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

                                  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 June 30, 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  August  10,  2000,  there  were  12,301,801  shares  of  common  stock
outstanding.

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

<PAGE>

                            PSC INC. AND SUBSIDIARIES

                                      INDEX

PART I:  FINANCIAL INFORMATION

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

          Consolidated Balance Sheets as of
          June 30, 2000 (Unaudited) and December 31, 1999....................3-4

          Consolidated  Statements of Operations
          and Retained  Earnings for the
          three and six months ended:
          June 30, 2000 (Unaudited) and July 2, 1999 (Unaudited) ............5-6

          Consolidated Statements of Cash Flows
          for the six months ended:
          June 30, 2000 (Unaudited) and July 2, 1999 (Unaudited) ..............7

          Notes to Consolidated Financial Statements (Unaudited) ...........8-13

Item 2   Management's Discussion and Analysis of
         Financial Condition and Results of Operations ....................14-16

PART II:  OTHER INFORMATION

Item 1    Legal Proceedings ..................................................17

Item 2    Changes in Securities  .............................................17

Item 3    Defaults upon Senior Securities ....................................17

Item 4    Submission of Matters to a Vote of Security Holders  ...............17

Item 5    Other Information   ................................................17

Item 6    Exhibits and Reports on Form 8-K  ..................................17


<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>
                                                        June 30, 2000         December 31, 1999
                                                        -------------         -----------------
                                                         (Unaudited)             (Audited)
<S>                                                    <C>                    <C>
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents .........................         $ 6,318                $ 1,402
   Accounts receivable, net of allowance for doubtful
     accounts of $727 and $685, respectively..........          44,217                 38,396
   Inventories .......................................          26,165                 23,343
   Prepaid expenses and other ........................           3,041                  3,514
                                                       ----------------       ----------------

   TOTAL CURRENT ASSETS ..............................          79,741                 66,655

PROPERTY, PLANT AND EQUIPMENT, net of
   accumulated depreciation of $26,773 and $23,614,
   respectively......................................           27,538                 25,994

DEFERRED TAX ASSETS ..................................          21,502                 20,762

INTANGIBLE AND OTHER ASSETS, net of accumulated
   amortization of $33,551 and $27,476, respectively..          97,342                 53,330
                                                       ----------------       ----------------

TOTAL ASSETS .........................................        $226,123               $166,741
                                                       ================       ================
</TABLE>
        See accompanying notes to the Consolidated Financial Statements.


<PAGE>


<TABLE>
                            PSC INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (All amounts in thousands, except per share data)
                                   (Continued)
<CAPTION>
                                                          June 30, 2000         December 31, 1999
                                                          -------------         -----------------
                                                          (Unaudited)               (Audited)
<S>                                                      <C>                    <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Current portion of long-term debt .................          $ 13,871                 $16,281
   Accounts payable ..................................            24,456                  20,685
   Accrued expenses ..................................             9,738                   7,086
   Accrued payroll and related employee benefits .....             4,720                   5,758
                                                        -----------------        ----------------

   TOTAL CURRENT LIABILITIES .........................            52,785                  49,810

LONG-TERM DEBT, less current maturities ..............           114,900                  57,585

ACCRUED PROVISION FOR DISPUTED ROYALTIES .............             7,834                   6,400

OTHER LONG-TERM LIABILITIES ..........................             1,957                   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
     12,215 and 12,080 shares issued and outstanding...              122                     121
   Additional paid-in capital ........................            73,296                  71,843
   Retained earnings/(Accumulated deficit) ...........           (21,214)                (18,065)
   Accumulated other comprehensive income/(loss) .....            (2,201)                 (1,210)
   Less treasury stock repurchased at cost, 180 shares            (1,357)                 (1,357)
                                                            -----------------        ----------------

TOTAL SHAREHOLDERS' EQUITY ...........................            48,647                  51,333
                                                            -----------------        ----------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...........          $226,123                $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)
                                   (Unaudited)
<CAPTION>
                                                                   Three Months Ended
                                                   --------------------------------------------
                                                        June 30, 2000        July 2, 1999
                                                        -------------        ------------
<S>                                                   <C>                   <C>
NET SALES .........................................             $67,418            $58,001
COST OF SALES .....................................              41,675             33,979
                                                      ------------------    ---------------
   Gross profit ...................................              25,743             24,022

OPERATING EXPENSES:
   Engineering, research and development ..........               5,415              4,419
   Selling, general and administrative ............              13,103             10,798
   Severance and other costs ......................                (300)                --
   Merger related costs ...........................                 959                 --
   Amortization of intangibles resulting from
      business acquisitions .......................               2,887              1,513
                                                      ------------------    ---------------
   Income from operations .........................               3,679              7,292

INTEREST AND OTHER INCOME/(EXPENSE):
   Interest expense ...............................             (3,120)            (1,908)
   Interest income ................................                  76                48
   Other income/(expense) .........................                  14               (73)
                                                      ------------------    ---------------
                                                                (3,030)            (1,933)
                                                      ------------------    ---------------
   Income before income tax provision .............                 649              5,359
   Income tax provision ...........................                 648              1,871
                                                      ------------------    ---------------
   Net income .....................................               $   1             $3,488
                                                      ==================    ===============

NET INCOME PER COMMON AND COMMON
  EQUIVALENT SHARE:
      Basic .......................................               $0.00              $0.29
      Diluted .....................................               $0.00              $0.25

WEIGHTED AVERAGE NUMBER OF COMMON AND
  COMMON EQUIVALENT SHARES OUTSTANDING:
      Basic .......................................              12,027             11,928
      Diluted .....................................              13,448             13,894

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
   Retained earnings/(Accumulated deficit),
        beginning of period .......................            ($21,215)          ($23,936)
   Net income .....................................                   1              3,488
                                                          ------------------   ---------------
   Retained earnings/(Accumulated deficit),
        end of period .............................            ($21,214)          ($20,448)
                                                          ==================   ===============
</TABLE>
        See accompanying notes to the Consolidated Financial Statements.
<PAGE>
<TABLE>
                            PSC INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                (All amounts in thousands, except per share data)
                                   (Unaudited)
<CAPTION>
                                                                  Six Months Ended
                                                     --------------------------------------------
                                                          June 30, 2000             July 2, 1999
                                                          -------------             ------------
<S>                                                       <C>                       <C>
NET SALES ............................................           $128,857                $117,146
COST OF SALES ........................................             79,544                  67,519
                                                        ------------------         ---------------
   Gross profit ......................................             49,313                  49,627

OPERATING EXPENSES:
   Engineering, research and development .............             11,237                   8,547
   Selling, general and administrative ...............             27,517                  23,158
   Severance and other costs .........................              1,674                   2,103
   Merger related costs ..............................                959                      --
   Amortization of intangibles resulting from
      business acquisitions ..........................              5,468                   3,212
                                                        ------------------         ---------------
   Income from operations ............................              2,458                  12,607

INTEREST AND OTHER INCOME/(EXPENSE):
   Interest expense ..................................             (6,543)                 (4,082)
   Interest income ...................................                222                     139
   Other income/(expense) ............................                 23                     (88)
                                                        ------------------         ---------------
                                                                  (6,298)                 (4,031)
                                                        ------------------         ---------------
   Income/(loss) before income tax provision/(benefit)            (3,840)                   8,576
   Income tax provision/(benefit) ....................              (691)                   2,997
                                                        ------------------         ---------------
   Net income/(loss) .................................         ($  3,149)                 $ 5,579
                                                        ==================         ===============

NET INCOME/(LOSS) PER COMMON AND COMMON
    EQUIVALENT SHARE:
      Basic ..........................................            ($0.26)                   $0.47
      Diluted ........................................            ($0.26)                   $0.41

WEIGHTED AVERAGE NUMBER OF COMMON AND
    COMMON EQUIVALENT SHARES OUTSTANDING:
      Basic ..........................................             12,028                  11,912
      Diluted ........................................             12,028                  13,774

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
   Retained earnings/(Accumulated deficit),
        beginning of period ..........................           ($18,065)               ($26,027)
   Net income/(loss) .................................             (3,149)                  5,579
                                                         ------------------         ---------------
   Retained earnings/(Accumulated deficit),
        end of period ...............................            ($21,214)               ($20,448)
                                                          ==================         ===============
</TABLE>
        See accompanying notes to the Consolidated Financial Statements.

<PAGE>

<TABLE>
                            PSC INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (All amounts in thousands)
                                   (Unaudited)
<CAPTION>
                                                                              Six Months Ended
                                                                 --------------------------------------------
                                                                      June 30, 2000             July 2, 1999
                                                                     -------------             ------------
                                                                      (Unaudited)              (Unaudited)
<S>                                                                  <C>                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income/(loss) ................................................         ($3,149)                 $5,579
   Adjustments to reconcile net income/(loss) to net cash
      provided by operating activities:
   Depreciation and amortization ....................................           9,238                   6,649
   Deferred tax assets ..............................................           (718)                   1,043
   (Increase) decrease in assets:
      Accounts receivable ...........................................             613                 (1,196)
      Inventories ...................................................           1,198                 (4,511)
      Prepaid expenses and other ....................................             527                   (151)
   Increase (decrease) in liabilities:
      Accounts payable ..............................................           1,217                   2,212
      Accrued expenses ..............................................           (430)                   1,376
      Accrued provision for disputed royalties ......................           1,434                      --
      Accrued payroll and related employee benefits .................          (1,111)                     30
      Accrued acquisition related restructuring costs ...............              --                    (283)
                                                                    ------------------         ---------------
      Net cash provided by operating activities .....................           8,819                  10,748

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, net ........................................         (2,151)                  (2,213)
   Net cash paid for business .......................................        (53,486)                      --
   Additions to intangible and other assets .........................         (2,771)                  (5,283)
   Proceeds from sale and leaseback transaction .....................             --                    8,043
                                                                    ------------------         ---------------
      Net cash (used in) provided by investing activities ...........        (58,408)                     547

CASH FLOWS FROM FINANCING ACTIVITIES:
   Additions to long-term debt ......................................         112,000                   7,000
   Payments of long-term debt .......................................         (57,693)                (19,182)
   Additions to other long-term liabilities, net ....................             339                      39
   Purchase of treasury stock                                                      --                     (72)
   Exercise of options and issuance of common shares ................             822                   1,253
   Tax benefit from exercise or disposition of stock options ........              28                      27
                                                                    ------------------         ---------------
      Net cash provided by (used in) financing activities ...........          55,496                (10,935)

EFFECT OF EXCHANGE RATE CHANGES ON CASH
   AND CASH EQUIVALENTS .............................................           (991)                 (1,076)
                                                                    ------------------         ---------------
NET INCREASE/(DECREASE) IN CASH AND .................................           4,916                   (716)
   CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS:
      Beginning of period ...........................................           1,402                   6,180
                                                                    ------------------         ---------------
      End of period .................................................         $ 6,318                  $5,464
                                                                    ==================         ===============

</TABLE>

        See accompanying notes to the Consolidated Financial Statements.


<PAGE>

                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JULY 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  June  30,  2000,  the  results  of
      operations  for the three and six months  ended June 30,  2000 and July 2,
      1999 and its cash flows for the six months ended June 30, 2000 and July 2,
      1999.  The results of  operations  for the three and six months ended June
      30, 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:

                               June 30, 2000           December 31, 1999
                             -------------------    ------------------------
     Raw materials                   $15,907                  $14,358
     Work-in-process                   5,342                    5,238
     Finished goods                    4,916                    3,747
                                 ------------             ------------
                                     $26,165                  $23,343
                                 ============             ============

(2)   LONG-TERM DEBT

      Long-term debt consists of the following:

                                     June 30, 2000           December 31, 1999
                                   -------------------    ----------------------
     Senior term loan                      $70,000                  $42,000
     Revolving line of credit               27,000                       --
     Subordinated term loan                 29,637                   29,607
     Subordinated promissory note            1,563                    2,188
     Other                                     571                       71
                                       ------------             ------------
                                           128,771                   73,866
     Less:  current maturities              13,871                   16,281
                                       ------------             ------------
                                          $114,900                  $57,585
                                       ============             ============
<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JULY 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 Six Months Ended

                                             -----------------------------------
                                              June 30, 2000         July 2, 1999
                                             -----------------     -------------
      Net sales ...........................     $129,616            $133,589
      Income from operations ..............          151              12,515
      Net income/(loss) ...................      (4,433)               3,375

      Net income/(loss) per common and
          common equivalent share:
           Basic ..........................      ($0.37)               $0.28
           Diluted ........................      ($0.37)               $0.24

      Weighted average number of common and
          common equivalent shares outstanding:
           Basic ..........................       12,028              11,912
           Diluted ........................       12,028              13,774



<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JULY 2, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)

(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. Excluding $0.3 million reversed
      in the second  quarter of 2000,  the Company  utilized $1.0 million of the
      accrual in 2000. As of June 30, 2000, the amount of the severance accruals
      was  approximately  $0.7  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.

 (5)   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.

(6)   SHAREHOLDERS' EQUITY

      Comprehensive  income, which includes net income/(loss),  foreign currency
      translation  adjustments  and unrealized  gain/(loss)  on securities,  was
      ($256)  and $3,414 for the three  months  ended June 30,  2000 and July 2,
      1999, respectively,  and ($4,140) and $4,340 for the six months ended June
      30, 2000 and July 2, 1999, respectively.

      During the six month  period  ended  June 30,  2000,  employees  purchased
      approximately  73 shares at $6.27 per share  under the  provisions  of the
      Company's Employee Stock Purchase Plan.



<PAGE>

<TABLE>
                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JULY 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:
<CAPTION>
                                         January 1, 2000        Weighted          January 1, 1999           Weighted
                                               to                Average                 to                 Average
                                          June 30, 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 ...................        154                 6.73                   432                  7.28
     Options exercised .................        (54)                5.87                   (82)                 7.24
     Options forfeited/canceled ........       (329)                8.17                  (156)                 9.24
                                            --------                                   --------
     Options outstanding at
        end of period ..................      2,992                $7.79                 3,221                 $7.84
                                            ========                                   ========

     Number of options at end of period:
        Exercisable ....................      1,922                $8.17                 2,058                 $8.13
        Available for grant ............        645                                        693
</TABLE>

      During the six month  period ended June 30, 2000,  222  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.

(7)   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 June 30, 2000 and July 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 3,960 and 497 common shares at
      an average  price of $7.17 and $10.49 per share were  outstanding  for the
      three months ended June 30, 2000 and July 2, 1999,  respectively.  Options
      to purchase  2,914 and 551 common  shares at an average price of $7.81 and
      $10.08 per share were  outstanding  for the six months ended June 30, 2000
      and July 2, 1999, respectively.  Warrants to purchase 180 common shares at
      a price of $8.00 per share were  outstanding  for the three and six months
      ended June 30, 2000.

<PAGE>


<TABLE>

                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JULY 2, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)
<CAPTION>

                                                                       Three Months Ended
                               ----------------------------------------------------------------------------------------
                                           June 30, 2000                                      July 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                  $ 1             12,027    $0.00          $3,488           11,928       $0.29
Effect of dilutive securities:                                   =====                                        =====
   Options                              --                  2                      --               425
   Warrants                             --                 44                      --               166
   Preferred Shares                     --              1,375                      --             1,375
                                ------------   ---------------                ---------    ------------
Diluted EPS:
Income available to
common shareholders and
assumed conversions                     $ 1            13,448    $0.00          $3,488           13,894       $0.25
                                        ===            ======    =====          ======           ======       =====



                                                                         Six Months Ended
                                ---------------------------------------------------------------------------------------
                                            June 30, 2000                                       July 2, 1999
                                ------------------------------------------------    -----------------------------------
                                                                  Per                                            Per
                                   Income           Shares       Share         Income           Shares         Share
                                (numerator)     (denominator)    Amount     (numerator)      (denominator)     Amount
                                -----------     -------------    ------     -----------        -------------   ------
Basic EPS:
  Income available to
  common shareholders              ($3,149)            12,208    ($0.26)        $5,579          11,912         $0.47
Effect of dilutive securities:
   Options                               --                --                       --             361
   Warrants                              --                --                       --             126
   Preferred Shares                      --                --                       --           1,375
                                ------------     -------------                ----------       ----------
Diluted EPS:
Income available to common
shareholders and assumed
conversions                        ($3,149)            12,028    ($0.26)        $5,579          13,774         $0.41
                                   ========            ======    =======        ======          ======         =====


</TABLE>

<PAGE>


                            PSC INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JULY 2, 1999
                (All amounts in thousands, except per share data)
                                   (Unaudited)

(8)      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 interest  rate and foreign  currency
     exchange  risk.  The  Company  has  limited   involvement  with  derivative
     financial  instruments  and does not use them  for  trading  purposes.  The
     Company uses derivative  instruments  solely to reduce the financial impact
     of these risks.  Cash flows from interest rate swap  agreements and foreign
     currency forward exchange  contracts are classified in the same category as
     the item being hedged.

     Interest Rate Risk:

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

     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.


<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.

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.
<PAGE>

Results of Operations:  Three Months ended June 30, 2000 and July 2, 1999

Net Sales.  Net sales during the three months ended June 30, 2000 increased $9.4
million or 16% 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 and a significant  impact of unfavorable  foreign
currency exchange rates.

Gross Profit. Gross profit during the three months ended June 30, 2000 increased
$1.7 million or 7% compared  with the same period in 1999.  As a  percentage  of
sales,  gross profit decreased from 41.4% to 38.2%. 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 $1.0 million or 23%, as compared to the same period in
1999.  As a  percentage  of sales,  ER&D was 8.0% in the second  quarter of 2000
versus 7.6% of net sales in the second  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  $2.3  million or 21%, as compared to the second  quarter of
1999. As a percentage of sales, SG&A was 19.4% in 2000 versus 18.6% 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."

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.

Income Tax Provision.  Excluding nondeductible goodwill amortization recorded in
connection with the Percon acquisition, the Company's effective tax rate was 36%
in 2000 versus 35% in 1999.
<PAGE>

Results of Operations:  Six Months ended June 30, 2000 and July 2, 1999

Net Sales.  Net sales during the six months ended June 30, 2000 increased  $11.7
million or 10% 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 and a significant  impact of unfavorable  foreign
currency exchange rates.

Gross Profit.  Gross profit during the six months ended June 30, 2000  decreased
$0.3 million or 1% compared  with the same period in 1999.  As a  percentage  of
sales,  gross profit decreased from 42.4% to 38.3%. 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 $2.7 million or 32%, as compared to the same period in
1999.  As a  percentage  of sales,  ER&D was 8.7% in the second  quarter of 2000
versus 7.3% of net sales in the second  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  $4.4  million or 19%, as compared to the second  quarter of
1999. As a percentage of sales, SG&A was 21.4% in 2000 versus 19.8% 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 $1.0
million of the accrual in 2000. As of June 30, 2000, the amount of the severance
accruals was approximately  $0.7 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.

Interest Expense.  Interest expense increased $2.5 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,  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,  the Company's effective tax
rate was 36% in 2000 versus 35% in 1999.
<PAGE>

Liquidity and Capital Resources

Current assets  increased  $13.1 million from December 31, 1999 primarily due to
the  inclusion  of Percon and to the  increase in accounts  receivable.  Current
liabilities  increased  $3.0 million from December 31, 1999 primarily due to the
increase in accrued  expenses in connection  with merger related  activities and
higher  interest  charges  offset by a decrease in current  portion of long-term
debt and accrued payroll and related  employee  benefits.  As a result,  working
capital increased $10.1 million from December 31, 1999.

Property,  plant and  equipment  expenditures  totaled  $2.2 million for the six
months  ended June 30, 2000 and July 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 70.3% at June 30, 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 June 30, 2000,  liquidity  immediately
available to the Company consisted of cash and cash equivalents of $6.3 million.
The Company has revolving credit  facilities  totaling $50.0 million,  of which,
$27.0 million was outstanding as of June 30, 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.

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.

         The several  motions in the litigation with Symbol  Technologies,  Inc.
("Symbol")  pending in the United States District Court for the Western District
of  New  York  were  deemed  submitted  on  April  19,  2000  and  remain  under
consideration by the Court.

         With respect to the Eastern  District  Action  commenced  by Symbol,  a
"Markman"  hearing to determine  the scope of Symbol's  patents is scheduled for
September  28,  2000.  The trial is  scheduled  to commence on December 4, 2000.
Discovery proceedings by both parties are in progress.

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 July 24, 2000, the Company,  along with the other Auto ID companies,
filed a motion for partial  summary  judgment,  asserting that almost all of the
claims of the  Lemelson  Partnership's  patents  are invalid for lack of written
description. This motion is pending.

Metrologic Instruments, Inc.

         The suit involving  Metrologic  Instruments,  Inc. has been restored to
the Court's  calendar.  A discovery  deadline has been set for March 2, 2001.


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:   None

          (b)      Reports on Form 8-K:

                   Report on Form 8-K dated June 7, 2000

                   Report on Form 8-K dated July 25, 2000



<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:    August 14, 2000        By:/s/ Robert C. Strandberg
                                       Robert C. Strandberg
                                       President and Chief Executive Officer



DATE:    August 14, 2000        By: /s/ William J. Woodard
                                        William J. Woodard
                                        Vice President & Chief Financial Officer



DATE:    August 14, 2000        By: /s/ Michael J. Stachura
                                        Michael J. Stachura
                                        Vice President of Finance
                                        (Principal Accounting Officer)