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                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

                                      FORM 10-K
(Mark One)
  X      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----    EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                                          OR
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----    EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

FOR THE TRANSITION PERIOD FROM                 TO
                               ---------------    ---------------
                            COMMISSION FILE NUMBER 0-23034
                                     ENCAD, INC.
                (Exact name of registrant as specified in its charter)
           CALIFORNIA
(State or other jurisdiction of                       95-3672088
 incorporation or organization)                    (I.R.S. Employer
                                                  Identification No.)

   6059 CORNERSTONE COURT WEST                          92121
          SAN DIEGO, CA
(Address of principal executive office)               (Zip Code)

         Registrant's telephone number, including area code:  (619) 452-0882

          Securities registered pursuant to Section 12(b) of the Act:   NONE

             Securities registered pursuant to Section 12(g) of the Act:

                              COMMON STOCK, NO PAR VALUE
                                   (Title of Class)

    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 preceding 12 months (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
                                              -------    -------

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K.
                            -------

    Aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed using the closing price as reported by Nasdaq for the
Company's common stock on February 28, 1997: $202,893,668.*

Indicate the number of shares outstanding of the registrant's common stock as of
the latest practicable date:
                                                      Outstanding at
              Class                                 February 28, 1997
              -----                                 -----------------

    Common Stock, no par value                         11,336,216

                         DOCUMENTS INCORPORATED BY REFERENCE

    Portions of Registrant's 1996 Annual Report (the "1996 Annual Report") to 
security holders to be furnished to the Securities and Exchange Commission 
(the "Commission") pursuant to Rule 14a-3(b) in connection with Registrant's 
1997 Annual Meeting of Shareholders scheduled to be held on or about May 13, 
1997 (the "1997 Annual Meeting"), as attached hereto as Exhibit 13.1, are 
incorporated herein by reference into Parts II and IV of this Annual Report 
on Form 10-K (this "Report".)

    Portions of Registrant's Definitive Proxy Statement (the "Proxy Statement") 
to be filed with the Commission pursuant to Regulation 14A in connection with 
the 1997 Annual Meeting are incorporated herein by reference into Part III of 
this Report.

    Certain Exhibits filed with the Registrant's Registration Statement on 
Form S-1 (Registration No. 33-70220), as amended, Registrant's Registration 
Statement on Form S-8 (Registration No. 33-95252), and Registrant's Annual 
Report on Form 10-K for the year ended December 31, 1995 are incorporated 
herein by reference into Part IV of this Report.

--------------------------------
*   Excludes 5,390,414 shares of Common Stock held by executive officers,
    directors and shareholders whose ownership exceeds 5% of the Common Stock
    outstanding at February 28, 1997.  Exclusion of such shares should not be
    construed to indicate that any such person possesses the power, direct or
    indirect, to direct or cause the direction of the management or policies of
    the Registrant or that such person is controlled by or under common control
    with the Registrant.

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                                        PART I

ITEM 1:  BUSINESS

    The discussion of the Company's business contained in this Annual Report 
on Form 10-K may contain certain projections, estimates and other 
forward-looking statements that involve a number of risks and uncertainties, 
including those discussed below at "Risks and Uncertainties." While this 
outlook represents management's current judgment on the future direction of 
the business, such risks and uncertainties could cause actual results to 
differ materially from any future performance suggested below. The Company 
undertakes no obligation to release publicly the results of any revisions to 
these forward-looking statements to reflect events or circumstances arising 
after the date hereof.

GENERAL

    ENCAD, Inc. ("ENCAD" or the "Company") designs, develops, manufactures and
markets wide-format (up to 60"), color inkjet printers designed to increase
productivity of computer applications requiring quality printed output. ENCAD's
primary products, currently, are the NovaJet-Registered Trademark-,
CADJET-Registered Trademark- , NovaCut-TM-, Croma24-TM-, and NovaJet PROe
product lines(1).  Typical uses for these printers are in graphic arts ("GA"),
such as digital photo imaging , sign-making, three-dimensional renderings and
presentation graphics; in the industries utilizing computer-aided design
("CAD"), such as architectural, engineering and construction design; and in
geographic information systems ("GIS"), such as surveying and mapping.  In
support of its wide-format inkjet printers, ENCAD sells a variety of accessories
and supplies, including specialty ink and media.  The market for wide-format,
color inkjet printers and the related supplies and accessories is relatively new
and is still developing as a result of technological advancements in performance
and quality and continuing improvements in price/performance ratios.  ENCAD
believes these advancements will make quality wide-format inkjet output more
affordable, allowing its products to be more widely used in ENCAD's existing
markets, including the GA market, as well as addressing potential new market
applications.

MARKET

     The market for wide-format, color inkjet printers emerged in the early
1990s as a result of the rapid growth in high-powered personal computers by a
wide variety of technical professionals.  More recently, GA professionals have
begun to take advantage of the performance and cost features associated with
wide-format inkjet printers as a result of expanded use of sophisticated
graphics interface software programs.

     IT Strategies ("ITS"), a market research firm, estimates the 1996 worldwide
market for wide-format, color inkjet printers, based upon the price to the
reseller, to exceed $200 million. ITS also projected market growth at a
compounded average annual growth rate of 28% over the next three years.  If that
growth rate is achieved, the worldwide market will exceed $400 million by 1999.

     The market for wide-format, color inkjet printers currently consists of
three primary segments: GA, CAD and GIS.  The Company currently serves each of
these market segments.  In addition, the market for printer accessories and
supplies, such as inks, ink cartridges and print media, is expected to become an
increasingly important market for the Company.

     Users in the GA segment include graphic artists, print shops, photolabs,
sign shops and service bureaus.  Applications in the GA segment include back-lit
and other signs, point-of-sale advertising, posters, pre-press proofing (proofs
or other quick output to demonstrate concepts for advertising or graphics
layouts),  and digital photo imaging.  The Company is a leader in the GA
segment.  The Company's  product lines are particularly well-suited to the GA
segment since they are  capable of producing a full range of outputs, from
single line monochrome to full color, photorealistic images.  GA users require
output in three distinct segments of the GA and design process, all of which
require performance balanced by low-cost, quickly-produced output.  In the
pre-press segment, GA users require proofs or other quick output to demonstrate
concepts for advertising or graphics layouts.  Pre-press output involves any
output where form, shape or color is emphasized.  In the quick print segment, GA
users include print shops, service bureaus and corporate GA departments that
produce signs or posters.  Quick print output includes backlit and wall-mount
signs and point-of-sale displays. In the digital photo segment, GA users include
photo labs, service bureaus

---------------------------
(1) NovaJet and CADJET are registered trademarks of ENCAD.


                                2

<PAGE>

and corporate GA departments that produce high resolution digitized photographs.
Digitized photo output is used when photographic images are manipulated,
including architectural images and text overlay.

     The CAD segment includes architectural, engineering and construction design
users.  This is a diverse group that utilizes technical graphics applications to
automate the design process and include architects, mechanical engineers,
electrical engineers and users involved in many aspects of building design and
construction.  Historically, output for the CAD segment consisted mostly of
two-dimensional monochrome line drawings.  With the introduction of wide-format
inkjet printers, CAD users are now able to create full color and
three-dimensional output.  CAD and other design users often require spot color
and speed in their output and look for productivity enhancement in producing the
output.  The Company's CADJET product line offers a CAD user spot color in
addition to excellent line quality and the NovaJet product line offers a full
range of color outputs.  Historically, this market segment was serviced by pen
plotters.  ITS estimates that by 1998 inkjet printers will have replaced 65% of
the installed pen plotters in the worldwide CAD segment.

     GIS users are a more specialized group that utilizes technical graphics
applications similar to those used in the CAD segment, primarily for mapping.
GIS users include civil engineers, mining engineers and geologists working for
government agencies, utilities and natural resource companies.  GIS involves a
distinct use of CAD databases to manage, analyze and present data in a
three-dimensional "mapping" format.  Generally, GIS users require more color
than CAD users since GIS involves the use of color fills and varied fonts for
richer presentations.  This segment, although smaller than the CAD and GA
segments, represents opportunities for the Company's product lines since GIS
applications require, in some instances, both three-dimensional renderings and
color fills to differentiate acreage, objects and topographical features.

PRINTING TECHNOLOGIES

     There are a number of printing technologies, including thermal inkjet, 
pen, electrostatic, light emitting diode ("LED") and thermal, that allow 
users to produce wide-format output. Each of these technologies has specific 
qualities that can be critical to any given application, including 
resolution, speed, accuracy, color fill capability, the ability to render a 
three-dimensional image, reliability and cost.

     A combination of characteristics has made thermal inkjet the fastest 
growing technology in the wide-format printer market.  The characteristics of 
wide-format inkjet printers include relatively low cost, high speed and the 
ability to print high-quality color.  Inkjet printers form images, lines and 
other characters by placing very small dots of ink as the print head moves 
horizontally, called a raster scan, while the media is scrolled vertically. 
Because inkjet print heads move above the paper and never actually make 
contact with the paper, there is less mechanical wear and tear than 
experienced by a pen plotter.  Inkjet printers can print on almost any media.

     Pen plotters draw lines and make symbols and other characters by moving a
pen on the surface of the media.  This creates high quality output for working
drawings, reports, presentations or archival copies.  Pen plotters offer the
advantages of low-cost color output and different levels of line quality using
liquid ink, fiber tip or ball-point pens.  Although cost effective, pen plotters
are relatively slow and are generally limited to eight colors.

     Electrostatic printers generally are more expensive than inkjet or pen
plotters and require special plotting paper. They offer certain advantages to
users requiring enhanced color, color fills and high-speed characteristics.

     Thermal printer/plotters are similar to electrostatic printers and
generally require special paper to take advantage of the thermal print head.
Thermal printers cost considerably more than inkjet printers.

     LED Plotters are the most expensive "plain paper" technology, producing
monochrome output at high speed, but the cost is much higher than inkjet.

     Other technologies that can be adapted to wide-format use include
photographic output, electrophotographic output and dot matrix printers.  Each
of these technologies has disadvantages for the CAD, GIS and GA markets,
including relatively poor resolution or high costs when compared to inkjet
technology.


                                      3

<PAGE>

ENCAD PRODUCTS

     ENCAD has designed a variety of wide-format hard copy peripherals,
including color inkjet printers and pen plotters.  The Company currently sells
the second generation of the CADJET product line, the first of which was
introduced in November 1994,  and the fourth and fifth  generation of the
NovaJet product line, including the NovaJet family, NovaCut, NovaJet PROe Series
and the Croma24, the first of which was originally introduced in October 1991.
All of ENCAD's products support at least one, and typically several, emulation
graphics languages and interfaces, including, the industry standard,
HP-GL-Registered Trademark-, HP-GL/2-Registered Trademark- and HP-RTL-Registered
Trademark-, to provide compatibility and utility for the end user.(1)  In
addition, ENCAD products allow users to print in standard small-format and
wide-format sizes.  ENCAD's automatic media sensing feature also permits the
accommodation of some special sizes.  Finally, ENCAD products have a relatively
easy-to-operate keyboard and display, with layered menus to set printer
parameters and store pre-set configurations.

     NOVAJET FAMILY

     NovaJet 4 is targeted at sophisticated mid-range and high-end pen and
thermal printer users, as well as electrostatic printer users. The NovaJet 4 was
first shipped in February 1996.  NovaJet 4, which can produce drawings ranging
in size from A (8-1/2" by 11") to E (36" by 48"), offers performance benefits
over existing pen plotter technology, costs less than comparable thermal and
electrostatic printers and is up to 25 times faster than existing pen plotters.
NovaJet 4 uses four ENCAD customized inkjet heads and snap-in refillable
cartridges, one filled with black ink and the remaining three filled with color
ink, and is capable of printing in either monochrome or color.  It offers 256
color selections. NovaJet 4 uses standard paper, vellums and transparencies, as
well as specialized inkjet media and can generate output on roll or cut-sheet
media with vector or raster input options.

     The NovaJet Pro series, which includes the NovaJet Pro (36" width) and the
NovaJet Pro 50 (50" width), is targeted at sophisticated mid-range and high-end
printer users, as well as electrostatic printer users in the GA market.  
NovaJet Pro was first shipped in November 1995 and the NovaJet Pro 50
was first shipped in March 1996.  The NovaJet Pro Series has been designed
specifically for the professional graphic artist, and other short run production
oriented professional users.  The NovaJet Pro series was the first wide-format
color inkjet printer to include a manufacturer designed and integrated
continuous flow ink supply.  The NovaJet Pro series products use four inkjet
print heads, one for black ink and the remaining three for colored ink, and are
capable of printing in either monochrome or color.  They offer a full-gamut
color, up to 16 million colors, and use standard paper, vellums and
transparencies, as well as specialized inkjet media.

     NOVACUT

   The NovaCut family of printer/cutters, introduced in September 1996, was 
first shipped in February 1997. The NovaCut, available in both 24" width and 
54" width models, functions as both a printer and a cutter in one product, 
and thus costs less than a separate printer and cutter.  The NovaCut features 
a friction-feed media moving technology that provides precision delivery of 
media and a "swivel" style cutting knife which assures high-precision 
cutting, combined with NovaJet color printing accurate enough for paneling. 
The NovaCut also features ENCAD's 500 ml continuous flow ink system that 
allows for unattended operation and offers NovaJet Pro color capability.  The 
NovaCut is targeted to users in the graphics and signage markets.

     NOVAJET PROe SERIES

     The  NovaJet PROe Series, introduced in March 1997 and scheduled to ship
during the second quarter of 1997, is available in both 42" width and 60" width
models. These models, three to five times faster than other printers in their
class, are the most full-featured inkjet printers on the market and feature a
500 ml continuous ink system with dual plumbing for two ink sets, automatic
feed/take-up system, and a new built-in dryer. The NovaJet PROe Series was
designed specifically for users that require a faster, more productive, and even
wider media solution to their


---------------------------
(1) HP-GL, HP-GL/2 and HP-RTL are registered trademarks of Hewlett-Packard 
Company ("Hewlett-Packard").

                                4

<PAGE>

growing print-for-pay needs. It is targeted to high-volume producers of large
photorealistic prints, murals, point-of-sale displays and imposition proofs for
direct-to-plate applications.

     CROMA24

     The Croma24, introduced in March 1997 and scheduled to ship during the 
second quarter of 1997, is the industry's first cost-effective, color inkjet 
printer which produces 24-inch photo-realistic images. Expanding traditional 
11" x 17" print widths by more than doubling the size, the ENCAD Croma24 
surpasses the width limitations of current desktop printers and provides new 
alternatives for the creative professional or first-time wide-format user. It 
is targeted to CAD users, creative professionals, small service bureaus, 
photographers, sign shops, and small office/home office users. Offered in 
three models at prices believed to be affordable to these users, the Croma24 
also has MAC, PC, and PostScript interfaces and advanced software drivers to 
enable the user to control color calibration, ink counting, paper selection, 
automatic cutting and dry time functions from the desktop.  As with ENCAD's 
other printer models, a full range of scientifically matched supplies is 
available.

     CADJET 2

     CADJET 2 was first shipped in October 1995.  CADJET 2 is targeted at
sophisticated low-end pen plotter and thermal printer users, primarily in the
CAD and GIS markets.  CADJET 2, which can produce drawings ranging in size from
A (8-1/2" by 11") to E (36" by 48"), offers performance benefits over existing
pen plotter technology and costs less than comparable thermal printers. The
CADJET 2 has two inkjet print heads.  A black cartridge produces fast monochrome
drawings and 600 dpi can be used to produce higher quality images.  A
tri-chamber cyan-magenta-yellow cartridge can be used to produce color lines
and/or spot color fills.  Output can be generated on roll or cut-sheet media.

     SUPPLIES

     In support of its wide-format inkjet printers and with the goal of 
providing a comprehensive output system to its wide-format customers, ENCAD 
has developed and sells its Quality Imaging Supplies-TM-(1) ("QIS") which 
consist of a variety of supplies, including 3 sets of specialty inks, inkjet 
cartridges and numerous varieties of high-quality print media.  Sales of 
supplies accounted for 14% and 7% of net sales in 1996 and 1995, 
respectively. In 1994 the Company did not separate sales of supplies.  
ENCAD's custom ink cartridges are filled with specially formulated inks 
optimized for ENCAD's  printers.  When used with ENCAD print media, these 
environmentally sound inks produce a broad palette of dynamic colors.  
ENCAD's inkjet papers, films and specialty media are specially coated to 
provide the user with bright, saturated colors when used with ENCAD inks. 
ENCAD QIS print media consists of photo and paper based films and canvas for 
color presentations, signs and posters, as well as for specialized 
applications such as overlays, overhead projection and back-lit displays.

     ACCESSORIES

     In support of its goal of providing a comprehensive output system and to
ensure compatibility to its wide-format customers, ENCAD has developed and sells
a wide variety of software and hardware accessories. Sales of accessories
accounted for 2% of net sales in 1996.

--------------------------------
(1) Quality Imaging Supplies is a trademark of ENCAD.


                                5

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     The ENCAD print utility and Windows drivers provide the user with the power
to control color output by providing five screening options, seven print quality
modes, user-selectable color device tables, gamma correction and the ability to
set ink drying times.  The ENCAD FastPort 3400X Micro Print Server allows a
printer or plotter to be available to users of  multiple network protocols
simultaneously. In order to minimize the need for costly on-board printer memory
and increase print speed, ENCAD provides software to run on the host computer
which converts the vector output (HP-GL, HP-GL/2) of third party application
programs into raster data.

THIRD PARTY INTERFACES

     Third-party PostScript-Registered Trademark- hardware and software 
developers have created products that interface with the NovaJet products. 
These products allow NovaJet to output color near photo-realistic images in its 
enhanced mode. In addition, numerous software packages, such as 
AutoCAD-Registered Trademark-, Adobe Photoshop-Registered Trademark-, 
VersaCAD-Registered Trademark-, Adobe PrintShop-Registered Trademark-, Adobe 
Ilustrator-Registered Trademark-, Quark XPress-Registered Trademark- and 
ARC/INFO-Registered Trademark-, are used with ENCAD products in 
Macintosh-Registered Trademark-, DOS-Registered Trademark- and 
Windows-Registered Trademark- platforms.(1)

RESEARCH, PRODUCT DEVELOPMENT AND ENGINEERING

     ENCAD's ability to compete successfully in its target markets depends on,
among other things, anticipating and reacting to market demands and developing
appropriate products to satisfy customer requirements. ENCAD believes that the
timely development and introduction of new products is essential.  In its
development of new products and enhancement of existing products, ENCAD focuses
on simplicity of design, technological advancements in performance and image
quality and continuing improvements in price/performance ratios.  ENCAD is
presently developing new products that incorporate its experience and expertise
with the latest inkjet technologies. In addition, ENCAD markets hardware and
software accessories that convert industry standard PostScript data to a raster
data format which can then be directly printed at high speed without the need
for the addition of costly memory to the printer.

     In developing new products, ENCAD has assembled design teams consisting of
engineers with expertise in hardware, software, chemistry, physics, color
science, material science, firmware, electrical, mechanical, manufacturing and
design.  The Company's design engineers have expertise and experience in digital
servo/motion control, inkjet technology and emulation of HP-GL, HP-GL/2 and
HP-RTL languages and interfaces.

     As part of its research and development efforts, ENCAD complements its
existing resources by utilizing industry consultants and technology suppliers to
assist in and influence design and cost decisions, ensure continued
compatibility with software and hardware leaders, and advise the Company of the
latest technological advances. ENCAD has also designed custom gate arrays to
control aspects of its proprietary technology which permits a reduction in parts
and an increase in reliability at lower cost than is achievable using standard
components.

     Since its founding in 1981, ENCAD has introduced numerous product families,
each of which incorporated advances in mechanical, electronic and software or
firmware technologies.  Within product families, model differences are based
upon the size of the plotting area, as well as feature and performance
characteristics.  ENCAD intends to develop products that reach markets or market
segments currently not served by the Company's products.

     Research and development expenses were $8,794,000, $5,578,000 and
$3,265,000 in fiscal 1996, 1995 and 1994, respectively, which represent
approximately 8%, 9% and 7% of net sales in those respective periods.

MANUFACTURING AND SUPPLIERS

     ENCAD's printer manufacturing operations consist of subassembly, final
assembly and testing, quality assurance, packaging and shipping. ENCAD contracts
with various outside vendors for printed circuit board fabrication and assembly,
and for fabrication of metal and plastic parts, and then performs the final
assembly of its products in its San Diego facility.  For its supplies business,
ENCAD partners with large multi-national companies for the acquisition of inks
and media.  Inks are acquired from three sources and the various forms of media
from multiple sources.  Assembly of refill and accessory ink kits are outsourced
prior to distribution.

     Most materials for printer manufacturing operations are available locally
in Southern California from multiple vendors, and the majority are produced in
the United States.  Certain components used in ENCAD's products are available
only from single sources.  Although ENCAD generally buys components under
purchase orders and does not have long-term agreements with most of its
suppliers, it anticipates that its suppliers will be able to continue to satisfy
its requirements.  Although alternative suppliers are readily available for most
of these components, for some components the process of qualifying replacement
suppliers, replacing existing tooling, or ordering and receiving replacement
components could take up to six additional months. Any difficulty in 
receiving components on time could have a material adverse effect on ENCAD's 
results of operations.

--------------------------------
(1) Windows is a trademark of the Microsoft Corporation. Macintosh is a 
registered trademark of Apple Computer, Inc. Illustrator, Print Shop, 
Postscript and Photoshop are trademarks of Adobe Systems, Inc. AutoCAD and 
VersaCAD are registered trademarks of AutoDesk. Other product names are 
trademarks or registered trademarks of their manufacturers.

                                6

<PAGE>

     Any significant increase in component prices or decrease in component
availability could have a material adverse effect on ENCAD's results of
operations. Certain key components of ENCAD's products are supplied indirectly
by its principal competitor, Hewlett-Packard, and the inkjet cartridge, used in
some of the Company's older generation products, are purchased from
Hewlett-Packard resellers.  The Company believes that Hewlett-Packard supplies
these components to many other companies.

     Because ENCAD places strong emphasis on product quality and customer 
satisfaction, it requires that quality is designed into products, components 
and the manufacturing processes.  As a result, ENCAD has developed quality 
control programs with its suppliers in its new product development and 
manufacturing operations.

     Suppliers are encouraged to participate in new product designs.  
Suppliers' manufacturing capabilities are  statistically evaluated to allow 
for certification and direct shipment to the production floor.  ENCAD uses a 
"Just-in-Time" program for materials and manufacturing.  The Company 
maintains a material requirements planning system that is intended to aid in 
making "Just-in-Time" decisions.  The Company maintains raw materials which 
includes printer safety stock, ink and media, and parts for service.

MARKETING, SALES AND DISTRIBUTION

     ENCAD markets and sells its products worldwide primarily through specialty
distributors, dealers, OEMs and VARs.

     DISTRIBUTORS, VARS AND DEALERS

     Neither the Company nor its seven domestic distributors sell a material
amount of products directly to end users, reflecting ENCAD's philosophy that its
approximately 400 domestic dealers are a critical link with the end user.
ENCAD's domestic distribution channel consists of regional specialty
distributors. In addition to the Company's sales and marketing headquarters
located in San Diego, California, ENCAD has field salespersons residing in
Georgia, Texas, New Jersey, Michigan and California.  These salespersons work
closely with ENCAD's regional distributors and dealers.

     Internationally, ENCAD generally utilizes one major distributor in each
market.  ENCAD's approximately 100 international distributors sell to dealers,
specialized systems integrators and VARs.  ENCAD's international distributor
network provides the Company with a presence in Canada, Mexico, Europe, the
Pacific Rim, the Middle East, Central and South America, South Africa, China and
India.  ENCAD also maintains a European sales office in Germany and a Pacific
Rim sales office in Hong Kong, and has a sales subsidiary located in France.
International sales accounted for approximately 59%, 63% and 57% of net sales in
1996, 1995 and 1994, respectively.  Europe accounts for approximately one-half
of such international sales.  The Pacific Rim market continues to become an
increasingly significant component of international sales.  Japan, Korea and
Australia are the major markets within the Pacific Rim, with 13%, 6% and 4%,
respectively, of international sales for the year ended December 31, 1996.
ENCAD's dependence on international sales subjects it to the normal risks
associated with conducting business internationally, including currency
fluctuations (to the extent they affect local office expenses), export and
import controls, and other governmental regulations.

     ENCAD supports the marketing and sales efforts of its worldwide 
distributors and dealers through participation at worldwide general computer 
industry trade shows as well as specialized trade shows targeted at specific 
applications for the Company's products.  In addition, the Company encourages 
its distributors and dealers to participate in these trade shows.

     ENCAD's agreements with its worldwide distributors generally grant each
distributor the non-exclusive right to distribute the Company's products in its
market.  The Company's form of distribution agreement generally provides any
outstanding amounts remain owing subsequent to termination of the agreements.
These agreements generally provide for payment net 30 days after shipment, by
irrevocable letters of credit or by prepayment by wire transfer.


                                7

<PAGE>

The Company provides price protection to some of its distributors such that, 
if the Company reduces the price of its products, a distributor is entitled 
to a credit for the difference between the reduced price and the price it 
previously paid for products purchased within the preceding 30 days or, in 
some cases, 60 days and which remain in inventory at the time of the price 
reduction.  As a result, price reductions could have a material adverse 
effect on results of operations, depending on distributor inventory levels at 
the time of such price reduction.

     The Company believes that it maintains good relationships with its
distributors and dealers.  ENCAD has developed an authorized dealer network
through an active domestic dealer-support campaign consisting of advertising,
lead referrals, product literature, promotional pricing, training and telephone
support.  ENCAD offers its distributors a cooperative advertising program that
partially reimburses them for expenses spent in advertising and promoting
ENCAD's products.  Such reimbursements are determined based upon the
distributor's sales levels.

     In 1996, one customer accounted for 15% of product sales.  In 1995, no one
customer accounted for more than 10% of product sales and in 1994, one customer
accounted for 11% of product sales.

     ORIGINAL EQUIPMENT MANUFACTURERS

     To expand its distribution channels, the Company has entered into 
selected OEM and private label arrangements that allow it to address specific 
market segments or geographical areas.  Total combined OEM and private label 
arrangements accounted for 25%, 19% and 15% of net sales in 1996, 1995 and 
1994, respectively.  The Company continually assesses these arrangements and 
believes that they will continue to represent a substantial portion of its 
revenue.  There can be no assurance that the Company will retain these 
existing arrangements or obtain additional ones.  If the Company is not able 
to obtain additional OEM and private label customers, a loss of existing OEM 
and private label customers could adversely affect the Company's results of 
operations.

CUSTOMER SUPPORT

     ENCAD considers ongoing support of its products to be an essential 
element of its business.  The Company has established a customer service and 
support organization which provides technical support and hardware repair to 
distributors, dealers and end-users of its printers and supplies.  Customers 
have telephone access to technical specialists who respond to hardware, 
software, supplies and applications questions.  In addition, the Company has 
established an electronic bulletin board on which the Company posts notes and 
software updates to provide on-line connectivity to its customers.  The 
Company provides a standard one-year warranty against defects in material and 
workmanship in its products.  In the first quarter of 1996, the Company began 
offering third party on-site warranty repair on certain products sold in the 
U.S. and Australia.  An extended warranty for most products sold in the U.S. 
is also available at additional cost.  The Company's OEM suppliers do their 
own warranty service, and the Company has authorized service centers in 
certain regions of the United States.  Any product sold domestically that 
needs to be repaired and is not returned to a regional service center can be 
returned directly to the Company for repair.  International distributors 
repair the Company's products with ENCAD supplying the parts to them 
directly.  Warranty expense has constituted less than 5% of net sales and, to 
date, has not had a material adverse effect on the Company's operations.  
Since a large number of ENCAD's products are the sole color inkjet printers 
in a facility, the Company offers a head swap-out program for domestic 
purchases during the warranty period.  The domestic end user can return the 
head to the Company directly for service during the warranty period, and the 
Company will provide a replacement head for use within 24 to 48 hours during 
the warranty period.

COMPETITION

     The market for ENCAD's products is highly competitive and rapidly changing
and the Company believes that new competitors will enter the market.  The
Company's principal competitor is Hewlett-Packard.  Hewlett-Packard dominates
the CAD segment of the wide-format inkjet market and is the Company's principal
competitor in the GA segment of that market.  Hewlett-Packard has significantly
greater financial, technical, manufacturing and marketing resources than the
Company.


                                8
<PAGE>

     In addition to the direct competition in inkjet printers, ENCAD's 
products face competition from other technologies in the wide-format market, 
namely pen plotters, electrostatic printers and thermal printers, supplied by 
several companies.  While the Company believes that it competes favorably 
against these other technologies and the products currently offered by its 
competitors using these technologies, these alternative technologies may 
compete favorably for certain applications in which speed or low cost are of 
key importance.  In addition, while the Company believes that it currently 
competes favorably with respect to these factors based on its price and 
performance, there can be no assurance that the Company will be able to 
compete successfully in the future.

     The Company competes in the wide-format market mainly on the basis of 
performance and price.  ENCAD has seen price competition increase during 1996 
and expects that it will continue to increase in the future. Historically, 
the Company has reduced prices on older generation products upon introduction 
of the newer generation models.  The Company's most recent price reduction 
took effect in May 1996.  There can be no assurance that additional price 
reductions will not be required in the future.  Price reductions will effect 
gross margins, and may adversely affect the Company's results of operations.

PROPRIETARY RIGHTS AND LICENSES

     ENCAD relies on a combination of trade secret, copyright, trademark and 
patent protection, as well as confidentiality and non-disclosure agreements 
in order to protect its proprietary rights.  The Company has pursued, and 
intends to continue to pursue patent protection for inventions it considers 
important, and the Company believes its success will also continue to be 
largely dependent upon its reputation for technology, product innovation, 
affordability, marketing ability and response to customers' needs.  The 
Company currently holds nine patents related to inkjet technology and design. 
In 1996, ENCAD applied for two patents covering the Company's imaging 
technology, and the Company continues to rely on trade secret protection as 
well.  There can be no assurance that the Company will be successful in 
protecting its proprietary technology, or that ENCAD's proprietary rights 
will preclude competitors from developing products or technology equivalent 
or superior to that of the Company.

     From time to time, certain competitors have asserted patent, copyright and
other intellectual property rights against the Company, and the Company expects
that this may continue. The Company evaluates each assertion relating to its
products, and the Company may seek a license with respect to asserted claims, if
appropriate.  If the Company is not successful in establishing that any asserted
rights have not been violated, or in licensing a disputed technology, the
Company could be prohibited from marketing the products that incorporate such
technology.  The Company could also incur substantial costs to redesign its
products or to defend any legal action taken against the Company.

EMPLOYEES

     As of February 28, 1997, the Company employed approximately 440 persons, 
including 92 in sales, marketing and related activities, 171 in manufacturing 
and operations, 79 in research, product development and engineering, 40 in 
technical support and service, and 58 in management, administration and 
finance.  The Company's success is highly dependent on its ability to attract 
and retain qualified employees.  Competition for employees is intense in its 
industry.  None of the Company's employees is represented by a labor union or 
is the subject of a collective bargaining agreement. The Company has never 
experienced a work stoppage and believes that its employee relations are good.

RISK AND UNCERTAINTIES

POTENTIAL FLUCTUATION IN QUARTERLY PERFORMANCE

     The Company's quarterly operating results can fluctuate significantly
depending on factors such as the timing of product announcements and subsequent
introductions by the Company and its competitors, availability and cost of
components, timing of shipments of the Company's products, mix of product
families shipped, market acceptance of new products, seasonality, currency
fluctuations, changes in prices by the Company and its competitors, price
protection for selling price reductions offered to distributors and OEMs, the
timing of expenditures for staffing and related expenditures, advertising,
promotion, research and development and changes in general economic conditions.
Any one of these factors could have a material adverse effect on  the Company's
results of operations.  The Company may experience significant quarterly
fluctuations in net sales as well as operating expenses with respect to
future new product introductions.  In addition, the Company's component
purchases, production and spending levels are based upon forecast demand for the
Company's products.  Accordingly, any inaccuracy in forecasting could adversely
affect the Company's results of operations.  Demand for the Company's products
could be adversely affected by a slowdown in the overall demand for computer
systems


                                9

<PAGE>

or printer products. The Company's failure to complete shipments during a
quarter could have a material adverse effect on the Company's results of
operations for that quarter.  Quarterly results are not necessarily indicative
of future performance for any particular period, and there can be no assurance
that the Company can maintain the levels of revenue and profitability
experienced over the past three years on a quarterly or annual basis.

HIGHLY COMPETITIVE INDUSTRY

     The markets for the Company's products, both printers and supplies, is 
highly competitive and rapidly changing and the Company believes that new 
competitors will likely enter the market.  The Company's principal competitor 
is Hewlett-Packard, which dominates certain wide-format inkjet markets.  In 
addition to direct competition in inkjet printers and related supplies, the 
Company's products also face competition from other technologies in the 
wide-format market.  Such technologies include pen, electrostatic and thermal 
methods.  Some of the Company's current and prospective competitors, 
particularly Hewlett-Packard, have significantly greater financial, 
technical, manufacturing and marketing resources than the Company.  The 
Company's ability to compete in the wide-format inkjet market depends on a 
number of factors within and outside its control, including the success and 
timing of product introductions by the Company and its competitors, price, 
performance, product distribution, marketing ability, and customer support.  
A key element of the Company's strategy is to provide competitively priced, 
quality products.  There can be no assurance that the Company's products will 
continue to be competitively priced.  The Company has reduced prices on 
certain of its products in the past and will likely continue to do so in the 
future.  Price reductions, if not offset by similar reductions in cost of 
goods sold, will affect gross margins and may adversely affect the Company's 
results of operations.

SHORT PRODUCT LIVES AND TECHNOLOGICAL CHANGE

     The markets for wide-format printers and related supplies are characterized
by rapidly evolving technology, frequent new product introductions and
significant price competition.  Consequently, short product life cycles and
reductions in unit selling prices due to competitive pressures over the life of
a product are common.  The Company's future success will depend on its ability
to continue to develop and manufacture competitive products and achieve cost
reductions for its existing products.  Advances in technology will require
increased investment in product engineering to maintain the Company's market
position.  In addition, the Company monitors new technology developments and
coordinates with suppliers, distributors and dealers to enhance existing
products and lower costs.  The Company's future operating results could be
adversely affected if the Company is unable to develop and manufacture new,
competitive products in a timely manner.

COMPONENT AVAILABILITY AND COST; DEPENDENCE ON SINGLE SOURCES

       While most components are available locally from multiple vendors,
certain components used in the Company's products are only available from single
sources.  Although the Company generally buys components under purchase orders
and does not have long-term agreements with its suppliers, it expects that its
suppliers will be able to continue to satisfy its requirements. The Company has
developed strategic relationships with single suppliers of several of its
components.  Although alternate suppliers are readily available for many of
these components, for some components the process of qualifying replacement
suppliers, replacing tooling or ordering and receiving replacement components
could take several months and cause substantial disruption to the Company's
operations.  The Company uses a material requirements planning system that is
intended to aid in making "Just-in-Time" decisions; however, if a supplier is
unable to meet the Company's needs or supplies parts which the Company finds
unacceptable, the Company may not be able to meet production demands.  Certain
key components of the Company's products are supplied indirectly by its
principal competitor, Hewlett-Packard.  The Company believes that
Hewlett-Packard supplies these components to many other customers. Any
significant increase in component prices or decrease in component availability
could have a material adverse effect on the Company's results of operations.


                                10

<PAGE>

POSSIBILITY OF CHALLENGE TO COMPANY'S PRODUCTS OR INTELLECTUAL PROPERTY RIGHTS

     From time to time, certain competitors, including Hewlett-Packard, have
asserted patent rights relevant to the Company's business.  The Company expects
that this will continue.  The Company carefully evaluates each assertion
relating to its products.  If the Company is not successful in establishing that
asserted rights have not been violated, the Company could be prohibited from
marketing the products that incorporate such technology.  The Company could also
incur substantial costs to redesign its products or to defend any legal action
taken against the Company.  If the Company's products should be found to
infringe upon the intellectual property rights of others, the Company could be
enjoined from further infringement and be liable for any damages.  The Company
relies on a combination of trade secret, copyright, trademark and patent
protection and non-disclosure agreements to protect its proprietary rights.
There can be no assurance, however, that the measures adopted by the Company for
the protection of its intellectual property will be adequate to protect its
interests, or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technologies.

DEPENDENCE ON EXPORT SALES

     For 1996, 1995 and 1994, sales outside the United States represented
approximately 59%, 63% and 57% of net sales, respectively.  The Company expects
export sales to continue to represent a significant portion of its net sales.
All of the Company's products sold in the international markets are denominated
in U.S. dollars.  An increase in the value of the U.S. dollar relative to
foreign currencies could make the Company's products less competitive in foreign
markets.  International sales and operations may also be subject to risks such
as the imposition of governmental controls, export license requirements,
restrictions on the export of critical technology, currency exchange
fluctuations, political instability, trade restrictions, changes in tariffs,
difficulties in staffing and managing international operations and collecting
accounts receivable.  In addition, the laws of certain countries do not protect
the Company's products and intellectual property rights to the same extent as
the laws of the United States.  As the Company continues to expand its
international business, there can be no assurance that these factors will not
have an adverse effect on the Company's sales and, consequently, on the
Company's results of operations.

FUTURE CAPITAL NEEDS

     Although the Company first achieved profitability on an annual basis in
1992, there can be no assurance that future profitability or revenue growth, if
any, will continue on a quarterly or annual basis.  Losses may occur on a
quarterly or annual basis for a number of reasons outside the Company's control.
The growth of the Company's business will require the commitment of substantial
capital resources.  If funds are not available from operations, the Company may
need to raise additional funds.  The Company may seek such additional funding
through public and private financing, including equity financing.  Adequate
funds for these purposes, whether through financial markets or from other
sources, may not be available when needed or, if available, not on terms
acceptable to the Company.  Insufficient funds may require the Company to delay,
reduce or eliminate some or all of its planned activities.

RELIANCE ON INDIRECT DISTRIBUTION

     The Company markets and sells it products domestically and internationally
primarily through specialty distributors, dealers, VARs and OEMs.  The Company's
sales are principally made through distributors which may carry competing
product lines.  Such distributors could reduce or discontinue sales of the
Company's products which could have a material adverse effect on the Company's
operating results.  There can be no assurance that these independent
distributors will devote the resources necessary to provide effective sales and
marketing support of the Company's products.  In addition, the Company is
dependent upon the continued viability and financial stability of these
distributors, many of which are small organizations with limited capital.  These
distributors, in turn, are substantially dependent on general economic
conditions and other factors affecting the wide-format printer market.  The
Company believes that its future growth and success will continue to depend in
large part upon its distribution channels.  Although the Company believes that
it provides adequate allowances for bad debts and, to date, has not experienced
significant amounts of bad debts, there can be no assurance that actual bad
debts will not exceed recorded allowances resulting in a material adverse effect
on the Company's results of operations.  To


                                11
<PAGE>

expand its distribution channels, the Company has entered into select OEM and
private label arrangements that allow it to address specific market segments or
geographic areas.   In order to prevent inventory writedowns, to the extent that
OEM and private label customers do not purchase products as anticipated, the
Company may need to convert such products to make them salable to other
customers.

DEPENDENCE ON KEY PERSONNEL

     The success of the Company is dependent, in part, on its ability to attract
and retain qualified management and technical personnel.  Competition for such
personnel is intense, and the inability to attract additional key employees or
the loss of one or more current key employees could adversely affect the
Company.  None of the Company's senior management is subject to an employment
agreement with the Company, although the Company has recently put into place
severance arrangements with this group.  There can be no assurance that the
Company will retain its key personnel.  In addition, as part of its research and
development efforts, the Company relies heavily on industry consultants to
assist and influence design decisions, ensure continued compatibility with
software and hardware leaders, keep abreast of technological advances, and
design for manufacture.  A delay in product introduction is possible to the
extent key consultants become unavailable.

MANAGEMENT OF GROWTH

     The Company has recently experienced significant growth as net sales from
product sales have increased to $107.4 million for the year ended December 31,
1996, compared to $65.5 million in 1995. Such growth has placed, and, if
continued, will continue to place, a significant strain on the Company's
management, systems and operations.  The Company's future operating results will
depend on its ability to broaden the Company's senior management group, attract,
hire and retain skilled employees, and implement new and enhance existing
operational information and financial control systems.  There can be no
assurance that any new personnel hired by the Company will be successfully
integrated into the business.  The Company's inability to manage growth
effectively could have a material adverse effect on the Company's results of
operations.

ENTERPRISE-WIDE INFORMATION SYSTEM

     The Company is planning to replace its current management information
system with a comprehensive enterprise-wide information system.  The Company
expects that this system will allow it to realize significant operational
efficiencies and facilitate future growth, and it will devote significant
resources to system design selection and testing.  The Company's operations
could be disrupted, however, if the transition to the new system is not effected
smoothly or if the system does not perform as expected.

DEVELOPING WIDE-FORMAT INKJET AND SUPPLIES MARKETS AND APPLICATIONS

     The markets for wide-format, color inkjet printers and related supplies are
relatively new and are still developing.  The Company believes that there has
been growing market acceptance for inkjet printers and related supplies.  There
can be no assurance that the markets and applications for wide-format printers
and related supplies will continue to grow.  Other technologies are constantly
improving and there can be no assurance that products based on these other
technologies will not have a material adverse effect on the markets for the
Company's products.

ABSENCE OF DIVIDENDS

     No cash dividends have been paid on the Company's Common Stock to date and
the Company does not anticipate paying cash dividends in the foreseeable future.

VOLATILITY OF STOCK PRICE

     The market price of the Company's Common Stock has fluctuated significantly
since the Company's initial public offering of Common Stock in December 1993.
The Company believes that factors such as general stock market trends,
announcements of developments related to the Company's business, fluctuations in
the Company's


                                12

<PAGE>

operating results, general conditions in the computer peripheral market and the
markets served by the Company or the worldwide economy, a shortfall in revenue
or earnings from securities analysts' expectations, announcements of
technological innovations or new inkjet products or enhancements by the Company
or its competitors, developments in patents or other intellectual property
rights and developments in the Company's relationships with its customers and
suppliers could cause a further significant fluctuation in the price of the
Company's Common Stock.  In addition, in recent years the stock market in
general, and the market for shares of technology stocks in particular, have
experienced extreme price fluctuations, which have often been unrelated to the
operating performance of affected companies.  There can be no assurance that the
market price of the Company's Common Stock will not experience significant
fluctuations that are unrelated to the Company's performance.

ITEM 2:  PROPERTIES

     The Company's headquarters are located in San Diego, California, in
facilities it purchased in February 1996 for $6 million.  The property consists
of two buildings of approximately 50,600 and 46,874 square feet and includes the
principal administrative, research and manufacturing facility.  The Company also
leases a facility in close proximity to its primary facility, consisting of
approximately 18,000 square feet, which is used primarily for warehousing.  The
Company considers its facilities adequate for its current needs, and believes
that additional space can be obtained in the future if necessary.

ITEM 3:  LEGAL PROCEEDINGS

     From time to time, ENCAD may be involved in litigation relating to 
claims arising out of its operations in the usual course of business.

     In December 1994, Hewlett-Packard filed a lawsuit against an OEM 
customer of the Company, LaserMaster Technologies, Inc. ("LaserMaster"), 
alleging infringement of numerous Hewlett-Packard patents.  Two of the 
patents (one of which was subsequently withdrawn from the lawsuit) pertain to 
products sold by the Company to LaserMaster.   The lawsuit was settled and 
dismissed in August 1995.   In response to Hewlett-Packard's subsequent 
position that the Company infringes one of the patents described in the 
LaserMaster litigation, the Company filed a lawsuit in September 1995 against 
Hewlett-Packard in the U.S. District Court of the Southern District of 
California, seeking to have the Court declare that the Company does not 
infringe such patent, and that the patent is invalid. Hewlett-Packard filed a 
counterclaim for infringement of the patent.  The outcome of this lawsuit 
cannot be determined; however, management believes that Hewlett-Packard's 
counterclaim is without merit, and the Company intends to vigorously defend 
such counterclaim.  No amounts have been reported in the financial statements 
for any losses which may result from this lawsuit.

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the security holders during the
quarter ended December 31, 1996.

                             PART II

ITEM 5:  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     The information required by this item is included on page 28 of the
1996 Annual Report and is incorporated herein by reference.


                                13

<PAGE>

ITEM 6:  SELECTED FINANCIAL DATA

     The information required by this item is included on page 13 of the
1996 Annual Report and is incorporated herein by reference.

ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The information required by this item is included on pages 14 through 16 of
the 1996 Annual Report and is incorporated herein by reference.

ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Company's consolidated financial statements for December 31, 1996 
and 1995, and for each of the three years in the period ended December 31, 
1996 and the Report of Deloitte & Touche LLP, Independent Auditors, is 
included on pages 17 through 24 of the 1996 Annual Report and are 
incorporated herein by reference.

ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.
                             PART III

    ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information required by this item is incorporated by reference from the 
Proxy Statement in the sections entitled "Election of Directors", "Executive 
Officers" and Section 16(a) "Beneficial Ownership Reporting Compliance."

ITEM 11: EXECUTIVE COMPENSATION

     The information required by this item is incorporated by reference from the
Proxy Statement in the section entitled "Compensation of Executive Officers."

ITEM 12: SECURITY OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL OWNERS

     The information required by this item is incorporated by reference from 
the Proxy Statement in the section entitled "Security Ownership of Certain 
Beneficial Owners and Management."

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated by reference from the
Proxy Statement in the section entitled "Certain Relationships and Related
Transactions."


                                14


<PAGE>

                             PART IV
ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                                                         Page
                                                                        Number
                                                                        ------
(a)  DOCUMENTS FILED AS PART OF THE REPORT:

     (1)  Consolidated Balance Sheets at December 31, 1996 and 1995...    *
          Consolidated Statements of Income for the years ended 
           December 31, 1996, 1995 and 1994..........................     *
          Consolidated Statements of Cash Flows for the years ended
           December 31, 1996, 1995 and 1994..........................     *
          Consolidated Statements of Shareholders' Equity for
           the years ended December 31, 1996, 1995 and 1994...........    *
          Notes to Consolidated Financial Statements..................    *
          Independent Auditors' Report................................    *

     (2)  Consolidated Financial Statement Schedules

     Financial statement schedules have been omitted because they are either 
     not required, not applicable or the information is otherwise included.

     -----------------

     * Incorporated herein by reference on pages 17 through 24 of the 
1996 Annual Report.

(3)  Exhibits:

     Exhibit
     Number    Description

              3.1  Amended and Restated Articles of Incorporation of the Company
                   (filed as Exhibit 3.3). (1)
              3.2  Amended and Restated Bylaws of the Company (filed as Exhibit
                   3.5). (1)
             10.1  Form of Distributor Agreement (Domestic)(filed as Exhibit 
                   10.14). (1)
             10.2  Form of International Distributor Agreement (filed as 
                   Exhibit 10.15). (1)
             10.3  Form of OEM Agreement (filed as Exhibit 10.16). (1)
           + 10.4  The Company's Incentive Stock Option Plan (filed as 
                   Exhibit 10.29). (1)

                                15

<PAGE>


           + 10.5  The Company's 1986 Non-Qualified Stock Option Plan, as 
                   amended (filed as Exhibit 10.30). (1)
           + 10.6  Form of Incentive Stock Option Agreement (filed as Exhibit 
                   10.31). (1)
           + 10.7  Form of Non-Qualified Stock Option Agreement (filed as 
                   Exhibit 10.32). (1)
           + 10.8  The Company's 1993 Stock Option/Stock Issuance Plan (filed 
                   as Exhibit 99.1). (2)
           + 10.9  Form of Notice of Grant of Stock Option and Stock Option 
                   Agreement (filed as Exhibit 10.34). (1)
          + 10.10  Form of Stock Issuance Agreement (filed as Exhibit 
                   10.35). (1)
          + 10.11  1993 Employee Stock Purchase Plan (filed as Exhibit 
                   10.36). (1)
          + 10.12  Form of Stock Purchase Agreement (filed as Exhibit 
                   10.37). (1)
            10.13  Form of Non-Disclosure Agreement (filed as Exhibit 
                   10.38). (1)
            10.14  Form of Employee Proprietary Information Agreement (filed 
                   as Exhibit 10.39). (1)
          + 10.15  Form of Indemnification Agreements between the Company and 
                   each of its directors (filed as Exhibit 10.41). (1)
          + 10.16  Form of Indemnification Agreements between the Company and 
                   each of its officers (filed as Exhibit 10.42). (1)
          + 10.17  Sales Incentive Compensation Arrangement with Jiri Modry 
                   dated February 15, 1995 (with certain confidential portions 
                   omitted)(filed as Exhibit 10.46). (3)
            10.18  Agreement to Sell Real Estate dated January 31, 1996 
                   between the Registrant and The Chase Manhattan Bank, N.A., 
                   Real Estate Finance. (4)
            10.19  Form of Severance Letter Agreements between the Company 
                   and each of its officers.
            10.20  Form of Senior Executive 1997 Annual Performance Bonus 
                   between the Company and each of its officers.
            11.1   Statement regarding computation of net earnings per share.
            13.1   Portions of the Registrant's Annual Report to Shareholders 
                   for the year ended December 31, 1996.

                                16

<PAGE>


             21.1  Subsidiaries.
             23.1  Independent Auditors' Consent, Deloitte & Touche LLP.
             24.1  Power of Attorney (See page 18).
--------------
(1) Filed as exhibit to the Registrant's Registration Statement on Form S-1
    (No. 33-70220) or amendments, except as set forth above, thereto and
    incorporated herein by reference.
(2) Filed as exhibit to the Registrant's Registration Statement on Form S-8
    (No. 33-95252) and incorporated herein by reference.
(3) Filed as exhibit to the Registrant's Annual Report on Form 10-K for the 
    year ended December 31, 1994 and incorporated herein by reference.
(4) Filed as exhibit to the Registrant's Annual Report on Form 10-K for the 
    year ended December 31, 1995 and incorporated herein by reference.
+   Management compensatory plan.

(b) REPORTS ON FORM 8-K

    None

(c) EXHIBITS

    The exhibits required by this Item are listed under Item 14(a)(3).

(d) FINANCIAL  STATEMENT SCHEDULES

    The consolidated financial statement schedules required by this Item are
listed under Item 14(a)(2).


                                17

<PAGE>

                            SIGNATURES


    Pursuant to the requirements of Section 13 or 15(d) 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.

ENCAD, INC.


By                                     Date:
   -------------------------------------    ----------------------------------
    David A. Purcell
    Chief Executive Officer

                        POWER OF ATTORNEY

    Know all men by these presents, that each person whose signature appears
below constitutes and appoints David A. Purcell or Thomas L. Green, his
attorney-in-fact, with power of substitution in any and all capacities, to sign
any amendments to this Annual Report on Form 10-K, and to file the same with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that the
attorney-in-fact or his substitute or substitutes may do or cause to be done by
virtue hereof.

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

         SIGNATURE                     TITLE                    DATE


                             Chairman of the Board and
--------------------------   Chief Executive Officer  -------------------------
(David A. Purcell)           (Principal Executive Officer)


                             President and
--------------------------   Chief Operating Officer  -------------------------
(Richard A. Plante)


                             Director
--------------------------                            -------------------------
(Robert V. Adams)

                             Director
--------------------------                            -------------------------
(Ronald J. Hall)

                             Director
--------------------------                            -------------------------
(Howard L. Jenkins)

                             Director
--------------------------                            -------------------------
(Charles  E. Volpe)

                             Director
--------------------------                            -------------------------
(Craig S. Andrews)


                                18