================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q


(Mark One)

           |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the quarterly period ended July 4, 1997

                                       OR

     |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


                           Commission File No. 0-9919

                                    PSC INC.
             (Exact name of Registrant as Specified in Its Charter)

              New York                              16-0969362
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                    Identification No.)


                    675 Basket Road, Webster, New York 14580
              (Address of principal executive offices) (Zip Code)

                                 (716) 265-1600
              (Registrant's telephone number, including area code)

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 12 months  preceding  (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 |_|

As of August 11, 1997  there were 11,200,689 shares of common stock outstanding.
================================================================================
<PAGE>


                            PSC Inc. AND SUBSIDIARIES

                                      INDEX

                                                                  PAGE NUMBER
PART I  FINANCIAL INFORMATION

         Item 1 -Financial Statements

                  Consolidated Balance Sheets as of
                  July 4, 1997 (Unaudited) and
                  December 31, 1996.....................................3 - 4

                  Consolidated Statements of Operations and
                  Retained Earnings for the three
                  and six months ended:
                  July 4, 1997 (Unaudited) and
                  June 30, 1996 (Unaudited) ............................5 - 6

                  Consolidated Statements of Cash Flows
                  for the six months ended:
                  July 4, 1997 (Unaudited) and
                  June 30, 1996 (Unaudited) ................................7

                  Notes to Consolidated Financial
                  Statements (Unaudited) ..............................8 - 11

         Item 2 -Management's Discussion and Analysis of
                  Financial Condition and Results of
                  Operations .........................................12 - 14

PART II  OTHER INFORMATION

Item 1    -Legal Proceedings ..............................................15

Item 2    -Changes in Securities ..........................................15

Item 3    -Defaults upon Senior Securities ................................15

Item 4    - Submission of Matters to a Vote of Security Holders............15

Item 5    -Other Information...............................................15

Item 6    - Exhibits and Reports on Form 8-K...............................16



<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1:  Financial Statements
<TABLE>
<CAPTION>

                            PSC Inc. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           (All amounts in thousands)

                                                           July 4, 1997         December 31, 1996
                                                             (Unaudited)
<S>                                                            <C>                    <C>      
ASSETS

CURRENT ASSETS

        Cash and cash equivalents........................      $  1,897               $  10,838
        Accounts receivable, net of allowance
            for doubtful accounts of $1,382
           and $1,101, respectively .....................        27,099                  29,501
        Inventories .....................................        18,843                  18,306
        Prepaid expenses and other ......................         2,045                   1,244
                                                            -----------              ----------

       TOTAL CURRENT ASSETS .............................        49,884                  59,889

PROPERTY, PLANT AND EQUIPMENT, net
        of accumulated depreciation of $10,030
        and $8,225, respectively ........................        36,599                  35,612

DEFERRED TAX ASSETS .....................................        24,562                  24,773

INTANGIBLE AND OTHER ASSETS, net of accumulated
  amortization of $9,377 and $6,238 respectively ........        60,834                  63,087
                                                             ----------              ----------


TOTAL ASSETS ............................................     $ 171,879                $183,361
                                                             ==========               =========

</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>
<TABLE>
                            PSC Inc. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           (All amounts in thousands)
                                   (Continued)
<CAPTION>
                                                         July 4, 1997            December 31, 1996
                                                         ------------            -----------------
                                                         (Unaudited)
<S>                                                            <C>                    <C> 
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
     
       Current portion of long-term debt ...............       $ 11,088               $   9,459
       Accounts payable ................................         17,097                  15,681
       Accrued expenses ................................          7,654                  11,448
       Accrued payroll and related employee benefits....          6,274                   7,509
       Accrued acquisition related restructuring costs .          1,672                   4,009
                                                            -----------               ---------

         TOTAL CURRENT LIABILITIES .....................         43,785                  48,106


LONG-TERM DEBT, less current maturities ................        111,823                 117,994

OTHER LONG-TERM LIABILITIES ............................          3,250                   1,960



SHAREHOLDERS' EQUITY
       Preferred Shares, par value $.01;
      10,000 authorized, none issued ...................              0                       0
       Common shares, par value $.01;
         40,000 authorized, 11,196 and  11,161
          shares issued and outstanding ................            112                     112
       Additional paid-in capital ......................         55,322                  54,891
       Retained earnings ...............................        (41,221)                (39,432)
       Cumulative translation adjustment ...............           (955)                    (33)

       Less treasury stock, 39 shares
        repurchased, at cost ...........................           (237)                   (237)
                                                             -----------              ----------

         TOTAL SHAREHOLDERS' EQUITY ....................         13,021                  15,301
                                                              ---------                --------

TOTAL LIABILITIES AND SHAREHOLDERS'
     EQUITY                                                    $171,879                $183,361

                                                               ========                ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>


                            PSC Inc. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                (All amounts in thousands, except per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                         Three Months Ended
                                                                         July 4,                  June 30,
                                                                          1997               1996
                                                                          ----               ----
<S>                                                                 <C>                <C>    
NET SALES .....................................................     $ 47,301           $22,052

COST OF SALES .................................................       29,388            13,488
                                                                    --------         ---------
         Gross profit .........................................       17,913             8,564

OPERATING EXPENSES
         Engineering, research and development ................        3,447             1,611
         Selling, general and administrative ..................       10,464             6,504
         Severance and other costs ............................        4,191                 0
         Amortization of intangibles resulting
              from business acquisitions ......................        1,672               222
                                                                   ---------          --------
              Income/(loss) from operations ...................       (1,861)              227

INTEREST AND OTHER INCOME /(EXPENSE):
         Interest expense .....................................       (3,384)              (12)
         Interest income ......................................          100               125
         Other income/(expense) ...............................           (8)               (5)
                                                                -------------       -----------
                                                                      (3,292)              108
                                                                   ----------        ---------
         Income/(loss) from continuing operations before
              income tax provision/(benefit) ..................       (5,153)              335

         Income tax provision/(benefit) .......................       (1,907)              124
                                                                      -------         --------
         Income/(loss) from continuing operations .............       (3,246)              211
         Discontinued operations:
         Gain from discontinued operations, net of tax ........          180                 0
         Gain on sale of discontinued operations, net of tax ..          407                 0
                                                                   ---------      ------------
         Total gain from discontinued operations ..............          587                 0
                                                                 -----------      ------------
         Net income/(loss) ....................................      ($2,659)        $     211
                                                                     ========        =========

NET INCOME/(LOSS) PER COMMON AND COMMON
        EQUIVALENT SHARE
         Continuing operations ................................       ($0.29)       $   0.02
         Discontinued operations ..............................         0.05            0.00
                                                                     -------       ---------
         Net income/(loss) ....................................       ($0.24)        $  0.02
                                                                      =======        =======

WEIGHTED AVERAGE NUMBER OF
    COMMON AND COMMON EQUIVALENT
    SHARES OUTSTANDING ........................................       11,222            10,422

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
         Retained earnings/(Accumulated deficit)
           beginning of period ................................     ($38,562)         $  7,983
         Net income/(loss) ....................................       (2,659)              211
                                                                  -----------       ----------
         Retained earnings/(Accumulated deficit),
           end of period ......................................     ($41,221)         $  8,194
                                                                    =========         ========
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>

<TABLE>

                            PSC Inc. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                (All amounts in thousands, except per share data)
                                   (Unaudited)
<CAPTION>
                                                                            Six  Months Ended
                                                                         July 4,                  June 30,
                                                                          1997               1996
                                                                          ----               ----
<S>                                                                 <C>                <C>    
NET SALES .....................................................     $101,537           $43,551

COST OF SALES .................................................       60,923            25,831
                                                                     -------         ---------
         Gross profit .........................................       40,614            17,720

OPERATING EXPENSES:
         Engineering, research and development ................        6,888             3,391
         Selling, general and administrative ..................       23,540            13,027
         Severance and other costs ............................        4,191                 0
         Amortization of intangibles resulting
              from business acquisitions ......................        3,348               445
                                                                   ---------          --------
              Income from operations ..........................        2,647               857

INTEREST AND OTHER INCOME /(EXPENSE):
         Interest expense .....................................       (6,754)              (25)
         Interest income ......................................          251               236
         Other income/(expense) ...............................          108              (42)
                                                                  -----------        ----------
                                                                      (6,395)              169
                                                                    ---------        ---------
         Income/(loss) from continuing operations before
              income tax provision/(benefit) ..................       (3,748)            1,026

         Income tax provision/(benefit) .......................       (1,388)              380
                                                                      -------         --------
         Income/(loss) from continuing operations .............       (2,360)              646
         Discontinued operations:
         Gain from discontinued operations, net of tax ........          164                 0
         Gain on sale of discontinued operations, net of tax ..          407                 0
                                                                   ---------         ---------
         Total gain from discontinued operations ..............          571                 0
                                                                  ----------       -----------
         Net income/(loss) ....................................      ($1,789)         $    646
                                                                     ========         ========

NET INCOME/(LOSS) PER COMMON AND COMMON
        EQUIVALENT SHARE:
         Continuing operations ................................       ($0.21)       $   0.06
         Discontinued operations ..............................         0.05            0.00
                                                                       -----       ---------
         Net income/(loss) ....................................       ($0.16)        $  0.06
                                                                      =======        =======

WEIGHTED AVERAGE NUMBER OF
    COMMON AND COMMON EQUIVALENT
    SHARES OUTSTANDING ........................................       11,281            10,412

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
         Retained earnings/(Accumulated deficit)
           beginning of period ................................     ($39,432)         $  7,548
         Net income/(loss) ....................................       (1,789)              646
                                                                  -----------       ----------
         Retained earnings/(Accumulated deficit),
           end of period ......................................     ($41,221)         $  8,194
                                                                    =========         ========
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.




<PAGE>
<TABLE>


                            PSC INC. and SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (All amounts in thousands)
                                   (Unaudited)
<CAPTION>

                                                                                Six Months Ended
                                                                       July 4,            June 30,
                                                                        1997            1996
                                                                        ----            ----

<S>                                                                  <C>             <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net Income /(loss) ............................................  ($1,789)        $     646
       Adjustments to reconcile net income/(loss)
       to net cash provided by (used in) operating activities:
         Depreciation and amortization ............................    6,264             2,170
         Loss on disposition of assets ............................      109                37
         Gain on disposition of discontinued operations ...........      407                 0
         Deferred tax assets ......................................      211               128
         Decrease (increase) in assets:
             Accounts receivable ..................................    3,514               665
             Inventories ..........................................     (535)           (1,880)
             Prepaid expenses and other ...........................     (951)           (2,132)
         Increase (decrease) in liabilities:
             Accounts payable .....................................    1,268             2,081
             Accrued expenses .....................................   (6,630)             (523)
             Accrued payroll and commissions ......................   (1,230)             (648)
             Accrued acquisition related restructuring costs ......   (2,605)             (331)
                                                                    ---------        ----------

                Net cash (used in) provided by
                   operating activities ...........................   (1,967)              213
                                                                   ----------       ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures, net .....................................   (3,619)             (967)
    Additions to intangible and other assets ......................     (104)             (780)
    Proceeds from sale of investments .............................        0             4,167
                                                                    ---------         ---------
                Net cash (used in) provided by  investing activities   (3,723)           2,420
                                                                    ----------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Additions to long-term liabilities ............................    1,938                 0
    Principal repayments of long-term debt ........................   (4,542)              (63)
    Payment of other long-term liabilities ........................     (156)                0
    Exercise of stock options and sale of common stock ............      431               627
    Tax benefit from exercise or early disposition
        of certain stock options ..................................        0                70
                                                                 -----------       -----------
                Net cash (used in) provided by financing activities   (2,329)              634
                                                                    ---------       ----------

FOREIGN CURRENCY TRANSLATION ......................................     (922)              (23)

NET INCREASE/(DECREASE)  IN CASH    
         AND CASH EQUIVALENTS......................................   (8,941)            3,244

CASH AND CASH EQUIVALENTS:
         Beginning of period ......................................   10,838             5,538
                                                                    --------           -------

         End of period ............................................ $  1,897           $ 8,782
                                                                    ========           =======

</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.



<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            FOR THE THREE MONTHS ENDED July 4, 1997 and June 30, 1996
                (All amounts in thousands, except per share data)
                                   (Unaudited)

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  accompanying  consolidated  financial  statements have been prepared by the
Company without audit. In the opinion of management,  these financial statements
include all  adjustments  necessary to present  fairly the  Company's  financial
position  as of July 4, 1997,  the results of  operations  for the three and six
months  ended  July 4,  1997 and June 30,  1996 and its cash  flows  for the six
months ended July 4, 1997 and June 30, 1996.  The results of operations  for the
three and six months ended July 4, 1997 are not  necessarily  indicative of the
results to be expected for the full year.

Certain  information and disclosures  normally included in financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed or omitted.  The accompanying  financial  statements should be read in
conjunction  with the financial  statements  and notes  thereto  included in the
Company's December 31, 1996 annual report on Form 10-K.

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

The Company  accounts for net income per common and common  equivalent  share in
accordance  with the  provisions of Accounting  Principles  Board Opinion No. 15
(APB No. 15). In March 1997, Statement of Financial Accounting Standards No. 128
(SFAS No. 128),  "Earnings per Share" was issued.  SFAS No. 128 replaces primary
Earnings  Per Share  (EPS) with basic EPS.  Basic EPS is  computed  by  dividing
reported  earnings  available to common  stockholders by weighted average shares
outstanding. No dilution for common share equivalents is included. Fully diluted
EPS, now called diluted EPS, is still required. The Company is required to adopt
SFAS No. 128  retroactively for periods ending after December 15, 1997. On a pro
forma  basis,  basic EPS and diluted EPS for the three and six months ended July
4, 1997 were ($0.24) and ($0.16), respectively, the same as reported EPS.

INVENTORIES

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

                              July 4, 1997         December 31, 1996
                              ------------         -----------------
         Raw materials        $12,347                    $ 10,688
         Work-in-process        3,219                       3,547
         Finished goods         3,277                       4,071
                            ---------                   ---------
                              $18,843                     $18,306
                              =======                     =======


<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            FOR THE THREE MONTHS ENDED July 4, 1997 and June 30, 1996
                (All amounts in thousands, except per share data)
                                   (Unaudited)

<TABLE>

 (2)  LONG-TERM DEBT
<CAPTION>

Long-term debt consists of the following:

                                               July  4, 1997            December 31, 1996
                                               -------------            -----------------
<S>                                            <C>                            <C>    
         Senior Term Loan A                    $51,000                        $55,000
         Senior Term Loan B                     24,500                         25,000
         Senior revolving credit                12,500                         12,500
         Subordinated term loan                 29,443                         29,428
         Subordinated promissory note            5,000                          5,000
         Other                                     468                            525
                                              --------                    -----------
                                               122,911                        127,453
         Less:  current maturities              11,088                          9,459
                                             ---------                      ---------
                                              $111,823                       $117,994
                                              ========                       ========
</TABLE>

(3)   SHAREHOLDERS' EQUITY

During  the  six  month   period  ended  July  4,  1997,   employees   purchased
approximately 67 shares at $5.81 per share under the provisions of the Company's
Employee Stock Purchase Plan.

Changes in the status of options  under the  Company's  stock  option  plans are
summarized as follows:
<TABLE>
<CAPTION>

                                    January 1, 1997          Weighted       January 1, 1996       Weighted
                                           to                Average              to               Average
                                      July  4, 1997           Price        Dec. 31, 1996            Price
<S>                                    <C>                   <C>               <C>              <C>  
      Options outstanding
  
         at beginning of period        2,818                 $8.33             2,138            $8.41
      Options granted                    369                  6.55               953             7.78
      Options exercised                   (7)                 6.06              (173)            6.27
      Options forfeited/canceled        (542)                 9.05              (100)            8.06
                                      -------                                   -----
      Options outstanding at
         end of period                 2,638                  7.94             2,818             8.33

      Number of options at end
         of period:
         Exercisable                   1,725                                   1,630
         Available for grant             957                                     784


</TABLE>

<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED July 4, 1997 and June 30, 1996
                (All amounts in thousands, except per share data)
                                   (Unaudited)


(4)   PRO FORMA RESULTS OF OPERATIONS

The following  unaudited pro forma condensed  results of operations  combine the
operations  of  the  Company  with  those  of  PSC  Scanning,   Inc.   (formerly
Spectra-Physics  Scanning  Systems,  Inc.),  TxCOM S.A.  and related  businesses
("Spectra")  as adjusted for the  acquisition on July 12, 1996 by the Company of
certain of the assets  and  liabilities  of  Spectra.  The pro forma  results of
operations  are presented as if the  acquisition  was  consummated on January 1,
1996.

The  pro  forma   information  is  presented  after  giving  effect  to  certain
adjustments for depreciation,  amortization, interest expense and related income
tax  effects.  The pro forma  results  do not  purport to be  indicative  of the
results that actually would have been achieved during the periods  indicated and
are not intended to be indicative of future results.
<TABLE>
<CAPTION>

                                            Pro Forma Three Months Ended           Pro Forma Six Months Ended
                                                  June 30,1996                         June 30, 1996
<S>                                                    <C>                                   <C>     
        Net sales                                      $51,487                               $104,504
        Income from operations                           3,409                                  8,976
        Income from continuing operations                  206                                  1,818
        Net income                                         206                                  1,818

        Net income per common 
          and common equivalent share:
          Continuing operations                           $0.02                                 $0.16
          Discontinued operations                          0.00                                  0.00
                                                       --------                                ------
          Net income                                      $0.02                                 $0.16
                                                        =======                                 =====

        Weighted average shares outstanding              11,424                                11,389

</TABLE>

(5)     DERIVATIVES

The Company monitors its exposure to interest rate and foreign currency exchange
risk. The Company has limited involvement with derivative financial  instruments
and  does not use  them  for  trading  purposes.  The  Company  uses  derivative
instruments solely to reduce the financial impact of these risks.

Interest Rate Risk:

The Company has  entered  into  interest  rate swap  agreements  with its senior
lending banks in accordance with the terms of the senior loans. The Company uses
these  interest rate swap  agreements to reduce its exposure to variable  rates.
The  differentials  to be  received  or paid  under  these  interest  rate  swap
agreements  are   recognized  as  a  compoenent  of  interest   expense  in  the
consolidated income statement.

Foreign Currency Exchange Rate Risk:

The Company enters into forward  foreign  exchange  contracts as a hedge against
currency  fluctuations  relating to net  foreign  transactions  and  commitments
denominated in foreign currencies. The foreign exchange contracts generally have
maturities of  approximately 30 days and require the Company to exchange foreign
currencies for U.S. dollars at maturity,  at rates agreed to at the inception of
the  contracts.  Gains and losses on forward  contracts  are offset  against the
foreign exchange gains or losses on the underlying hedged items and are recorded
as  a  component  of  selling,   general  and  administrative  expenses  in  the
consolidated income statement.


<PAGE>



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

The following  discussion and analysis  should be read in  conjunction  with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
of the Company's December 31, 1996 annual report on Form 10-K.

Results of Operations:  Three Months ended July 4, 1997 and June 30, 1996
-------------------------------------------------------------------------------

Net Sales.  Consolidated  net sales  during the three  months ended July 4, 1997
increased  $25.2  million or 115%  compared  with the same  period in 1996.  The
increase is due to the inclusion of Spectra  product  sales and increased  sales
volumes of the Company's QuickScan handheld scanner products.  International net
sales  increased 327% primarily due to the Spectra  acquisition  and represented
approximately  44% of net sales in the second  quarter of 1997 versus 22% of net
sales in the second quarter of 1996.

Gross  Profit.  Consolidated  gross profit during the three months ended July 4,
1997  increased $9.3 million or 109% compared with the same period in 1996. As a
percentage of sales, gross profit decreased from 38.8% to 37.9%. The decrease in
gross profit  percentage  is due to a $1.0 million  inventory  write-off for the
discontinuation  of certain  products to streamline  the Company's  handheld and
fixed position product lines. Excluding the inventory write-off,  the 1997 gross
margin  would have been 40.0%.  This  increase  in gross  profit  percentage  is
primarily due to the acquisition of Spectra and a change in the sales mix of the
Company's handheld and fixed position scanner products.

Engineering,  Research and  Development.  Engineering,  Research and Development
(ER&D)  expenses  increased $1.8 million or 114%, as compared to the same period
in 1996. As a percentage of sales,  ER&D was 7.3% in the second  quarter of 1997
and 1996. The dollar increases were primarily due to the inclusion of Spectra.

Selling, General and Administrative.  Selling, General and Administrative (SG&A)
expenses  increased $4.0 million or 61%, as compared to the same period in 1996.
The increased  dollar amount is primarily due to the inclusion of Spectra.  As a
percentage  of sales SG&A was 22.1% in 1997 versus 29.5% in 1996. As a result of
the acquisition and integration of Spectra,  the Company has reduced its general
and administrative  expenses as a percentage of sales. In addition,  the Company
is now operating under the  Symbol-Spectra  license  agreement which has reduced
royalty expenses as a percentage of sales.

Severance  and Other  Costs.  During the second  quarter  of 1997,  the  Company
recorded a one-time pretax charge of $4.2 million for severance and other costs.
Of the  total  charge,  approximately  $2.3  million  was  associated  with  the
Severance Agreement with the former CEO, $1.2 million was for employee severance
and benefit costs for the elimination of  approximately  30 positions  including
several senior  executives,  and $0.7 million for the centralization of research
and development  efforts and the relocation of  manufacturing of certain product
lines between its two manufacturing facilities.


<PAGE>



Acquisition  Related  Restructuring  and Other  Costs.  During  the 1994  fourth
quarter,  the Company  recorded a one-time pretax  restructuring  charge of $3.0
million.  The charge related to the integration of the Company's  existing fixed
position  scanner  product lines with those of LazerData,  which was acquired in
December  1994.  The  restructuring  program  in  part,  provided  for  employee
severance  and  benefit  costs  for  the   elimination   of   approximately   12
manufacturing  and  engineering  support  positions.  As of  July 4,  1997,  all
positions targeted in the restructuring program have been eliminated. The amount
of the  restructuring  accrual at July 4, 1997 was  approximately  $0.3 million.
Restructuring  actions  will be  substantially  completed  by December 31, 1997.
There have been no reallocations or reestimates to date.

During the third quarter of 1996, the Company recorded a one-time, pretax charge
of $10.0  million for the cost of  restructuring  its existing  operations  with
those of Spectra which was acquired in July 1996. The  restructuring  program in
part,  provided for employee  severance and benefit costs for the elimination of
certain  positions.   As  of  July  4,  1997,  all  positions  targeted  in  the
restructuring  program  have been  eliminated.  The amount of the  restructuring
accrual at July 4, 1997 was approximately  $2.2 million.  Restructuring  actions
will be  substantially  completed  by  December  31,  1997.  There  have been no
reallocations or reestimates to date.

Interest Expense.  Interest expense increased $3.4 million versus the comparable
period in 1996. The interest  expense relates to the debt incurred in connection
with the acquisition of Spectra in July 1996.

Provision for Income Taxes.  The Company  recorded a $1.9 million tax benefit in
1997  primarily  due to the  severance  and other  costs  discussed  above.  The
Company's  effective tax rate was 37% in both 1997 and 1996. The Company expects
to  record  income  tax  expense  at or about  the  combined  federal  and state
statutory tax rate in 1997.

Discontinued Operations. During the third quarter of 1996, the Company adopted a
plan to  dispose  of its TxCOM  subsidiary.  TxCOM was  acquired  as part of the
Spectra  acquisition.  During the second quarter of 1997, the Company  completed
the sale of TxCOM for approximately  $1.0 million.  A gain of approximately $0.4
million, net of tax, was recorded.

Results of Operations:  Six Months ended July 4, 1997 and June 30, 1996
-----------------------------------------------------------------------

Net Sales.  Consolidated  net sales  during  the six  months  ended July 4, 1997
increased  $58.0  million or 133%  compared  with the same  period in 1996.  The
increase is due to the inclusion of Spectra  product  sales and increased  sales
volumes of the Company's QuickScan handheld scanner products.  International net
sales  increased 362% primarily due to the Spectra  acquisition  and represented
approximately 44% of net sales in the six months of 1997 versus 22% of net sales
in the first six months of 1996.

Gross Profit. Consolidated gross profit during the six months ended July 4, 1997
increased  $22.9  million or 129%  compared  with the same period in 1996.  As a
percentage  of sales,  gross profit  decreased  from 40.7% to 40.0%.  During the
second quarter of 1997, the Company took a $1.0 million inventory  write-off for
the discontinuation of certain products to streamline the Company's handheld and
fixed position product lines. Excluding the inventory write-off,  the 1997 gross
margin  would have been 41.0%.  This  increase  in gross  profit  percentage  is
primarily due to the acquisition of Spectra and a change in the sales mix of the
company's handheld and fixed position scanner products.


<PAGE>



Engineering,  Research and  Development.  Engineering,  Research and Development
(ER&D)  expenses  increased $3.5 million or 103%, as compared to the same period
in 1996.  As a percentage  of sales,  ER&D was 6.8% in 1997 versus 7.8% in 1996.
The dollar increase is due to the inclusion of Spectra.

Selling, General and Administrative.  Selling, General and Administrative (SG&A)
expenses increased $10.5 million or 81%, as compared to the same period in 1996.
The increased  dollar amount is primarily due to the inclusion of Spectra.  As a
percentage  of sales SG&A was 23.2% in 1997 versus 29.9% in 1996. As a result of
the acquisition and integration of Spectra,  the Company has reduced its general
and administrative  expenses as a percentage of sales. In addition,  the Company
is now operating under the  Symbol-Spectra  license  agreement which has reduced
royalty expenses as a percentage of sales.

Interest Expense.  Interest expense increased $6.7 million versus the comparable
period in 1996. The interest  expense relates to the debt incurred in connection
with the acquisition of Spectra in July 1996.

Provision for Income Taxes.  The Company  recorded a $1.4 million tax benefit in
1997  primarily  due to the  severance  and other  costs  discussed  above.  The
Company's  effective tax rate was 37% in both 1997 and 1996. The Company expects
to  record  income  tax  expense  at or about  the  combined  federal  and state
statutory tax rate in 1997.

Discontinued Operations. During the third quarter of 1996, the Company adopted a
plan to  dispose  of its TxCOM  subsidiary.  TxCOM was  acquired  as part of the
Spectra  acquisition.  During the second quarter of 1997, the Company  completed
the sale of TxCOM for approximately  $1.0 million.  A gain of approximately $0.4
million, net of tax, was recorded.

Liquidity and Capital Resources:

Current assets  decreased $10.0 million from December 31, 1996 due to a decrease
in cash  offset  in part by an  increase  to  inventories.  Current  liabilities
decreased $4.3 million  primarily due to a reduction in accrued  expenses offset
in part by an  increase  in  accounts  payable.  As a  result,  working  capital
decreased $5.7 million from December 31, 1996.

Property,  plant and  equipment  expenditures  totaled  $3.6 million for the six
months  ended July 4, 1997  compared  with $1.0 million for the six months ended
June  30,  1996.  The  1997  expenditures  primarily  related  to  manufacturing
equipment and new product tooling.

The long-term debt to capital  percentage was 89.6% at July 4, 1997 versus 88.5%
at December 31, 1996. At July 4, 1997,  liquidity  immediately  available to the
Company consisted of cash and cash equivalents of $1.9 million. In addition,  in
connection  with the  acquisition  of Spectra,  the Company  obtained new credit
facilities  totaling $130.0 million.  The Company has $7.5 million  available on
these  facilities.  The Company  believes that its cash  resources and available
credit  facilities,  in addition to its operating cash flows,  are sufficient to
meet its requirements for the next twelve months.


<PAGE>
Part II:  OTHER INFORMATION

Item 1:   Legal Proceedings:

          The  descriptions  of the  Company's  legal  proceedings  with  Symbol
          Technologies,  Inc.  ("Symbol"),  set forth in Item 3 of the Company's
          Annual  Report on Form 10-K for the fiscal  period ended  December 31,
          1996  (the  "Litigation")  and in  Item 1 of the  Company's  Quarterly
          Report  on  Form  10-Q  for the  quarter  ended  April  4,  1997  (the
          "Arbitration"),  are incorporated herein by reference. The Arbitration
          was held during the week of July 21, 1997 and no decision has yet been
          rendered. 

Item 2:   Changes in Securities:  None

Item 3:   Defaults upon Senior Securities: None

Item 4:   Submission of Matters to a Vote of Security Holders:  

          (a) The Annual Meeting of Shareholders was held on May 6, 1997.

          (b) The names of the directors elected at the Annual Meeting for a
          three year term are as follows:

          Donald K. Hess
          James C. O'Shea
          Justin L. Vigdor

          The name of each other director whose term of office as a director
          continued after the Annual Meeting is as follows:

          Jay M. Eastman
          Robert S. Ehrlich
          James W. Henry
          Thomas J. Morgan
          Jack E. Rosenfeld

          (c)  At the Annual Meeting, the tabulation of votes with respect to
          each nominee for director was as follows:

          Nominee                  Votes FOR           Authority Withheld
          Donald K. Hess           9,891,550           101,844
          James C. O'Shea          9,901,275            92,119
          Justin L. Vigdor         9,878,651           114,473

Item 5:   Other Information:  None

<PAGE>

Item 6:   Exhibits and Reports on Form 8-K

         (a)  Exhibits:

         10.1     Employment Agreement between the Company and
         Robert C. Strandberg dated as of June 2, 1997

         10.2     Agreement between the Company and
         Robert S. Ehrlich dated as of June 2, 1997

         10.3     Second Amendment dated as of July 4, 1997 to
         the Credit Agreement dated as of July 12, 1996 among
         PSC Scanning, Inc., as Borrower, PSc Inc., as
         Guarantor, the financial institutions party thereto
         and Fleet Bank as initial Issuing Bank and
         administrative agent

         10.4     Amendment No. 2 dated July 4, 1997 to 
         Securities Purchase Agreements among PSC Inc.,
         PSC Scanning, Inc. and Equitable Life Assurance Society
         of the United States (separate but identical
         amendments were addressed to each of the other
         purchasers of the Senior Subordinated Notes)

         (b)  Reports on Form 8-K:
         Report on Form 8-K, dated May 7, 1997

<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.

                                        PSC Inc.

DATE:     August 18, 1997               By:  /s/ Robert C. Strandberg
                                        Robert C. Strandberg
                                        President and Chief Executive Officer

DATE:     August 18, 1997               By: /s/ William J. Woodard
                                        William J. Woodard
                                        Vice President and Chief Financial
                                             Officer

DATE:     August 18, 1997               By: /s/ Scott D. Deverell
                                        Controller