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                                  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 March 31, 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
7,246,543 as of April 27, 1999.
          _____________________________________________________________

                             Cover Page of 11 Pages


<PAGE>


             Performance Technologies, Incorporated and Subsidiaries

                                      Index


                                                                          Page

Part I.  Financial Information

Item 1.  Consolidated Financial Statements

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

            Consolidated  Statements  of Income  For The Three  Months
            Ended March 31, 1999 and 1998 (unaudited)                      2

            Consolidated Statements of Cash Flows For The Three Months
            Ended March 31, 1999 and 1998  (unaudited)                     3

            Notes to Consolidated Financial Statements For The Three
            Months Ended March 31, 1999 (unaudited)                        4

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                         5


Part II  Other Information

Item 6.  Exhibits and Reports on Form 8-K                                 10


Signatures                                                                11



<PAGE>


             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                     ASSETS


                                                   March 31,       December 31,
                                                     1999             1998    
                                                 ------------     ------------
                                                 (unaudited)
<S>                                              <C>              <C>         
Current assets:
  Cash and cash equivalents                      $ 11,617,000     $ 25,627,000
  Marketable securities                            15,008,000
  Accounts receivable, net                          5,844,000        4,799,000
  Inventories, net - Note C                         5,322,000        4,425,000
  Prepaid expenses and other                          462,000          679,000
  Deferred taxes                                      549,000          549,000
                                                 ------------     ------------
    Total current assets                           38,802,000       36,079,000


Equipment and improvements, net                       838,000          934,000
Software development, net                             816,000          822,000
                                                 ------------     ------------
    Total assets                                 $ 40,456,000     $ 37,835,000
                                                 ============     ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long term debt              $     12,000     $     12,000
  Accounts payable                                  1,657,000        1,932,000
  Income taxes payable                              1,233,000          507,000
  Accrued expenses                                  2,377,000        1,838,000
                                                 ------------     ------------
    Total current liabilities                       5,279,000        4,289,000

Long term debt, less current portion                    3,000            6,000
Deferred taxes                                        288,000          288,000
                                                 ------------     ------------
    Total liabilities                               5,570,000        4,583,000
                                                 ------------     ------------

Stockholders' equity
  Preferred stock
  Common stock - Note B                                75,000           75,000
  Additional paid-in capital - Note B              13,284,000       13,250,000
  Retained earnings                                22,444,000       20,844,000
  Treasury stock                                     (917,000)        (917,000)
                                                 ------------     ------------
    Total stockholders' equity                     34,886,000       33,252,000
                                                 ------------     ------------
    Total liabilities and stockholders' equity   $ 40,456,000     $ 37,835,000
                                                 ============     ============
</TABLE>






                                       1
<PAGE>


             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)




<TABLE>
<CAPTION>
                                                       Three Months Ended
                                                   March 31,        March 31,
                                                     1999             1998   
                                                 ------------     ------------
<S>                                              <C>              <C>         
Sales                                            $  8,113,000     $  7,411,000
Cost of goods sold                                  3,135,000        2,863,000
                                                 ------------     ------------
Gross profit                                        4,978,000        4,548,000
                                                 ------------     ------------


Operating expenses:
  Selling and marketing                             1,060,000          893,000
  Research and development                          1,225,000        1,063,000
  General and administrative                          557,000          686,000
                                                 ------------     ------------
    Total operating expenses                        2,842,000        2,642,000
                                                 ------------     ------------
Income from operations                              2,136,000        1,906,000

Other income, net                                     325,000          311,000
                                                 ------------     ------------
Income before income taxes                          2,461,000        2,217,000

Provision for income taxes                            861,000          798,000
                                                 ------------     ------------
  Net income                                     $  1,600,000     $  1,419,000
                                                 ============     ============



Per share of common stock - Note D

Basic earnings per share                         $        .22     $        .20
                                                 ============     ============

Diluted earnings per share                       $        .21     $        .18
                                                 ============     ============
</TABLE>







                                       2
<PAGE>


             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                      Three Months Ended      
                                                           March 31,
                                                     1999             1998    
                                                 ------------     ------------
<S>                                              <C>              <C>         
Cash flows from operating activities
  Net income                                     $  1,600,000     $  1,419,000
  Non-cash adjustments:
    Depreciation and amortization                     179,000          145,000
    Other                                               2,000            8,000
  Changes in operating assets and liabilities:
    Accounts receivable                            (1,045,000)         428,000
    Inventories                                      (897,000)        (230,000)
    Prepaid expenses                                  217,000            9,000
    Accounts payable                                 (275,000)         470,000
    Accrued expenses                                  539,000         (483,000)
    Income taxes payable                              726,000          639,000
                                                 ------------     ------------

      Net cash provided by operating activities     1,046,000        2,405,000
                                                 ------------     ------------

Cash flows from investing activities
  Purchase of equipment and improvements, net         (30,000)         (60,000)
  Capitalized software development                    (49,000)        (172,000)
  Purchase of marketable securities               (15,008,000)      (1,000,000)
  Maturities of marketable securities                                3,000,000
                                                 ------------     ------------

      Net cash (used) provided by investing
        activities                                (15,087,000)       1,768,000
                                                 ------------     ------------

Cash flows from financing activities
  Repayment of notes payable                           (3,000)          (3,000)
  Proceeds from issuance of common stock               34,000           14,000
                                                 ------------     ------------

      Net cash provided by financing activities        31,000           11,000
                                                 ------------     ------------

      Net (decrease) increase in cash
       and cash equivalents                       (14,010,000)       4,184,000

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

Cash and cash equivalents at end of period       $ 11,617,000     $ 13,017,000
                                                 ============     ============
</TABLE>





                                       3
<PAGE>


             Performance Technologies, Incorporated and Subsidiaries
                   Notes to Consolidated Financial Statements
                    For The Three Months Ended March 31, 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 7,243,243 and 7,239,493  shares issued and outstanding  (net
of treasury shares held) at March 31, 1999 and December 31, 1998,  respectively,
of the  Company's  $.01 par value  Common  Stock.  During the three months ended
March 31,  1999,  3,750  common  shares were  issued upon the  exercise of stock
options.


Note - C  Inventories  consisted of the following at March 31, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
                                                  March 31,       December 31,
                                                     1999             1998    
                                                 -----------      -----------
                                                 (unaudited)
    <S>                                          <C>              <C>        
    Purchased parts and components               $ 2,787,000      $ 1,905,000
    Work in process                                3,055,000        3,011,000
    Finished goods                                   205,000          130,000
                                                 -----------      -----------
                                                   6,047,000        5,046,000
    Less: reserve for inventory obsolescence        (725,000)        (621,000)
                                                 -----------      -----------
      Net                                        $ 5,322,000      $ 4,425,000
                                                 ===========      ===========
</TABLE>

Note - D The  following  table  illustrates  the  calculation  of both basic and
diluted earnings per share for the three months ending March 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                   March 31,        March 31,
                                                     1999             1998   
                                                 -----------      -----------
                                                 (unaudited)      (unaudited)
    <S>                                          <C>              <C>        
    Basic earnings per share
    Net income available to common stockholders  $ 1,600,000      $ 1,419,000
                                                 ===========      ===========
    Weighted average common shares                 7,242,593        7,272,508
                                                 ===========      ===========
    Basic earnings per share                     $       .22      $       .20
                                                 ===========      ===========

    Diluted earnings per share
    Net income available to common stockholders  $ 1,600,000      $ 1,419,000
                                                 ===========      ===========
    Weighted average common and common
    equivalent shares                              7,486,404        7,673,640
                                                 ===========      ===========
    Diluted earnings per share                   $       .21      $       .18
                                                 ===========      ===========
</TABLE>







                                       4
<PAGE>


             Performance Technologies, Incorporated and Subsidiaries

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

Overview

In 1999, the Company achieved its highest first quarter  operating results since
becoming a public  company in January 1996.  Diluted  earnings per share for the
first quarter increased 17%, to $.21 per share, from $.18 per share in the first
quarter 1998. Net income  increased 13%, to $1.6 million,  from $1.4 million for
the first  quarter  1998.  Revenue was $8.1 million for the first  quarter 1999,
compared to $7.4  million for the same period in 1998.  At March 31,  1999,  the
Company had $26.6 million in cash, cash equivalents,  and marketable  securities
($3.55/per  share) and  virtually no debt.  For the three months ended March 31,
1999, the Company generated income from operations,  excluding  depreciation and
amortization  (EBITDA) of $2.3  million,  compared to $2.0  million for the same
period in 1998. International sales amounted to 26% of total sales for the first
quarter 1999, compared to 23% for all of 1998.

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

Wide Area Networking:  The Company's overall Wide Area Networking strategy is to
provide  customers with hardware and software product  solutions which support a
variety of open system platforms and operating  systems.  The growth in the Wide
Area Networking (WAN) communications  market is being driven by the expansion of
the Internet, cellular communications and the convergence occurring between data
communications 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  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
WAN market  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  is
receiving orders for shipment 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 March, two of the Company's PCIBus Wide Area Network communications  products
were selected by Cisco Systems to be integrated into their new SC2200 Voice over
IP Gateway  Controllers which are expected to be sold to the  telecommunications
industry.  Also in March,  the  Company  became an active  partner  in  Motorola
Computer  Group's (MCG)  Embedded  Connections  Partner  Program,  a development
effort designed to create industry leading telecom and datacom product solutions
through strategic partnering.

Local  Area  Network  Switching:  The  Company  has been  developing  its second
generation family of high performance 100Mbit/Gigabit Network Switches for Local
Area  Networks.  During  1998,  the  Company  completed  development  of its new
Nebula(TM)  4000  workgroup   switch  and  its  new  Nebula  6000  high  density
departmental  switch. The centerpiece of the Company's Local Area Network switch
strategy is the Nebula 8000 Fault Tolerant Switch. This 100/1000 Ethernet switch
is the first  network  switch to offer true  fault  tolerance  at an  affordable
price. 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
an outstanding  patent  application  pending for a variety of aspects associated
with the fault tolerant design.

                                       5
<PAGE>

The market  demands  for fault  tolerant  computing  and  networking  are rising
rapidly.  Manufacturers  such as  Compaq  Computers  and Sun  Microsystems  have
developed   server  clusters  to  meet  their   customers'   high   availability
requirements.  Network software companies, including Novell, Vinca and Microsoft
are actively  promoting and selling  networking  solutions for mission  critical
applications.   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. The fault tolerant features of the Nebula 8000 differentiate PTI
from the other vendors in the network switching marketplace. This new product is
being positioned for Ethernet based business and mission  critical  applications
in  enterprises  where  "round-the-clock"  operations  demand  highly  resilient
network  infrastructures.  Prospective  customers  in  the  banking,  brokerage,
medical imaging and defense  industries are expressing  serious interest in this
product.

As of April  1999,  the Nebula  8000  Ethernet  Switch has entered the full beta
testing  stage at multiple  sites in  Rochester,  New York and Toronto,  Canada.
Additional  beta sites have been selected and units are expected to be installed
in these  locations in May. A live  demonstration  of this unique fault tolerant
networking  product  will  be  presented  at  the  Networld+Interop   Networking
Conference  in Las  Vegas  in May.  Pending  successful  completion  of the beta
program, deliveries to customers are expected to commence in the near term.


  Quarter Ended March 31, 1999, compared with the Quarter Ended March 31, 1998

Sales.  Sales for the quarter ended March 31, 1999 were $8,113,000,  compared to
$7,411,000  for the first quarter 1998.  The Company's  sales are in one product
segment  and   beginning  in  1999  are  grouped  into  four   categories:   WAN
communications products, LAN interface products, Network Switching products, and
Other (combining  Network System products,  Mass Storage Interface  products and
Inter-System Connectivity products).

WAN  communications  product  revenue was $4.4  million,  or 54% of sales in the
first quarter 1999, reflecting a moderate decline from the similar period a year
earlier.  Shipments to a large OEM  customer  were  negligible  during the first
quarter  of 1999  because  the  customer  appears to be  experiencing  inventory
problems.  Indications  are that  shipments to this  customer will resume in the
second half of the year.  PCIBus WAN revenue increased 108% in the first quarter
1999 to $2.1 million,  compared to $1 million for the first  quarter  1998.  The
Company  continues to expand its PCIBus and cPCI  product  lines and the breadth
and capability of communications  software  available on these WAN products.  An
acceleration  in design wins and orders is anticipated in the second half of the
year.

Shipments of LAN interface products amounted to $2.9 million, or 35% of sales in
the first quarter,  compared to $740,000,  or 10% of sales for the first quarter
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,  of which  $4.6  million is a firm order for
product to be delivered over the next twelve months. The remainder of this order
is contingent and needs to be confirmed by the customer by the end of June 1999.
During the second  half of 1998,  the  Company  completed  development  of a new
PCIBus LAN product and shipments began late in the third quarter.  First quarter
shipments of this product were greater than during the fourth quarter 1998.

Other  products  represented  11% of total  sales  for the first  quarter  1999,
compared to 27% of sales in the first quarter 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.  First  quarter 1999 revenue for this product group was at the low end of
management's quarterly revenue expectations.

Network Switching  products:  The centerpiece of the Company's network switching
product  strategy is the Nebula 8000 Fault Tolerant  Network Switch which was in
Beta Testing  during the first  quarter,  1999.  Network  switching  revenue was
negligible during the first quarter 1999.

                                       6
<PAGE>

Gross Profit. Gross profit for the first quarter of 1999 increased $430,000,  to
$4,978,000 due to higher sales volumes.  Gross margin was 61.4% of sales for the
first  quarter 1999,  compared to 54.4% in the fourth  quarter 1998 and 61.4% in
the first quarter  1998.  During 1999,  gross margin for the Company's  WAN, LAN
interface and Other  Products is expected to range between 59% and 61% while the
gross  margin on the new network  switching  products is  forecasted  to average
approximately  45% for the year.  Gross  margin for the first  quarter  1999 was
slightly higher than expected primarily due to the product mix.

Total Operating Expenses.  Total operating expenses increased to $2,842,000,  or
35.0% of sales for the first quarter 1999,  from  $2,642,000,  or 35.6% of sales
for the same period in 1998.  The Company  expects to  increase  investments  in
sales,  marketing,  research and development during 1999 while maintaining tight
control over general and administrative expenses as a percentage of sales.

Selling and marketing expenses were $1,060,000,  or 13.1% of sales for the first
quarter of 1999, compared to $893,000, or 12.0% of sales for the same quarter in
1998.  Management  intends to  aggressively  market its new products in 1999 and
expects sales and marketing  expenses to increase as a percentage of sales.  The
Company  presented  its products at various trade shows during the first quarter
including Comnet in Washington, D.C. and IT Wallstreet in New York City. In May,
the Company  will be  presenting a live  demonstration  of the Nebula 8000 Fault
Tolerant  Network Switch at the  Networld+Interop  Networking  Conference in Las
Vegas and in June the  Company's WAN products will be presented at the SuperComm
trade show in Atlanta.

Research and  development  expenses were  $1,225,000,  or 15.1% of sales for the
first  quarter  of 1999,  compared  to  $1,063,000,  or  14.3% of sales  for the
comparable 1998 quarter.  Recruiting and hiring engineers continues to be one of
the Company's greatest  challenges.  While a number of engineers have been added
to staff  during  the past year,  the  Company is  actively  recruiting  to fill
several open positions and has engaged outside engineering consultants to assist
in meeting certain project  deadlines.  This resulted in an increase in research
and  development  expenses for the first quarter 1999.  During 1999,  management
expects  research and development  expenses to increase as a percentage of sales
from the 1998 levels. New development efforts are primarily focused on expanding
the WAN product line and on the Nebula 8000 Fault Tolerant Switch.

General and  administrative  expenses  were  $557,000,  or 6.9% of sales for the
first  quarter of 1999,  compared  to  $686,000,  or 9.3% of sales for the first
quarter of 1998.  The Company  continues  to  maintain  tight  control  over its
general  and   administrative   expenses.   Management   believes   general  and
administrative expenses should decline as a percentage of sales in 1999.

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

Income Taxes. The provision for income taxes for the first quarter 1999 is based
upon the combined  federal and state effective tax rate of 35%,  compared to 36%
for the first quarter 1998.

Liquidity and Capital Resources

At March 31, 1999, the Company's  primary source of liquidity  included cash and
cash equivalents of $11,617,000,  marketable  securities with a maturity of less
than one year of  $15,008,000  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 March 31,  1999.  The  Company  had  working  capital of
$33,523,000 at March 31, 1999,  compared to $31,790,000 at December 31, 1998 and
$27,926,000 at March 31, 1998.

Cash provided by operating activities was $1,046,000 for the quarter ended March
31, 1999,  compared to $2,405,000  for the first  quarter 1998.  The decrease in
cash provided by operating  activities for the three months ended March 31, 1999
is primarily attributable to increases in inventory and accounts receivable.

Capitalization of certain software development costs amounted to $49,000 for the
quarter ended March 31, 1999, compared to $172,000 for the same period in 1998.

                                       7
<PAGE>

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
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 of its readiness  plan for its IT systems and
non-IT  systems.  This phase  consisted of evaluating  its systems and equipment
based on the current status and normal scheduled upgrade and replacement of such
system  components.  The Company is in the process of completing  Phase II which
consists  of  testing IT system and  non-IT  system  components  whose Year 2000
status  cannot be  determined  by research and has begun  certain parts of Phase
III,  upgrading  its IT system.  The  remaining  parts of Phase III are  planned
during the third quarter 1999, and will consist of upgrading and/or  replacement
of 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  to  assure  no   interruption   in  the
relationship between the Company and these important third parties from the Year
2000 issue.  The Company is waiting for responses from these suppliers to assess
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 will minimize these risks.

The vast majority of the Company's products are not date-sensitive.  The Company
is  in  the  process  of  summarizing  information  on  its  products  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 March 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.

                                       8
<PAGE>

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
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 as filed  with the  Securities  and
Exchange Commission.






                                       9
<PAGE>



             Performance Technologies, Incorporated and Subsidiaries

                           Part II. Other Information


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 March 31, 1999.















                                       10
<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





May 10, 1999                          By: s/      Donald L. Turrell         
                                         -----------------------------------
                                                  Donald L. Turrell
                                                    President and
                                               Chief Executive Officer




May 10, 1999                          By: s/      Dorrance W. Lamb          
                                         -----------------------------------
                                                  Dorrance W. Lamb
                                             Chief Financial Officer and
                                               Vice President, Finance










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