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


                                  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 June 30, 1999
                                       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)

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

       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
7,320,131 as of July 30, 1999.
________________________________________________________________________________






<PAGE>



             Performance Technologies, Incorporated and Subsidiaries

                                      Index


                                                                            Page

Part I.  Financial Information

Item 1.  Consolidated Financial Statements

           Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
           December 31, 1998                                                  1

           Consolidated Statements of Income For The Three
           Months Ended June 30, 1999 and 1998 (unaudited)                    2

           Consolidated Statements of Income For The Six
           Months Ended June 30, 1999 and 1998 (unaudited)                    3

           Consolidated Statements of Cash Flows For The Six
           Months Ended June 30, 1999 and 1998 (unaudited)                    4

           Notes to Consolidated Financial Statements For The Six
           Months Ended June 30, 1999 (unaudited)                             5

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                6


Part II. Other Information

Item 4.  Submission of Matters to a Vote of Security Holders                 11

Item 6.  Exhibits and Reports on Form 8-K                                    11

Signatures                                                                   12



<PAGE>


             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                     ASSETS

                                                      June 30,      December 31,
                                                       1999             1998
                                                    -----------     -----------
                                                    (unaudited)
<S>                                                 <C>             <C>
Current assets:
   Cash and cash equivalents                        $ 7,712,000     $25,627,000
   Marketable securities                             21,016,000
   Accounts receivable, net                           5,403,000       4,799,000
   Inventories, net - Note C                          4,644,000       4,425,000
   Prepaid expenses and other                           614,000         679,000
   Deferred taxes                                       549,000         549,000
                                                    -----------     -----------
       Total current assets                          39,938,000      36,079,000

Equipment and improvements, net                         772,000         934,000
Software development, net                               714,000         822,000
                                                    -----------     -----------
       Total assets                                 $41,424,000     $37,835,000
                                                    ===========     ===========



                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long term debt                $    12,000     $    12,000
   Accounts payable                                   1,437,000       1,932,000
   Income taxes payable                                 474,000         507,000
   Accrued expenses                                   2,518,000       1,838,000
                                                    -----------     -----------
       Total current liabilities                      4,441,000       4,289,000

Long term liabilities:
   Long term debt, less current portion                                   6,000
   Deferred taxes                                       288,000         288,000
                                                    -----------     -----------
       Total liabilities                              4,729,000       4,583,000
                                                    -----------     -----------

Stockholders' equity - Note B:
   Preferred stock
   Common stock                                          75,000          75,000
   Additional paid-in capital                        13,897,000      13,250,000
   Retained earnings                                 24,161,000      20,844,000
   Treasury stock                                    (1,438,000)       (917,000)
                                                    -----------     -----------
       Total stockholders' equity                    36,695,000      33,252,000
                                                    -----------     -----------
       Total liabilities and stockholders' equity   $41,424,000     $37,835,000
                                                    ===========     ===========
</TABLE>

                                       1
<PAGE>



             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                              June 30,
                                                       1999            1998
                                                    -----------     -----------
<S>                                                 <C>             <C>
Sales                                               $ 8,923,000     $ 6,051,000
Cost of goods sold                                    3,239,000       2,482,000
                                                    -----------     -----------
Gross profit                                          5,684,000       3,569,000
                                                    -----------     -----------
Operating expenses:
   Selling and marketing                              1,306,000       1,041,000
   Research and development                           1,405,000         907,000
   General and administrative                           670,000         600,000
                                                    -----------     -----------
       Total operating expenses                       3,381,000       2,548,000
                                                    -----------     -----------
Income from operations                                2,303,000       1,021,000

Other income, net                                       339,000         303,000
                                                    -----------     -----------
Income before income taxes                            2,642,000       1,324,000

Provision for income taxes                              925,000         463,000
                                                    -----------     -----------
       Net income                                   $ 1,717,000     $   861,000
                                                    ===========     ===========

Per Share of Common Stock - Note D

Basic earnings per share                            $       .24     $       .12
                                                    ===========     ===========

Diluted earnings per share                          $       .22     $       .11
                                                    ===========     ===========
</TABLE>

                                       2
<PAGE>


             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                         Six Months Ended
                                                              June 30,
                                                       1999            1998
                                                    -----------     -----------
<S>                                                 <C>             <C>
Sales                                               $17,036,000     $13,462,000
Cost of goods sold                                    6,374,000       5,345,000
                                                    -----------     -----------
Gross profit                                         10,662,000       8,117,000
                                                    -----------     -----------

Operating expenses:
   Selling and marketing                              2,366,000       1,934,000
   Research and development                           2,630,000       1,970,000
   General and administrative                         1,227,000       1,286,000
                                                    -----------     -----------
       Total operating expenses                       6,223,000       5,190,000
                                                    -----------     -----------
Income from operations                                4,439,000       2,927,000

Other income, net                                       664,000         614,000
                                                    -----------     -----------
Income before income taxes                            5,103,000       3,541,000

Provision for income taxes                            1,786,000       1,261,000
                                                    -----------     -----------
       Net income                                   $ 3,317,000     $ 2,280,000
                                                    ===========     ===========

Per Share of Common Stock - Note D

Basic earnings per share                            $       .46     $       .31
                                                    ===========     ===========

Diluted earnings per share                          $       .44     $       .30
                                                    ===========     ===========
</TABLE>

                                       3
<PAGE>



             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                          Six Months Ended
                                                              June 30,
                                                       1999            1998
                                                    -----------     -----------
<S>                                                <C>             <C>
Cash flows from operating activities:
   Net income                                      $  3,317,000    $  2,280,000
Non-cash adjustments:
   Depreciation and amortization                        458,000         394,000
   Other                                                113,000          13,000
Changes in operating assets and liabilities:
   Accounts receivable                                 (715,000)        968,000
   Inventories                                         (219,000)       (137,000)
   Prepaid expenses and other                            65,000          48,000
   Accounts payable                                    (495,000)        153,000
   Accrued expenses                                     680,000        (424,000)
   Income taxes payable                                 (33,000)          5,000
                                                   ------------    ------------

     Net cash provided by operating activities        3,171,000       3,300,000
                                                   ------------    ------------

Cash flows from investing activities:
   Purchases of equipment and improvements, net        (126,000)       (145,000)
   Capitalized software development                     (64,000)       (403,000)
   Purchase of marketable securities                (21,016,000)     (4,000,000)
   Maturities of marketable securities                                6,008,000
                                                   ------------    ------------

     Net cash (used) provided by investing
       activities                                   (21,206,000)      1,460,000
                                                   ------------    ------------

Cash flows from financing activities:
   Repayment of notes payable                            (6,000)         (6,000)
   Proceeds from issuance of common stock               126,000          59,000
   Purchase of treasury stock                                          (143,000)
                                                   ------------    ------------

     Net cash provided (used) by financing
       activities                                       120,000         (90,000)
                                                   ------------    ------------

     Net (decrease) increase in cash
       and cash equivalents                         (17,915,000)      4,670,000

Cash and cash equivalents at beginning of period     25,627,000       8,833,000
                                                   ------------    ------------

Cash and cash equivalents at end of period         $  7,712,000    $ 13,503,000
                                                   ============    ============


Non-cash financing activity:
Exercise of stock options using 29,066 and 1,200
  shares of Common Stock in 1999 and 1998,
  respectively                                     $    627,000    $     23,000
                                                   ============    ============
</TABLE>

                                       4
<PAGE>
             Performance Technologies, Incorporated and Subsidiaries
                   Notes to Consolidated Financial Statements
                     For The Six Months Ended June 30, 1999
                                   (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, 1998,  as reported in its Annual  Report on Form 10-K filed with
the Securities and Exchange Commission.

Note -  B  There were 7,319,781 and 7,239,493 shares issued and outstanding (net
of treasury  shares held) at June 30, 1999 and December 31, 1998,  respectively,
of the Company's  $.01 par value Common Stock.  During the six months ended June
30, 1999,  109,354  common shares were issued upon the exercise of stock options
and 29,066 common shares were added to the number of treasury shares held.

Note - C  Inventories  consisted of the  following at June 30, 1999 and December
31, 1998:
                                                     June 30,       December 31,
                                                       1999            1998
                                                    -----------     -----------
                                                    (unaudited)
Purchased parts and components                      $ 1,841,000     $ 1,905,000
Work in process                                       3,247,000       3,011,000
Finished goods                                          281,000         130,000
                                                    -----------     -----------
                                                      5,369,000       5,046,000
Less:  reserve for inventory obsolescence              (725,000)       (621,000)
                                                    -----------     -----------
  Net                                               $ 4,644,000     $ 4,425,000
                                                    ===========     ===========

Note -  D  The  following table  illustrates the  calculation  of both basic and
diluted  earnings per share for the three months and six months  ending June 30,
1999 and 1998 (unaudited):
                                                         Three Months Ended
                                                              June 30,
                                                       1999            1998
                                                    -----------     -----------
Basic earnings per share
Net income available to common stockholders         $ 1,717,000     $   861,000
                                                    ===========     ===========
Weighted average common shares                        7,277,819       7,296,177
                                                    ===========     ===========
Basic earnings per share                            $       .24     $       .12
                                                    ===========     ===========

Diluted earnings per share
Net income available to common stockholders         $ 1,717,000     $   861,000
                                                    ===========     ===========
Weighted average common and common
   equivalent shares                                  7,675,231       7,594,633
                                                    ===========     ===========
Diluted earnings per share                          $       .22     $       .11
                                                    ===========     ===========


                                                          Six Months Ended
                                                              June 30,
                                                       1999            1998
                                                    -----------     -----------
Basic earnings per share
Net income available to common stockholders         $ 3,317,000     $ 2,280,000
                                                    ===========     ===========
Weighted average common shares                        7,260,206       7,284,343
                                                    ===========     ===========
Basic earnings per share                            $       .46     $       .31
                                                    ===========     ===========

Diluted earnings per share
Net income available to common stockholders         $ 3,317,000     $ 2,280,000
                                                    ===========     ===========
Weighted average common and common
   equivalent shares                                  7,580,817       7,634,137
                                                    ===========     ===========
Diluted earnings per share                          $       .44     $       .30
                                                    ===========     ===========

                                       5
<PAGE>



             Performance Technologies, Incorporated and Subsidiaries

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

Overview

The Company  achieved  record  revenue of $8.9 million for the second quarter of
1999 as net income for the quarter  increased 99% and diluted earnings per share
doubled from a year earlier.  The Company also achieved  record revenue of $17.0
million for the first half of 1999 and posted record six months earnings of $3.3
million, an increase of 45% from the same period in 1998. An increase in revenue
and an improvement  in gross margin  resulted in a higher return on sales during
the second  quarter and the first six months of 1999,  compared to 1998.  On the
balance  sheet at June 30, 1999,  the Company had no debt,  approximately  $28.7
million in cash and marketable  securities,  and average  weighted common shares
outstanding of 7.7 million. At June 30, 1999, net assets per share was $4.77, of
which  $3.74 was cash.  For the six months  ended  June 30,  1999,  the  Company
generated  income  from  operations,  excluding  depreciation  and  amortization
(EBITDA) of $4.9 million,  compared to $3.3 million for the same period in 1998.
International  sales  amounted  to 20% of  revenue  in the  first  half of 1999,
compared to 15% of revenue in the same period in 1998.

During 1999, the Company's  development and delivery of new products was focused
on two distinct  communications  markets,  Wide Area  Networking  and Local Area
Network Switching.

Wide Area Network  communications:  The Company's  overall Wide Area  Networking
strategy is to provide  customers with hardware and software  product  solutions
that  support a variety of open system  platforms  and  operating  systems.  The
growth in the Wide Area Network (WAN)  communications  market is being driven by
the  expansion of the  Internet,  cellular  communications  and the  convergence
occurring  between  data  and  voice  communications.  At  the  same  time,  the
technologies  for Wide  Area  Networking  products  are  changing  dramatically.
Server,  workstation,  and  telecommunications  providers  are  migrating  their
platforms   and   applications   to  newer   industry   standard   hardware  bus
architectures:   PCIBus  and  CompactPCI.   These  technology  changes  offer  a
significant  opportunity for the Company.  PTI began shipping WAN communications
products for the PCIBus market in 1996. In 1998, PCIBus products represented 48%
of the Company's WAN revenue. The next emerging hardware form factor the Company
is addressing is CompactPCI (cPCI). cPCI is a new standard bus architecture that
combines  the  attributes  of the VMEbus and PCIBus  hardware  into a ruggedized
industrial   hardware   system   for   the   embedded   OEM   marketplace.   The
telecommunications  and defense  industries are expressing great interest in the
cPCI system architecture for meeting their application requirements.  Currently,
the  Company's  cPCI WAN  products  are being  evaluated  for more  than  thirty
potential  integration  opportunities  and the Company has  received  orders for
shipment of cPCI products during the second half of 1999.

To  complement  the  Company's  hardware  development,   communication  software
protocols  have  been  developed  for the  PCIBus  and  cPCI WAN  product  lines
including:  Frame Relay,  Signaling System #7 (SS7), X.25,  High-Level Data Link
Control (HDLC) and a variety of specialized protocols to facilitate high and low
speed  communications.   In  June,  the  Company  introduced   Channel7(TM),   a
comprehensive  hardware and SS7 software  MTP-2  solution that provides  telecom
equipment  manufacturers  and  developers  with enabling  technology for a broad
range of  applications  and systems.  While  Channel7  has superior  competitive
features,  the product is also  significant  from a strategic  perspective as it
represents the Company's first major milestone in offering Advanced  Intelligent
Network (AIN) software for its WAN products.  SS7 technology is a basic building
block for applications such as Voice over IP Gateways, Cellular Roaming support,
Caller ID and call routing to Call Centers.

Local  Area   Network   Switching:   The   Company  has  been   developing   its
second-generation  family of high performance  100Mbit/Gigabit  Network Switches
for Local Area Networks.  The  centerpiece  of the Company's  Local Area Network
switch  strategy is the Nebula 8000 Fault  Tolerant  Switch.  The Nebula  8000's
redundant switch fabric has been engineered for maximum availability and minimal
mean time to repair.  Its  innovative  design  ensures  that no single  point of
failure will shut down a network. The Company currently has a patent application
pending for a variety of aspects associated with the fault tolerant design.

                                       6
<PAGE>


The market  demands  for fault  tolerant  computing  and  networking  are rising
rapidly.  Management believes that deployment of its fault tolerant technologies
in the new  Nebula  8000  Network  Switch is a logical  extension  of the market
demand  for  high  availability  server  clusters  and  ultra  reliable  network
infrastructure. Prospective customers in the banking, brokerage, medical imaging
and defense industries are expressing serious interest in this product.

As of the end of the second quarter, the Nebula 8000 Ethernet Switch had been in
the full beta testing stage, at multiple sites, for more than sixty days. By the
end of July,  the  Nebula  Switch  was  performing  well in  certain  networking
environments and limited  shipments began to customers with these  environments.
In order for the switch to operate in a wider range of networking  environments,
additional software engineering and beta testing is required. This could take up
to sixty days, or possibly longer.


            Quarter and Six Months Ended June 30, 1999, compared with
                 the Quarter and Six Months Ended June 30, 1998

Sales.  Sales for the second quarter 1999 increased 47% to $8,923,000,  compared
to $6,051,000 for the second  quarter 1998.  Sales for the six months ended June
30, 1999 were  $17,036,000,  an increase of $3,574,000 or 27%, from  $13,462,000
for the first six months of 1998.  The Company's  products are grouped into four
categories:   WAN  communications  products,  LAN  interface  products,  Network
Switching products, and Other products (combining Network System products,  Mass
Storage Interface products, and Inter-System Connectivity products).

WAN communications product revenue increased 23% to $4,448,000 during the second
quarter of 1999,  compared to $3,613,000 for the second quarter 1998. During the
first half of 1999,  shipments to a large OEM customer  who  represented  13% of
revenue in 1998, were less than $400,000  because the customer  appeared to have
inventory  issues.  The  Company  has  received  new  orders  for third  quarter
shipments  as well as better  visibility  for future  orders and  believes  this
customer will increase shipments during the second half of the year.

Shipments  of LAN  interface  products for the second  quarter 1999  amounted to
$3,338,000,  or 37% of  sales,  compared  to  $737,000,  or 12% of sales for the
second  quarter 1998.  For the first six months of 1999,  sales of LAN interface
products were  $6,213,000,  or 36% of sales,  compared to $1,431,000,  or 11% of
sales for the respective  period in 1998. The largest component of the Company's
LAN  business  is  generated  from  Commercial  Off  the  Shelf  (COTS)  Defense
applications.  During 1998, a large  follow-on  Department of Defense  contract,
which had been  delayed for most of 1998,  was awarded in  September.  Total LAN
revenue in 1999 is  expected  to be  greater  than in 1998 due to the impact (on
1998) of the  delay in the  award of the  follow-on  contract  and  because  the
Company received a new $8.3 million order for LAN products in April 1999, all of
which is now a firm order.  Delivery  began on this order in the second  quarter
and the balance of this order is expected to ship to the customer  over the next
twelve months. In June 1999, the customer placed an additional  contingent order
of $2.6 million for LAN products and confirmation  should be received before the
end of September 1999.

Network Switching  products:  The centerpiece of the Company's network switching
product strategy is the Nebula 8000 Fault Tolerant Network Switch.  This product
had not been  released as of the end of June 1999.  Network  switch  revenue was
negligible during the second quarter 1999.

Other  products  represented  $1,137,000,  or 13% of total  sales in the  second
quarter 1999, compared to $1,701,000 for the same period in 1998. Shipments were
12% of total sales for the first six months of 1999,  compared to 28% during the
same period in 1998. Other products include the Company's  older/legacy products
previously  grouped in Network System products,  Mass Storage Interface products
and  Inter-System  Connectivity  products.  Many of these  products  are project
oriented and shipments can fluctuate on a quarterly basis.

Gross Profit. Gross profit for the second quarter 1999 was $5,684,000,  or 63.7%
of sales, compared to $3,569,000, or 59.0% of sales for the second quarter 1998.
Gross  profit  for the first  half of 1999 was  $10,662,000,  or 62.6% of sales,
compared  to  $8,117,000,  or 60.3% of sales for the same  period  in 1998.  The
increase in gross margin for the second quarter and the first six months of 1999
over the  comparable  1998  periods is  attributable  to  management's  focus on
reducing  its  material   costs,   favorable   product  mix  and   manufacturing
efficiencies based on higher volumes.

                                       7
<PAGE>

Operating Expenses. Total operating expenses were $3,381,000,  or 37.9% of sales
for the second quarter 1999,  compared to $2,548,000,  or 42.1% of sales for the
second quarter 1998. Total operating expenses were $6,223,000, or 36.5% of sales
for the first half of 1999,  compared to  $5,190,000,  or 38.6% of sales for the
six months ended June 30, 1998.

Selling and marketing expenses were $1,306,000, or 14.6% of sales for the second
quarter 1999, compared to $1,041,000,  or 17.2% of sales for the same quarter in
1998. Selling and marketing  expenses amounted to $2,366,000,  or 13.9% of sales
for the six months  ended June 30,  1999,  compared to  $1,934,000,  or 14.4% of
sales for the same period in 1998.  During the second  quarter 1999, the Company
demonstrated its Nebula Family of network switches at  Networld+Interop99 in Las
Vegas  and its new WAN  Communication  products  at  SuperComm  '99 in  Atlanta.
Selling and  marketing  expenses  for the  remainder  of 1999 are expected to be
greater than the first half of the year as more resources are being committed to
promote  the  Company's  new  products,   particularly  the  Network  Switching,
CompactPCI products and Channel7 (SS7) products.

Research and  development  expenses were  $1,405,000,  or 15.7% of sales for the
second quarter 1999, compared to $907,000,  or 15.0% of sales for the comparable
quarter of 1998. Research and development expenses were $2,630,000,  or 15.4% of
sales for the six months ended June 30, 1999,  compared to $1,970,000,  or 14.6%
of sales  for the six  months  ended  June 30,  1998.  Even  though a number  of
engineers have been hired during the past twelve months, the Company is actively
recruiting to fill new positions and has engaged outside engineering consultants
to assist on  engineering  projects.  The increase in research  and  development
expenses  for the second  quarter  1999 and the first half of 1999 is  primarily
attributable  to these  factors.  Management  expects  research and  development
expenses to increase during the second half of 1999,  compared to the first half
of the year, as the Company  continues  development of the Network Switching and
WAN products.

General and  administrative  expenses  were  $670,000,  or 7.5% of sales for the
second  quarter  1999,  compared  to  $600,000,  or 9.9% of sales for the second
quarter 1998.  General and administrative  expenses were $1,227,000,  or 7.2% of
sales for the six months ended June 30, 1999, compared to $1,286,000, or 9.6% of
sales for the first  half of 1998.  The  Company  continues  to  maintain  tight
control over its general and administrative expenses. Management expects general
and  administrative  expenses  will  decline as a  percentage  of sales in 1999,
compared to 1998.

Income Taxes.  The provision for income taxes was $925,000 in the second quarter
1999, compared to $463,000 for the same quarter in 1998. The effective corporate
income tax rate for the  second  quarter  1999 and 1998 was  35.0%.  For the six
months  ended  June 30,  1999,  the  provision  for  income  taxes  amounted  to
$1,786,000,  compared  to  $1,261,000  for the  first six  months  of 1998.  The
effective  corporate income tax rate was 35.0%,  compared to 35.6% for the first
six months of 1998.

Liquidity and Capital Resources

At June 30, 1999, the Company's  primary  source of liquidity  included cash and
cash  equivalents of $7,712,000,  marketable  securities with a maturity of less
than one year of  $21,016,000  and available  borrowings  of $5,000,000  under a
revolving  credit facility with a bank. No amounts were  outstanding  under this
credit  facility  as of June 30,  1999.  The  Company  had  working  capital  of
$35,497,000 at June 30, 1999,  compared to $31,790,000 at December 31, 1998, and
$28,625,000 at June 30, 1998.

Cash provided by operating activities for the six months ended June 30, 1999 was
$3,171,000,  compared to $3,300,000  for the same period in 1998. The difference
in cash provided by operating  activities for the six months ended June 30, 1999
and 1998 is  primarily  attributable  to  changes in the  components  of working
capital.

Capitalization of certain software development costs amounted to $64,000 for the
six months  ended June 30,  1999,  compared to  $403,000  for the same period in
1998.


Impact of the Year 2000 Issue

Many companies are facing a potential issue regarding the ability of information
systems to  accommodate  the coming year 2000. The Year 2000 issue is the result
of computer  programs  using only the last two digits to indicate  the year.  If


                                       8
<PAGE>

uncorrected, such computer programs will be unable to interpret dates beyond the
year 1999,  which could cause computer  system failure or other computer  errors
disrupting  operations.  The Company  recognizes the importance of the Year 2000
issue and has been giving it high priority. The Company created a corporate-wide
Year 2000  project team and the team's  objective is to ensure an  uninterrupted
transition  into the Year  2000.  The  scope of the Year 2000  readiness  effort
includes (i) information  technology ("IT") such as software and hardware;  (ii)
non-IT systems or embedded technology; and (iii) readiness of key third parties,
including  suppliers and customers,  and the electronic data  interchange  (EDI)
with those key third parties.  If needed  modifications  and conversions are not
made on a timely basis, the Year 2000 issue could have a material adverse effect
on Company operations.

The  Company  has  completed  Phase I and II of its  readiness  plan  for its IT
systems and non-IT systems. These phases consisted of evaluating and testing its
IT systems and non-IT systems. The Company is in the process of completing Phase
III which  consists of upgrading  and/or  replacing IT system and non-IT  system
components  specifically  required for Year 2000  readiness.  Phase IV,  planned
during the fourth quarter of 1999, will consist of finalizing  contingency plans
for  temporary  operation  should  unexpected  difficulties  with IT systems and
non-IT  systems  occur.  The  development  of these  contingency  plans began in
conjunction with upgrading its IT system.

In addition  to internal  Year 2000 IT and non-IT  remediation  activities,  the
Company has contacted key suppliers and customers to assure no  interruption  in
the relationship  between the Company and these important third parties from the
Year 2000 issue. The Company has received many responses of its inquiries and is
waiting for the  remaining  responses  from these  suppliers  and  customers  to
conclude its  assessment  if such third parties have any known Year 2000 issues.
If third  parties do not convert  their  systems in a timely manner and in a way
that is compatible with the Company's systems,  the Year 2000 issue could have a
material  adverse effect on Company  operations.  The Company  believes that its
diligent actions with key suppliers and customers will minimize these risks.

The vast  majority of the  Company's  products are not  date-sensitive  and this
information has been available to customers since November 1998.

While the  Company  expects its  internal IT and non-IT  systems to be Year 2000
compliant  by the dates  specified  within its  internal  plan,  the  Company is
working on a  contingency  plan  specifying  what the  Company  will do if it or
important third parties are not Year 2000 compliant by the required  dates.  The
Company expects to have such a contingency  plan finalized by the second half of
1999.

Through June 1999, the Company has not incurred  significant  incremental  costs
related  to the  Year  2000  issue.  The  total  projected  incremental  cost is
estimated to be $150,000. The Company is expensing as incurred all costs related
to the  assessment  and  remediation of the Year 2000 issue unless the nature of
the item is an upgrade or  replacement of a system with a useful life that meets
the capitalization  policy of the Company.  These costs are being funded through
operating cash flows.  The Company's total cost for the Year 2000 issue includes
estimated costs and time associated  with  interfacing  with third parties' Year
2000 issues. These estimates are based on currently available information.

The  Company's  current  estimates of the amount of time and costs  necessary to
remediate and test its computer systems are based on the facts and circumstances
existing  at this time.  The  estimates  were made using  assumptions  of future
events  including the continued  availability  of certain  resources,  Year 2000
modification  plans,  implementation  success  by key  third-parties,  and other
factors. New developments may occur that could affect the Company's estimates of
the  amount of time and costs  necessary  to modify  and test its IT and  non-IT
systems  for Year  2000  compliance.  These  developments  include,  but are not
limited to: (i) the  availability  and cost of  personnel  trained in this area;
(ii) the  ability  to  locate  and  correct  all  relevant  computer  codes  and
equipment,  and (iii) the  planning  and Year 2000  compliance  success that key
customers and suppliers attain.

Year 2000  compliance is an issue for virtually all  businesses  whose  computer
systems and applications may require significant  hardware and software upgrades
or modifications. Companies owning and operating such systems may plan to devote
a  substantial  portion  of their  information  systems'  spending  to fund such
upgrades and  modifications.  It is the Company's  intention to fulfill its plan
and  become  Year  2000  compliant;  however,   uncertainties  exist  about  the
thoroughness  of how other  companies,  vendors,  customers  and  other  service
providers  that the  Company  does  business  with  will be  successful  at also
becoming Year 2000 compliant.  These other  companies,  regardless of the dollar


                                       9
<PAGE>

volume transacted with the Company,  may significantly affect either directly or
indirectly the operations of the Company.  Where  practicable,  the Company will
attempt to mitigate  its risks with  respect to the failure of  suppliers  to be
Year 2000  compliant.  In the event that suppliers are not Year 2000  compliant,
the Company will seek alternative  sources of supplies.  However,  such failures
remain a possibility  and could have an adverse impact on the Company's  results
of operations or financial condition.


Forward-Looking Statements AND RISK FACTORS

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for  certain  forward-looking  statements.  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, as amended,  and Section 21E of the
Securities Act of 1934, as amended, and is subject to the safe harbor provisions
of those Sections.

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,"
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.

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, changes in the product or customer mix
of sales, delays in new product development, customer acceptance of new products
and  customer  delays in  qualification  of  products.  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, 1998 and "Risk  Factors" as reported in
the Company's  Annual Report on Form 10-K, and as of March 31, 1999, as reported
in its Form 10-Q, as filed with the Securities and Exchange Commission.


                                       10
<PAGE>







             Performance Technologies, Incorporated and Subsidiaries

Part II. Other Information



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

The 1999 Annual Meeting of Stockholders  was held on June 8, 1999. The Directors
elected at the meeting were as follows:

                                                        Votes Cast
      Nominees                                      For            Abstain
      --------------------------------------------------------------------
      Charles E. Maginness                        6,148,762        3,400
      Bernard Kozel                               6,148,762        3,400

The stockholders also voted to ratify the appointment of  PricewaterhouseCoopers
LLP as independent  accountants for 1999.  5,937,480 shares of common stock were
voted in favor of the  proposal,  4,330 shares of common stock voted against the
proposal, and 210,352 shares of common stock abstained.


Item 6.           Exhibits and Reports on Form 8-K

                  A.       Exhibits

                           None.

                  B.       Reports on Form 8-K

                           There were no  reports  on Form 8-K filed  during the
                           three month period ended June 30, 1999.


                                       11
<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





August 12, 1999                     By: s/       Donald L. Turrell
                                      -----------------------------------
                                                 Donald L. Turrell
                                                   President and
                                              Chief Executive Officer




August 12, 1999                     By: s/       Dorrance W. Lamb
                                      -----------------------------------
                                                 Dorrance W. Lamb
                                            Chief Financial Officer and
                                              Vice President, Finance














                                       12