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


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                -----------------


                                    FORM 10-Q


(Mark One)
          [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
                    For the Quarter Ended September 30, 2001
                                       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 0-27460



                     PERFORMANCE TECHNOLOGIES, INCORPORATED
             (Exact name of registrant as specified in its charter)

              Delaware                                   16-1158413
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
     incorporation of organization)

    315 Science Parkway, Rochester New York              14620
   (Address of principal executive offices)           (Zip Code)

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

       Registrant's telephone number, including area code: (716) 256-0200

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



         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .


         The number of shares outstanding of the registrant's common stock was
12,230,891 as of October 31, 2001.

 ---------------------------------------------------------------------
<PAGE>

             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

                                      INDEX


                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

           Consolidated Balance Sheets as of September 30, 2001
           (unaudited) and December 31, 2000                                  3

           Consolidated Statements of Income For The Three and Nine Months
           Ended September 30, 2001 and 2000 (unaudited)                      4

           Consolidated Statements of Cash Flows For The Nine
           Months Ended September 30, 2001 and 2000 (unaudited)               5

           Notes to Consolidated Financial Statements For The Nine
           Months Ended September 30, 2001 (unaudited)                        6

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                7


Item 3.  Quantitative and Qualitative Disclosures About Market Risk          12



PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                   13

Item 6.  Exhibits and Reports on Form 8-K                                    13

Signatures                                                                   14


                                       2
<PAGE>



ITEM 1.      CONSOLIDATED FINANCIAL STATEMENTS

             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS
<TABLE>
<CAPTION>

                                                   September 30,   December 31,
                                                       2001            2000
                                                   -------------  -------------
                                                    (unaudited)
<S>                                                <C>            <C>

Current assets:
  Cash and cash equivalents                         $ 24,777,000   $ 17,187,000
  Marketable securities                                               9,995,000
  Accounts receivable, net                             7,477,000      7,393,000
  Inventories, net                                     4,042,000      5,788,000
  Prepaid expenses and other                             441,000        745,000
  Deferred taxes                                         687,000        679,000
                                                   -------------  -------------
       Total current assets                           37,424,000     41,787,000

Equipment and improvements, net                        2,522,000      2,119,000
Software development costs, net                        1,709,000        852,000
                                                   -------------  -------------
       Total assets                                 $ 41,655,000   $ 44,758,000
                                                   =============  =============





                      LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
  Accounts payable                                  $    675,000   $  1,347,000
  Income taxes payable                                                  219,000
  Accrued expenses                                     2,696,000      3,246,000
                                                   -------------  -------------
       Total current liabilities                       3,371,000      4,812,000

  Deferred taxes                                         865,000        478,000
                                                   -------------  -------------
       Total liabilities                               4,236,000      5,290,000
                                                   -------------  -------------

Stockholders' equity:
  Preferred stock
  Common stock - $.01 par value; 50,000,000
    authorized; 13,260,038 shares issued                 133,000        133,000
  Additional paid-in capital                          11,319,000     12,375,000
  Retained earnings                                   39,234,000     35,053,000
  Treasury stock - at cost; 1,023,147 and 598,313
    shares held at September 30, 2001 and
    December 31, 2000, respectively                  (13,296,000)    (8,042,000)
  Cumulative translation adjustments                      29,000        (51,000)
                                                   -------------  -------------
       Total stockholders' equity                     37,419,000     39,468,000
                                                   -------------  -------------
       Total liabilities and stockholders' equity   $ 41,655,000   $ 44,758,000
                                                   =============  =============
</TABLE>


                                       3
<PAGE>


             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                                   (unaudited)

<TABLE>
<CAPTION>
                                    Three Months Ended       Nine Months Ended
                                       September 30,           September 30,
                                     2001        2000        2001        2000
                                 ----------- ----------- ----------- -----------

<S>                              <C>         <C>         <C>         <C>
Sales                            $ 9,871,000 $ 9,244,000 $29,015,000 $28,927,000
Cost of goods sold                 3,378,000   2,976,000  10,798,000   9,500,000
                                 ----------- ----------- ----------- -----------
Gross profit                       6,493,000   6,268,000  18,217,000  19,427,000
                                 ----------- ----------- ----------- -----------

Operating expenses:
  Selling and marketing            1,357,000   1,480,000   4,255,000   3,956,000
  Research and development         1,897,000   2,301,000   6,157,000   6,720,000
  General and administrative         783,000     526,000   2,347,000   2,081,000
                                 ----------- ----------- ----------- -----------
       Total operating expenses    4,037,000   4,307,000  12,759,000  12,757,000
                                 ----------- ----------- ----------- -----------
Income from operations             2,456,000   1,961,000   5,458,000   6,670,000

Other income, net                    187,000     492,000     783,000   1,516,000
                                 ----------- ----------- ----------- -----------
Income before income taxes         2,643,000   2,453,000   6,241,000   8,186,000

Provision for income taxes           873,000     932,000   2,060,000   3,110,000
                                 ----------- ----------- ----------- -----------
       Net income                $ 1,770,000 $ 1,521,000 $ 4,181,000 $ 5,076,000
                                 =========== =========== =========== ===========

Basic earnings per share         $       .14 $       .12 $       .34 $       .38
                                 =========== =========== =========== ===========
Diluted earnings per share       $       .14 $       .11 $       .33 $       .37
                                 =========== =========== =========== ===========

Net income available to
  common stockholders            $ 1,770,000 $ 1,521,000 $ 4,181,000 $ 5,076,000
                                 =========== =========== =========== ===========

Weighted average number of
  common shares used in
  basic earnings per share        12,225,890  13,199,178  12,298,859  13,227,889
Common equivalent shares             439,121     479,319     448,528     678,172
                                 ----------- ----------- ----------- -----------

Weighted average number of
  common shares used in
  diluted earnings per share      12,665,011  13,678,497  12,747,387  13,906,061
                                 =========== =========== =========== ===========
</TABLE>


                                       4
<PAGE>


             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                                   (unaudited)

<TABLE>
<CAPTION>
                                                         Nine Months Ended
                                                           September 30,
                                                       2001            2000
                                                   -------------  -------------

<S>                                                <C>            <C>
Cash flows from operating activities:
  Net income                                        $  4,181,000   $  5,076,000

Non-cash adjustments:
  Depreciation and amortization                        1,187,000        952,000
  Other                                                  417,000        (78,000)

Changes in operating assets and liabilities:
  Accounts receivable                                   (102,000)     2,118,000
  Inventories                                          1,746,000     (1,483,000)
  Prepaid expenses and other                             315,000         44,000
  Accounts payable                                      (672,000)       176,000
  Accrued expenses                                      (531,000)    (1,630,000)
  Income taxes payable                                  (219,000)    (1,340,000)
                                                   -------------  -------------
       Net cash provided by operating activities       6,322,000      3,835,000
                                                   -------------  -------------


Cash flows from investing activities:
  Purchases of equipment and improvements             (1,139,000)      (943,000)
  Capitalized software development                    (1,278,000)      (639,000)
  Purchase of marketable securities                       (5,000)   (15,977,000)
  Maturities of marketable securities                 10,000,000     24,000,000
                                                   -------------  -------------
       Net cash provided by investing activities       7,578,000      6,441,000
                                                   -------------  -------------

Cash flows from financing activities:
  Repayment of notes payable                                             (6,000)
  Exercise of stock options                              511,000        385,000
  Purchase of treasury stock                          (6,821,000)    (2,828,000)
                                                   -------------  -------------
       Net cash used by financing activities          (6,310,000)    (2,449,000)
                                                   -------------  -------------

       Net increase in cash and cash equivalents       7,590,000      7,827,000

Cash and cash equivalents at beginning of period      17,187,000      9,792,000
                                                   -------------  -------------

Cash and cash equivalents at end of period          $ 24,777,000   $ 17,619,000
                                                   =============  =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash financing activity:
Exercise of stock options using 100 shares of
  common stock in 2000                                             $      4,000
                                                                  =============
</TABLE>





                                       5
<PAGE>


             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
                                   (Unaudited)

Note - A  The  unaudited  Consolidated  Financial   Statements  of   Performance
Technologies,  Incorporated and Subsidiaries  (the "Company") have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X of the  Securities  and Exchange  Commission.  Accordingly,  the
Consolidated  Financial  Statements  do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of management,  all adjustments considered
necessary  for a fair  presentation  have been  included.  The  results  for the
interim periods are not necessarily indicative of the results to be expected for
the year. The accompanying  Consolidated  Financial Statements should be read in
conjunction with the audited Consolidated Financial Statements of the Company as
of December 31, 2000,  as reported in its Annual  Report on Form 10-K filed with
the Securities and Exchange Commission.

Note - B  During the nine months ended September 30, 2001, 116,500 common shares
were issued upon the exercise of stock options and warrants.

Note - C  Inventories  consisted  of the  following  at  September  30, 2001 and
December 31, 2000:


<TABLE>
<CAPTION>
                                                   September 30,  December 31,
                                                       2001           2000
                                                   -------------  -------------

<S>                                                <C>            <C>
Purchased parts and components                      $ 1,909,000    $  2,656,000
Work in process                                       2,755,000       3,959,000
Finished goods                                          435,000         297,000
                                                   ------------   -------------
                                                      5,099,000       6,912,000
Less:  reserve for inventory obsolescence            (1,057,000)     (1,124,000)
                                                   ------------   -------------
  Net                                               $ 4,042,000    $  5,788,000
                                                   ============   =============
</TABLE>




                                       6
<PAGE>



             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

Matters discussed in Management's Discussion and Analysis of Financial Condition
and  Results  of   Operations   and   elsewhere   in  this  Form  10-Q   include
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933  and  Section  21E of the  Securities  Exchange  Act of 1934 and are
subject to the safe  harbor  provisions  of the  Private  Securities  Litigation
Reform Act of 1995. The Company's  actual results could differ  materially  from
those discussed in the forward-looking statements.

Overview

Business  Strategy:  Performance  Technologies,   Incorporated  (the  "Company")
provides packet-based  telecommunications  and networking products for wireline,
wireless and next-generation  Internet Protocol networks. The Company's products
are based on open system  architectures  and are generally  integrated  with its
customers' network  infrastructure  products.  The Company's products enable the
network  convergence  of voice and data,  the growth of the  Internet,  emerging
broadband communications and global wireless services.

The Company's  engineering efforts are directed toward developing three distinct
product lines for these emerging markets: SS7/IP Signaling products, IP Ethernet
switching  products and network  access  products.  The  Company's  products are
targeted at customers in the  following  sectors:  telecommunications  equipment
manufacturers,  telecommunications  service  providers and  operators,  wireless
carriers and platform manufacturers.

The Company  pioneered a new architecture for embedded  platforms using Ethernet
and recommended adoption of this architecture by the industry standards board in
September 2000. The standards board established a committee to evaluate this new
architecture  and designated a member of the Company's  management team to chair
the process.  This new industry  standard was adopted by the standards  board in
September  2001.  The Company  has  developed  several  new IP Ethernet  switch,
network  access  and  SS7/IP  signaling  products  based  on this  new  industry
standard.  Four of these new IPnexus(TM) products began shipping to customers in
September  2001 and two more new IPnexus  products are scheduled for delivery in
the fourth quarter.  The Company's  leadership on the standards board committee,
plus  the  introduction  of  the  IPnexus  product  family,  have  significantly
increased the Company's  visibility within the  telecommunications  industry and
have resulted in design wins with numerous new telecom customers.

Financial  Information:  Net income for the third  quarter 2001 amounted to $1.8
million,  or  $.14  per  share  based  on  12.7  million  fully  diluted  shares
outstanding,  compared to net income of $1.5 million, or $.11 per share based on
13.7 million fully  diluted  shares  outstanding  for the third quarter in 2000.
Revenue for the third quarter 2001  amounted to $9.9  million,  compared to $9.2
million for the same quarter in 2000.

For the first nine months of 2001, net income amounted to $4.2 million,  or $.33
per share based on 12.7 million fully diluted  shares  outstanding,  compared to
net  income of $5.1  million,  or $.37 per  share  based on 13.9  million  fully
diluted  shares  outstanding  for the same period in 2000.  Revenue for the nine
months ended  September  30, 2001 amounted to $29.0  million,  compared to $28.9
million for the same period in 2000.

At  September  30,  2001,  the  Company  had  $24.8  million  of cash  and  cash
equivalents  and no  long-term  debt.  For the first  nine  months of 2001,  the
Company   generated   income  from   operations,   excluding   depreciation  and
amortization  (EBITDA),  of $6.6 million,  compared to $7.6 million for the same
period in 2000.

                                       7
<PAGE>

Performance  Technologies  continued to experience  the effects of the turbulent
economic  conditions  and the  slow  down in  capital  spending  in the  broader
communications  market  during  the  third  quarter.  While  management  remains
confident that the Company is well  positioned when the deployment of IP network
applications and embedded Ethernet platform architectures accelerates,  they are
uncertain  when economic  conditions  will improve.  Therefore,  management  has
focused on the  preservation  of cash and  continues  to maintain  tight  fiscal
control over  discretionary  expenses and hiring. At the same time,  engineering
efforts  continue  to be  focused  on an  aggressive  product  road  map for the
embedded  switch market and  development of the SS7/IP  Signaling  Blade and the
SEGway(TM) Link Concentrator, products announced earlier this year.

Management  believes  one of the most  important  measurements  of  progress  in
executing  the  Company's  product  and  marketing  strategies  is the number of
"design wins" realized with its customer base. A "design win" is when a customer
or prospective  customer notifies the Company that its product has been selected
to be integrated  with their  product.  As of October 24, 2001,  the Company has
received  notification  of thirty-one new "design wins" this year for its SS7/IP
Signaling products,  IP Ethernet switch and network access products.  In each of
these "design  wins",  the Company  expects to provide  products that play a key
role in wireline,  wireless and  next-generation  IP networks.  During the third
quarter,  design  activity for new IP  applications  appeared to have slowed and
production orders from a number of "design wins" were anticipated,  but were not
received.  While the months of July and August are  seasonally  slow  months for
design  activity,  this activity  level  typically  accelerates  in the month of
September.  With the slower economy and the September 11th tragedy, this did not
occur in September.

Several noteworthy  customer  relationships were announced during the past three
months:  Siemens Carrier  Networks LLC, a subsidiary of Siemens AG and a leading
supplier of  carrier-grade  switching,  selected the  Company's  IPnexus line of
Ethernet  switches  for use within  Siemens'  SURPASS  hiQ(TM)  softswitch;  NAV
Canada,  Canada's  provider  of civil  air  navigation  services,  selected  the
Company's MPS800  communications  server to migrate its radar information to new
IP/Ethernet  based  systems;  and  Teleglobe,   a  leading  supplier  of  global
communications  and Internet  services,  announced  operation of a new system to
increase  international  roaming  capacity  between  wireless  networks in North
America and the rest of the world. This enhanced service  capability is built on
a platform developed in conjunction with Performance Technologies'  Ottawa-based
signaling group.

Forward Looking Guidance for the Fourth Quarter 2001:

The following includes forward-looking  statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 and are subject to the safe harbor provisions of the Private  Securities
Litigation Reform Act of 1995.

Performance  Technologies  supplies  products  to  telecommunications  equipment
suppliers  that  are  integrated  into  current  and   next-generation   network
infrastructure. Ordinarily, there are a number of steps between the "design win"
and when customers  initiate  production  shipments.  This process typically can
take twelve to eighteen months, or longer, to complete.  A variety of risks such
as  schedule  delays,  cancellations,  changes in  customer  markets and general
economic  conditions  can adversely  affect a "design win" before  production is
reached or during deployment.

Despite  healthier   financial  results  for  the  third  quarter,   Performance
Technologies  continued  to  experience  the effects of the  turbulent  economic
conditions  and the slowdown in capital  spending in the broader  communications
market.  During the third quarter, new deployments of IP networks appear to have
slowed and a number of customers requested delays in shipments.

Notwithstanding the current economic  environment,  management continues to feel
that  Performance  Technologies  is well  positioned  when the  deployment of IP
network applications and embedded Ethernet platform  architectures  accelerates.
Based upon the current  distribution  of business,  the current  backlog and the
review of customer  forecasts,  management expects revenue in the fourth quarter
to be $8.0 million to $9.5 million. Gross margin is expected to be approximately
62% to 65% and diluted  earnings per share for the fourth quarter is expected to
be $.08 to $.12.

More in-depth  discussions of the Company's  strategy and financial  performance
can be found in the Company's recent Annual and Quarterly Reports,  on Form 10-K
and Form 10-Q, as filed with the Securities and Exchange Commission.

                                       8
<PAGE>

         Quarter and Nine Months Ended September 30, 2001, Compared with
              the Quarter and Nine Months Ended September 30, 2000

The following table presents the percentage of sales represented by each item in
the Company's consolidated statements of income for the periods indicated:

<TABLE>
<CAPTION>
                                     Three Months Ended       Nine Months Ended
                                        September 30,           September 30,
                                      2001        2000        2001        2000
                                     ------      ------      ------      ------

<S>                                  <C>         <C>         <C>         <C>
Sales                                 100.0%      100.0%      100.0%      100.0%
Cost of goods sold                     34.2        32.2        37.2        32.8
                                     ------      ------      ------      ------
Gross profit                           65.8        67.8        62.8        67.2
                                     ------      ------      ------      ------

Operating expenses:
  Selling and marketing                13.8        16.0        14.7        13.7
  Research and development             19.2        24.9        21.2        23.2
  General and administrative            7.9         5.7         8.1         7.2
                                     ------      ------      ------      ------
    Total operating expenses           40.9        46.6        44.0        44.1
                                     ------      ------      ------      ------
Income from operations                 24.9        21.2        18.8        23.1

Other income, net                       1.9         5.3         2.7         5.2
                                     ------      ------      ------      ------
Income before income taxes             26.8        26.5        21.5        28.3

Provision for income taxes             (8.9)      (10.1)       (7.1)      (10.8)
                                     ------      ------      ------      ------
    Net income                         17.9        16.4        14.4        17.5
                                     ======      ======      ======      ======
</TABLE>


Sales.  Sales for the third  quarter  2001 were $9.9  million,  compared to $9.2
million  for the same  quarter in 2000.  Sales for the first nine months of 2001
were $29.0 million, compared to $28.9 million for the respective period in 2000.
The Company's  products are grouped into four distinct  categories in one market
segment:  IP  Signaling  System 7 and  network  access  products,  IP  switching
products,  Lockheed Martin/LAN interface (U.S.  Government/COTS)  products,  and
other (legacy)  products.  Revenue from each product  category is expressed as a
percentage of sales for the three and nine months ending  September 30, 2001 and
2000:

<TABLE>
<CAPTION>
                                     Three Months Ended       Nine Months Ended
                                        September 30,           September 30,
                                      2001        2000        2001        2000
                                     ------     -------     -------     -------

<S>                                  <C>         <C>         <C>         <C>
IP/SS7 and network access products      90%         87%         87%         84%
IP switching products                    4%          1%          4%          0%
Lockheed Martin/LAN interface produc     0%          0%          0%          4%
Other                                    6%         12%          9%         12%
                                     ------     -------     -------     -------
    Total                              100%        100%        100%        100%
                                     ======     =======     =======     =======
</TABLE>


IP/Signaling  System 7 and network access product revenue  increased 10% to $8.8
million  during the third quarter 2001,  from $8.0 million for the third quarter
2000. During the third quarter 2001, the Company solidified relationships with a
number of  global  GSM  service  providers  by  providing  application  specific
engineering  along with its  signaling  gateway  products.  For the nine months,
IP/Signaling  System 7 and network access product revenue  increased 3% to $25.1
million in 2001,  from $24.4 million during the same period in 2000. The Company
has invested  heavily in new IP Signaling  System 7 and network access  products
and  management  expects this product group to be the key revenue  growth driver
for the Company.

                                       9
<PAGE>

IP switching  products:  The first member of the IP switch family was introduced
in September 2000. During the third quarter 2001, the Company began shipping two
new IPnexus switch models,  the CPC4401,  which has a gigabit fiber uplink,  and
the CPC4406,  which has a gigabit wireline  uplink.  The Company also has orders
for the  CPC3400,  the  unmanaged,  low cost  model  that is  expected  to begin
shipping in the fourth quarter 2001.  Revenue for these products is still modest
but is expected to increase  when  customers  move into  production of their new
platforms using the recently ratified PICMG 2.16 embedded architecture.

Lockheed Martin/LAN interface product (U.S. Government/COTS) shipments were zero
for the nine months ending September 30, 2001,  compared to $1.0 million for the
first nine months of 2000. This sub-contract ended in June 2000.

Other  products  represented  $.6  million of sales in the third  quarter  2001,
compared to $1.1 million for the same period in 2000. This revenue is related to
legacy  products.  Shipments can  fluctuate on a quarterly  basis and revenue is
expected to continue to decline over future periods.

Gross profit.  Gross profit consists of sales, less cost of goods sold including
material costs,  manufacturing  expenses,  amortization of software  development
costs,  expenses  associated with  engineering  contracts and technical  support
function  expenses.  In the third  quarter,  gross margin was 65.8% and 67.8% of
sales in 2001 and 2000,  respectively.  For the nine  months,  gross  margin was
62.8% and 67.2% of sales in 2001 and 2000, respectively.  For the three and nine
month  periods in 2001,  product mix and an increase  in the  technical  support
staff to support customers impacted gross margin as a percentage of sales.

Operating  expenses.  Early in the second  quarter 2001,  the Company  tightened
control over  discretionary  expenses.  In the third  quarter,  total  operating
expenses were $4.0 million and $4.3 million in 2001 and 2000, respectively.  For
the nine months,  total operating  expenses were $12.8 million and $12.8 million
in 2001 and 2000, respectively.

Selling and marketing  expenses.  Early in the second  quarter 2001, the Company
tightened control over  advertising,  travel and trade show  participation.  The
Company did  advertise  its  IPnexus  family of switch  products  and the SEGway
Signaling  products  during the second and third  quarters of 2001. In the third
quarter,  selling and  marketing  expenses were $1.4 million and $1.5 million in
2001 and 2000, respectively. For the nine months, selling and marketing expenses
amounted to $4.3 million and $4.0 million in 2001 and 2000,  respectively.  This
year-over-year increase in expense is primarily attributable to expansion of the
sales force and compensation plans.

Research  and  development  expenses  were $1.9 million and $2.3 million for the
third quarter 2001 and 2000, respectively. During the third quarter of 2001, the
Company  focused  its  engineering  efforts on the  development  of the  IPnexus
embedded  switch  products,  the  SS7/IP  Signaling  Blade and the  SEGway  Link
Concentrator.  Research  and  development  expenses  were $6.2  million and $6.7
million for the first nine months of 2001 and 2000,  respectively.  In addition,
the Company  capitalizes  certain software  development costs.  During the third
quarter, amounts capitalized were $.4 million and $.2 million for 2001 and 2000,
respectively.  During  the first  nine  months,  amounts  capitalized  were $1.3
million and $.6 million for 2001 and 2000, respectively.

General  and  administrative  expenses  were $.8 million and $.5 million for the
third quarter 2001 and 2000,  respectively.  General and administrative expenses
were $2.3  million and $2.1  million for the first nine months of 2001 and 2000,
respectively. An incentive related expense amounting to $.2 million was recorded
in the third quarter 2001 to reflect the attainment of certain corporate goals.

Other  income,  net.  Other income  consists  primarily of interest  income from
marketable securities and cash equivalents.  The funds are primarily invested in
high quality Municipal and U.S. Treasury securities with maturities of less than
one year.

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<PAGE>

Income  taxes.  The  provision  for income taxes for the third quarter and first
nine  months  of 2001 is  based  on the  combined  federal,  state  and  foreign
effective tax rate of 33%,  compared to 38% for the third quarter and first nine
months of 2000.  Based on  operational  decisions  implemented  during 2000, the
Company is utilizing Canadian tax incentives to lower its net effective tax rate
in 2001.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2001,  the Company's  primary  source of liquidity  included
cash and cash  equivalents  of $24.8  million and  available  borrowings of $5.0
million  under  a  revolving  credit  facility  with a  bank.  No  amounts  were
outstanding under this credit facility as of September 30, 2001.

The Company had working capital of $34.1 million at September 30, 2001, compared
to $37.0 million at December 31, 2000. During the first nine months of 2001, the
Company  repurchased its shares in the open market for $6.8 million resulting in
a reduction in working capital.

Cash provided by operating activities for the first nine months of 2001 was $6.3
million,  compared to $3.8 million for the same period in 2000. This increase in
cash  provided by operating  activities,  over the  respective  2000 period,  is
primarily   attributable  to  changes  in  the  components  of  working  capital
(inventories, receivables and payables) partially offset by lower net income for
the first nine months of 2001.  (See the  Consolidated  Statements of Cash Flows
appearing in the Financial Statements included in this report).

In August 2000,  the Board of Directors  authorized  the  repurchase  of up to 1
million  shares of the  Company's  Common Stock and the Company  completed  this
repurchase  program  in  March  2001.  In March  2001,  the  Board of  Directors
authorized the repurchase of up to an additional 500,000 shares of the Company's
Common  Stock.  Based on  deteriorating  economic  conditions  and an  effort to
preserve  cash,  the  Company  did not  repurchase  any shares  during the third
quarter of 2001.  For the first nine months of 2001,  the Company  repurchased a
total of 541,000 shares at a total cost of $6.8 million,  compared to a total of
211,000 shares at a total cost of $2.8 million for the same period in 2000.

Assuming there is no significant  change in the Company's  business,  management
believes that its current cash,  cash  equivalents,  and  marketable  securities
together with cash generated from operations and available  borrowings under the
Company's loan  agreement  will be sufficient to meet the Company's  anticipated
needs,  including working capital and capital expenditure  requirements,  for at
least the next twelve  months.  However,  an  unfavorable  determination  in the
outstanding  class action litigation could have a material adverse effect on the
Company's working capital.  Furthermore,  management is continuing its strategic
acquisition  program to further  accelerate  new product and market  penetration
efforts.  This program  could have an impact on the Company's  working  capital,
liquidity or capital resources.


FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This Quarterly Report on Form 10-Q contains  forward-looking  statements,  which
reflect the Company's  current views with respect to future events and financial
performance, within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the  Securities  Exchange Act of 1934 and are subject to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to certain risks and uncertainties,
including  those  identified  below,  which could cause actual results to differ
materially from historical results or those  anticipated.  The words "believes,"
"anticipates,"  "plans," "may," "intend," "estimate," "will," "should," "could,"
"feels," "is optimistic," "expects," and other expressions which indicate future
events and trends also identify forward-looking statements. However, the absence
of such words does not mean that a statement is not forward-looking.

                                       11
<PAGE>

The  Company's  future  operating  results  are  subject  to  various  risks and
uncertainties   and  could  differ   materially  from  those  discussed  in  the
forward-looking  statements  and may be affected  by various  trends and factors
which are beyond the Company's  control.  These  include,  among other  factors,
general  business  and  economic  conditions,  rapid or  unexpected  changes  in
technologies,  cancellation or delay of customer orders including those relating
to the "design wins"  referenced  above,  unreliability  of customer  forecasts,
changes  in  the  product  or  customer  mix of  sales,  delays  in new  product
development,  delays or lack of availability of electronic components,  customer
acceptance  of new products and customer  delays in  qualification  of products.
Furthermore,  an  unfavorable  determination  in the  outstanding  class  action
litigation  could  have a  material  adverse  effect  on the  Company's  working
capital.  This  report  on Form  10-Q  should  be read in  conjunction  with the
Consolidated Financial Statements,  the notes thereto,  Management's  Discussion
and Analysis of Financial Condition and Results of Operations as of December 31,
2000 and "Risk Factors" as reported in the Company's Annual Report on Form 10-K,
and other reports as filed with the Securities and Exchange Commission.


ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to various market risks in the normal course of business,
primarily  interest rate risk and changes in the market value of its investments
and believes its exposure to such risk is minimal. The Company's investments are
made in accordance with the Company's investment policy and primarily consist of
U.S. Treasury securities,  municipal securities and corporate  obligations.  The
Company  does  not  participate  in  the  investment  of  derivative   financial
instruments.































                                       12
<PAGE>



             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

                           PART II. OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

On and after May 24, 2000,  several class action lawsuits were filed against the
Company,  as well as several of its officers and directors,  alleging violations
of federal  securities  laws. The lawsuits were filed in United States  District
Court for the Western District of New York. On May 18, 2001, the Company filed a
motion to dismiss the consolidated  complaint.  On June 25, 2001, the Plaintiffs
filed a memorandum of law in opposition to the Company's  motion to dismiss.  On
July 20, 2001,  the Company filed a memorandum of law in further  support of the
Company's motion to dismiss the Plaintiffs' class action complaint.  The Company
believes  these  claims to be without  merit and  continues  to mount a vigorous
defense against those allegations.



ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

                  A.       Exhibits

                           None.

                  B.       Reports on Form 8-K

There were no reports  filed on Form 8-K during  the three  month  period  ended
September 30, 2001.





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<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 TECHNOLOGIES, INCORPORATED





November 5, 2001                    By: /s/             Donald L. Turrell
                                       ----------------------------------------

                                                        Donald L. Turrell
                                                          President and
                                                       Chief Executive Officer




November 5, 2001                    By: /s/            Dorrance W. Lamb
                                       ----------------------------------------
                                                       Dorrance W. Lamb
                                                   Chief Financial Officer and
                                                     Vice President, Finance




















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