Performance Technologies Inc/DE · 10-K · For 12/31/02

Filed On 3/28/03 5:20pm ET   ·   SEC File 0-27460   ·   Accession Number 1003950-3-5

Annual Report   ·   Form 10-K
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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 -------------------

 FORM 10-K
(Mark One)                                                                      
         [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)          
 For the Fiscal Year Ended December 31, 2002
OR
  [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
   For the transition period from   to
Commission File Number 0-27460

PERFORMANCE TECHNOLOGIES, INCORPORATED
(Exact name of registrant as specified in its charter)
------------------
               Delaware                             16-1158413
(State or other jurisdiction of incorporation of      (I.R.S. Employer  
                  organization)                      Identification No.)

205 Indigo Creek Drive, Rochester, New York                     14626           
(Address of principal executive offices)                    (Zip Code)        
Registrant's telephone number, including area code: (585) 256-0200
--------------------------- 
 Securities registered pursuant to section 12(b) of the Act:
NONE
------------------------
 Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, par value $.01 per share
(Title of Class)

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]                                                                  

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]                             

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  as of the  close  of  business  on June 28,  2002 was  approximately
$64,916,000.                                                                    

The number of shares  outstanding  of the  registrant's  Common Stock,  $.01 par
value, was approximately 12,230,000 as of February 28, 2003.                    

 Documents Incorporated by Reference
The  information  called  for by Item  10-13  of  Part  III is  incorporated  by
reference  to  the  definitive   Proxy  Statement  for  the  Annual  Meeting  of
Stockholders  of the  Company to be held June 3, 2003,  which will be filed with
the  Securities  and Exchange  Commission not later than 120 days after December
31, 2002.                                                                       

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Performance Technologies, Incorporated
 Index to Annual Report on Form 10-K

PART I                                                                     Page 

ITEM 1          Business                                                      1 
ITEM 2          Properties                                                   11 
ITEM 3          Legal Proceedings                                            11 
ITEM 4          Submission of Matters to a Vote of Security Holders          11 

PART II                                                                         

ITEM 5          Market for the Registrant's Common Equity and                   
                  Related Stockholder Matters                               11
ITEM 6          Selected Financial Data                                      12 
ITEM 7          Management's Discussion and Analysis of Financial               
                  Condition and Results of Operations                       13
ITEM 7A         Quantitative and Qualitative Disclosures About Market Risk   20 
ITEM 8          Financial Statements and Supplementary Data                  20 
ITEM 9          Changes in and Disagreements with Accountants on                
                  Accounting and Financial Disclosure                       34

PART III                                                                        

ITEM 10         Directors and Executive Officers of the Registrant           34 
ITEM 11         Executive Compensation                                       34 
ITEM 12         Security Ownership of Certain Beneficial Owners                 
                  and Management                                            35
ITEM 13         Certain Relationships and Related Transactions               35 
ITEM 14         Controls and Procedures                                      35 

PART IV                                                                         

ITEM 15         Exhibits, Financial Statement Schedules and Reports on          
                  Form 8-K                                                  35

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PART 1                                                                          

ITEM 1 - Business                                                               

Overview                                                                        

Performance  Technologies  (the  "Company") is a supplier of embedded  computing
products  and  system-level  solutions  that  can be used in a  broad  range  of
applications and end markets.                                                   

Since  its  founding  in  1981  as  a  Delaware  corporation,  the  Company  has
consistently  designed  innovative  embedded  products and system solutions that
focus on attributes such as reduced  time-to-market for our customers,  enhanced
performance, high availability and cost advantages for a user base that includes
communications,  military and commercial applications.  The Company has a proven
history of  successfully  adapting  its  products  and  services to a constantly
changing, technology-driven  marketplace  through the course of several business
cycles that have occurred since its founding.                                   

The  Company's  annual  operating  performance  is subject to various  risks and
uncertainties.  The following  discussion should be read in conjunction with the
Consolidated  Financial  Statements and related notes included elsewhere herein,
as well as the section  appearing  in ITEM 1 of this Form 10-K under the heading
"Risk  Factors."  The  Company's  future  operating  results  may be affected by
various trends and factors which are beyond the Company's  control.  These risks
and uncertainties  include,  among other factors,  general business and economic
conditions, rapid or unexpected changes in technologies, cancellations or delays
of customer orders including those associated with "design wins," 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.    

Important Year 2002 Milestones                                                  

2002 was a  challenging  year with  continuing  erosion in the general  business
environment,  as well as the Company's target markets.  Management  responded to
these demanding market  conditions  through a series of initiatives that allowed
the  Company  to  maintain  profitability.                                      

As the organization entered 2002, it was clear that the traditional users of the
Company's  products,   primarily   telecommunication   equipment   manufacturing
organizations,  were  continuing  to suffer from a drastic  reduction in capital
equipment  spending by operators in North America and Europe.  It was also clear
that many of the market's forward-looking initiatives related to next-generation
network infrastructure deployment,  both in the wireline and wireless areas, had
stalled  due  to  a  lack  of  visibility  of  an  economic  recovery.   Ongoing
expenditures in the telecommunications  industry were generally being limited to
maintenance items, with little attention being paid to network expansion and the
use of new  technologies  similar  to those  offered by the  Company.  Other end
markets for embedded systems also experienced slowdowns in business during 2002.
However,  an  encouraging  perspective is that certain  industries  that use the
Company's   embedded  products  and  systems  appear  to  have  shown  signs  of
stabilization by year-end.                                                      

Throughout  2002, most equipment  providers that are customers for the Company's
products  responded to the economic  conditions by  implementing  cost controls,
reducing  workforces and realigning their business models.  This  restructuring,
which occurred in both 2001 and 2002, has  dramatically  reduced the engineering
capabilities  of many of these  companies and is expected to result in a greater
reliance on organizations such as Performance Technologies for "standards-based"
platforms and components to be integrated with their  next-generation  products.
It is  expected  that  outsourcing  of  equipment  and  services,  such as those
provided by the Company will result in these  companies  establishing  strategic
relationships  with fewer vendors who can supply larger parts of their  embedded
system platform requirements.                                                   

During 2002,  many of the  Company's  peers that sell products into the embedded
systems  marketplace  experienced  significant  revenue  declines and  operating
losses.  Almost  all have  undergone  the same kinds of  restructuring  as their
customers by consolidating operations and shedding unprofitable operations.     

In the face of such a demanding economic climate,  management  targeted a number
of  initiatives  and  objectives  to  reposition  the  Company to  operate  more
successfully in these conditions and emerge as a strong leader in its markets as
conditions improve. These initiatives included:                                 

1) Selective Reductions in the Company's Cost Structure: This action was carried
out at two different times during 2002 in response to  deteriorating  conditions
by reducing its workforce by approximately 20% and by consolidating the Raleigh,
North Carolina engineering  operations into the Ottawa,  Canada Signaling Group.
These reductions allowed the Company to remain viable and profitable.  While the
Company's   financial   performance   for  2002  relative  to  prior  years  was
disappointing,  the Company  performed very well compared to its peer group.  It
remained  profitable and ended the year with a positive revenue growth trend and
a noteworthy improvement in the year-end backlog.                               

2) Aggressive Use of the Company's  Balance Sheet Strength for  Acquisitions and
Investments:  In the current  environment,  valuations  have been  substantially
reduced in  comparison  to several years ago. This offers the Company an ongoing
opportunity  to  acquire  products,  technologies  and  organizations  that were
unavailable  during that period. In 2002, the Company  successfully  carried out
one major acquisition and concluded a strategic minority  investment in an early
stage company. These two events were:                                           

         Ziatech  Acquisition:   In  October 2002,  the  Company  completed  its
         acquisition of Intel  Corporation's  Embedded  Communications  Platform
         Division  (formerly Ziatech  Corporation).  The  acquisition  more than
         doubled the Company's  total available  market in the embedded  systems
         space  through  the addition  of  highly  complementary  computing  and
         systems products.  Due to overall industry downsizing,  as noted above,
         equipment  manufacturers  and  integrators  are  looking  to  establish
         strategic relationships with fewer vendors. This acquisition allows the
         Company to immediately offer a broader range of products to a wider set
         of   embedded   applications   in   the   data   communications,  tele-
         communications,  military,  industrial  automation  and  transportation
         markets.   (Details  are  set forth in the  Form  8-K  filed  with  the
Securities and Exchange Commission).                          

         Momentum Computer Investment:  In September 2002, the Company completed
         an agreement to invest $1.5 million for  a  47%  interest  in  Momentum
         Computer,  Inc.,  a  developer  of  specialized  single  board computer
         solutions for the data communications, telecommunications, military and
         aerospace markets. The Company also loaned Momentum $1.0 million  to be
         used for  working capital requirements.  Management  believes  Momentum
         fills an important need in  the  embedded platform market by offering a
         "quick turn" design and delivery capability for  custom  processor  and
         high  performance  I/O  embedded products.  Momentum's  product line is
         closely  aligned,  but does not  compete  with the  Company's  existing
         embedded  switch,  access,  signaling  and   Intel-based  single  board
computer products.                                            

In late  2002,  the  Board  of  Directors  initiated  a review  of the  specific
alternatives  to improve  stockholder  value in the current  business and market
conditions.  An area that offered  opportunities  was a more dedicated effort in
searching for technologies  and acquisitions  that could be added to the Company
to enhance future growth.  In early 2003, the Chairman of the Board of Directors
joined  the  management  staff  as  Chief  Strategic  Officer  to  pursue  these
initiatives on a dedicated full-time basis.                                     

3) Broaden  Market and Product Focus:  In the recent past, the Company  targeted
its component and software products at the data communications  market. With the
expansion  of   telecommunications   in  the  late  1990's,   many   Performance
Technologies  products  were  optimized  for use in embedded  telecommunications
platforms.  As the Company entered 2002, management initiated efforts to broaden
the market and product  focus of the  organization  to become less  dependent on
near-term  growth  in the  telecommunications  arena.  In many  instances,  this
required  minimal  product  modification,  in both hardware and software,  and a
redirection  of the sales and  marketing  programs.  In addition to  redirecting
efforts  related to  existing  products,  the  acquisition  of  Ziatech  and the
investment  in Momentum  accomplished  an immediate  broadening of the Company's
product offering and effective  market coverage into end application  areas such
as military, industrial automation and transportation.                          

4) Continued  New Product  Development:   The Company  continued  an  aggressive
posture with respect to funding new product development during 2002, relative to
the soft  business  conditions.  As the  business  cycle  runs its course and in
anticipation  of  improved  conditions,  it is  management's  objective  for the
Company to be well positioned with a strong and contemporary  product  portfolio
that will provide  opportunities  for accelerated  growth.  In carrying out this
initiative,  the Company continued to develop new and innovative products during
the year, including:                                                            

         Gigabit  Embedded  Ethernet Switch: In March 2002, the Company extended
         its  IPnexus(TM)  switching  product line to include the first embedded
         gigabit  Ethernet  switch.   This product began shipping  in  the third
         quarter  and  there was a  noteworthy  backlog of  orders  for  gigabit
         switches  at  year-end.    In  early  2003,  the Company  began  taking
         evaluation orders for a  beta  version  of a new  product  that  offers
         network routing capabilities important to enhanced  speed  and security
in data networks.                                             

         Network Processing Modules:  In  late  2002, the Company introduced the
         first  in a  family of  network  processor modules as  an  extension to
         Performance Technologies'  industry leading IPnexus  embedded switching
         products.   Trade  named   FlexNAT(TM),   (Flexible   Network   Address
         Translation), it is  the first and only embedded  Ethernet  solution to
         enable integrated high-speed network data packet processing and gigabit
         Ethernet switching. Management expects the network processing  products
         and  the  associated  software   development  investment  made  by  the
         organization during 2002, will form the base technology  for a  variety
  of products the Company will introduce throughout 2003 and 2004.

         Expanded Network Access Products: During 2002, the Company continued to
         expand its line of network access products by  moving  existing designs
         to a broader set of  standards  often found in a variety of  enterprise
         servers  for  applications beyond the typical embedded markets.  During
         2002, the  Company  focused on  expanding its  communications  software
         family marketed  under the trade name  NexusWare(TM) to improve product
         coverage and ease of use.  This software family is based on  the  Linux
         operating  system, which is rapidly growing in popularity.   Management
         believes  the  features  provided  by  NexusWare  offer  distinct  user
         advantages  unmatched  by  competitive  offerings.     This   continued
         enhancement of the Company's broad and  recognized  communications  and
         network  software  capability  generates  higher  margins  than similar
competitive products offered for embedded market applications.

         3000  Series  Signaling  Gateway: Early in 2002, the Company introduced
         the  3000  Series  Signaling  Gateway,  a small,  full-featured  SS7/IP
         inter-networking device for use in current telephony applications.  The
         3000 Gateway is specifically targeted at  telecommunications  operators
         who can use  IP  networks  to reduce the cost of  existing wireline and
         wireless  networks  without  extensive  investments  in overhauling the
existing network infrastructure.                              

Industry Overview                                                               

As the economic downturn  continued  throughout 2002,  equipment  suppliers that
utilize  "standards  based" embedded  technology  (the Company's  customer base)
responded by  implementing  cost controls,  cutting  engineering  workforces and
realigning  their  business  models.  Such  restructuring  has  created  a  more
concentrated  supplier  landscape  for 2003  that is  better  able to adapt to a
fluctuating  market.  It is not just the equipment  vendors who are readjusting.
Across the technology  sector,  equipment  developers and  integrators  who have
recently  downsized are looking to do more outsourcing of equipment and services
and ultimately establish more strategic relationships with fewer vendors.       

The  Company  supplies  technology  products  that are  incorporated  into  open
standards-based  embedded  systems.  These systems are  specifically  configured
using various hardware and software,  often from multiple  suppliers,  to meet a
variety of end applications found in market segments such as  telecommunications
infrastructure,  data  communications  infrastructure,  military,  or industrial
systems.  The  embedded  systems  market is estimated to be over $3.0 billion in
size,  worldwide.  Traditionally,  a large  segment  of  this  market  has  used
proprietary, purpose-built embedded systems and products. Embedded systems built
on "open  standard  designs"  comprise a smaller  segment of this market.  While
proprietary  systems are  expected  to  continue to dominate  this market in the
future,  a noteworthy  growing share of embedded  systems being  implemented are
expected to use "open  standards."  The driving  factors  behind  this  changing
paradigm are twofold.   First,  systems are becoming  increasingly more complex,
requiring  larger  investments  and  longer  lead times to  design.  Second,  as
organizations  have  downsized,  they simply do not have the necessary  staff to
carry out  extensive  new product  development  while  successfully  meeting the
competitive  pressures of "time to market" found in most technology  businesses.
Due to these  changes,  equipment  suppliers  are relying on  companies  such as
Performance Technologies to deliver major building blocks or complete platforms,
allowing  the  supplier  to "layer on" their  "value  add." This can be software
and/or additional hardware elements directed at specific applications.          

In addition,  the current  environment,  which has forced the downsizing of many
engineering and development resources, has also forced reductions in purchasing,
logistics  and supply  groups.  Under these  circumstances,  many  customers are
anxious to limit the number of suppliers,  forming more strategic  relationships
with organizations that have broader capabilities.                              

Management believes that the added capability  resulting from the acquisition of
Ziatech in late 2002 ideally  positions  the Company to service  these  evolving
market needs and opportunities.  The acquisition more than doubled the Company's
total available market in the embedded systems space through the addition of key
computing and systems products. This allows the Company to offer a broader range
of products and embedded  systems  platforms to a customer  base that is seeking
fewer  suppliers and a higher level of integrated  solutions.  During 2002,  the
Company  continued its involvement in promoting and supplying  embedded products
based on the contemporary use of networking technology as an integral element of
the system design.  This new and forward looking  approach to building  embedded
systems was created by  Performance  Technologies  engineers  and has earned the
Company a leading  position in the  industry  when this  innovative  concept was
standardized and widely adopted as the next-generation  benchmark. This standard
is known in the  industry  as the  PICMG  2.16  specification  and  applies  the
concepts  developed for enterprise  Ethernet networks to embedded system design.
While the sluggish  economy has slowed the deployment of equipment built to this
standard,  there is widespread adoption of the concept, and many embedded system
suppliers have incorporated this standard into their  next-generation  products.
Central  to this new  system  architecture  is the use of an  embedded  Ethernet
switch and Ethernet technology for communication between the blades in a system,
rather than older technologies such as PCI.                                     

In support of this new system concept, the Company has aggressively  developed a
comprehensive  line of embedded  Ethernet switches over the past three years. If
the economic  environment  had been more stable,  management  believes  that the
demand for these products would have been significantly stronger.  Nevertheless,
in the  current  environment,  while  most  product  revenues  have been flat or
declining,  the Company's  Ethernet switches have had noteworthy  adoption among
major customers and have actually shown continuing  quarter-over-quarter growth.
However, throughout 2002, there were only limited signs that any of the numerous
"design wins" that management  attributes to this product have actually  reached
full-scale  deployment.  There are customer  indications  that this may start to
change over the course of 2003.  There is also growing market evidence that some
early  competitors  have  relinquished  the  space to the  Company  based on our
comprehensive product offering and aggressive  development program in this area.
It is management's  belief that the Company is in a leading market position with
its embedded  switching  technology  and that this  product  family will provide
substantial growth when the economic cycle improves.                            

Market  intelligence  organizations,  such as the Dell'Oro  Group,  suggest that
revenues in 2003, in networking switches and routers throughout the industry are
projected to be down 7.5% and 25%,  respectively.  However,  the Ethernet switch
market,  which is aligned with the Company's products,  is expected to grow 3.0%
this year. According to Dataquest,  Ethernet switch revenue totaled $2.9 billion
in the third  quarter of 2002,  a 1.3%  increase  from the same  period in 2001.
While the use of Ethernet  switches in embedded systems is a specialized  market
segment,  the  forecasted  growth in this market area validates the viability of
the new embedded system architecture developed by the Company.                  

On  a  broader  but  related   market   observation,   management   expects  the
telecommunications  sector to continue to struggle in 2003 and has  responded by
adjusting  its focus on  healthier  markets  in the near  term such as  selected
commercial, military and industrial applications. However, there are indications
that certain  regions/sectors in the telecommunications  market will continue to
be acquiring  next-generation  equipment  this year.  For example,  the wireless
market is expected to be a sustaining  factor in the  industry,  and Aberdeen is
predicting  wireless  data  services in the form of wireless  LAN (WLAN) will be
among  the  most  successful   applications  for   telecommunications  in  2003,
addressing three distinct markets: enterprises, residences and public hot spots,
such as airports.                                                               

Also,  telecommunications  as a whole is demonstrating  impressive growth in the
Asia-Pacific  region.  While  telecommunications   equipment  manufacturers  and
operators in the United States and Europe continue to report  declining  revenue
and losses,  Asian operators and equipment  manufacturers,  such as NTT, Huawei,
Samsung,  LG and UTStarcom,  are  continuing to show strength.  According to the
International Telecommunication Union (ITU), the number of telephone subscribers
in the  Asia-Pacific  region in 2002 (both  fixed and mobile)  accounted  for 36
percent of the worldwide total. Ten years earlier, the region accounted for less
than 22 percent. This region has added more than one telephone user every second
for the last  decade.  Mobile phone  growth in the  Asia-Pacific  region is also
continuing to grow, and future networks in this region will no doubt be IP-based
because of its low price point and ease of  implementation.  The Company's focus
on products  that support IP networks  suggests  that this is a geographic  area
where there will be new opportunities,  while the telecommunications  markets in
North America and Europe slowly move through a more lengthy recovery process.   

Strategy                                                                        

The Company has a proven history of successfully adapting its products, services
and organization to a constantly changing  technology-driven  marketplace.  This
adaptation has been  demonstrated  through the course of several business cycles
that have occurred since its founding in 1981.  With the Ziatech  acquisition in
October 2002, the Company substantially  broadened both its product offering and
market coverage to include additional  computing and system products that can be
effectively  supplied  to a market  that is twice  the  size of that  which  was
available to the Company prior to the acquisition.                              

Following the acquisition,  a new corporate strategy was defined that integrates
the Company's  technological  innovation and product breadth. The organization's
new business  strategy  emphasizes its expanded  capability to offer a "unified"
solution to the customer base including software,  hardware and system platforms
through a single Performance  Technologies offering.  This new strategy broadens
the  Company's  market  focus  to  more  effectively   address  embedded  system
requirements for communications, military and commercial applications.          

The  Company's  product  strategies  for  2003  are to  effectively  expand  the
Company's traditional focus of supplying embedded technology components, such as
access and switching  products,  to supplying  "comprehensive"  embedded  system
platforms   incorporating   multiple   components  from  the  Company's  product
portfolio.                                                                      

Four initiatives have been identified to carry out the 2003 strategy:           

         Target  the  Company's  Products  to  a  Wider  Set  of Embedded System
         Applications:  Appropriate investments are  being made  to  assure  the
         necessary  product  features  and  services that  will be  required  to
         broaden the customer base in a  variety  of  promising  market segments
outside of the Company's traditional telecommunication focus. 

         Continue Development of Innovative,  Packet-based IP Technology for Use
         in  Embedded  Systems:   It is  management's  intent  to  leverage  the
         demonstrated technical innovation of both the  traditional  Performance
         Technologies  engineering  staff  and  the  newly  acquired engineering
         talent  of  the  former  Ziatech  organization.   Both  have impressive
histories of embedded product and systems innovation.         

         Extend  the   Company's  Significant  Suite  of   Value-add   Software:
         Performance  Technologies  has  comprehensive  software capability in a
         variety of areas.  Management's  objective during 2003 is  to  make the
         necessary investments to  extend this umbrella to include  the  Ziatech
         computing and systems  products  which  traditionally  have  had  lower
margins than the Company's other products.                    

         Increase Market Awareness of the Company's New Capabilities: Leveraging
         the Ziatech acquisition,  management believes the combined organization
         has  the fundamental  elements  to  become  a premier  embedded systems
         provider.  An aggressive 2003 sales  and  marketing  program  is  being
carried out to assure awareness of this in the marketplace.   

Certainly,  there  are  identifiable  risks  associated  with  carrying  out the
Company's new corporate and product  strategies in the current economic climate.
Since many of the  Company's  end  markets  are  forecast  to show  little or no
growth, in order to realize growth in this environment, the Company will have to
take market share from competitors.  However,  management believes that based on
its review and analysis of the marketplace and the Company's  product  portfolio
that  has  numerous  strengths,  this  investment  and its  associated  risk are
worthwhile.   If  successful,   management   believes  these   initiatives  will
effectively  reposition the organization as an important  strategic partner with
many of its customers,  thereby  increasing  their  utilization of the Company's
broadened  product  capabilities.   When  the  business  cycle  starts  to  show
improvement,  it is  further  expected  that these  2003  initiatives  can yield
significant rewards by accelerating revenue growth and profitability.           

To effectively implement this growth strategy, management expects to selectively
add  to  investments  in  marketing  and  sales,  while  sustaining   aggressive
engineering  development  programs  during 2003.  The Company has a proven track
record of profitable  operations,  however in the near term,  these  initiatives
could  result in a loss  posture for 2003 if  revenues do not grow  sufficiently
during the year.                                                                

The acquisition and initial integration of the Ziatech  organization during 2002
has changed the fundamental  landscape of opportunity for the Company.  In order
to continue this momentum,  in January 2003, the Board of Directors expanded the
executive  management team by adding a Chief Strategic Officer   to identify and
facilitate  additional  acquisition   opportunities,   business  and  technology
investments that can accelerate the Company's growth and associated  shareholder
value.                                                                          

Products                                                                        

The Company's products and solutions are based on open-system architectures that
include individual system elements, system platforms, single board computers and
software.  With embedded solutions for both existing and emerging networks,  the
Company serves as a single source vendor for companies involved with industrial,
military, commercial, data communications and telecommunications applications.  

The Company  markets it embedded products under four general groups.  These are:

IPnexus Switching Products                                    
IPnexus Access Products and NexusWare(TM) Software            
Ziatech Single Board Computer and Chassis Products            
SEGway(TM) SS7/IP Signaling Products                          

IPnexus Switching Products.  The Company's IPnexus Switching products operate in
the new CompactPCI  systems  architecture  referred to as PICMG 2.16. This is an
embedded systems  architecture  that was developed by the Company and allows the
many  techniques,  features and  advantages  that were  developed for enterprise
"client-server  networks,"  to be  applied to  embedded system  platforms.  This
innovative approach to building these systems uses a specialized Ethernet switch
as the  "keystone"  of the  architecture.  This  architecture  has distinct cost
advantages  allowing  developers  of  next-generation  systems to reduce  design
complexity while increasing overall system reliability and performance. Based on
these  clear-cut  attributes,  the  adoption of this  standard has occurred at a
record rate among embedded system suppliers and  manufacturers to a wide variety
of industries.                                                                  

As part of the  Company's  initiative  in  creating  the  PICMG  2.16  standard,
engineering  undertook an aggressive  development  program aimed at becoming the
premier supplier of embedded Ethernet switches.  The Company's IPnexus switching
products offer a comprehensive  family that ranges from low cost,  limited speed
to unique higher-end gigabit switches, the latter introduced in 2002. Management
believes that there is substantial  pent-up  demand for the Company's  switching
products based on the number of "design wins" that the Company has realized over
the past twenty-four months. In general, there has been a delay in "design wins"
moving to a production/deployment  status based on the soft business conditions.
However,  management  expects  a number  of these  "design  wins" to  ultimately
achieve  volume  order  rates  as the  economy  improves  and  capital  spending
rebounds. Based on this scenario, the embedded Ethernet switching product family
could be an important growth driver for the Company.                            

IPnexus Access Products.  The Company's IPnexus Access products are available in
a number of formats  that  operate in a broad range of data  communications  and
telecommunications  applications.   Performance  Technologies'  access  products
provide a  connection  between a variety  of  network  interfaces  and  embedded
systems   platforms  that  are  used  to  control  the  network  and/or  process
information  being  transported  over  networks.  This product  family  includes
stand-alone  communication  servers and embedded access products that operate as
part of systems based on the PCIbus standard, the CompactPCI (cPCI) standard and
the new PICMG 2.16 standard.                                                    

An important  element in the  Company's  access  product  group is the extensive
communications software products that can be licensed to customers for a variety
of applications.  This capability includes: standard communication packages such
as X.25 and Frame Relay, specialized software that supports such applications as
radar  protocols  used in weather  tracking  and air  traffic  control,  and SS7
signaling software.                                                             

During 2002, the Company  introduced its NexusWare software suite. This software
package includes a comprehensive  Linux-based  development environment and fully
functional  runtime  software  that is supplied  with each system.  NexusWare is
intended for system  engineers using IPnexus Access products to facilitate rapid
integration  and  development of  packet-based  embedded  systems.  NexusWare is
designed to raise the level at which system  integration  is  performed,  giving
developers  a  simplified  path  to  designing   comprehensive   IPnexus  system
solutions.  This  software  package is  continually  being  enhanced and will be
extended to include the newly acquired Ziatech  computing  products.  Management
believes these software tools and products are an important element in assisting
customers to do product  integration.  This software also  generates  additional
software license revenue for the Company.                                       

The Company's  IPnexus  products  include embedded  Ethernet  switches,  network
access  products  and SS7  signaling  blades.  Announced  customers  for IPnexus
products include: ADC Telecommunications, Inc., ADLINK Technology, Inc., Agilent
Technologies, Alcatel SA, APW/Electronic Solutions, AudioCodes, Boeing Australia
Limited,  Cognitronics  Corporation,  HP/Compaq  Corporation,  General Dynamics,
Kaparel,  Lucent Technologies,  Motorola Corporation,  net.com, Nortel Networks,
Northrup Grumman Information Technology,  Optibase, Ltd., Raytheon,  Siemens AG,
Siemens Carrier Networks LLC, Soma Networks and Sun Microsystems.               

Ziatech Computing and Platform Products. The addition of the Ziatech products to
the product line in October 2002  significantly  expanded the  Company's  target
markets,  enabling  it to  offer a more  comprehensive  solution  to an array of
companies in the data communications, telecommunications, industrial automation,
medical and homeland defense.                                                   

As the original  developer of the widely deployed  CompactPCI  system  standard,
Ziatech  has  always  been  a  market   leader  and  a  driving   force   behind
standards-based  innovation for the embedded market sector. In addition, Ziatech
had  developed  a range of PICMG  2.16  products  that  complement  the  product
offerings  already  being sold by the Company.  The Ziatech  computing  products
provide a complete  range of  Intel-based  single  board  computers  that can be
applied to a broad range of applications.                                       

In addition  to the range of single  board  computers,  the Company now offers a
variety of embedded system chassis and associated chassis  management  products.
This   expanded   capability   allows   Performance   Technologies   to  provide
comprehensive  embedded system platforms  incorporating multiple components from
the Company's portfolio.                                                        

Announced customers for the Ziatech Products include:  Analogic, Copper Mountain
Networks,  Laurel Networks,  Lucent Technologies,  Marconi,  Nortel Networks and
Soma Networks.                                                                  

SEGway SS7 IP Signaling  Products.  The  Company's  SEGway  products are used to
interconnect  traditional  telephone  networks with the growing  packet-switched
(IP) network architectures of today.  Performance  Technologies SEGway signaling
products also reliably transport, concentrate and route SS7 messages between SS7
and IP  entities.  In 2001,  the  Company  introduced  a  product  that  allowed
traditional SS7 messages to be reliably transported over IP networks. One of the
first applications for this technology was the transport of SS7 signals over the
Internet,  allowing  secondary  GSM  cellular/mobile  markets to be added to the
roaming  footprint of a group of European  wireless  operators.  The Company has
since  expanded that  capability to allow  economical  replacement/expansion  of
traditional SS7 networks over IP networks,  at a substantially reduced cost in a
variety of  applications.  While the reduced capital  equipment  spending in the
telecommunications  markets has slowed  deployment of these products,  there are
continued    market    indications   that   the   concept   is   attractive   to
telecommunications  operators  and will grow as the  spending  rebounds  in this
market.                                                                         

The Company also provides  carrier-grade SS7 and SS7/IP networking solutions for
GSM  wireless  roaming  applications  with  deployments  in  over  35  countries
worldwide.                                                                      

The Company's SEGway products include SS7 network replacement  products,  SS7/IP
products and the GSM SS7 signaling platform.  Announced customers for the SEGway
products include:  Alcatel SA, Comfone AG, Ericsson  Telecommunications,  iBasis
Inc.,  Motorola  Corporation,  Nortel Networks,  Swisscom AG, Telefonica Moviles
Espana, Teleglobe and TSI Telecommunications Services.                          

Sales, Marketing and Distribution                                               

The Company  markets its products  worldwide to a spectrum of customers  through
its  direct  sales  force and  various  channels  including  Original  Equipment
Manufacturers  (OEMs),  Value Added Resellers  (VARs),  distributors and systems
integrators. Almost all of the Company's North American business is sold through
the Company's direct sales force.                                               

Due to the highly  technical nature of the Company's  products,  it is essential
that the Company's salespeople are technically oriented and are knowledgeable in
the embedded systems,  networking and  communications  fields. To supplement its
sales force, the Company has field application  engineers who assist prospective
customers in determining if the Company's products will meet their requirements.

Currently,  32 sales,  marketing and sales support  personnel are located in the
Company's Rochester,  New York, Connecticut,  California (2), Ottawa, Canada and
the United Kingdom offices. In addition,  independent sales  representatives and
agents cover  selected  geographic  areas  nationally and  internationally;  and
distributors  or  integrators,   handling  selected  products,   supplement  the
Company's direct sales team on a worldwide basis.                               

The Company executes various ongoing  marketing  strategies  designed to attract
new OEM and  end-user  customers  and to  stimulate  additional  purchases  from
existing  customers.  These strategies  include direct mail and email campaigns,
direct  telemarketing,   special  pricing  programs,   active  participation  in
technical  standards  groups,  participation  in  national,   international  and
regional  trade  shows,   selected  trade  press  advertisements  and  technical
articles,  and an active campaign to direct potential customers to the Company's
Web site.                                                                       

Sales to customers outside of North America  represented 25%, 27% and 30% of the
Company's revenue in 2002, 2001 and 2000,  respectively.  The Company's products
are  currently  sold by the  Company's  direct sales force and by  international
distributors throughout the more industrialized countries in Europe and in Asia.
International  sales are subject to import and export  controls,  transportation
delays  and   interruptions,   foreign  currency  exchange  rates,  and  foreign
governmental  regulations.  Payments  for  shipments  from the United  States to
outside the United  States are generally  made in U.S.  dollars and payments for
shipments from Canada to Canada are generally made in Canadian dollars.         

Customers                                                                       

The  Company  has  over  50  active  customers   worldwide,   primarily  in  the
telecommunications  and embedded  systems  markets.  Many of the Company's major
customers are Fortune 500  companies in the United States or of similar  stature
in Europe and Asia. In 2002, the largest single customer  (Lucent  Technologies)
represented 9% of revenue, and the four largest customers (Lucent  Technologies,
Teleglobe,  HP/Compaq  Computer and UTStarcom)  represented 28% of the Company's
revenue.                                                                        

At  year-end  2002,  approximately  70% of the  Company's  customers  are in the
telecommunications  industry and the Company's products are generally integrated
into   products  for   wireline,   wireless  and   next-generation   IP  network
infrastructure.  These  products  are  targeted at  customers  in the  following
sectors:  telecommunication equipment manufacturers,  telecommunications service
providers  and   operators,   international   wireless   carriers  and  platform
manufacturers.                                                                  

The  Company's  other  customers  represent  a  range  of  industries  utilizing
open-architecture  embedded systems.  Due to the addition of the Ziatech product
line and the current weakness in the telecommunications industry, the Company is
focusing  more  marketing  and sales  emphasis on the overall  embedded  systems
market than in recent years.                                                    

Backlog                                                                         

At January 31, 2003, the scheduled backlog of orders was $8.4 million,  compared
to $3.2 million at February 10, 2002.  A  substantial  portion of the  Company's
revenue in each  quarter  results  from  orders  placed  within the  quarter and
shipped in the final month of the quarter. Orders are subject to cancellation in
the normal  course of business;  however,  historically,  the Company has filled
most of its firm  orders.  (See  Management's  Discussion  &  Analysis  included
elsewhere in this report).                                                      

Seasonality                                                                     

The Company's  business is not generally subject to large seasonal swings.  Much
of the Company's business is project-related,  driven by customer demand,  which
can cause quarterly fluctuations in revenue.                                    

Environmental Matters                                                           

The Company does not believe that compliance  with federal,  state or local laws
or regulations  relating to the protection of the environment  have any material
effect on its capital expenditures, earnings or competitive position.           

Competition                                                                     

The  acquisition  of the  Ziatech  product  line in 2002  enabled the Company to
reposition  itself  from being an  embedded  components  supplier  to  supplying
comprehensive  embedded  systems,  incorporating  these  components.  This added
product capability  increased the Company's  addressable markets and altered the
Company's  competitive  landscape.                                              

The embedded systems market continues to be characterized by rapid technological
innovations  resulting in new product  introductions  and  frequent  advances in
price/performance  ratios.  Competitive  factors in this market include  product
performance,  functionality,  product quality and reliability,  customer service
and support,  marketing capability,  corporate reputation and brand recognition,
and changes in relative price/performance ratios.                               

For computing and platform  products,  the Company faces a group of  competitors
including Motorola Computer Group, Force Computers,  Radisys Corporation and SBS
Technologies.  These competitors are split into two categories: the full systems
suppliers  noted above,  and  technology  component  suppliers  offering  either
computing  components or platforms.  Management believes that computing products
is the cornerstone of the embedded systems market, and product functionality and
quality,  time-to-market  and  price/performance  are key factors to winning new
accounts.                                                                       

The Company's  first embedded IP Ethernet switch products were introduced to the
embedded  systems market in 2000 and the first PICMG 2.16 compliant  models were
introduced  in the fall of 2001.  Initially,  there were several small and large
competitors  offering one or two different  models of IP switches to the market.
Today,  some of these  competitors  are  withdrawing  products  from the market,
without introducing new products.  Management believes this has occurred because
the technological requirements, both hardware and software, were underestimated.
Current competitors include Zynx and Ramix, small private companies. The size of
this  market is small  compared  to the  enterprise  switch  market  and  larger
companies  in that  market are not  expected  to enter this  segment  due to the
customization  requirements  and  relatively  low  volumes,  as  compared to the
enterprise market.                                                              

In the network access market, the Company believes its key differentiations from
its  competitors are its depth of market  experience and suite of  communication
software,  known as NexusWare. The Company's products compete with products from
Adax Incorporated, Audiocodes Ltd., Artesyn Technologies, Interphase Corporation
and NMS Communications.                                                         

In the  signaling  market,  the Company  generally  focuses its  engineering  on
products that use Internet Protocol (IP) to carry signaling traffic.  Since this
is a  newer  area  in the  signaling  market,  the  Company  believes  it has an
advantage over competitors' products.  Companies such as Ulticom, Inc., Tekelec,
NMS  Communications  and several  larger  companies  that have  proprietary  SS7
technology or products could develop and sell products more directly competitive
with the Company's signaling products.                                          

Research and Development                                                        

The Company's research and development expenses were approximately $6.9 million,
$7.9  million and $8.9  million  for 2002,  2001 and 2000,  respectively.  These
expenses consist  primarily of employee costs,  material  consumed in developing
and designing new products, and amounts expended for software license/tools. The
Company  expects to continue to invest  heavily in research and  development  in
order to create innovative new products for the embedded systems market.        

The Company has developed significant core competencies  applicable to computing
platforms,   single  board  computers,  voice  and  data  communications,   high
availability, hot swap, redundant technologies and signaling communications. The
Company  also has  significant  software  expertise  that it expects to apply to
embedded systems and platforms.                                                 

Proprietary Technology                                                          

The  Company's  success  depends upon  retaining  and  maximizing  the Company's
proprietary  technologies.  To date,  the  Company has relied  principally  upon
trademark,   copyright  and  trade  secret  laws  to  protect  its   proprietary
technology.  The  Company  generally  enters  into  confidentiality  or  license
agreements with its customers, distributors and potential customers that contain
confidentiality  provisions,  and limits  access to,  and  distribution  of, the
source  code to its  software  and  other  proprietary  information.  All of the
Company's  employees are subject to the Company's  employment  policy  regarding
confidentiality. The Company's software products are provided to customers under
license,  generally in the form of object code,  which provides a high degree of
confidentiality with respect to the intellectual property value.                

Suppliers                                                                       

In the fast paced  technology  environment, manufacturers frequently  "obsolete"
electronic  components.  Furthermore,  more  situations  are  arising  where the
Company is utilizing  sole or limited  source  components on its  products.  The
Company has generally been able to obtain adequate supplies of components or has
redesigned  specific  products when adequate  components are not available.  The
Company obtains components on a purchase order basis and does not generally have
long-term contracts with any of its suppliers.                                  

Manufacturing                                                                   

The Company maintains a  state-of-the-art  manufacturing  facility in Rochester,
New York where it  manufactures  its network  access,  switching  and  signaling
products.  The Computing  Products Group  (formerly  Ziatech)  manufactures  its
products under contract and performs system level  manufacturing and integration
in-house.  Management  intends to  transition  the higher  volume,  contemporary
computing products to its Rochester manufacturing operation during 2003.        

Rochester  manufacturing operates under an integrated MRP system that assists in
managing inventory levels and facilitates demand forecast. The Rochester surface
mount  manufacturing  facility  and quality  management  systems  are  currently
certified  to ISO 9002  standards.  Many of the  Company's  products  have  high
software  content and are  generally  produced in low  volumes.  By utilizing an
in-house  manufacturing  capability,  management  believes  that the Company has
achieved   some  safety  from  the  risks   inherent   in   utilizing   contract
manufacturing.  These risks typically include the sub-contractor's  inability to
meet   flexible   manufacturing   requirements,   inventory   control  and  cost
containment.  In addition,  use of in-house manufacturing enables the Company to
maintain a high quality  level for its products  and greater  responsiveness  to
customer's  delivery  requirements.  Management  expects these  attributes to be
applied to the Ziatech  products  as selected  products  are  transitioned  from
contract manufacturing to the Company's in-house facility.                      

The Company has limited alternative capabilities through third parties, however,
to perform such  manufacturing  activities.  In the event of an  interruption of
production  at its  manufacturing  facility,  the  Company's  ability to deliver
products in a timely fashion would be  compromised,  which would have a material
adverse effect on the Company's results of operations.                          

Employees                                                                       

During  2002,  the  Company  improved  its  cost  structure   primarily  through
reductions  in  the  Company's  staff  and  by  consolidating   the  engineering
operations  from its Raleigh,  North Carolina  facility into its Ottawa,  Canada
Signaling Group. The programs were performed during the first and third quarters
of 2002 as the continuing  decline in capital  spending in the Company's  target
markets  resulted  in lower  demand for the  Company's  products  and lower than
anticipated  Company revenue.  These  reductions  involved  approximately  forty
employees and were initiated throughout the organization.                       

In October 2002,  the Company added  approximately  seventy  employees  with the
acquisition of the new Computing Products Group (formerly Ziatech Corporation). 

As of January 31, 2003, the Company had 220 full-time employees,  five part-time
and contract  employees  and five  Engineering  Cooperative  student  employees.
Management  believes its relations  with its  employees are good.  The Company's
employees are not subject to collective bargaining agreements.                  

The Company's fulltime employees work in the following areas:                   

      Research and Development                        95
      Marketing and Sales                             32
      Manufacturing                                   67
      General and Administrative                      26

Management believes that the Company's future success will depend on its ability
to continue to attract and retain qualified personnel.                          

Risk Factors                                                                    

Technological Change and New Product Introductions. The market for the Company's
products  is   characterized   by  rapid   technological   change  and  frequent
introduction  of  products  based  on  new  technologies.  As new  products  are
introduced,  the industry standards change.  Additionally,  the overall embedded
systems market, particularly the telecommunications industry, is volatile as the
effects of new technologies,  new standards,  new products and short life cycles
contribute   to  changes  in  the  market  and  the   performance   of  industry
participants.  The  Company's  future  revenue  will depend  upon the  Company's
ability  to  anticipate  technological  changes  and to  develop  and  introduce
enhanced  products of its own on a timely  basis that  comply with new  industry
standards. New product introductions, or the delays thereof, could contribute to
quarterly  fluctuations in operating results as orders for new products commence
and orders for existing products decline. Moreover, significant delays can occur
between a product  introduction  and  commencement  of  volume  production.  The
inability  to develop  and  manufacture  new  products in a timely  manner,  the
existence of reliability,  quality or  availability  problems in its products or
their  component  parts,  or the failure to achieve  market  acceptance  for its
products  would have a material  adverse  effect on the  Company's  revenue  and
operating results.  Further, in a poor economic climate,  such as today, current
technologies may become obsolete before being replaced by new technologies.     

Competition.  The embedded systems market,  particularly the  telecommunications
industry,  is extremely  competitive and the Company faces a number of large and
small competitors.  Many of the Company's principal competitors have established
brand name  recognition  and market  positions  and have  substantially  greater
experience and financial resources to deploy on promotion, advertising, research
and product development than the Company.  In addition,  as the Company broadens
its product  offerings,  it expects to face  competition  from new  competitors.
Companies in related markets could offer products with functionality  similar or
superior to that offered by the Company's products.  Increased competition could
result in price  reductions,  reduced  margins and loss of market share,  all of
which would materially and adversely affect the Company's  revenue and operating
results.  Large  companies  have  recently  acquired  several  of the  Company's
competitors.  These acquisitions are likely to permit the Company's  competition
to devote  significantly  greater  resources to the development and marketing of
new competitive  products and the marketing of existing  competitive products to
their larger installed bases. The Company expects that competition will increase
substantially  as a result  of  these  and  other  industry  consolidations  and
alliances,  as  well  as the  emergence  of  new  competitors.  There  can be no
assurance  that  the  Company  will be able to  compete  successfully  with  its
existing or new competitors or that  competitive  pressures faced by the Company
will not have a material  adverse effect on the Company's  revenue and operating
results.                                                                        

Dependence  on Key  Customers.  There  can be no  assurance  that the  Company's
principal  customers  will  continue  to purchase  products  from the Company at
current levels.  Customers typically do not enter into long-term volume purchase
contracts with the Company, and customers have certain rights to extend or delay
the shipment of their  orders.  The loss of one or more of the  Company's  major
customers,  and the reduction,  delay or cancellation  of orders,  or a delay in
shipment  of the  Company's  products to such  customers,  would have a material
adverse effect on the Company's revenue and operating results. (See Management's
Discussion and Analysis included elsewhere in this report).                     

Design Wins. A design win is when a customer or  prospective  customer  notifies
the  Company  that its product has been  selected  to be  integrated  with their
product. Ordinarily, there are a number of steps between the design win and when
customers initiate production shipments. Typically, design wins reach production
volumes at varying rates.  Historically,  this gestation  period prior to volume
orders has been twelve to eighteen months or more after the design win occurs. A
variety of risks such as schedule delays, cancellations, and changes in customer
markets  and  economic  conditions  can  adversely  affect a design  win  before
production is reached or during deployment. While management still believes that
design  wins  continue  to be an  important  metric  in  evaluating  the  market
acceptance  of the Company's  products,  unfortunately  in the current  economic
climate,  fewer  customers are doing new design activity and a smaller number of
these design wins are moving into production than in the past.                  

Potential  Fluctuations in Annual and Quarterly  Results.  The Company's  future
annual and  quarterly  operating  results can vary  significantly  depending  on
factors  such as the timing and  shipment  of  significant  orders,  new product
introductions by the Company and its competitors,  market  acceptance of new and
enhanced versions of the Company's products,  changes in pricing policies by the
Company and its competitors,  the mix of distribution channels through which the
Company's products are sold,  inability to obtain sufficient supplies of sole or
limited source components for the Company's  products,  and seasonal and general
economic  conditions.  The Company's  expense levels are based,  in part, on the
Company's  expectations as to future revenue. Since a substantial portion of the
Company's  revenue in each quarter results from orders placed within the quarter
and often  shipped  in the  final  weeks of that  quarter,  revenue  levels  are
extremely  difficult  to  predict.  If revenue  levels  are below  expectations,
revenue and operating  results will be adversely  affected.  Net income would be
disproportionately  affected  by a  reduction  in revenue  because  only a small
portion of the Company's net expenses varies with its revenue. (See Management's
Discussion and Analysis included elsewhere in this report).                     

Dependence on Third Party Component  Suppliers.  Certain  components used in the
Company's products are currently  available to the Company from one or a limited
number of  sources.  There can be no  assurance  that  future  supplies  will be
adequate  for the  Company's  needs or will be  available  on  prices  and terms
acceptable  to the  Company.  The  Company's  inability  in the future to obtain
sufficient  limited-source  components, or to develop alternative sources, could
result in delays in product  introduction or shipments,  and increased component
prices could negatively affect the Company's gross margins, either of which will
have a material adverse effect on the Company's revenue and operating results.  

Dependence  on  Internal  Manufacturing.  In order to avoid  relying  on outside
contract manufacturers,  the Company manufactures its network access, switch and
signaling  products at its  Rochester,  New York facility.  The Company's  newly
acquired  Ziatech  computing  and platform  products have been  manufactured  at
contract  manufacturers.  The Company  does not have  alternative  manufacturing
capabilities,  either  internally  or through  third  parties,  to  perform  its
manufacturing  functions except it expects to begin manufacturing certain of the
Ziatech computing products in its Rochester  manufacturing facility during 2003.
Even if the  Company  were able to  identify  alternative  third-party  contract
manufacturers,  there  can be no  assurance  that the  Company  would be able to
retain their services on terms and conditions  acceptable to the Company. In the
event of an interruption in production, the Company would not be able to deliver
products on a timely basis,  which would have a material  adverse  effect on the
Company's  revenue and  operating  results.  Although the Company  currently has
business interruption  insurance, no assurances can be given that such insurance
will  adequately  cover  the  Company's  lost  business  as a result  of such an
interruption.                                                                   

Dependence on Proprietary  Technology.  The Company's  success  depends upon the
Company's proprietary technologies.  To date, the Company has relied principally
upon  trademark,  copyright  and trade  secret laws to protect  its  proprietary
technologies.  The  Company  generally  enters into  confidentiality  or license
agreements with its customers,  distributors and potential  customers and limits
access  to and  distribution  of the  source  code  to its  software  and  other
proprietary  information.  The Company's  employees are subject to the Company's
employment policy regarding confidentiality.  There can be no assurance that the
steps  taken  by the  Company  in  this  regard  will  be  adequate  to  prevent
misappropriation  of its  technologies or to provide an effective  remedy in the
event of a misappropriation by others.                                          

Although  management believes that the Company's products do not infringe on the
proprietary rights of third parties, there can be no assurance that infringement
claims will not be asserted, resulting in costly litigation in which the Company
may not ultimately  prevail.  Adverse  determinations  in such litigation  could
result in the loss of the Company's  proprietary rights,  subject the Company to
significant liabilities, require the Company to seek licenses from third parties
or prevent the Company from manufacturing or selling its products,  any of which
will have a material  adverse  effect on the  Company's  revenue  and  operating
results.                                                                        

Because of the existence of a large number of patents in the computer networking
industry and the rapid rate of new patents  granted or new standards  developed,
or new technology,  it may be necessary for the Company to enter into technology
licenses  from  others.  There  can  be no  assurance  that  these  third  party
technology licenses will be available to the Company on commercially  reasonable
terms.  The loss of, or inability to obtain,  any of these  technology  licenses
could result in delays or  reductions in product  shipments.  Any such delays or
reductions  in  product  shipments  will have a material  adverse  effect on the
Company's revenue and operating results.                                        

Dependence  on  Personnel.  The  Company's  success  depends  on  the  continued
contributions of its personnel, many of whom would be difficult to replace. Over
the past several years,  one of the incentives  used to retain key personnel has
been the issuance of stock options.  Unfortunately,  in the current market,  the
Company's  stock price has declined  such that almost all of those stock options
are below the grant price,  thereby  negating the retention  attributes of those
instruments.                                                                    

Through  mid-2001,  competition  for  engineering  personnel  in  the  Company's
marketplace was intense.  Since mid-2001,  engineering personnel seem to be more
readily available. Although the Company's employees are subject to the Company's
employment  policy  regarding   confidentiality  and  ownership  of  inventions,
employees are generally not subject to employment  agreements or non-competition
covenants.  Changes in personnel could adversely affect the Company's  operating
results.                                                                        

Notes:    IPnexus,  NexusWare,  FlexNat,  Ziatech,  and SEGway are trademarks of
Performance Technologies, Inc.                              

ITEM 2 - Properties                                                             

The Company's corporate headquarters are located in 57,000 square feet of office
and manufacturing space in Rochester,  New York. Corporate  headquarters include
the  executive   offices,   along  with  sales,   marketing,   engineering   and
manufacturing operations.  The Company relocated these operations to this leased
facility in April 2002. This lease expires in 2012. There is sufficient room for
growth  in  the  intermediate  term  in  this  facility  and  it is  capable  of
accommodating  a variety of expansion  options.  In 2001, the Company  purchased
land adjacent to this facility to accommodate future expansion.                 

The Company's Computing Products Group (formerly Ziatech Corporation) is located
in 61,000  square  feet of office  and  manufacturing  space  leased in San Luis
Obispo, California. This lease expires in 2008. This facility includes sales and
marketing  personnel,  and  engineering  and  manufacturing  operations  for the
computing  products.  Approximately  12,000  square  feet  of this  facility  is
currently  sublet to a tenant  and  there is  sufficient  room for this  group's
intermediate-term growth in this facility.                                      

The Company has sales and marketing personnel,  and signaling  engineering staff
located in 13,000  square feet of office space  leased in a building  located in
downtown Ottawa,  Canada. The office lease agreements in this building expire in
May 2003.  The Company has the option to renew these leases for a future  period
of one or two years.  The Company  expects to exercise its renewal options under
these leases.  The Signaling Group also had 7,000 square feet of office space in
downtown Raleigh,  North Carolina.  In September 2002, the engineering functions
at this facility were consolidated into the Ottawa, Canada signaling operations.
The Company is attempting to sublet this space,  however,  the commercial office
space  market in downtown  Raleigh is very soft.  This office  lease  expires in
February 2005.                                                                  

The Company also leases sales and engineering  offices in San Diego,  California
and sales offices in Connecticut and the United Kingdom.                        

ITEM 3 - Legal Proceedings                                                      

From time to time,  the  Company is involved  in  litigation  relating to claims
arising  out of its  operations  in the  normal  course  of  business.  With the
exception of the following  items,  the Company is not a party to any such legal
proceedings,  the adverse  outcome of which,  individually  or in the aggregate,
would have a material  adverse  effect on the Company's  results of  operations,
financial condition or cash flows.                                              

Following the Company's  announcement  on May 19, 2000 regarding its preliminary
results of operations for the second quarter, several class action lawsuits were
filed in the United States  District Court for the Western  District of New York
against the Company, as well as several of its officers and directors,  alleging
violations  of federal  securities  laws.  On September  25,  2002,  the Company
announced it had signed a Memorandum of Understanding  for the settlement of the
class action litigation.  The Company recorded a charge of $143,000 in the third
quarter of 2002 in connection with the settlement of the  litigation.  The terms
of the settlement  outlined in the memorandum  between the Company and the class
action  plaintiffs  have been submitted to the Court in the form of a settlement
agreement.  This proposed  settlement  will be subject to Court  acceptance  and
approval.                                                                       

ITEM 4 - Submission of Matters to a Vote of Security Holders                    

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter 2002.                                                                   

PART II                                                                         

ITEM 5 - Market  for  the  Registrant's  Common  Equity  and Related Stockholder
Matters                                                       

The Company's  common stock is traded on the Nasdaq National Market System under
the trading symbol  "PTIX." The following  table sets forth the high and the low
quarterly  closing  prices of the common stock during the two most recent years,
as  reported  on the Nasdaq  National  Market  System.  These  prices  represent
quotations  among  securities  dealers  without  adjustments for retail markups,
markdowns or commissions and may not represent actual transactions.             

             2002                                High              Low
         -----------------------------------------------------------------------
     First Quarter                               $13.57           $ 7.65
     Second Quarter                                8.60             6.25
     Third Quarter                                 6.31             3.43
     Fourth Quarter                              $ 4.74           $ 3.20

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             2001                                High              Low
         -----------------------------------------------------------------------
     First Quarter                               $15.75           $10.06
     Second Quarter                               16.49            10.00
     Third Quarter                                17.40             8.22
     Fourth Quarter                              $13.55           $ 8.00

As of February 28, 2003,  there were 189 stockholders of record of the Company's
common stock.                                                                   

To date,  the Company has not paid cash dividends on its common stock and has no
intention to do so for the foreseeable future.                                  

Equity Plan Information:                                                        

The Performance  Technologies,  Incorporated 2001 Stock Option Plan was approved
by the Company's stockholders at the 2001 Annual Meeting.                       

The following table provides certain information  regarding the Company's equity
compensation plan.                                                              

                                                        [Enlarge/Download Table]
                                                                                               

                                        (a)                 (b)                   (c)          
                                      Number of                                                
                                  securities to be                                             
                                    issued upon        Weighted average         Number of      
              Plan Category         exercise of       exercise price of        securities      
                                    outstanding          outstanding            remaining      
                                 options, warrants    options, warrants       available for    
                                     and rights           and rights         future issuance   
                                 -------------------  -------------------  --------------------
Equity compensation plans                                                                      
   approved by security holders      2,146,680               $10.46               875,050      

Equity compensation plans not                                                                  
   approved by security holders                                                                
                                 -------------------  -------------------  --------------------
   Total                             2,146,680               $10.46               875,050      
                                 ===================  ===================  ====================

The Company has no equity compensation  plans that have not been approved by its
stockholders.                                                                   

ITEM 6 - Selected Financial Data                                                
-----------------------                                       
(in thousands, except per share amounts)                    

                                                        [Enlarge/Download Table]
                                                                                                                         

For the Years Ended December 31:                    2002           2001            2000           1999           1998    
----------------------------------------------- ----------- -- ----------- --- ----------- -- ----------- -- ------------

Sales                                              $27,014        $36,517         $38,963        $44,494         $34,118 
Income from operations                                 326          5,186           7,050          6,226           6,047 
Basic earnings per share:                                                                                                
  Net income from operations (1)                   $   .03        $   .42         $   .54        $   .47         $   .46 
  Weighted average common shares                    12,263         12,282          13,106         13,165          13,077 
Diluted earnings per share:                                                                                              
  Net income from operations (1)                   $   .03        $   .41         $   .51        $   .45         $   .45 
  Weight average common and                                                                                              
    common equivalent shares                        12,373         12,708          13,769         13,789          13,517 

Excluding non-recurring expenses (2) (3)                                                                                 
  Income from operations                           $ 1,186        $ 5,186         $ 7,050        $ 7,970         $ 6,047 
  Basic earnings per share                         $   .10        $   .42         $   .54        $   .61         $   .46 
  Diluted earnings per share                       $   .10        $   .41         $   .51        $   .58         $   .45 

At December 31:                                     2002           2001            2000           1999           1998    
----------------------------------------------- ----------- -- ----------- --- ----------- -- ----------- -- ------------
Working capital                                    $32,130        $34,728         $36,975        $39,009         $32,221 
Total assets                                        45,204         42,954          44,758         49,142          40,122 
Long-term debt, less current portion                                                                                   6 
Total stockholders' equity                         $38,809        $38,342         $39,468        $40,828         $34,180 

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         (1) All per share amounts have been adjusted where appropriate, for the
three-for-two stock split effected in September 1999. 

         (2) In  2002,  using  an  effective  tax rate of 31%,  amounts  exclude
             non-recurring expenses amounting to $.9 million, or $.07 per share.
        In 1999, amounts exclude a $1.7 million charge for acquisition
expenses.                                             

         (3) This data is a non-GAAP  measure that should be read in conjunction
with GAAP disclosures herein.                         

ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations                                                 

The  Company's  annual  operating  performance  is subject to various  risks and
uncertainties.  The following  discussion should be read in conjunction with the
Consolidated  Financial Statements and related notes, included elsewhere herein,
as well as the section  appearing  in ITEM 1 of this Form 10-K under the heading
"Risk  Factors."  The  Company's  future  operating  results  may be affected by
various  trends  and  factors  which are  beyond the  Company's  control.  These
include, among other factors, general business and economic conditions, rapid or
unexpected  changes in  technologies,  cancellation  or delay of customer orders
including those relating to design wins,  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. In addition,  during difficult
economic periods,  customer's  visibility  deteriorates  causing delays in their
placement of orders.  These factors often result in a substantial portion of the
Company's  revenue  being  derived  from  orders  placed  within the quarter and
shipped in the final month of the quarter.                                      

Matters discussed in Management's Discussion and Analysis of Financial Condition
and  Results  of   Operations   and   elsewhere   in  this  Form  10-K   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.  The Company's  actual results could
differ materially from those discussed in the forward-looking statements.       

Overview                                                                        

Industry:  2002 was a challenging  year with  continuing  erosion in the general
business environment, as well as the Company's target markets. In these markets,
the  telecommunications  industry is the largest  sector which was burdened with
overcapacity  and a slowing  economy that  resulted in reduced  prices,  stifled
competition  and severely  limited capital  expenditures.  Other end markets for
embedded  systems also  experienced  business  slowdowns during 2002, but not as
severe  as  the  telecommunications  industry.  Management  responded  to  these
demanding  market  conditions  through a series of initiatives  that allowed the
Company to maintain  profitability while many comparable  organizations suffered
large  financial  losses  that,  in  some  cases,   threatened  their  continued
operations.  Please refer to PART 1, Item 1, under the caption "Business", for a
discussion of the industry,  economic environment and the Company's  initiatives
during 2002.                                                                    

Traditionally,  "design  wins" have been an important  metric for  management to
judge the Company's  product  acceptance in its marketplace.  Typically,  design
wins  reach   production   volumes  at  varying   rates,   generally   beginning
twelve-to-eighteen  months after the design win occurs.  A variety of risks such
as schedule delays, cancellations,  and changes in customer markets and economic
conditions  can  adversely  affect a design win before  production is reached or
during deployment.  While management still believes that design wins continue to
be an important  metric in  evaluating  the market  acceptance  of the Company's
products,  unfortunately  in the current economic  climate,  fewer customers are
doing new design  activity and a smaller  number of these design wins are moving
into production than in the past. During 2002, the Company received notification
for  twenty-four new design wins for its IPnexus  Switching (8),  IPnexus Access
(12),  Ziatech Computing and Platform (2), and SEGway SS7 IP Signaling  products
(2),  compared to  thirty-five  new design wins during 2001. Not all design wins
are expected to result in production orders.                                    

Financial:  On  October  2,  2002,  the  Company  acquired  a  portion  of Intel
Corporation's  Embedded   Communications  Platform  Division  (formerly  Ziatech
Corporation).  Beginning  in the  fourth  quarter,  the  Company's  revenue  and
expenses reflect the Ziatech operations.                                        

In 2002, the following  non-recurring items affected the comparability of income
between years:                                                                  

  o  restructuring  charges  ($.6  million  pre-tax,  or $.03 per  share);
    o  in-process research and development expense ($.4 million after-tax,  or
$.03 per share);  and                                           
     o  class action settlement costs ($.1 million pre-tax,  or $.01 per share).

Revenue for 2002 amounted to $27.0  million,  compared to $36.5 million in 2001.
The  continuing   decline  in  capital  spending  in  the   communications   and
telecommunications  markets  dramatically  impacted the Company's network access
and signaling  product  revenue in 2002. The newly acquired  Ziatech  operations
contributed  $5.0  million to revenue in 2002.  Sales  outside of North  America
amounted to $6.9 million and $9.7 million in 2002 and 2001, respectively.       

Net  income  in 2002  amounted  to $.3  million,  or $.03 per  share,  including
non-recurring  expenses,  and  amounted  to $1.2  million,  or $.10  per  share,
excluding  non-recurring  expenses,  based on 12.4 million  shares  outstanding.
Using an effective  income tax rate of 31%,  non-recurring  expenses during 2002
amounted  to $.9  million  after  tax,  or $.07 per  share.  Net  income in 2001
amounted  to $5.2  million,  or $.41 per  share,  based on 12.7  million  shares
outstanding.                                                                    

Cash, cash equivalents and marketable  securities  amounted to $24.1 million and
$26.9 million at December 31, 2002 and 2001, respectively, and no long-term debt
existed at either date. During 2002 and 2001, the Company generated $5.5 million
and $9.0 million of cash from operating  activities,  respectively.  During 2002
and 2001, the Company  expended $.1 million and $6.9 million,  respectively,  to
buy back its shares in the open market.  In September 2002, the Company invested
$1.5 million for a 47% minority interest in Momentum  Computer,  Inc. and loaned
Momentum an additional $1.0 million to be used for working  capital.  In October
2002,  the  Company   acquired  a  portion  of  Intel   Corporation's   Embedded
Communications Platform Division (formerly Ziatech Corporation) for $3.0 million
in cash.                                                                        

Results of Operations                                                           

The  following  table sets forth for the years  indicated  certain  consolidated
financial  data  expressed as a percentage of sales and is included as an aid to
understanding  the Company's  results and should be read in conjunction with the
selected  financial data and Consolidated  Financial  Statements  (including the
notes  thereto)  appearing  elsewhere  in this  report.  The table  includes the
results of operations  of the new Computing  Products  Group  (formerly  Ziatech
Corporation), since it was acquired on October 2, 2002.                         

                                                        [Enlarge/Download Table]
                                                                                             

                                                                Percentage of Sales          
                                                              Year Ended December 31,        
                                                        2002           2001           2000   
                                                    -----------     ----------     ----------

Sales                                                  100.0%         100.0%         100.0%  
Cost of goods sold                                      47.6           36.5           35.3   
                                                    -----------     ----------     ----------

Gross profit                                            52.4           63.5           64.7   

Operating expenses:                                                                          
  Selling and marketing                                 16.2           15.2           12.6   
  Research and development                              25.6           21.7           22.9   
  General and administrative                            10.1            8.1            6.4   
  Restructuring charges                                  2.1                                 
  In-process research and development                    1.4                                 
  Class action legal settlement                           .5                                 
                                                    -----------     ----------     ----------

     Total operating expenses                           55.9           45.0           41.9   
                                                    -----------     ----------     ----------

(Loss) income from operations                           (3.5)          18.5           22.8   

Other income, net                                        2.0            2.7            5.0   
                                                    -----------     ----------     ----------

(Loss) income before income taxes and equity in                                              
  loss of unconsolidated company                        (1.5)          21.2           27.8   

Income tax (benefit) provision                          (3.0)           7.0            9.7   
                                                    -----------     ----------     ----------

Income before equity in loss of unconsolidated company   1.5           14.2           18.1   

Equity in loss of unconsolidated company, net of tax     (.3)                                
                                                    -----------     ----------     ----------

      Net income                                         1.2%          14.2%          18.1%  
                                                    ===========     ==========     ==========

Excluding non-recurring expenses (1) (2)                                                     

Income before income taxes and equity in                                                     
  loss of unconsolidated company                         2.5%          21.2%          27.8%  

Income tax (benefit) provision                          (2.2)           7.0            9.7   
                                                    -----------     ----------     ----------

Income before equity in loss of unconsolidated company   4.7           14.2           18.1   

Equity in loss of unconsolidated company, net of tax     (.3)                                
                                                    -----------     ----------     ----------

      Net income, including non-recurring expenses       4.4%          14.2%          18.1%  
                                                    ===========     ==========     ==========

(1) Based on an effective tax rate of 31%,  excludes  non-recurring  expenses in
2002 for restructuring  charges,  in-process research and development costs, and
class action settlement costs totaling $.9 million after-tax, or 3.2% of sales. 

(2) This data is a non-GAAP measure that should be read in conjunction with GAAP
disclosures herein.                                                             

Year Ended December 31, 2002, compared with the Year Ended December 31, 2001    

Sales.  Total revenue for 2002 was $27.0 million,  compared to $36.5 million for
2001. The newly acquired Ziatech operations  contributed $5.0 million to revenue
in 2002. For the years indicated,  the Company's  products are grouped into four
distinct  categories  in  one  market  segment:  Signaling  and  network  access
products,  Ziatech computing  products,  IPnexus switching  products,  and other
products. Revenue from each product category, expressed as a percentage of sales
for 2002 and 2001, are as follows:                                              

                                                2002                    2001
                                             --------------      ---------------

Signaling and network access products              70%                     87%  
Ziatech computing products                         18%                      0%  
IPnexus switching products                          9%                      5%  
Other                                               3%                      8%  
                                             --------------      ---------------

  Total                                         100%                    100%
                                             ==============      ===============

Signaling  and network  access  products:  Revenue  from this  product  category
amounted to $18.8 million and $31.8 million in 2002 and 2001, respectively.  The
continuing  decline in  capital  expenditure  investments  by  customers  in the
Company's  target  markets  significantly  reduced  signaling and network access
product revenue in 2002.                                                        

Ziatech computing products:  Revenue from this product category amounted to $5.0
million in 2002.  This product  revenue was generated in the fourth quarter 2002
by the newly acquired Ziatech operations.                                       

IPnexus switching products:  Revenue from this category grew 44% to $2.4 million
in 2002, compared to $1.7 million for 2001. The Company's IPnexus switch product
family has been  designed  for the embedded  systems  market and is based on the
PICMG 2.16 systems  architecture,  which was ratified in September  2001.  While
still a modest  percentage  of the Company's  revenue,  IPnexus  switch  product
revenue  is  expected  to grow  when  customers  move  their new  products  into
production.                                                                     

Other  products:  Revenue from other  products  amounted to $.8 million and $3.0
million  in 2002 and 2001,  respectively.  This  revenue  is  related  to legacy
products. Customer demand for these products has declined significantly over the
past twelve months as customers move to newer technology. 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,  amortization of software  development
costs,  expenses  associated with  engineering  contracts and technical  support
function  expenses.  Gross margin was 52.4% and 63.5% of sales in 2002 and 2001,
respectively.  Fixed expenses such as certain  manufacturing  labor and overhead
costs,  technical  support  costs,  and  amortization  of  capitalized  software
development  spread  over  lower  sales  volumes  impacted  gross  margin  as  a
percentage of sales during 2002,  compared to 2001. The decrease in gross margin
in 2002 is also attributable to the write off of certain software capitalization
projects of $.3 million,  an increase in inventory  obsolescence  expense of $.3
million, and lower gross margins on the newly acquired computing products.      

Total Operating Expenses. Total operating expenses amounted to $15.1 million and
$16.4 million in 2002 and 2001,  respectively,  and include expenses  associated
with the new Computing Products Group (formerly Ziatech  Corporation) during the
fourth quarter 2002. During January and September 2002, the Company took actions
to improve its cost  structure by more closely  aligning  expenses  with current
revenue levels.  These expense reductions  amounted to $2.6 million annually and
were  attained  by  reducing   staffing  levels  by  approximately  20%  and  by
consolidating one remote office location to more efficiently provide engineering
and product support.  Despite these efforts,  when total operating  expenses are
spread over lower sales volumes,  total operating expenses increased to 55.9% of
sales in 2002, compared to 45.0% in 2001.                                       

Selling and marketing expenses amounted to $4.4 million and $5.5 million in 2002
and 2001,  respectively.  This  decrease in expense is  primarily  the result of
lower personnel and commission expenses,  and reductions in advertising,  travel
and trade show  participation.  This decrease was  partially  offset by expenses
associated with the new Computing Products Group during the fourth quarter 2002.

Research and development  expenses  amounted to $6.9 million and $7.9 million in
2002 and 2001, respectively.  This decrease in expense is primarily attributable
to lower  engineering  staff  levels.  This  decrease  was  partially  offset by
expenses  associated  with the new  Computing  Products  Group during the fourth
quarter  2002.  Despite the net  reduction in expense,  management  continues to
commit  significant  resources to the development of new products.  In addition,
the Company  capitalizes  certain software  development  costs, which reduce the
amount of software  development  costs  charged to  operating  expense.  Amounts
capitalized were $1.2 million and $1.7 million for 2002 and 2001,  respectively.
Gross  expenditures  for engineering and software  development were $8.1 million
and $9.6 million for 2002 and 2001, respectively.                               

General and administrative expenses amounted to $2.7 million and $2.9 million in
2002 and 2001, respectively. This decrease in expense is the result of tightened
control over general and  administrative  expenses and lower  personnel  related
expenses. This decrease was partially offset by expenses associated with the new
Computing Products Group during the fourth quarter 2002.                        

Restructuring  charges  amounted  to $.6  million in 2002.  These  non-recurring
expenses  were  associated  with  actions the  Company  took to improve its cost
structure.  They include severance  related to staffing  reductions and expenses
associated with closing the Raleigh, North Carolina engineering facility.       

In-process research and development expenses were $.4 million in 2002. This is a
one-time charge for in-process  research and development  costs  associated with
the  Ziatech   acquisition   that  were   expensed  in   accordance   with  FASB
Interpretation  No. 4,  "Applicability  of SFAS No. 2 to  Business  Combinations
Accounted  for by the  Purchase  Method."  This charge  relates to research  and
development projects that had not reached  technological  feasibility and had no
alternative use.                                                                

Class action  legal  settlement  charges were $.1 million in 2002.  In September
2002,  the Company  signed a Memorandum of  Understanding  for settlement of the
class action litigation outstanding since May 2000.                             

Other  Income,  net.  Other income  consists  primarily of interest  income from
marketable securities and cash equivalents.  The funds are primarily invested in
high quality Municipal and U.S. Treasury securities with maturities of less than
one year.  Over the past twelve months,  interest  rates have declined  reducing
interest income by $.4 million in 2002.                                         

Income  Taxes.  The income tax benefit of $.8 million  during 2002  reflects tax
credits due the Company  relating to its  international  operations,  as well as
benefits  derived from its research  activities,  foreign  sales and  tax-exempt
interest.  The income tax provision  for 2001 is based on the combined  federal,
state and foreign effective tax rate of 33%.                                    

Equity in Loss of  Unconsolidated  Company,  net of tax. In September  2002, the
Company completed a 47% minority interest  investment in Momentum Computer Inc.,
a developer of specialized  single board computer solutions located in Carlsbad,
California.  During  2002,  a loss of $.1 million was  recorded  reflecting  the
allocation  of  Momentum's  net  loss to the  Company,  based  on the  Company's
ownership percentage.                                                           

Year  Ended  December 31, 2001,  compared with the  Year Ended December 31, 2000

Sales.  Total revenue for 2001 was $36.5 million,  compared to $39.0 million for
2000.  For the years  indicated,  the  Company's  products are grouped into four
distinct  categories  in  one  market  segment:  Signaling  and  network  access
products, IP Switching products,  U.S.  Government/LAN  interface products,  and
Other products.  Revenue from each product category expressed as a percentage of
sales for 2001 and 2000 is as follows:                                          

                                              2001                  2000
                                             --------------      ---------------

Signaling and network access products              87%                   82%    
IP Switching products                               5%                    1%    
U.S. Government/LAN interface products              0%                    3%    
Other                                               8%                   14%    
                                             --------------      ---------------

Total                                         100%                  100%
                                             ==============      ===============

Signaling and Network Access  Products:  Revenue from this category  amounted to
$31.8  million  and $32.1  million in 2001 and 2000,  respectively.  The Company
broadened  its  signaling  product line and  developed  several new cPCI network
access products during 2001.                                                    

IP Switching  Products:  Revenue from this category  increased over 300% to $1.7
million in 2001,  compared to $.4 million for 2000.  The first  member of the IP
switch family,  the CPC4400 was introduced in September 2000.  Three new IPnexus
Ethernet  switch  models  (CPC3400,  CPC4401  and  CPC4406)  began  shipping  to
customers in September 2001 and two new IPnexus  Gigabit  Ethernet switch models
(CPC5400 and CPC6400) are scheduled for delivery in the first half of 2002.     

U.S.  Government/LAN  Interface  Products:  Revenue  from these U.S.  Government
projects amounted to zero and $1.1 million in 2001 and 2000, respectively.  This
sub-contract ended in June 2000.                                                

Other product revenue:  Revenue from other products amounted to $3.0 million and
$5.4 million in 2001 and 2000,  respectively.  This revenue is related to legacy
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,  amortization of software  development
costs,  expenses  associated with  engineering  contracts and technical  support
function  expenses.  Gross margin was 63.5% and 64.7% of sales in 2001 and 2000,
respectively. Fixed expenses spread over lower sales volumes in 2001 as compared
to 2000 impacted gross margin as a percentage of sales.                         

Total Operating Expenses. Total operating expenses amounted to $16.4 million and
$16.3 million in 2001 and 2000,  respectively.  As a percentage of sales,  total
operating  expenses  increased  to  45.0% in 2001,  from  41.9% in 2000.  At the
beginning of 2001, the Company  increased sales and marketing  expense levels to
garner  greater  market  share.  Beginning  in the second  quarter  through  the
remainder of the year, the Company reduced  expense levels due to  deteriorating
economic conditions.                                                            

Selling and marketing expenses amounted to $5.5 million and $4.9 million in 2001
and 2000,  respectively.  Expenditures  for  advertising,  travel and trade show
participation  were increased at the beginning of 2001 and then began  declining
in the second quarter as the economy deteriorated.                              

Research and development  expenses  amounted to $7.9 million and $8.9 million in
2001 and 2000,  respectively.  During 2001, the Company  focused its engineering
efforts on the  development  of the IPnexus  embedded  switch and network access
products and  broadening  its signaling  product line. In addition,  the Company
capitalized  certain software  development costs.  Amounts capitalized were $1.7
million and $.8 million for 2001 and 2000, respectively.  Gross expenditures for
engineering and software development were $9.6 million and $9.7 million for 2001
and 2000, respectively.                                                         

General and administrative expenses amounted to $2.9 million and $2.5 million in
2001 and 2000,  respectively.  An  incentive  related  expense  amounting to $.2
million was recorded to reflect the  attainment  of certain  corporate  goals in
2001. The remaining year-over-year expense increase is primarily attributable to
an increase in corporate insurance costs.                                       

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

Income  Taxes.  The provision for income taxes for 2001 is based on the combined
federal,  state and foreign  effective tax rate of 33%, compared to 35% in 2000.
Based on operational  decisions implemented during 2000, the Company was able to
utilize Canadian tax incentives to lower its net effective tax rate in 2001.    

Business Strategy                                                               

Performance  Technologies  has a proven  history of  successfully  adapting  its
products,  services and organization to a constantly changing  technology-driven
marketplace. This adaptation has been demonstrated through the course of several
business  cycles that have occurred since its founding in 1981. With the Ziatech
acquisition  in October  2002,  the  Company  substantially  broadened  both its
product offering and market coverage to include additional  computing and system
products that can be effectively  supplied to a market that is twice the size of
that which was available to the Company prior to the acquisition.  Following the
acquisition,  a new corporate strategy was defined that integrates the Company's
technological  innovation and product  breadth.  Please refer to PART 1, Item 1,
under the caption  "Business",  for a discussion  of the Company's new corporate
and product strategies for 2003.                                                

Liquidity and Capital Resources                                                 

At December 31, 2002, the Company's  primary source of liquidity  included cash,
cash  equivalents  and  marketable  securities  of $24.1  million and  available
borrowings of $5.0 million under a bank revolving  credit  facility.  No amounts
were outstanding under this credit facility as of December 31, 2002. The Company
had working  capital of $32.1 million and $34.7 million at December 31, 2002 and
2001, respectively.                                                             

Cash generated by operating  activities was $5.5 million,  $9.0 million and $5.9
million in 2002, 2001 and 2000, respectively.                                   

During  2002,  cash used by  investing  activities  was $10.4  million.  Capital
equipment  purchases  were $1.1 million,  $1.3 million and $1.3 million in 2002,
2001 and 2000,  respectively.  In  addition,  the  Company  capitalizes  certain
software  development costs.  Amounts  capitalized and included within investing
activities  were $1.2  million,  $1.7 million and $.8 million in 2002,  2001 and
2000, respectively.                                                             

In October 2002, the Company acquired a portion of Intel Corporation's  Embedded
Communications  Platform  Division  (formerly  Ziatech  Corporation)  for a cash
purchase  price  of $3.0  million,  plus  $.6  million  of  acquisition  related
expenses.                                                                       

In September 2002, the Company completed a minority interest  investment of $1.5
million in Momentum Computer,  Inc. and loaned Momentum an additional $1 million
to be used for working capital.                                                 

In August 2002, the Board of Directors authorized a plan to repurchase up to one
million  shares  of  the  Company's  common  stock.  During  2002,  the  Company
repurchased  a total of 35,000  shares at a total cost of $.1 million under this
program.                                                                        

In March 2001,  the Board of Directors  authorized a one-year plan to repurchase
up to an additional  500,000 shares of the Company's  common stock.  The Company
did not  repurchase  any shares under this program in 2002,  compared to 206,000
shares repurchased at a total cost of $2.2 million under this program in 2001.  

In August 2000,  the Board of Directors  authorized  the repurchase of up to one
million shares of the Company's common stock and the Company repurchased 342,000
and 658,000 of its common shares in 2001 and 2000, respectively.  The total cost
of repurchasing  such shares was $4.7 million and $8.8 million in 2001 and 2000,
respectively. This program was completed in March 2001.                         

As a result  of the net loss in the  third  quarter  2002,  the  Company  was in
violation of one of the  covenants  under the bank  revolving  credit  facility.
Subsequent to the end of the quarter,  the default on the covenant violation was
waived.  The Company was in compliance  with such covenants at December 31, 2002
and the  revolving  credit  facility was amended and extended  through April 15,
2003. The Company is currently  negotiating a new bank revolving credit facility
which may result in a less favorable credit arrangement.                        

The Company leases  facilities  under operating  leases.  Under the terms of the
facility lease in Rochester,  New York, which expires in March 2012, the Company
agreed to pay an  annual  rental  of  $740,000  in the  first  full  year,  with
pre-established  adjustments  for each year  thereafter.  Under the terms of the
facility lease in San Luis Obispo,  California,  which expires in December 2008,
the Company agreed to pay an annual rental of $422,000 with an annual adjustment
based on the Consumer  Price Index.  For both lease  agreements,  the Company is
also  required  to pay the  pro  rata  share  of the  real  property  taxes  and
assessments,  expenses and other charges  associated with these facilities.  The
Company has leased facilities in its other operating  locations in North America
that expire between 2003 through 2005.                                          

Future minimum lease  payments for all operating  leases having a remaining term
in excess of one year at December 31, 2002 are as follows:                      

2003                                 $ 1,429,000            
2004                                   1,443,000            
2005                                   1,296,000            
2006                                   1,295,000            
2007                                   1,321,000            
Thereafter                             3,867,000            
                          ------------
Total minimum lease payments                   $10,651,000                      
                          ============

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  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,  management  is
continuing  its  strategic  acquisition  program to further  accelerate  its new
product and market penetration efforts. This program could have an impact on the
Company's working capital, liquidity or capital resources.                      

Recently Issued Accounting Pronouncements                                       

FAS 141 - In June 2001, the FASB issued SFAS No. 141,  "Business  Combinations."
SFAS  No.  141  addresses  financial   accounting  and  reporting  for  business
combinations.  All  business  combinations  in the scope of this  Statement  are
accounted for using one method,  purchase  accounting.  On October 2, 2002,  the
Company  adopted SFAS No. 141. The purchase of a portion of Intel  Corporation's
Communications  Platform Division  (formerly Ziatech  Corporation) was accounted
for and reported in accordance with this Statement.                             

FAS 144 - In August  2001,  the FASB issued SFAS No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." SFAS No. 144 addresses  financial
accounting and reporting for the impairment or disposal of long-lived  assets to
be held and used, to be disposed of other than by sale, and to be disposed of by
sale.  On January 1, 2002,  the Company  adopted SFAS No. 144.  Adoption of this
statement  did not have a material  impact on the results of  operations  or the
financial position of the Company.                                              

FAS 146 - In June 2002,  the FASB  issued SFAS No.  146,  "Accounting  for Costs
Associated  with Exit or  Disposal  Activities."  SFAS No. 146  requires  that a
liability for costs  associated with an exit or disposal  activity be recognized
when it is incurred and measured  initially at fair value.  On July 1, 2002, the
Company adopted SFAS No. 146. Adoption of this statement did not have a material
impact on the results of operations or the financial position of the Company.   

FAS 148 - In  December  2002,  the FASB issued  SFAS No.  148,  "Accounting  for
Stock-Based  Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123,  "Accounting  for Stock  Based  Compensation,"  to provide  alternative
methods of transition  for a voluntary  change to the fair value based method of
accounting for stock-based employee  compensation.  In addition,  this Statement
amends  the  disclosure  requirements  of  SFAS  No.  123 to  require  prominent
disclosures in both annual and interim financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on reported results. The Company has previously adopted the disclosure only
provisions  of  SFAS  No.  123,   "Accounting  for  Stock-Based   Compensation."
Accordingly, no compensation cost has been recognized for the stock option plan.
On December 31, 2002, the Company  adopted the disclosure  requirements  of SFAS
No.  148.  Adoption  of this  statement  did not have a  material  impact on the
results of operations or the financial position of the Company.                 

FIN 45 - In November 2002, the FASB issued  Interpretation No. 45.  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness of Others."  Interpretation  No. 45 required that at
the time a company  issues a guarantee,  the company  must  recognize an initial
liability for the fair value,  or market value,  of the  obligations  it assumes
under that guarantee.  This  interpretation is applicable on a prospective basis
to guarantees  issued or modified  after December 31, 2002. The Company does not
currently provide  significant  guarantees on a routine basis. As a result,  the
Company  does not  currently  believe this  interpretation  will have a material
impact on the results of operations or the financial position of the Company.   

FIN 46 - In January 2003, the FASB issued  Interpretation No. 46, "Consolidation
of Variable Interest Entities."  Interpretation No. 46 requires companies with a
variable  interest  entity  to apply  this  guidance  to that  entity  as of the
beginning of the first interim period beginning after June 15, 2003 for existing
interests and  immediately  for new interests.  The  application of the guidance
could  result in the  consolidation  of a  variable  interest  entity.  The only
variable interest entity of the Company is its investment in Momentum  Computer,
Inc.  disclosed  in Note  F.  The  Company  is  evaluating  the  impact  of this
interpretation on financial results.                                            

Critical Accounting Estimates and Assumptions                                   

In preparing the financial  statements  in accordance  with GAAP,  management is
required to make  estimates and  assumptions  that have an impact on the assets,
liabilities,  revenue and expense  amounts  reported.  These  estimates can also
affect   supplemental   information   disclosures  by  the  Company,   including
information  about  contingencies,  risk and  financial  condition.  The Company
believes,  given current facts and circumstances,  its 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. The
critical accounting policies, judgments and estimates, which management believes
have the most  significant  effect  on the  financial  statements  are set forth
below:                                                                          

o        Revenue Recognition                                                    
o        Software Development Costs                                             
o        Valuation of Inventory                                                 

Revenue  Recognition:  The Company recognizes revenue in accordance with the SEC
Staff  Accounting  Bulletin  (SAB) No. 101,  "Revenue  Recognition  in Financial
Statements."  The Company  recognizes  revenue  when  persuasive  evidence of an
arrangement  exists,  delivery has occurred or services have been provided,  the
sale price is fixed or determinable,  and collectability is reasonably  assured.
Additionally,  the Company sells its products on terms, which transfer title and
risk of loss at a specified  location,  typically  shipping point.  Accordingly,
revenue  recognition  from  product  sales  occurs  when  all  factors  are met,
including  transfer  of title  and risk of loss,  which  generally  occurs  upon
shipment by the Company.  Revenue earned from  arrangements for software systems
requiring significant production,  modification, or customization of software is
recognized over the contract period as performance milestones are fulfilled.  If
all  conditions of revenue  recognition  are not met, the Company defers revenue
recognition.  Revenue from  consulting  and other  services is recognized at the
time the services are rendered.  Any anticipated losses on contracts are charged
to  operations  as soon as such losses are  determined.  Revenue  from  software
maintenance  contracts is recognized  ratably over the contractual  period.  The
Company believes that the accounting  estimate related to revenue recognition is
a "critical  accounting  estimate" because the Company's terms of sale can vary,
and  management  exercises  judgment  in  determining  whether to defer  revenue
recognition.  Such  judgments  may  materially  affect net sales for any period.
Management  exercises judgment 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 collectability is reasonably assured.        

Software   Development  Costs:  All  software   development  costs  incurred  in
establishing the  technological  feasibility of computer software products to be
sold are 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,  or using the ratio of current  revenues to current and
anticipated revenues from such product, whichever provides greater amortization.
If in the judgment of  management,  technological  feasibility  for a particular
project has not been met or recoverability  of amounts  capitalized is in doubt,
project  costs are expensed as research and  development  or charged to costs of
goods sold, as applicable.  The Company  believes that the  accounting  estimate
related  to  software  development  costs is a  "critical  accounting  estimate"
because the  Company's  management  exercises  judgment in  determining  whether
project  costs are  expensed as research and  development.  Such  judgments  may
materially affect expense amounts for any period.  Management exercises judgment
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. The Company's inventory includes purchased
parts and components,  work in process and finished goods.  The Company provides
inventory reserves for excess,  obsolete or slow moving inventory after periodic
evaluation of historical  sales,  current  economic  trends,  forecasted  sales,
estimated product  lifecycles and estimated  inventory levels.  The factors that
contribute to inventory valuation risks are the Company's purchasing  practices,
electronic component  obsolescence,  accuracy of sales and production forecasts,
introduction  of new products,  product  lifecycles and the  associated  product
support.  The Company  manages  its  exposure to  inventory  valuation  risks 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  Company  believes  that the  accounting  estimate  related to
valuation  of  inventories  is 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 ranging
from  purchasing,  to sales,  to production,  to after-sale  support.  If actual
demand,  market  conditions or product  lifecycles are adversely  different from
those  estimated by  management,  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.                           

ITEM 7A - Quantitative and Qualitative Disclosures About Market Risk            

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

ITEM 8 - Financial Statements and Supplementary Data                            

Index to Financial Statements:                                          Page    
                                                                    ----

Report of Independent Accountants                                     21  
Consolidated Balance Sheets at December 31, 2002 and 2001             22  
Consolidated Statements of Income for the Years Ended                     
 December 31, 2002, 2001 and 2000                                   23
Consolidated Statements of Changes in Stockholders' Equity                
 for the Years Ended December 31, 2002, 2001 and 2000               24
Consolidated Statements of Cash Flows for the Years Ended                 
 December 31, 2002, 2001 and 2000                                   25
Notes to Consolidated Financial Statements                            26  

Index to Financial Statement Schedules:                                         

Schedule II   - Valuation and qualifying  accounts                              
Schedule II a - Allowance for doubtful accounts                       35  
Schedule II b - Reserve for inventory obsolescence                    36  

All other  schedules  have been omitted  because they are not  applicable or the
required information is shown in the Consolidated  Financial Statements or notes
thereto.                                                                        

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 Report of Independent Accountants

To the Board of Directors and Stockholders of                                   
Performance Technologies, Incorporated:                                         

In our opinion, the consolidated financial statements listed in the accompanying
index  present  fairly,  in all material  respects,  the  financial  position of
Performance Technologies, Incorporated and its subsidiaries at December 31, 2002
and 2001,  and the results of their  operations and their cash flows for each of
the three  years in the  period  ended  December  31,  2002 in  conformity  with
accounting principles generally accepted in the United States of America.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.                                               

/s/ PricewaterhouseCoopers LLP                                                  

Rochester, New York                                                             
February 5, 2003                                                                

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 PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

                                                                [Download Table]
                                     ASSETS                                      
                                                                                 

                                                         December 31,            
                                                  2002                 2001      
                                                  ----                 ----      

Current assets:                                                                  
   Cash and cash equivalents                   $22,077,000          $26,913,000  
   Marketable securities                         2,006,000                       
   Accounts receivable, net                      6,622,000            6,905,000  
   Inventories, net                              4,550,000            3,756,000  
   Prepaid expenses and other assets               942,000              359,000  
   Deferred taxes                                1,574,000              608,000  
                                             ---------------      ---------------
         Total current assets                   37,771,000           38,541,000  

Property, equipment and improvements, net        3,012,000            2,465,000  
Software development costs, net                  2,068,000            1,948,000  
Note receivable from unconsolidated company      1,000,000                       
Investment in unconsolidated company             1,353,000                       
                                             ---------------      ---------------
         Total assets                          $45,204,000          $42,954,000  
                                             ===============      ===============

                                                        [Enlarge/Download Table]
                                                                                             

                      LIABILITIES AND STOCKHOLDERS' EQUITY                                   

Current liabilities:                                                                         
   Accounts payable                                            $ 1,926,000      $   417,000  
   Income taxes payable                                            502,000          350,000  
   Accrued expenses                                              3,213,000        3,046,000  
                                                             ---------------  ---------------
         Total current liabilities                               5,641,000        3,813,000  

Deferred taxes                                                     754,000          799,000  
                                                             ---------------  ---------------
         Total liabilities                                       6,395,000        4,612,000  
                                                             ---------------  ---------------

Commitments and contingencies (Notes I and P)                                                

Stockholders' equity:                                                                        
   Preferred stock - $.01 par value; 1,000,000 shares                                        
      authorized; none issued                                                                
   Common stock - $.01 par value; 50,000,000 shares                                          
      authorized; 13,260,038 shares issued                         133,000          133,000  
   Additional paid-in capital                                   10,961,000       11,305,000  
   Retained earnings                                            40,565,000       40,239,000  
   Treasury stock - at cost, 1,013,696 and 1,024,547 shares                                  
      held at December 31, 2002 and 2001, respectively         (12,782,000)     (13,284,000) 
   Accumulated other comprehensive loss                            (68,000)         (51,000) 
                                                             ---------------  ---------------

         Total stockholders' equity                             38,809,000       38,342,000  
                                                             ---------------  ---------------

         Total liabilities and stockholders' equity            $45,204,000      $42,954,000  
                                                             ===============  ===============

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

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 PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME

                                                        [Enlarge/Download Table]

                                                                                                       

                                                                  Year Ended December 31,              
                                                        2002               2001               2000     
                                                        ----               ----               ----     

Sales                                               $27,014,000        $36,517,000        $38,963,000  
Cost of goods sold                                   12,846,000         13,327,000         13,768,000  
                                                  ---------------    ---------------    ---------------
Gross profit                                         14,168,000         23,190,000         25,195,000  
                                                  ---------------    ---------------    ---------------

Operating expenses:                                                                                    
   Selling and marketing                              4,385,000          5,534,000          4,889,000  
   Research and development                           6,914,000          7,941,000          8,926,000  
   General and administrative                         2,735,000          2,946,000          2,497,000  
   Restructuring charges                                573,000                                        
   In-process research and development                  366,000                                        
   Class action legal settlement                        143,000                                        
                                                  ---------------    ---------------    ---------------
      Total operating expenses                       15,116,000         16,421,000         16,312,000  
                                                  ---------------    ---------------    ---------------
(Loss) income from operations                          (948,000)         6,769,000          8,883,000  

Other income, net                                       550,000            971,000          1,947,000  
                                                  ---------------    ---------------    ---------------
(Loss) income before income taxes and equity in                                                        
   loss of unconsolidated company                      (398,000)         7,740,000         10,830,000  

Income tax (benefit) provision                         (819,000)         2,554,000          3,780,000  
                                                  ---------------    ---------------    ---------------
Income before equity in loss of unconsolidated company  421,000          5,186,000          7,050,000  

Equity in loss of unconsolidated company, net of tax    (95,000)                                       
                                                  ---------------    ---------------    ---------------
      Net income                                    $   326,000        $ 5,186,000        $ 7,050,000  
                                                  ===============    ===============    ===============

Basic earnings per share                               $    .03           $    .42           $    .54  
                                                  ===============    ===============    ===============

Diluted earnings per share                             $    .03           $    .41           $    .51  
                                                  ===============    ===============    ===============

Weighted average number of common shares used in                                                       
   basic earnings per share                          12,263,351         12,282,400         13,105,953  
Potential common shares                                 109,721            425,661            663,080  
                                                  ---------------    ---------------    ---------------
Weighted average number of common shares used in                                                       
   diluted earnings per share                        12,373,072         12,708,061         13,769,033  
                                                  ===============    ===============    ===============


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

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 PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                                        [Enlarge/Download Table]
                                                                                                                          

                                                                                                Accumulated               
                                                     Additional                                    Other                  
                              Common Stock            Paid-in       Retained     Treasury      Comprehensive              
                         Shares          Amount       Capital       Earnings      Stock        Income (loss)      Total   
                       ------------   -----------  -------------  ------------  -------------  -------------  ------------
Balance -                                                                                                                 
   January 1, 2000      13,186,526     $ 132,000    $12,665,000   $28,003,000                      $ 28,000   $40,828,000 

2000 net income                                                     7,050,000                                   7,050,000 
Currency translation                                                                                                      
   adjustment                                                                                       (79,000)      (79,000)
Exercise of options                                                                                                       
   and warrants             73,512         1,000       (304,000)                $    783,000                      480,000 
Tax benefit-option plan                                  14,000                                                    14,000 
Purchase of treasury                                                                                                      
   stock-658,200 shares                                                           (8,825,000)                  (8,825,000)
                       ------------   -----------  -------------  ------------  -------------  -------------  ------------
Balance -                                                                                                                 
   December 31, 2000    13,260,038       133,000     12,375,000    35,053,000     (8,042,000)       (51,000)   39,468,000 

2001 net income                                                     5,186,000                                   5,186,000 
Currency translation                                                                                                      
   adjustment                                                                                                             
Exercise of options                                                                                                       
   and warrants                                      (1,089,000)                   1,630,000                      541,000 
Tax benefit-option plan                                  19,000                                                    19,000 
Purchase of treasury                                                                                                      
   stock-547,334 shares                                                           (6,872,000)                  (6,872,000)
                       ------------   -----------  -------------  ------------  -------------  -------------  ------------
Balance -                                                                                                                 
   December 31, 2001    13,260,038       133,000     11,305,000    40,239,000    (13,284,000)       (51,000)   38,342,000 

2002 net income                                                       326,000                                     326,000 
Currency translation                                                                                                      
   adjustment                                                                                       (17,000)      (17,000)
Exercise of options                                    (371,000)                     621,000                      250,000 
Tax benefit-option plan                                  27,000                                                    27,000 
Purchase of treasury                                                                                                      
   stock-34,511 shares                                                              (119,000)                    (119,000)
                       ------------   -----------  -------------  ------------  -------------  -------------  ------------

Balance -                                                                                                                 
   December 31, 2002    13,260,038     $ 133,000    $10,961,000   $40,565,000   $(12,782,000)      $(68,000)  $38,809,000 
                       ============   ===========  =============  ============  =============  =============  ============


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

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 PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                                                                      

                                                                                 Year Ended December 31,              
                                                                       2002               2001                2000    
                                                                       ----               ----                ----    
Cash flows from operating activities:                                                                                 
  Net income                                                       $   326,000        $ 5,186,000         $ 7,050,000 
  Non-cash adjustments:                                                                                               
     Depreciation and amortization                                   2,124,000          1,537,000           1,313,000 
     Provision for bad debts                                           200,000            152,000             (70,000)
     Reserve for inventory obsolescence                                980,000            708,000           1,027,000 
     Non-cash restructuring charges                                    209,000                                        
     Deferred income taxes                                              32,000            392,000             595,000 
     In-process research and development                               366,000                                        
     Equity in loss of unconsolidated company, net of tax               95,000                                        
  Changes in operating assets and liabilities, net of effects                                                         
    of acquisition:                                                                                                   
      Accounts receivable                                               80,000            336,000           2,131,000 
      Inventories                                                     (104,000)         1,324,000          (2,915,000)
      Prepaid expenses and other                                      (226,000)           386,000             (63,000)
      Accounts payable and accrued expenses                          1,221,000         (1,130,000)         (1,407,000)
      Income taxes payable                                             177,000            150,000          (1,760,000)
                                                               ----------------   ----------------    ----------------
         Net cash provided by operating activities                   5,480,000          9,041,000           5,901,000 
                                                               ----------------   ----------------    ----------------

Cash flows from investing activities:                                                                                 
  Purchases of property, equipment and improvements                 (1,110,000)        (1,325,000)         (1,348,000)
  Capitalized software development costs                            (1,188,000)        (1,654,000)           (819,000)
  Purchase of marketable securities                                 (2,006,000)            (5,000)        (17,988,000)
  Maturities of marketable securities                                                  10,000,000          30,000,000 
  Business acquisition                                              (3,643,000)                                       
  Investment in unconsolidated company                              (1,500,000)                                       
  Note receivable from unconsolidated company                       (1,000,000)                                       
                                                               ----------------   ----------------    ----------------
       Net cash (used) provided by investing activities            (10,447,000)         7,016,000           9,845,000 
                                                               ----------------   ----------------    ----------------

Cash flows from financing activities:                                                                                 
  Repayment of debt                                                                                            (6,000)
  Exercise of stock options and warrants                               250,000            541,000             480,000 
  Purchase of treasury stock                                          (119,000)        (6,872,000)         (8,825,000)
                                                               ----------------   ----------------    --------------- 
       Net cash provided (used) by financing activities                131,000         (6,331,000)         (8,351,000)
                                                               ----------------   ----------------    ----------------

       Net (decrease) increase in cash and cash equivalents         (4,836,000)         9,726,000           7,395,000 
Cash and cash equivalents at beginning of year                      26,913,000         17,187,000           9,792,000 
                                                               ----------------   ----------------    --------------- 
Cash and cash equivalents at end of year                           $22,077,000        $26,913,000         $17,187,000 
                                                               ================   ================    ================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                                      
Income taxes paid, net of (refunds)                                $(1,050,000)       $ 2,033,000         $ 5,050,000 

Non-cash financing activity:                                                                                          
   Exercise of stock options using 800 and 100 shares                                                                 
      of common stock in 2001 and 2000, respectively               $                  $    10,000         $     4,000 


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

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 PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A - Nature of Business and Summary of Significant Accounting Policies      

The Company: Performance Technologies,  Incorporated (the Company) was formed in
1981 under the laws of the State of Delaware and maintains its corporate offices
in Rochester, New York. The Company is a leading developer of embedded computing
products and  system-level  solutions  for equipment  manufacturers  and service
providers   worldwide  with  competencies  in  compute  platforms,   IP/Ethernet
switching,  communications  software, wide area networking,  SS7/IP interworking
and high availability.                                                          

Segment Data,  Geographic  Information  and Significant  Customers:  The Company
operates in one  industry  segment.  Export  sales to  customers  outside  North
America  represented  25%, 27% and 30% of sales for the years ended December 31,
2002,  2001 and 2000,  respectively.  For 2002,  2001 and 2000,  four  customers
accounted for approximately  28%, 30% and 32%,  respectively,  of sales, with no
single  customer  representing  greater  than 9%, 9% and 12%,  respectively,  of
sales.                                                                          

Principles of Consolidation:  The consolidated  financial statements include the
accounts of the Company and its wholly owned subsidiaries.  Investments in which
the  Company  owns  20% to 50% of the  voting  stock  or  exercises  significant
influence  over  operating  and  financial  policies are accounted for using the
equity method of accounting.  In addition, the consolidated financial statements
include  the  operating  results  of  Ziatech  Corporation  from the date of the
acquisition  (Note B).  All  significant  inter-company  transactions  have been
eliminated.                                                                     

Foreign Currency Translation:  The Canadian dollar is the functional currency of
the Company's Canadian subsidiary.  Assets and liabilities of foreign operations
are  translated to U.S.  dollars at current  rates of exchange,  and revenue and
expenses  are  translated  using  average  rates.  Gains and losses from foreign
currency  translation are included in "Accumulated  other  comprehensive  income
(loss)" as a separate component of stockholders' equity. Translation adjustments
are not  tax-effected  as they relate to  investments  considered  permanent  in
nature.  Foreign  currency  transaction  gains and  losses are  included  in the
Consolidated Statements of Income.                                              

Use of Estimates:  The preparation of the consolidated  financial  statements in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities and disclosure of contingent  assets and liabilities at year-end and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.                                      

Concentration of Credit Risk: Financial  instruments that potentially expose the
Company to significant concentrations of credit risk consist principally of bank
deposits,  marketable securities and accounts receivable.  Marketable securities
consist of high quality, short-term interest-bearing financial instruments.  The
Company  performs  ongoing  credit  evaluations  of  its  customers'   financial
condition and maintains an allowance for uncollectable accounts receivable based
upon  the  expected   collectability  of  all  accounts  receivable.   UTStarcom
represented  23% of accounts  receivable  at December 31, 2002,  and  Telefonica
Moviles Espana and Bell Canada  represented 19% and 15% of accounts  receivable,
respectively, at December 31, 2001.                                             

Fair Value of  Financial  Instruments:  The  carrying  amounts of the  Company's
financial   instruments,   including  cash  and  cash  equivalents,   marketable
securities,  accounts receivable and accounts payable approximate fair values at
December 31, 2002 and 2001, as the maturity of these  instruments  are generally
short term.                                                                     

Note A - Nature of Business and Summary of Significant Accounting Policies      
(continued)                                                   

Cash Equivalents:  The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.       

Marketable  Securities:  The Company has classified  all of its marketable  debt
securities  as held to  maturity  and has  accounted  for these  investments  at
amortized cost.  Marketable  securities  classified as held to maturity are high
credit quality securities in accordance with the Company's investment policy.   

Inventories:  Inventories  are  valued at the lower of cost or market  using the
first-in,  first-out method. The Company provides inventory reserves for excess,
obsolete  or  slow  moving  inventory  based  on  changes  in  customer  demand,
technology developments or other economic factors.                              

Revenue  Recognition:  The Company recognizes revenue in accordance with the SEC
Staff  Accounting  Bulletin  (SAB) No. 101,  "Revenue  Recognition  in Financial
Statements."  Revenue is recognized  upon receipt of a signed  purchase order or
contract,  product shipment,  provided the sales price is fixed or determinable,
and collectability is reasonably assured. Revenue from arrangements for software
systems  requiring  significant  production,  modification,  or customization of
software is recognized  over the contract  period as performance  milestones are
fulfilled.  Revenue from consulting and other services is recognized at the time
the services are rendered.  Any  anticipated  losses on contracts are charged to
operations  as  soon  as such  losses  are  determined.  Revenue  from  software
maintenance contracts is recognized ratably over the contractual period.        

Property,  Equipment and Improvements:  Property, equipment and improvements are
stated at cost. Depreciation of equipment and improvements is provided for using
the straight-line method over the following estimated useful lives:             

Engineering equipment and software    3-5 years                             
Manufacturing equipment               3-5 years                             
Furniture and equipment               3-5 years                             
  Leasehold improvements                the lesser of 10 years or the lease term

Upon retirement or disposal of an asset,  the asset and the related  accumulated
depreciation are eliminated from the accounts with gains or losses included as a
component of "Other income" in the Consolidated Statements of Income.           

Long-Lived  Assets:  The Company regularly assesses all of its long-lived assets
for impairment when events or circumstances  indicate their carrying amounts may
not be  recoverable,  in  accordance  with  Statement  of  Financial  Accounting
Standards  (SFAS)  No.  144,  "Accounting  for the  Impairment  or  Disposal  of
Long-Lived Assets."                                                             

Research  and  Development:  Research  and  development  costs are  expensed  as
incurred.                                                                       

Advertising: Advertising costs are expensed as incurred and recorded in "Selling
and marketing" in the  Consolidated  Statements of Income.  Advertising  expense
amounted  to  $69,000,   $249,000  and   $244,000  for  2002,   2001  and  2000,
respectively.                                                                   

Software Development Costs: On a product-by-product  basis, software development
costs incurred subsequent to the establishment of technological  feasibility and
prior to general release of the product are capitalized and amortized commencing
after general  release over its estimated  remaining  economic  life,  generally
three years,  or using the ratio of current  revenues to current and anticipated
revenues from such software, whichever provides greater amortization.           

Note A - Nature of Business and Summary of Significant Accounting Policies      
(continued)                                                   

Income  Taxes:  The  Company  accounts  for  income  taxes  using  the asset and
liability  approach which requires  recognition of deferred tax  liabilities and
assets for the expected future tax consequences of temporary differences between
the  carrying  amounts  and the tax basis of such assets and  liabilities.  This
method utilizes enacted  statutory tax rates in effect for the year in which the
temporary  differences  are  expected to reverse and gives  immediate  effect to
changes in income tax rates upon enactment.  Deferred tax assets are recognized,
net of any valuation  allowance,  for deductible  temporary  differences and tax
credit  carryforwards.  Deferred  income tax expense  (benefit)  represents  the
change in net deferred tax asset and liability balances.                        

Stock Based  Employee  Compensation:  At December 31, 2002,  the Company had one
stock-based employee compensation plan. The Company accounts for this plan under
the recognition and  measurement  principles of APB Opinion No. 25,  "Accounting
for Stock Issued to Employees,"  and related  interpretations.  Accordingly,  no
stock-based employee compensation cost has been recognized in net income for the
stock  option  plan.  Had  compensation  cost for the  stock  option  plan  been
determined  based on the fair  value  recognition  provisions  of SFAS No.  123,
"Accounting for Stock-Based  Compensation,"  the Company's net income (loss) and
earnings (loss) per share would have been as follows:                           

                                                        [Enlarge/Download Table]
                                                                                                       

                                                                     Year Ended December 31,           
                                                           2002             2001              2000     
                                                    ---------------   ---------------   ---------------

Net income, as reported                               $   326,000        $5,186,000        $7,050,000  

Deduct: Total stock-based employee compensation                                                        
  expense determined under fair value based method                                                     
  for all awards, net of related tax effects           (2,285,000)       (1,699,000)       (2,480,000) 
                                                    ---------------   ---------------   ---------------
Pro forma net income (loss)                           $(1,959,000)       $3,487,000        $4,570,000  
                                                    ===============   ===============   ===============

Earnings (loss) per share:                                                                             
Basic - as reported                                   $       .03        $      .42        $      .54  
                                                    ===============   ===============   ===============
Basic - pro forma                                     $      (.16)       $      .28        $      .35  
                                                    ===============   ===============   ===============

Diluted - as reported                                 $       .03        $      .41        $      .51  
                                                    ===============   ===============   ===============
Diluted - pro forma                                   $      (.16)       $      .27        $      .33  
                                                    ===============   ===============   ===============

The assumptions  regarding the annual vesting of stock options were 25% per year
for options  granted in 2002 and 2001,  and 33% per year for options  granted in
2000.  The fair value of each  option  grant is  estimated  on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions  used for  grants  in 2002,  2001 and  2000:  Dividend  yield of 0%;
expected  volatility of 68%, 64% and 63%;  risk-free interest rate of 3.7%, 4.7%
and 6.2%;  and expected lives of four years in 2002 and 2001, and three years in
2000, respectively.                                                             

Earnings Per Share:  Basic earnings per share is computed by dividing net income
by the weighted  average  number of common  shares  outstanding  for the period.
Diluted earnings per share calculations reflect the assumed exercise of dilutive
employee  stock  options and  warrants,  applying  the  treasury  stock  method.
Dilutive  earnings per share  calculations  exclude the effect of  approximately
1,740,000,  864,000 and 236,000 options for 2002,  2001 and 2000,  respectively,
since such options have an exercise  price in excess of the average market price
of the Company's common stock for the respective periods.                       

Recent Accounting  Pronouncements:  FAS 141 - In June 2001, the FASB issued SFAS
No. 141, "Business  Combinations." SFAS No. 141 addresses  financial  accounting
and reporting for business combinations.  All business combinations in the scope
of this Statement are accounted for using one method,  purchase  accounting.  On
October 2, 2002, the Company  adopted SFAS No. 141. The purchase of a portion of
Intel   Corporation's   Communications   Platform  Division   (formerly  Ziatech
Corporation) was accounted for and reported in accordance with this Statement.  

FAS 144 - In August  2001,  the FASB issued SFAS No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." SFAS No. 144 addresses  financial
accounting and reporting for the impairment or disposal of long-lived  assets to
be held and used, to be disposed of other than by sale, and to be disposed of by
sale.  On January 1, 2002,  the Company  adopted SFAS No. 144.  Adoption of this
statement  did not have a material  impact on the results of  operations  or the
financial position of the Company.                                              

FAS 146 - In June 2002,  the FASB  issued SFAS No.  146,  "Accounting  for Costs
Associated  with Exit or  Disposal  Activities."  SFAS No. 146  requires  that a
liability for costs  associated with an exit or disposal  activity be recognized
when it is incurred and measured  initially at fair value.  On July 1, 2002, the
Company adopted SFAS No. 146. Adoption of this statement did not have a material
impact on the results of operations or the financial position of the Company.   

FAS 148 - In  December  2002,  the FASB issued  SFAS No.  148,  "Accounting  for
Stock-Based  Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123,  "Accounting  for Stock  Based  Compensation,"  to provide  alternative
methods of transition  for a voluntary  change to the fair value based method of
accounting for stock-based employee  compensation.  In addition,  this Statement
amends  the  disclosure  requirements  of  SFAS  No.  123 to  require  prominent
disclosures in both annual and interim financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on reported results. The Company has previously adopted the disclosure only
provisions  of  SFAS  No.  123,   "Accounting  for  Stock-Based   Compensation."
Accordingly, no compensation cost has been recognized for the stock option plan.
On December 31, 2002, the Company  adopted the disclosure  requirements  of SFAS
No.  148.  Adoption  of this  statement  did not have a  material  impact on the
results of operations or the financial position of the Company.                 

FIN 45 - In November 2002, the FASB issued  Interpretation No. 45.  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness of Others."  Interpretation  No. 45 required that at
the time a company  issues a guarantee,  the company  must  recognize an initial
liability for the fair value,  or market value,  of the  obligations  it assumes
under that guarantee.  This  interpretation is applicable on a prospective basis
to guarantees  issued or modified  after December 31, 2002. The Company does not
currently provide  significant  guarantees on a routine basis. As a result,  the
Company  does not  currently  believe this  interpretation  will have a material
impact on the results of operations or the financial position of the Company.   

FIN 46 - In January 2003, the FASB issued  Interpretation No. 46, "Consolidation
of Variable Interest Entities."  Interpretation No. 46 requires companies with a
variable  interest  entity  to apply  this  guidance  to that  entity  as of the
beginning of the first interim period beginning after June 15, 2003 for existing
interests and  immediately  for new interests.  The  application of the guidance
could  result in the  consolidation  of a  variable  interest  entity.  The only
variable interest entity of the Company is its investment in Momentum  Computer,
Inc.  disclosed  in Note  F.  The  Company  is  evaluating  the  impact  of this
interpretation on financial results.                                            

Note B - Acquisition                                                            

On October  2,  2002,  the  Company  acquired  a portion of Intel  Corporation's
Embedded Communications Platform Division (Ziatech Corporation). The acquisition
of all outstanding  shares of Ziatech  Corporation  (Ziatech) was completed at a
cash purchase price of $2,967,000.  The results of Ziatech have been included in
the consolidated financial statements from the date of acquisition.  The Ziatech
single board  computer and chassis  products  will enable the Company to serve a
broader range of customers in the Company's  target markets.  The purchase price
allocation  was prepared in  accordance  with the  application  of SFAS No. 141,
"Business  Combinations." Following is a summary of the estimated fair values of
the assets acquired and liabilities assumed as of the date of the acquisition:  

Inventories, net                                                 $ 1,670,000    
All other current assets                                           1,343,000    
Property, equipment and improvements                                 554,000    
Acquired in-process research and development                         366,000    
                                                              ----------------
Total assets acquired                                           3,933,000 
                                                              ----------------

Current liabilities                                                  290,000    
Acquisition costs incurred                                           676,000    
                                                              ----------------
Total liabilities acquired and acquisition costs                  966,000 
                                                              ----------------

Purchase price                                                $ 2,967,000 
                                                              ================

The value of $366,000 assigned to acquired  in-process  research and development
(IPR&D) was expensed upon acquisition  because the technological  feasibility of
all acquired  projects under  development  had not been  established  and had no
alternative  future use. The IPR&D relates to certain  single board computer and
chassis products for use in embedded  systems.  Certain amounts reflected in the
purchase price allocation are preliminary;  however, the Company does not expect
material changes.                                                               

Note C - Accounts Receivable, net                                               

Accounts receivable consisted of the following:           At December 31,       
                                                 2002             2001
                                                  -------------    -------------
Accounts receivable                               $ 6,923,000      $ 7,189,000  
Less:  allowance for doubtful accounts               (301,000)        (284,000) 
                                                  -------------    -------------
    Net                                         $ 6,622,000      $ 6,905,000
                                                  =============    =============

Note D - Inventories, net                                                       

Inventories consisted of the following:                   At December 31,       
                                                 2002             2001
                                                  -------------    -------------

Purchased parts and components                    $ 3,967,000      $ 1,329,000  
Work in process                                     2,046,000        2,778,000  
Finished goods                                      2,088,000          468,000  
                                                  -------------    -------------
                                                  8,101,000        4,575,000
Less:  reserve for inventory obsolescence          (3,551,000)        (819,000) 
                                                  -------------    -------------
    Net                                         $ 4,550,000      $ 3,756,000
                                                  =============    =============

The reserve for inventory  obsolescence includes $2,666,000 at December 31, 2002
for the newly acquired Ziatech Corporation.                                     

Note E - Property, Equipment and Improvements, net                              

Property, equipment and improvements consisted of the following:                
                                                   At December 31,
                                                 2002             2001
                                                  -------------    -------------
Land                                               $  407,000        $  407,000 
Engineering equipment and software                  4,180,000         3,876,000 
Manufacturing equipment                             1,955,000         1,313,000 
Furniture and equipment                             1,655,000         1,364,000 
Leasehold improvements                                271,000           166,000 
                                                  -------------    -------------
                                                   8,468,000         7,126,000
Less: accumulated depreciation and amortization    (5,456,000)       (4,661,000)
                                                  -------------    -------------
     Net                                          $3,012,000        $2,465,000
                                                  =============    =============

Total  depreciation and amortization  expense for equipment and improvements for
2002, 2001 and 2000 was $1,070,000, $975,000 and $894,000, respectively.        

Note F - Investment in Unconsolidated Company                                   

In September 2002, the Company completed an agreement to invest $1,500,000 for a
47% ownership interest in Momentum  Computer,  Inc.  (Momentum),  a developer of
specialized  single  board  computer  solutions  for  the  data  communications,
telecom,  military and aerospace markets. This investment is accounted for under
the equity method. The Company has an option to acquire the remaining  ownership
of Momentum during a specified future period for additional  consideration based
on a formula calculation.  As part of the investment agreement, the Company also
loaned  $1,000,000 to Momentum to be used for its working capital  requirements.
This loan is due and payable  September,  2006,  is  guaranteed  by the majority
stockholder,  and carries an  interest  rate at the prime rate or prime plus two
percent.  The Company  records its  investment  in Momentum on the  Consolidated
Balance  Sheets  as  "Investment  in  unconsolidated  company"  and its share of
Momentum's earnings or loss as "Equity in loss of unconsolidated company, net of
tax" on the Consolidated Statements of Income.                                  

Note G - Accrued Expenses                                                       

Accrued expenses consisted of the following:              At December 31,       
                                                 2002             2001
                                                -------------  -------------

Accrued compensation                              $ 1,642,000    $ 1,294,000    
Accrued professional services                         453,000        329,000    
Deferred revenue                                      470,000        917,000    
Accrued restructuring charges                         163,000                   
Other accrued expenses                                485,000        506,000    
                                                -------------  -------------
  Total                                       $ 3,213,000    $ 3,046,000
                                                =============  =============

Note H - Credit Agreements                                                      

At December 31, 2002,  the Company had a revolving  credit loan agreement with a
bank under  which it can  borrow up to $5  million,  which  expires on April 15,
2003.  Borrowings bear interest either at the bank's prime rate or the one-month
LIBOR rate plus applicable basis points as outlined in the agreement. Borrowings
are collateralized by trade accounts receivable,  inventory, equipment, contract
rights and  intangibles.  The  agreement  requires  the Company to meet  certain
financial and non-financial  covenants. As a result of the net loss in the third
quarter  2002,  the Company was in violation of one of the  covenants  under the
revolving credit facility.  Subsequent to the end of the quarter, the default on
the  covenant  violation  was waived.  The Company was in  compliance  with such
covenants at December 31, 2002.  There were no balances  outstanding  under this
agreement  at  December  31,  2002 and 2001.  The annual fee on the credit  loan
agreement is immaterial.                                                        

Note I - Commitments                                                            

The Company leases  facilities  under operating  leases.  Under the terms of the
facility lease in Rochester,  New York, which expires in March 2012, the Company
agreed to pay an  annual  rental  of  $740,000  in the  first  full  year,  with
pre-established  adjustments  for each year  thereafter.  Under the terms of the
facility lease in San Luis Obispo,  California,  which expires in December 2008,
the Company agreed to pay an annual rental of $422,000 with an annual adjustment
based on the Consumer  Price Index.  For both lease  agreements,  the Company is
also  required  to pay the  pro  rata  share  of the  real  property  taxes  and
assessments,  expenses and other charges  associated with these facilities.  The
Company has leased facilities in its other operating  locations in North America
that expire between 2003 through 2005.                                          

Future minimum lease  payments for all operating  leases having a remaining term
in excess of one year at December 31, 2002 are as follows:                      

2003                                        $ 1,429,000     
2004                                          1,443,000     
2005                                          1,296,000     
2006                                          1,295,000     
2007                                          1,321,000     
Thereafter                                    3,867,000     
                                       -----------
Total minimum lease payments                          $10,651,000               
                                       ===========

Rental expense amounted to $1,218,000,  $908,000 and $830,000 for 2002, 2001 and
2000, respectively.                                                             

Note J - Stockholders' Equity                                                   

On February 9, 2000,  the  stockholders  approved an  amendment  to the Restated
Certificate of Incorporation to increase the number of authorized common shares,
from 15 million shares to 50 million shares.                                    

In August 2000,  the Board of Directors  authorized  the repurchase of up to one
million shares of the Company's common stock and the Company repurchased 341,800
and 658,200 of its common shares in 2001 and 2000, respectively.  The total cost
of  repurchasing  such shares was  $4,699,000  and  $8,825,000 in 2001 and 2000,
respectively. This program was completed in March 2001.                         

In March 2001, the Board of Directors authorized the repurchase of an additional
five hundred  thousand shares of the Company's common stock. The Company did not
repurchase  any shares  under this  program in 2002.  During  2001,  the Company
repurchased  a total of  205,534  shares  at a total  cost of  $2,173,000.  This
program expired in March 2002.                                                  

In  August  2002,  the  Board  of  Directors  authorized  the  repurchase  of an
additional  one million shares of the Company's  common stock.  During 2002, the
Company  repurchased a total of 34,511 shares at a total cost of $119,000  under
this program.                                                                   

Note K - Stock Option Plan                                                      

In 1986, the Company  established  the 1986 Incentive Stock Option Plan pursuant
to which the Board of Directors  reserved  2,700,000  shares of common stock for
grant. On February 9, 2000, the stockholders  approved an amendment to the Stock
Option Plan to increase, by 500,000 shares, the number of authorized shares that
may be issued pursuant to this Plan. On May 31, 2001, the stockholders  approved
the 2001 Stock Option Plan  pursuant to which  1,500,000  shares of common stock
were  reserved  for grant.  The 2001 Stock  Option Plan  replaced the 1986 plan,
which expired on December 31, 2001.  Options for the purchase of 276,000  shares
available for issuance  under the 1986 plan were  cancelled upon adoption of the
2001 plan.  Options  may be granted to any  officer or employee at not less than
the fair  market  value at the date of grant  (not  less  than  110% of the fair
market  value in the case of  holders of more than 10% of the  Company's  common
stock).  Options granted under the plans generally expire five or six years from
the date of grant and generally vest over three, four or five years.            

With respect to non-qualified options, the Company recognizes a tax benefit upon
exercise  in an amount  equal to the tax effect of the  difference  between  the
option price and the fair market value of the common stock at the exercise date.
Tax  benefits  related to such  non-qualified  stock  options  are  credited  to
additional paid-in capital.                                                     

The following table summarizes stock option activity under these plans:         

                                                                [Download Table]
                                                                                    

                                                    Weighted-Average    Option      
                                  Number of Shares   Exercise Price   Price Range   

Outstanding at January 1, 2000        1,115,418           $8.72       $1.22 - $18.75
Granted                                 526,375          $15.14       $9.00 - $28.75
Exercised                               (77,249)          $5.38       $1.22 -  $9.75
Expired                                 (64,013)         $14.09       $5.94 - $28.75
                                     -----------                                    
Outstanding at December 31, 2000      1,500,531          $10.91       $4.44 - $28.75
Granted                                 572,950          $13.85       $8.00 - $14.50
Exercised                               (65,650)          $7.36       $4.44 - $10.25
Expired                                (189,001)         $15.05       $6.17 - $28.75
                                     -----------                                    
Outstanding at December 31, 2001      1,818,830          $11.54       $4.83 - $28.75
Granted                                 615,250           $7.72       $3.40 -  $8.60
Exercised                               (45,362)          $5.51       $4.83 -  $9.88
Expired                                (242,038)         $12.55       $7.82 - $28.75
                                      ----------                                    
Outstanding at December 31, 2002      2,146,680          $10.46       $3.40 - $28.75
                                     ===========                                    

The following table summarizes  information  about stock options at December 31,
2002:                                                                           

                                                        [Enlarge/Download Table]

                                     Options outstanding                Options exercisable    

                                                                                               

                                         Weighted      Weighted                      Weighted  
                                          average      average                       average   
      Range of                           remaining     exercise                      exercise  
   exercise price          Options      life (yrs)      price          Options        price    
---------------------  --------------- ------------ -------------  -------------- -------------
   $ 3.40-$ 6.14           508,355        4.0          $ 4.88         404,105        $ 5.15    
   $ 6.15-$ 8.89           511,100        4.7          $ 8.43          58,650        $ 7.75    
   $ 8.90-$11.64           387,475        1.3          $ 9.49         326,970        $ 9.43    
   $11.65-$14.39           510,250        5.1          $13.84         289,995        $13.88    
   $14.40-$28.75           229,500        2.1          $21.44         150,033        $20.80    
---------------------  --------------- ------------ -------------  -------------- -------------
                         2,146,680        3.7          $10.46       1,229,753        $10.38    
                       =============== ============ =============  ============== =============

At December 31, 2002,  875,050 options were available for future grant under the
stock option  plan.  During 2001 and 2000,  warrants for 56,250  shares for each
year,  issued at fair market value in 1995,  were  exercised at a price of $1.22
per share. At December 31, 2002, there are no warrants outstanding.             

Note L - Stockholder Rights Plan                                                

On October 27, 2000,  the  Company's  Board of Directors  adopted a  Stockholder
Rights Plan. Under this plan, one preferred stock Purchase Right was distributed
as a dividend for each share of common stock held by the  stockholders of record
as of the close of business of November 8, 2000. Until the occurrence of certain
events,  the Rights are traded as a unit with the common stock.  Each Right will
separate and entitle  stockholders  to buy stock upon the  occurrence of certain
events  generally  related to the change of control of the Company as defined in
the Plan. The Rights become exercisable ten days after either: (1) an "Acquiring
Person"  acquires  or  commences  a tender  offer to acquire  15% or more of the
Company's  common stock, or (2) an "Adverse  Person" has acquired 10% or more of
the  Company's  common stock and the Board  determines  this person is likely to
cause  pressure  on the Company to enter into a  transaction  that is not in the
Company's best long-term interest. All Rights not held by an Acquiring Person or
an Adverse Person become rights to purchase from the Company one  one-thousandth
of one share of preferred stock at an initial  exercise price of $110 per Right.
Each Right  entitles the holder of that Right to purchase the equivalent of $220
worth of the Company's common stock for $110. If after such an event the Company
merges,  consolidates  or engages in a similar  transaction in which it does not
survive,  each  holder has a "flip over"  right to buy  discounted  stock in the
surviving  entity.  The Company may redeem the Rights for $.001 each. The Rights
Plan expires on November 1, 2010 or can be modified or terminated, at the option
of the Board of Directors.                                                      

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Note M - Income Taxes                                                           

Pre-tax  earnings and provision for income taxes  consisted of the following for
the years ended December 31, 2002, 2001 and 2000:                               

                                                        [Enlarge/Download Table]
                                                                                                              
                                                                    2002              2001             2000   
                                                               -------------     -------------    ------------

Pre-tax earnings (loss):                                                                                      
   United States                                                $(1,125,000)      $ 6,265,000     $  9,784,000
   Outside United States                                            727,000         1,475,000        1,046,000
                                                               -------------     -------------    ------------
   Total pre-tax earnings (loss)                               $   (398,000)      $ 7,740,000      $10,830,000
                                                               =============     =============    ============

The provisions (benefit) for income taxes were as follows:                                                    
                                                                    2002              2001             2000   
                                                               --------------    -------------    ------------
Current income tax provision (benefit):                                                                       
   Federal                                                     $   (827,000)      $ 1,551,000     $  2,874,000
   State                                                           (102,000)          198,000          288,000
   Foreign                                                           76,000           401,000           99,000
                                                               -------------     -------------    ------------
                                                                   (853,000)        2,150,000        3,261,000
Deferred provision                                                   34,000           404,000          519,000
                                                               -------------     -------------    ------------
   Total provision (benefit)                                   $   (819,000)      $ 2,554,000     $  3,780,000
                                                               ============      =============    ============

Reconciliation of the statutory U.S. federal income tax rate to effective rates were as follows:              
                                                                    2002              2001             2000   
                                                                    ----              ----             ----   
Federal income tax at statutory rate                                34.0%            34.0%             34.0%  
State tax provision, net of federal benefit                         17.0              1.7               1.8   
Tax credits                                                         90.9             (4.5)             (2.0)  
Foreign sales exemption                                             46.8             (3.4)             (2.8)  
Acquired in-process research and development                       (31.3)                                     
Other                                                               48.4              5.2               3.9   
                                                                   ------            ------            ------ 
   Effective tax rate                                              205.8%            33.0%             34.9%  
                                                                   ======            ======            ====== 


The deferred income tax assets and liabilities consisted of the following:      

                                                        [Enlarge/Download Table]
                                                                                                

                                                                          At December 31,       
Assets                                                                  2002             2001   
-------                                                            --------------- -------------
Accrued vacation, payroll and other accrued expenses              $    181,000     $    111,000 
Inventory obsolescence reserve and other inventory related items     1,272,000          320,000 
Bad debt reserve                                                       105,000           87,000 
Loss in investment in unconsolidated company                            51,000                  
Research tax credits                                                                     16,000 
Other                                                                  (35,000)          74,000 
                                                                   --------------- -------------
   Total deferred tax assets                                      $  1,574,000     $    608,000 
                                                                   --------------- -------------

Liabilities                                                                                     
-----------                                                                                     
Capitalized software development cost, net                        $   (724,000)    $   (682,000)
Difference in tax basis of assets                                       37,000          (22,000)
Investment tax credit                                                  (67,000)         (95,000)
                                                                   --------------- -------------
   Total deferred tax liabilities                                     (754,000)        (799,000)
                                                                   --------------- -------------
     Net deferred tax asset (liability)                           $    820,000     $   (191,000)
                                                                   =============== =============

The  deferred  income tax asset for  inventory  obsolescence  reserve  and other
inventory  related  items  includes $941,000 at December  31, 2002 for the newly
acquired Ziatech Corporation.                                                   

As  of  December  31,  2002,  no  deferred  taxes  have  been  provided  on  the
undistributed earnings of its Canadian subsidiary,  as the Company does not plan
to initiate any action that would require the payment of income taxes. It is not
practicable  to estimate the amount of  additional  tax that might be payable on
these undistributed earnings.                                                   

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Note N - Research and Software Development Costs                                

The Corporation incurred research and software development costs relating to the
development of new products as follows:                                         
                                      2002           2001         2000
                                      -------------   ------------  ------------

Gross expenditures for engineering and                                          
  software development                $8,102,000     $9,595,000     $9,745,000
Less:  amounts capitalized             (1,188,000)    (1,654,000)      (819,000)
                                      -------------   ------------  ------------
  Net charged to operating expenses   $6,914,000     $7,941,000     $8,926,000
                                      =============   ============  ============

Software development costs consisted of the following:                          
                                                     At December 31,
                                                     2002           2001
                                                      ------------  ------------

Capitalized software development costs                $4,167,000    $5,202,000  
Less:  accumulated amortization                       (2,099,000)   (3,254,000) 
                                                      ------------  ------------
 Net                                                $2,068,000    $1,948,000
                                                      ============  ============

Amortization  of software  development  costs included in cost of goods sold was
$1,068,000, $558,000 and $419,000 for 2002, 2001 and 2000, respectively.        

Note O - Employee Benefit Plans                                                 

For the Company's  operations  in the United  States,  the Company's  Retirement
Savings  Plans  qualify  under  Section  401(k) of the  Internal  Revenue  Code.
Discretionary  matching  contributions by the Company to the plans were $15,000,
$99,000 and $133,000 for 2002, 2001 and 2000, respectively.  In conjunction with
its Flexible Benefits plans, the Company made additional discretionary qualified
contributions to employee accounts which vest immediately  amounting to $82,000,
$119,000 and $139,000 for 2002, 2001 and 2000, respectively.                    

For its operations in Canada, contributions were made to a Registered Retirement
Savings  Plan  (RRSP)  that  is   administered   by  the  Canadian   government.
Discretionary  matching  contributions  to the Plan were  $28,000,  $186,000 and
$190,000 for 2002, 2001 and 2000, respectively.                                 

Note P - Litigation                                                             

Following the Company's  announcement  on May 19, 2000 regarding its preliminary
results of operations for the second quarter, several class action lawsuits were
filed in the United States  District Court for the Western  District of New York
against the Company, as well as several of its officers and directors,  alleging
violations  of federal  securities  laws.  On September  25,  2002,  the Company
announced it had signed a Memorandum of Understanding  for the settlement of the
class action litigation.  The Company recorded a charge of $143,000 in the third
quarter of 2002 in connection with the  litigation.  The terms of the settlement
outlined in the memorandum  between the Company and the class action  plaintiffs
have been  submitted  to the Court in the form of a settlement  agreement.  This
proposed settlement will be subject to Court acceptance and approval.           

The Company is subject to various other legal  proceedings and claims that arise
in the ordinary course of business. In the opinion of management,  the amount of
any ultimate  liability with respect to these actions will not materially affect
the financial position of the Company.                                          

Note Q - Transactions with Related Parties                                      

Prior to the  Company  relocating  to its  current  corporate  headquarters  and
manufacturing facility in April 2002, the Company leased its primary facility in
Rochester,  New York from an entity  controlled by two directors of the Company.
During 2002,  2001 and 2000,  the Company  paid rent of  $117,000,  $347,000 and
$335,000,  respectively,  for the use of this  location.  This lease  expired in
April 2002.                                                                     

Note R - Restructuring Programs                                                 

During  2002,  the  Company  recorded  restructuring  charges of $573,000 as the
Company  improved  its  cost  structure  primarily  through  reductions  in  the
Company's staff and by consolidating the engineering  operations of its Raleigh,
North Carolina  facility into its Ottawa,  Canada  Signaling Group. The programs
were  completed  during the first and third  quarters of 2002 as the  continuing
decline in capital  spending in the Company's  target markets  resulted in lower
than anticipated  Company revenue.  The restructuring  charges were comprised of
$341,000 for employee  severance and related  costs,  $177,000  related to lease
commitments for the closure of the Raleigh,  North Carolina facility and $55,000
for the disposal of equipment and leasehold improvements.  The severance charges
were  for   approximately  40  employees  and  were  initiated   throughout  the
organization.  Substantially, all actions under these programs were completed in
2002,  although lease  commitments  will continue through 2005. A summary of the
activity with respect to the restructuring accrual is as follows:               

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                                                        [Enlarge/Download Table]
                                                                                      

                        Severance                                                     
                       and related       Leasehold          Asset                     
                          costs          commitments      impairment         Total    
                    ----------------  ----------------  --------------  --------------
2002 charge              $341,000          $177,000         $55,000        $573,000   
2002 utilization         (332,000)          (23,000)        (55,000)       (410,000)  
                    ----------------  ----------------  --------------  --------------
Balance at                                                                            
   December 31, 2002     $  9,000          $154,000                        $163,000   
                    ================  ================  ==============  ==============


Note S - Quarterly Results (unaudited)                                          

The following is a summary of unaudited  quarterly results of operations for the
years ended December 31, 2002 and 2001.                                         

                                                        [Enlarge/Download Table]
                                                                                        

                                                         2002                           
                               ---------------------------------------------------------

                                         (in thousands, except per share data)          
                                 Mar. 31         Jun. 30        Sep. 30        Dec. 31  
                               -----------    ------------    -----------    -----------
Sales                             $6,407          $6,619         $3,955        $10,033  
Gross profit                       3,755           3,943          1,739          4,731  
Income (loss) from operations        454             468         (1,803)           (67) 
Net income (loss)                    393             407         (1,191)           717  

Basic earnings per share          $ 0.03          $ 0.03         $(0.10)       $  0.06  

Diluted earnings per share        $ 0.03          $ 0.03         $(0.10)       $  0.06  

                                                         2001                           
                               ---------------------------------------------------------
                                         (in thousands, except per share data)          
                                 Mar. 31         Jun. 30        Sep. 30        Dec. 31  
                               -----------    ------------    -----------    -----------
Sales                             $9,700          $9,444         $9,871        $ 7,502  
Gross profit                       5,891           5,833          6,493          4,973  
Income from operations             1,364           1,638          2,456          1,311  
Net income                         1,152           1,259          1,770          1,005  

Basic earnings per share          $ 0.09          $ 0.10         $ 0.14        $  0.08  

Diluted earnings per share        $ 0.09          $ 0.10         $ 0.14        $  0.08  


Due to  rounding,  the sum of the  quarters  in 2002 and 2001 does not equal the
total earnings per share for the year.                                          

ITEM 9 - Changes in and Disagreements with Accountants on Accounting and        
Financial Disclosure                                          

None.                                                                           

PART III                                                                        

The information required by Part III, Items 10 - 13, is omitted from this Report
and presented in the Company's definitive proxy statement to be filed,  pursuant
to  Regulation  14A not later  than 120 days  after the end of the  fiscal  year
covered by this Report,  in  connection  with the  Company's  Annual  Meeting of
Stockholders to be held on June 3, 2003, which  information  included therein is
incorporated herein by reference.                                               

ITEM 10 - Directors and Executive Officers of the Registrant                    

The section  entitled  "Election of Directors"  appearing in the Company's proxy
statement  for the Annual  Meeting of  Stockholders  to be held on June 3, 2003,
sets forth  certain  information  with respect to the  directors  and  executive
officers of the Company and is incorporated herein by reference.                

ITEM 11 - Executive Compensation                                                

The section entitled "Executive  Compensation"  appearing in the Company's proxy
statement  for the Annual  Meeting of  Stockholders  to be held on June 3, 2003,
sets forth certain information with respect to the compensation of management of
the Company and is incorporated herein by reference.                            

ITEM 12 - Security Ownership of Certain Beneficial Owners and Management        

The  section  entitled  "Security  Ownership  of Certain  Beneficial  Owners and
Management" appearing in the Company's proxy statement for the Annual Meeting of
Stockholders  to be held on June 3, 2003,  sets forth certain  information  with
respect to the  ownership  of the  Company's  Common  Stock and is  incorporated
herein by reference.  Information  required by this item  concerning  securities
authorized for issuance under equity  compensation plans is included in Part II,
Item 5 under the caption "Equity Plan Information."                             

ITEM 13 - Certain Relationships and Related Transactions                        

The section  entitled  "Certain  Transactions"  appearing in the Company's proxy
statement  for the Annual  Meeting of  Stockholders  to be held on June 3, 2003,
sets forth certain  information with respect to certain  business  relationships
and  transactions  between the Company and its  directors  and  officers  and is
incorporated herein by reference.                                               

ITEM 14 - Controls and Procedures                                               

a.    Evaluation of Disclosure Controls and Procedures                    

         In accordance with Rule  13a-15(b)  of the  Securities  Exchange Act of
         1934 (the "Exchange Act"),  within 90 days prior to the filing  date of
         this  Annual  Report on Form 10-K,  an evaluation was carried out under
         the supervision and with the participation of the Company's management,
         including  the certifying  officers of the effectiveness  of the design
         and operation of the Company's disclosure controls and  procedures  (as
         defined in  Rule 13a-14(c)  under the Exchange  Act).  Based upon their
         evaluation of  these disclosure controls and procedures, the certifying
         officers  concluded  that the disclosure  controls and  procedures were
         effective as of  the date of  such  evaluation to ensure that  material
        information  relating  to  the  Company,  including  its  consolidated
         subsidiaries,  was made known to them by others  within those entities,
         particularly during the period in which this Annual Report on Form 10-K
was being prepared.                                           

b.    Changes in Internal Controls                                        

         There were no significant changes in the Company's internal controls or
         other factors that could significantly affect these controls subsequent
to the date of their evaluation.                              

PART IV                                                                         

ITEM 15 - Exhibits, Financial Statement Schedules and Reports on Form 8-K       

(1)      Financial Statements                                                   
       The financial statements filed as part of this report are included in
the response to Item 8 of Part III of this 10-K report.       

(2)      Financial Statement Schedules                                          

Schedule II - Valuation and Qualifying Accounts               

Schedule II a - Allowance for Doubtful Accounts               

                                                        [Enlarge/Download Table]
                                                                                                     
                                                            Additions                                
                                                           (reversals)   Deductions                  
                                            Balance at     -----------   -----------     Balance at  
                                             beginning     charged to       amounts        end of    
                                             of period      earnings      written off      period    
                                            ------------  -------------   -------------  ------------

Year Ended December 31, 2002                                                                         
Deducted in the Consolidated Balance Sheet                                                           
   from Accounts Receivable                                                                          

   Allowance for doubtful accounts             $284,000       $200,000        $183,000      $301,000 
                                            ============  =============   =============  ============
Year Ended December 31, 2001                                                                         
Deducted in the Consolidated Balance Sheet                                                           
   from Accounts Receivable                                                                          

   Allowance for doubtful accounts             $186,000       $152,000         $54,000      $284,000 
                                            ============  =============   =============  ============

Year Ended December 31, 2000                                                                         
Deducted in the Consolidated Balance Sheet                                                           
   from Accounts Receivable                                                                          

   Allowance for doubtful accounts             $795,000      $ (70,000)       $539,000      $186,000 
                                            ============  =============   =============  ============


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Schedule II b - Reserve for Inventory Obsolescence            

                                                        [Enlarge/Download Table]
                                                                                                                
                                                               Additions             Deductions                 
                                        Balance at    -----------------------------  ------------   Balance at  
                                        beginning     charged to                       Amounts        end of    
                                        of period      earnings        Other (1)     written off      period    
                                       -------------  ------------    -------------  ------------  -------------

Year ended December 31, 2002                                                                                    
Deducted in the Consolidated                                                                                    
   Balance Sheet from Inventories                                                                               

   Reserve for inventory obsolescence    $  819,000    $  980,000       $2,916,000    $1,164,000     $3,551,000 
                                       =============  ============    =============  ============  =============

Year ended December 31, 2001                                                                                    
Deducted in the Consolidated                                                                                    
   Balance Sheet from Inventories                                                                               

   Reserve for inventory obsolescence    $1,124,000    $  708,000                     $1,013,000     $  819,000 
                                       =============  ============    =============  ============  =============

Year ended December 31, 2000                                                                                    
Deducted in the Consolidated                                                                                    
   Balance Sheet from Inventories                                                                               

   Reserve for inventory obsolescence    $  918,000    $1,027,000                     $  821,000     $1,124,000 
                                       =============  ============    =============  ============  =============


(1) The value assigned to the reserve for inventory  obsolescence  at October 2,
2002 for the inventory associated with the Ziatech acquisition.                 

There were no other financial  statement  schedules required to be filed because
they are not applicable or the required information is shown in the Consolidated
Financial Statements or notes thereto.                                          

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(3) Exhibits                                                                    
Exhibit  Ref.                                                                   
Number   Number        Description                                              

2.1      (12)          Stock Purchase  Agreement  between Intel  Corporation and
                          the Registrant,  dated as of September 12, 2002.
3.1      (1)           Restated Certificate of Incorporation                    
3.2      (5)           Certificate of Amendment                                 
3.3      (1)           Amended By-laws                                          
4.1      (1)           Form of Common Stock Certificate                         
4.2      (1)           Amended and Restated 1986 Incentive Stock Option Plan    
4.4      (6)           February 2000 Amendment to Amended and Restated 1986     
     Incentive Stock Option Plan
4.5      (7)           Rights Agreement                                         
4.6      (9)           2001 Incentive Stock Option Plan                         
10       (1)           Material Contracts                                       
10.1     (3)           Revolving Credit  Agreement dated as of December 30, 1998
                        between the Registrant and The Chase Manhattan
Bank, N.A.            
10.1a    (8)           Amendment Number One to Revolving Credit  Agreement dated
                             as of  November  1, 2000 between the Registrant and
        The Chase Manhattan Bank, N.A.
10.1b    (11)          Amendment Number Two to Revolving Credit Agreement  dated
                             as of October  30, 2002 between the Registrant  and
                             JPMorgan  Chase Bank,  formerly known as The  Chase
Manhattan Bank, N.A.  
10.1c    (*)           Amendment  Number  Three to  Revolving  Credit  Agreement
                             dated as of March 13, 2003  between the  Registrant
                             and  JPMorgan  Chase  Bank, formerly known  as  The
    Chase Manhattan Bank, N.A.
10.2     (3)           Revolving  Credit Note in the amount of  $5,000,000 dated
                             December 30, 1998  given by the  Registrant to  The
    Chase Manhattan Bank, N.A.
10.3     (1)           Security  Agreements  granted  by  the  Registrant to The
                             Chase  Manhattan  Bank, N.A. dated as of  April 13,
                             1985,  April 13, 1993 and as of June 17, 1993,  and
                             with respect to  Performance  Computer  Corporation
                             only, the Security  Agreement dated as of  June 17,
                             1993  granted  to The  Chase  Manhattan  Bank, N.A.
                             by  Performance  Computer  Corporation  and certain
                             other  Affiliates of  the  Registrant  (which other
                             Affiliates  have been  released) and all amendments
    and  modifications thereto
10.10    (1)(10)       Sublease  Agreement  between  the  Registrant  and  C & J
                             Enterprises dated  as  of  September 1, 1990  -  as
amended               
10.16    (1)           License  Agreement  between  the  Registrant  and  Spider
               Systems  Limited dated March 18, 1992
10.28    (1)           Adoption  Agreement  between the Registrant and Principal
                             Mutual Life  Insurance  Company dated September 20,
1993                  
10.29    (1)           The Principal Financial  Group  Prototype  Basic  Savings
Plan dated May 7, 1990
10.30    (1)           Form of Stock Option Agreement                           
10.31    (1)           Form of Warrant Agreement                                
10.32    (4)           Share  Acquisition  Agreement   between   Registrant  and
                             MicroLegend Telecom Systems, Inc. as of December 2,
1999                  
10.33    (4)           Amendment   to   Share  Acquisition   Agreement   between
                             Registrant and MicroLegend Telecom Systems, Inc. as
of December 10, 1999  
10.33a   (10)          Lease  Agreement  dated  as of May 19, 2001  between  the
        Registrant and Christa PT, LLC
10.33b   (10)          First  Amendment  to  Lease  dated  as  of  July 19, 2001
                    between the Registrant and Christa PT, LLC
10.33c   (10)          Second  Amendment  to  Lease  dated  as of  July 31, 2001
                      between the  Registrant  and Christa PT, LLC
21       (*)           Subsidiaries                                             
23.1     (*)           Consent of PricewaterhouseCoopers, LLP                   
99.1     (*)           Chief Executive Officer Sarbanes-Oxley 906  Certification
99.2     (*)           Chief Financial Officer Sarbanes-Oxley 906  Certification
--------------------------------------------------------------------------------
(1)    Incorporated  by reference to the  Registrant's  Registration  Statement 
on Form S-1 filed November 22, 1995 (Registration No. 33-99684).  
(2)    Incorporated  by  reference  to the  Registrant's  Registration Statement
on Form S-8 filed July 30,  1997 (Registration No. 333-32421).    
(3)    Incorporated by reference to the Annual Report on Form 10-K filed March  
30,1999.                                                          
(4)    Incorporated by reference to the Registrant's  Registration  Statement on
Form S-3 filed  January 28, 2000 (Registration No. 333-94371).    
(5)    Incorporated  by  reference  to the Annual  Report on  Form 10-K filed on
March 30, 2000.                                                   
(6)    Incorporated  by  reference  to the Registrant's  Registration  Statement
on Form S-8 filed June 21,  2000 (Registration No. 333-39834).    
(7)    Incorporated  by reference to the Registrant's Registration  Statement on
Form 8-A filed  November 8, 2000 (Registration No. 000-27460).    
(8)    Incorporated  by reference to the  Annual  Report on  Form 10-K  filed on
March 30, 2001.                                                   
(9)    Incorporated  by  reference  to the Registrant's  Registration  Statement
on Form S-8  filed  June 3, 2002 (Registration No. 333-89636).    
(10)   Incorporated by reference to the Quarterly Report on  Form 10-Q  filed on
August 14, 2001.                                                  
(11)   Incorporated by reference to the  Quarterly  Report on Form 10-Q filed on
November 5, 2002.                                                 
(12)   Incorporated by reference to the Current Report on Form 8-K filed October
17, 2002.                                                         
(*)    Filed with this Form 10-K.                                               

(4)    Reports on Form 8-K                                                      

The  following  reports were filed during the three month period ended  December
31, 2002:                                                                       

On October  16, 2002 the Company  filed a Current  Report on Form 8-K,  Item 5 -
Other; The Company announced the resignation of Arlen Vanderwel as a Director of
Performance  Technologies,  Incorporated,  effective  October  1,  2002,  citing
concerns about requiring  continued  review of potential  conflicts of interests
with his current employer as the Company expands its product and market breadth.
No financial statements were filed with the Form 8-K.                           

On October  17, 2002 the Company  filed a Current  Report on Form 8-K,  Item 2 -
Acquisition or Disposition of Assets;  On October 2, 2002 the Company acquired a
portion  of  Intel  Corporation's  Embedded   Communications  Platform  Division
(formerly Ziatech  Corporation).  The acquisition was completed  pursuant to the
Stock Purchase  Agreement,  dated September 12, 2002,  between Intel Corporation
and  Performance  Technologies,  Incorporated  to  acquire  all the  issued  and
outstanding shares of Ziatech  Corporation.  No financial  statements were filed
with the Form 8-K.                                                              

On December 16, 2002 the Company filed a Current Report on Form 8-K/A,  Item 7 -
Financial  Statements;  This amendment was filed to provide historical financial
information  required  by Item  7(a)  and the pro  forma  financial  information
required by Item 7(b) of Form 8-K, which  information was  unavailable  when the
Company's Current Report of Form 8-K, dated October 17, 2002, was filed.        

10-K
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SIGNATURES                                                                      

     Pursuant to the  requirements  of Section 13 or 15(d) of the Securities 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

Date:  March 26, 2003                       By:/s/ DONALD L. TURRELL            
                                ------------------------
                         Donald L. Turrell
                     President and
                               Chief Executive Officer

                               By:/s/ DORRANCE W. LAMB
                        Dorrance W. Lamb
                                   Chief Financial Officer and
                                 Vice President of Finance

     Pursuant to the  requirements  of the Securities Act of 1934, the following
persons  on  behalf of the  registrant  and in the  capacities  and on the dates
indicated have signed this report.                                              

Signature                        Title                         Date 

/s/JOHN M. SLUSSER           Chairman of the Board, Chief       March 26, 2003  
------------------                                                              
John M. Slusser              Strategic Officer and Director                     

/s/DONALD L. TURRELL         President, Chief Executive         March 26, 2003  
--------------------                                                            
Donald L. Turrell            Officer and Director                               

/s/DORRANCE W. LAMB          Chief Financial Officer, and       March 26, 2003  
-------------------                                                             
Dorrance W. Lamb             Vice President of Finance                          

/s/BERNARD KOZEL             Director                           March 26, 2003  
----------------                                                                
Bernard Kozel                                                                   

/s/CHARLES E. MAGINNESS      Director                           March 26, 2003  
-----------------------                                                         
Charles E. Maginness                                                            

/s/STUART B. MEISENZAHL      Director                           March 26, 2003  
-----------------------                                                         
Stuart B. Meisenzahl                                                            

/s/JOHN E. MOONEY            Director                           March 26, 2003  
-----------------                                                               
John E. Mooney                                                                  

/s/PAUL L. SMITH             Director                           March 26, 2003  
----------------                                                                
Paul L. Smith                                                                   

/s/ROBERT L. TILLMAN         Director                           March 26, 2003  
--------------------                                                            
Robert L.Tillman                                                                

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Certification of Chief Executive Officer

I, Donald L. Turrell certify that:                                              

1.       I  have  reviewed  this  annual  report  on  Form 10-K  of  Performance
Technologies, Inc.;                                           

2.       Based on my knowledge, this annual  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 annual report;                                

3.       Based on my knowledge,  the financial statements,  and  other financial
         information  included  in this  annual  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 annual report;                                           

4.       The registrant's other certifying  officers and I  are  responsible for
         establishing  and  maintaining disclosure controls and  procedures  (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                         

                  a) designed such disclosure controls and procedures 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 annual report is being prepared;

                  b) evaluated the effectiveness of the registrant's  disclosure
                  controls and procedures as of a date within  90 days  prior to
                  the filing date of this annual report (the "Evaluation Date");
and                                         

                  c) presented in this annual report our  conclusions  about the
                  effectiveness of the disclosure controls and procedures  based
on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed,  based
         on our most recent  evaluation,  to the registrant's  auditors  and the
         audit  committee  of  registrant's  board  of  directors   (or  persons
performing the equivalent functions):                         

                  a) all significant deficiencies in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record,  process, summarize and report
                  financial  data  and  have  identified  for  the  registrant's
              auditors any material weaknesses in internal controls; and

                  b) any  fraud,   whether   or  not  material,   that  involves
                  management  or other employees  who have a significant role in
the registrant's internal controls; and     

6.       The registrant's other certifying officers and I have indicated in this
         annual report  whether  there  were  significant  changes  in  internal
         controls or in other  factors  that could significantly affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
including any corrective actions with regard to significant   
deficiencies and material weaknesses.                         

Date: March 26, 2003                        By:/s/   Donald L. Turrell          
                                        --------------------------------
                         Donald L. Turrell
                               Chief Executive Officer

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Certification of Chief Financial Officer

I, Dorrance W. Lamb, certify that:                                              

1.       I  have  reviewed  this  annual  report  on  Form 10-K  of  Performance
Technologies, Inc.;                                           

2.       Based on my knowledge, this annual  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 annual report;                                

3.       Based on my knowledge,  the financial statements,  and  other financial
         information  included  in this  annual  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 annual report;                                           

4.       The registrant's other certifying  officers and I  are  responsible for
         establishing  and  maintaining disclosure controls and  procedures  (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                         

                  a) designed such disclosure controls and procedures 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 annual report is being prepared;

                  b) evaluated the effectiveness of the registrant's  disclosure
                  controls and procedures as of a date within  90 days  prior to
                  the filing date of this annual report (the "Evaluation Date");
and                                         

                  c) presented in this annual report our  conclusions  about the
                  effectiveness of the disclosure controls and procedures  based
on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed,  based
         on our most recent  evaluation,  to the registrant's  auditors  and the
         audit  committee  of  registrant's  board  of  directors   (or  persons
performing the equivalent functions):                         

                  a) all significant deficiencies in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record,  process, summarize and report
                  financial  data  and  have  identified  for  the  registrant's
              auditors any material weaknesses in internal controls; and

                  b) any  fraud,   whether   or  not  material,   that  involves
                  management  or other employees  who have a significant role in
the registrant's internal controls; and     

6.       The registrant's other certifying officers and I have indicated in this
         annual report  whether  there  were  significant  changes  in  internal
         controls or in other  factors  that could significantly affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
including any corrective actions with regard to significant   
deficiencies and material weaknesses.                         

Date: March 26, 2003                        By:/s/   Dorrance W. Lamb           
                                        --------------------------------
                        Dorrance W. Lamb
                               Chief Financial Officer

10-K
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                                                                 Exhibit 10.1c
AMENDMENT THREE TO
CREDIT AGREEMENT

dated as of March 13, 2003

 between

 JPMORGAN CHASE BANK, formerly
 known as The Chase Manhattan Bank

 and

PERFORMANCE TECHNOLOGIES, INCORPORATED

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AMENDMENT NUMBER THREE TO CREDIT AGREEMENT

     This  Amendment  is dated  as of March  13,  2003,  is made by and  between
PERFORMANCE  TECHNOLOGIES,   INCORPORATED,   a  Delaware  corporation  with  its
principal  office located at 205 Indigo Creek Drive,  Rochester,  New York 14626
("Borrower")  and JPMORGAN  CHASE BANK,  formerly  known as The Chase  Manhattan
Bank, with an office at One Chase Square, Rochester, New York 14643 ("Bank").   

 Statement of the Premises

     Borrower and Bank have previously  entered into, among other agreements,  a
Credit  Agreement,  dated as of December 30, 1998 which was amended by Amendment
Number One, dated  November 1, 2000 and Amendment  Number Two, dated October 30,
2002 (the  "Credit  Agreement").  The  Borrower and the Bank desire to amend the
Credit Agreement as referenced herein.                                          

Statement of Consideration

     Accordingly,  in  consideration  of the premises and under the authority of
Section 5-1103 of the New York General  Obligations Law, Borrower and Bank agree
as follows:                                                                     

 Agreement

     1.  Defined  Terms.  The terms "this  Agreement,"  "hereunder"  and similar
references  in the  Credit  Agreement  shall be  deemed  to refer to the  Credit
Agreement as amended by this Amendment Number Three.  Capitalized terms used and
not otherwise  defined herein shall have the meanings  ascribed to such terms in
the Credit Agreement.                                                           

     2. Amendment.  Effective upon the satisfaction of all conditions  specified
in Section 4 hereof, the Credit Agreement is hereby amended as follows:         

         A. The definition of "Revolving Credit  Termination Date" is superseded
and replaced in its entirety and amended to read:                               

         "Revolving Credit Termination Date" means April 15, 2003; provided that
         if such date is not a Banking Day,  the  Revolving  Credit  Termination
Date shall be the next succeeding Banking Day.                

     3. Representations. The Borrower hereby represents and warrants to the Bank
that: (i) the covenants,  representations and warranties set forth in the Credit
Agreement  are true and correct on and as of the date of execution  hereof as if
made on and as of said  date  and as if each  reference  therein  to the  Credit
Agreement were a reference to the Credit Agreement as amended by this Amendment;
(ii) no Event of Default specified in the Credit Agreement and no event,  which,
with the giving of notice or lapse of time or both,  would  become such an Event
of Default has  occurred and is  continuing;  (iii) since the date of the Credit
Agreement,  there has been no material adverse change in the financial condition
or business  operations  of the Borrower  which has not been  disclosed to Bank;
(iv) the making and performance by the Borrower of this Amendment have been duly
authorized  by all necessary  corporate  action;  and (v) the security  interest
granted  by the  Borrower  to  the  Bank  pursuant  to  the  Security  Agreement
constitutes  a valid,  binding and  enforceable,  first in priority  lien on all
Collateral subject to such Security Agreement.                                  

     4. Conditions of Effectiveness. This Amendment (including Section 4 hereof)
shall become effective when and only when Bank shall have received  counterparts
of this Amendment executed by Borrower and Bank.                                

5. Reference to and Effect on Loan Documents.                         

                  A. Upon the effectiveness hereof, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like
import, and each reference in the other Loan  Documents to the Credit  Agreement
shall mean and be a reference to the Credit Agreement as amended hereby.        

                  B. Except as specifically amended above, the Credit Agreement,
and  all other  Loan  Documents  shall remain in full force  and  effect and are
hereby ratified and confirmed.                                                  

                  C. The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of Bank under any of
the Loan Documents, nor constitute a waiver of any provision of any of the  Loan
Documents.                                                                      

     6.  Costs and  Expenses.  Borrower  agrees  to pay on demand  all costs and
expenses of Bank in connection with the  preparation,  execution and delivery of
this Amendment and the other documents  related  hereto,  including the fees and
out-of-pocket expenses of counsel for Bank.                                     

     7.  Governing  Law.  This  Amendment  shall be governed  and  construed  in
accordance  with  the  laws of the  State  of New  York  without  regard  to any
conflicts-of-laws  rules which would require the  application of the laws of any
other jurisdiction.                                                             

     8. Headings.  Section  headings in this  Amendment are included  herein for
convenience  of reference only and shall not constitute a part of this Amendment
for any other purpose.                                                          

     9. Execution in Counterparts.  This Amendment may be executed in any number
of counterparts and by different parties hereto in separate  counterparts,  each
of which when so executed  and  delivered  shall be deemed to be an original and
all or which taken together shall constitute but one and the same instrument.   

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
executed by their respective representatives thereunto duly authorized as of the
date first above written.                                                       

                                        PERFORMANCE TECHNOLOGIES, INCORPORATED

                         By:/s/ Dorrance W. Lamb
                               -----------------------------
                               Its:   Vice President Finance
                     JPMORGAN CHASE BANK
                           By:/s/ Hollie E. Calderon
                               -----------------------------
                       Its:   Vice President

10-K
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Exhibit 21 - Subsidiaries                                                       

Performance Technologies, Incorporated                                          
March 26, 2003                                                                  

PTI Virgin Islands Company, Ltd., a Foreign Sales Corporation                   

UconX Corporation, a Delaware Corporation doing business in California as UconX 

3688283 Canada Inc., a Canada Corporation wholly owned by Performance           
Technologies, Incorporated                                                      

PerfTech (PTI) Canada Corporation (formerly  MicroLegend Telecom Systems, Inc.),
a Canada Corporation wholly owned by 3688283 Canada Inc.                        

PT North Carolina Corporation (formerly MicroLegend Telecom, Inc.) a Delaware   
Corporation                                                                     

PTI California Corporation (formerly Ziatech Corporation) a California          
Corporation                                                                     

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                                                                Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement  on Form  S-3  (No.  333-94371)  and S-8  (No.  333-32421,  333-39834,
333-89636)  of  Performance  Technologies,  Incorporated  of  our  report  dated
February 5, 2003 relating to the financial  statements  and financial  statement
schedules, which appears in this Form 10-K.                                     

/s/ PricewaterhouseCoopers LLP                                                  

Rochester, New York                                                             
March 28, 2003                                                                  

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                                                                Exhibit 99.1

Form of Certification Pursuant to Section 1350 of Chapter 63

 Of Title 18 of the United States Code

     I,  Donald  L.  Turrell,   the  Chief  Executive   Officer  of  Performance
Technologies,  Incorporated,  certify  that (i) the Form 10-K for the year ended
December 2002 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 the
Form 10-K fairly presents, in all material respects, the financial condition and
results of operations of Performance Technologies, Incorporated.                

                                    By:/s/   Donald L. Turrell
                                          ----------------------------------
                                             Donald L. Turrell
                                                   Chief Executive Officer

                                          March 26, 2003

10-K
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                                                                Exhibit 99.2

Form of Certification Pursuant to Section 1350 of Chapter 63

 Of Title 18 of the United States Code

     I,  Dorrance  W.  Lamb,   the  Chief   Financial   Officer  of  Performance
Technologies,  Incorporated,  certify  that (i) the Form 10-K for the year ended
December 2002 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 the
Form 10-K fairly presents, in all material respects, the financial condition and
results of operations of Performance Technologies, Incorporated.                

                                   By:/s/   Dorrance W. Lamb
                                          ----------------------------------
                                            Dorrance W. Lamb
                                                   Chief Financial Officer

                                          March 26, 2003

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10-K Filing		Date		First		Last			Other Filings
		4/13/93		16
		6/17/93		16
		11/22/95		16
		7/30/97		16					8-K, S-8
		12/30/98		16		21
		1/28/00		16					S-3/A
		2/9/00		11					DEF 14A
		3/30/00		16					10-K
		5/19/00		3		13
		6/21/00		16					S-8
		10/27/00		11
		11/1/00		16		21
		11/8/00		11		16			8-A12G
		12/31/00		5		15			10-K405, DEF 14A
		3/30/01		16					10-K405
		5/19/01		16
		5/31/01		11
		7/19/01		16
		7/31/01		16
		8/14/01		16					10-Q
		12/31/01		5		15			DEF 14A, 10-K, 10-K/A
		1/1/02		5		11
		2/10/02		3
		6/3/02		16					S-8
		6/28/02		1
		7/1/02		5		11
		9/12/02		16
		9/25/02		3		13			8-K
		10/1/02		16
		10/2/02		5		16			8-K/A
		10/16/02		16					8-K
		10/17/02		16					8-K
		10/30/02		16		21
		11/5/02		16					10-Q
		12/16/02		16					8-K/A
For The Period Ended		12/31/02		1		16
		1/31/03		3					8-K, SC 13G/A
		2/5/03		6		23
		2/28/03		1		4
		3/13/03		16		21
		3/26/03		17		25
Filed On / Filed As Of		3/28/03		23
		4/15/03		5		21
		6/3/03		1		14			4
		6/15/03		5		11
		11/1/10		11
Top									List All Filings