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                                  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 March 31, 2000

                                       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 9, 2000, there were 12,214,366 shares of common stock outstanding.
================================================================================


                                      -1-
<PAGE>


                            PSC INC. AND SUBSIDIARIES

                                      INDEX


PART I:  FINANCIAL INFORMATION

Item 1 Financial Statements                                          Page Number
                                                                     -----------

       Consolidated Balance Sheets as of
       March 31, 2000 (Unaudited) and December 31, 1999......................3-4

       Consolidated  Statements of Operations  and Retained  Earnings for the
       three months ended:
       March 31, 2000 (Unaudited) and April 2, 1999 (Unaudited) ...............5

       Consolidated Statements of Cash Flows for the three months ended:
       March 31, 2000 (Unaudited) and April 2, 1999 (Unaudited) ...............6

       Notes to Consolidated Financial Statements (Unaudited) ..............7-12

Item 2 Management's Discussion and Analysis of
       Financial Condition and Results of Operations ......................13-15

PART II:  OTHER INFORMATION

Item 1 Legal Proceedings .....................................................16

Item 2 Changes in Securities  ................................................16

Item 3 Defaults upon Senior Securities .......................................16

Item 4 Submission of Matters to a Vote of Security Holders  ..................16

Item 5 Other Information   ...................................................16

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



                                      -2-

<PAGE>



                         PART I - FINANCIAL INFORMATION

Item 1:  Financial Statements


                            PSC INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (All amounts in thousands, except per share data)


                                                             Mar. 31,   Dec. 31,
                                                               2000       1999
                                                             --------   --------
                                                           (Unaudited)
ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                 $  4,077   $  1,402
   Accounts receivable, net of allowance for doubtful
      accounts of $971 and $685, respectively                  43,121     38,396
   Inventories                                                 27,515     23,343
   Prepaid expenses and other                                   2,937      3,514
                                                             --------   --------

   TOTAL CURRENT ASSETS                                        77,650     66,655

PROPERTY, PLANT AND EQUIPMENT, net of
   accumulated depreciation of $25,184 and $23,614,
   respectively                                                28,271     25,994

DEFERRED TAX ASSETS                                            21,954     20,762

INTANGIBLE AND OTHER ASSETS, net of accumulated
   amortization of $30,235 and $27,476, respectively           98,351     53,330
                                                             --------   --------

TOTAL ASSETS                                                 $226,226   $166,741
                                                             ========   ========


        See accompanying notes to the Consolidated Financial Statements.


                                      -3-
<PAGE>


                            PSC INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (All amounts in thousands, except per share data)
                                   (Continued)


                                                            Mar. 31,   Dec. 31,
                                                              2000       1999
                                                            --------   --------
                                                          (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Current portion of long-term debt                      $  12,627   $  16,281
   Accounts payable                                          23,214      20,685
   Accrued expenses                                           9,031       7,086
   Accrued payroll and related employee benefits              4,559       5,758
                                                          ---------   ---------

   TOTAL CURRENT LIABILITIES                                 49,431      49,810

LONG-TERM DEBT, less current maturities                     118,983      57,585

ACCRUED PROVISION FOR DISPUTED ROYALTIES                      7,129       6,400

OTHER LONG-TERM LIABILITIES                                   1,806       1,613

SHAREHOLDERS' EQUITY:
   Series A convertible preferred shares, par value $.01;
    110 shares authorized, issued and outstanding
    ($11,000 aggregate liquidation value)                         1           1
   Series B preferred shares, par value $.01; 175
    authorized, no shares issued and outstanding               --          --
   Undesignated preferred shares, par value $.01;
    9,715 authorized, no shares issued and outstanding         --          --
   Common shares, par value $.01; 40,000 authorized
    12,207 and 12,080 shares issued and outstanding             122         121
   Additional paid-in capital                                73,269      71,843
   Retained earnings/(Accumulated deficit)                  (21,215)    (18,065)
   Accumulated other comprehensive income/(loss)             (1,943)     (1,210)
   Less treasury stock repurchased at cost, 180 shares       (1,357)     (1,357)
                                                          ---------   ---------

TOTAL SHAREHOLDERS' EQUITY                                   48,877      51,333
                                                          ---------   ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                $ 226,226   $ 166,741
                                                          =========   =========


        See accompanying notes to the Consolidated Financial Statements.

                                      -4-
<PAGE>




                            PSC INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                (All amounts in thousands, except per share data)
                                   (Unaudited)


                                                          Three Months Ended
                                                        -----------------------
                                                         March 31,     April 2,
                                                           2000          1999
                                                        ----------    ---------
                                                        (Unaudited)  (Unaudited)
NET SALES                                                $ 61,439      $ 59,145

COST OF SALES                                              37,869        33,540
                                                         --------      --------
   Gross profit                                            23,570        25,605

OPERATING EXPENSES:
   Engineering, research and development                    5,822         4,128
   Selling, general and administrative                     14,414        12,360
   Severance and other costs                                1,974         2,103
   Amortization of intangibles resulting from
      business acquisitions                                 2,581         1,699
                                                         --------      --------
   Income/(loss) from operations                           (1,221)        5,315

INTEREST AND OTHER INCOME/(EXPENSE):
   Interest expense                                        (3,423)       (2,174)
   Interest income                                            146            91
   Other income/(expense)                                       9           (15)
                                                         --------      --------
                                                           (3,268)       (2,098)
                                                         --------      --------
   Income/(loss) before income tax provision/(benefit)     (4,489)        3,217
   Income tax provision/(benefit)                          (1,339)        1,126
                                                         --------      --------
   Net income/(loss)                                     ($ 3,150)     $  2,091
                                                         ========      ========

NET INCOME/(LOSS) PER COMMON AND COMMON
   EQUIVALENT SHARE:
      Basic                                                ($0.26)        $0.18
      Diluted                                              ($0.26)        $0.15

WEIGHTED AVERAGE NUMBER OF COMMON AND
   COMMON EQUIVALENT SHARES OUTSTANDING:
      Basic                                                12,022        11,895
      Diluted                                              12,022        13,677

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
 Retained earnings/(Accumulated deficit),
 beginning of period                                     ($18,065)     ($26,027)
 Net income/(loss)                                         (3,150)        2,091
                                                         ---------     ---------
 Retained earnings/(Accumulated deficit), end of period  ($21,215)     ($23,936)
                                                         =========     =========


        See accompanying notes to the Consolidated Financial Statements.

                                      -5-
<PAGE>

<TABLE>
<CAPTION>


                            PSC INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (All amounts in thousands)
                                   (Unaudited)

                                                                     Three Months Ended
                                                             ----------------------------------
                                                             March 31, 2000       April 2, 1999
                                                             --------------       -------------
                                                               (Unaudited)          (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                            <C>                  <C>
   Net income/(loss)                                           ($  3,150)           $   2,091
   Adjustments to reconcile net income/(loss) to net cash
      provided by operating activities:
   Depreciation and amortization                                   4,351                3,340
   Deferred tax assets                                            (1,170)                (157)
   (Increase) decrease in assets:
      Accounts receivable                                          1,718                1,291
      Inventories                                                   (152)              (3,792)
      Prepaid expenses and other                                     631                 (179)
   Increase (decrease) in liabilities:
      Accounts payable                                               (25)               1,225
      Accrued expenses                                            (1,137)               2,286
      Accrued provision for disputed royalties                       729                 --
      Accrued payroll and related employee benefits               (1,281)                 (67)
      Accrued acquisition related restructuring costs               --                   (258)
                                                               ---------            ---------

      Net cash provided by operating activities                      514                5,780

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, net                                      (1,295)              (1,005)
   Net cash paid for business                                    (53,486)                --
   Additions to intangible and other assets                         (464)              (2,037)
                                                               ---------            ---------

      Net cash used in investing activities                      (55,245)              (3,042)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Additions to long-term debt                                   112,000                2,000
   Payments of long-term debt                                    (54,854)              (5,594)
   Additions to other long-term liabilities, net                     188                   63
   Exercise of options and issuance of common shares                 777                  555
   Tax benefit from exercise or disposition of stock options          28                 --
                                                               ---------            ---------

      Net cash provided by (used in) financing activities         58,139               (2,976)

EFFECT OF EXCHANGE RATE CHANGES ON CASH
   AND CASH EQUIVALENTS                                             (733)                (852)
                                                               ---------            ---------

NET INCREASE/(DECREASE) IN CASH AND
   CASH EQUIVALENTS                                                2,675               (1,090)

CASH AND CASH EQUIVALENTS:
      Beginning of period                                          1,402                6,180
                                                               ---------            ---------
      End of period                                            $   4,077            $   5,090
                                                               =========            =========

</TABLE>

        See accompanying notes to the Consolidated Financial Statements.

                                      -6-
<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
               (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  March  31,  2000,  the  results  of
      operations for the three months ended March 31, 2000 and April 2, 1999 and
      its cash  flows for the three  months  ended  March 31,  2000 and April 2,
      1999.  The results of operations for the three months ended March 31, 2000
      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, 1999 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:

                                   March 31, 2000         December 31, 1999
                                   --------------         -----------------
      Raw materials                     $15,873                $14,358
      Work-in-process                     5,078                  5,238
      Finished goods                      6,564                  3,747
                                        -------                -------
                                        $27,515                $23,343
                                        =======                =======

(2)   LONG-TERM DEBT

      Long-term debt consists of the following:

                                   March 31, 2000         December 31, 1999
                                   --------------         -----------------
      Senior term loan                $ 72,500                 $42,000
      Revolving line of credit          27,000                    --
      Subordinated term loan            29,622                  29,607
      Subordinated promissory note       1,875                   2,188
      Other                                613                      71
                                      --------                 -------
                                       131,610                  73,866
      Less:  current maturities         12,627                  16,281
                                      --------                 -------
                                      $118,983                 $57,585
                                      ========                 =======

                                      -7-

<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)



      The Company  borrowed an additional $58.0 million under its amended senior
      term loan and revolving  credit  facilities to finance the  acquisition of
      Percon  Incorporated  (Percon).  See  Note 3  "Acquisition".  The  amended
      revolving credit facilities provide for borrowings up to $50.0 million, of
      which, $27.0 million was utilized toward the acquisition.

(3)   ACQUISITION

      On January 19, 2000, the Company acquired all of the outstanding shares of
      Percon,  a  manufacturer  of wireless and batch  portable data  terminals,
      decoders,  input devices and data management  software,  for approximately
      $57.0 million. The acquisition was accounted for under the purchase method
      of accounting  and  accordingly,  the results of Percon's  operations  are
      included in the 2000 consolidated  statements of operations since the date
      of  acquisition.  The  excess  purchase  price  over the fair value of net
      assets acquired was approximately  $46.0 million and is being amortized on
      a straight-line basis over 10 years.

      The following  unaudited pro forma condensed results of operations combine
      the  operations of the Company with those of Percon as if the  acquisition
      was consummated on January 1, 1999. The pro forma information is presented
      after giving effect to certain  adjustments for  amortization of goodwill,
      incremental  interest  expense on  acquisition  financing  and the related
      income  tax  effects.  The  pro  forma  results  have  been  prepared  for
      comparative  purposes  only and do not  purport  to be  indicative  of the
      results that would have been achieved during the periods indicated and are
      not intended to be indicative of future results.

                                                Pro Forma Three Months Ended
                                            ------------------------------------
                                             March 31, 2000       April 2, 1999
                                            ----------------     ---------------
      Net sales                                 $62,198               $67,053
      Income/(loss) from operations              (3,526)                5,164
      Net income/(loss)                          (4,855)                1,000

      Net income/(loss) per common and
       common equivalent share:
       Basic                                     $(0.40)                $0.08
       Diluted                                   $(0.40)                $0.07

      Weighted average number of common and
       common equivalent shares outstanding:
       Basic                                     12,022                11,895
       Diluted                                   12,022                13,677


                                      -8-

<PAGE>



                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)



      In connection with the acquisition,  liabilities assumed and net cash paid
      were as follows:

                    Fair value of assets acquired                 $67,611
                    Liabilities assumed                             6,623
                                                                  -------
                    Cash paid for business                         60,988
                    Less:  cash acquired                            7,502
                                                                  -------
                    Net cash paid for business                    $53,486
                                                                  =======

(4)   SEVERANCE AND OTHER COSTS

      During the first quarter of 2000, the Company  recorded a pretax charge of
      $2.0 million for employee  severance and benefit costs for the elimination
      of  approximately  35  positions  resulting  from  integration  activities
      associated  with the  Percon  acquisition  and  reorganization  actions in
      connection  with the  Company's  sales force.  As of March 31,  2000,  the
      amount of the severance  accruals was  approximately  $1.6 million,  which
      relates to current  contractual  obligations.  These  costs  reduced  2000
      income/(loss)  before income tax  provision/(benefit),  net income/(loss),
      basic EPS and diluted EPS by $2.0 million, $1.3 million,  $0.11 and $0.11,
      respectively.

(5)   SHAREHOLDERS' EQUITY

      Comprehensive  income, which includes net income/(loss),  foreign currency
      translation  adjustments  and unrealized  gain/(loss)  on securities,  was
      ($3,884)  and $926 for the three  months ended March 31, 2000 and April 2,
      1999, respectively.

      During the three month period ended March 31,  2000,  employees  purchased
      approximately 73 shares at $6.27 per  share  under the  provisions  of the
      Company's Employee Stock Purchase Plan.


                                      -9-
<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)



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

<TABLE>
<CAPTION>

                                         January 1, 2000     Weighted        January 1, 1999       Weighted
                                                to           Average                to             Average
                                          March 31, 2000      Price         December 31, 1999        Price
                                         ---------------     --------       -----------------      --------
<S>                                           <C>              <C>                 <C>               <C>
     Options outstanding at
      beginning of period                     3,221            $7.84               3,027             $7.98
     Options granted                            175             6.70                 432              7.28
     Options exercised                          (52)            5.76                 (82)             7.24
     Options forfeited/canceled                (101)            7.18                (156)             9.24
                                              ------                               ------
     Options outstanding at
        end of period                         3,243            $7.84               3,221             $7.84
                                              ======                               ======

     Number of options at end
        of period:
        Exercisable                           2,010            $8.20               2,058             $8.13
        Available for grant                     567                                  693

</TABLE>

      During the three month period ended March 31, 2000,  52 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.

(6)   NET INCOME/(LOSS) 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 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, 1999 and (2) warrants issued in connection with the
      acquisition of Spectra were converted on January 1, 1999.

      The following options and warrants 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 3,868 and 1,171 common shares
      at an average price of $6.88 and $9.65 per share were  outstanding for the
      three  months  ended  March  31,  2000 and  April 2,  1999,  respectively.
      Warrants to purchase  1,155 common shares at an average price of $5.68 per
      share were outstanding for the three months ended March 31, 2000.


                                      -10-
<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                      Three Months Ended
                                        ----------------------------------------------------------------------------------
                                                     March 31, 2000                              April 2, 1999
                                        ---------------------------------------     --------------------------------------
                                                                          Per                                        Per
                                          Income           Shares        Share        Income          Shares        Share
                                        (numerator)     (denominator)    Amount     (numerator)    (denominator)    Amount
                                        -----------     -------------    ------     -----------    -------------    ------
<S>                                       <C>               <C>          <C>           <C>             <C>           <C>
Basic EPS:
Income available to common
shareholders                              ($3,150)          12,022       ($0.26)       $2,091          11,895        $0.18
                                                                         =======                                     =====
Effect of dilutive securities:
   Options                                   --               --                         --               324
   Warrants                                  --               --                         --                83
   Preferred Shares                          --               --                         --             1,375
                                          --------          -------                    ------          ------
Diluted EPS:
Income available to common
shareholders and assumed
conversions                               ($3,150)          12,022       ($0.26)       $2,091          13,677        $0.15
                                          ========          =======      =======       ======          ======        =====

</TABLE>

(7)  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.  As  amended  by  Statement  of  Financial
     Accounting  Standards No. 137,  "Accounting for Derivative  Instruments and
     Hedging  Activities - Deferral of the Effective  Date of FASB Statement No.
     133",  SFAS No. 133 is  effective  for all fiscal  quarters of fiscal years
     beginning  after June 15,  2000 and cannot be  applied  retroactively.  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.



                                      -11-
<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)



     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.

     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.



                                      -12-
<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, 1999 annual report on Form 10-K.

Overview
--------

On December 21, 1999, the Company  acquired  substantially  all of the assets of
GAP Technologies,  Inc. and GEO Labs, Inc. (GAP) for approximately $4.8 million.
GAP is a technology and research group that designs and  manufactures  miniature
laser scan engines and pen-based  scanners.  The Company recently  introduced an
innovative  consumer home shopping  appliance,  incorporating the miniature scan
engine  technology  developed by GAP. The home shopping system enables consumers
to create a shopping  list by scanning  product bar codes and then  transmitting
the list online to the retailer.

On January 19,  2000,  the Company  acquired  all of the  outstanding  shares of
Percon Incorporated (Percon), a manufacturer of wireless and batch portable data
terminals  (PDTs),  decoders,  input devices and data management  software,  for
approximately $57.0 million. The acquisition of Percon  significantly  increased
the scope of the  Company's  product line,  enhancing  the Company's  ability to
provide  systems  type  solutions  and to expand  the  Company  into the PDT and
software/services categories of the AIDC market, which are growing rapidly.

Results of Operations:  Three Months ended March 31, 2000 and April 2, 1999
---------------------------------------------------------------------------

Net Sales. Net sales during the three months ended March 31, 2000 increased $2.3
million or 4% compared  with the same period in 1999.  The increase in net sales
is attributed  primarily to increased sales in U-Scan(R)  Express  Self-Checkout
Systems and  inclusion of Percon  product  sales offset by a decline in sales of
retail fixed position products.

Gross  Profit.  Gross  profit  during  the three  months  ended  March 31,  2000
decreased  $2.0  million  or 8%  compared  with the same  period  in 1999.  As a
percentage of sales, gross profit decreased from 43.3% to 38.4%. The decrease in
gross profit  percentage is primarily  due to a change in the Company's  product
mix and the impact of unfavorable foreign currency exchange rates.

Engineering,  Research and  Development.  Engineering,  Research and Development
(ER&D) expenses increased $1.7 million or 41%, as compared to the same period in
1999.  As a  percentage  of sales,  ER&D was 9.5% in the first  quarter  of 2000
versus 7.0% of net sales in the first  quarter of 1999.  The increase in ER&D is
primarily  attributable to additional investments in developing new products and
enhancing existing  products,  and the inclusion of GAP Technologies and Percon,
which were acquired in December 1999 and January 2000, respectively.

Selling, General and Administrative.  Selling, General and Administrative (SG&A)
expenses  increased  $2.1 million or 16.6%,  as compared to the first quarter of
1999. As a percentage of sales, SG&A was 23.5% in 2000 versus 20.9% in 1999. The
dollar and percentage increases are primarily due to the inclusion of Percon and
higher royalty expense recorded in connection with the February 8, 2000 decision
related to the Company's licensing agreements with Symbol Technologies, Inc. See
"Legal Proceedings."

                                      -13-
<PAGE>


Severance  and Other  Costs.  During  the first  quarter  of 2000,  the  Company
recorded a pretax  charge of $2.0  million for  employee  severance  and benefit
costs  for  the  elimination  of  approximately  35  positions   resulting  from
integration   activities   associated   with  the   acquisition  of  Percon  and
reorganization actions in connection with the Company's sales force. As of March
31, 2000, the amount of the severance  accruals was approximately  $1.6 million,
which  relates to current  contractual  obligations.  These costs  reduced  2000
income/(loss) before income tax  provision/(benefit),  net income/(loss),  basic
EPS  and  diluted  EPS  by  $2.0  million,   $1.3  million,   $0.11  and  $0.11,
respectively.

Interest Expense.  Interest expense increased $1.2 million versus the comparable
period in 1999. The increase is primarily due to additional  borrowings of $58.0
million in January  2000 to finance  the  acquisition  of Percon,  and bank fees
incurred in connection with  amendments and waivers  obtained for the senior and
subordinated credit agreements.

Income Tax Provision/(Benefit). The Company's effective tax rate was 30% in 2000
versus 35% in 1999 due to the  exclusion  of goodwill  amortization  recorded in
connection with the Percon acquisition.

Liquidity and Capital Resources:
-------------------------------

Current assets  increased $11.0 million from December 31, 1999 primarily due the
inclusion of Percon.  Current liabilities  decreased $0.4 from December 31, 1999
primarily due to the decrease in current  portion of long-term  debt and accrued
payroll and commissions offset by the inclusion of Percon's accrued expenses. As
a result, working capital increased $11.4 million from December 31, 1999.

Property,  plant and equipment  expenditures  totaled $1.3 million for the three
months  ended March 31, 2000  compared  with $1.0  million for the three  months
ended  April 2, 1999.  The 2000  expenditures  primarily  related to new product
tooling, manufacturing equipment, and computer software and hardware.

The  long-term  debt to capital  percentage  was 71.1% at March 31,  2000 versus
52.9% at December 31, 1999  primarily due to $58.0  million of  additional  debt
borrowed to finance the  acquisition  of Percon.  At March 31,  2000,  liquidity
immediately  available to the Company  consisted of cash and cash equivalents of
$4.1  million.  The Company  has  revolving  credit  facilities  totaling  $50.0
million,  of which,  $27.0  million was  outstanding  as of March 31, 2000.  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.

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
execute its contingency plan and make  arrangements for alternate  suppliers and
utilize  manual  intervention  to ensure the  continuation  of operations  where
necessary.  If it becomes  necessary  for the  Company to take these  corrective
actions,  the Company  does not believe  that 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.

                                      -14-
<PAGE>


The Company  incurred  approximately  $0.6 million of incremental  out-of-pocket
costs for its Year 2000  program to  remediate  existing  computer  software and
hardware. These costs do not include internal management time, which the Company
does not separately  track,  nor the deferral of other projects,  the effects of
which were not  material to the  Company's  results of  operations  or financial
condition. As of this time, the Company has not been made aware of any Year 2000
issues nor has the Year 2000 issue had a material  adverse  impact on results of
operations, financial position or cash flows.

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  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.

                                      -15-
<PAGE>


PART II: OTHER INFORMATION

Item 1:  Legal Proceedings:

         The description of the Company's legal  proceedings set forth in Item 3
of the Company's Annual Report on Form 10-K for the fiscal period ended December
31, 1999 is  incorporated  herein by reference.  With respect to the the Eastern
District  Action  commenced  by Symbol  Technologies,  Inc.  ("Symbol"),  Symbol
withdrew its motion for  permission  to file an oversized  brief and refiled its
motion for an injunction pendente lite in accordance with the Court's rules. The
Court has scheduled a hearing on Symbol's  motion  commencing June 26, 2000. The
Company will vigorously oppose Sumbol's motion.

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 Amendment  Nine and Consent  and Waiver  dated as of March 31, 2000 to
          the Credit  Agreement  dated as of July 12,  1996  among PSC  Scanning
          Inc., as Borrower, PSC Inc., as Guarantor,  the financial institutions
          party   thereto   and  Fleet   Bank  as  initial   Issuing   Bank  and
          administrative agent................................................18

     10.2 Amendment  No.  6, and  Consent  dated  March 31,  2000 to  Securities
          Purchase  Agreements  and Warrants  among PSC Inc., PSC Scanning Inc.,
          and the Purchasers named in the Securities Purchase Agreements......34

     10.3 Employment Agreement between the Company and George A. Plesko dated as
          of December 21, 1999................................................55

     10.4 Noncompetition and  Confidentiality  Agreement between the Company and
          George A. Plesko dated as of December 21, 1999......................72

     10.5 Employment Agreement between the Company and Andy J. Storment dated as
          of January 19, 2000.................................................77

     10.6 Noncompetition  Agreement  between the  Company  and Andy J.  Storment
          dated as of January 19, 2000........................................91

 (b) Reports on Form 8-K: None

                                      -16-
<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 12, 2000               By:/s/ Robert C. Strandberg
                                       -----------------------------------------
                                           Robert C. Strandberg
                                           President and Chief Executive Officer



DATE:    May 12, 2000               By:/s/ William J. Woodard
                                       -----------------------------------------
                                           William J. Woodard
                                           Vice President and
                                           Chief Financial Officer


DATE:    May 12, 2000               By:/s/ Michael J. Stachura
                                       -----------------------------------------
                                           Michael J. Stachura
                                           Vice President of Finance
                                           (Principal Accounting Officer)

                                      -17-