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


                                    FORM 10-Q


(Mark One)
          [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
                    For the Quarter Ended September 30, 1999
                                       OR
          [   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to
                         Commission File Number 0-27460



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

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

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

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



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


         The number of shares  outstanding of the registrant's  common stock was
11,059,249 as of November 2, 1999.
--------------------------------------------------------------------------------
<PAGE>




             Performance Technologies, Incorporated and Subsidiaries

                                      Index


                                                                         Page

Part I. Financial Information

Item 1. Consolidated Financial Statements

          Consolidated Balance Sheets as of September 30, 1999
          (unaudited) and December 31, 1998                                3

          Consolidated Statements of Income For The Three
          Months Ended September 30, 1999 and 1998 (unaudited)             4

          Consolidated Statements of Income For The Nine
          Months Ended September 30, 1999 and 1998 (unaudited)             5


          Consolidated Statements of Cash Flows For The Nine
          Months Ended September 30, 1999 and 1998 (unaudited)             6

          Notes to Consolidated Financial Statements For The Nine
          Months Ended September 30, 1999 (unaudited)                      7

Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations                                              8


Part II Other Information

Item 6. Exhibits and Reports on Form 8-K                                  14

Signatures                                                                15



<PAGE>



             PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                     ASSETS

                                                 September 30,     December 31,
                                                      1999             1998
                                                 -------------    -------------
                                                 (unaudited)
<S>                                              <C>              <C>
Current assets:
   Cash and cash equivalents                     $   8,645,000    $  25,627,000
   Marketable securities                            22,011,000
   Accounts receivable, net                          7,095,000        4,799,000
   Inventories, net                                  4,845,000        4,425,000
   Prepaid expenses and other                          541,000          679,000
   Deferred taxes                                      632,000          549,000
                                                 -------------    -------------
      Total current assets                          43,769,000       36,079,000

Equipment and improvements, net                        763,000          934,000
Software development, net                              658,000          822,000
                                                 -------------    -------------
      Total assets                               $  45,190,000    $  37,835,000
                                                 =============    =============



                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long-term debt             $       9,000    $      12,000
   Accounts payable                                  1,194,000        1,932,000
   Income taxes payable                                777,000          507,000
   Accrued expenses                                  3,584,000        1,838,000
                                                 -------------    -------------
      Total current liabilities                      5,564,000        4,289,000

Long-term liabilities:
   Long-term debt, less current portion                                   6,000
   Deferred taxes                                      211,000          288,000
                                                 -------------    -------------
      Total liabilities                              5,775,000        4,583,000
                                                 -------------    -------------

Stockholders' equity:
   Preferred stock
   Common stock                                        112,000           75,000
   Additional paid-in capital                       14,131,000       13,250,000
   Retained earnings                                26,509,000       20,844,000
   Treasury stock                                   (1,337,000)        (917,000)
                                                 -------------    -------------
      Total stockholders' equity                    39,415,000       33,252,000
                                                 -------------    -------------
      Total liabilities and stockholders' equity $  45,190,000    $  37,835,000
                                                 =============    =============
</TABLE>




<PAGE>


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

<TABLE>
<CAPTION>
                                                       Three Months Ended
                                                          September 30,
                                                       1999            1998
                                                 -------------    -------------
<S>                                              <C>              <C>
Sales                                            $  11,024,000    $   7,857,000
Cost of goods sold                                   3,963,000        2,947,000
                                                 -------------    -------------
Gross profit                                         7,061,000        4,910,000
                                                 -------------    -------------
Operating expenses:
   Selling and marketing                             1,400,000        1,088,000
   Research and development                          1,678,000        1,240,000
   General and administrative                          776,000          565,000
                                                 -------------    -------------
      Total operating expenses                       3,854,000        2,893,000
                                                 -------------    -------------
Income from operations                               3,207,000        2,017,000

Other income, net                                      406,000          337,000
                                                 -------------    -------------
Income before income taxes                           3,613,000        2,354,000

Provision for income taxes                           1,265,000          824,000
                                                 -------------    -------------
      Net income                                 $   2,348,000    $   1,530,000
                                                 =============    =============


Per Share of Common Stock - Note B & D

Basic earnings per share                         $         .21    $         .14
                                                 =============    =============

Diluted earnings per share                       $         .20    $         .14
                                                 =============    =============

</TABLE>







<PAGE>


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


<TABLE>
<CAPTION>
                                                        Nine Months Ended
                                                          September 30,
                                                     1999             1998
                                                 -------------    -------------
<S>                                              <C>              <C>
Sales                                            $  28,060,000    $  21,319,000
Cost of goods sold                                  10,337,000        8,292,000
                                                 -------------    -------------
Gross profit                                        17,723,000       13,027,000
                                                 -------------    -------------

Operating expenses:
   Selling and marketing                             3,766,000        3,022,000
   Research and development                          4,308,000        3,210,000
   General and administrative                        2,003,000        1,851,000
                                                 -------------    -------------
       Total operating expenses                     10,077,000        8,083,000
                                                 -------------    -------------
Income from operations                               7,646,000        4,944,000

Other income, net                                    1,070,000          951,000
                                                 -------------    -------------
Income before income taxes                           8,716,000        5,895,000

Provision for income taxes                           3,051,000        2,085,000
                                                 -------------    -------------
       Net income                                $   5,665,000    $   3,810,000
                                                 =============    =============


Per Share of Common Stock - Note B & D

Basic earnings per share                         $         .52    $         .35
                                                 =============    =============

Diluted earnings per share                       $         .49    $         .33
                                                 =============    =============
</TABLE>




<PAGE>


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


<TABLE>
<CAPTION>
                                                        Nine Months Ended
                                                          September 30,
                                                      1999             1998
                                                 -------------    -------------
<S>                                              <C>              <C>
Cash flows from operating activities:
   Net income                                    $   5,665,000    $   3,810,000

Non-cash adjustments:
   Depreciation and amortization                       675,000          646,000
   Other                                              (142,000)          18,000
Changes in operating assets and liabilities:
   Accounts receivable                              (2,311,000)         135,000
   Inventories                                        (420,000)        (561,000)
   Prepaid expenses and other                          138,000          (17,000)
   Accounts payable                                   (738,000)         848,000
   Accrued expenses                                  1,746,000          113,000
   Income taxes payable                                270,000          420,000
                                                 -------------    -------------

     Net cash provided by operating activities       4,883,000        5,412,000
                                                 -------------    -------------

Cash flows from investing activities:
   Purchases of equipment and improvements, net       (217,000)        (274,000)
   Capitalized software development                   (126,000)        (491,000)
   Purchase of marketable securities               (23,011,000)      (6,000,000)
   Maturities of marketable securities               1,000,000       12,010,000
                                                 -------------    -------------

     Net cash (used) provided by investing
       activities                                  (22,354,000)       5,245,000
                                                 -------------    -------------

Cash flows from financing activities:
   Repayment of notes payable                           (9,000)          (9,000)
   Proceeds from issuance of common stock              498,000           71,000
   Purchase of treasury stock                                          (444,000)
                                                 -------------    -------------

     Net cash provided (used) by financing
       activities                                      489,000         (382,000)
                                                 -------------    -------------

     Net (decrease) increase in cash
       and cash equivalents                        (16,982,000)      10,275,000

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

Cash and cash equivalents at end of period       $   8,645,000    $  19,108,000
                                                 =============    =============


Non-cash financing activity:
Exercise of stock options using 46,849 and 1,800
   shares (split-adjusted) of common stock
   in 1999 and 1998, respectively                $     719,000    $      23,000
                                                 =============    =============
</TABLE>





<PAGE>


             Performance Technologies, Incorporated and Subsidiaries
                   Notes to Consolidated Financial Statements
                  For The Nine Months Ended September 30, 1999
                                   (Unaudited)

Note  -  A  The  unaudited  Consolidated  Financial  Statements  of  Performance
Technologies,  Incorporated and Subsidiaries  (the "Company") have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X of the  Securities  and Exchange  Commission.  Accordingly,  the
Consolidated  Financial  Statements  do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of management,  all adjustments considered
necessary  for a fair  presentation  have been  included.  The  results  for the
interim periods are not necessarily indicative of the results to be expected for
the year. The accompanying  Consolidated  Financial Statements should be read in
conjunction with the audited Consolidated Financial Statements of the Company as
of December 31, 1998,  as reported in its Annual  Report on Form 10-K filed with
the Securities and Exchange Commission.

Note - B  A three-for-two stock split on the Company's Common Stock was effected
in the  form  of a stock  dividend  on  September  1,  1999.  Common  stock  and
Additional  paid-in capital as of September 30, 1999 and all share and per share
data have been restated to reflect this split.  There were 11,059,249 shares and
7,239,493  (pre-split)  shares issued and  outstanding  (net of treasury  shares
held) at  September  30,  1999  and  December  31,  1998,  respectively,  of the
Company's  $.01 par value Common Stock.  During the nine months ended  September
30, 1999, 246,884 common shares  (split-adjusted)  were issued upon the exercise
of stock options and 46,849 shares  (split-adjusted) were added to the number of
treasury shares held.

Note - C  Inventories  consisted  of the  following  at  September  30, 1999 and
December 31, 1998:

                                                  September 30,    December 31,
                                                       1999            1998
                                                  ------------     ------------
                                                   (unaudited)
Purchased parts and components                    $  1,499,000     $  1,905,000
Work in process                                      4,049,000        3,011,000
Finished goods                                          88,000          130,000
                                                  ------------     ------------
                                                     5,636,000        5,046,000
Less:  reserve for inventory obsolescence             (791,000)        (621,000)
                                                  ------------     ------------
   Net                                            $  4,845,000      $ 4,425,000
                                                  ============     ============

Note - D  The following  table  illustrates  the  calculation  of both basic and
diluted earnings per share for the three months and nine months ending September
30, 1999 and 1998 (split-adjusted):

                                                        Three Months Ended
                                                           September 30,
                                                      1999              1998
                                                  ------------     ------------
                                                   (unaudited)      (unaudited)
Basic earnings per share
Net income available to common stockholders       $  2,348,000     $  1,530,000
                                                  ============     ============
Weighted average common shares                      11,007,357       10,930,188
                                                  ============     ============
Basic earnings per share                          $        .21     $        .14
                                                  ============     ============

Diluted earnings per share
Net income available to common stockholders       $  2,348,000     $  1,530,000
                                                  ============     ============
Weighted average common and common
   equivalent shares                                11,784,408       11,248,271
                                                  ============     ============
Diluted earnings per share                        $        .20     $        .14
                                                  ============     ============


                                                        Nine Months Ended
                                                          September 30,
                                                       1999              1998
                                                  ------------     ------------
                                                   (unaudited)      (unaudited)
Basic earnings per share
Net income available to common stockholders       $  5,665,000     $  3,810,000
                                                  ============     ============
Weighted average common shares                      10,929,325       10,927,739
                                                  ============     ============
Basic earnings per share                          $        .52     $        .35
                                                  ============     ============

Diluted earnings per share
Net income available to common stockholders       $  5,665,000     $  3,810,000
                                                  ============     ============
Weighted average common and common
   equivalent shares                                11,508,953       11,383,560
                                                  ============     ============
Diluted earnings per share                        $        .49     $        .33
                                                  ============     ============




<PAGE>


             Performance Technologies, Incorporated and Subsidiaries

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

Overview

The Company achieved record revenue and net income for the third quarter and for
the nine  months  ended  September  30,  1999.  Revenue  for the  third  quarter
increased 40% to $11.0 million,  compared to the same period in 1998. Net income
for the third  quarter  increased  53% to $2.3 million and diluted  earnings per
share  increased  43% to $.20 per share,  when  compared to third  quarter  1998
results. The Company also achieved record revenue of $28.0 million for the first
nine  months of 1999 and record  earnings of $5.7  million,  an increase of 49%,
from the same period in 1998.  A more rapid  increase  in  revenue,  compared to
expenses,  and an  improvement  in gross margin  resulted in a higher  return on
sales during the third  quarter and for the first nine months of 1999,  compared
to the same  periods  for 1998.  At  September  30,  1999,  the  Company  had no
significant  debt  and  approximately  $30.7  million  of  cash  and  marketable
securities.  For the nine months ended September 30, 1999, the Company generated
income from operations,  excluding  depreciation and amortization  (EBITDA),  of
approximately  $8.3  million,  compared  to $5.6  million for the same period in
1998.  International sales amounted to 20% and 19% of revenue for the first nine
months of 1999 and 1998, respectively.

On September 1, 1999, the Company  effected a  three-for-two  stock split in the
form of a 50% stock  dividend,  which  increased  the  number  of common  shares
outstanding  to 11.0 million  shares.  Management  believes that  increasing the
number of shares  available in the  financial  market will benefit the Company's
stockholders  and  is  part  of an  active  program  to  broaden  the  Company's
stockholder   base.  At  end  of  the  third  quarter,   the  Company's   market
capitalization  was approximately  $250 million,  compared to $95 million at the
end of 1998.  During  the  third  quarter,  the  average  daily  trading  volume
increased to  approximately  230,000  shares,  compared to 48,000  shares in the
second quarter.

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

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

<PAGE>

To  complement  the  Company's  hardware  development,   communication  software
protocols  have  been  developed  for the  PCIBus  and  cPCI WAN  product  lines
including:  Frame Relay,  Signaling System #7 (SS7), X.25,  High-Level Data Link
Control (HDLC) and a variety of specialized protocols to facilitate high and low
speed  communications.   In  June,  the  Company  introduced   Channel7(TM),   a
comprehensive  hardware and SS7 software  MTP-2  solution that provides  telecom
equipment  manufacturers  and  developers  with enabling  technology for a broad
range of  applications  and systems.  While  Channel7  has superior  competitive
features,  the product is also  significant  from a strategic  perspective as it
represents the Company's first major milestone in offering Advanced  Intelligent
Network (AIN) software for its WAN products.  SS7 technology is a basic building
block for applications such as Voice over IP Gateways, Cellular Roaming support,
Caller ID and call  routing  to Call  Centers.  During  the third  quarter,  the
Company  continued  aggressive  deployment  of its Channel7  strategy as two new
Channel7 partners, teleSys Software, Inc. and Hughes Software Systems Ltd., were
announced.  In addition,  the Company's Channel7 MTP-2 product was also verified
for use on Sun  Microsystems'  new NEBS certified  Netra ft 1800  fault-tolerant
servers sold in Sun's telecom market segment.

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

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

During the third  quarter 1999,  the Company  began limited  shipments of Nebula
units to  customers  with  certain  networking  environments  while  engineering
continued  to  extend  the  Nebula  software  to a broader  range of  networking
environments.  By the end of October, the next generation of Nebula software had
been  completed and installed at multiple  beta test sites,  and was  performing
well. If the beta testing  continues to go well,  the next release of the Nebula
8000 Fault Tolerant Switch will soon follow.

The Company has recently  been  featured in a number of  publications  including
articles in the Investors Business Daily. Additionally, in its November 1 issue,
Forbes Magazine  acknowledged  Performance  Technologies as one of the "200 Best
Small  Companies in America."  This is the third year the Company was recognized
on the Forbes' list of growth oriented, small public companies.

         Quarter and Nine Months Ended September 30, 1999, compared with
              the Quarter and Nine Months Ended September 30, 1998

Sales. Sales for the third quarter 1999 increased to $11,024,000,  (40.3%), from
$7,857,000 for the third quarter 1998. Sales for the nine months ended September
30, 1998 were  $28,060,000,  compared to  $21,319,000  for the  comparable  1998
period.   The  Company's   products  are  grouped  into  four  categories:   WAN
communications products, LAN interface products, Network Switching products, and
Other  products  (combining  Network  System  products,  Mass Storage  Interface
products, and Inter-System Connectivity products).

WAN communications revenue increased 38% to $5,680,000 (52% of sales) during the
third quarter 1999,  compared to $4,120,000 (53% of sales) for the third quarter
1998. WAN  communications  revenue amounted to $14,483,000 (52% of sales) during
the first nine months of 1999,  compared to  $12,422,000  (58% of sales) for the
same period in 1998.  During the third  quarter 1999,  the Company  shipped more
than $1 million of WAN product to a large OEM  customer who  represented  13% of
revenue in 1998.  This  represented a significant  increase in shipments to this
customer, compared to shipments during the first half of 1999.

Shipments of LAN interface products in the third quarter 1999 amounted to 35% of
sales,  compared to 32% of sales for the third quarter  1998.  Shipments for the
nine months ended September 30, 1999 were 36% of sales, compared to 19% of sales
for the same period in 1998. The largest component of the Company's LAN business
is generated from Commercial-Off-the-Shelf  (COTS) Defense applications.  During
1998, a large follow-on  Department of Defense contract,  which had been delayed
for most of 1998, was awarded in September. Total LAN revenue in 1999 is greater
than in 1998  due to the  impact  (on  1998) of the  delay  in the  award of the
follow-on  contract and because the Company  received new Defense orders in 1999
totaling  $10.9 million for LAN products.  Deliveries  began on these new orders
during the second  quarter  1999 and are  expected to be  completed  by June 30,
2000.

<PAGE>

Network Switching products: Network switch revenue was 1% of total sales for the
third quarter 1999, compared to zero percent for the same period in 1998.

Other products  represented 13% of sales in the third quarter 1999,  compared to
15% of sales for the same  period in 1998.  Shipments  were 12% of sales for the
first nine months of 1999, compared to 23% during the same period in 1998. Other
products  include the  Company's  older/legacy  products  previously  grouped in
Network  System  products,  Mass Storage  Interface  products  and  Inter-System
Connectivity products. Many of these products are project oriented and shipments
can fluctuate on a quarterly basis.

Gross Profit.  Gross profit consists of sales, less cost of goods sold including
material costs,  manufacturing expenses and amortization of software development
costs. Gross margin improved to 64.1% of sales for the third quarter, from 62.5%
in the third  quarter of 1998.  For the first nine months of 1999,  gross margin
improved to 63.2% of sales,  compared to 61.1% for the same period in 1998.  The
improvement  in  gross  margin  is  primarily   attributable  to   manufacturing
efficiencies  based on higher  volumes and growing  sales of  separately  priced
communications software that has higher gross margins.

Operating Expenses.  Total operating expenses increased to $3,854,000,  or 35.0%
of sales for the third quarter 1999, from $2,893,000,  or 36.8% of sales for the
comparable 1998 quarter.  Total operating expenses increased to $10,077,000,  or
35.9% of sales for the first nine months of 1999, from  $8,083,000,  or 37.9% of
sales for the nine months ended September 30, 1998.

Selling and marketing  expenses  increased to $1,400,000,  or 12.7% of sales for
the third quarter 1999, from $1,088,000,  or 13.8% of sales for the same quarter
in 1998.  Selling and marketing expenses for the nine months ended September 30,
1999 were  $3,766,000,  or 13.4% of sales,  compared to $3,022,000,  or 14.2% of
sales,  for the same period in 1998.  During the third quarter 1999, the Company
participated  in three  significant  trade shows:  Comdex,  Networld+Interop  in
Toronto and the BroadBand show in San Diego.  Live  demonstrations of the Nebula
8000 Fault Tolerant Switch were performed at Comdex and Networld+Interop. At the
BroadBand show, the Company's WAN communications products were presented.

Research and  development  expenses were  $1,678,000,  or 15.2% of sales for the
third  quarter  of 1999,  compared  to  $1,240,000,  or  15.8% of sales  for the
comparable 1998 quarter.  Research and development expenses were $4,308,000,  or
15.4% of sales  for the nine  months  ended  September  30,  1999,  compared  to
$3,210,000, or 15.1% of sales for the same period in 1998. The Company continues
to focus the majority of its development  efforts on WAN communication  products
and the Nebula 8000 Fault Tolerant Network Switch.

General and  administrative  expenses  were  $776,000,  or 7.0% of sales for the
third quarter 1999, compared to $565,000, or 7.2% of sales for the third quarter
1998. General and administrative expenses were $2,003,000,  or 7.1% of sales for
the nine months ended  September 30, 1999,  compared to  $1,851,000,  or 8.7% of
sales for the first nine months of 1998. The Company continues to maintain tight
control  over its general and  administrative  expenses and  management  expects
general  and  administrative  expenses  to decline as a  percentage  of sales as
revenue increases.

Income taxes. The provision for income taxes was $1,265,000 in the third quarter
of 1999,  compared  to  $824,000  for the same  quarter in 1998.  The  effective
corporate income tax rate for the third quarter 1999 and 1998 was 35.0%. For the
nine months ended September 30, 1999, the provision for income taxes amounted to
$3,050,000,  compared  to  $2,085,000  for the first  nine  months of 1998.  The
effective  corporate income tax rate was 35.0%,  compared to 35.4% for the first
nine months of 1998.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1999, the Company's  primary source of liquidity  included cash
and cash  equivalents of $8,645,000,  marketable  securities  with a maturity of
less than one year of $22,011,000 and available borrowings of $5,000,000 under a
revolving  credit facility with a bank. No amounts were  outstanding  under this
credit  facility as of September  30, 1999.  The Company had working  capital of
$38,205,000 at September 30, 1999, compared to $31,790,000 at December 31, 1998.

Cash provided by operating  activities  for the nine months ended  September 30,
1999 was  $4,883,000,  compared to $5,412,000  for the same period in 1998.  The
decrease in cash  provided by  operating  activities  for the nine months  ended
September  30, 1999 is primarily  attributable  to changes in the  components of
working capital.

Capitalization  of certain software  development  costs amounted to $126,000 for
the nine months  ended  September  30,  1999,  compared to $491,000 for the same
period in 1998.

Assuming there is no significant  change in the Company's  business,  management
believes that its current cash,  cash  equivalents,  and  marketable  securities
together with cash generated from operations and available  borrowings under the
Company's loan  agreement  will be sufficient to meet the Company's  anticipated
needs,  including working capital and capital expenditure  requirements,  for at
least the next twelve months. However, it is the Company's intention to continue
aggressive new product  introductions for the remainder of 1999 and beyond for a
variety  of markets  served by the  Company.  Management  has also  initiated  a
strategic  acquisition  program to further  accelerate  new  product  and market
penetration efforts.  This program could have an impact on the Company's working
capital, liquidity or capital resources.

Impact of the Year 2000 Issue

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

The Company has completed  Phase I, II and III of its readiness  plan for its IT
systems and non-IT systems. These phases consisted of evaluating and testing its
IT systems and non-IT  systems.  Phase IV,  planned during the fourth quarter of
1999,  will consist of  finalizing  contingency  plans for  temporary  operation
should  unexpected  difficulties  with IT systems and non-IT systems occur.  The
development of these  contingency  plans began in conjunction with upgrading its
IT system and are virtually complete

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

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

<PAGE>

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

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

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

Year 2000  compliance is an issue for virtually all  businesses  whose  computer
systems and applications may require significant  hardware and software upgrades
or modifications. Companies owning and operating such systems may plan to devote
a  substantial  portion  of their  information  systems'  spending  to fund such
upgrades and  modifications.  It is the Company's  intention to fulfill its plan
and  become  Year  2000  compliant;  however,   uncertainties  exist  about  the
thoroughness  of how other  companies,  vendors,  customers  and  other  service
providers  that the  Company  does  business  with  will be  successful  at also
becoming Year 2000 compliant.  These other  companies,  regardless of the dollar
volume transacted with the Company,  may significantly affect either directly or
indirectly the operations of the Company.  Where  practicable,  the Company will
attempt to mitigate  its risks with  respect to the failure of  suppliers  to be
Year 2000  compliant.  In the event that suppliers are not Year 2000  compliant,
the Company will seek alternative  sources of supplies.  However,  such failures
remain a possibility  and could have an adverse impact on the Company's  results
of operations or financial condition.


FORWARD-LOOKING STATEMENTS AND RISK FACTORS

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for  certain  forward-looking  statements.  This  Quarterly  Report on Form 10-Q
contains forward-looking  statements,  which reflect the Company's current views
with respect to future events and financial  performance,  within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Act of 1934, as amended, and is subject to the safe harbor provisions
of those Sections.

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

The  Company's  future  operating  results  are  subject  to  various  risks and
uncertainties  and could differ  materially  from those discussed in the forward
looking  statements  and may be affected by various trends and factors which are
beyond the  Company's  control.  These  include,  among other  factors,  general
business and economic  conditions,  rapid or unexpected changes in technologies,
cancellation or delay of customer orders, changes in the product or customer mix
of sales, delays in new product development, customer acceptance of new products
and  customer  delays in  qualification  of  products.  This report on Form 10-Q
should be read in conjunction with the Consolidated  Financial  Statements,  the
notes thereto,  Management's  Discussion and Analysis of Financial Condition and
Results of Operations as of December 31, 1997 and "Risk  Factors" as reported in
the Company's  Annual Report on Form 10-K,  and as of March 31 and June 30, 1998
as  reported  in its Form  10-Q,  as  filed  with the  Securities  and  Exchange
Commission.


<PAGE>


             Performance Technologies, Incorporated and Subsidiaries

                           Part II. Other Information





Item 6.           Exhibits and Reports on Form 8-K

                  A.       Exhibits

                           None.

                  B.       Reports on Form 8-K

                           Reports on Form 8-K dated September 1, 1999 was filed
                           during the  three-month  period ended  September  30,
                           1999.  Item 5 - Other items; reported the declaration
                           of  the  three-for-two stock split  in the  form of a
                           stock  dividend and  distribution  on shares  of  the
                           Registrant's Common Stock.





<PAGE>


                                   SIGNATURES




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


                                   PERFORMANCE TECHNOLOGIES, INCORPORATED





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




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