                  Goodwill amortization
                   and other non-deductible
                   items                                 60,000             59,000              62,000


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

                  Other - net                          (100,000)           (88,000)            (38,000)
                  -------------------------------------------------------------------------------------
                  Income Tax Expense
                   (Benefit)                          $(363,000)         $ 100,000          $ (950,000)
                  -------------------------------------------------------------------------------------

</TABLE>

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

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

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

                                      F-23
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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

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

<TABLE>
<CAPTION>


                  Year Ended June 30,                            2000           1999           1998
                  -----------------------------------------------------------------------------------
                  <S>                                     <C>            <C>            <C>
                  United States                           $28,182,300    $20,241,797    $25,122,943
                  Mexico                                    2,456,648      4,684,894         83,581
                  England                                   1,936,793        657,957      4,936,652
                  Canada                                      161,046      4,651,076      2,000,030
                  Other foreign countries                     493,408      3,765,524      3,897,072
                  -----------------------------------------------------------------------------------
                                                          $33,230,195    $34,001,248    $36,040,278
                  -----------------------------------------------------------------------------------

</TABLE>

                  For the years ended June 30, 2000, 1999 and 1998, the
                  Company's sales to its major customers (each representing more
                  than 10% of total net sales) amounted to approximately 54%,
                  30% and 50% of total annual sales, respectively. During 2000,
                  there were three major customers representing 16%, 18% and 20%
                  of total net sales, respectively; during 1999, there were two
                  major customers representing 15% and 14% of total net sales;
                  and during 1998, there were three major customers representing
                  27%, 13% and 10% of total net sales.

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

                                      F-24
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                                   Notes to Financial Statements

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


11. Bonus          During fiscal 1998, the Company amended the employment
    Restruct-      agreements of two executive officers of Atlas that were
    uring          previously entered into in connection with the Merger
                   Agreement (see Note 2). These amended employment agreements
                   are identical except that one agreement expired on December
                   31, 1998, and the other expires on December 31, 2001. Each
                   agreement requires the executive to devote substantially all
                   of his business time and attention to the affairs of the
                   Company. Annual compensation under each agreement is
                   $198,588, subject to cost of living increases for one of the
                   officers. The amended agreements also provide that each
                   executive, regardless of future employment, 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, 2000, 1999 and 1998 related to these amended
                   agreements are the following:

<TABLE>
<CAPTION>


                                                                    2000           1999           1998
                   -----------------------------------------------------------------------------------
                   <S>                                       <C>            <C>             <C>
                   Balance Sheet
                     Current maturities of executive         $   348,560    $   326,706    $         -
                       deferred compensation agreement
                     Executive Deferred Compensation             759,792      1,109,677      1,436,383
                       Agreement, less current maturities
                     Common stock to be issued                         -              -        695,520
                    -----------------------------------------------------------------------------------
                    Statement of Operations
                      Bonus restructuring expense            $         -    $         -    $ 2,131,903
                    -----------------------------------------------------------------------------------


</TABLE>

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

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



                                      F-25
<PAGE>

                                Productivity Technologies Corp. and Subsidiaries

                                 Schedule II - Valuation and Qualifying Accounts


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

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


</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-26