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


                                    FORM 10-Q

(Mark One)

           |X| Quarterly Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                For the quarterly period ended September 29, 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  November  16,  2000,  there  were  12,305,129  shares  of  common  stock
outstanding.

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

<PAGE>


                            PSC INC. AND SUBSIDIARIES

                                      INDEX

PART I:  FINANCIAL INFORMATION                                             Page
                                                                          Number
Item 1   Financial Statements                                            -------

          Consolidated Balance Sheets as of
          September 29, 2000 (Unaudited) and December 31, 1999...............3-4

          Consolidated  Statements of Operations and
          Retained  Earnings for the three and nine months ended:
          September 29, 2000 (Unaudited) and October 1, 1999 (Unaudited) ....5-6

          Consolidated Statements of Cash Flows
          for the nine months ended:
          September 29, 2000 (Unaudited) and October 1, 1999 (Unaudited) ......7

          Notes to Consolidated Financial Statements (Unaudited) ...........8-14

Item 2    Management's Discussion and Analysis of
          Financial Condition and Results of Operations ...................15-18

PART II:  OTHER INFORMATION

Item 1    Legal Proceedings ..................................................19

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

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

Item 4    Submission of Matters to a Vote of Security Holders  ...............20

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

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

<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>

                                                          September 29, 2000       December 31, 1999
                                                          -----------------        -----------------
                                                             (Unaudited)
<S>                                                       <C>                       <C>
ASSETS

CURRENT ASSETS:
   Cash and cash equivalents ..............................        $ 7,319                     $ 1,402
   Accounts receivable, net of allowance for doubtful
   accounts of $710 and $685, respectively ................         46,033                      38,396
   Inventories ............................................         27,930                      23,343
   Prepaid expenses and other .............................          2,441                       3,514
                                                           ----------------             ---------------
   TOTAL CURRENT ASSETS ...................................         83,723                      66,655

PROPERTY, PLANT AND EQUIPMENT, net of
   accumulated depreciation of $28,241 and $23,614,
   respectively ...........................................         20,719                      25,994

DEFERRED TAX ASSETS .......................................         22,541                      20,762

INTANGIBLE AND OTHER ASSETS, net of accumulated
   amortization of $36,757 and $27,476, respectively ......         95,657                      53,330
                                                           ----------------             ---------------

TOTAL ASSETS ..............................................       $222,640                    $166,741
                                                           ================             ===============


        See accompanying notes to the Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>

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

                                                                           September 29, 2000           December 31, 1999
                                                                           ------------------           -----------------
                                                                              (Unaudited)
<S>                                                                        <C>                          <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Current portion of long-term debt ....................................           $135,406                     $16,281
   Accounts payable .....................................................             24,317                      20,685
   Accrued expenses .....................................................              8,172                       7,086
   Accrued payroll and related employee benefits ........................              3,953                       5,758
                                                                            -----------------             ---------------
   TOTAL CURRENT LIABILITIES ............................................            171,848                      49,810

LONG-TERM DEBT, less current maturities .................................                 --                      57,585

ACCRUED PROVISION FOR DISPUTED ROYALTIES ................................              8,519                       6,400

OTHER LONG-TERM LIABILITIES .............................................              1,980                       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
    12,311 and 12,080 shares issued and outstanding .....................                 123                         121
   Additional paid-in capital ...........................................              73,907                      71,843
   Retained earnings/(Accumulated deficit) ..............................             (29,214)                    (18,065)
   Accumulated other comprehensive income/(loss) ........................              (3,167)                     (1,210)
   Less treasury stock repurchased at cost, 180 shares ..................              (1,357)                     (1,357)
                                                                            -----------------             ---------------

TOTAL SHAREHOLDERS' EQUITY ..............................................              40,293                      51,333
                                                                            -----------------             ---------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..............................            $222,640                    $166,741
                                                                            =================             ===============
</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)
<CAPTION>
                                                                                       Three Months Ended
                                                                       ---------------------------------------------------
                                                                            September 29, 2000           October 1, 1999
                                                                            ------------------           ---------------
                                                                                    (Unaudited)              (Unaudited)
<S>                                                                         <C>                          <C>
NET SALES ...............................................................              $59,543                 $59,031

COST OF SALES ...........................................................               36,798                  34,130
                                                                             ------------------         ---------------
   Gross profit .........................................................               22,745                  24,901

OPERATING EXPENSES:
   Engineering, research and development ................................                5,268                   4,622
   Selling, general and administrative ..................................               13,514                  11,435
   Severance and other costs ............................................                  426                      --
   Write-down of facility ...............................................                6,009                      --
   Amortization of intangibles resulting from
      business acquisitions .............................................                2,870                   1,603
                                                                             ------------------         ---------------
   Income/(loss) from operations ........................................              (5,342)                   7,241

INTEREST AND OTHER INCOME/(EXPENSE):
   Interest expense .....................................................              (3,280)                 (1,826)
   Interest income ......................................................                 100                      70
   Other income/(expense) ...............................................                  54                     425
                                                                             ------------------         ---------------
                                                                                       (3,126)                 (1,331)
                                                                             ------------------         ---------------
   Income/(loss) before income tax provision/(benefit) ..................              (8,468)                   5,910
   Income tax provision/(benefit) .......................................                (468)                   2,068
                                                                                                        ---------------
                                                                             ------------------
   Net income/(loss) ....................................................            ($ 8,000)                  $3,842
                                                                             ==================         ===============

NET INCOME/(LOSS) PER COMMON AND COMMON
      Basic .............................................................              ($0.66)                   $0.32
      Diluted ...........................................................              ($0.66)                   $0.27

WEIGHTED AVERAGE NUMBER OF COMMON AND
      Basic .............................................................               12,120                  12,019
      Diluted ...........................................................               12,120                  14,021

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
   Retained earnings/(Accumulated deficit), beginning of period .........            ($21,214)               ($20,448)
   Net income/(loss) ....................................................              (8,000)                   3,842
                                                                             ------------------         ---------------
   Retained earnings/(Accumulated deficit), end of period ...............            ($29,214)               ($16,606)
                                                                             ==================         ===============


        See accompanying notes to the Consolidated Financial Statements.
</TABLE>


<PAGE>

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

                                                                                         Nine Months Ended
                                                                      --------------------------------------------------------
                                                                             September 29, 2000             October 1, 1999
                                                                             ------------------             ---------------
                                                                                    (Unaudited)                  (Unaudited)
<S>                                                                          <C>                            <C>
NET SALES ...........................................................                 $188,400                     $176,177

COST OF SALES .......................................................                  116,342                      101,649
                                                                                ---------------             ----------------
   Gross profit .....................................................                   72,058                       74,528

OPERATING EXPENSES:
   Engineering, research and development ............................                   16,505                       13,169
   Selling, general and administrative ..............................                   41,031                       34,593
   Severance and other costs ........................................                    2,100                        2,103
   Merger related costs .............................................                      959                           --
   Write-down of facility ...........................................                    6,009                           --
   Amortization of intangibles resulting from
      business acquisitions .........................................                    8,338                        4,815
                                                                                ---------------             ----------------
   Income/(loss) from operations ....................................                  (2,884)                       19,848

INTEREST AND OTHER INCOME/(EXPENSE):
   Interest expense .................................................                   (9,823)                      (5,908)
   Interest income ..................................................                      322                          209
   Other income/(expense) ...........................................                       77                          337
                                                                                ---------------             ----------------
                                                                                        (9,424)                      (5,362)
                                                                                ---------------             ----------------
   Income/(loss) before income tax provision/(benefit) ..............                  (12,308)                       14,486
   Income tax provision/(benefit) ...................................                   (1,159)                        5,065
                                                                                                            ----------------
                                                                                ---------------
   Net income/(loss) ................................................                 ($11,149)                      $ 9,421
                                                                                ===============             ================

NET INCOME/(LOSS) PER COMMON AND COMMON
      Basic .........................................................                   ($0.92)                        $0.79
      Diluted .......................................................                   ($0.92)                        $0.68

WEIGHTED AVERAGE NUMBER OF COMMON AND
      Basic .........................................................                   12,059                       11,948
      Diluted .......................................................                   12,059                       13,873

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
   Retained earnings/(Accumulated deficit), beginning of period .....                 ($18,065)                    ($26,027)
   Net income/(loss) ................................................                  (11,149)                        9,421
                                                                                ---------------             ----------------
   Retained earnings/(Accumulated deficit), end of period ...........                 ($29,214)                    ($16,606)
                                                                                ===============             ================


        See accompanying notes to the Consolidated Financial Statements.

</TABLE>

<PAGE>
<TABLE>


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

                                                                                      Nine Months Ended
                                                                      --------------------------------------------------
                                                                           September 29, 2000          October 1, 1999
                                                                           ------------------          ---------------
                                                                               (Unaudited)              (Unaudited)
<S>                                                                         <C>                        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income/(loss) .....................................................          ($11,149)                  $9,421
   Adjustments to reconcile net income/(loss) to net cash
   Depreciation and amortization .........................................             13,887                  10,056
   Loss on write-down of assets ..........................................              6,009                      --
   Deferred tax assets ...................................................            (1,757)                   2,506
   (Increase) decrease in assets:
      Accounts receivable ................................................            (1,203)                     255
      Inventories ........................................................              (567)                  (6,720)
      Prepaid expenses and other .........................................             1,127                       70
   Increase (decrease) in liabilities:
      Accounts payable ...................................................              1,078                     693
      Accrued expenses ...................................................             (1,996)                 (1,573)
      Accrued provision for disputed royalties ...........................              2,119                      --
      Accrued payroll and related employee benefits ......................             (1,878)                    (46)
                                                                            ------------------         ---------------


      Net cash provided by operating activities ..........................              5,670                  14,662

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, net .............................................             (2,809)                 (3,682)
   Net cash paid for business ............................................            (53,486)                     --
   Additions to intangible and other assets ..............................             (4,292)                 (4,842)
   Proceeds from sale and leaseback transaction ..........................                 --                    8,620
                                                                            ------------------         ---------------

      Net cash (used in) provided by investing activities ................            (60,587)                      96

CASH FLOWS FROM FINANCING ACTIVITIES:
   Additions to long-term debt ...........................................            119,000                   7,000
   Payments of long-term debt ............................................            (58,058)                (22,772)
   Additions to other long-term liabilities, net .........................                362                      81
   Purchase of treasury stock ............................................                 --                    (72)
   Exercise of options and issuance of common shares .....................              1,459                   1,515
   Tax benefit from exercise or disposition of stock options .............                 28                      43
                                                                            ------------------         ---------------

      Net cash provided by (used in) financing activities ................             62,791                 (14,205)

EFFECT OF EXCHANGE RATE CHANGES ON CASH
   AND CASH EQUIVALENTS ..................................................             (1,957)                   (809)
                                                                            ------------------         ---------------

NET INCREASE/(DECREASE) IN CASH AND
   CASH EQUIVALENTS ......................................................              5,917                    (256)

CASH AND CASH EQUIVALENTS:
      Beginning of period ................................................              1,402                   6,180
                                                                            ------------------         ---------------
      End of period ......................................................             $7,319                  $5,924
                                                                            ==================         ===============
        See accompanying notes to the Consolidated Financial Statements.

</TABLE>

<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2000 AND OCTOBER 1, 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 September  29,  2000,  the results of
      operations  for the three and nine  months  ended  September  29, 2000 and
      October 1, 1999 and its cash flows for the nine months ended September 29,
      2000 and October 1, 1999. The results of operations for the three and nine
      months ended  September  29, 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.

(2)   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:

                               September 29, 2000           December 31, 1999
                             ------------------------     ----------------------
     Raw materials                      $15,296                    $14,358
     Work-in-process                      6,174                      5,238
     Finished goods                       6,460                      3,747
                                    ------------               ------------
                                        $27,930                    $23,343
                                    ============               ============

(3)      PROPERTY, PLANT & EQUIPMENT

      The Company is consolidating  its Webster,  New York headquarters with its
      operations in Eugene,  Oregon.  As a result,  the Company  recorded a $6.0
      million write-down in connection with the anticipated sale of the Webster,
      New York facility in accordance with Statement of Financial Accounting No.
      121 (SFAS No. 121),  "Accounting  for the Impairment of Long-Lived  Assets
      and for  Long-Lived  Assets to Be Disposed  of".  SFAS No. 121 requires an
      impairment  loss to be  recognized  if the  carrying  amount  of an  asset
      exceeds the fair value of the asset.  The facility now  approximates  fair
      market value less any  commissions  or fees to be paid upon  disposal,  or
      $6.5 million.  The loss was  recognized in September  2000 on the facility
      and related  leasehold  improvements  and is included in the  consolidated
      statements  of  operations.  The  Company  anticipates  disposing  of  the
      facility  within the next twelve months,  at which time, the proceeds will
      be utilized to reduce the Company's  indebtedness  under the senior credit
      facility.


<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2000 AND OCTOBER 1, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)

 (4)  DEBT

      Debt consists of the following:

                                    September 29, 2000      December 31, 1999
                                    ------------------    -------------------
     Senior term loan ..............         $70,000               $42,000
     Revolving line of credit ......          34,000                    --
     Subordinated term loan ........          29,652                29,607
     Subordinated promissory note ..           1,251                 2,188
     Other .........................             503                    71
                                         ------------          ------------
                                             135,406                73,866
     Less:  current maturities .....         135,406                16,281
                                         ------------          ------------
                                                 $--               $57,585
                                         ============          ============

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 5 "Acquisition".  The amended revolving credit
facilities  provide for borrowings up to $45.0 million,  of which, $27.0 million
was utilized toward the acquisition.

The Company has embarked upon a process of selling certain assets, including the
Webster, New York facility,  with the objective of generating proceeds to reduce
the outstanding  indebtedness under the senior credit facility.  As of September
29, 2000, the Company has no  availability  to borrow from the revolving  credit
facilities.

The Company is required to meet certain  financial  covenants in relation to its
senior and subordinated  credit  facilities.  At September 29, 2000, the Company
was in  violation  of several of its  financial  covenants  including  covenants
relating to the senior debt ratio,  total debt ratio,  interest  coverage ratio,
fixed charge coverage ratio and net worth.  The Company  believes it has reached
an  agreement  in  principle  with its senior  lenders to waive these  events of
default and, in connection therewith, to modify certain provisions of the credit
agreement through March 31, 2001, subject to certain terms and conditions. Among
other  provisions,  the  commitment  for its working  capital  facility  will be
reduced from $50 million to $45 million and the interest  rate will be increased
to prime plus 1.50% from November 1, 2000 to December 31, 2000 and to prime plus
2.00% from January 1, 2001 to March 31, 2001. A 2.00%  default  interest rate on
the senior debt will be accrued.  The Company has also been negotiating  waivers
of the foregoing  defaults with its subordinated note holders and although there
can be no assurance, the Company is optimistic about obtaining such waivers. The
Company will also be seeking further  amendments to its senior credit facilities
and the financial covenants contained therein. If the Company is unsuccessful in
obtaining such further amendments prior to March 31, 2001,  management  believes
that the  Company  will be unable to meet the current  financial  ratios on that
date and the Company will then be in default. In the event of such default,  the
lenders could elect to declare all amounts borrowed under the credit  agreements
to be due and  payable.  Accordingly,  the  Company  has  classified  all of its
long-term debt as current.
<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2000 AND OCTOBER 1, 1999

                (All amounts in thousands, except per share data)
                                   (Unaudited)

      The Company has been advised by its independent  public  accountants  that
      should the situation  remain  unresolved  prior to the completion of their
      audit of the Company's  financial  statements for the year ending December
      31, 2000,  their  auditors'  report on those  financial  statements may be
      modified for that contingency.

(5)      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.

<TABLE>
<CAPTION>
                                                                             Pro Forma Nine Months Ended

                                                                  --------------------------------------------------
                                                                    September 29, 2000           October 1, 1999
                                                                  ------------------------     ---------------------
             <S>                                                   <C>                          <C>
             Net sales ............................................         $189,159                  $201,887
             Income/(loss) from operations ........................          (4,402)                    20,178
             Net income/(loss) ....................................         (12,715)                     6,353

             Net income/(loss) per common and
                  Basic ...........................................          ($1.05)                     $0.53
                  Diluted .........................................          ($1.05)                     $0.46

             Weighted average number of common and
                  Basic ...........................................           12,059                    11,948
                  Diluted .........................................           12,059                    13,873

</TABLE>


<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2000 AND OCTOBER 1, 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
                                                            =============

(6)   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. Excluding $0.3 million reversed
      in the second  quarter of 2000,  the Company  utilized $1.3 million of the
      accrual in 2000.  As of September  29, 2000,  the amount of the  severance
      accruals  was  approximately  $0.4  million,   which  relates  to  current
      contractual  obligations.  Including  $0.3 million  reversed in the second
      quarter,   these  costs  reduced  2000  income/(loss)  before  income  tax
      provision/(benefit),  net income/(loss), basic EPS and diluted EPS by $1.7
      million, $1.1 million, $0.09 and $0.09, respectively.

 (7)   MERGER RELATED COSTS

      On June 5, 2000, the Company, Mohawk Corp. (Parent) and Mohawk Acquisition
      Corp., a wholly owned  subsidiary of Parent  (Purchaser),  entered into an
      Agreement  and  Plan  of  Merger.  Pursuant  to the  agreement,  Purchaser
      commenced a cash tender offer to purchase all outstanding shares of common
      stock, all outstanding shares of Series A Convertible  Preferred Stock and
      all  outstanding  warrants,  in each case, net to the seller in cash, upon
      the terms and subject to the conditions set forth in the Offer to Purchase
      dated June 19, 2000 and in the related Letters of Transmittal.

      On July 24, 2000, Parent, Purchaser and the Company executed a Termination
      Agreement  whereby the parties agreed to terminate the offer  effective on
      such date.  The Company  recorded a pre-tax charge of  approximately  $1.0
      million  during the second  quarter  of 2000 for  expenses  related to the
      merger activities.

(8)   SHAREHOLDERS' EQUITY

      Comprehensive  income, which includes net income/(loss),  foreign currency
      translation  adjustments  and unrealized  gain/(loss)  on securities,  was
      ($8,966)  and $3,960 for the three  months  ended  September  29, 2000 and
      October  1,  1999,  respectively,  and  ($13,106)  and $8,300 for the nine
      months ended September 29, 2000 and October 1, 1999, respectively.

      During the nine month period ended September 29, 2000, employees purchased
      approximately  135 shares at an average price of $6.38 per share under the
      provisions of the Company's Employee Stock Purchase Plan.


<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2000 AND OCTOBER 1, 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
                                      September 29, 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 ...............            230                  5.70                   432                  7.28
     Options exercised .............            (78)                 6.38                   (82)                 7.24
     Options forfeited/canceled ....           (408)                 7.99                  (156)                 9.24
                                            --------                                    --------
     Options outstanding at
        end of period ..............          2,965                 $7.70                 3,221                 $7.84
                                            ========                                    ========

     Number of options at end
        Exercisable ................          2,153                 $7.98                 2,058                 $8.13
        Available for grant ........            618                                         693
</TABLE>

      During the nine month  period ended  September  29,  2000,  253  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.

(9)   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  September  29, 2000 and October 1,
      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 2,883 and 497 common shares at
      an average  price of $7.81 and $10.76 per share were  outstanding  for the
      three months ended  September 29, 2000 and October 1, 1999,  respectively.
      Options to  purchase  2,883 and 512 common  shares at an average  price of
      $7.78 and $10.25  per share were  outstanding  for the nine  months  ended
      September 29, 2000 and October 1, 1999, respectively. Warrants to purchase
      1,155 and 180  common  shares at an  average  price of $5.68 and $8.00 per
      share were  outstanding  for the three and nine months ended September 29,
      2000,  respectively.  Warrants to purchase 180 common  shares at $8.00 per
      share were outstanding for the nine months ended September 29, 2000.


<PAGE>
<TABLE>

                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2000 AND OCTOBER 1, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)

<CAPTION>
                                                                        Three Months Ended
                                 -------------------------------------------------------------------------------------------------
                                               September 29, 2000                                  October 1, 1999
                                 -----------------------------------------------    ----------------------------------------------
                                                                        Per                                                Per
                                  Income/(loss)        Shares          Share         Income/(loss)        Shares          Share
                                   (numerator)      (denominator)      Amount         (numerator)      (denominator)      Amount
                                   -----------      -------------      ------         -----------      -------------      ------
<S>                               <C>               <C>                <C>          <C>                <C>                <C>
Basic EPS:
Income/(loss) available to
common shareholders .............       ($8,000)             12,120     ($0.66)              $3,842             12,019       $0.32

Effect of dilutive securities:
   Options ......................             --                 --                              --                448
   Warrants .....................             --                 --                              --                179
   Preferred Shares                           --                 --                              --              1,375
                                 ---------------- ------------------                ---------------- ------------------
Diluted EPS:
Income/(loss) available to
common shareholders and
assumed conversions .............       ($8,000)             12,120     ($0.66)              $3,842             14,021       $0.27
                                        ========             ======     =======              ======             ======       =====



                                                                         Nine Months Ended
                                ----------------------------------------------------------------------------------------------------
                                              September 29, 2000                                    October 1, 1999
                                ------------------------------------------------    ------------------------------------------------
                                                                        Per                                                 Per
                                 Income/(loss)         Shares          Share         Income/(loss)         Shares          Share
                                  (numerator)       (denominator)      Amount         (numerator)       (denominator)      Amount
                                  -----------       -------------      ------         -----------       -------------      ------
Basic EPS:
Income/(loss) available to
common shareholders                    ($11,149)             12,059     ($0.92)               $9,421             11,948      $0.79
                                                                        =======                                              =====
Effect of dilutive securities:
   Options ......................             --                 --                               --                406
   Warrants .....................             --                 --                               --                144
   Preferred Shares .............             --                 --                               --              1,375
                                ----------------- ------------------                ----------------- ------------------
Diluted EPS:
Income/(loss) available to
common shareholders and
assumed conversions .............      ($11,149)             12,059     ($0.92)               $9,421             13,873       $0.68
                                       =========             ======     =======               ======             ======       =====

</TABLE>


<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2000 AND OCTOBER 1, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)

(10)     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 will adopt SFAS No. 133 on January 1, 2001.

     The Company  monitors its exposure to 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 foreign currency  forward  exchange  contracts are classified in
     the same category as the item being hedged.

     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  60 to 90 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.

(11)     SUBSEQUENT EVENT

Severance and Other Costs

On November 10, 2000, the Company  announced a plan to consolidate  its Webster,
New York headquarters with its operations in Eugene,  Oregon.  The consolidation
will result in the elimination of  approximately  140 employees,  of which,  110
employees are located in Webster,  New York.  Management is still in the process
of finalizing the consolidation plan, however,  management  estimates the charge
for severance and other costs,  which will be recorded in the fourth  quarter of
2000, will range between $2.0 million and $3.0 million.

Litigation

On November 20, 2000,  all pending  litigation  with Symbol  Technologies,  Inc.
("Symbol")  was  settled.  The  agreements  resolve all  litigation  between the
parties, settle all disputed royalty payments and uphold the patents asserted by
Symbol.  In addition,  the parties have also amended and clarified the Company's
existing license agreement and included certain new patents.

The parties also entered into product  supply  agreements for products that will
begin  shipping  in  approximately  one  year.  Under  the  terms of the  supply
agreements, the Company has agreed to purchase hand-held laser scanners and scan
engines  from  Symbol.  Symbol  has  agreed to  purchase  fixed-position  retail
point-of-sale scanners from the Company.

The parties have  exchanged  general  releases.  Stipulations  of Dismissal  and
Consent  Judgments  are being  submitted to the Courts.  Management  has not yet
quantified the impact of the settlement on the Company's  financial  statements,
however,  management  estimates  that the full amount of the settlement has been
accrued at September 29, 2000.


<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. In early 2000, the Company 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.

On June 5, 2000,  the  Company,  Mohawk Corp.  (Parent)  and Mohawk  Acquisition
Corp.,  a  wholly  owned  subsidiary  of  Parent  (Purchaser),  entered  into an
Agreement and Plan of Merger.  Pursuant to the agreement,  Purchaser commenced a
cash tender  offer to  purchase  all  outstanding  shares of common  stock,  all
outstanding  shares of Series A Convertible  Preferred Stock and all outstanding
warrants,  in each case net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase dated June 19, 2000 and in the
related Letters of Transmittal.

On July 24,  2000,  Parent,  Purchaser  and the Company  executed a  Termination
Agreement  whereby the parties  agreed to terminate the offer  effective on such
date. The Company recorded a pre-tax charge of approximately $1.0 million during
the second quarter of 2000 for expenses related to the merger activities.

On November 10, 2000, the Company  announced a plan to consolidate  its Webster,
New York headquarters with its operations in Eugene,  Oregon.  The consolidation
will result in the elimination of  approximately  140 employees,  of which,  110
employees are located in Webster,  New York.  Management is still in the process
of finalizing the consolidation plan, however,  management  estimates the charge
for severance and other costs,  which will be recorded in the fourth  quarter of
2000, will range between $2.0 million and $3.0 million.

On November 20, 2000,  all pending  litigation  with Symbol  Technologies,  Inc.
("Symbol")  was  settled.  The  agreements  resolve all  litigation  between the
parties, settle all disputed royalty payments and uphold the patents asserted by
Symbol.  In addition,  the parties have also amended and clarified the Company's
existing license agreement and included certain new patents.

The parties also entered into product  supply  agreements for products that will
begin  shipping  in  approximately  one  year.  Under  the  terms of the  supply
agreements, the Company has agreed to purchase hand-held laser scanners and scan
engines  from  Symbol.  Symbol  has  agreed to  purchase  fixed-position  retail
point-of-sale scanners from the Company.

The parties have  exchanged  general  releases.  Stipulations  of Dismissal  and
Consent  Judgments  are being  submitted to the Courts.  Management  has not yet
quantified the impact of the settlement on the Company's  financial  statements,
however,  management  estimates  that the full amount of the settlement has been
accrued at September 29, 2000.

Results of Operations: Three Months ended September 29, 2000 and October 1, 1999
--------------------------------------------------------------------------------

Net Sales.  Net sales during the three months ended September 29, 2000 increased
$0.5  million or 1% compared  with the same period in 1999.  The increase in net
sales is  attributed  primarily  to the  inclusion of Percon  product  sales and
increased sales in U-Scan(R) Express  Self-Checkout  Systems offset by a decline
in retail fixed position and handheld product sales combined with a $2.0 million
impact of unfavorable foreign currency exchange rates.

Gross  Profit.  Gross profit  during the three months ended  September  29, 2000
decreased  $2.2  million  or 9%  compared  with the same  period  in 1999.  As a
percentage of sales, gross profit decreased from 42.2% to 38.2%. The decrease in
gross profit is primarily due to a change in the  Company's  product mix and the
impact of unfavorable foreign currency exchange rates.
<PAGE>

Engineering,  Research and  Development.  Engineering,  Research and Development
(ER&D) expenses increased $0.6 million or 14%, as compared to the same period in
1999.  As a  percentage  of sales,  ER&D was 8.8% in the third  quarter  of 2000
versus 7.8% in the third  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 18%, as  compared to the third  quarter of
1999. As a percentage of sales, SG&A was 22.7% in 2000 versus 19.4% 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."

Write-down of Facility.  In September 2000, the Company  recorded a $6.0 million
write-down  in connection  with the  anticipated  sale of the Webster,  New York
facility.

Interest Expense.  Interest expense increased $1.5 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.

Income Tax  Provision/(Benefit).  Excluding  nondeductible goodwill amortization
recorded in connection  with the Percon  acquisition  and the  write-down on the
Webster facility, the Company's effective tax rate was 36% in 2000 versus 35% in
1999.

Results of Operations:  Nine Months ended September 29, 2000 and October 1, 1999
--------------------------------------------------------------------------------

Net Sales.  Net sales during the nine months ended  September 29, 2000 increased
$12.2 million or 7% compared  with the same period in 1999.  The increase in net
sales is  attributed  primarily  to the  inclusion of Percon  product  sales and
increased sales in U-Scan(R) Express  Self-Checkout  Systems offset by a decline
in retail fixed position and handheld product sales combined with a $4.9 million
impact of unfavorable foreign currency exchange rates.

Gross  Profit.  Gross  profit  during the nine months ended  September  29, 2000
decreased  $2.5  million  or 3%  compared  with the same  period  in 1999.  As a
percentage of sales, gross profit decreased from 42.3% to 38.2%. The decrease in
gross profit 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 $3.3 million or 25%, as compared to the same period in
1999. As a percentage of sales,  ER&D was 8.8% in 2000 versus 7.5% in 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 $6.4 million or 19%, as compared to the same period in 1999.
As a  percentage  of sales,  SG&A was 21.8% in 2000  versus  19.6% 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."

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.  Excluding
$0.3 million  reversed in the second quarter of 2000, the Company  utilized $1.3
million of the accrual in 2000.  As of  September  29,  2000,  the amount of the
severance  accruals was  approximately  $0.4  million,  which relates to current
contractual obligations.  Including $0.3 million reversed in the second quarter,
these costs reduced 2000  income/(loss)  before income tax  provision/(benefit),
net  income/(loss),  basic EPS and diluted EPS by $1.7  million,  $1.1  million,
$0.09 and $0.09, respectively.

Merger Related  Costs.  The Company  recorded a pre-tax charge of  approximately
$1.0  million  during the second  quarter  of 2000 for  expenses  related to the
termination of merger activities.

Write-down of Facility.  In September 2000, the Company  recorded a $6.0 million
write-down  in connection  with the  anticipated  sale of the Webster,  New York
facility.
<PAGE>

Interest Expense.  Interest expense increased $3.9 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).  Excluding  nondeductible goodwill amortization
recorded in connection  with the Percon  acquisition  and the  write-down on the
Webster facility, the Company's effective tax rate was 36% in 2000 versus 35% in
1999.

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

Current assets  increased  $17.1 million from December 31, 1999 primarily due to
the  inclusion  of Percon  and the  increase  in  accounts  receivable.  Current
liabilities increased $122.0 million from December 31, 1999 primarily due to the
reclassification  of long-term debt to current as a result of noncompliance with
the debt covenants (as discussed below). As a result,  working capital decreased
$104.9 million from December 31, 1999.

Property, plant and equipment expenditures totaled $2.8 million and $3.7 million
for the nine months  ended  September  29,  2000 and  October 1, 1999.  The 2000
expenditures  primarily  related to new product tooling,  computer  software and
hardware, and manufacturing equipment.

At September 29, 2000, liquidity  immediately available to the Company consisted
of cash and cash  equivalents  of $7.3 million.  The Company has embarked upon a
process of selling  certain  assets,  including the Webster,  New York facility,
with the objective of generating proceeds to reduce the outstanding indebtedness
under the senior credit  facility.  As of September 29, 2000, the Company has no
availability to borrow from the revolving credit facilities.

The Company is required to meet certain  financial  covenants in relation to its
senior and subordinated  credit  facilities.  At September 29, 2000, the Company
was in  violation  of several of its  financial  covenants  including  covenants
relating to the senior debt ratio,  total debt ratio,  interest  coverage ratio,
fixed charge coverage ratio and net worth.  The Company  believes it has reached
an  agreement  in  principle  with its senior  lenders to waive these  events of
default and, in connection therewith, to modify certain provisions of the credit
agreement through March 31, 2001, subject to certain terms and conditions. Among
other  provisions,  the  commitment  for its working  capital  facility  will be
reduced from $50 million to $45 million and the interest  rate will be increased
to prime plus 1.50% from November 1, 2000 to December 31, 2000 and to prime plus
2.00% from January 1, 2001 to March 31, 2001. A 2.00%  default  interest rate on
the senior debt will be accrued.  The Company has also been negotiating  waivers
of the foregoing  defaults with its subordinated note holders and although there
can be no assurance, the Company is optimistic about obtaining such waivers. The
Company will also be seeking further  amendments to its senior credit facilities
and the financial covenants contained therein. If the Company is unsuccessful in
obtaining such further amendments prior to March 31, 2001,  management  believes
that the  Company  will be unable to meet the current  financial  ratios on that
date and the Company will then be in default. In the event of such default,  the
lenders could elect to declare all amounts borrowed under the credit  agreements
to be due and  payable.  Accordingly,  the  Company  has  classified  all of its
long-term debt as current.

The Company has been advised by its independent  public  accountants that should
the situation  remain  unresolved  prior to the completion of their audit of the
Company's  financial  statements  for the year ending  December 31, 2000,  their
auditors'  report  on  those  financial  statements  may be  modified  for  that
contingency.

The Company's  liquidity is dependent upon its ability to successfully  generate
positive   cash  flow  from   operations   and   completion   of  asset   sales.
Notwithstanding  the foregoing,  there can be no assurance that the Company will
have sufficient  cash flows to meet its working capital and capital  expenditure
requirements.


<PAGE>


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.


<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.

Symbol Technologies, Inc.

         On November 20, 2000, all pending litigation with Symbol  Technologies,
Inc.  ("Symbol") was settled.  The agreements resolve all litigation between the
parties, settle all disputed royalty payments and uphold the patents asserted by
Symbol.  In addition,  the parties have also amended and clarified the Company's
existing license agreement and included certain new patents.

         The parties also entered into product  supply  agreements  for products
that will  begin  shipping  in  approximately  one year.  Under the terms of the
supply  agreements,  the Company has agreed to purchase hand-held laser scanners
and scan  engines  from  Symbol.  Symbol has agreed to  purchase  fixed-position
retail point-of-sale scanners from the Company.

         The parties have exchanged general releases.  Stipulations of Dismissal
and Consent Judgments are being submitted to the Courts.

Lemelson

         On May 15, 2000,  the Company,  along with the other Auto ID companies,
filed a motion seeking permission to file an interlocutory appeal of the Court's
decision to strike the count of the  complaint  which  alleged that the Lemelson
Partnership's  delays in obtaining its patents rendered them  unenforceable  for
laches.  The motion was  granted on July 14,  2000,  and on August 4, 2000,  the
petition  for leave to appeal was filed with the United  States Court of Appeals
for the Federal  Circuit.  On  September  1, 2000,  the United  States  Court of
Appeals for the  Federal  Circuit  granted  the  petition of the Company and the
other Auto ID companies for permission to pursue this interlocutory appeal.


Metrologic Instruments, Inc.

         The suit involving  Metrologic  Instruments,  Inc. has been restored to
the Court's calendar. Discovery is on-going. A status conference before the
Court is scheduled for December 11, 2000.

Item 2:   Changes in Securities:  None
          ---------------------

Item 3:   Defaults upon Senior Securities:
          -------------------------------

     The Company is required to meet certain financial  covenants in relation to
its senior and  subordinated  credit  facilities.  At September  29,  2000,  the
Company  was in  violation  of  several  of its  financial  covenants  including
covenants relating to the senior debt ratio, total debt ratio, interest coverage
ratio,  fixed charge coverage ratio and net worth.  The Company  believes it has
reached an agreement in principle  with its senior lenders to waive these events
of default and, in connection  therewith,  to modify  certain  provisions of the
credit  agreement  through  March  31,  2001,   subject  to  certain  terms  and
conditions.  Among other  provisions,  the  commitment  for its working  capital
facility  will be reduced from $50 million to $45 million and the interest  rate
will be increased to prime plus 1.50% from November 1, 2000 to December 31, 2000
and to prime plus 2.00% from January 1, 2001 to March 31, 2001. A 2.00%  default
interest  rate on the senior  debt will be  accrued.  The  Company has also been
negotiating waivers of the foregoing defaults with its subordinated note holders
and  although  there  can be no  assurance,  the  Company  is  optimistic  about
obtaining such waivers.  The Company will also be seeking further  amendments to
its senior credit facilities and the financial  covenants  contained therein. If
the Company is unsuccessful in obtaining such further  amendments prior to March
31,  2001,  management  believes  that the  Company  will be  unable to meet the
current  financial  ratios on that date and the Company will then be in default.
In the event of such  default,  the  lenders  could elect to declare all amounts
borrowed  under the credit  agreements to be due and payable.  Accordingly,  the
Company has classified all of its long-term debt as current.

<PAGE>


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

Item 5:  Other Information:
         -----------------

         The Company received  notification on September 6, 2000 that its common
stock has  failed to  maintain  a minimum  bid price of $5.00 per share over the
previous 30  consecutive  trading days as required for continued  listing on The
Nasdaq National Market. In accordance with Marketplace Rule  4310(c)(8)(B),  the
Company  was  provided 90  calendar  days (or until  December 5, 2000) to regain
compliance  with this  Rule.  If at any time prior to  December  5, 2000 the bid
price of the Company's common stock is at least $5.00 for 10 consecutive trading
days, the Company will have achieved  compliance with this Rule. There can be no
assurance  that the bid price of the  Company's  stock will be at or above $5.00
for the requisite period of time. If the Company is unable to regain  compliance
with the Rule or has not  submitted  an  application  to  transfer to The Nasdaq
SmallCap Market,  its common stock will be delisted  effective on the opening of
business on December 7, 2000.  Management  intends to submit an  application  to
transfer  its common  stock to The Nasdaq  SmallCap  Market prior to December 5,
2000 if compliance is not attained prior to such date. There can be no assurance
that the Company will satisfy the requirements for listing on that market.

         On October 23, 2000, William L. Parnell,  Jr., who had  previously held
executive  positions  with the  Company, was  appointed  to  the   newly created
position of Executive Vice President and Chief Operating Officer.

         Effective  November 20, 2000,  Michael J.  Stachura was promoted to the
position of Vice  President,  Chief Financial  Officer & Treasurer.  He succeeds
William J. Woodard,  who had been the Company's Vice President,  Chief Financial
Officer  and  Treasurer  and who  remains as a  consultant  to the Company on an
interim basis.

Item 6:   Exhibits and Reports on Form 8-K

(a)      Exhibits:
         ---------

3.1      Amended Bylaws of the Company as currently in effect..............  22

(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:    November 20, 2000                 By:/s/ Robert S. Ehrlich
                                           Robert S. Ehrlich
                                           Chairman of the Board of Directors &
                                           Interim Co-Chief Executive Officer

DATE:    November 20, 2000                 By:/s/ Bert W. Wasserman
                                           Bert W. Wasserman
                                           Member of the Board of Directors &
                                           Interim Co-Chief Executive Officer

DATE:    November 20, 2000                 By:/s/ Michael J. Stachura
                                           Michael J. Stachura
                                           Vice President, Chief Financial
                                           Officer & Treasurer
                                          (Principal Accounting Officer)