UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2013                  
|                                                          
|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
        (State or other jurisdiction of incorporation)
        

140 Canal View Blvd.,
Rochester, New York
        (Address of principal executive offices) | 16-1158413
        (I.R.S. Employer Identification No.)
        
        14623
        (Zip Code)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------

____________________________



Registrant's telephone
number, including area code: (585) 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 [   ]

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [   ]

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer: Large accelerated filer [   ] Accelerated
filer [   ] Non-accelerated filer [   ] Smaller reporting company [ X ]

Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [ X ]



The number of shares outstanding of the
registrant's common stock was 11,154,730 as of October 31,2013.






-1-







PERFORMANCE TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES



TABLE OF CONTENTS





|PART I.  |  | FINANCIAL INFORMATION                                                                                                                      | Page
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ | ----
|         |  |                                                                                                                                            |     
|Item 1.  |  | Condensed Consolidated Financial Statements:                                                                                               |     
|         |  |                                                                                                                                            |     
|         |  | Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 (unaudited)                                                     | 3   
|         |  |                                                                                                                                            |     
|         |  | Consolidated
    Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012 (unaudited)                      | 4   
|         |  |                                                                                                                                            |     
|         |  | Consolidated
    Statements of Comprehensive Income (loss) for the Three and Nine Months Ended September 30, 2013 and 2012
    (unaudited) | 5   
|         |  |                                                                                                                                            |     
|         |  | Consolidated
    Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (unaudited)                                | 6   
|         |  |                                                                                                                                            |     
|         |  | Notes to Consolidated Financial Statements (unaudited)                                                                                     | 7   
|         |  |                                                                                                                                            |     
|Item 2.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                      | 14  
|         |  |                                                                                                                                            |     
|Item 3.  |  | Quantitative
    and Qualitative Disclosures About Market Risk a                                                                           |     
|         |  |                                                                                                                                            |     
|Item 4.  |  | Controls and Procedures                                                                                                                    | 27  
|         |  |                                                                                                                                            |     
|PART II. |  | OTHER INFORMATION                                                                                                                          |     
|         |  |                                                                                                                                            |     
|Item 6.  |  | Exhibits                                                                                                                                   | 27  
|         |  |                                                                                                                                            |     
|         |  | Signatures                                                                                                                                 | 28  



a – not applicable as PT qualifies as a Smaller
Reporting Company















-2-


Table of contents




PART I. FINANCIAL INFORMATION



ITEM 1. CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS



|PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES         
|----------------------------------------------------------------
|CONSOLIDATED BALANCE SHEETS                                     
|(unaudited)                                                     
|                                                                
|ASSETS                                                          
|                                                                
|Current assets:                                                 
|Cash and cash equivalents                                       
|Investments                                                     
|Accounts receivable, net                                        
|Inventories, net                                                
|Prepaid expenses and other assets                               
|Prepaid income taxes                                            
|Deferred income taxes                                           
|Total current assets                                            
|                                                                
|Investments                                                     
|Property, equipment and improvements, net                       
|Software development costs, net                                 
|Purchased intangible assets, net                                
|Total assets                                                    
|                                                                
|LIABILITIES AND STOCKHOLDERS' EQUITY                            
|Current liabilities:                                            
|Accounts payable                                                
|Accrued expenses                                                
|Deferred revenue                                                
|Fair value of foreign currency hedge contracts                  
|Total current liabilities                                       
|Deferred income taxes                                           
|Total liabilities                                               
|                                                                
|Stockholders' equity:                                           
|Preferred stock - $.01 par value: 1,000,000 shares              
|authorized; none issued                                         
|Common stock - $.01 par value: 50,000,000 shares     authorized;
|13,304,596 shares issued; 11,154,730 shares outstanding         
|Additional paid-in capital                                      
|Retained earnings                                               
|Accumulated other comprehensive (loss) income                   
|Treasury stock - at cost; 2,149,866 shares                      
|Total stockholders' equity                                      
|Total liabilities and stockholders' equity                      
|                                                                



The
accompanying notes are an integral part of these consolidated financial statements.







-3-


Table of contents


|PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
|-------------------------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS                  
|(unaudited)                                            
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Sales                                                  
|Cost of goods sold                                     
|Impairment of software development costs               
|Gross profit                                           
|                                                       
|Operating expenses:                                    
|Selling and marketing                                  
|Research and development                               
|General and administrative                             
|Restructuring charges                                  
|Total operating expenses                               
|Income (loss) from operations                          
|                                                       
|Other income (expense), net                            
|Income (loss) before income taxes                      
|                                                       
|Income tax (benefit) provision                         
|Net income (loss)                                      
|                                                       
|                                                       
|Basic income (loss) per share                          
|Diluted income per share                               
|                                                       
|Weighted average number of                             
|common shares used in basic                            
|income (loss) per share                                
|                                                       
|Potential common shares - stock options                
|                                                       
|Weighted average number of common                      
|shares and share equivalents used                      
|in diluted income per share                            





The accompanying notes are an integral
part of these consolidated financial statements.





-4-


Table of contents






PERFORMANCE TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)

(unaudited)





|                                                                     |  |                    |         |                   |  |      |            |     
|-------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ---------- | ----
|                                                                     |  | Three Months Ended |         | Nine Months Ended
|                                                                     |  | September 30,      |         | September 30,    
|                                                                     |  | 2013               |         | 2012              |  | 2013 |            | 2012
|Net income (loss)                                                    |  | $                  | 488,000 |                   |  | $    | (1,673,000 | )   
|Other comprehensive income (loss), net of tax:                       |  |                    |         |                   |  |      |            |     
|Change in unrealized gain (loss) on foreign currency hedge contracts |  |                    | 60,000  |                   |  |      |            |     
|Change in unrealized (loss) gain on available-for-sale investments   |  |                    | (5,000  | )                 |  |      | 17,000     |     
|Other comprehensive income (loss)                                    |  |                    | 55,000  |                   |  |      | 17,000     |     
|Comprehensive income (loss)                                          |  | $                  | 543,000 |                   |  | $    | (1,656,000 | )   
|                                                                     |  |                    |         |                   |  |      |            |     





















































The accompanying notes are an integral
part of these consolidated financial statements.



-5-


Table of contents






PERFORMANCE TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                       |  | Nine Months Ended September 30,
|------------------------------------------------------ |  | -------------------------------
|                                                       |  | 2013                           
|Cash flows from operating activities:                  |  |                                
|Net loss                                               |  | $                              
|Non-cash adjustments:                                  |  |                                
|Depreciation and amortization                          |  |                                
|Amortization of purchased intangible assets            |  |                                
|Stock-based compensation expense                       |  |                                
|Impairment of software development costs               |  |                                
|Deferred income taxes                                  |  |                                
|Realized loss on disposal of property and equipment    |  |                                
|Realized gain on redemption of investment              |  |                                
|Revenue from non-monetary exchange                     |  |                                
|Non-cash interest expense                              |  |                                
|Changes in operating assets and liabilities:           |  |                                
|Accounts receivable                                    |  |                                
|Inventories                                            |  |                                
|Prepaid expenses and other assets                      |  |                                
|Accounts payable and accrued expenses                  |  |                                
|Deferred revenue                                       |  |                                
|Income taxes payable and prepaid income taxes          |  |                                
|Net cash provided by operating activities              |  |                                
|                                                       |  |                                
|Cash flows from investing activities:                  |  |                                
|Purchase of equipment, inventory and intangible assets |  |                                
|Purchases of property, equipment and improvements      |  |                                
|Capitalized software development costs                 |  |                                
|Proceeds from sales and maturities of investments      |  |                                
|Purchases of investments                               |  |                                
|Net cash provided (used) by investing activities       |  |                                
|                                                       |  |                                
|Cash flows from financing activities:                  |  |                                
|Proceeds from stock option exercises                   |  |                                
|Net cash provided by financing activities              |  |                                
|                                                       |  |                                
|Net increase (decrease) in cash and cash equivalents   |  |                                
|Cash and cash equivalents at beginning of period       |  |                                
|Cash and cash equivalents at end of period             |  | $                              
|                                                       |  |                                
|Supplemental Disclosure of Cash Flow Information:      |  |                                
|Software acquired in non-monetary exchange             |  |                                





The accompanying notes are an integral part
of these consolidated financial statements.



-6-


Table of contents






PERFORMANCE TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Note A – Basis of Presentation and Changes in Significant
Accounting Policies



The interim unaudited Consolidated Financial
Statements of Performance Technologies, Incorporated and Subsidiaries (collectively “PT” or “the Company")
have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial
information (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and
Exchange Commission (“SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information
and footnotes required by GAAP 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 full year. The accompanying Consolidated Financial Statements should be read in conjunction with the audited
Consolidated Financial Statements of the Company as of December 31, 2012, as reported in its Annual Report on Form 10-K filed with
the SEC.



Our preparation of the interim unaudited
Consolidated Financial Statements of PT requires us to make estimates and assumptions that affect the amounts in those financial
statements and accompanying notes. Actual results could differ from these estimates.



Financial Statement Presentation



Certain reclassifications have been made
to the amounts presented for the three and nine months ended September 30, 2012 in order to conform to the current year presentation.
Due to the Company’s recent restructuring actions and realignment of its business, management has elected to change the account
classification of certain items of compensation and related expense, previously reported in general and administrative expenses
to selling and marketing expense and research and development expense.



Recent Accounting Pronouncements



Reporting of Amounts Reclassified Out
of Accumulated Other Comprehensive Income:



In February 2013, the FASB issued authoritative
guidance on the reporting of amounts reclassified out of accumulated other comprehensive income (“AOCI”), which is
effective for reporting periods beginning after December 15, 2012. This guidance requires companies to provide information about
the amounts reclassified out of AOCI either in a single note or on the face of the financial statements. Significant amounts reclassified
out of AOCI should be presented by the respective line items of net income but only if the amount reclassified is required under
U.S. GAAP to be reclassified in its entirety to net income in the same reporting period. For amounts not required to be reclassified
in their entirety to net income, a cross-reference to other disclosures provided for in accordance with U.S. GAAP is required.
The Company has adopted this authoritative guidance. To date, its adoption does not have a material impact on its consolidated
financial statement disclosures.













-7-


Table of contents




Disclosures about Offsetting Assets and
Liabilities:



In December 2011, the FASB issued authoritative
guidance requiring enhanced disclosures about offsetting assets and liabilities, which is effective for annual reporting periods
beginning on or after January 1, 2013, and interim periods within those annual periods. The new rules require companies to disclose
both gross and net information about instruments and transactions eligible for offset in the statement of financial position, as
well as instruments and transactions subject to a netting arrangement. In January 2013, the FASB issued a clarification of the
guidance in order to address implementation issues surrounding the scope of the standard and to clarify the scope of the offsetting
disclosures and address any unintended consequences. The Company has evaluated this updated authoritative guidance, and the adoption
of this guidance does not have a material impact on its consolidated financial statement disclosures.



Note B – Investments



Investments are stated at fair value and
consisted of the following:

|                          |  |                    |            |                  
|------------------------- |  | ------------------ | ---------- | -----------------
|                          |  | September 30, 2013 |            | December 31, 2012
|                          |  | Amortized cost     |            | Fair value       
|                          |  |                    |            |                  
|Corporate bonds           |  | $                  | 3,539,000  |                  
|Municipal bonds           |  |                    |            |                  
|Total investments         |  |                    | 3,539,000  |                  
|Less: current investments |  |                    | (1,454,000 | )                
|Non-current investments   |  | $                  | 2,085,000  |                  



The Company’s bond investments have
a cumulative par value of $3,450,000 at September 30, 2013.



Note C – Inventories, net



Inventories consisted of the following:

|                                         |  | September 30, |           | December 31,
|---------------------------------------- |  | ------------- | --------- | ------------
|                                         |  | 2013          |           | 2012        
|Purchased parts and components           |  | $             | 861,000   |             
|Work in process and purchased assemblies |  |               | 1,084,000 |             
|Finished goods                           |  |               | 379,000   |             
|Net                                      |  | $             | 2,324,000 |             



Note D–Software Development Costs



Software development costs consisted of the following:

|                                       |  | September 30, |             | December 31,
|-------------------------------------- |  | ------------- | ----------- | ------------
|                                       |  | 2013          |             | 2012        
|Capitalized software development costs |  | $             | 25,743,000  |             
|Less: accumulated amortization         |  |               | (22,199,000 | )           
|Net                                    |  | $             | 3,544,000   |             



Amortization of software development costs
included in cost of goods sold was $405,000 and $414,000 in the third quarter 2013 and 2012, respectively. Amortization of software
development costs included in cost of goods sold was $1,467,000 and $1,251,000 for the nine months ended September 30, 2013 and
2012, respectively, including a second quarter 2013 charge of $137,000 for impairment of certain capitalized software projects.



-8-


Table of contents




Note E–Purchased Intangible Assets



Purchased intangible assets consisted of the following:



|                                 |  | September 30, |            | December 31,
|-------------------------------- |  | ------------- | ---------- | ------------
|                                 |  | 2013          |            | 2012        
|Purchased developed technologies |  | $             | 5,352,000  |             
|Support contracts                |  |               | 420,000    |             
|Total                            |  |               | 5,772,000  |             
|Less: accumulated amortization   |  |               | (3,639,000 | )           
|Purchased intangible assets, net |  | $             | 2,133,000  |             



Amortization of purchased intangible assets
included in cost of goods sold totaled $234,000 and $302,000 in the third quarter 2013 and 2012, respectively. Amortization of
purchased intangible assets included in cost of goods sold totaled $702,000 and $891,000 in the nine months ended September 30,
2013 and 2012, respectively.



Note F – Warranty Obligations



Warranty obligations are incurred in connection
with the sale of certain products. The warranty period for PT’s products is generally one year. The costs incurred to provide
for these warranty obligations are estimated and recorded as an accrued liability at the time of sale. Future warranty costs are
estimated based on product-based historical performance rates and related costs to repair. Changes in accrued warranty obligations
for the three and nine months ended September 30, 2013 and 2012 were as follows:



|                                           |  | 2013 |         | 2012
|------------------------------------------ |  | ---- | ------- | ----
|Accrued warranty obligations, January 1    |  | $    | 68,000  |     
|Actual warranty experience                 |  |      | (9,000  | )   
|Warranty provisions                        |  |      | 9,000   |     
|Accrued warranty obligations, March 31     |  |      | 68,000  |     
|Actual warranty experience                 |  |      | (11,000 | )   
|Warranty provisions                        |  |      | 7,000   |     
|Accrued warranty obligations, June 30      |  |      | 64,000  |     
|Actual warranty experience                 |  |      | (11,000 | )   
|Warranty provisions                        |  |      | 11,000  |     
|Accrued warranty obligations, September 30 |  | $    | 64,000  |     



Note G – Earnings (Loss) Per Share



Basic earnings (loss) per share is computed
by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted earnings per
share calculations reflect the assumed exercise and conversion of dilutive stock options using the treasury stock method. In the
third quarter 2013, the weighted average number of in-the-money stock options totaled 1,683,000 shares, which after applying the
treasury stock method, results in additional dilutive stock options included in the calculation of diluted earnings per share
totaling 598,000 shares. Due to the net losses incurred in the third quarter 2012 and the nine months ended September 30, 2013
and 2012, dilutive options were not considered for those periods.  The weighted average number of excluded options totaled
approximately 393,000 shares and 1,722,000 shares for the third quarter 2013 and 2012, respectively, and 2,173,000 shares and
1,845,000 shares for the nine months ended September 30, 2013 and 2012, respectively.



-9-


Table of contents




Note H – Derivative
Instruments – Foreign Currency Hedge Contracts



The Company is exposed to the impact of
fluctuations in foreign currency exchange rates on the expenses incurred in its Canadian and United Kingdom operations. PT’s
risk management program is designed to reduce the exposure and volatility arising from this risk. At September 30, 2013, the Company
had contracts in place to hedge approximately 65% of its estimated Canadian foreign currency risk for the remainder of 2013 and
approximately 50% of its estimated Canadian foreign currency risk for the first six months of 2014. Subsequent to September 30,
2013, the Company placed contracts to hedge approximately an additional 35% of this risk for the first six months of 2014. At September
30, 2012 and December 31, 2012, the Company had no such contracts in place.



PT’s derivative instruments are
designated and qualify as cash flow hedges. Such contracts are stated at estimated fair value and any gains or losses resulting
from changes in the fair value of these contracts are recorded in other comprehensive income or loss. The Company will receive,
or be required to disburse, cash payments upon the expiration of each contract depending on fluctuations in the underlying exchange
rates. Such payments will be recorded as reductions to or increases in expense as they are determined.



The fair value of the Company’s
derivative instruments consisted of the following:



|                                              |  |                        |  | Fair value at     
|--------------------------------------------- |  | ---------------------- |  | ------------------
|                                              |  | Balance sheet location |  | September 30, 2013
|Derivatives designated as hedging instruments |  | Current liabilities    |  | $                 
|                                              |  |                        |  |                   



The Company’s derivative instruments
had the following effect on the statements of operations:



|                           |  |                                  |  | Amount of (loss) reclassified from accumulated other comprehensive income (loss) to the statement of operations
|-------------------------- |  | -------------------------------- |  | ---------------------------------------------------------------------------------------------------------------
|Derivatives fair value     |  | Location of (loss) recognized in |  | Three Months Ended September 30,                                                                               
|hedging relationships      |  | operations                       |  | 2013                                                                                                           
|Foreign exchange contracts |  | Operating expenses               |  | $                                                                                                              



|                           |  |                    |  | Nine Months Ended September 30,
|-------------------------- |  | ------------------ |  | -------------------------------
|                           |  |                    |  | 2013                           
|Foreign exchange contracts |  | Operating expenses |  | $                              
|                           |  |                    |  |                                

The Company’s derivative instruments
had the following effect on accumulated other comprehensive income (loss):



-10-


Table of contents




|                                                                         |  | Three Months Ended |         | Nine Months Ended
|------------------------------------------------------------------------ |  | ------------------ | ------- | -----------------
|                                                                         |  | September 30,      |         | September 30,    
|                                                                         |  | 2013               |         | 2012             
|                                                                         |  |                    |         |                  
|Accumulated other comprehensive loss – derivative instruments, beginning |  | $                  | (64,000 | )                
|Amount of loss recognized in statement of operations, net of tax         |  |                    | 19,000  |                  
|Net change in fair value of derivative instruments                       |  |                    | 41,000  |                  
|Accumulated other comprehensive loss – derivative instruments, ending    |  | $                  | (4,000  | )                



Note I – Accumulated Other Comprehensive
Income (Loss)



Accumulated other comprehensive income
(loss) consists of the following:



|                                                    |  | September 30, 2013 |        | December 31,  2012
|--------------------------------------------------- |  | ------------------ | ------ | ------------------
|Unrealized loss on foreign currency hedge contracts |  | $                  | (4,000 | )                 
|Unrealized gain on available-for-sale investments   |  |                    | (3,000 | )                 
|Net                                                 |  | $                  | (7,000 | )                 



An out-of-period charge amounting to $63,000
was made to other (expense) income during the nine months ended September 30, 2012 to adjust the recorded balance of unrealized
gain (loss) on available-for-sale securities. This adjustment did not have a material impact on our consolidated financial statements
for the nine months ended September 30, 2012.



Note J – Fair Value Measurements



GAAP defines fair value, establishes a framework for measuring
fair value and requires certain disclosures about fair value measurements. In addition, GAAP establishes a fair value hierarchy
which prioritizes the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices in active markets
for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly
or indirectly observable for the asset or liability. Such inputs include quoted prices in active markets for similar assets and
liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted
prices that are observable for the asset or liability, or inputs derived principally from or corroborated by observable market
data by correlation or other means. Level 3 inputs are unobservable inputs for the asset or liability. Such inputs are used to
measure fair value when observable inputs are not available.



The Company’s assets and liabilities
measured at fair value on a recurring basis at September 30, 2013, were as follows:



|                                         |  | Level 1 |           | Level 2 |  | Level 3
|---------------------------------------- |  | ------- | --------- | ------- |  | -------
|Assets:                                  |  |         |           |         |  |        
|Investments – corporate bonds            |  | $       | 3,536,000 |         |  | $      
|Total assets measured at fair value      |  | $       | 3,536,000 |         |  | $      
|                                         |  |         |           |         |  |        
|Liabilities:                             |  |         |           |         |  |        
|Foreign currency hedge contracts         |  | $       | —         |         |  | $      
|Total liabilities measured at fair value |  | $       | —         |         |  | $      



-11-


Table of contents




The Company’s assets measured at
fair value on a recurring basis at December 31, 2012, were as follows:



|                                    |  | Level 1 |           | Level 2 |  | Level 3
|----------------------------------- |  | ------- | --------- | ------- |  | -------
|Assets:                             |  |         |           |         |  |        
|Investments – corporate bonds       |  | $       | 5,262,000 |         |  | $      
|Investments – municipal bonds       |  |         | —         |         |  |        
|Total assets measured at fair value |  | $       | 5,262,000 |         |  | $      



There were no transfers into or out of
Level 1, Level 2 or Level 3.



Foreign currency forward contracts are
measured at fair value using models based on observable market inputs such as foreign currency exchange rates; therefore, they
are classified within Level 2 of the valuation hierarchy. The fair value of the Company’s investments in municipal bonds
and bank guaranteed investment contracts is measured using Level 2 inputs. For these investments, fair value is not materially
different than amortized cost.



Note K – Stock-Based Compensation



PT has stock options
outstanding from three stock-based employee compensation plans: the 2001 Stock Option Plan, the 2003 Omnibus Incentive Plan and
the 2012 Omnibus Incentive Plan. Each plan provides for equity-based incentive awards to selected employees, directors and consultants,
with a maximum of 1,500,000 shares that may be awarded under each plan. Options can no longer be granted under the 2001 Stock Option
Plan and the 2003 Omnibus Incentive Plan.



PT recognizes compensation expense in the
financial statements for stock option awards based on the grant date fair value of those awards, estimated using the Black-Scholes-Merton
option pricing model. The table below summarizes the impact of outstanding stock options on the results of operations for the three
and nine month periods ended September 30, 2013 and 2012.



|                                                          |  | Three Months ended September 30, |        | Nine Months ended September 30,
|--------------------------------------------------------- |  | -------------------------------- | ------ | -------------------------------
|                                                          |  | 2013                             |        | 2012                           
|Stock-based compensation expense – stock options          |  | $                                | 62,000 |                                
|Income tax benefit                                        |  |                                  | —      |                                
|Decrease in net income / increase     in     net     loss |  | $                                | 62,000 |                                
|                                                          |  |                                  |        |                                
|Per share                                                 |  | $                                | .01    |                                























-12-


Table of contents




The following table summarizes stock
option activity for the nine months ended September 30, 2013:



| |                                   | Number of shares |  | Weighted Average Exercise Price
| | --------------------------------- | ---------------- |  | -------------------------------
| | Outstanding at January 1, 2013    |                  |  |                                
| | Granted                           |                  |  |                                
| | Exercised                         |                  |  |                                
| | Expired                           |                  |  |                                
| | Outstanding at September 30, 2013 |                  |  |                                
| |                                   |                  |  |                                
| | Exercisable at September 30, 2013 |                  |  |                                



The weighted average
fair value of option grants was estimated using the Black-Scholes-Merton option pricing method. At September 30, 2013, PT had approximately
$266,000 of unrecognized stock compensation expense which will be recognized over a weighted average period of approximately 1.9
years.



Note L – Income Taxes



PT’s effective income tax rate is
a combination of federal, state and foreign tax rates and differs from the U.S. statutory rate due to taxes on and credits against
foreign income, permanent differences including tax-exempt interest, and the resolution of tax uncertainties, offset by a valuation
allowance against U.S. deferred income tax assets.



PT’s estimated effective annual tax
rate was -4% for the nine months ended September 30, 2013 and does not include any material discrete items. The estimated effective
annual tax rate used for the nine months ended September 30, 2012 was -1% and did not include any material discrete items.



The Company had no balance in unrecognized
tax benefits at either September 30, 2013 or December 31, 2012.



At September 30, 2013, the Company had
gross deferred income tax assets totaling approximately $17,195,000, against substantially all of which the Company has recorded
a valuation allowance. At December 31, 2012, the Company had gross deferred income tax assets totaling approximately $17,217,000
and has recorded a valuation allowance against substantially all of this amount.



The Company files U.S. federal, U.S. state,
and foreign tax returns. For federal tax returns, the Company is generally no longer subject to tax examinations for years prior
to 2010. For state and foreign tax returns, the Company is generally no longer subject to tax examinations for years prior to 2009.
It is reasonably possible that the Company may need to establish a liability associated with the Company’s unrecognized tax
benefits within the next twelve months.  Based upon the closing of the tax years in these various jurisdictions, the Company
may adjust its liability for unrecognized tax benefits.  These changes may be the result of new examinations by taxing authorities
or the expiration of statutes of limitations.

















-13-


Table of contents






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, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, and are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual
results could differ materially from those discussed in the forward-looking statements.



Critical Accounting Estimates and
Assumptions



In preparing the financial statements in
accordance with the accounting principles generally accepted in the United States (GAAP), estimates and assumptions are required
to be made that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect
supplemental information disclosures, including information about contingencies, risk and financial condition. These estimates
and assumptions are made during the closing process for the quarter, after the quarter end has passed. The Company believes that
given the current facts and circumstances, these estimates and assumptions are reasonable, adhere to GAAP, and are consistently
applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates, and estimates
may vary as new facts and circumstances arise. Management’s judgments in making these estimates and relying on these assumptions
may materially impact amounts reported for any period.



The critical accounting policies, judgments
and estimates that we believe have the most significant effect on our financial statements are set forth below:



| | · | Revenue Recognition
| | - | -------------------

| | · | Software Development Costs
| | - | --------------------------

| | · | Valuation of Inventories
| | - | ------------------------

| | · | Income Taxes
| | - | ------------

| | · | Product Warranty
| | - | ----------------

| | · | Stock-Based Compensation
| | - | ------------------------

| | · | Restructuring Costs
| | - | -------------------

| | · | Carrying Value of Long-Lived Assets
| | - | -----------------------------------



Revenue Recognition:Revenue is
recognized from product sales in accordance with SEC Staff Accounting Bulletin No. 104, "Revenue Recognition." Product
sales represent the majority of our revenue and include both hardware products and hardware products with embedded software. Revenue
is recognized from these product sales when persuasive evidence of an arrangement exists, delivery has occurred or services have
been provided, the sale price is fixed or determinable, and collectibility is reasonably assured. Additionally, products are sold
on terms which transfer title and risk of loss at a specified location, typically the shipping point. Accordingly, revenue recognition
from product sales occurs when all factors are met, including transfer of title and risk of loss, which typically occurs upon shipment.
If these conditions are not met, revenue recognition is deferred until such time as these conditions have been satisfied.











-14-


Table of contents






For arrangements with multiple deliverables,
the arrangement consideration is allocated at the inception of an arrangement to all deliverables using the relative selling price
method. A selling price hierarchy is employed for determining the selling price of a deliverable, which includes: (1) vendor-specific
objective evidence (“VSOE”) if available; (2) third-party evidence (“TPE”) if vendor-specific objective
evidence is not available; and (3) best estimated selling price (“BESP”) if neither vendor-specific nor third-party
evidence is available. For PT’s multiple deliverable arrangements, our products and services qualify as separate units of
accounting. The Company’s multiple deliverable arrangements generally include a combination of telecommunications hardware
and software products, services including installation and training, and support services. These arrangements typically have both
software and non-software components that function together to deliver the product’s essential functionality. These arrangements
generally do not include any provisions for cancellation, termination, or refunds that would significantly impact recognized revenue.
Because the Company rarely sells its proprietary hardware and software products on a stand-alone basis or without support, PT is
not able to establish VSOE for these products. Additionally, PT generally expects that it will not be able to establish TPE due
to the proprietary nature of PT’s products and the markets in which we compete. Accordingly, PT expects the selling price
of its products to be based on its BESP. PT has established VSOE for its support and services and, therefore, it utilizes VSOE
for these elements.



Since the adoption of this guidance on
January 1, 2011, we have primarily used the same information used to set pricing strategy to determine BESP. The Company has corroborated
the BESP with our historical sales prices, the anticipated margin on the deliverable, the selling price and profit margin for similar
deliverables and the characteristics of the geographical markets in which the deliverables are sold. PT plans to analyze the selling
prices used in our allocation of arrangement consideration at least semi-annually. Selling prices will be analyzed more frequently
if a significant change in our business necessitates a more timely analysis.



For substantially all multiple deliverable
arrangements, PT defers support and services revenue, and recognizes revenue for delivered products in an arrangement when persuasive
evidence of an arrangement exists and delivery of the last product has occurred, provided the fee is fixed or determinable, and
collection is deemed probable. In instances where final acceptance of the product is based on customer specific criteria, revenue
is deferred until the earlier of the receipt of customer acceptance or the expiration of acceptance period. Support revenue is
recognized ratably over the term of the support period. Services revenue is typically recognized upon completion of the services
for fixed-fee service arrangements, as these services are relatively short-term in nature (typically several weeks, or in limited
cases, several months). For service arrangements that are billed on a time and material basis, we recognize revenue as the services
are performed.



For multiple deliverable arrangements entered
into prior to January 1, 2011 and not materially modified after that date, PT recognized revenue based on the then-existing
software revenue recognition guidance, which required the entire fee from the arrangement to be allocated to each respective element
based on its relative selling price using VSOE. For such arrangements, when the Company was unable to establish VSOE for the delivered
telecommunications products, PT utilized the residual method to allocate revenue to each of the elements of an arrangement. Under
this method, PT allocated the total fee in an arrangement first to the undelivered elements (typically support and services) based
on VSOE of those elements, and the remaining, or “residual” portion of the fee to the delivered elements (typically
the product or products).



Revenue from software requiring significant
production, modification, or customization is recognized using the percentage of completion method of accounting. Anticipated losses
on contracts, if any, are charged to operations as soon as such losses are determined. If all conditions of revenue recognition
are not met, the Company defers revenue recognition and will recognize revenue when the Company has fulfilled its obligations under
the arrangement. Revenue from software maintenance contracts is recognized ratably over the contractual period.



-15-


Table of contents




Revenue from consulting and other services
is recognized at the time the services are rendered. The Company also sells certain products through distributors who are granted
limited rights of return. Potential returns are accounted for at the time of sale.



The accounting estimate related to revenue
recognition is considered a “critical accounting estimate” because terms of sale can vary, and judgment is exercised
in determining whether to defer revenue recognition. Such judgments may materially affect net sales for any period. Judgment is
exercised within the parameters of GAAP in determining when contractual obligations are met, title and risk of loss are transferred,
sales price is fixed or determinable and collectibility is reasonably assured.



Software Development Costs:All
software development costs incurred in establishing the technological feasibility of computer software products to be sold are
charged to expense as research and development costs. Software development costs incurred subsequent to the establishment of technological
feasibility of a computer software product to be sold, and prior to general release of that product, are capitalized. Amounts capitalized
are amortized commencing after general release of that product over the estimated remaining economic life of that product, generally
three years, using the straight-line method or using the ratio of current revenues to current and anticipated revenues from such
product, whichever provides greater amortization. If the technological feasibility for a particular project is judged not to have
been met or recoverability of amounts capitalized is in doubt, project costs are expensed as research and development or charged
to cost of goods sold, as applicable. The accounting estimate related to software development costs is considered a “critical
accounting estimate” because judgment is exercised in determining whether project costs are expensed as research and development
or capitalized as an asset. Such judgments may materially affect expense amounts for any period. Judgment is exercised within the
parameters of GAAP in determining when technological feasibility has been met and recoverability of software development costs
is reasonably assured.



Valuation of Inventories:Inventories
are stated at the lower of cost or market, using the first-in, first-out method. Inventory includes purchased parts and components,
work in process and finished goods. Provisions for excess, obsolete or slow moving inventory are recorded after periodic evaluation
of historical sales, current economic trends, forecasted sales, estimated product life cycles and estimated inventory levels. Purchasing
practices, electronic component obsolescence, accuracy of sales and production forecasts, introduction of new products, product
life cycles, product support and foreign regulations governing hazardous materials are the factors that contribute to inventory
valuation risks. Exposure to inventory valuation risks is managed by maintaining safety stocks, minimum purchase lots, managing
product end-of-life issues brought on by aging components or new product introductions, and by utilizing certain inventory minimization
strategies such as vendor-managed inventories. The accounting estimate related to valuation of inventories is considered a “critical
accounting estimate” because it is susceptible to changes from period-to-period due to the requirement for management to
make estimates relative to each of the underlying factors, including purchasing, sales, production, and after-sale support. If
actual demand, market conditions or product life cycles differ from estimates, inventory adjustments to lower market values would
result in a reduction to the carrying value of inventory, an increase in inventory write-offs and a decrease to gross margins.



Income Taxes:PT provides deferred
income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases
of assets and liabilities based on currently enacted tax laws. A valuation allowance is established for deferred tax assets in
amounts for which realization is not considered more likely than not to occur. The accounting estimate related to income taxes
is considered a “critical accounting estimate” because judgment is exercised in estimating future taxable income, including
prudent and feasible tax planning strategies, and in assessing the need for any valuation allowance. If it should be determined
that all or part of a net deferred tax asset is not able to be realized in the future, an adjustment to the valuation allowance
would be charged to income in the period such determination was made. Likewise, in the event that it should be determined that
all or part of a net deferred tax asset in the future is realizable in excess of the net recorded amount, an adjustment to the
valuation allowance would increase income to be recognized in the period such determination was made.



-16-


Table of contents






PT operates within multiple taxing jurisdictions
worldwide and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended
period of time for resolution. Although management believes that adequate provision has been made for such issues, there is the
possibility that the ultimate resolution of such issues could have an adverse effect on the earnings of PT. Conversely, if these
issues are resolved favorably in the future, the related provisions would be reduced, thus having a positive impact on earnings.



In addition, the calculation of PT’s
tax liabilities involves dealing with uncertainties in the application of complex tax regulations. PT recognizes liabilities for
uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining
if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step requires PT to estimate and measure the tax benefit
as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective
to estimate such amounts, as this requires PT to determine the probability of various possible outcomes. PT re-evaluates these
uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts
or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition
or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period. At
September 30, 2013, there are no tax uncertainties that PT has determined are required to be recognized.



Finally, the value of PT’s deferred
tax assets is dependent upon PT’s ability to generate future taxable income in the jurisdictions in which PT operates. These
assets consist of research credit carry-forwards, capital and net operating loss carry-forwards, and the future tax effect of temporary
differences between balances recorded for financial statement purposes and for tax return purposes. It will require future pre-tax
earnings in excess of $30 million in order to fully realize the value of the Company's deferred tax assets. Due to the uncertainty
of PT’s ability to realize its deferred tax assets, a valuation allowance has been recorded against substantially the full
value of its deferred tax assets.



Product Warranty: Warranty obligations
are generally incurred in connection with the sale of PT’s products. The warranty period for these products is generally
one year. The costs incurred to provide for these warranty obligations are estimated and recorded as an accrued liability at the
time of sale. Future warranty costs are estimated based on historical performance rates and related costs to repair given products.
The accounting estimate related to product warranty is considered a “critical accounting estimate” because judgment
is exercised in determining future estimated warranty costs. Should actual performance rates or repair costs differ from estimates,
revisions to the estimated warranty liability would be required.



Stock-Based Compensation:PT’s
board of directors approves grants of stock options to employees to purchase our common stock. Stock compensation expense is recorded
based upon the estimated fair value of the stock option at the date of grant. The accounting estimate related to stock-based compensation
is considered a "critical accounting estimate" because estimates are made in calculating compensation expense including
expected option lives, forfeiture rates and expected volatility. Expected option lives are estimated using vesting terms and contractual
lives. Expected forfeiture rates and volatility are calculated using historical information. Actual option lives and forfeiture
rates may be different from estimates and may result in potential future adjustments which would impact the amount of stock-based
compensation expense recorded in a particular period.













-17-


Table of contents






Restructuring Costs:Restructuring
costs generally consist of employee-related severance costs, lease termination costs and other facility-related closing expenses.
Employee-related severance benefits are recorded either at the time an employee is notified or, if there are extended service periods,
is estimated and recorded pro-rata over the period of each planned restructuring activity. Lease termination costs are calculated
based upon fair value considering the remaining lease obligation amounts and estimates for sublease receipts. The accounting estimate
related to restructuring costs is considered a "critical accounting estimate" because estimates are made in calculating
the amount of employee-related severance benefits that will ultimately be paid and the amount of sublease receipts that will ultimately
be received in future periods. Actual amounts paid for employee-related severance benefits can vary from these estimates depending
upon the number of employees actually receiving severance payments. Actual sublease receipts received may also vary from estimates.



Carrying Value of Long-Lived Assets:
PT periodically reviews the carrying values of its long-lived assets, other than capitalized software development costs and purchased
intangible assets with indefinite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying
values may not be recoverable. PT assesses the recoverability of the carrying values of long-lived assets by first grouping its
long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent
of the cash flows of other assets and liabilities (the asset group) and, secondly, by estimating the undiscounted future cash flows
that are directly associated with and that are expected to arise from the use of and eventual disposition of such asset group.
PT estimates the undiscounted cash flows over the remaining useful life of the primary asset within the asset group. If the carrying
value of the asset group exceeds the estimated undiscounted cash flows, PT records an impairment charge to the extent the carrying
value of the long-lived asset exceeds its fair value. PT determines fair value through quoted market prices in active markets or,
if quoted market prices are unavailable, through the performance of internal analyses of discounted cash flows. The accounting
estimate related to impairment of long-lived assets is considered a “critical accounting estimate” because PT’s
impairment tests include estimates of future cash flows that are dependent upon subjective assumptions regarding future operating
results including revenue growth rates, expense levels, discount rates, capital requirements and other factors that impact estimated
future cash flows and the estimated fair value of long-lived assets.



Business Overview



PT, a Delaware corporation founded in 1981,
is a global supplier of advanced, high availability network communications solutions.



PT’s product portfolio includes
its SEGway® Diameter and SS7 Signaling Systems, which provide tightly integrated signaling and advanced routing
capabilities and applications that uniquely span the mission critical demands of both existing and next-generation 4G/Long-Term
Evolution (“LTE”) and IMS telecommunications networks. The Company’s IPnexus® Multi-Protocol Gateways
and Servers enable a broad range of IP-interworking in data acquisition, sensor, radar, and control applications for aviation,
weather and other infrastructure networks.



PT is headquartered in Rochester, New
York and maintains direct sales and marketing offices in the U.S. in Raleigh, North Carolina and Chicago, Illinois and international
offices in London, England and Shanghai, China, and has centers of engineering excellence in San Diego, California, and Kanata,
Ontario, Canada, in addition to Rochester, New York.









-18-


Table of contents






Strategy



The Company’s strategy is to focus
on its high value-add network communications solutions – leveraging its core competencies. In the telecommunications space,
PT is building upon its seventeen years of signaling systems experience and its installed customer base for its SEGway SS7 Signaling
Systems. The mobile telecommunications industry is in the early stages of building out much higher bandwidth 4G/LTE-based network
architectures. As part of this network evolution, service providers’ signaling infrastructure is migrating from SS7 signaling
to Diameter signaling. During 2012, PT introduced its own SEGway Universal Diameter Router (“UDR”), a premier Diameter
Signaling solution set for next-generation 4G/LTE networks, and during the first quarter 2013 the Company realized its first UDR
product sale. Our SEGway Diameter signaling product line continues to gain traction and momentum in the 4G/LTE marketplace. The
Company expects to be a key player in this growth market by providing high value proposition “best-of-breed” solutions
and by taking those solutions to the global market through a combination of strong channel partners and focused direct sales activities.



Sales of our IPnexus Multi-Protocol IP-interworking
solutions are typically to prime contractors and system integrators and generally reflect investment levels by various government
agencies and defense branches in specific programs and projects requiring radar and sensor communications services over IP networks.
These solutions enable extremely reliable and highly available radar and sensor communications – gathering and delivering
vital data such as weather, flight tracking, and ground surveillance over IP networks. We continue
to work with numerous prime contractors to incorporate these products into specific programs and projects requiring these enhanced
communications capabilities. Looking ahead, the Company expects to expand itsIPnexus Multi-Protocol Gateways and Servers
into new aerospace/defense applications as well as potentially enter new emerging markets such as Energy and Smart-Grid.



As part of its strategic realignment,
which was initiated during the fourth quarter 2012, PT is well along in transitioning out of the general OEM platform business
through a last-time buy and build program which ends for most customers at the end of 2013 and continues through 2014 for select
customers. As of September 30, 2013, 85% of the last-time buy and build orders have been shipped, which amounted to approximately
$5.9 million of revenue year-to-date. PT will continue to utilize its own open standards platforms as key elements of its network
communications solutions and maintain a certain number of strategic OEM platform customers.



During 2013, the Company has increased
its sales and marketing investments for our SEGway Diameter signaling product line to accelerate our penetration in this growth
market.



In summary, management believes the Company’s
unique ability of our SEGway Signaling product portfolio to provide a state-of-the-art, unified end solution set encompassing both
Diameter and SS7 signaling solidly positions PT to address the opportunities arising from the ongoing telecommunications network
evolution.



There are identifiable risks associated
with PT’s strategy in the current economic climate. While management believes that its network communications market focus
offers opportunities for growth in the long term, network infrastructure investments by carriers have continued to be sluggish;
the total available market for traditional SS7-based signaling products is declining and the market for next-generation 4G/LTE
network products is currently in an early-stage of growth. Despite the present economic climate, which may involve new risks not
currently identified, management believes the outlook for the Company’s profitability has improved because expenses have
been aligned with projected revenues and we have strong channel partners actively engaged in selling our products.









-19-


Table of contents






Market Overview



PT’s business addresses one industry segment –
Communications. The telecommunications market, historically our largest vertical market, is fundamentally driven by investments
in network infrastructure by carriers and service providers. Industry analysts are forecasting the market for SS7 signaling products
will continue for the next seven to ten years, albeit on a declining scale. While the worldwide market for these products is declining,
the number of vendors selling into this market has dropped much more rapidly and now stands at four, including PT. Management believes
this is an opportunity to grow its share of the SS7 signaling market. In addition, the mobile telecommunications industry is in
the early stages of building out much higher bandwidth 4G/LTE-based network architectures. The extraordinary increase in the projected
number of wireless subscribers and related mobile data and application demands is driving tremendous growth in signaling traffic,
which was the basis for defining a new signaling infrastructure based upon the Diameter protocol. The
Diameter signaling market is at an early stage of growth and only a few of the world’s wireless carriers have implemented
or are currently implementing 4G/LTE on a large scale. This market is projected by industry analysts
to result in an aggregate spend of over $2 billion in the next five years.



To complement its SEGway SS7 Signaling
solutions for present generation telecommunications networks, during 2012 PT introduced the SEGway Universal Diameter Router –
its premier Diameter Signaling solution set for next-generation 4G/LTE networks. The Company is marketing its SEGway Diameter and
SS7 Signaling solutions to the global market through a combination of strong channel partners and focused direct sales activities.



Sales of our IPnexus Multi-Protocol IP-interworking
solutions are typically to prime contractors and system integrators and generally reflect investment levels by various government
agencies and defense branches in specific programs and projects requiring radar and sensor communications services over IP networks.
Our IPnexus Multi-Protocol Gateways and Servers enable the gathering and delivering of vital data such as weather, flight tracking,
and ground surveillance over IP networks for these applications. During the second half of 2012, aerospace and defense budgets
for radar and sensor communications projects were dramatically reduced and PT’s prime contractor partners were unclear about
future project deployment schedules. Government spending on this infrastructure is project based and continues to be highly variable
from quarter-to-quarter.



Financial Overview



Revenue:



Revenue in the
third quarter 2013 amounted to $7.3 million, compared to $4.7 million in the third quarter 2012. Revenue amounted to $20.7 million
for the nine months ended September 30, 2013, compared to $18.0 million for the nine months ended September 30, 2012. The revenue
increase during the third quarter 2013 over the comparable prior year period reflects increases in SEGway signaling systems revenue,IPnexus Multi-Protocol IP-interworking revenueand increased platform product shipments under
the Company’s last-time buy and build program, which ends for most customers at the end of 2013. The revenue increase during
the nine months ended September 30, 2013 over the comparable prior year period was primarily due to increased sales to our SEGway
signaling systems customers and increased platform product shipments under the Company’s last-time buy and build program.
Shipments to customers outside of the United States represented 41% and 47% in the third quarter of
2013 and 2012, respectively, and 42% and 47% in the nine months ended September 30, 2013 and 2012, respectively.







-20-


Table of contents




Net
income (loss):



Net income in the third quarter 2013 amounted
to $.5 million, or $.04 per diluted share, including amortization of purchased intangible assets of $.02 per share and stock-based
compensation expense of $.01 per share, based on 11.7 million shares outstanding. The Company incurred a net loss in the third
quarter 2012 in the amount of ($1.7 million), or ($.15) per basic share, including amortization of purchased intangible assets
of $.03 per share and stock-based compensation expense of $.01 per share, based on 11.1 million shares outstanding.



PT incurred a net loss for the nine months
ended September 30, 2013 amounting to ($.2 million), or ($.02) per basic share, including a restructuring charge of $.02 per share,
a charge for impairment of software development costs of $.01 per share, amortization of purchased intangible assets of $.06 per
share, and stock-based compensation of $.02 per share, based on 11.1 million shares outstanding. The Company incurred a net loss
for the nine months ended September 30, 2012 amounting to ($3.1 million), or ($.28) per basic share, including amortization of
purchased intangible assets of $.08 per share and stock-based compensation of $.02 per share, based on 11.1 million shares outstanding.



Liquidity:



Cash, cash equivalents and investments
amounted to $13.9 million and $14.3 million at September 30, 2013 and December 31, 2012, respectively. The Company had no long-term
debt at either date. Accounts receivable at September 30, 2013 amounted to $5.9 million, compared to $3.8 million at the end of
2012. The higher level of accounts receivable is primarily related to significantly higher sales in September 2013 than in December
2012.



Cash provided by operating activities amounted
to $1.5 million in the nine months ended September 30, 2013, as compared to cash provided by operating activities of $2.2 million
in the nine months ended September 30, 2012. The decrease in cash provided by operating activities was primarily due to a $2.1
million net increase in accounts receivable in 2013, as compared with a net decrease in accounts receivable of $1.5 million in
the prior year, and a $.6 million decrease in deferred revenue in 2013, as compared with a $.4 million increase in the comparable
2012 period, partially offset by a substantial reduction of the net loss in 2013 (a loss of $.2 million in the nine months ended
September 30, 2013 as compared to a loss of $3.1 million in the same period in 2012) and a $1.3 million decrease in inventories
in 2013, as compared with a $.7 million decrease in 2012.



The increase in accounts receivable was
attributable to the higher sales level in September 2013, as compared with the level in December 2012. The decrease in inventory
is primarily attributable to the Company’s ongoing efforts to manage inventory levels and the Company’s last-time buy
and build program for its OEM platform products. The swing in deferred revenue is primarily due to the recognition in revenue of
amounts previously deferred relating to certain of the Company’s signaling systems sales.



Key Performance Indicator:



PT believes that a key indicator for its
business is the trend for the volume of orders received from customers. PT’s decision in the fourth quarter 2012 to transition
out of the general OEM platform business has altered the revenue pattern for that product line, which amounted to approximately
$5.8 million in 2012.



Total revenue for the first nine months
of 2013 amounted to $20.7 million, an increase of $2.7 million, or 15% over the corresponding period in 2012. Total revenue for
the third quarter 2013 amounted to $7.3 million, an increase of $2.6 million, or 56%, over the third quarter 2012. The
revenue increase during the third quarter 2013 over the comparable prior year period reflects increases in SEGway signaling systems
revenue,IPnexus Multi-Protocol IP-interworking revenueand increased platform product shipments
under the Company’s last-time buy and build program.





More in-depth discussions of PT’s
strategy can be found in PT’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.

-21-


Table of contents






Results of Operations

Three and Nine Months Ended September
30, 2013, Compared with the

Three and Nine Months Ended September
30, 2012



The following table presents the percentage
of sales represented by each item in PT’s consolidated statements of operations for the periods indicated:



|                                         |  | Three Months Ended |       | Nine Months Ended
|---------------------------------------- |  | ------------------ | ----- | -----------------
|                                         |  | September 30,      |       | September 30,    
|                                         |  | 2013               |       | 2012             
|Sales                                    |  |                    | 100.0 | %                
|Cost of goods sold                       |  |                    | 50.9  |                  
|Impairment of software development costs |  |                    |       |                  
|Gross profit                             |  |                    | 49.1  |                  
|                                         |  |                    |       |                  
|Operating expenses:                      |  |                    |       |                  
|Selling and marketing                    |  |                    | 17.4  |                  
|Research and development                 |  |                    | 14.7  |                  
|General and administrative               |  |                    | 10.8  |                  
|Restructuring charges                    |  |                    |       |                  
|Total operating expenses                 |  |                    | 42.9  |                  
|Income (loss) from operations            |  |                    | 6.2   |                  
|                                         |  |                    |       |                  
|Other income (expense), net              |  |                    | .4    |                  
|Income (loss) before income taxes        |  |                    | 6.6   |                  
|Income tax (benefit) provision           |  |                    | (.1   | )                
|Net income (loss)                        |  |                    | 6.7   | %                
|                                         |  |                    |       |                  



Sales.Total revenue for the third
quarter 2013 amounted to $7.3 million, compared to $4.7 million for the corresponding quarter in 2012. The
revenue increase during the third quarter 2013 over the comparable prior year period reflects increases in SEGway signaling systems
revenue,IPnexus Multi-Protocol IP-interworking revenueand increased platform product shipments
under the Company’s last-time buy and build program.In the third quarter 2013, PT’s four largest customers
represented 42% of sales, compared to 48% of sales in the third quarter 2012. Two customers each accounted for 14% of the Company’s
sales in the third quarter of 2013.



Total revenue for the nine months ended
September 30, 2013 amounted to $20.7 million, compared to $18.0 million in the comparable period in 2012. The
revenue increase during the nine months ended September 30, 2013 over the comparable prior year period was primarily due to increased
sales to our SEGway signaling systems customers and increased platform product shipments under the Company’s last-time buy
and build program. The Company's four largest customers comprised 40% and 33% of sales in the nine months ended September
30, 2013 and 2012, respectively. Two customers accounted for 15% and 11% of the Company’s sales in the nine months ended
September 30, 2013 and 2012, respectively.



Shipments to customers outside of the United
States represented 41% and 47% of PT’s sales during the third quarter of 2013 and 2012, respectively. Shipments to customers
outside of the United States represented 42% and 47% of the Company's sales for the nine months ended September 30, 2013 and 2012,
respectively. The period over period decreases in foreign sales was principally due to the decline in OEM platform sales to the
Company’s formerly largest customer located in the United Kingdom.



-22-


Table of contents




Looking at revenue categories:



The Company has traditionally grouped revenue
into two vertical markets: Telecommunications, and Military, aerospace and government systems. Our SEGway signaling products are
generally included in Telecommunications revenue and our IPnexus Multi-Protocol IP-interworking solutions are primarily Military,
aerospace and government systems revenue. Our OEM platform products can be sold to either Telecommunication or Military, aerospace
and government systems customers.



Revenue from telecommunications customers
amounted to $5.0 million and $4.2 million in the third quarter 2013 and 2012, respectively, and $15.3 million and $15.0 million
in the nine months ended September 30, 2013 and 2012, respectively. Revenue from military, aerospace and government systems customers
amounted to $2.3 million and $.5 million in the third quarter 2013 and 2012, respectively, and $5.4 million and $3.0 million in
the nine months ended September 30, 2013 and 2012, respectively. These period over period increases were primarily the result of
project variability controlled by government spending. The quarter-over-quarter increase in Telecommunications revenue of $.8 million
is due to an increase in SEGway signaling solutions revenue and an increase in OEM platform product line shipments to our telecommunications
customers during the quarter. The increase of revenue from our telecommunications customers of $.3 million for the first nine months
of 2013 from the comparable prior year period is also primarily attributable to an increase in SEGway signaling solutions revenue.



Revenues from our IPnexus Multi-Protocol
IP-interworking solutions amounted to $1.2 million and $.7 million in the third quarter 2013 and 2012, respectively, and $3.0 million
and $3.3 million in the nine months ended September 30, 2013 and 2012, respectively. The period-over-period changes are due to
project variability controlled by government spending.



Revenues from our OEM platform product
line, which included orders from a last-time buy and build program, amounted to $2.7 million and $.8 million in the third quarter
2013 and 2012, respectively, and $6.8 million and $4.8 million in the nine months ended September 30, 2013 and 2012, respectively.
The increases in the quarter and the first nine months 2013 over the comparable periods in 2012 are primarily attributable to platform
product shipments under the Company’s last-time buy and build program.



Gross profit.Gross profit consists
of sales, less cost of goods sold including material costs, manufacturing expenses, depreciation, amortization of software development
costs, amortization of purchased intangible assets, and expenses associated with engineering contracts and the technical support
function. Gross profit and gross margin percentage amounted to $3.6 million and 49.1% of sales in the third quarter 2013, compared
to $1.8 million and 38.6% of sales for the third quarter 2012. The improvement in gross margin percentage was primarily attributable
to the effect of relatively fixed manufacturing expenses measured against substantially higher sales in 2013, the effect of the
Company’s substantial workforce reductions in manufacturing in late 2012 and early 2013, and lower software amortization
costs in 2013.



Gross margin and gross margin percentage
amounted to $9.8 million and 47.3% of sales in the nine months ended September 30, 2013, compared to $8.4 million and 46.7% for
the nine months ended September 30, 2012. The improvement in gross margin and gross margin percentage was primarily
attributable to lower manufacturing expenses and software amortization expenses in 2013 as compared to the prior year period, and
the higher level of sales as compared to relatively fixed manufacturing expenses, offset partially by a second quarter 2013 charge
recorded to impair costs associated with certain software development projects.



Total Operating Expenses.Total
operating expenses amounted to $3.1 million in the third quarter 2013, as compared to $3.4 million in the third quarter 2012. Total
operating expenses amounted to $10.0 million in the nine months ended September 30, 2013, as compared to $11.6 million in the comparable
2012 period.





-23-


Table of contents




Selling and marketing expenseswere $1.3 million in the third quarter of both 2013 and 2012.For the nine months ended September 30, 2013 and 2012, selling
and marketing expenses were $4.0 million and $4.4 million, respectively. The decrease in the nine months
ended September 30, 2013 over the comparable 2012 period is primarily attributable to sales staff reductions in the Platform group
in the fourth quarter 2012.



Research and development expenses were
$1.1 million and $1.3 million in the third quarter 2013 and 2012, respectively. The Company capitalizes certain software development
costs, which reduces the amount of software development charged to operating expenses. Amounts capitalized were $.4 million and
$.6 million during the third quarter 2013 and 2012, respectively. Research and development expenses were $3.3 million and $4.6
million for the nine months ended September 30, 2013 and 2012, respectively. Nine month amounts capitalized to software development
costs amounted to $1.3 million and $1.8 million in 2013 and 2012, respectively. The period-over-period
decreases in research and development expenses are primarily due to the Company’s staff reductions in the fourth quarter
2012 and first quarter 2013.



General and administrative expenses were
$.8 million in the third quarter of both 2013 and 2012. General and administrative expenses were $2.4 million and $2.6 million
in the nine months ended September 30, 2013 and 2012, respectively. This period-over-period decrease is primarily due to the Company’s
staff reductions in the fourth quarter 2012.



Restructuring expenses were $.2 million
in the nine months ended September 30, 2013. The Company reduced its personnel by ten employees, or 8% of its workforce, in a restructuring
action commenced and completed during the first quarter 2013. All of the expense associated with this action resulted in cash expenditures.



Other (expense) income, net.Other
income consists primarily of interest income and foreign currency translation adjustments relating to the Company’s foreign
subsidiary financial statements. Other income (expense) for the nine months ended September 30, 2012 also included a $.06 million
out-of-period charge to adjust the recorded balance of accumulated other comprehensive income.



Income taxes. The Company’s
effective income tax rates differ from the statutory rates primarily due to a full valuation allowance provided against its U.S.
deferred tax assets, income taxes on foreign income and refundable income tax credits that differ from the U.S. income tax rate
and permanent income tax differences including Canadian research activities.



PT’s annual
estimated effective income tax rate for 2013 is -4%, as compared to an estimated effective income tax rate of -1% for 2012. The
expected annual effective income tax rate for 2013 is different than in the corresponding period in 2012 due primarily to the Company’s
significantly improved profitability in 2013.



Liquidity and Capital Resources



The Company had working capital of $16.3
million and $15.5 million at September 30, 2013 and December 31, 2012, respectively. This increase is primarily a result of a $2.1
million increase in accounts receivable, partially offset by a $1.3 million decrease in inventories from December 31, 2012 to September
30, 2013. PT’s primary sources of liquidity are cash, cash equivalents and investments, which totaled $13.9 million at September
30, 2013 and $14.3 million at December 31, 2012.





-24-


Table of contents








For the nine months ended September 30,
2013, cash provided by operating activities amounted to $1.5 million. This amount reflects the net loss of ($.2 million), non-cash
items such as depreciation and amortization charges totaling $2.5 million, stock-based compensation expense of $.2 million, and
an impairment charge against capitalized software development costs of $.1 million. Cash used by operations due to changes in operating
assets and liabilities included a decrease in cash associated with a $2.1 million increase in accounts receivable and a $.6 million
decrease in deferred revenue, offset partially by a $1.3 million decrease in inventories. The increase in accounts receivable was
primarily attributable to the higher level of sales in the third quarter 2013, as compared with the fourth quarter 2012. The decrease
in inventory was primarily attributable to the Company’s efforts to manage inventory levels relative to shipments during
the quarter and anticipated product demand, as well as the effect of the Company’s last-time buy and build program for its
OEM platform product line. The decrease in deferred revenue was primarily attributable to the recognition of revenue upon the completion
and acceptance of a specific customer order.



Cash provided by investing activities during
the nine months ended September 30, 2013 totaled $1.3 million. Proceeds from the maturity of investments amounted to $5.3 million,
offset partially by purchases of investments totaling $2.1 million, capital expenditures of $.6 million, and capitalized software
development costs which amounted to $1.3 million.



Off-Balance Sheet Arrangements:



In July 2013, the Company renewed its lease
for its San Diego engineering center through November 2016 on the same terms as its current lease.



Current Position:



Management believes that PT’s current
cash, cash equivalents and investments, together with cash generated from operations will be sufficient to meet our anticipated
cash requirements, including working capital and capital expenditure requirements, for at least the next twelve months.



Recent Accounting Pronouncements



Reporting of Amounts Reclassified Out
of Accumulated Other Comprehensive Income:



In February 2013, the FASB issued authoritative
guidance on the reporting of amounts reclassified out of accumulated other comprehensive income (“AOCI”), which is
effective for reporting periods beginning after December 15, 2012. This guidance requires companies to provide information about
the amounts reclassified out of AOCI either in a single note or on the face of the financial statements. Significant amounts reclassified
out of AOCI should be presented by the respective line items of net income but only if the amount reclassified is required under
U.S. GAAP to be reclassified in its entirety to net income in the same reporting period. For amounts not required to be reclassified
in their entirety to net income, a cross-reference to other disclosures provided for in accordance with U.S. GAAP is required.
The Company has adopted this authoritative guidance. To date, its adoption does not have a material impact on its consolidated
financial statement disclosures.









-25-


Table of contents




Disclosures about Offsetting Assets
and Liabilities:



In December 2011, the FASB issued authoritative
guidance requiring enhanced disclosures about offsetting assets and liabilities, which is effective for annual reporting periods
beginning on or after January 1, 2013, and interim periods within those annual periods. The new rules require companies to disclose
both gross and net information about instruments and transactions eligible for offset in the statement of financial position, as
well as instruments and transactions subject to a netting arrangement. In January 2013, the FASB issued a clarification of the
guidance in order to address implementation issues surrounding the scope of the standard and to clarify the scope of the offsetting
disclosures and address any unintended consequences. The Company has evaluated this updated authoritative guidance, and the adoption
of this guidance does not have a material impact on its consolidated financial statement disclosures.



Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995



This report and, in particular, the Management’s
Discussion and Analysis of Financial Condition and Results of Operations section of this report, contain
forward-looking statements.



The Private Securities Litigation Reform
Act of 1995 (the “Reform Act”) provides a “safe harbor” for forward-looking statements. Certain written
and oral statements made by PT’s management include forward-looking statements intended to qualify for the safe harbor from
liability established by the Reform Act. These forward-looking statements generally can be identified by words such as “believes,”
“expects,” “anticipates,” “projects,” “foresees,” “forecasts,” “estimates”
or other words or phrases of similar import. Words such as the “Company,” “PT,” “management,”
“we,” “us,” or “our,” mean Performance Technologies, Incorporated and its subsidiaries. All
statements herein that describe PT’s business strategy, outlook, objectives, plans, intentions, goals or similar projections
are also forward-looking statements within the meaning of the Reform Act. Forward-looking statements should be read in conjunction
with the audited Consolidated Financial Statements, the Notes thereto, and Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company as contained in the Company’s Annual Report on Form 10-K for the year ended December
31, 2012, and other documents filed with the Securities and Exchange Commission.



All such forward-looking statements are
subject to certain risks and uncertainties and should be evaluated in light of important risk factors. These risk factors include,
but are not limited to, the following as well as those that are described in “Risk Factors” under Item 1A and elsewhere
in the Annual Report on Form 10-K: business and economic conditions, rapid technological changes accompanied by frequent new product
introductions, competitive pressures, dependence on key customers, inability to gauge order flows from customers, fluctuations
in quarterly and annual results, the reliance on a limited number of third party suppliers, limitations of the Company’s
manufacturing capacity and arrangements, the protection of the Company’s proprietary technology, errors or defects in our
products, the effects of pending or threatened litigation, the dependence on key personnel, changes in critical accounting estimates,
potential impairments related to investments, foreign regulations, possible loss or significant curtailment of significant government
contracts or subcontracts, possible effects related to compliance with new conflict-free mineral regulations, and potential material
weaknesses in internal control over financial reporting. In addition, during weak or uncertain economic periods, customers’
visibility deteriorates causing delays in the placement of their orders. These factors often result in a substantial portion of
the Company’s revenue being derived from orders placed within a quarter and shipped in the final month of the same quarter.



Any of these factors could cause PT’s
actual results to differ materially from its anticipated results. For a more detailed discussion of these factors, see the "Risk
Factors" discussion in Item 1A in the Annual Report on Form 10-K. The Company cautions readers to carefully consider such
factors. Many of these factors are beyond the Company’s control. Except as required by law, we undertake no obligation to
publicly update these forward-looking statements, whether as a result of new information, future events or otherwise.





-26-


Table of contents






ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

(not applicable as PT
qualifies as a Smaller Reporting Company)





ITEM 4. CONTROLS AND PROCEDURES



| | A. | Evaluation of Disclosure Controls and Procedures
| | -- | ------------------------------------------------



PT’s Chief Executive Officer
(our principal executive officer) and its Chief Financial Officer (our principal financial officer) have evaluated PT’s disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
Quarterly Report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that PT’s disclosure
controls and procedures were effective as of such date.



| | B. | Changes in Internal Control Over Financial Reporting
| | -- | ----------------------------------------------------



There has been no change in PT’s
internal control over financial reporting that occurred during the fiscal quarter covered by this report that has materially affected,
or is reasonably likely to materially affect, PT’s internal controls over financial reporting.





PART II. OTHER INFORMATION



ITEM 6. EXHIBITS





31.1 a		Certification
of Chief Executive Officer



31.2 a		Certification
of Chief Financial Officer



32.1 a		Section
1350 Certification



101.INS b	XBRL Instance
Document



101.SCH b	XBRL Taxonomy
Extension Schema Document



101.CAL b	XBRL Taxonomy
Extension Calculation Linkbase Document



101.DEF b	XBRL Taxonomy
Extension Definition Linkbase Document



101.LAB b	XBRL Taxonomy
Extension Label Linkbase Document



101.PRE b	XBRL
Taxonomy Extension Presentation Linkbase Document

____________

a - furnished herewith

b - XBRL (eXtensible Business Reporting Language) information
is to be filed by amendment of this Form 10-Q.



-27-


Table of contents




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 8, 2013 | By: /s/ | John M. Slusser                                                                                                     
|                 |         | John M. Slusser                                                                                                     
|                 |         | President and Chief Executive Officer (principal executive officer)                                                 
|                 |         |                                                                                                                     
|November 8, 2013 | By: /s/ | Dorrance W. Lamb                                                                                                    
|                 |         | Dorrance W. Lamb                                                                                                    
|                 |         | Senior Vice President and Chief
    Financial Officer (principal financial officer and principal accounting officer)



























































-28-


Table of contents




Exhibit 31.1



Certification of Chief Executive Officer



I, John M. Slusser, certify that:



| | 1. | I have reviewed this quarterly report on Form 10-Q of Performance Technologies,
Incorporated;
| | -- | ---------------------------------------------------------------------------------------------

| | 2. | Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The registrant's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent functions):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information; and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over financial reporting.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: November 8, 2013 | By:/s/ | John M. Slusser        
|---------------------- | ------ | -----------------------
|                       |        | John M. Slusser        
|                       |        | Chief Executive Officer



-29-


Table of contents




Exhibit 31.2



Certification of Chief Financial Officer



I, Dorrance W. Lamb, certify that:



| | 1. | I have reviewed this quarterly report on Form 10-Q of Performance Technologies,
Incorporated;
| | -- | ---------------------------------------------------------------------------------------------

| | 2. | Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The registrant's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent functions):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information; and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over financial reporting.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date: November 8, 2013 | By:/s/ | Dorrance W. Lamb       
|---------------------- | ------ | -----------------------
|                       |        | Dorrance W. Lamb       
|                       |        | Chief Financial Officer



-30-


Table of contents






Exhibit 32.1





Section 1350 Certification



Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), John M. Slusser and Dorrance W. Lamb, the Chief Executive Officer
and Chief Financial Officer, respectively, of Performance Technologies, Incorporated, certify that (i) the quarterly report on
Form 10-Q for the quarter ended September 30, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in such report fairly presents, in all material respects, the financial
condition and results of operations of Performance Technologies, Incorporated.



A signed original of this written statement required by Section
906 has been provided to Performance Technologies, Incorporated and will be retained by Performance Technologies, Incorporated
and furnished to the Securities and Exchange Commission or its staff upon request.







|Date: November 8, 2013 | By:/s/ | John M. Slusser                                                    
|---------------------- | ------ | -------------------------------------------------------------------
|                       |        | John M. Slusser                                                    
|                       |        | President and Chief Executive Officer (principal executive officer)



|Date: November 8, 2013 | By:/s/ | Dorrance W. Lamb                                                               
|---------------------- | ------ | -------------------------------------------------------------------------------
|                       |        | Dorrance W. Lamb                                                               
|                       |        | Senior Vice President and Chief Financial Officer (principal financial officer)































-31-