UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                    FORM 10-Q

              (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    For quarterly period ended June 30, 1998

                                       OR

              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


               For the transition period from _______ to ________

                    Commission File Number __________________


                  PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
             (Exact name of registrant as specified in its charter)


         OHIO                                              34-1334199
-------------------------------                ---------------------------------
(State or Other Jurisdiction of                (IRS Employer Identification No.)
Incorporation or Organization)

2701 E. Camelback Road, Suite 210
Phoenix, Arizona                                             85016
----------------------------------------                   ----------
(Address of principal executive offices)                   (Zip Code)


        Registrant's telephone number including area code: (602) 912-0100
                                                          -----------------  



Indicate by checkmark 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  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  whether  the  registrant  has filed all  documents  and
reports  required  to be  filed  by  Sections  12,  13 or 15d of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.
YES  X      NO
   -----      -----

Number of shares  outstanding of each of the issuer's classes of common stock as
of August 12, 1998, is 2,360,638 shares.
<PAGE>
                  PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES


                                      INDEX



PART I   FINANCIAL INFORMATION (Unaudited)                                  Page
         ---------------------------------                                  ----

Consolidated Balance Sheets -
         June 30, 1998 and December 31, 1997                                 3

Consolidated Statements of Operations (Unaudited) -                          4
         Six Month Period Ended June 30, 1998 and 1997

Consolidated Statement of Operations (Unaudited)
         Three Month Period Ended June 30, 1998 and 1997                     5

Consolidated Statements of Cash Flows (Unaudited) -                          6
         Six Month Period Ended June 30, 1998 and 1997

Management's Discussion and Analysis of Financial                            7
         Condition and Results of Operations



PART II  OTHER INFORMATION                                                   8
         -----------------                                                   


Item 1.  Legal Proceedings

Item 2.  Changes in Securities

Item 3.  Defaults upon Senior Securities

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

Item 5.  Other Information

Item 6.  Exhibits and Reports on Form 8-K


Signatures                                                                   9

                                                                               2
<PAGE>
                  PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
                                   (Unaudited)


<TABLE>
<CAPTION>
ASSETS                                                                 30-Jun-98   31-Dec-97
                                                                       ---------   ---------
<S>                                                                    <C>         <C>     
Current assets:
     Cash and equivalents, unrestricted                                $  2,591    $  2,815
     Accounts and other receivables                                         309         410
       less allowance for doubtful accounts
     Notes Receivable                                                       359           0
     Current Portion of Receivables from sale of businesses,
       net of allowance                                                     269         269
     Factored receivables, net of allowance for doubtful accounts           261         261
     Inventories                                                            252         313
     Prepaid expenses and other current assets                              189         227
     Real estate held for sale                                              785         785
                                                                       --------    --------
         Total current assets                                             5,015       5,080

     Deferred income taxes                                                1,291       1,291
     Property and equipment, net                                          2,490       2,757
     Other assets                                                         1,231       1,277
                                                                       --------    --------

     TOTAL ASSETS                                                      $ 10,027    $ 10,405
                                                                       ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt                                    1,057       1,051
     Accounts payable                                                       497         637
     Accrued employment costs                                               421         476
     Accrued expenses and other current liabilities                         522         666
     Factored receivables reserve                                            61          61
     Liabilities subject to compromise                                      796         797
     Foreign Tax Liability                                                  250         250
                                                                       --------    --------
        Total current liabilities                                         3,604       3,938

Long-term debt, less current portion                                         78         255

Shareholders' equity:
     Preferred Stock, par value $1.00 per share: authorized
       100,000 shares; none issued                                            0           0
     Common stock, no par value; authorized 5,000,000 shares;
       issued 3,157,332 shares; outstanding 2,360,638 and 2,377,889,
       respectively                                                      31,202      31,202
     Accumulated deficit                                                (21,594)    (21,745)
                                                                       --------    --------
                                                                          9,608       9,457

     Treasury stock at cost (796,694 and 676,068 shares,
       respectively)                                                     (3,263)     (3,245)
                                                                       --------    --------
       Total shareholders' equity                                         6,345       6,212
                                                                       --------    --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                             $ 10,027    $ 10,405
                                                                       ========    ========
</TABLE>
                                                                               3
<PAGE>
                  PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
              For the Six Month Period Ended June 30, 1998 and 1997
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                  Six Months Ended June 30
                                                                  ------------------------
                                                                 
                                                                 
                                                                     1998           1997
                                                                 -----------    -----------
<S>                                                              <C>            <C>        
Revenues                                                         $     9,455    $    11,207
                                                                 
Cost of revenues                                                      (8,613)       (10,489)
Selling, general and administrative expenses                            (817)        (1,086)
Interest expense                                                         (17)           (43)
Other income (expenses), net                                              67             90
Gain (loss) on sale of assets                                            (33)             0
                                                                 -----------    -----------
                                                                 
Income (loss) from continuing operations before                  
     income taxes                                                         42           (321)
                                                                 
                                                                 
Provision for income taxes                                                (0)            (1)
                                                                 -----------    -----------
                                                                 
Income (loss) from continuing operations                                  42           (322)
                                                                 
Income (loss) from discontinued operations                               109            168
                                                                 -----------    -----------
                                                                 
Net income (loss)                                                $       151    $      (154)
                                                                 ===========    ===========
                                                                 
Net income (loss) per common share                               
     Continuing operations                                       $      0.02    $     (0.13)
     Discontinued operations                                     $      0.04    $      0.07
                                                                 -----------    -----------
                                                                 
Net income (loss) per common share                               $      0.06    $     (0.06)
                                                                 ===========    ===========
                                                                 
Average number of shares outstanding                               2,372,430      2,481,264
                                                                 ===========    ===========
</TABLE>

Certain  reclassifications  have  been  made to the  consolidated  statement  of
operations  for  the  six-month  period  ended  June  1997  to  conform  to  the
consolidated financial statement classifications for 1998.
                                                                               4
<PAGE>
                  PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
            For the Three Month Periods Ended June 30, 1998 and 1997
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 Three Months Ended June 30
                                                                 --------------------------


                                                                  30-Jun-98      30-Jun-97
                                                                  ---------      ---------
<S>                                                              <C>            <C>        
Revenues                                                         $     4,555    $     5,477

Cost of revenues                                                 $    (4,236)        (5,157)
Selling, general and administrative expenses                     $      (421)          (588)
Interest expense                                                 $        (9)            (6)
Other income (expenses), net                                     $        35             44
Gain (loss) on sale of assets                                    $        28            (20)
                                                                 -----------    -----------

Income (loss) from continuing operations before
  income taxes                                                           (48)          (250)

Provision for income taxes                                                 0              0
                                                                 -----------    -----------

Income (loss) from continuing operations                                 (48)          (250)

Income (loss) from discontinued operations                       $        37            116
                                                                 -----------    -----------

Net income (loss)                                                $       (11)   $      (134)
                                                                 ===========    ===========

Net income (loss) per common share
  Continuing operations                                          $     (0.02)   $     (0.10)
  Discontinued operations                                        $      0.02    $      0.05
                                                                 -----------    -----------

Net income (loss) per common share                               $     (0.00)   $     (0.05)
                                                                 ===========    ===========

Average number of shares outstanding                               2,367,035      2,481,264
                                                                 ===========    ===========
</TABLE>

Certain  reclassifications  have  been  made to the  consolidated  statement  of
operations  for  the  three-month  period  ended  June  1997 to  conform  to the
consolidated financial statement classifications for 1998.
                                                                               5
<PAGE>
                  PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
             For the Six Month Periods Ended June 30, 1998 and 1997
                             (DOLLARS IN THOUSANDS)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       Six Months Ended June 30
                                                                       ------------------------
<S>                                                                     <C>             <C>  
                                                                         1998            1997
                                                                        ------          ------
                                                                                        
Net cash provided by (used in) operating activities                        448            (151)
                                                                                        
                                                                                        
Cash flows from investing activities:                                                   
     Decrease (increase) in restricted cash                                  0             253
     Decrease (increase) in receivables from sales of businesses, net        0             206
     Purchase of property and equipment                                   (124)           (196)
     Proceeds from sale of property and equipment                            0              20
     Issuance of Notes Receivable                                         (359)              0
                                                                        ------          ------
         Net cash provided by (used in) investing activities              (483)            283
                                                                                        
                                                                                        
Cash flows from financing activities:                                                   
     Repayment of borrowings                                              (171)           (122)
     (Increase) decrease in treasury stock                                 (18)              0
                                                                        ------          ------
         Net cash provided by (used in) financing activities              (189)           (122)
                                                                                        
                                                                                        
Net increase (decrease) in cash and cash equivalents                      (224)             10
Cash and cash equivalents at beginning of period                         2,815           1,136
                                                                        ------          ------
Cash and cash equivalents at end of period                               2,591           1,146
                                                                        ======          ======
</TABLE>

Certain  reclassifications  have been made to the consolidated statement of cash
flows for the  six-month  period ended June 1997 to conform to the  consolidated
financial statement classifications for 1998.
                                                                               6
<PAGE>
                      Management's Discussion and Analysis
                      ------------------------------------


Results of Operations

During  1997,  the  Company  sold two of its  operating  companies,  Funding and
Development.  As a result,  there  has been a  reclassification  of  income  and
expenses  related to these  businesses as set forth in the  Company's  Report on
Form 10-Q for the period  ending  June 30,  1998.  Management's  Discussion  and
Analysis shall be limited to continuing operations.

The Company  currently owns and operates five  restaurants in California and one
in Arizona.  It also owns two Carlos Murphy's  Restaurants in San Diego, CA that
were leased to an unrelated third party in the first quarter of 1998.

Revenues  for the Company for the second  quarter and six month period were down
versus last year. The decrease in revenue is  attributable to the leasing of the
two Carlos Murphy's Restaurants.

Restaurant  sales for the operating  stores were up for both the second  quarter
and six month period.

Restaurant  net profit was down for both the  second  quarter  and the six month
period because all administrative expenses are now charged to Restaurants.

Income from discontinued operations is the result of the collection of a Funding
Account that had been fully reserved.

The Company lost $11,000 in the second quarter versus a loss of $134,000 for the
same period last year. For the six months the Company had net income of $151,000
versus a loss of $154,000 for the same period last year.


Liquidity and Capital Resources

The Company  plans on changing  the  restaurant  concept at two of its  Southern
California  locations.  The Company has  sufficient  cash  reserves to cover the
expense.

The  Company  continues  to look  for new  locations  or  other  restaurants  to
purchase.  Management believes,  but there can be no assurance,  that it will be
able to finance any  further  expansion  through  cash  reserves  and leasing of
equipment.
                                                                               7
<PAGE>
PART II  Other Information




Item 1.           Legal Proceedings
                  None

Item 2.           Changes in Securities
                  None

Item 3.           Defaults upon Senior Securities
                  None

Item 4.           Submission of Matters to a Vote of Security Holders
                  None

Item 5.           Other Information
                  None

Item 6.           Exhibits and Reports on Form 8-K
                  None

                                                                               8
<PAGE>
SIGNATURES
----------


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


                                           PERFORMANCE INDUSTRIES, INC.
                                           and SUBSIDIARIES

Dated:   August 12, 1998                    /s/      Joe Hrudka
                                           --------------------------------
                                                Joe Hrudka
                                                Chairman of the Board
                                                (Principal Executive Officer)
                                                
                                                
                                            /s/      Ed Fochtman
                                           --------------------------------
                                                Ed Fochtman
                                                Chief Financial Officer
                                                (Principal Accounting Officer)
                                           
                                                                               9