UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-Q

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

(Mark One)
[ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                 For the quarterly period ended: March 31, 1999

                                       or

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

              For the transition period from _________ to _________

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

                         Commission File Number: 0-26462

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


                               PERCON INCORPORATED
             (Exact name of registrant as specified in its charter)


               Washington                                 91-1486560
      (State or other jurisdiction                       (IRS Employer
    of incorporation or organization)                 Identification No.)


     1800 Millrace Drive Eugene, OR                          97403
(Address of principal executive offices)                  (Zip code)

                                  541-344-1189
              (Registrant's telephone number, including area code)


                                 Not Applicable
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                              YES [ X ]   NO [   ]

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

 The number of shares of common stock outstanding as of May 10, 1999: 3,858,381


<PAGE>
                      PERCON INCORPORATED and SUBSIDIARIES


                                    FORM 10-Q

                                 March 31, 1999

                                      INDEX

                                                                         Page
PART I - FINANCIAL INFORMATION                                         Reference
--------------------------------------------------------------------------------

Item 1 - Financial Statements

           Condensed Consolidated Balance Sheets as of
           March 31, 1999 and December 31, 1998 (unaudited).               3

           Condensed Consolidated Statements of Income for the
           three months ended March 31, 1999 and 1998 (unaudited).         4

           Condensed Consolidated Statements of Cash Flows for the
           three months ended March 31, 1999 and 1998 (unaudited).         5

           Notes to Condensed Consolidated Financial Statements          6 - 8

Item 2 - Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                       9 - 13


PART II - OTHER INFORMATION
---------------------------

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

Signatures                                                                15

                                                                               2
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements

<TABLE>
<CAPTION>
Percon Incorporated
Condensed Consolidated Balance Sheets, (Unaudited)
(in thousands, except share data)

PERCON INCORPORATED
Consolidated Balance Sheets
(in thousands)

                                                                           March 31,         December 31,
                                                                               1999                 1998
                                                                     --------------       --------------
<S>                                                                  <C>                  <C>           
ASSETS
Current assets:
   Cash and cash equivalents                                         $        5,668       $        4,534
   Accounts receivable, net                                                   5,824                6,793
   Inventories, net                                                           3,650                3,742
   Prepaid expenses and other                                                   720                  860
   Deferred income tax asset                                                    279                  276
                                                                     --------------       --------------
     Total current assets                                                    16,141               16,205

Property and equipment, net                                                   2,654                2,758
Goodwill and intangibles, net                                                 1,261                1,439
                                                                     --------------       --------------

     Total assets                                                    $       20,056       $       20,402
                                                                     ==============       ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt                                 $           98       $          104
   Accounts payable                                                           1,010                1,644
   Accrued expenses                                                           1,180                1,124
   Deferred revenue                                                             119                  116
   Income taxes payable                                                         349                  231
                                                                     --------------       --------------
     Total current liabilities                                                2,756                3,219

Deferred income taxes                                                           434                  468
Long-term debt, less current portion                                            619                  703
Other                                                                            19                   20
                                                                     --------------       --------------

     Total liabilities                                               $        3,828       $        4,410
                                                                     --------------       --------------
Commitments and contingencies

   Preferred stock, 5,000,000 shares authorized,
      none issued                                                                 -                    -
   Common stock, no par value, 20,000,000 shares authorized,
      3,918,781 and 3,976,061 shares issued and
      outstanding, respectively                                               9,319                9,319
   Treasury stock, at cost                                                     (667)                (597)
   Retained earnings                                                          8,084                7,471
   Accumulated other comprehensive income                                      (508)                (201)
                                                                     --------------       --------------
     Total shareholders' equity                                              16,228               15,992
                                                                     --------------       --------------

     Total liabilities and shareholders' equity                      $       20,056       $       20,402
                                                                     ==============       ==============


See accompanying notes.
</TABLE>

                                                                               3
<PAGE>
<TABLE>
<CAPTION>
Percon Incorporated
Condensed Consolidated Statements of Income, (Unaudited)
(in thousands, except per share data)

                                                               For the three months ended
                                                                        March 31,
                                                                   1999           1998
<S>                                                           <C>            <C>      
--------------------------------------------------------------------------------------
Net sales                                                     $   7,908      $   7,058
Cost of goods sold                                                3,841          3,610
--------------------------------------------------------------------------------------
     Gross profit                                                 4,067          3,448

Operating Expenses:
   Selling, marketing and customer service                        1,585          1,225
   General and administrative                                       846            674
   Research and product development                                 478            401
   Charges related to terminated  acquisition                       161              -
--------------------------------------------------------------------------------------
     Operating income                                               997          1,148

Interest and other income (expense), net                             (3)             2
--------------------------------------------------------------------------------------
     Income before taxes                                            994          1,150

Provision for income taxes                                          381            424
--------------------------------------------------------------------------------------
     Net income                                               $     613      $     726
--------------------------------------------------------------------------------------
     Net income per share:
     Net income per share - Basic                             $    0.16      $    0.18
--------------------------------------------------------------------------------------
     Net income per share - Diluted                           $    0.16      $    0.18
--------------------------------------------------------------------------------------

Weighted average shares outstanding:
    Basic                                                         3,917          3,993
    Effect of dilutive securities:
        Warrants                                                      -             45
        Options                                                       8            110
--------------------------------------------------------------------------------------
    Diluted                                                       3,925          4,148
--------------------------------------------------------------------------------------

See accompanying notes.
</TABLE>

                                                                               4
<PAGE>
<TABLE>
<CAPTION>
Percon Incorporated
Condensed Consolidated Statements of Cash Flows, (Unaudited)
(in thousands)

                                                                                  Three Months Ended
                                                                                       March 31,
                                                                                 1999              1998
-------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>     
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
   Net Income                                                                $    613          $    726
   Adjustments to reconcile net income to net
      cash provided by (used in) operating activities:
       Depreciation and amortization                                              266               299
       Deferred income taxes                                                      (36)              (32)
       Change in operating assets and liabilities:
        Accounts receivable                                                       969                57
        Inventories                                                                92                22
        Prepaid expenses and other                                                140               (70)
        Accounts payable and accrued expenses                                    (378)             (417)
-------------------------------------------------------------------------------------------------------
          Net cash provided by operating activities                             1,666               585
-------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
    Capital expenditures                                                          (71)             (203)
-------------------------------------------------------------------------------------------------------
        Net cash used in investing activities                                     (71)             (203)
-------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
   Principal paid on long-term debt                                               (84)              (24)
   Proceeds from stock issued                                                       -               227
   Tax benefit from exercise or                                                     -                75
     early disposition of certain stock options
   Cash used for purchase of treasury stock                                       (70)                -
-------------------------------------------------------------------------------------------------------
      Net cash provided by (used in) financing activities                        (154)              278
-------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                          (307)              (11)
-------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                            1,134               649
Cash and cash equivalents at beginning of period                                4,534             1,884
-------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                   $  5,668          $  2,533
-------------------------------------------------------------------------------------------------------

Supplemental disclosure:
   Interest paid                                                             $     18          $     21
   Taxes paid                                                                $    373          $    442


See accompanying notes.
</TABLE>

                                                                               5
<PAGE>
Percon Incorporated And Subsidiaries Notes To Condensed Consolidated Financial
Statements, (Unaudited)


1.  Summary Of Significant Accounting Policies

Principles Of Consolidation

The condensed consolidated financial statements include the accounts of Percon
Incorporated ("Percon" or the "Company") and its wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.


Basis Of Reporting

The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company and in the opinion of management contain all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the results of the interim periods presented. It should be
understood that accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations for
the three months ended March 31, 1999, are not necessarily indicative of the
results to be expected for the full year.

The accompanying interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1998.

Basic earnings per share are based on the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share are based
on the weighted average number of shares of common stock and potentially
dilutive securities outstanding during the period, computed in accordance with
the treasury stock method.


2.  Inventories

Inventories are stated at the lower of cost (methods which approximate the
first-in, first-out method) or market. Inventory costs include materials, labor,
and overhead and consist of the following:

(In thousands)                             March 31, 1999     December 31, 1998
                                           --------------     -----------------

Finished goods                                    $ 2,211               $ 2,258
Materials                                           1,964                 2,053
Reserve                                              (525)                 (569)
-------------------------------------------------------------------------------
                                                  $ 3,650               $ 3,742
-------------------------------------------------------------------------------


3.  Stock Options

During the first three months of 1999, the Company granted options to purchase
an aggregate of 35,500 shares of common stock at an average price of $8.72 per
share. The exercise prices are greater than or equal to the Company's market
price on the date of grant.

                                                                               6
<PAGE>
Percon Incorporated And Subsidiaries Notes To Condensed Consolidated Financial
Statements, Continued, (Unaudited)


4.  Commitments And Contingencies

In December 1997, the Company signed a ten year non-cancelable lease for a new
headquarters facility, which contains a five year lease extension option. The
lease contains provisions for the Company to pay certain ongoing costs, such as
property taxes, insurance and support costs, which are not reflected in the
minimum lease payments totaling approximately $5.5 million. The Company expects
to sublease certain portions of the new facility as permitted under the lease
agreement.

On October 8, 1998 the Company announced that its Board of Directors had
authorized the repurchase of up to 250,000 shares of its common stock. The
shares may be repurchased from time to time through open market transactions,
and funded from existing cash balances or from borrowings under bank credit
arrangements. The number of shares held as treasury stock was 107,700 and 94,400
as of March 31, 1999 and December 31, 1998, respectively. As of May 10, 1999 the
Company had repurchased a total of 154,800 shares.


5.  Income Taxes

The provision for income taxes has been recorded based on the Company's current
estimate of the Company's annual effective tax rate. This rate differs from the
combined federal and state statutory rate of approximately 38.5% primarily due
to the benefit of the Company's foreign sales corporation and research and
experimentation tax credits.


6.  Comprehensive Income

The Company adopted SFAS No. 130, "Reporting Comprehensive Income" on January 1,
1998. This statement establishes standards for reporting comprehensive income
and its components in the condensed consolidated financial statements. The
objective of SFAS 130 is to report changes in equity that result from
transactions and economic events other than transactions with owners.
Comprehensive income is the total of net income and all other non-owner changes
in equity.

<TABLE>
<CAPTION>
                                                            Three months ended,
                                                                 March 31,
(in thousands)                                                1999              1998
                                                    --------------    --------------
<S>                                                      <C>               <C>      
Net income                                               $     613         $     726

Other comprehensive income net of tax                            -                 -
Foreign currency translation adjustment                       (307)              (94)
------------------------------------------------------------------------------------
Comprehensive income                                     $     306         $     632
------------------------------------------------------------------------------------
</TABLE>


7.  Significant Customer Discussion

No single customer represented more than 10% of the Company's total net sales
for the three months ended March 31, 1999 and 1998.

                                                                               7
<PAGE>
Percon Incorporated And Subsidiaries Notes To Condensed Consolidated Financial
Statements, Continued, (Unaudited)


8.  Business Segment Information

The Company operates in a single industry with two geographic operating segments
- North America and Europe. While the Company's chief operating decision maker
monitors the revenue streams of the various products and geographic locations,
operations are managed and financial performance is evaluated based upon the
geographic locations because each operating segment represents a strategic
business unit that serves different markets.

The accounting policies of the operating segments are the same as those
described in the summary of significant policies. The Company evaluates
performance based on stand-alone operating segment net income and generally
accounts for intersegment sales and transfers based upon internal transfer
prices set by the Company. Revenues are attributed to geographic areas based on
the location of the assets producing the revenues.

Identifiable assets are those tangible and intangible assets used in operations
in each geographic area. Eliminated assets primarily represent the investment in
the European subsidiary and the net result of operations since that time.

Summarized data of the Company's operations, by geographic area, for the three
months ended March 31, 1999 and 1998 are presented below (in thousands).

<TABLE>
<CAPTION>
Three months ended
March 31,                                                            Percon
1999                                              Percon US          Europe     Elimination    Consolidated
-----------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>             <C>      
Sales to unaffiliated customers                   $   5,537       $   2,371       $       -       $   7,908
Intra-company transfers                                 575               -            (575)              -
Gross profit                                          3,063             980              24           4,067
Income from operations                                  876             118               3             997
Interest & other income (expense), net                   56             (59)              -              (3)
Pretax income                                           931              60               3             994

Total assets                                      $  19,515       $   6,015       $  (5,474)      $  20,056


                                                                     Percon
1998                                              Percon US          Europe    Elimination     Consolidated
-----------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers                   $   4,180       $   2,878       $      -        $   7,058
Intra-company transfers                                 511               -           (511)               -
Gross profit                                          2,263           1,186             (1)           3,448
Income from operations                                  825             344            (21)           1,148
Interest & other income (expense), net                   31             (29)             -                2
Pretax income                                           857             315            (21)           1,150

Total assets                                      $  17,178       $   6,273       $ (5,949)       $  17,502
</TABLE>

                                                                               8
<PAGE>
Item 2 - Management's Discussion And Analysis
         Of Financial Condition And Results Of Operations


Overview

Percon Incorporated ("Percon" or the "Company") develops, assembles, and markets
a complete line of data collection hardware and data management software
products. These products are primarily sold into the Automatic Data Collection
("ADC") industry. The Company's product offering includes radio frequency ("RF")
and batch portable data collection terminals ("PDCT"), fixed station and
integrated decoders, hand-held laser scanners, data management application
software, and terminal emulation software. The Company also markets bar code
input devices manufactured by others for use with the Company's fixed station
decoders and PDCTs. The Company's products provide a rapid, accurate, and
efficient means to collect, process, transmit, record, and manage data. The
Company's products are used principally in point-of-sale, point-of-service, and
inventory management applications in a wide variety of industries, including
manufacturing, warehousing and distribution, package delivery, retail,
education, and healthcare.

Percon markets its products through a network of ADC distributors, value-added
resellers ("VARs"), and systems integrators, which allows the Company's products
to reach small and mid-size end users cost effectively. In addition, Percon
markets its products to mid-size and large end users through its strategic
relationships as an original equipment manufacturer ("OEM") with other sales
organizations. The Company also distributes its products internationally
primarily through VARs in Europe, Latin America, and Asia.

The statements in this report concerning the Year 2000 issue and working capital
requirements constitute forward-looking statements that are subject to risks and
uncertainties. Factors that could materially affect the Year 2000 issue include,
but are not limited to, unanticipated costs associated with any required
modifications to the Company's information systems, its ancillary systems and
associated software. Factors that could materially affect future working capital
requirements include, but are not limited to, competitive market pressures
(including increased competition, new product offerings by competitors and price
pressures) and the availability of appropriate resources, unfavorable business
conditions in the ADC industry and general economy.

                                                                               9
<PAGE>
Results of Operations

The following table sets for the for the periods indicated selected statements
of operations data, expressed as a percentage of sales, and the percentage
change in dollar amounts of each of the items on the condensed consolidated
statements of income.

<TABLE>
<CAPTION>
                                                                 Three Months Ended            Percentage
                                                                      March 31,                    change
                                                               1999               1998          in amount
                                                       ---------------------------------------------------
<S>                                                           <C>                <C>                <C>
Net sales                                                     100.0%             100.0%              12.0%
Cost of goods sold                                             48.6%              51.1%               6.4%
----------------------------------------------------------------------------------------------------------
     Gross profit                                              51.4%              48.9%              17.9%

Operating Expenses:
   Selling, marketing and customer service                     20.0%              17.4%              29.4%
   General and administrative                                  10.7%               9.5%              25.5%
   Research and product development                             6.0%               5.7%              19.2%
   Charges related to terminated acquisition                    2.0%               0.0%               0.0%
----------------------------------------------------------------------------------------------------------
     Operating income                                          12.6%              16.3%             -13.2%

Interest and other income (expense), net                        0.0%               0.0%            -252.0%
----------------------------------------------------------------------------------------------------------
     Income before taxes                                       12.6%              16.3%             -13.6%

Provision for income taxes                                      4.8%               6.0%             -10.1%
----------------------------------------------------------------------------------------------------------
     Net income                                                 7.8%              10.3%             -15.6%
----------------------------------------------------------------------------------------------------------
</TABLE>


Comparison of the three months ended March 31, 1999 and 1998.

Net Sales

Net sales for the three months ended March 31, 1999 increased $0.8 million
(12.0%) to $7.9 million from $7.1 million for the three months ended March 31,
1998. Net sales of PDCTs increased $1.0 million (52.4%) over the same period in
1998, due to increased unit volume. Sales of other product lines were largely
unchanged with the exception of input devices, which decreased $0.2 million
(18.0%) due to lower unit volume.

Net sales attributed to Percon Europe decreased $0.5 million (17.6%) to $2.4
million in 1999, largely due to decreased unit volume of the decoder product
line. Net sales from Percon Europe represented approximately 30.0% and 40.8% of
condensed consolidated net sales for the three months ended March 31, 1999 and
1998, respectively.

Net sales from Percon's U.S. operations increased $1.3 million (32.5%) to $5.5
million. These increases were primarily due to increased unit volume of PDCTs,
which increased $0.7 million (47.5%) over the same period in 1998, and increased
unit volume of decoders, which increased $0.6 million (58.3%) over the same
period in 1998.

                                                                              10
<PAGE>
Gross Profit

Gross profit for the three months ended March 31, 1999 increased $0.6 million
(17.9%) to $4.1 million from $3.5 million for the three months ended March 31,
1998, representing 51.4% and 48.9% of net sales, respectively. This increase
resulted primarily from increased sales of PDCTs, increased service revenue, and
a one-time payment of an OEM customer's minimum order requirement, offset in
part by decreased sales of input devices.

Gross profit attributed to Percon Europe decreased $0.2 million (17.4%) to $1.0
million in 1999, due to lower overall sales activity and associated lower cost
of goods sold. As a percentage of net sales, gross profit remained nearly level
at approximately 41% for both 1999 and 1998.

Gross profit from Percon's U.S. operations increased $0.8 million (35.4%) to
$3.1 million. This increase was primarily due to increased unit volume of PDCTs,
a one-time payment of an OEM customer's minimum order requirement, and increased
manufacturing efficiencies. As a percentage of net sales, gross profit increased
for the three months ended March 31, 1999 to 55.3%, up from 54.1% for the same
period in 1998. Cost of goods sold increased $0.6 million (29.1%) to $2.5
million from $1.9 million in 1998.


Selling, Marketing and Customer Service Expenses

Selling, marketing and customer service expenses for the three months ended
March 31, 1999 increased $0.4 million (29.4%) to $1.6 million from $1.2 million
for the three months ended March 31, 1998, representing 20.0% and 17.4% of net
sales, respectively. These increases are primarily due to sales force expansion
that occurred late in 1998 and marketing efforts to support new product
introductions.


General and Administrative Expenses

General and administrative expenses are comprised of the costs associated with
finance and executive activities, and the management of information technologies
and general facilities. Direct facility and information technology costs are
allocated to other departments. General and administrative expenses for the
three months ended March 31, 1999 increased $0.2 million (25.5%) to $0.8 million
from $0.7 million for the three months ended March 31, 1997, representing 10.7%
and 9.5% of net sales, respectively. These increases are primarily due to
increased wages and professional fees.


Research and Product Development Expenses

Research and product development expenses for the three months ended March 31,
1999 increased $0.1 million (19.2%) to $0.5 million from $0.4 million for the
three months ended March 31, 1998, representing 6.0% and 5.7% of net sales,
respectively. The increase for the three months ended March 31, 1999 was largely
attributable to additional expenditures to support new product development.


Charges Related to Terminated Acquisition

The Company incurred charges related to a terminated acquisition of $0.2 million
for the three months ended March 31, 1999, representing 2.0% of net sales with
no comparable charge for the three months ended March 31, 1998. This charge is
related to acquisitions which were pursued but were terminated during the
quarter.

                                                                              11
<PAGE>
Interest and Other Income

Interest and other income for the three months ended March 31, 1999 decreased
$5,000 to ($3,000) from $2,000 for the three months ended March 31, 1998. The
decreases for the three months ended March 31, 1999 were largely due to foreign
currency transaction losses experienced by the Company's European subsidiary,
offsetting interest earned by higher cash holdings.


Provision for Income Taxes

The provision for income taxes for the three months ended March 31, 1999 was
$0.4 million, which represents an effective tax rate of 38.4%. Items which cause
this rate to differ from the U.S. federal statutory rate of 34% include state
and international taxes and benefits from domestic and foreign research credits
and the Company's foreign sales corporation. The provision for income taxes for
the three months ended March 31, 1998 was $0.4 million, which represents an
effective tax rate of 36.9%. The increase in the effective tax rate is primarily
related to increased foreign tax rates.


Net Income

Net income for the three months ended March 31, 1999 decreased $0.1 million to
$0.6 million from $0.7 million for the three months ended March 31, 1998,
representing 7.8% and 10.3% of net sales, respectively. The decrease was due to
lower gross profit contribution from the Company's European subsidiary,
increased operating expenses, and the terminated acquisition charge.


Year 2000 Computer System Impact

The Year 2000 issue relates to the inability of some computers and computer
software programs to accurately recognize dates after 1999 expressed as a
two-digit number. The inability to recognize date information accurately could
affect computer operations and calculations or cause computer systems and
computer-dependent mechanical systems not to operate properly.

The Company's assessment of the potential impact of the Year 2000 problem
consists of two phases. The detection phase identifies and catalogs all
mechanical and operational systems owned or operated by the Company that rely on
date related information to function properly. The Company has recently
completed this phase for its domestic operations. A similar assessment of its
European operations was completed April 16, 1999. The remediation phase will
repair, replace, or retire any non-compliant systems. This phase began early in
1999 and is expected to be completed by July 30, 1999.

The detection phase for domestic operations revealed that only minor upgrades
and replacements are required to achieve full Year 2000 compliance.
Specifically, software upgrades are required to bring the Company's general
ledger, payroll, and fixed asset systems into compliance. The Company believes
that the remainder of the domestic non-compliant systems require only
incremental software upgrades or are non-critical in nature.

Based upon the Company's current estimates, total incremental out-of-pocket
costs of its Year 2000 program are expected to be approximately $25,000. These
costs are primarily related to remediation of computer software. These costs do
not include internal management time and the deferral of other projects, the
effects of which are not expected to be material to the Company's results of
operations or financial condition.

Based on a recent assessment, the Company believes that modification to its
product offering will not be required in order for its products to function
properly with respect to dates in the Year 2000. The Company has undertaken
measures to inform customers of Year 2000 related issues via its Year 2000 

                                                                              12
<PAGE>
web site. However, it is not possible to anticipate all end user situations
and/or Year 2000 related issues, particularly those involving third party
products.

At this stage of the process, the Company believes that it is difficult to
specifically identify the cause of the most reasonable worst case Year 2000
scenario. A reasonable worst case scenario would be the failure of the Company's
products to operate properly through the interaction with third party products
causing customers' systems and/or operations that are dependent upon such
products to fail or be disrupted. In case of such failures, customers may
commence legal action against the Company or otherwise seek compensation for
their losses associated with such failures. An additional worst case Year 2000
scenario would be the failure of key vendors and/or suppliers to have corrected
their own Year 2000 issues which could cause disruption of the Company's
operations and have a material adverse effect on the Company's financial
condition. In a survey of major suppliers, no immediate problems in the delivery
of materials required for the Company to sustain operations were discovered.
Discussions with these key business partners will continue and contingency plans
developed as needed based on assessments of their exposure and remediation
plans. If major suppliers, customers, or economic conditions are negatively
affected by the Year 2000, there may be a negative impact on the Company's
performance and operational results.


Disclosure Regarding Euro Conversion

On January 1, 1999, eleven member countries of the European Community began a
process to convert their existing sovereign currencies to a single common
denomination, the euro. The process of conversion is gradual over the next three
years, culminating in the eventual removal from circulation of all existing
domestic currency for the participating countries.

The Company's French subsidiary, Percon Europe, is located in a member country,
France, and transacts business in all European countries. Prior to the January
1, 1999 conversion, new accounting and sales systems that allow for euro
denominated transactions were successful installed. To date the Company has
experienced no difficulty in adopting the new currency, nor are any future
problems anticipated.

The full impact of this currency transition on Company profitability,
competitive position, and future prospects has not yet been fully evaluated but
is anticipated to be neutral to positive on future Company performance.


Liquidity and Capital Resources

The Company's line of credit with a domestic bank permits it to borrow up to 80%
of eligible accounts receivable and 25% of eligible inventory (as defined by the
bank agreement) to a maximum of $1.0 million. Outstanding principal amounts
thereunder bear interest at the bank's prime rate, which was 7.75% at March 31,
1999. The Company also has a line of credit and short-term borrowing
arrangements with two foreign banks that allow it to borrow up to an aggregate
of 2,000,000 French francs (approximately $327,000), collateralized by accounts
receivable. Borrowings under these facilities bear interest at the banks'
current interest rates, which were 8.1% and 10.1%, respectively, at March 31,
1999. No amounts were outstanding under any of these arrangements at March
31,1999.

Assets and liabilities are translated at the rate of exchange in effect as of
the balance sheet date. The gains and losses that result from this process are
shown as accumulated other comprehensive income in the shareholders' equity
section of the balance sheet. Operating transactions are translated at weighted
average rates during the period. Transaction gains and losses are reflected in
net income.

Net cash provided by operations was $1.7 million for the three months ended
March 31, 1999 compared to cash provided by operations of $0.6 million for the
three months ended March 31, 1998. Significant changes for the three months
ended March 31, 1999 relate to fluctuations in operating assets and liabilities.

                                                                              13
<PAGE>
For the three months ended March 31, 1999, net cash used in investing activities
totaled $0.1 million compared to $0.2 million for the three months ended March
31, 1998. The Company made capital expenditures of $0.1 million for the three
months ended March 31, 1999 compared to $0.2 million for the three months ended
March 31, 1998.

During the three months ended March 31, 1999, net cash used in financing
activities totaled $0.2 million. Cash used in financing activities was related
to the repayment of foreign long-term bank debt and the repurchase of the
Company's common stock in open market transactions. During the three months
ended March 31, 1998, net cash provided by financing activities totaled $0.3
million. Cash generated by financing activities was primarily related to the
sale of the Company's common stock.

The Company's current cash balances, together with the borrowings available
under its line of credit agreements and cash generated from operations, are
expected to be sufficient to meet the Company's liquidity requirements for at
least the next 12 months. There is no assurance that additional financing will
be available if required or on terms deemed favorable by the Company.

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<PAGE>
PART II - OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits

               (27)  Financial Data Schedule

          (b)  Reports on Form 8-K

               None.

                                                                              15
<PAGE>
SIGNATURES
----------


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


PERCON INCORPORATED


by: JASON DAVIS
    ------------------------------
    Jason Davis
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

    Dated:  May 14, 1999

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