SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                   FORM 10-Q/A
                                 Amendment No.1


(Mark One)

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

                 For the quarterly period ended October 3, 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  February  2,  1998,  there  were  11,498,753   shares  of  common  stock
outstanding.

===============================================================================


<PAGE>


Explanatory Note:

The undersigned  registrant hereby amends Item 1 (Financial Statements) and Item
2  (Management's  Discussion and Analysis of Financial  Condition and Results of
Operations) in their entirety to correct an error in the computation of the loss
on the sale of the Company's TxCOM subsidiary during the second quarter of 1997.

                            PSC Inc. AND SUBSIDIARIES

                                      INDEX

                                                             PAGE NUMBER
PART I  FINANCIAL INFORMATION

         Item 1 -Financial Statements

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

                  Consolidated Statements of Operations and
                  Retained Earnings for the three
                  and nine months ended:
                  October 3, 1997 (Unaudited) and
                  September 27, 1996 (Unaudited) ...................5 - 6

                  Consolidated Statements of Cash Flows
                  for the nine months ended:
                  October 3, 1997 (Unaudited) and
                  September 27, 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



<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1:  Financial Statements
<TABLE>

                            PSC Inc. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           (All amounts in thousands)
<CAPTION>
                                                           October 3, 1997             December 31, 1996
                                                            ---------------             -----------------
                                                            (Unaudited)


<S>                                                            <C>                    <C>      
ASSETS

CURRENT ASSETS
        Cash and cash equivalents                              $  3,843               $  10,838
        Accounts receivable, net of allowance
            for doubtful accounts of $1,476
           and $1,101, respectively                              32,307                  29,501
        Inventories                                              18,670                  18,306
        Prepaid expenses and other                                1,906                   1,244
                                                            -----------              ----------

       TOTAL CURRENT ASSETS                                      56,726                  59,889

PROPERTY, PLANT AND EQUIPMENT, net
        of accumulated depreciation of $11,580
        and $8,225, respectively                                 36,243                  35,612

DEFERRED TAX ASSETS                                              23,696                  24,773

INTANGIBLE AND OTHER ASSETS, net of accumulated
  amortization of $11,377 and $6,238, respectively               58,997                  63,087
                                                             ----------              ----------


TOTAL ASSETS                                                   $175,662                $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>

                                                           October 3, 1997           December 31, 1996
                                                           ---------------           -----------------
                                                              (Unaudited)


<S>                                                            <C>                    <C>      
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

       Current portion of long-term debt                       $ 11,904               $   9,459
       Accounts payable                                          17,627                  15,681
       Accrued expenses                                           8,774                  11,448
       Accrued payroll and related employee benefits              4,548                   7,509
       Accrued acquisition related restructuring costs            1,778                   4,009
                                                            -----------               ---------

         TOTAL CURRENT LIABILITIES                               44,631                  48,106


LONG-TERM DEBT, less current maturities                         102,765                 117,994

OTHER LONG-TERM LIABILITIES                                       2,499                   1,960



SHAREHOLDERS' EQUITY
       Preferred shares, par value $.01;
      10,000 authorized, 110 and 0 shares issued
          and outstanding.  $11,000 aggregate liquidation value       1                       -
       Common shares, par value $.01;
         40,000 authorized, 11,273 and  11,161
          shares issued and outstanding                             112                     112
       Additional paid-in capital                                65,766                  54,891
       Retained earnings                                        (39,351)                (39,432)
       Cumulative translation adjustment                           (524)                    (33)

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

         TOTAL SHAREHOLDERS' EQUITY                              25,767                  15,301
                                                              ---------                --------

TOTAL LIABILITIES AND SHAREHOLDERS'
     EQUITY                                                    $175,662                $183,361
                                                               ========                ========
</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>
                                                                         Three Months Ended
                                                                 October 3,         September 27,
                                                                     1997              1996
                                                                     ----              ----
<S>                                                                  <C>               <C>    
NET SALES                                                            $53,191           $46,486

COST OF SALES                                                         31,024            26,203
                                                                   ---------         ---------
         Gross profit                                                 22,167            20,283

OPERATING EXPENSES
         Engineering, research and development                         3,108             3,655
         Selling, general and administrative                          10,377            11,430
         Amortization of intangibles resulting
              from business acquisitions                               1,674             1,447
         Acquisition related restructuring and
              other costs                                                  -            70,068
                                                                 -----------          --------
              Income/(loss) from operations                            7,008           (66,317)

INTEREST AND OTHER INCOME /(EXPENSE):
         Interest expense                                             (3,039)           (2,577)
         Interest income                                                  91               131
         Other income/(expense)                                          (25)             (196)
                                                                  -----------       -----------
                                                                      (2,973)           (2,642)
                                                                    ---------        ----------
         Income/(loss) from continuing operations before
              income tax provision/(benefit)                           4,035           (68,959)

         Income tax provision/(benefit)                                1,493           (25,515)
                                                                    --------         ----------
         Income/(loss) from continuing operations                      2,542           (43,444)
         Discontinued operations:
         Loss from discontinued operations, net of tax                     -              (114)
         Loss on disposal of discontinued operations, net of tax           -            (5,217)
                                                                 -----------        -----------
         Total loss from discontinued operations                           -            (5,331)
                                                                 -----------        -----------
         Net income/(loss)                                            $2,542          ($48,775)
                                                                      ======           ========
NET INCOME/(LOSS) PER COMMON AND COMMON
        EQUIVALENT SHARE
         Primary:
           Continuing operations                                       $0.21          ($3.99)
           Discontinued operations                                         -           (0.49)
                                                               -------------        ---------
           Net income/(loss)                                           $0.21          ($4.48)
                                                                   =========          =======
         Fully diluted:
           Continuing operations                                       $0.20          ($3.99)
           Discontinued operations                                         -           (0.49)
                                                                ------------           ------
           Net income/(loss)                                           $0.20          ($4.48)
                                                                   =========          =======
WEIGHTED AVERAGE NUMBER OF
    COMMON AND COMMON EQUIVALENT
    SHARES OUTSTANDING
         Primary                                                      11,838            10,895
         Fully diluted                                                12,426            10,895

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
         Retained earnings/(Accumulated deficit)
           beginning of period                                      ($41,893)           $8,194
         Net income/(loss)                                             2,542           (48,775)
                                                                  ----------           --------
         Retained earnings/(Accumulated deficit),
           end of period                                            ($39,351)         ($40,581)
                                                                    =========          ========
</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>
                                                                       Nine  Months Ended
                                                                   October 3,        September 27,
                                                                    1997                1996
                                                                    ----                ----
<S>                                                                 <C>                <C>    
NET SALES                                                           $154,728           $90,037

COST OF SALES                                                         91,947            52,034
                                                                     -------          --------
         Gross profit                                                 62,781            38,003

OPERATING EXPENSES:
         Engineering, research and development                         9,996             7,046
         Selling, general and administrative                          33,917            24,456
         Severance and other costs                                     4,191                 -
         Amortization of intangibles resulting
              from business acquisitions                               5,022             1,893
         Acquisition related restructuring and
              other costs                                                  -            70,068
                                                                   ---------            ------
              Income/(loss) from operations                            9,655           (65,460)

INTEREST AND OTHER INCOME /(EXPENSE):
         Interest expense                                             (9,793)           (2,603)
         Interest income                                                 342               368
         Other income/(expense)                                           83              (238)
                                                                 -----------       ------------
                                                                      (9,368)           (2,473)
                                                                    ---------       -----------
         Income/(loss) from continuing operations before
              income tax provision/(benefit)                             287           (67,933)

         Income tax provision/(benefit)                                  105           (25,135)
                                                                             
         Income/(loss) from continuing operations                        182           (42,798)
         Discontinued operations:
         Gain/(loss) from discontinued operations, net of tax            164              (114)
         Loss on disposal of discontinued operations,
            net of tax                                                  (265)           (5,217)
                                                                  -----------       -----------
         Total loss from discontinued operations                        (101)           (5,331)
                                                                   ----------       -----------
         Net income/(loss)                                              $ 81          ($48,129)
                                                                   =========           ========
NET INCOME/(LOSS) PER COMMON AND COMMON
        EQUIVALENT SHARE:
         Continuing operations                                         $0.02          ($4.16)
         Discontinued operations                                       (0.01)          (0.52)
                                                                 ------------     -----------
         Net income/(loss)                                             $0.01          ($4.68)
                                                                   =========       ==========

WEIGHTED AVERAGE NUMBER OF
    COMMON AND COMMON EQUIVALENT
    SHARES OUTSTANDING                                                12,148            10,274

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
         Retained earnings/(Accumulated deficit)
           beginning of period                                      ($39,432)           $7,548
         Net income/(loss)                                                81           (48,129)
                                                                 -----------         ----------
         Retained earnings/(Accumulated deficit),
           end of period                                            ($39,351)         ($40,581)
                                                                    =========         =========
</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)
                                                                         Nine Months Ended
                                                                  October 3,       September 27,
                                                                    1997               1996
                                                                   ----                ----

<S>                                                                      <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net Income /(loss)                                                   $81          ($48,129)
       Adjustments to reconcile net income/(loss)
       to net cash provided by (used in) operating activities:
         Depreciation and amortization                                10,466             5,612
         Loss on disposition of assets                                   109             3,860
         Acquired research and development write-off                       -            60,100
         Loss on disposition of discontinued operations                  265             5,217
         Deferred tax assets                                           1,077           (21,046)
         Decrease (increase) in assets:
             Accounts receivable                                      (3,918)            2,065
             Inventories                                                (366)           (2,318)
             Prepaid expenses and other                                 (218)           (5,281)
         Increase (decrease) in liabilities:
             Accounts payable                                          2,094             2,314
             Accrued expenses                                         (2,973)            4,085
             Accrued payroll and commissions                          (2,983)              (86)
             Accrued acquisition related restructuring costs          (3,090)            5,812
                                                                     --------           ------

                Net cash provided by operating activities                544            12,205
                                                                   ---------            ------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures, net                                         (5,887)           (2,376)
    Additions to intangible and other assets                             (63)           (2,005)
    Cash paid for acquisition of business                                  -            (7,134)
    Proceeds from sale of investments                                      -             4,167
                                                                ------------         ---------
                Net cash used in investing activities                 (5,950)           (7,348)
                                                                    ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Additions to debt                                                  5,000                 -
    Additions to long-term liabilities                                 1,938                67
    Principal repayments of long-term debt                           (17,784)              (83)
    Payment of other long-term liabilities                              (456)              (38)
    Issuance of preferred stock, net                                  10,212                 -
    Exercise of stock options and sale of common stock                   664             1,746
    Tax benefit from exercise or early disposition
        of certain stock options                                           -                70
                                                                  ----------       -----------
                Net cash (used in) provided by financing activities     (426)            1,762
                                                                    ---------        ---------

FOREIGN CURRENCY TRANSLATION                                          (1,163)             (188)

NET (DECREASE)/INCREASE IN CASH                                                         _____
                                                                 -----------
         AND CASH EQUIVALENTS                                         (6,995)            6,431

CASH AND CASH EQUIVALENTS:
         Beginning of period                                          10,838             5,538
                                                                    --------         ---------
         End of period                                              $  3,843           $11,969
                                                                    ========           =======

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


<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE THREE MONTHS ENDED October 3, 1997 and September 27, 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  October  3,  1997,  the  results of
      operations  for the  three  and nine  months  ended  October  3,  1997 and
      September 27, 1996 and its cash flows for the nine months ended October 3,
      1997 and September 27, 1996.  The results of operations  for the three and
      nine months ended  October 3, 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 were as follows:
<TABLE>
<CAPTION>

                                          Three Months Ended         Nine Months Ended
                                            October 3, 1997           October 3, 1997
                                            ---------------           ----------------
         <S>                                    <C>                       <C>    
         Basic EPS:
            Continuing operations                $0.23                     $0.02
            Discontinued operations                  -                     (0.01)
                                               -------                   --------
            Net income                           $0.23                    $ 0.01
                                                 =====                    ======

         Diluted EPS:
            Continuing operations                $0.22                     $0.02
            Discontinued operations                  -                     (0.01)
                                              --------                   -------
            Net income                           $0.22                     $0.01
                                                 =====                     =====
</TABLE>


      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:

                                      October 3, 1997         December 31, 1996
         Raw materials                    $10,338                    $10,688
         Work-in-process                    4,101                      3,547
         Finished goods                     4,231                      4,071
                                        ---------                  ---------
                                          $18,670                    $18,306
                                          =======                    =======


<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE THREE MONTHS ENDED October 3, 1997 and September 27, 1996
                (All amounts in thousands, except per share data)
                                   (Unaudited)


 (2)  LONG-TERM DEBT

      Long-term debt consists of the following:

                                   October 3, 1997          December 31, 1996
                                   ---------------          -----------------
Senior Term Loan A                    $49,000                        $55,000
Senior Term Loan B                     24,250                         25,000
Senior revolving credit                 6,530                         12,500
Subordinated term loan                 29,472                         29,428
Subordinated promissory note            5,000                          5,000
Other                                     417                            525
                                     --------                    -----------
                                      114,669                        127,453
Less:  current maturities              11,904                          9,459
                                    ---------                      ---------
                                     $102,765                       $117,994
                                     ========                       ========

(3)   SHAREHOLDERS' EQUITY

      In September  1997,  the Company  completed a private  placement of equity
      with Hydra Investissements S.A., a Luxembourg corporation (the Purchaser).
      The Company  issued 110 shares of Series A Convertible  Preferred  Shares.
      The Series A Preferred Shares are convertible at anytime and at the option
      of the  holders  of the  Series A  Preferred,  into  Common  Shares of the
      Company.  The  conversion  price is $8.00 per Common Share or one share of
      Series A Preferred  for 12.5 Common  Shares.  As a result,  the  Purchaser
      beneficially owns 1,375 Common Shares of the Company.  The net proceeds to
      the Company from the  offering  were $10.2  million.  The Company used the
      proceeds for working capital purposes and to repay a portion of its senior
      revolving  credit  facility.  In connection with the issuance of preferred
      stock,  a warrant  evidencing  the right to purchase an  aggregate  of 180
      Common Shares of the Company was issued to the Purchaser. This warrant has
      an  exercise  price  of  $8.00  per  share  and may be  exercised  between
      September 10, 1997 and September 10, 2001.

      During the nine month period ended  October 3, 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
                                    October 3, 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                  1,004                  6.68               953             7.78
      Options exercised                  (45)                 6.08              (173)            6.27
      Options forfeited/canceled        (622)                 9.03              (100)            8.06
                                      -------                                   -----
      Options outstanding at
         end of period                 3,155                  7.70             2,818             8.33

      Number of options at end
         of period:
         Exercisable                   1,607                                   1,630
         Available for grant             399                                     784

</TABLE>


<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE THREE MONTHS ENDED October 3, 1997 and September 27, 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 Nine Months Ended
                                                  September 27, 1996                    September 27, 1996
                                                  ------------------                    ------------------
<S>                                                    <C>                                   <C>     
        Net sales                                      $50,443                               $154,947
        Loss from operations                           (66,119)                               (57,100)
        Loss from continuing operations                (43,441)                               (41,425)
        Total loss from discontinued operations         (5,331)                                (5,331)
        Net loss                                       (48,772)                               (46,756)

        Net loss per common and common equivalent share:
        Continuing operations                            ($3.94)                               ($3.77)
        Discontinued operations                           (0.48)                                (0.49)
                                                      ----------                              --------
        Net loss                                         ($4.42)                               ($4.26)
                                                       =========                                ======

        Weighted average shares outstanding              11,026                                10,974

</TABLE>


<PAGE>



(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 component 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 October 3, 1997 and September 27, 1996
--------------------------------------------------------------------------------

Net Sales.  Consolidated net sales during the three months ended October 3, 1997
increased  $6.7  million  or 14%  compared  with the same  period  in 1996.  The
increase  is due to the  full  quarter  effect  of  Spectra  product  sales  and
increased sales volumes of the Company's  QuickScan  handheld scanner  products.
International  net sales increased 20% primarily due to the Spectra  acquisition
and  represented  approximately  45% of net sales in the third  quarter  of 1997
versus 41% of net sales in the third quarter of 1996.

Gross Profit. Consolidated gross profit during the three months ended October 3,
1997  increased  $1.9 million or 9% compared  with the same period in 1996.  The
increased  dollar  amount 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.  As a percentage of sales,  gross profit decreased from 43.6% to 41.7%
due to lower average  selling prices in the handheld and fixed position  product
lines.

Engineering,  Research and  Development.  Engineering,  Research and Development
(ER&D) expenses decreased $0.5 million or 15%, as compared to the same period in
1996.  As a  percentage  of sales,  ER&D was 5.8% in the third  quarter  of 1997
versus  7.9%  of net  sales  in the  third  quarter  of  1996.  As a  result  of
efficiencies  developed  due to the  integration  of  Spectra,  the  Company has
reduced its ER&D expenses as a percentage of sales.

Selling, General and Administrative.  Selling, General and Administrative (SG&A)
expenses  decreased  $1.1 million or 9%, as compared to the same period in 1996.
As a  percentage  of sales,  SG&A was 19.5% in 1997 versus  24.6% in 1996.  As a
result of efficiencies  developed due to the 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.

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 October 3, 1997, all
positions targeted in the restructuring program have been eliminated. The amount
of the restructuring  accrual at October 3, 1997 was approximately $0.2 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  October  3,  1997,  all  positions  targeted  in the
restructuring  program  have been  eliminated.  The amount of the  restructuring
accrual at October 3, 1997 was approximately $1.7 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 $0.5 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 $1.5 million tax provision in
1997 primarily due to an increase in pretax income. 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.
<PAGE>

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 loss of approximately $0.3
million, net of tax, was recorded.

Results of Operations:  Nine Months ended October 3, 1997 and September 27, 1996
--------------------------------------------------------------------------------

Net Sales.  Consolidated  net sales during the nine months ended October 3, 1997
increased  $64.7  million  or 72%  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 132% primarily due to the Spectra  acquisition  and represented
approximately  45% of net  sales in the nine  months of 1997  versus  32% of net
sales in the first nine months of 1996.

Gross Profit.  Consolidated gross profit during the nine months ended October 3,
1997  increased  $24.8 million or 65% compared with the same period in 1996. The
increased  dollar  amount 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.  As a percentage of sales,  gross profit decreased from 42.2% to 40.6%
due to lower average  selling prices in the handheld and fixed position  product
lines.

Engineering,  Research and  Development.  Engineering,  Research and Development
(ER&D) expenses increased $3.0 million or 42%, 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, ER&D was 6.5% in 1997 versus 7.8% in 1996. As a result
of  efficiencies  developed due to the  integration of Spectra,  the Company has
reduced its ER&D expenses as a percentage of sales.

Selling, General and Administrative.  Selling, General and Administrative (SG&A)
expenses  increased $9.5 million or 39%, 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 21.9% in 1997 versus 27.2% in 1996. As a result of
efficiencies  developed  due to the  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 or certain product
lines between its two manufacturing facilities.

Interest Expense.  Interest expense increased $7.2 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 $0.1 million tax provision in
1997 primarily due to an increase in pretax income. 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 loss of approximately $0.3
million, net of tax, was recorded.

Liquidity and Capital Resources:

Current  assets  decreased $3.2 million from December 31, 1996 due to a decrease
in  cash  offset  in  part  by  an  increase  to  accounts  receivable.  Current
liabilities  decreased  $3.5  million  primarily  due to a reduction  in accrued
expenses offset in part by an increase in accounts payable. As a result, working
capital increased $0.3 million from December 31, 1996.
<PAGE>

Property,  plant and  equipment  expenditures  totaled $5.9 million for the nine
months  ended  October 3, 1997  compared  with $2.4  million for the nine months
ended  September  27,  1996.  The  1997   expenditures   primarily   related  to
manufacturing equipment and new product tooling.

The  long-term  debt to capital  percentage  was 80.0% at October 3, 1997 versus
88.5% at December 31, 1996. At October 3, 1997, liquidity  immediately available
to the  Company  consisted  of cash and cash  equivalents  of $3.8  million.  In
connection with the acquisition of Spectra during 1996, the Company obtained new
credit  facilities  totaling  $130.0  million.  The  Company  has $13.5  million
available on these  facilities.  During the third quarter of 1997, the preferred
stock  investment  was  utilized  for working  capital  purposes and to reduce a
portion of the senior revolving credit facility,  thus,  resulting in a decrease
to the long-term debt to capital percentage.  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>




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:    February 5, 1998    By:    /s/ Robert C. Strandberg
                                       --------------------
                                       Robert C. Strandberg
                                       President and Chief Executive Officer



DATE:    February 5, 1998    By:   /s/  William J. Woodard
                                        ------------------
                                        William J. Woodard
                                        Vice President and
                                        Chief Financial Officer





DATE:    February 5, 1998    By:   /s/ Michael J. Stachura
                                       -------------------
                                       Michael J. Stachura
                                       Vice President of Finance
                                       (Principal Accounting Officer)