================================================================================
                                  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 April 2, 1999

                                       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 May 12, 1999, there were 11,968,325 shares of common stock outstanding.
===============================================================================



<PAGE>


                            PSC Inc. AND SUBSIDIARIES

                                      INDEX

                                                                     PAGE NUMBER
PART I:  FINANCIAL INFORMATION

Item 1    -Financial Statements

 Consolidated Balance Sheets as of
 April 2, 1999 (Unaudited) and
 December 31, 1998...........................................................3-4

 Consolidated Statements of Operations and
 Retained Earnings for the three months ended:
 April 2, 1999 (Unaudited) and
 April 3, 1998 (Unaudited) ....................................................5

 Consolidated Statements of Cash Flows for the three months ended:
 April 2, 1999 (Unaudited) and
 April 3, 1998 (Unaudited) ....................................................6

 Notes to Consolidated Financial
 Statements (Unaudited) ....................................................7-10

Item 2    -Management's Discussion and Analysis of
               Financial Condition and Results of
               Operations .................................................11-13

PART II:  OTHER INFORMATION

Item 1    -Legal Proceedings .................................................14

Item 2    -Changes in Securities  ............................................14

Item 3    -Defaults upon Senior Securities ...................................14

Item 4    -Submission of Matters to a Vote of Security Holders  ..............14

Item 5    -Other Information   ...............................................14

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

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1:  Financial Statements
<TABLE>

                                                       PSC Inc. AND SUBSIDIARIES
                                                      CONSOLIDATED BALANCE SHEETS
                                           (All amounts in thousands, except per share data)
<CAPTION>

                                                          April 2, 1999           December 31, 1998
                                                          -------------           -----------------
                                                            (Unaudited)
<S>                                                            <C>                     <C>     
ASSETS

CURRENT ASSETS:
        Cash and cash equivalents .......................      $  5,090                $  6,180
        Accounts receivable, net of allowance
           for doubtful accounts of $1,575
           and $1,492, respectively .....................        35,809                  37,121
        Inventories .....................................        21,042                  17,250
        Prepaid expenses and other ......................         3,125                   2,946
                                                            -----------              ----------

       TOTAL CURRENT ASSETS .............................        65,066                  63,497

PROPERTY, PLANT AND EQUIPMENT, net
        of accumulated depreciation of $20,092
        and $18,639, respectively .......................        34,949                  35,397

DEFERRED TAX ASSETS .....................................        21,401                  21,244

INTANGIBLE AND OTHER ASSETS, net of accumulated
  amortization of $22,261 and $20,419, respectively .....        51,001                  51,125
                                                             ----------              ----------


TOTAL ASSETS ............................................      $172,417                $171,263
                                                              =========               =========
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>
<TABLE>
                            PSC Inc. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (All amounts in thousands, except per share data)
                                   (Continued)
<CAPTION>

                                                              April 2, 1999       December 31, 1998
                                                              -------------       -----------------
                                                                (Unaudited)
<S>                                                            <C>                   <C>       
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
      Current portion of long-term debt ....................  $  14,871              $   14,402
       Accounts payable ....................................     19,415                  18,190
       Accrued expenses ....................................     10,321                   8,035
       Accrued payroll and related employee benefits .......      5,624                   5,628
       Accrued acquisition related restructuring costs .....        157                     415
                                                              ---------                 -------

         TOTAL CURRENT LIABILITIES .........................     50,388                  46,670


LONG-TERM DEBT, less current maturities ....................     74,743                  78,806

OTHER LONG-TERM LIABILITIES ................................      1,561                   1,588

SHAREHOLDERS' EQUITY:
     Series A convertible preferred shares, par value $.01;           1                       1
       110 shares authorized, issued and outstanding
       ($11,000 aggregate liquidation value)
     Series B preferred shares, par value $.01; 175
       authorized, 0 shares issued and outstanding .........         --                      --
     Undesignated preferred shares, par value $.01;
       9,715 authorized, 0 shares issued and outstanding ...         --                      --
     Common shares, par value $.01;
          40,000 authorized 11,942 and 11,869
          shares issued and outstanding ....................        119                     119
       Additional paid-in capital ..........................     70,668                  70,068
       Retained earnings/(Accumulated deficit) .............    (23,936)                (26,027)
       Accumulated other comprehensive income/(loss) .......       (890)                    275
       Less treasury stock, 39 shares
        repurchased, at cost ...............................       (237)                   (237)
                                                             -----------              ----------

         TOTAL SHAREHOLDERS' EQUITY ........................     45,725                  44,199
                                                              ---------                --------

TOTAL LIABILITIES AND SHAREHOLDERS'
     EQUITY ................................................   $172,417                $171,263
                                                               ========                ========
</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      
                                                                    ------------------------
                                                                    April 2,           April 3,
                                                                      1999              1998
                                                                      ----              ----
<S>                                                                  <C>               <C>    
NET SALES .......................................................    $59,145           $53,628

COST OF SALES ...................................................     33,540            31,943
                                                                   ---------         ---------
         Gross profit ...........................................     25,605            21,685

OPERATING EXPENSES:
         Engineering, research and development ..................      4,128             3,884
         Selling, general and administrative ....................     12,360             9,738
         Severance and other costs ..............................      2,103                --
         Amortization of intangibles resulting
              from business acquisitions ........................      1,699             1,707
                                                                       -----             -----
         Income from operations .................................      5,315             6,356

INTEREST AND OTHER INCOME /(EXPENSE):
         Interest expense .......................................     (2,174)           (2,876)
         Interest income ........................................         91                65
         Other income/(expense) .................................        (15)               (5)
                                                                  -----------          --------
                                                                      (2,098)           (2,816)
                                                                    ---------           -------
         Income before income tax provision .....................      3,217             3,540
         Income tax provision ...................................      1,126             1,310
                                                                    --------            ------
         Net income .............................................     $2,091            $2,230
                                                                      ======            ======

NET INCOME PER COMMON AND COMMON
        EQUIVALENT SHARE:
         Basic ..................................................      $0.18             $0.19
         Diluted ................................................      $0.15             $0.16

WEIGHTED AVERAGE NUMBER OF
    COMMON AND COMMON EQUIVALENT
    SHARES OUTSTANDING:
         Basic ..................................................     11,895            11,478
         Diluted ................................................     13,677            13,799

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
         Retained earnings/(Accumulated deficit)
           beginning of period ..................................   ($26,027)         ($36,543)
         Net income .............................................      2,091             2,230
                                                                   -----------           -----
         Retained earnings/(Accumulated deficit),
           end of period ........................................   ($23,936)         ($34,313)
                                                                    =========          ========
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>
<TABLE>


                            PSC INC. and SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (All amounts in thousands)
                                   (Unaudited)
<CAPTION>
                                                                      Three Months Ended
                                                                      ------------------
                                                                      April 2,       April 3,
                                                                       1999           1998
                                                                       ----           ----
<S>                                                                   <C>               <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income ....................................................   $2,091            $2,230
       Adjustments to reconcile net income to net cash
       provided by (used in) operating activities:
         Depreciation and amortization ............................    3,340             3,157
         Deferred tax assets ......................................     (157)              909
         (Increase) decrease in assets:
             Accounts receivable ..................................    1,291              (211)
             Inventories ..........................................   (3,792)           (1,406)
             Prepaid expenses and other ...........................     (179)             (151)
         Increase (decrease) in liabilities:
             Accounts payable .....................................    1,225            (1,197)
             Accrued expenses .....................................    2,286             1,247
             Accrued payroll and related employee benefits ........      (67)           (1,717)
             Accrued acquisition related restructuring costs ......     (258)             (218)
                                                                       ------            ------

                Net cash provided by operating activities .........    5,780             2,643
                                                                  ----------             -----

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures, net .....................................   (1,005)           (1,186)
    Additions to intangible and other assets ......................   (2,037)             (698)
    Repayment of notes for stock option activity ..................      --                325
                                                                    --------          ---------
                      Net cash used in investing activities .......   (3,042)           (1,559)
                                                                    ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Addition to long-term debt ....................................    2,000             4,000
     Payment of long-term debt ....................................   (5,594)           (4,585)
    Addition to (payment of) other long-term liabilities, net .....       63               (40)
    Exercise of options and issuance of common shares .............      555             1,524
                                                                       -----             -----
     Net cash (used in) provided by financing activities ..........   (2,976)              899
                                                                     --------              ---

FOREIGN CURRENCY TRANSLATION ......................................     (852)             (204)

NET (DECREASE)/INCREASE IN CASH AND CASH                              --------           -----
         EQUIVALENTS ..............................................   (1,090)            1,779

CASH AND CASH EQUIVALENTS:
         Beginning of period ......................................    6,180             2,271
                                                                     -------           -------
         End of period ............................................   $5,090            $4,050
                                                                      ======            ======
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED April 2, 1999 and April 3, 1998
                (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  April  2,  1999,  the  results  of
      operations  for the three months ended April 2, 1999 and April 3, 1998 and
      its cash flows for the three months ended April 2, 1999 and April 3, 1998.
      The results of operations for the three months ended April 2, 1999 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, 1998 annual report on
      Form 10-K.

      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:

                                 April 2, 1999         December 31, 1998
                                ----------------      ---------------------
     Raw materials ...........        $13,660                 $11,231
     Work-in-process .........          3,228                   2,888
     Finished goods ..........          4,154                   3,131
                                    ==========              ==========
                                      $21,042                 $17,250
                                    ==========              ==========

(2)   LONG-TERM DEBT

      Long-term debt consists of the following:

                                   April 2, 1999         December 31, 1998
                                  ----------------      ---------------------
     Senior term loan A .........        $34,000                 $37,000
     Senior term loan B .........         22,750                  23,000
     Subordinated term loan .....         29,562                  29,547
     Subordinated promissory note          3,125                   3,438
     Other ......................            177                     223
                                       ----------             -----------
                                          89,614                  93,208
     Less:  current maturities ..         14,871                  14,402
                                       ----------             -----------
                                         $74,743                 $78,806
                                       ==========             ===========

 (3)  SEVERANCE AND OTHER COSTS

      During the first quarter of 1999, the Company  recorded a pretax charge of
      $2.1 million for  severance  and other costs.  Of the total  charge,  $1.4
      million was for employee  severance and benefit costs for the  elimination
      of  approximately  140  positions  primarily  at  the  Webster,  New  York
      manufacturing facility resultant from the consolidation of all high volume
      handheld scanner  manufacturing at the Company's Eugene,  Oregon facility.
      The remaining $0.7 is for early  termination of the lease on the Company's
      Webster  offsite  storage and repair  facility.  As of April 2, 1999,  the
      amount of the severance and other accruals was approximately $2.1 million,
      which relates to current contractual obligations. These costs reduced 1999
      income before income tax provision,  net income, basic EPS and diluted EPS
      by $2.1 million, $1.4 million, $0.11 and $0.10, respectively.

<PAGE>

                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED April 2, 1999 and April 3, 1998
                (All amounts in thousands, except per share data)
                                   (Unaudited)


(4)   SHAREHOLDERS' EQUITY

      During  1998,  the  Company  adopted  Statement  of  Financial  Accounting
      Standards  No.  130,  "Reporting  Comprehensive  Income",  which  requires
      comprehensive  income and its  components to be presented in the financial
      statements.  Comprehensive  income,  which  includes  net income,  foreign
      currency  translation  adjustments and unrealized loss on securities,  was
      $926 and  $2,026  for the three  months  ended  April 2, 1999 and April 3,
      1998, respectively.

      During the three month  period  ended April 2, 1999,  employees  purchased
      approximately  62 shares at $7.76 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, 1999       Weighted         January 1, 1998         Weighted
                                                 to               Average                to                Average
                                            April 2, 1999          Price         December 31, 1998          Price
                                          ------------------    ------------    ---------------------    ------------
<S>                                            <C>                 <C>                 <C>                <C> 
     Options outstanding at
        beginning of period .............       3,027               $7.98                3,046               $7.76
     Options granted ....................          --                  --                  391                8.92
     Options exercised ..................        (11)                7.54                (310)                6.42
     Options forfeited/canceled .........         (6)                7.21                (100)                7.28
                                               =======            ========             ========            ========
     Options outstanding at
        end of period ...................       3,010               $7.99                3,027               $7.98
                                               =======            ========             ========            ========

     Number of options at end
        of period:
        Exercisable .....................       1,829                                   1,820
        Available for grant .............           6                                       4
</TABLE>


      During the three month  period  ended April 2, 1999,  4 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.

(5)      NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

      Basic EPS was computed by dividing reported  earnings  available to common
      shareholders  by  weighted  average  shares  outstanding  during the year.
      Diluted EPS for the three months ended April 2, 1999 and April 3, 1998 was
      determined on the following assumptions:  (1) Preferred Shares and related
      warrants  issued in connection  with the private  placement of equity were
      converted  upon  issuance  on January 1, 1998 and (2)  warrants  issued in
      connection  with the  acquisition  of Spectra were converted on January 1,
      1998.

      The following  options were not included in the computation of diluted EPS
      since the exercise  prices were  greater than the average  market price of
      Common  Shares.  Options to  purchase  1,171 and 469  common  shares at an
      average price of $9.65 and $9.23 per share were  outstanding for the three
      months ended April 2, 1999 and April 3, 1998, respectively.


<PAGE>
<TABLE>
                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED April 2, 1999 and April 3, 1998
                (All amounts in thousands, except per share data)
                                   (Unaudited)
<CAPTION>
                                                                      Three Months Ended
                                       ---------------------------------------------------------------------------------
                                                    April 2, 1999                             April 3, 1998
                                       ----------------------------------------   --------------------------------------
                                                                       Per                                       Per
                                         Income        Shares         Share          Income        Shares       Share
                                       (numerator)  (denominator)    Amount       (numerator)   (denominator)   Amount
Basic EPS:
<S>                                         <C>             <C>          <C>            <C>            <C>        <C>
Income available to common
   shareholders .......................     $2,091         11,895        $0.18          $2,230         11,478     $0.19
                                                                         =====                                    =====
Effect of dilutive securities:
   Options ............................         --            324                           --            649
   Warrants ...........................         --             83                           --            297
   Preferred Shares ...................         --          1,375                           --          1,375
                                       ------------ --------------                ------------- --------------
Diluted EPS:
Income available to common
   shareholders and assumed
   conversions ........................     $2,091         13,677        $0.15          $2,230         13,799     $0.16
                                            ======         ======        =====          ======         ======     =====
</TABLE>

(6)  DERIVATIVES

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  133  (SFAS  No.  133),   "Accounting  for
Derivative  Instruments  and  Hedging  Activities".  SFAS  No.  133  establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance  sheet as either an asset or  liability  measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge  accounting  criteria are met. SFAS
No. 133 is effective  for all fiscal  quarters of fiscal years  beginning  after
June 15, 1999 and cannot be applied retroactively.  SFAS No. 133 must be applied
to derivative  instruments that were issued,  acquired or substantively modified
after  December  31,  1997.  The Company has not yet  quantified  the impacts of
adopting SFAS No. 133 on the financial  statements  and has not  determined  the
timing of or method of adopting SFAS No. 133.

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.  Cash flows
from  interest  rate swap  agreements  and  foreign  currency  forward  exchange
contracts are classified in the same category as the item being hedged.

Interest Rate Risk:

The Company's  exposure to interest rate changes  relates to its long-term debt.
The Company has  entered  into  interest  rate swap  agreements  with its senior
lending banks in accordance with the terms of the senior credit  agreement.  The
Company  uses these  interest  rate swap  agreements  to reduce its  exposure to
interest  rate  changes.  The  differentials  to be received or paid under these
interest rate swap agreements are recognized as a component of interest  expense
in the Consolidated Statements of Operations.


<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED April 2, 1999 and April 3, 1998
                (All amounts in thousands, except per share data)
                                   (Unaudited)


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 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 and losses on
the underlying  hedged items and are recorded in the Consolidated  Statements of
Operations.

(7)  SUBSEQUENT EVENT

On May 12, 1999, the Company sold its facilities and property located in Eugene,
Oregon and simultaneously  entered into a lease agreement for the facilities for
a fifteen year period.  The lease is being accounted for as an operating  lease,
and the resulting  gain of $0.5 million is being  amortized over the life of the
lease.  The annual rental  expense will be $0.8  million,  which will be paid in
quarterly installments.  The net proceeds from the sale totaled $8.3 million, of
which, $8.0 million will be utilized to reduce the senior credit facilities.


<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, 1998 annual report on Form 10-K.

Results of Operations:  Three Months ended April 2, 1999 and April 3, 1998
--------------------------------------------------------------------------

Net Sales.  Consolidated  net sales  during the three months ended April 2, 1999
increased   $5.5  million  or  10%  compared  with  the  same  period  in  1998.
International  net sales increased 16% and represented  approximately 55% of net
sales in the first  quarter of 1999 versus 52% of net sales in the first quarter
of 1998. The overall increase in consolidated net sales is attributed  primarily
to increased  sales in the fixed  position  retail  product  lines and U-Scan(R)
Express Self-Checkout  Systems. The increase in international sales is primarily
due to the evolution of new products and the  continued  growth in the Company's
European and Asian Pacific customer sales.

Gross Profit.  Consolidated  gross profit during the three months ended April 2,
1999  increased  $3.9 million or 18% compared with the same period in 1998. As a
percentage of sales, gross profit increased from 40.4% to 43.3%. The increase in
gross  profit  percentage  is  primarily  due to improved  product  mix,  higher
manufacturing volume and lower product unit costs.

Engineering,  Research and  Development.  Engineering,  Research and Development
(ER&D) expenses  increased $0.2 million or 6%, as compared to the same period in
1998.  As a  percentage  of sales,  ER&D was 7.0% in the first  quarter  of 1999
versus 7.2% of net sales in the first  quarter of 1998.  The dollar  increase is
due to additional investments in developing new products.

Selling, General and Administrative.  Selling, General and Administrative (SG&A)
expenses  increased $2.6 million or 27%, as compared to the same period in 1998.
As a  percentage  of sales,  SG&A was 20.9% in 1999  versus  18.2% in 1998.  The
dollar increase is primarily due to a significant  increase in the international
sales  infrastructure  and  additional  investments  in the Company's  marketing
organization and marketing programs.

Severance  and Other  Costs.  During  the first  quarter  of 1999,  the  Company
recorded a pretax charge of $2.1 million for  severance and other costs.  Of the
total charge,  $1.4 million was for employee severance and benefit costs for the
elimination of approximately  140 positions  primarily at the Webster,  New York
manufacturing  facility  resultant  from the  consolidation  of all high  volume
handheld scanner  manufacturing at the Company's  Eugene,  Oregon facility.  The
remaining $0.7 is for early  termination  of the lease on the Company's  Webster
offsite  storage  and repair  facility.  As of April 2, 1999,  the amount of the
severance and other accruals was  approximately  $2.1 million,  which relates to
current contractual  obligations.  These costs reduced 1999 income before income
tax  provision,  net income,  basic EPS and diluted  EPS by $2.1  million,  $1.4
million, $0.11 and $0.10, respectively.

Interest Expense.  Interest expense decreased $0.7 million versus the comparable
period in 1998. The decrease is due to lower principal balances  outstanding and
a  reduction  in the  Company's  interest  rates on its senior term loans as the
Company achieved key milestones under certain financial  covenants  contained in
the bank credit agreements.

Provision  for Income Taxes.  The  Company's  effective tax rate was 35% in 1999
versus 37% in 1998 due to larger Foreign Sales Corporation benefits.

Liquidity and Capital Resources:

Current assets increased $1.6 million from December 31, 1998 primarily due to an
increase in inventory resulting from newly introduced products offset in part by
a reduction in accounts receivable.  Current liabilities  increased $3.7 million
primarily  due to an  increase in accounts  payable and accrued  expenses.  As a
result, working capital decreased $2.1 million from December 31, 1998.
<PAGE>

Property,  plant and equipment  expenditures  totaled $1.0 million for the three
months ended April 2, 1999 compared with $1.2 million for the three months ended
April 3, 1998. The 1999  expenditures  primarily related to new product tooling,
manufacturing equipment and computer hardware.

The long-term debt to capital percentage was 62.0% at April 2, 1999 versus 64.1%
at December 31, 1998  primarily  due to a reduction  in  long-term  debt by $4.1
million and an increase in retained  earnings  resultant from net income of $2.1
million in the first  quarter of 1999. At April 2, 1999,  liquidity  immediately
available to the Company consisted of cash and cash equivalents of $5.1 million.
The Company has credit facilities totaling $89.6 million and a revolving line of
credit of $20.0 million, of which, there is no outstanding  balance. 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
12 months.

Year 2000

The Year 2000 problem is the result of many existing  computer  programs written
in two digits,  rather than four, to define the  applicable  year.  Accordingly,
date-sensitive  software or hardware may not be able to distinguish  between the
year 1900 and year  2000,  and  programs  that  perform  arithmetic  operations,
comparisons or sorting of date fields may begin yielding incorrect results. This
potentially could cause a system failure or  miscalculations  that could disrupt
operations, including, among other things, an inability to process transactions,
send invoices,  or engage in normal business activities.  These Year 2000 issues
affect virtually all companies and organizations.

The Company has developed a three-phase plan to address its Year 2000 issues:

         (1)  Identification  of  software  and  hardware.   This  includes  the
              following:

               (a)  Applications  and  information  technology  (IT)  equipment,
                    which includes all mainframe,  network and desktop  software
                    and  hardware,  custom  and  packaged  applications,  and IT
                    embedded systems;

               (b)  Non-information  technology (non-IT) embedded systems.  This
                    includes  non-IT  equipment and machinery.  Non-IT  embedded
                    systems,  such as  security,  fire  prevention  and  climate
                    control systems typically include embedded technology; and

               (c) Vendor relationships.  This includes significant  third-party
                   vendors and supplier interfaces.

Both domestically and internationally,  the Company has substantially  completed
the identification stage.

         (2)   Assessment  of the software and hardware  identified.  This phase
               includes the  evaluation of the software and hardware  identified
               for Year 2000  compliance,  the  determination of the remediation
               method  and  resources  required,   and  the  development  of  an
               implementation plan. The Company has substantially  completed the
               assessment stage.

         (3)   Implementation of a remediation plan. This phase includes testing
               some  modifications/upgrades in a Year 2000 simulated environment
               and vendor  interface  testing,  if  necessary.  The  Company has
               commenced implementation,  both domestically and internationally,
               and expects this phase to be completed by the end of August 1999.
               The  Company's  remediation  plan for its Year  2000  issue is an
               ongoing  process  and the  estimated  completion  dates above are
               subject to change.

Overall,  at this time, the Company  believes that its systems will be Year 2000
compliant in a timely manner for several reasons.  Several significant operating
systems  are  already  compliant.  Internationally,  the  Company  is  currently
implementing  new computer  systems that were developed in the United States and
are currently Year 2000 compliant.  To the extent that current systems that will
not be replaced have been determined to be non-compliant, the Company is working
with the suppliers of such systems to obtain  upgrades  and/or  enhancements  to
ensure Year 2000 compliance. Also, comprehensive testing of all critical systems
is planned to be conducted in a simulated Year 2000 environment.
<PAGE>

The  Company  believes  that  it will  not be  required  to  modify  or  replace
significant  portions of the  products it  presently  develops  and  provides to
customers  as such  products  are not  date  dependent  and,  accordingly,  will
function  properly with respect to dates in the Year 2000. All new products will
be Year 2000 ready when released.

At this stage in the process,  the Company has not  identified  any  significant
risks.  However,  the Company  believes that the area of the greatest  potential
risk relates to  significant  suppliers'  failing to  remediate  their Year 2000
issues in a timely manner. The Company is conducting formal  communications with
its significant suppliers to determine the extent to which it may be affected by
those parties' plans to remediate  their own Year 2000 issue in a timely manner.
If a number of  significant  suppliers are not Year 2000  compliant,  this could
have a material adverse effect on the Company's results of operations, financial
position or cash flow.  At this point,  the Company has not been  advised by any
significant supplier that it will not be Year 2000 compliant.

The  Company  is  developing  its  contingency  plans and  expects  to have them
completed by June 1999. To mitigate the effects of the Company's or  significant
suppliers'  potential  failure  to  remediate  the Year  2000  issue in a timely
manner,  the Company  will take  appropriate  actions.  Such actions may include
having arrangements for alternate suppliers, using manual intervention to ensure
the  continuation  of  operations  where  necessary and  scheduling  activity in
December 1999 that would  normally occur at the beginning of January 2000. If it
becomes  necessary  for the  Company to take  these  corrective  actions,  it is
uncertain, until the contingency plans are finalized,  whether this would result
in significant  delays in business  operations or have a material adverse effect
on the Company's results of operations, financial position or cash flows.

Based upon the Company's current estimates,  incremental  out-of-pocket costs of
its Year 2000 program are expected not to be material.  These costs are expected
to be incurred  primarily in fiscal 1999 and will be associated  primarily  with
the  remediation  of existing  computer  software and  hardware.  Such costs are
estimated to be approximately  $0.5 million.  Such costs do not include internal
management time,  which the Company does not separately  track, nor the deferral
of other  projects,  the effects of which are not expected to be material to the
Company's results of operations or financial condition. The Company's total Year
2000 project  costs  include the estimated  costs and time  associated  with the
impact of third-party Year 2000 issues based on presently available information.
However,  there can be no guarantee that other  companies upon which the Company
relies  will be able to address in a timely  manner  their Year 2000  compliance
issues,  the effects of which may be an adverse impact on the Company's  results
of operations.

Euro Conversion

On  January  1,  1999,  11 of the 15  member  countries  of the  European  Union
established  fixed conversion rates between their existing legacy currencies and
the euro.  The legacy  currencies  will remain in effect until July 1, 2002,  at
which  time,  the  legacy  currencies  will no  longer be legal  tender  for any
transactions.  The Company  believes,  but can give no assurance,  that the euro
conversion  will not have a material  adverse  impact to results of  operations,
financial position or cash flows.

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
products,  competitive  product offerings,  the disposition of legal issues, the
ability of the Company to identify and address successfully the Year 2000 issues
in a timely manner and at costs that are  reasonably  in line with  projections,
and the ability of the  Company's  vendors to identify and address  successfully
their own Year 2000 issues in a timely manner.  Profits 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.


<PAGE>


PART II:  OTHER INFORMATION

Item 1:   Legal Proceedings:

         The  descriptions  of  the  Company's  legal  proceedings  with  Symbol
         Technologies,  Inc.  ("Symbol"),  set forth in Item 3 of the  Company's
         Annual  Report on Form 10-K for the fiscal  period  ended  December 31,
         1998 (the "Litigation") are incorporated herein by reference.

         On  April  28,   1999,   the  Court   denied   Symbol's   motions   for
         reconsideration  and for immediate  appeal of the Court's  October 1998
         Order granting the Company partial summary  judgment against Symbol for
         patent  misuse.  The Court also  clarified  its prior Order by deleting
         reference to the 1995 licensing agreement.

         The trial for the contract issues has not yet been rescheduled.

Item 2:   Changes in Securities:  None

Item 3:   Defaults upon Senior Securities:  None

Item 4:   Submission of Matters of Shareholders to a Vote of Security Holders:
          None

Item 5:   Other Information:  None

Item 6:   Exhibits and Reports on Form 8-K

(a)       Exhibits:

10.1  Lease Agreement between the Company and Scan LLC dated May 12, 1999.....16

(b)       Reports on Form 8-K:   None

<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:    May 14, 1999                      By:    /s/ Robert C. Strandberg
                                                       --------------------
                                           Robert C. Strandberg
                                           President and Chief Executive Officer



DATE:    May 14, 1999                      By:   /s/  William J. Woodard  
                                                      -------------------
                                           William J. Woodard
                                           Vice President and 
                                           Chief Financial Officer



DATE:    May 14, 1999                      By:   /s/ Michael J. Stachura
                                                      -------------------
                                           Michael J. Stachura
                                           Vice President of Finance
                                          (Principal Accounting Officer)