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


                                    FORM 10-Q


(Mark One)

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

                For the quarterly period ended September 29, 2002

                                       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.)


111 S.W. Fifth Avenue, Suite 4100, Portland, Oregon                 97204
---------------------------------------------------           ------------------
(Address of principal executive offices)                          (Zip Code)

                                  503-553-3920
              (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 November 5, 2002, there were 12,834,467 shares of common stock
         outstanding.








                                       1
<PAGE>
                            PSC INC. AND SUBSIDIARIES

                                      INDEX


PART I:  FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1    Financial Statements                                                                         Page
                                                                                                       Number
                                                                                                       ------
<S>                                                                                                 <C>
          Consolidated Balance Sheets as of
          December 31, 2001 and September 29, 2002 (Unaudited)..........................................3-4

          Consolidated Statements of Operations and
          Accumulated Deficit for the three and nine months ended:
          September 29, 2001 (Unaudited) and September 29, 2002 (Unaudited) ..............................5

          Consolidated Statements of Cash Flows
          for the nine months ended:
          September 29, 2001 (Unaudited) and September 29, 2002 (Unaudited) ..............................6

          Notes to Consolidated Financial Statements (Unaudited) ......................................7-13

Item 2    Management's Discussion and Analysis of
          Financial Condition and Results of Operations ..............................................14-17

Item 3    Quantitative and Qualitative Disclosures about Market Risk.....................................17

PART II: OTHER INFORMATION

Item 1    Legal Proceedings ..........................................................................18-19

Item 2    Changes in Securities..........................................................................19

Item 3    Defaults upon Senior Securities................................................................19

Item 4    Submission of Matters to a Vote of Security Holders ...........................................19

Item 5    Other Information   ...........................................................................20

Item 6    Exhibits and Reports on Form 8-K...............................................................20

Item 7    Critical Accounting Policies and Estimates  ...................................................20
</TABLE>












                                       2
<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1:  FINANCIAL STATEMENTS
         --------------------
<TABLE>
<CAPTION>
                                              PSC INC. AND SUBSIDIARIES
                                             CONSOLIDATED BALANCE SHEETS
                                              (All amounts in thousands)

                                                                           December 31, 2001           September 29, 2002
                                                                           -----------------           ------------------
                                                                                                          (Unaudited)

ASSETS
<S>                                                                     <C>                         <C>
Current Assets:
   Cash and cash equivalents                                                            $1,865                       $1,543
   Accounts receivable, net of allowance for doubtful
      accounts of $879 and $591, respectively                                           33,850                       33,245
   Inventories, net                                                                     17,885                       22,040
   Prepaid expenses and other                                                            3,195                        5,573
                                                                        -----------------------     ------------------------

         Total current assets                                                           56,795                       62,401

Property, Plant and Equipment, net of
   accumulated depreciation of $20,707 and $23,237
   respectively                                                                          8,997                        8,655

Goodwill, net of accumulated amortization of $43,214 and $43,214                        63,285                       63,327

Intangibles, net of accumulated amortization of $4,921 and $6,105                        6,640                        8,622
                                                                        -----------------------     ------------------------
                                                                        -----------------------     ------------------------

        Total assets                                                                  $135,717                     $143,005
                                                                        =======================     ========================
</TABLE>

















        See accompanying notes to the Consolidated Financial Statements.

                                       3
<PAGE>
                            PSC INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           (All amounts in thousands)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                           December 31, 2001          September 29, 2002
                                                                           -----------------          ------------------
                                                                                                        (Unaudited)
<S>                                                                     <C>                        <C>
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)

Current Liabilities:
   Current portion of long-term debt                                                  $119,349                  $123,998
   Accounts payable                                                                     17,325                    21,505
   Accrued expenses                                                                     19,889                    22,710
   Accrued payroll and related employee benefits                                         3,836                     2,676
                                                                          ---------------------      --------------------

   Total current liabilities                                                           160,399                   170,889

Long-Term Debt, less current maturities                                                      -                         -

Other Long-Term Liabilities                                                              2,497                     2,847

Shareholders' Equity (Deficit):
   Series A convertible preferred shares, par value $.01;
      110 shares authorized, issued and outstanding
     ($11,000 aggregate liquidation value)                                                   1                         1
   Series B preferred shares, par value $.01; 175
      authorized, no shares issued and outstanding                                           -                         -
   Undesignated preferred shares, par value $.01;
      9,715 authorized, no shares issued and outstanding                                     -                         -
   Common shares, par value $.01; 100,000 authorized
      12,834 and 12,834 shares issued and outstanding                                      129                       129
   Additional paid-in capital                                                           73,078                    73,078
   Accumulated deficit                                                                (95,606)                  (99,491)
   Accumulated other comprehensive loss                                                (3,424)                   (3,091)
   Less treasury stock repurchased at cost, 180 shares                                 (1,357)                   (1,357)
                                                                          ---------------------      --------------------

        Total shareholders' equity (deficit)                                          (27,179)                  (30,731)
                                                                          ---------------------      --------------------


Total liabilities and shareholders' equity (deficit)                                  $135,717                  $143,005
                                                                          =====================      ====================
</TABLE>







        See accompanying notes to the Consolidated Financial Statements.


                                       4
<PAGE>
                            PSC INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
                (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                 Three Months Ended                    Nine Months Ended
                                                        ------------------------------------- ------------------------------------
                                                        September 29, 2001     September 29,     September 29,      September 29,
                                                        ------------------     --------------    ---------------    --------------
                                                              2001                2002              2001               2002
                                                              ----                ----              ----               ----
                                                           (Unaudited)         (Unaudited)        (Unaudited)       (Unaudited)
<S>                                                                <C>               <C>               <C>               <C>
Net Sales                                                          $44,610           $42,452           $145,537          $127,199
Cost of sales                                                       27,831            26,749             90,614            78,073
                                                        ------------------     --------------    ---------------    --------------
Gross profit                                                        16,779            15,703             54,923            49,126

Operating Expenses:
     Sales & marketing expense                                       6,708             8,184             22,233            24,275
     Engineering, research and development                           3,783             3,167             12,993             9,520
     General and administrative expense                               3700             3,303             10,832            10,336
     Severance and other costs                                         748               230              1,430               230
     Debt restructuring costs                                          490             (250)              2,825               425
     Amortization of intangibles resulting
     from business acquisitions                                      2,628                 -              8,150                 -
                                                        ------------------     --------------    ---------------    --------------
Total Operating Expenses                                            18,057            14,634             58,463            44,786
                                                        ------------------     --------------    ---------------    --------------
Income (loss) from operations                                      (1,278)             1,069            (3,540)             4,340

Interest and Other (Income)/Expense:
     Interest expense, net                                           4,107             2,944             12,708            10,011
     (Gain) loss from asset sale                                        73                 -              (208)                 -
     Other (income) expense                                          (449)             (309)              (140)             (456)
                                                        ------------------     --------------    ---------------    --------------
                                                                     3,731             2,635             12,360             9,555

     Loss before income tax provision/(benefit)                    (5,009)           (1,566)           (15,900)           (5,215)
     Income tax provision/(benefit)                                  (116)                21                721           (1,330)
                                                        ------------------     --------------    ---------------    --------------
     Loss before cumulative effect of accounting                   (4,893)           (1,587)           (16,621)           (3,885)
       change
     Cumulative effect of accounting change                              -                 -                838                 -
                                                        ------------------     --------------    ---------------    --------------
Net income/(loss)                                                $ (4,893)         $ (1,587)         $ (15,783)         $ (3,885)
                                                        ------------------     --------------    ---------------    --------------
Net income/(loss) per share before cumulative effect
of accounting change:
Basic and diluted:                                                $ (0.39)          $ (0.12)           $ (1.35)          $ (0.30)

Net income/(loss) per share of cumulative effect of
accounting change:
Basic and diluted:                                                   $   -                 -             $ 0.07                 -

Net income/(loss) per share after cumulative effect
of accounting change:
Basic and diluted:                                                $ (0.39)          $ (0.12)           $ (1.28)          $ (0.30)

Weighted average number of common and common share
equivalent shares outstanding:
Basic and diluted:                                                  12,499            12,834             12,353            12,834

Accumulated Deficit:
     Accumulated deficit, beginning of period                   $ (84,017)        $ (97,904)         $ (73,127)        $ (95,606)
     Net income/(loss)                                             (4,893)           (1,587)           (15,783)           (3,885)
                                                        ------------------     --------------    ---------------    --------------
Accumulated deficit, end of period                              $ (88,910)        $ (99,491)         $ (88,910)        $ (99,491)
                                                        ------------------     --------------    ---------------    --------------
</TABLE>
        See accompanying notes to the Consolidated Financial Statements.

                                       5
<PAGE>
                            PSC INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (All amounts in thousands)
<TABLE>
<CAPTION>
                                                                                       Nine months Ended
                                                                        -------------------------------------------------
                                                                           September 29, 2001      September 29, 2002
                                                                           ------------------      ------------------
                                                                               (Unaudited)             (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>                      <C>
   Net loss                                                                       $ (15,783)               $ (3,885)
   Adjustments to reconcile net loss to net cash provided by (used in)
    operating activities:
   Depreciation and amortization                                                      13,392                   5,103
   Change in fair value of fee option and warrants                                        46                   (247)
   Gain on dispositions of assets                                                      (208)                       -
   Cumulative effect of accounting change                                              (838)                       -
   (Increase)/decrease in assets:
      Accounts receivable, net                                                         2,177                     605
      Inventories                                                                      (339)                 (4,155)
      Prepaid expenses and other                                                       1,523                 (2,375)
   Increase/(decrease) in liabilities:
      Accounts payable                                                               (3,851)                   4,159
      Accrued expenses                                                                 2,092                   2,827
      Accrued payroll and related employee benefits                                  (1,600)                 (1,164)
      Additions/(reductions) to other long-term liabilities, net                         341                     607
                                                                             ----------------        ----------------
      Net cash provided by / (used in) operating activities                          (3,048)                   1,475
                                                                             ----------------        ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, net                                                         (1,259)                 (2,365)
   Additions to intangible and other assets                                          (2,158)                 (3,034)
   Proceeds from sales of assets                                                      12,774                       -
                                                                             ----------------        ----------------
      Net cash provided by / (used in) investing activities                            9,357                 (5,399)
                                                                             ----------------        ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Additions to long-term debt                                                         2,000                   3,267
   Payments of long-term debt                                                       (12,522)                       -
   Exercise of options and issuance of common shares                                     375                       -
                                                                             ----------------        ----------------
      Net cash provided by / (used in) financing activities                         (10,147)                   3,267
                                                                             ----------------        ----------------

Effect of exchange rate changes on cash and cash equivalents                           (531)                     335
                                                                             ----------------        ----------------

Net increase / (decrease) in cash and cash equivalents                               (4,369)                   (322)

CASH AND CASH EQUIVALENTS:
      Beginning of period                                                              5,461                   1,865
                                                                             ----------------        ----------------
      End of period                                                                  $ 1,092                 $ 1,543
                                                                             ================        ================
SUPPLEMENTAL CASH FLOW INFORMATION: .................
Interest paid                       .................                                $ 2,012                 $ 2,526
Income taxes paid                   .................                                $ 3,735                 $ 1,318
Increase in debt discount and accrued expenses related to debt modification          $ 4,100                 $     -
</TABLE>

        See accompanying notes to the Consolidated Financial Statements.

                                       6
<PAGE>
                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 29, 2002
                           (All amounts in thousands)
                                   (Unaudited)

(1)   DESCRIPTION OF BUSINESS AND CURRENT EVENTS

     PSC  Inc.  (the  Company)  is  a  leading  provider  of  retail  automation
     solutions,  mobile and wireless  systems,  and  automated  data  collection
     products.  Its range of products includes wireless portable,  vehicle mount
     and fixed station data collection terminals, warehouse management software,
     self-checkout  systems and handheld and  fixed-position  bar code scanners.
     PSC products are used in supply chain  management  solutions in the retail,
     manufacturing,    warehousing,    distribution   and   logistics   markets.
     Approximately  48% of the sales are reported in the United  States,  33% in
     Europe and the remaining 19% occur in South  America,  Australia,  Asia and
     Japan.

     In November 2000, the Company announced a restructuring  plan to reduce its
     debt and to achieve future  profitability and growth.  These  restructuring
     plans  included  replacement  of  executive  management,  consolidation  of
     redundant  administrative  activities,  sale or  disposal  of  unprofitable
     operations and  streamlining of product lines and production  operations to
     reduce cost and increase profit contribution for products sold.

     In February  2001,  the Company sold its  verification  and imager  product
     lines for $3.8 million. The gain on the sale was $3.2 million,  recorded in
     other income/expense on the consolidated statement of operations.

     In May 2001,  the Company  sold its  Webster,  New York  facility  for $5.0
     million.  The transaction resulted in a gain of $0.1 million in 2001, after
     a write-down of the facility value in 2000 of $7.9 million.

     In July 2001, the Company sold its LazerData business for $6.4 million. The
     loss on the sale was $2.9 million recorded in other (income)/expense in the
     consolidated statement of operations.

     During 2001, 50% of all asset  disposition  proceeds were applied to reduce
     indebtedness to PSC's senior lenders.

     In July 2001, the Company  substantially  completed the process of hiring a
     new executive  management team and relocated its corporate  headquarters to
     Portland, Oregon.

     In September 2001, the Company completed its  restructuring  process with a
     further reduction in costs and expenses,  including  staffing costs.  Total
     severance  and  other   restructuring  costs  during  2001  and  2000  were
     approximately   $1.5   million  and  $4.9   million,   respectively.   Debt
     restructuring  costs for legal and consulting  totaled $3.6 million in 2001
     and $0.4 million for the first nine months of 2002.  Total cost  reductions
     related to all  restructuring  activities,  including  sales of  businesses
     referred to above was  estimated to be  approximately  $40.0  million on an
     annualized basis.

     Also in September 2001, the Company initiated efforts to attract new equity
     capital to reduce and refinance  its  indebtedness  and provide  additional
     equity  resources to support  ongoing  operations.  The Company secured the
     services  of an  investment  banking  firm to  assist  in this  effort.  At
     September  29,  2002,   these   efforts  are  ongoing.   In  all  presently
     contemplated  recapitalization  transactions,  the Company anticipates that
     the equity  interests of all existing  shareholders  will be  extinguished.
     However, the precise outcome of

                                       7
<PAGE>
                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 29, 2002
                           (All amounts in thousands)
                                   (Unaudited)

     existing  equity  shareholder  interests  will be  dependent  upon  further
     negotiations and discussions with prospective  private equity investors and
     cannot be  predicted  with  assurance  at this time.  As with all  business
     transactions, it is not possible to predict whether any transaction will be
     consummated.

     Management's  cash  flow  projections  for the  Company  balances  the cash
     collections from revenue activities with the disbursement  requirements for
     suppliers,  capital  expenditures  and personnel  costs. The Company's cost
     reduction efforts have been focused on achieving a neutral or positive cash
     flow from operations. Successfully continuing to operate in this neutral to
     positive  cash flow  pattern is  dependent  upon the  Company's  ability to
     effectively  achieve its sales plan as well as its  continued  cost control
     performance.  Management  believes  that its revenue  and cost  performance
     objectives   are  achievable   and   sustainable   during  this  period  of
     recapitalization.  If the Company's  performance  deviates  negatively from
     this  objective,  management  intends to take all steps necessary to reduce
     cash costs to rebalance the Company's  operations to return to a neutral or
     positive cash flow performance.

     In March  2002,  the  Company  and its  lenders  reached  an  agreement  in
     principle to extend the  maturities  of the  Company's  existing  financing
     facilities  to August 1,  2002.  On August 1,  2002,  the  Company  and its
     lenders agreed to extend the maturities of the Company's existing financing
     facilities to September 1, 2002.  Since  September 1, 2002, the Company and
     its lenders have agreed to a series of extensions to the  maturities of its
     financing  facilities.  The  Company  anticipates  that  it will be able to
     obtain  additional  extensions  as  necessary.  The  terms of the  extended
     financing   arrangements  were  substantially   unchanged  from  the  prior
     agreements.  The Company is required to achieve  certain  milestones in its
     recapitalization   process.   Management   believes  that  a  restructuring
     transaction  acceptable to the Company's lenders can be achieved,  although
     there can be no assurance that such a transaction will be accomplished.  In
     the event that the Company is unsuccessful in these restructuring  efforts,
     the  lenders  would be entitled to  exercise  their  respective  rights and
     remedies under the credit  facilities and applicable law, in which case the
     Company would not have sufficient  funds to repay its outstanding  debt and
     no assurance can be given that alternative sources of sufficient  financing
     would be available on acceptable terms, or on any terms at all.


(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accompanying  consolidated  financial  statements have been prepared by
     the Company without audit,  or concurrent  review by outside  auditors,  as
     required  by the  reporting  provisions  of  the  Securities  and  Exchange
     Commission.  See Item 7, "Critical  Accounting Policies and Estimates",  on
     page 21.

     In the  opinion of  management,  these  financial  statements  include  all
     adjustments necessary to present fairly the Company's financial position as
     of September  29, 2002,  the results of  operations  for the three and nine
     months ended  September  29, 2001 and September 29, 2002 and its cash flows
     for the nine months ended  September 29, 2001 and  September 29, 2002.  The
     results of  operations  for the three and nine months ended  September  29,
     2002 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, 2001 annual report on
     Form 10-K.

                                      8
<PAGE>
                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 29, 2002
                           (All amounts in thousands)
                                   (Unaudited)

(3)   INVENTORIES

     Inventories  are stated at the lower of cost or market using the  first-in,
     first-out  method.  Inventory  costs  include  material,  direct  labor and
     overhead and consist of the following:
<TABLE>
<CAPTION>
                                              December 31, 2001         September 29, 2002
                                            -----------------------     -----------------------
<S>                                                  <C>                        <C>
     Raw materials                                   $14,586                     $18,009
     Work-in-process                                   3,522                       4,699
     Finished goods                                    4,071                       3,886
                                                 ------------                ------------
                                                      22,179                      26,594
     Less inventory reserve                          (4,294)                     (4,554)
                                                 ------------                ------------
                                                     $17,885                     $22,040
                                                 ============                ============
</TABLE>
(4)   LONG TERM DEBT

     Current maturities of long-term debt consists of the following:
<TABLE>
<CAPTION>
                                              December 31, 2001         September 29, 2002
                                            -----------------------     -----------------------
<S>                                                  <C>                         <C>
     Term loan, net of debt discount
        of $1,265 and $0                             $58,935                     $60,106
     Senior revolving credit                          30,419                      33,720
     Subordinated term loan, net of
     discount of $943 and $766                        29,057                      29,234
     Subordinated promissory note                        938                         938
                                                 ------------                ------------
     Long term debt, net                            $119,349                    $123,998
                                                 ============                ============
</TABLE>

     The company has  continued  to negotiate  with its senior and  subordinated
     lenders to provide extensions to its credit  facilities.  The term loan and
     senior  revolving  credit  agreements,  together  with  amendments to those
     agreements,  expire on November 15, 2002. The company  anticipates  that it
     will be able to obtain additional extensions as necessary.  The company has
     classified  the entire term loan and senior  revolving  credit  facility as
     current. In addition all subordinated indebtedness has been reclassified as
     current. See Note 1, "Description of Business And Current Events".

(5)  ASSET SALES


     As part of the Company's overall  restructuring plans, the Company sold its
     verification  and  imager  product  lines  on  February  16,  2001 for $3.8
     million. The gain realized on the sale was approximately $3.2 million.

     On May 14, 2001,  the Company  completed the sale of its Webster,  New York
     facility  for  $5.0  million.  The  gain  realized  from  the sale was $0.1
     million.  In November 2000, the Company  announced the

                                       9
<PAGE>
                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 29, 2002
                           (All amounts in thousands)
                                   (Unaudited)

     consolidation of its Webster,  New York headquarters with its operations in
     Eugene,  Oregon.  As  a  result,  the  Company  recorded  an  $8.6  million
     write-down in connection with the anticipated sale of the Webster, New York
     facility in accordance with Statement of Financial Accounting Standards No.
     121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and
     for  Long-Lived  Assets  to Be  Disposed  of".  SFAS No.  121  requires  an
     impairment  loss to be recognized  if the carrying  amount of an asset held
     for disposal  exceeds the fair value of the asset less the cost to sell the
     asset.  The loss  recognized  in 2000 was $7.9  million on the facility and
     related  leasehold  improvements  and $0.7  million on other  assets and is
     included in the consolidated statements of operations.

     On July 13, 2001,  the Company  announced the completion of the sale of its
     LazerData  business  as part of its plan to  divest  non-core  assets,  and
     recorded an estimated  loss on disposition of that business of $2.9 million
     into the second quarter of 2001. Net assets written off in connection  with
     the sale totaled $6.7 million.

     The  Company  was  required  to use 50% of the net cash  proceeds  to repay
     amounts borrowed under its senior credit facilities.


(6)  SEVERANCE AND OTHER COSTS

     As of  December  31,  2001,  the  amount  of  the  severance  accruals  was
     approximately  $0.3 million.  As of September  29, 2002,  the amount of the
     severance accruals was approximately $0.2 million, which relates to current
     contractual obligations.


(7)  SHAREHOLDERS' EQUITY

     Other  comprehensive  loss  reports  changes  in equity  that  result  from
     transactions and economic events other than transactions with owners. Other
     comprehensive loss is the total of net loss and all other non-owner changes
     in equity.
<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                     --------------------------------------------------------
                                                         September 29, 2001              September 29, 2002
                                                     -------------------------- -----------------------------
<S>                                                                  <C>                           <C>
     Net income/(loss)                                               $ (4,893)                     $ (1,587)
     Foreign currency translation adjustment                               848                         (369)
                                                     -------------------------- -----------------------------
     Comprehensive loss                                              $ (4,045)                     $ (1,956)
</TABLE>
<TABLE>
<CAPTION>
                                                                        Nine Months Ended
                                                     --------------------------------------------------------
                                                         September 29, 2001              September 29, 2002
<S>                                                                 <C>                            <C>
     Net income/(loss)                                              $ (15,783)                     $ (3,885)
     Foreign currency translation adjustment                             (531)                           333
                                                     -------------------------- -----------------------------
     Comprehensive loss                                             $ (16,314)                     $ (3,552)
                                                     -------------------------- -----------------------------
</TABLE>

                                       10
<PAGE>
                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 29, 2002
                           (All amounts in thousands)
                                   (Unaudited)

     Changes in the status of options under the Company's stock option plans are
     summarized as follows:
<TABLE>
<CAPTION>
                                          January 1, 2001           Weighted             January 1, 2002          Weighted
                                                   to                Average                   to                 Average
                                         September 29, 2001           Price            September 29, 2002          Price
                                      ------------------------- -- ------------      ------------------------ - -------------
<S>                                               <C>                  <C>                        <C>             <C>
     Options outstanding at
        beginning of period                       3,222                $4.00                      3,521            $2.64
     Options granted                                609                 1.11                        161              .56
     Options exercised                                -                    -                          -                -
     Options forfeited/canceled                   (332)                 3.91                       (72)             2.50
                                           -------------                                   -------------
     Options outstanding at
        end of period                             3,499                $2.74                      3,610            $2.57
                                           =============                                   =============


     Number of options at end
        of period:
        Exercisable                               1,816                $3.82                      2,281            $3.26
        Available for grant                         770                                             547
</TABLE>

     During the nine month period ended  September  29, 2002,  30,000  forfeited
     options were  cancelled due to the expiration of the 1987 Stock Option Plan
     in December 1997. These options are not available for future grants.

(8)  NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE

     Basic EPS was computed by dividing  reported  earnings  available to common
     shareholders  by weighted  average  common  shares  outstanding  during the
     period. Diluted EPS was the same as basic EPS for the three and nine months
     ended  September  29, 2001 and September 29, 2002 as the affect of options,
     warrants  and  preferred  shares  would  have been  antidilutive.  Options,
     warrants  and  preferred  shares  of  3,499,  975  and 180  common  shares,
     respectively,  were  outstanding  for the nine months ended  September  29,
     2001. Options, warrants and preferred shares to purchase 3,610, 975 and 180
     of common shares were  outstanding  for the nine months ended September 29,
     2002.

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                           ------------------------------------------------------------------------------------------------
                                         SEPTEMBER 29, 2001                               SEPTEMBER 29, 2002
                           ------------------------------------------------ -----------------------------------------------
Basic and Diluted              Net loss           Shares           Per         Net loss           Shares        Per
EPS:                                                               Share                                        Share
                              (numerator)       (denominator)      Amount     (numerator)       (denominator)   Amount
                              -----------       -------------      ------     -----------       -------------   ------
<S>                           <C>               <C>                <C>        <C>               <C>             <C>
Net loss available to
common
shareholders                    $ (4,893)              12,499      $(0.39)       $ (1,587)             12,834   $(0.12)
                           ------------------------------------------------------------------------------------------------
</TABLE>

                                       11
<PAGE>
                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 29, 2002
                           (All amounts in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 NINE MONTHS ENDED
                           ------------------------------------------------------------------------------------------------
                                         SEPTEMBER 29, 2001                               SEPTEMBER 29, 2002
                           ------------------------------------------------ -----------------------------------------------
Basic and Diluted              Net loss           Shares           Per         Net loss           Shares        Per
EPS:                                                               Share                                        Share
                              (numerator)       (denominator)      Amount     (numerator)       (denominator)   Amount
                              -----------       -------------      ------     -----------       -------------   ------
<S>                           <C>               <C>                <C>        <C>               <C>             <C>
Net loss available to
common
shareholders                   $ (15,783)              12,353      $(1.28)       $ (3,885)             12,834   $(0.30)
                           ------------------------------------------------------------------------------------------------
</TABLE>



(9)  DERIVATIVES

     The Company adopted  Statement of Financial  Accounting  Standards No. 133,
     "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
     as  amended  as of  January  1,  2001 and the  effect of  adoption  was not
     material to the Company's financial statements.

     Foreign Currency Exchange Rate Risk:

     The  Company's  exposure  to  foreign  currency  relates  primarily  to its
     international  subsidiaries.  Sales to certain countries are denominated in
     their local  currency.  The Company  enters into foreign  currency  forward
     exchange contracts to minimize the effect of foreign currency  fluctuations
     relating  to these  transactions  and  commitments  denominated  in foreign
     currencies.  The foreign exchange contracts generally have maturities of up
     to 60 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.
     The  foreign  exchange  contracts  have  not  been  designated  as  hedging
     instruments  and the gains and losses on forward  contracts are recorded in
     the consolidated statements of operations.

     Effective  January 1, 2002,  the  Company  discontinued  the use of foreign
     exchange forward contract for hedging  purposes.  As of September 29, 2002,
     there were no foreign exchange forward contracts outstanding.

     Warrants:

     Effective  April 13, 2001, the Company  adopted  Emerging Issues Task Force
     Issue 00-19,  "Accounting for Derivative Financial  Instruments Indexed to,
     and Potentially  Settled in, a Company's Own Stock" ("EITF  00-19"),  which
     prescribes accounting treatment for freestanding contracts that are indexed
     to, and  potentially  settled in, a company's own stock. On April 13, 2001,
     the Company  entered into a  refinancing  modification  agreement  with its
     subordinated  lenders,  in which a portion of the consideration  involved a
     warrant  for 975 Common  Shares and is held by the  Company's  subordinated
     creditors. In March 2000, the strike price of this warrant was lowered from
     $8.00 to $5.25 and subsequently  lowered to $1.15 on April 13, 2001 as part
     of the  modification  agreement  reached on that date. The adoption of EITF
     00-19 resulted in a reclassification  of $254 of additional paid-in capital
     to warrants,  a temporary  equity item,  at December 31, 2000.  Immediately
     prior to the April 13,  2001,  the  warrants  were  repriced to fair value,
     resulting in an increase in the book value of the warrants of $108,

                                       12
<PAGE>

                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 29, 2002
                           (All amounts in thousands)
                                   (Unaudited)

     and a  corresponding  decrease to cumulative  effect of accounting  change.
     Simultaneously,  EITF 00-19 required an adjustment of the original value of
     the  warrants of $600 as well as the  increase  in their fair market  value
     determined  at the time of their  first  repricing  of $600 less the amount
     previously  reclassified of $254 for a total adjustment of $946 recorded as
     a reduction to  additional  paid-in  capital and an increase to  cumulative
     effect of  accounting  change.  The  warrant is now marked to market at its
     fair  value  at the end of each  reporting  period  and  the  gain/loss  is
     recorded in Other (income) / expense.

     In connection with the debt modification, the Company has agreed to pay the
     subordinated  lenders on a pro rata basis for fees up to a maximum  payment
     of $1.5 million based upon the average prevailing per share market price of
     the  Company's  Common Shares on the 15 trading days  immediately  prior to
     April 2, 2003.

     These  warrants  and  fee  option  are  accounted  for  under  SFAS  133 as
     derivative  instruments.   These  derivatives  do  not  qualify  for  hedge
     accounting,  in  accordance  with  SFAS  133,  because  they  relate to the
     Company's  stock price and not to the underlying  debt with which they were
     issued. A mark-to-market gain of $248 and $247 on both the warrants and fee
     option is recorded as Other (income) / expense in current  earnings for the
     three- and nine-month period ended September 29, 2002, respectively.

(10)  ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT

     Goodwill,  which  represents  the excess of cost over the fair value of the
     acquisition,  was previously  amortized using the straight-line method over
     5-10 years.  Effective January 1, 2002, the Company stopped  amortizing its
     goodwill in accordance with Statement of Financial Accounting Standards No.
     142,  "Goodwill and Other  Intangible  Assets" (SFAS 142).  The Company has
     completed its initial  assessment of adopting SFAS 142,  which requires the
     identification of any identifiable  intangibles that may be associated with
     the  previously  recognized  goodwill.  Based on the Company's  assessment,
     there are no identifiable  intangibles that should be separately identified
     from previously  recognized goodwill.  The Company is in the process of the
     second  step,  testing  for  impairment  based  on the  fair  value  of the
     goodwill.  The  Company  believes  that  the  value  of  goodwill  has been
     impaired.  Although the amount of impairment has not been  determined,  the
     Company  believes  that the range of  adjustment to goodwill will be $25-50
     million.  The amounts used in the  transitional  goodwill  impairment  test
     shall be measured as of the  beginning of the year of initial  application.
     The Company is in the process of  completing  its analysis and  anticipates
     that it will record the impact of adopting SFAS 142 as an accounting change
     no later than the end of the year.

(11) RECLASSIFICATION

     Certain  amounts in prior  years have been  reclassified  to conform to the
     current year presentation.


                                       13
<PAGE>
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
         -----------------------------------------------------------------------
OVERVIEW
--------
     The company has undertaken steps to recapitalize  its operations  through a
     new equity contribution and restructuring of its indebtedness.  See Note 1,
     "Description of Business And Current Events".

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, 2001 annual report on Form 10-K.

RESULTS OF OPERATIONS:  THREE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 29,
2002
--------------------------------------------------------------------------------

NET SALES.  Net sales during the three months ended September 29, 2002 decreased
$2.2 million or 4.8% compared with the same period in 2001. $0.6 million of this
decrease  related to the sale of business and product  lines in 2001,  for which
there was no revenue in 2002. The remaining  decrease in net sales is attributed
primarily to lower sales of handheld  scanners and scan engines of $1.3 million,
mobile and wireless products of $3.4 million, and other products and services of
$0.8 million.  The sale of fixed scanners increased $3.9 million compared to the
same period in 2001.

GROSS  PROFIT.  Gross profit  during the three months ended  September  29, 2002
decreased  $1.1  million or 6.4%  compared  with the same  period in 2001.  As a
percentage of sales, gross profit percentage  remained  relatively  unchanged at
37.0% for the third  quarter of 2002, as compared to 37.6% for the third quarter
of 2001.

SALES AND  MARKETING.  Sales and  marketing  expenses for the three months ended
September 29, 2002 increased  $1.5 million  compared to the same period in 2001.
As a percentage of sales,  sales and marketing  expense was 19.3% in 2002 versus
15.0%  in  2001.  The  percentage  increase  is  primarily  attributable  to the
increased  investment in the direct sales  organization  to enhance contact with
and expand relationships with end user customers.

ENGINEERING, RESEARCH AND DEVELOPMENT (ER&D). ER&D expenses for the three months
ended  September 29, 2002 decreased $0.6 million or 16.3%,  compared to the same
period in 2001. As a percentage of sales,  ER&D was 7.5% in the third quarter of
2002,  versus 8.5% of net sales in the third  quarter of 2001.  The  decrease in
ER&D is primarily attributable to cost reimbursement from an independent company
with which the Company is involved  in a joint  venture new product  development
project.

GENERAL AND  ADMINISTRATIVE.  General and administrative  expenses for the three
months ended  September 29, 2002  decreased $0.3 million as compared to the same
period in 2001.  Administrative costs decreased by approximately $0.5 million in
2002  compared to 2001,  offset by an  increase  of $0.2  million in legal costs
relating to certain litigation and legal expenses.

DEBT RESTRUCTURING COSTS. Debt restructuring costs for the third quarter of 2002
decreased  151.0% to $(0.25)  million  from $.5  million  for the same period in
2001. The decrease is due to reduced  consulting  costs  necessary to manage the
debt restructuring process, and reversal of excess accrued expenses.

AMORTIZATION  OF GOODWILL.  Effective  January 1, 2002,  the Company  ceased the
amortization of goodwill,  in accordance with Statement of Financial  Accounting
Standards No. 142. See Note 10, "Adoption Of New Accounting Pronouncement".  The
amortization  expense for  goodwill was $ 2.6 million for the three months ended
September 28, 2001.

                                       14
<PAGE>
INTEREST EXPENSE. Interest expense for the three months ended September 29, 2002
decreased  $1.2 million or 28.3% as compared to the third quarter of 2001.  This
decrease  resulted from lower interest rates and a reduction in loan origination
and   amendment   fees  related  to  the  company's   senior  and   subordinated
indebtedness.

INCOME TAX PROVISION/(BENEFIT).  The Company's effective tax rate was (1.3)% for
the three months ended September 29, 2002 versus 2.3% for the three months ended
September  29,  2001.  A valuation  allowance  was  recorded  against all of the
Company's  deferred tax assets  including the current  operating losses in 2000.
All tax expense or benefit is recorded on a cash basis.  The effective tax rates
in both 2002 and 2001 reflect the  cash-basis  income tax  payments  made or tax
refunds received during the period.


RESULTS OF OPERATIONS:  NINE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 29,
2002
--------------------------------------------------------------------------------

NET SALES.  Net sales during the nine months ended  September 29, 2002 decreased
$18.3 million or 12.6%  compared  with the same period in 2001.  $4.0 million of
this  decrease  related to the sale of business and product  lines in 2001,  for
which  there was no  revenue in 2002.  The  remaining  decrease  in net sales is
attributed  to lower sales of handheld and scan engines of $9.5  million,  lower
mobile and wireless  products sales of $2.9 million and lower services and other
miscellaneous  products of $3.5 million.  Fixed scanning product sales increased
by $1.6 million as compared to the same period last year.

GROSS  PROFIT.  Gross  profit  during the nine months ended  September  29, 2002
decreased  $5.8  million or 10.6%  compared  with the same period in 2001.  As a
percentage  of sales,  gross profit  percentage  increased to 38.6% for the nine
months  ended  September  29,  2002,  as compared to 37.7% in the same period in
2001. The increase in gross profit was a result of the  streamlining  of product
lines and cost reductions in manufacturing overhead.

SALES AND  MARKETING.  Sales and  marketing  expenses  for the nine months ended
September 29, 2002 increased to $24.3 million from $22.2 million compared to the
same period in 2001. As a percentage of sales,  sales and marketing  expense was
19.1% in 2002  versus  15.3% in  2001.  The  percentage  increase  is  primarily
attributable  to the  increased  investment  in a direct sales  organization  to
enhance contact with and expand relationships with end user customers.

ENGINEERING,  RESEARCH AND DEVELOPMENT (ER&D). ER&D expenses for the nine months
ended  September 29, 2002 decreased $3.5 million or 26.7%,  compared to the same
period in 2001. As a percentage of sales, ER&D was 7.5% in the first nine months
of 2002, versus 8.9% of net sales in the first nine months of 2001. The decrease
in ER&D is primarily  attributable  to cost  reimbursement  from an  independent
company  with which the  Company is  involved  in a joint  venture  new  product
development  project,  and  cost  savings  efforts  brought  about  by  business
restructuring.

GENERAL AND  ADMINISTRATIVE.  General and  administrative  expenses for the nine
months ended  September  29, 2002  decreased  by $0.5  million to $10.3  million
compared  to the same  period in 2001.  As a  percentage  of sales,  general and
administrative  expense was 8.1% versus 7.4% in 2001. General and administrative
costs  decreased as a result of the shutdown of the Webster,  New York  facility
and reduction in personnel costs that was associated with the  consolidation  of
operations  and  administration  to Oregon.  These  costs  were  offset by legal
expenses associated with certain litigation, of approximately $1.3 million.

SEVERANCE  AND OTHER  COSTS.  During the first nine months of 2001,  the Company
recorded a pretax  charge of $1.4  million for  employee  severance  and benefit
costs  resulting  primarily  from the  consolidation  of the  Webster,  New York
operations  with its Eugene,  Oregon  personnel and  operations.  For the period
ended September 29, 2002, there was $0.2 million in severance expense.

                                       15
<PAGE>
DEBT RESTRUCTURING  COSTS. Debt restructuring costs for the first nine months of
2002  decreased  85.0% to $0.4  million from $2.8 million for the same period in
2001.  The decrease is due to reduced legal and  consulting  costs  necessary to
manage the restructuring process during 2002.

AMORTIZATION  OF GOODWILL.  Effective  January 1, 2002,  the Company  ceased the
amortization of goodwill,  in accordance with Statement of Financial  Accounting
Standards No. 142. See Note 10, "Adoption Of New Accounting Pronouncement".  The
amortization  expense for  goodwill  was $8.2  million for the nine months ended
September 29, 2001.

INTEREST EXPENSE. Interest expense decreased 21.2% to $10.0 million for the nine
months  ended  September  29, 2002,  as compared  the same period in 2001.  This
decrease  resulted from lower interest rates and a reduction in loan origination
and   amendment   fees  related  to  the  company's   senior  and   subordinated
indebtedness.

INCOME TAX  PROVISION/(BENEFIT).  The Company's effective tax rate was 25.5% for
the nine months ended September 29, 2002 versus (4.5)% for the nine months ended
September 29, 2001. The Company recognized a $1.3 million tax receivable, in the
quarter  ended March 29, 2002  associated  with the  expected  refund from a net
operating loss carryback to prior years. The refund was received in July 2002. A
valuation  allowance  was  recorded  against all of the  Company's  deferred tax
assets  including  the  current  operating  losses in 2000.  All tax  expense or
benefit is recorded on a cash basis.  The  effective  tax rates in both 2002 and
2001 reflect the  cash-basis  income tax payments  made or tax refunds  received
during the period.


LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------

Current assets at September 29, 2002 increased by $5.6 million from December 31,
2001, primarily due to increased  inventories.  Current liabilities increased by
$10.5 million,  primarily due to an increase in senior indebtedness.  All senior
and subordinated debt has been recorded as current liabilities.

Property,  plant and  equipment  expenditures  totaled $2.4 million for the nine
months ended  September  29, 2002 compared with $1.3 million for the nine months
ended  September  29,  2001.  The 2002  expenditures  are related to new product
tooling for new product introductions.

Additions to intangible  assets relates primarily to the development of software
for the Company's retail self-checkout  system, which is expected to be released
in 2002.  Intangible additions for the nine months ended September 29, 2002 were
$3.0  million,  compared to  additions  of $2.2 million in the nine months ended
September 29, 2001.

In March 2002, the Company and its lenders  reached an agreement in principle to
extend the maturities of the Company's existing  financing  facilities to August
1, 2002.  On August 1, 2002,  the Company  and its lenders  agreed to extend the
maturities of the Company's existing financing  facilities to September 1, 2002.
Since  September 1, 2002, the Company and its lenders have agreed to a series of
extensions  to  the  maturities  of  its  financing   facilities.   The  Company
anticipates that it will be able to obtain additional extensions as necessary.

The terms of the financing  arrangements  with the Company's  senior lenders are
substantially   unchanged   from  the  previously   disclosed   April  13,  2001
modification agreement.  Among other provisions,  the commitment from the senior
lender for the working capital  facility is $34.0 million and the commitment for
fixed  financing  is $60.2  million.  The  interest  rate for the senior  credit
facilities  is prime + 3.50%.  The  Company is required to apply 50% of net cash
proceeds  from asset sales to repay  amounts  borrowed  under its senior  credit
facilities.  In addition,  the company is required to achieve certain milestones
in its recapitalization process.

                                       16
<PAGE>
In connection with the debt modification  agreements reached with its lenders on
April 13, 2001,  the Company  accrued $4.1  million for debt  modification  fees
payable and recorded a related discount on the debt. Debt discount was amortized
through April 1, 2002, the expiration date of the prior amendment.

At September 29, 2002, liquidity  immediately available to the Company consisted
of cash and cash equivalents of $1.5 million. The Company had a revolving credit
facility  totaling  $34.0  million,  of which $33.7 million was  outstanding  at
September  29, 2002.  The Company  believes  that the  liquidity  available  for
operations is a limiting factor in its ability to finance normal operations.

The Company has  experienced  recurring  losses from  operations,  has undergone
repeated renegotiations with its lenders of senior and subordinated indebtedness
and has a  significant  working  capital  deficit.  All of the  Company's  debt,
totaling $124.0 million at September 29, 2002, is recorded as current.

These matters present the Company with a liquidity issue and raises  substantial
doubts about its ability to continue as a going concern.  Management's  plans in
regard to these  matters are discussed in Note 1,  "Description  Of Business And
Current  Events".  The  financial  statements  do not  include  any  adjustments
relating to the  recoverability  and classification of asset carrying amounts or
the amount and  classification  of  liabilities  that might  result,  should the
Company be unable to continue as a going concern.

In the opinion of  management,  inflation  has not had a material  effect on the
operations of the Company.


ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------

There has been no  significant  change in market risk from that disclosed in the
Company's December 31, 2001 annual report on Form 10-K.


CAUTIONARY   STATEMENT  PURSUANT  TO  SAFE  HARBOR  PROVISIONS  OF  THE  PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
--------------------------------------------------------------------------------

Certain statements contained in this Management's Discussion and Analysis may be
forward-looking  in nature,  or  "forward-looking  statements" as defined in the
Private Securities Litigation Reform Act of 1995. Management cautions that these
statements are estimates of future  performance and are highly  dependent upon a
variety  of  important  factors,  which  could  cause  actual  results to differ
materially  from the estimate.  These factors  include the market  acceptance of
existing and new products,  competitive product offerings and pricing pressures,
the   successful   completion   of  the  Company's   recapitalization   efforts,
successfully  negotiating extensions to existing financing or the negotiation of
new  financing  on  acceptable   terms,   foreign  currency  and  interest  rate
fluctuations,  fulfillment of lending  agreements  and the  disposition of legal
issues.  Profits and available cash flows also will be affected by the Company's
ability to control  manufacturing and operating costs.  Reference should be made
to filings with the Securities and Exchange Commission for further discussion of
factors that could affect the Company's future results.

                                       17
<PAGE>
PART II: OTHER INFORMATION

ITEM 1:      LEGAL PROCEEDINGS:
             -----------------

SYMBOL TECHNOLOGIES, INC.

     In November  2000, the Company  settled all  then-pending  litigation  with
     Symbol Technologies,  Inc.  ("Symbol").  The agreements resolved all claims
     between the parties,  settled all disputed  royalty  payments,  amended and
     clarified the Company's  existing license  agreement,  and included certain
     new patents. ("Settlement Agreement").  Under the Settlement Agreement, the
     parties also entered into product supply agreements for products that began
     shipping  in early  2001.  Under the terms of the  supply  agreements,  the
     Company agreed to purchase  hand-held  laser scanners and scan engines from
     Symbol and Symbol agreed to purchase  fixed position  retail  scanners from
     the Company.

     On June 21,  2002,  the  Company  gave  official  notice to Symbol that the
     Company  believed  Symbol had  breached  the  Settlement  Agreement  in two
     respects. A week later, Symbol brought suit against the Company in New York
     State Court in Suffolk  County.  The lawsuit  alleged,  among other things,
     that the Company failed to deliver new fixed scanner  products to Symbol on
     a timely  basis.  Symbol also  requested  injunctive  relief  requiring the
     Company to deliver certain  products to Symbol for  distribution  under the
     Settlement  Agreement.  The court  decision,  issued on October  17,  2002,
     denied  Symbol's  request  for  injunctive  relief.  Rather  than  filing a
     counterclaim,  the  Company  chose to file a  separate  lawsuit in New York
     State Court in Suffolk County alleging that Symbol  breached  provisions of
     the  mutual  supply  agreements.  Both  cases  are  early in the  discovery
     process.

LEMELSON

     This  declaratory  judgment  action,  filed by the  Company  and six  other
     prominent leaders in the Automatic Identification and Data Capture industry
     ("Plaintiffs")  on July 21, 1999,  has finally  arrived at the trial stage.
     Pre-trial motions began on November 8, 2002, with the trial set to begin on
     November  18 in the U.S.  Federal  District  Court  located  in Las  Vegas,
     Nevada. The parties expect the trial to take as long as 34 days.

     In  March of  2000,  the  District  Court  had  dismissed  one  count  (the
     prosecution   laches  claim)   presented  by  Plaintiffs'  in  the  action.
     Plaintiffs'  filed an appeal of the  dismissal  of that count to the United
     States  Court of Appeals  for the Federal  Circuit  ("Circuit  Court").  On
     January 24, 2002, the Circuit Court reversed the District Court's decision,
     revitalizing Plaintiffs' ability to present the prosecution laches claim in
     the trial of the case. In June of 2002, the Lemelson Medical, Educational &
     Research Foundation,  Limited Partnership ("Lemelson") filed a Petition for
     Writ of Certiorari  to the Supreme Court of the United States  ("Petition")
     asking  the  Court  to  review  the  Circuit  Court's  decision  concerning
     prosecution  laches.  Plaintiffs filed an Opposition to Lemelson's Petition
     and on  October  7,  the  Supreme  Court  denied  the  Writ of  Certiorari,
     declining to review the appellate court decision.

     Since June 30, 2002,  Plaintiffs have presented a number of new motions for
     summary  judgment to the District  Court.  These  motions  continue to make
     their way through the judicial process. There have been no rulings on these
     motions to date. The Company,  and as we understand,  the other plaintiffs,
     continue to be confident of prevailing in this case.

INTERNATIONAL AUTOMATED SYSTEMS

     International Automated Systems (IAS) filed a lawsuit in July 1999, against
     Optimal   Robotics  and  the  Company  alleging  that  the  Optimal  U-Scan
     self-checkout  device infringes  certain IAS patents.  The U-Scan

                                       18
<PAGE>
     device is the subject of an agreement between Optimal and the Company.  The
     Company is  indemnified  by Optimal  under the terms of the  agreement  and
     Optimal is defending this action on behalf of the Company.

METROLOGIC INSTRUMENTS, INC.

     Metrologic  Instruments,  Inc. brought suit against the Company, in October
     1999 in the U.S.  District  Court for the District of New Jersey,  alleging
     infringement  of  seven  patents  belonging  to  Metrologic.   The  Company
     considers  all of  Metrologic's  patent  infringement  claims to be without
     merit  based  on  non-infringement  and/or  invalidity  of  the  Metrologic
     patents.  A Markman  hearing was held by the presiding judge on August 6-7,
     2002,  to  address on the scope of the  patents  in suit and the  technical
     issues related to the patents.  Pending the outcome of the Markman hearing,
     any remaining issues in the case will be set for trial,  most likely in the
     first half of 2003.

PLESKO SUIT

     Mr. Plesko,  currently an employee of PSC, brought suit in July 2001 in the
     state  courts of New York  against  PSC and Symbol  Technologies,  alleging
     among other things, that PSC had failed to properly exploit technology that
     it earlier  purchased  from Mr.  Plesko's  company,  GAP/GEO  Technologies,
     resulting in a loss of royalty revenue.  PSC  subsequently  transferred the
     technology to Symbol as part of the  settlement  of claims  between PSC and
     Symbol.  Both Symbol and the Company have been successful in dismissing Mr.
     Plesko's  actions  against  them.  Mr.  Plesko may appeal the  dismissal of
     claims  against the Company until  November 17, 2002,  after which time the
     case will be dismissed with prejudice.


ITEM 2:     CHANGES IN SECURITIES:
            ---------------------
NASDAQ DELISTING

     On July 3, 2002,  the  Company was  notified  by Nasdaq  (the Nasdaq  Stock
     Market,  Inc.),  of its failure to meet minimum  listing  requirements  for
     continued reporting on the Nasdaq Small Cap stock market exchange.

     On July 11, 2002, the Company responded to the notification,  requesting an
     Appeal Hearing,  which was subsequently scheduled for August 22, 2002. Upon
     further assessment by the Company,  it concluded that the Company's grounds
     for appeal would be  insufficient  to prevail at the Appeal  Hearing.  As a
     result,  on August 19, 2002, the Company withdrew its request for an Appeal
     Hearing.

     On August 20, 2002,  Nasdaq halted trading of the Company's stock.  Trading
     of PSC common  stock  commenced on the "Over The  Counter"  (OTC)  Bulletin
     Board at that time under the symbol "PSCX.OB".


ITEM 3:     DEFAULTS UPON SENIOR SECURITIES:
            -------------------------------
     None.


ITEM 4:     SUBMISSION OF MATTERS OF SHAREHOLDERS TO A VOTE OF SECURITY HOLDERS:
            -------------------------------------------------------------------

     None.

                                       19
<PAGE>
ITEM 5:     OTHER INFORMATION:
            -----------------
     None.


ITEM 6:      EXHIBITS AND REPORTS ON FORM 8-K
             --------------------------------
(a)      Exhibits:
         ---------
                 99.1      Section 906 of the Sarbanes-Oxley Act of 2002

                 99.2      Section 906 of the Sarbanes-Oxley Act of 2002

(b)      Reports on Form 8-K: None


ITEM 7:      CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     There has been no change in the Company's critical  accounting policies and
     estimates  from those  disclosed in the Company's  December 31, 2001 annual
     report on Form 10-K.

     The Company has  prepared  this 10-Q without  concurrent  review by outside
     auditors,  as prescribed  under the reporting  provisions of the Securities
     and Exchange  Commission  (SEC). On July 29, 2002, the Company notified the
     SEC on Form 8-K  that it had  terminated  its  auditing  relationship  with
     Arthur  Andersen.  The Company is in the process of  selecting  replacement
     auditors,  but that process has not yet been  completed.  Once  replacement
     auditors have been selected,  appropriate  notification on Form 8-K will be
     filed and the Company will arrange for the new auditors to perform a review
     of the quarterly  financial  statements  and  disclosures  reported in this
     10-Q.  An  amendment  to this  10-Q  will also be  filed,  to  confirm  the
     completion of the quarterly review process,  and adjustments,  if any, will
     be disclosed at that time.




















                                       20
<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:   November 18, 2002                   By: _______________________________
                                                Edward J. Borey
                                                President,
                                                Chief Executive Officer and
                                                Director






DATE:  November 18, 2002                    By: _______________________________
                                                Paul M. Brown
                                                Vice President and
                                                Chief Financial Officer
                                                (Principal Financial Officer)
































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