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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington D.C. 20549

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FORM 10-K

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File No.:

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FARGO ELECTRONICS, INC.(Exact name of registrant as specified in its charter)

Delaware

41-1959505(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)6533 Flying Cloud Drive
Eden Prairie, Minnesota

55344(Address of principal executive offices)

(Zip Code)


Registrant's telephone number, including area code:(952) 941-9470

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

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

Common Stock, $.01 par value

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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 ý    No o

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
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. o

As
of March 28, 2002, 11,785,900 shares of the Registrant's common stock were outstanding. The aggregate market value of the Registrant's outstanding common stock as of that date
(based upon the last sale price of a share of common stock on that date as reported by the Nasdaq National Market), excluding outstanding shares beneficially owned by directors and executive officers,
was $47,333,351.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to
herein) from the registrant's Proxy Statement for its 2002 Annual Meeting to be held on May 9, 2002.

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PART I

BUSINESS



Fargo is a developer, manufacturer and supplier of desktop systems that personalize plastic identification cards by printing images and text onto the cards,
laminating them and electronically encoding them with information. We also sell the consumable supplies, such as ink ribbons, overlaminates and blank cards that are used with our systems. We believe
that we have built a reputation for technological leadership in our industry by applying our engineering expertise and knowledge of printing and data encoding to incorporate
state-of-the-art technologies into our card personalization systems. The ability to customize cards using advanced technologies, coupled with the convenience of
desktop systems, has created a market focused on the on-site production of high quality, tamper-resistant, personalized identification cards that can be created quickly and economically.
Our customers use our systems to create personalized cards for a wide variety of applications in various industries, including:



As
of December 31, 2001, management estimates that approximately 60,000 card personalization systems are installed in more than 100 countries throughout the world.

Since
our inception in 1974, we have used our engineering expertise and knowledge of printing and data encoding technologies to build a reputation for technological leadership in our
industry. Historically, we have leveraged our engineering capabilities to develop systems for multiple markets, including bar code printers, color office printers and card personalization systems.

In
February 1998, we restructured our business and completed a recapitalization of Fargo. As part of the restructuring, we brought in several members of our current management
team and shifted our focus to the design, manufacture and sale of products for plastic card personalization and data encoding.

In
February 2000, we completed an initial public offering of 5,000,000 shares of our common stock, resulting in net proceeds of $69,750,000 before offering expenses. We used the
proceeds of the offering to repay debt and redeem our redeemable preferred stock. For more information about the use of proceeds from the offering, see Note 3 to our financial statements
beginning on page F-10.

On
July 31, 2001, we entered into an acquisition agreement pursuant to which we agreed to be acquired by Zebra Technologies Corporation. Under the now terminated acquisition
agreement, on August 3, 2001, a wholly-owned subsidiary of Zebra commenced a cash tender offer for all of our outstanding shares at a price of $7.25 per share. The tender offer was subject to
certain conditions, including successful termination of the Federal Trade Commission's antitrust review under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

On
March 27, 2002, Fargo and Zebra agreed to terminate the acquisition agreement. Based on discussions with representatives of the Federal Trade Commission, Fargo and Zebra
concluded that the

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FTC would not approve the acquisition of Fargo by Zebra. The agreement between Fargo and Zebra terminating the acquisition agreement provides for the immediate termination of the tender offer and
includes a mutual release. Shares tendered in the tender offer will not be accepted by Zebra for payment and will be returned to the stockholders.

Fargo
was originally incorporated in North Dakota in 1979 and reincorporated as a Minnesota corporation in 1985. We reincorporated as a Delaware corporation shortly before our initial
public offering of common stock in February 2000. Our principal executive offices are located at 6533 Flying Cloud Drive, Eden Prairie, Minnesota 55344, and our telephone number is
(952) 941-9470. Our website address is www.fargo.com.



Our business is organized, managed and internally reported as a single segment. Geographical sales information is contained in Note 11 to our financial
statements on page F-18 of this report, and is incorporated in this item by reference.



Industry Background

Certain social, technological and commercial factors are increasing the demand for personalized identification and access cards. As concern for personal safety
and property protection has heightened in the wake of the terrorist attacks of September 11, 2001, well-publicized security breaches and violent crimes at government facilities,
businesses, hospitals and schools, personalized identification cards are increasingly being used as a means of both visual and electronic identification and to control access to these premises. In
addition, new applications for personalized cards are being driven by the development of bar codes, magnetic stripes, proximity sensors, biometric technologies and small computer chips called "smart
chips" that store and process information on personalized cards. We believe that these phenomenathe need for security and the development of new technologieswill foster a
growing market for digital card personalization systems. We believe that new biometric technologies such as fingerprint reading and voice recognition will be integrated with personalized card systems
for added security. These factors will increase the demand for identification card products that involve high quality graphics applied to uneven surfaces in a wide variety of applications.

For
many years the primary method of producing identification cards was to overlay instant photographs and type-set text or logos on a plastic card and then apply a plastic
laminate over the card for durability and longevity. The development of digital imaging and direct-to-card thermal dye sublimation processes in the late 1980's created the
opportunity to create more durable identification and access cards that offer superior graphic and design capabilities and are less susceptible to alteration or forgery. The development of systems
incorporating high definition printing, such as Fargo's High Definition Printing (HDP) process, permits high quality images to be printed on cards with uneven surfaces and of
varying size and thickness, such as smart cards and proximity cards. Traditional systems that could deal with the demands of printing on smart cards and proximity cards were expensive and difficult to
use. Some of the technologies that were applied to dye sublimation are also being applied using ink jet technology and materials such as glossy paper and lamination or Teslin®, a material
that accepts ink jet ink and is more durable than paper.

The
digital card personalization market is characterized by two general types of systems "central issue" and "instant issue" systems. Central issue systems typically involve
batch processing, printing, and the embossing (raising of certain areas of the card to form letters or numbers) of plastic cards, often at a different location from where the relevant data is
collected. Cards are usually sent or issued to individuals days or weeks after the initial processing begins. Central issue processing is typically used in large scale programs such as processing of
credit cards and, in many cases, issuing of drivers licenses.

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Central issue systems are generally much larger and substantially more expensive than instant issue systems.

Instant
issue systems, which are typically desktop systems, are used to print personalized cards on demand for issue to the cardholder within moments after processing. Instant issue
systems are typically used in small and medium scale applications such as student ID card issuance at high schools or colleges and corporate access control, but are beginning to penetrate the market
for large scale applications that were once the sole province of central issue systems.

The Fargo Solution

We provide desktop card personalization solutions that enable cost-effective, high speed production of personalized cards on demand. Our systems
incorporate innovative technologies that encode data and create high quality images on a variety of plastic cards for visual and electronic identification and access control. Our solution provides the
following benefits:

Highly functional systems.Our systems integrate multiple functions in a single unit, creating complete card solutions in a
single-step process. For example, a single Fargo system can use thermal dye sublimation and resin thermal transfer to print multi-colored photographs or logos and singled-colored text or
bar codes in the same process and on both sides of a card. Our built-in lamination feature can
then apply an added layer of durability and protection to the card surface, including custom holographic images. Within the same card system, a proximity card, smart card or magnetic stripe can be
encoded with personalized data. Our systems can rapidly perform these various functions on several cards simultaneously for instant printing of high quality personalized cards.

Integrated, innovative technologies.We have consistently been successful seeking out and incorporating innovative
technologies, developed by us and others, to create integrated, precise solutions. One of the greatest challenges in our industry is to construct a system that can effectively manage the various
electrical, mechanical, digital and chemical processes required to print, laminate and encode a card quickly and accurately within a single, compact system. Our systems incorporate two print methods,
thermal dye sublimation and resin thermal transfer, to create images either directly on a card or on the underside of special film that becomes bonded to the card through our pioneering high
definition printing process. By precisely controlling the heat and pressure applied by the ceramic printhead, in concert with the movements of a chemically engineered print ribbon, our systems create
exceptionally sharp color images. Our integrated lamination and data encoding features are also among the many innovative technologies that work together in our technologically advanced card
personalization systems.

Reliability and durability.We make highly reliable desktop systems that consistently produce high quality cards that are
durable and secure, qualities that are of vital importance to end users. Our printing processes diffuse images and text into the card surface and our lamination techniques add a layer of protection
that adheres to the cards to prevent tampering after the card has been printed and encoded. Because lamination and data encoding are done inside a single card system, the opportunities for deliberate
tampering or an encoding error are greatly reduced. In addition, our line of integrated consumable supplies is specially designed for optimal use in our systems.

Broad array of systems.While our premium systems incorporate multiple functions, we seek to meet the varying needs of end
users by offering several product lines including less sophisticated systems at lower prices. We currently offer four principal product lines with variations within each line to meet customer needs.

Flexibility and ease of use.All of our systems can be integrated into a network or operated as a stand alone system,
attached to a single personal computer. Because our systems are relatively compact, they are easily moved from one location to another. Although our systems are technically sophisticated,

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they do not require a high level of technical sophistication to operate, so end users can create personalized cards quickly and easily. All of our systems are designed to be interoperable with the
hardware, software and other equipment most often used by our resellers so they can create systems tailored to their customers' needs.

Training and technical support.We provide training and technical support to our resellers and systems integrators to assist
them in marketing and servicing our systems. Our on-site training workshops,
instructional videos and live telephone support assist our resellers in helping end users make the purchasing decision that best suits their particular needs.

Digital Card Personalization Technologies

Printing technologies.Currently, there are two primary digital card printing technologies used to print personalized
cardsdirect-to-card printingandhigh definition printingtechnology. We manufacture systems that use each of these technologies.

Direct-to-card
printing is the most common technology used by digital card printers to print images directly onto the surface of a plastic card. The process
involves heating a special print ribbon beneath a thermal printhead and pressing down so that the ribbon is in contact with the card and the printhead rests on the top of the ribbon, resulting in the
transfer of color from the ribbon to a blank card. This method requires that the card be clean and very flat, as the printhead itself is flat and must contact all of the card in order to lay down a
proper print. Because PVC is the most conducive material on which to print, almost all of the blank cards used with our systems are made with a clear PVC layer on both sides of the card. Most card
printers in the market today use this direct-to-card technology, including the vast majority of the printers that we have manufactured to date.

High
definition printing is a process in which the printer first prints images onto a special film, which is then laminated onto the surface of a blank card through heat and pressure.
Because the graphics and text are printed on the underside of the film, the image is "sandwiched" between the film and the card, providing for better image quality and improved dye migration and
ultraviolet light control than direct-to-card printing. By printing on the film rather than directly on the surface of a card, the ceramic printheads in our HDP systems are
less susceptible to damage that can result from contact with debris or imperfections on the hard surface of a card. High definition printing also eliminates many of the printing irregularities that
can occur in direct-to-card printing when the printhead passes over a dirty or uneven area and fails to maintain contact with the card surface. For example, our HDP systems are
ideal for printing on proximity cards and smart cards, which tend to have uneven surfaces due to embedded wires and smart chips. We have been shipping our line of high definition printing systems
since 2000. In summary, high definition printing produces higher quality images than direct-to-card printing, and the ability to print on many card sizes, types or chemical compositions, including
biodegradable cards.

Print methods.Dye sublimation is the process our printers use to print smooth, continuous tone images that look truly
photographic. This process uses a dye based ribbon roll that is partitioned by a number of consecutive color panels. The panels are grouped in a repeating series of the three process
colorsyellow, magenta, and cyanalong the entire length of the ribbon. There can be additional panels for black and for a protective overlay as well as for printing on both
sides of the card. During printing, a ceramic printhead containing hundreds of thermal elements heats the dyes on the ribbon which then vaporize and diffuse into the surface of either the card (for
direct-to-card printing) or the HDP film. A
separate pass is made for each of the panels on the ribbon. By combining the colors of each panel and by varying the heat used to transfer these colors, the printer is able to produce millions of
photo realistic colors.

Resin
thermal transfer is the process our printers use to print sharp solid color, typically black, text and bar codes. Resin thermal transfer is required to create machine readable bar
codes that can be

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read by infrared bar code scanners. Like dye sublimation, this process uses the same thermal printhead to transfer color from the ribbon roll to the card or the HDP film. The difference, however, is
that solid dots of color are transferred in the form of a resin-based ink which adheres to the surface of the card when heated. This produces single color images. Resin black panels are included on
many of our full color dye sublimation ribbons so that you can automatically print both dye sublimation and resin images on the same card. This gives cards the benefits of both print methods.
Resin-only ribbons are also available for use with our direct-to-card printers for printing economical one-color cards in as fast as 5 seconds. These
ribbons consist of a continuous roll of a single resin color and can produce up to 1,000 cards per ribbon. Black and a variety of other resin ribbon colors are available.

Data encoding.In addition to printed photographs, text and bar codes, our concept of card personalization also includes
encoding of personalized data on magnetic stripes, proximity cards and smart cards. Data encoding capabilities are available on most of our card personalization systems. Magnetic stripe technology is
the oldest and most widely used technology for encoding identification and stored value data on cards and is available in all of our systems. Digitized data is stored on a magnetic stripe by altering
the polarity of microscopic particles (usually iron oxide) embedded in a resin. Our systems encode data on magnetic stripes in a binary format, with the polarity of the particles shifting from
north-south to south-north as the recording mechanism in our systems progresses down the stripe. When the cards are swiped through a reader, the polarity changes are detected, which allows the data to
be interpreted.

The
term "smart card" commonly refers to any plastic card with an embedded integrated circuit microchip or an on-board microprocessor. Smart card data is accessed by direct
electrical contact with a smart card reader that makes physical contact with a gold plate on the card face and then reads and transmits data electronically. Contactless smart cards have an electronic
microchip and an antenna embedded inside that allow the card to communicate with an antenna/coupler unit without physical contact. A smart card data encoding option is available on most of our systems
to electronically record data on smart chips as the cards are processed through our systems. On several of our new Professional Series printers, either a contact or contactless option is available.

Proximity
cards have embedded electronic circuits that store data that can be read by a proximity reading device without the need for the card to make physical contact with the reader.
Users can leave their proximity cards inside their wallet or purse while the reader processes the code, making the convenience of proximity cards increasingly popular for access control applications.
We are working with leading proximity card manufacturers, such as HID Systems Inc. in the United States, and technologies more popular outside of the United States such as Mifare and Legic, to
incorporate proximity encoding operations into our Professional line of printers.

Through
the Fargo Technology Alliance, an industry group of vendors that we brought together to provide solutions in smart cards and proximity cards, we are working with manufacturers
and developers of various methods of encoding biometric data  such as fingerprints or voice recognition features  on cards through our systems.

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Our Products

We currently manufacture four different product lines with a variety of options within each product line as illustrated in the following chart.

|                                      |  | Professional Series                     |  | Persona Series                         
|------------------------------------- |  | --------------------------------------- |  | ---------------------------------------
|
|
|Print Method                          |  | Dye sublimation/ resin thermal transfer |  | Dye sublimation/ resin thermal transfer
|Color Capability                      |  | Full Color                              |  | Full color and monochrome              
|Maximum Print Speed                   |  | 35 seconds
(YMC with Lamination)        |  | Pro-LX: 30 seconds
(YMCK / Lam)        
|Printing Sides                        |  | Dual                                    |  | Dual                                   
|Magnetic Stripe Option                |  | Yes                                     |  | Yes                                    
|E-Card Docking Station Option         |  | Yes                                     |  | Yes                                    
|Contact Smart Card Encoder Option     |  | Yes                                     |  | No                                     
|Contactless Smart Card Encoder Option |  | Yes                                     |  | No                                     
|Proximity Card Encoder Option         |  | Yes                                     |  | No                                     
|SmartGuard (Electronic Printer Lock)  |  | Yes                                     |  | Yes                                    
|Card Hopper Capacity                  |  | 250                                     |  | 100                                    
|Networking Capability                 |  | Yes                                     |  | Yes                                    
|Compatibility                         |  | PC                                      |  | PC                                     

We sell our products to resellers who offer our products to end users typically as part of an integrated system that may also include a digital
camera, a computer with card design software and other equipment manufactured by other companies. All of our systems are designed to be interoperable with the hardware, software and other equipment
most often used by our resellers.

In
addition to manufacturing card personalization systems, a significant portion of our business is supplying our independent distributors and resellers with consumable supplies that are
engineered to work compatibly with our printers, such as ribbons and overlaminates. Sales of these consumable supplies accounted for approximately 56%, 57% and 51% of our net sales of card
personalization products in 2001, 2000 and 1999, respectively. Our consumable supplies business provides us with recurring revenues because most of our supplies are proprietary and unique to our
systems. We engineer these supplies in cooperation with the manufacturers of these materials and some are specially designed and manufactured to produce superior cards and prevent operator errors.
Printer ribbons have a panelized appearance and are used to create the images on the cards. Each ribbon prints a fixed number of cards so that an end user or distributor can calculate the number of
ribbons needed to print

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a certain number of cards. Overlaminates are applied after the printing process and increase the durability of the cards. These overlaminates are offered in clear material, a standard holographic
material, and in a custom holographic application where the end user may customize the holograph in the overlaminate in order to increase security as well as durability. In order to mitigate some of
the difficulties that card systems experience in printing on uneven or dirty cards, we sell blank cards that are optically scanned to ensure that they are as clean and defect free as reasonably
possible. Both the ribbons and the overlaminates include proprietary technology owned by their respective manufacturers and, in some cases, technology owned by us. Blank cards, however, are
essentially a commodity item that may be purchased through a variety of sources. We also sell, as part of our supplies business, replacement parts for the systems and extended warranties.

Sales and Marketing

Distribution channels.We market and sell our products through a distribution channel of independent distributors and
resellers in more than 100 countries worldwide. We believe that our distribution network is the largest and most dedicated in our industry. We believe, however, that the announcement in
July 2001 of our proposed acquisition by Zebra Technologies and the nearly eight-month delay due to the Hart-Scott-Rodino antitrust review prior to termination of the transaction in
March 2002 has had an adverse effect on our distributorship and reseller relationships and consequently our sales.

In
conjunction with the introduction of our Professional Series systems in September of 2000, we implemented an exclusive distribution strategy for these premium systems in the United
States. As with our international distributors, our domestic distributors and resellers that wish to sell our Professional Series product line must commit to a distribution arrangement which requires,
among other things, that our products constitute 80% of our resellers' total dollar volume of sales of card personalization systems and that our distributors sell exclusively Fargo products. Our
Professional Series is currently sold through five exclusive distributors and approximately 200 value-added resellers who have agreed to meet the 80% volume requirement. We believe, however, that many
of our resellers are not currently in compliance with this 80% volume requirement due to the uncertainty caused by our delayed and now terminated transaction with Zebra Technologies Corporation. As we
seek to strengthen our distribution network, we will evaluate when and how to more aggressively enforce these volume requirements.

Our
Persona Series, which is our line of lower priced value systems, is available on a non-exclusive basis to all our distributors and resellers. In the United States, our
Persona Series distribution network currently includes approximately 265 direct resellers, as well as nine distributors who distribute our products to their approximately 1,500 resellers nationwide.

Our
international distribution network includes 67 resellers and 48 distributors throughout Europe, Asia, Africa, Latin America and Australia. Although doing business in developing
regions involves risks of political and economic instability, we are generally able to terminate our arrangements with our international distributors and resellers upon short notice in order to
mitigate such risks. Additional information about our international sales is also included in Note 11 to our financial statements on page F-18 of this report.

Our
largest ten distributors and resellers accounted for a combined total of 43%, 41% and 41% of sales in 2001, 2000 and 1999, respectively. One customer accounted for more than 10% of
our sales in 2000, while no single customer accounted for more than 10% of our sales in 2001 and 1999. We support our distribution network and end-user customers through our offices in
Eden Prairie, Minnesota. As of December 31, 2001, we directly employed 44 individuals engaged in sales, marketing and technical support.

Resellers
sell a variety of identification and access control components from different manufacturers, and customize systems for end-user applications as part of their
systems integration

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business. Because these sales channels provide specific equipment, software, configuration, installation, integration and support services required by end users within various market segments, these
relationships allow us to reach end users worldwide in a broad variety of industries. We do not compete with our distributors or resellers by selling directly to end users.

Marketing activities.Our marketing operations include customer relations, specification development and market research
functions, marketing communications, and technical and training services. Our marketing group works closely with our research and development personnel to develop ideas for new products and product
enhancements to better meet the needs of end users. As part of our strategic planning, we are continually analyzing the market for our products and evaluating our strengths and weaknesses compared
with our competition. Our distribution partners have been a valuable source for ideas and information and we communicate regularly with our distribution channel to solicit their input and gather
feedback from end users.

We
routinely conduct promotional efforts targeted at distributors and resellers, as well as directly to potential end users such as corporations, schools, hospitals and others. Most of
our promotional efforts are directed at end users. Our web site provides visitors with information about the company and our systems, allows them to contact us via e-mail, and also allows
special access to our authorized
distribution network to obtain detailed product specifications, pricing information and technical updates. We also actively participate in industry trade shows, both as an exhibitor at larger trade
shows and with our distribution partners at smaller, regional trade shows. All leads generated by our marketing activities are referred to an appropriate authorized distributor or reseller.

We
provide training and technical support to our distributors and resellers to assist them in marketing and servicing our systems. Our on-site training workshops,
instructional videos and live telephone support assist our resellers in helping end users make the purchasing decision that best suits their particular needs. Our repair times are three business days
for personalization systems that are sent to us, whether or not those systems are covered by a warranty. In addition, our resellers are able to become Authorized Service Providers so that they can
provide technical support directly to their customers. Many of them also offer their customers maintenance and support contracts for their integrated card personalization solutions.

End users and applications.Our card personalization systems are used to create personalized cards for a wide variety of
applications by end users in many different vertical markets, as illustrated below:

|Corporate                              |  | Access control, employee identification and parking passes                                         
|-------------------------------------- |  | ---------------------------------------------------------------------------------------------------
|Education                              |  | Access control, student identification, stored value for bookstore and cafeteria and library cards 
|Government                             |  | Drivers' licenses, military identification, social services identification and stored value        
|Healthcare                             |  | Access control and employee identification                                                         
|Transportation                         |  | Bus and train passes                                                                               
|Gaming, Entertainment, and Hospitality |  | Access to events, hotel rooms, exclusive privileges, stored value for gaming, restaurants and shops
|Commerce and Recreation                |  | Customer loyalty and discount cards, park passes and ski lift passes                               

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Research and Product Development

Our research and development strategy is to apply new technologies into our systems so that our products remain the highest quality and most advanced systems
available. We have adopted a design and development approach that we believe will allow us to integrate new technologies into our product offering quickly and efficiently. We believe that emerging
technologies, such as smart cards and biometrics, will provide us with new opportunities to differentiate our systems from those of our competitors. We strive to involve our independent resellers to
help us determine the needs of end users, assess our systems and better assure market acceptance of new products.

We
have assembled a highly trained staff of electrical, mechanical and chemical engineers and we devote significant resources to developing new card printing solutions and compatible
proprietary supplies for our target markets, as well as maintain high standards of quality and reliability. As of December 31, 2001, we had 34 employees engaged in new product design,
engineering and development.

We
continue to implement our strategy to invest significant engineering resources in product development. Our research and development costs were approximately 6.6%, 8.5%, and 7.3% of
net sales in 2001, 2000 and 1999, respectively.

Intellectual Property

Portions of our manufacturing processes and the mechanical and electronic designs of our systems are proprietary and we attempt to protect our systems and
processes through a combination of patents, copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and similar means. We seek patents from time to time on our
products and processes. The decision to seek additional patents is based on our analysis of various business considerations such as the cost of obtaining a patent, the likely scope of patent
protection and the benefits of patent protection relative to relying on trade secrets and other protection. We also rely on technical know-how and continuing technological innovations to
develop and maintain our competitive position.

As
of December 31, 2001, we held 18 United States patents related to our card business. We have also filed applications for approximately 60 additional United States patents that
are currently pending. Our
existing patents expire during the period between January 2009 and September 2020. We consider our most important patents to be those covering our methods for driving our printheads, our
lamination methods and our method of identifying dye sublimation and thermal transfer ribbons. We also rely on proprietary manufacturing processes and techniques, materials expertise and trade secrets
applicable to the manufacture of our systems. We believe that these proprietary rights may provide us with a competitive advantage as important as, if not more important than, patent protection. We
seek to maintain the confidentiality of this proprietary information by requiring employees who have access to it to sign confidentiality and non-competition agreements and by limiting
access by outside parties to such information. We file some patents in counties outside the United States, again depending on our analysis of various business considerations such as the cost of
obtaining a patent, the likely scope of patent protection and the benefits of patent protection relative to relying on trade secrets and other protection. We recognize that some countries in which we
do business do not offer the same level of protection for intellectual property as does the United States.

Manufacturing and Sources of Supply

We outsource assembly of certain component parts such as circuit boards, wire harnessing and cabling to a manufacturer in Jamaica. These components are then
shipped to our manufacturing facility in Eden Prairie, Minnesota for final assembly. We also purchase component parts, printheads and ribbons from a number of vendors located in the United States and
Japan. The terms of supply contracts are negotiated separately with each vendor and we believe that our present vendors have sufficient capacity to meet our requirements and that alternate production
sources for most

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components are generally available without undue interruption. We have not experienced any difficulty in the past in purchasing component parts or engaging contractors.

To
keep our inventory costs low, we try to manage our production of systems by not maintaining any significant inventory of completed systems and we maintain only limited inventories of
component parts and consumable supplies. We enter into purchase agreements with certain suppliers that require us to purchase minimum amounts of inventory. We endeavor to produce systems as they are
ordered, which causes us to forecast production based on past sales and our estimates of future demand rather than stocking finished goods. While most components are available from multiple vendors,
certain components used in our systems are only available from single or limited sources. In common with most of our competitors, we rely on Kyocera, based in Japan, to supply us with printheads. A
disruption in the supply of printheads, such as the occurrence of a catastrophic event affecting Kyocera or its decision to limit or cease production, would affect the entire industry, including us.

Competition

Many companies are engaged in the design and manufacture of personalization systems. We design and manufacture desktop thermal dye sublimation systems primarily
for the on-demand personal identification card market. Competition in our market is intense and we expect it to increase. We
expect to compete with a number of companies, some of which have greater financial, technical and marketing resources than we do. Our ability to compete successfully depends on many factors, some of
which are outside of our control. Factors affecting our ability to compete include:



We
believe that we compete favorably with respect to each of these factors. Although the prices of our Professional systems are generally higher than those of our competitors, we have
been able to maintain these prices because of our reputation for quality and performance and our favorable relationships with our independent resellers. Our Persona line of printers is very price
competitive.

The
card personalization industry includes approximately 25 companies that manufacture digital card printers; and although the market is fragmented, there are six strong competitors:
Datacard, Fargo, Zebra (Eltron), Atlantek, Nisca and MagiCard. We believe that Fargo has the largest revenue of digital card personalization systems when both systems and consumables (but not
software) are included. We also compete with manufacturers of analog lamination systems, such as Polaroid Corporation, which we believe continues to be the leading seller of card products. Competition
also includes general use ink jet printers that print onto Teslin, an ink jet receptive surface manufactured by Pittsburgh Paint and Glass. As the result of the termination in March 2002 of our
proposed acquisition by Zebra, it is possible that Zebra may be a more vigorous competitor in our business.

Employees

As of March 15, 2002, we employed approximately 189 persons, of whom 91 are engaged in manufacturing, 39 in research and development, 44 in sales,
marketing and technical support and the balance in management and administrative positions. None of our employees are represented by a

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labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages and consider relations with our employees to be good.

All
employees are required to sign a confidentiality and non-competition agreement prior to beginning employment with us. The confidentiality obligations do not expire and
the non-competition restrictions are typically for a period of 12 months for most employees and 18 months for key employees and all engineers.



See Note 11 on page F-18 of our financial statements for information about export sales.

Item 1A.    CAUTIONARY STATEMENT REGARDING FUTURE RESULTS, FORWARD-LOOKING INFORMATION AND CERTAIN IMPORTANT FACTORS

Fargo makes written and oral statements from time to time regarding its business and prospects, such as projections of future performance, statements of
management's plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimates,"
"projects," "believes," "expects," "anticipates," "intends," "target," "goal," "plans," "objective," "should" or similar expressions identify forward-looking statements, which may appear in documents,
reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by officers or other representatives of Fargo to analysts, stockholders, investors, news
organizations and others, and discussions with management and other representatives of Fargo. For such statements, Fargo claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.

The
future results of Fargo, including results related to forward-looking statements, involve a number of risks and uncertainties. No assurance can be given that the results reflected in
any forward-looking statements will be achieved. Any forward-looking statement made by or on behalf of Fargo speaks only
as of the date on which such statement is made. Fargo's forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from
suppliers, government agencies and other sources that may be subject to revision. Fargo does not undertake any obligation to update or keep current either (i) any forward-looking statement to
reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause Fargo's future results to differ materially from historical results or
trends, results anticipated or planned by Fargo, or which are reflected from time to time in any forward-looking statement which may be made by or on behalf of Fargo.

In
addition to other matters identified or described by Fargo from time to time in filings with the SEC, there are several important factors that could cause Fargo's future results to
differ materially from historical results or trends, results anticipated or planned by Fargo, or results that are reflected from time to time in any forward-looking statement that may be made by or on
behalf of Fargo. Some of these important factors, but not necessarily all important factors, include the following:

Our agreement to be acquired by Zebra Technologies Corporation has been terminated, which means that shares tendered by our stockholders in the tender offer will be returned
without payment of the tender offer price or any interest and our stockholders may be unable to sell their shares at an equivalent or higher price in the future.

On March 27, 2002, Fargo and Zebra agreed to terminate the acquisition agreement between the parties. Based on discussions with representatives of the
Federal Trade Commission, Fargo and Zebra concluded that the FTC would not approve the acquisition of Fargo by Zebra. As a result of the termination of the transaction, the shares tendered by our
stockholders in the tender offer will be

11

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returned to them without payment by Zebra of the $7.25 per share tender offer price or any interest. Our stock price, as reported by the Nasdaq National Market, could be subject to volatility
following the announcement that our acquisition agreement with Zebra had been terminated. Our stockholders may be unable to sell their shares in the future at a price equal to or higher than the price
previously offered in the tender offer.

The delay and uncertainty caused by the Federal Trade Commission's review of our proposed acquisition by Zebra Technologies, and the termination of the proposed transaction due
to the failure to obtain regulatory approval, has inhibited our growth and negatively impacted our business.

We believe that the announcement in late July 2001 of our proposed acquisition by Zebra Technologies and the nearly eight-month delay due to the
Hart-Scott-Rodino antitrust review prior to termination of the transaction in March 2002 has had an adverse affect on our distributorship and reseller relationships and,
consequently, our sales. All of our revenue comes from sales through our distributor and reseller network and we do not sell our products directly to end-users. Although our distributors
and resellers have made certain contractual commitments to us, they are independent businesses that we do not control. We believe that the announcement of our proposed acquisition by Zebra
Technologies and the
delay due to the regulatory review process has caused our distribution network to take actions to protect their business interests against the uncertainty inherent in such transactions. These actions
have included taking on competing product lines, devoting their efforts to other products in different markets, reducing or discontinuing sales of our products or failing to devote the resources
necessary to provide effective sales and marketing support of our products. We believe that these types of reactions by our distribution network to the uncertainty and delay surrounding the proposed
transaction with Zebra has inhibited our growth and negatively impacted our business. The continuation of these actions, even though the proposed transaction with Zebra has now been terminated, could
have a continuing material adverse effect on our financial condition and results of operations. We are dependent upon the continued viability and financial stability of these distributors and
resellers, and if they choose to move away from purchasing products from us, this will negatively affect our sales.

We rely on sole and single-source suppliers, which could cause delays, increases in costs or prevent us from completing customer orders, all of which could materially harm our
business.

We rely on outside vendors to manufacture or develop products and consumable supplies that are used in our systems. We purchase critical components for our
systems, including printheads, dye sublimation printer ribbons and microprocessors from separate single source suppliers. Our inability to obtain adequate deliveries or alternative sources of supply
could cause delays, increases in costs and lower gross profit margins. Currently, our sole supplier of printheads is Kyocera, based in Japan, our current sole supplier of ribbons is Dai Nippon, also
based in Japan and our current supplier of most of the microprocessors that run our printers is Motorola. If any of these suppliers is unable to ship critical components, we, together with others in
our industry, would be unable to manufacture and ship products to our customers. If the price of printheads, ribbons or microprocessors increases for any reason, or if these suppliers are unable or
unwilling to deliver, we may have to find another source, which could result in interruptions, increased costs, delays and quality control problems. War, natural disaster, trade embargoes or economic
hardship in Japan could also result in a disruption in shipments from our Japanese suppliers which could require us, together with the entire card personalization industry, to develop new sources of
these supplies or else cause us to be unable to complete and ship orders to our customers.

12

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We do not maintain significant inventories of component parts or finished goods and our failure to adequately forecast demand could result in shortages and damage our business.

We try to manage our production of systems by maintaining no significant inventory of completed systems. We enter into purchase agreements with certain suppliers
that require us to purchase minimum amounts of inventory. We maintain only limited inventories of component parts and consumable supplies. We endeavor to produce systems as they are ordered, which
causes us to forecast production based on past sales and our estimates of future demand. In the event that we significantly underestimate our needs or encounter an unexpectedly high level of demand
for our systems or our suppliers are unable to deliver our orders of components in a timely manner, we may be unable to fill our product orders on time which could harm our reputation and result in
reduced sales.

We do not manufacture a diverse array of products and our business success depends on the continued demand for digital card personalization systems.

Because we sell only digital card personalization systems and related consumable supplies, our business depends on the continued demand from our customers for
cards for identification and access control purposes. Demand for our products could decline if businesses and organizations use alternative technologies, such as biometric technologies that use
physical characteristics of a person such as voice, fingerprints or eyes as a means of identification, or reduce their dependence on identification cards. We cannot assure you that changes in the
business environment or competition from current and potential competitors will not significantly erode the demand for our systems and cause our business to suffer.

Technology in our industry evolves rapidly, potentially causing our products to become obsolete, and we must continue to enhance existing systems and develop new systems or we
will lose sales.

Rapid technological advances, rapidly changing customer requirements and fluctuations in demand characterize the market for our current products. Our existing and
development-stage products may become obsolete if our competitors introduce newer or better technologies. To be successful, we must constantly enhance our existing systems and develop and introduce
new systems. If we fail to anticipate or respond to technological developments or customer requirements, or if we are significantly delayed in developing and introducing products, our business will
suffer lost sales and a smaller market share.

All of our sales are made through our distributors and resellers, over which we have limited control, and if they do not effectively market or sell our products, our sales will
be reduced.

All of our revenue comes from sales through our distributor and reseller network, and we do not sell our products directly to end users. Although our distributors
and resellers have made certain contractual commitments to us, they are independent businesses that we do not control. We cannot be certain that they will continue to market or sell our systems
effectively. In particular, our agreements with distributors and resellers of our Persona Series line of systems are typically non-exclusive, so our distributors and resellers could carry
competing product lines, devote their efforts to other products in different markets, reduce or discontinue sales of our products or fail to devote the resources necessary to provide effective sales
and marketing support of our products, which could have a material adverse effect on our financial condition and results of operations. In addition, we have moved to an exclusive distribution strategy
for our Professional Series line of systems, so we rely on fewer distributors and resellers to sell our premium products. The failure of any one or more of these distributors or resellers of our
Professional Series systems to effectively market and sell these products could impede our exclusive distribution strategy and negatively affect our sales. We are dependent upon the continued
viability and financial stability of these distributors and resellers, many of which are small organizations with limited capital. We believe that our future growth and success will continue to depend
in large part upon the success of our distributors in operating their own businesses.

13

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Our competitors have substantial resources. Competition may result in price reductions, lower gross profits and loss of market share.

We face significant competition in developing and selling our systems. Our principal competitors have substantial marketing, financial, development and personnel
resources. To remain competitive, we believe that we must continue to provide:



We
cannot assure you that we will be able to compete successfully against our current or future competitors. Zebra Technologies has been a significant competitor of ours in the past, and
may be a more vigorous competitor in the future as a result of the termination of the agreement under which Zebra was to acquire Fargo. Increased competition from manufacturers of systems or
consumables may result in price reductions, lower gross margins and loss of market share and could require increased spending by us on research and development, sales and marketing and customer
support. Some of our competitors may make strategic acquisitions or establish cooperative relationships with suppliers or companies that produce complementary products such as cameras, computer
equipment, software or biometric applications. If any technology that is competing with ours becomes more reliable, higher performing, less expensive or has other advantages over our technology, then
the demand for our products and services could decrease. Any of these factors could reduce our earnings.

We sell a significant portion of our products internationally and purchase important components from foreign suppliers, which exposes us to currency fluctuations and other
risks.

We sell a significant amount of our products to customers outside the United States, particularly in Europe and Asia. International sales accounted for 37%, 38%,
and 36% of our net sales in 2001, 2000, and 1999, respectively. We expect that shipments to international customers, including customers in Europe and Asia, will continue to account for a significant
portion of our net sales. The economic and financial instability that has occurred in Asia in the past has not had a material adverse affect on our business, although a recurrence of such instability
could have a negative effect in the future. Sales outside the United States involve the following risks, among others:



We
do not hedge against foreign currency fluctuations and, because we denominate our international sales in U.S. dollars, currency fluctuations could also cause our products to become
less affordable or less price competitive than those of foreign manufacturers. These factors may have a

14

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material adverse effect on our international sales. Any adverse impact on our international sales would affect our results of operations and would cause our business to suffer.

In
addition, we purchase components from a number of foreign suppliers and outsource certain manufacturing tasks to foreign manufacturers. In February of 2001, we entered into a new
agreement with our supplier of dye sublimation ribbons to make our purchases in dollars rather than yen. Although this agreement will reduce the risks of increased purchasing costs if the value of the
dollar declines relative to the yen, we will not be able to benefit from the full potential cost savings if the value of the dollar increases relative to the yen.

If we are unable to effectively manage our growth, we may experience operating inefficiencies and have difficulty meeting the demand for our products.

We have rapidly and significantly expanded our operations and anticipate that further expansion could be achieved. This expansion could place a significant strain
on our management, product and support operations, sales and marketing personnel and other resources, and we may experience difficulty fulfilling the demand for our products which could harm our
business. We cannot assure you that our systems, procedures or controls will be adequate to support the potential growth in our operations.

Our products depend on technologies that we do not own and we could lose revenue if we are unable to obtain these technologies in the future.

Our products incorporate technologies over which we have no control, including thermal printhead technology, dye sublimation ribbons, software and
microprocessors. The owners of these technologies are free to sell or license these technologies to our competitors, agree to supply these technologies exclusively to a third party or enter the market
for our systems as our competitor. If any of these events occur, the owners of these technologies could choose not to continue to supply us with vital system components, which would result in the
diversion of our research and development resources and could result in lost revenue, inability to ship products and harm to our reputation. Some of these technologies are incorporated into new
systems and if these systems are not able to ship due to the unwillingness of the owners of these technologies to supply our requirements, we will see a material adverse impact to our revenues in the
foreseeable future.

If our systems fail to comply with domestic and international government regulations such as import and export restrictions, or if these regulations result in a barrier to our
business, we could lose sales.

Our systems must comply with various domestic and international laws, regulations and standards. In the event that we are unable or unwilling to comply with any
such laws, regulations or standards, we may decide not to conduct business in certain markets. Particularly in international markets, we may experience difficulty in securing required licenses or
permits on commercially reasonable terms, or at all. Failure to comply with existing or evolving laws or regulations, including export and import restrictions and barriers, or to obtain timely
domestic or foreign regulatory approvals or certificates could result in lost sales.

The complex design of our systems could result in manufacturing delays and other problems that cause us to fail to meet the demand for our systems on a timely basis, increase
the cost of our systems or both.

We have experienced manufacturing problems with some of our systems in the past. Similar problems in the future could lead to production delays that could cause
our distribution network to choose to sell competing systems. In addition, manufacturing problems could result in higher material, labor and other costs which could increase the total cost of our
systems and could decrease our profit margins.

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Our systems may have manufacturing or design defects that we discover after shipment, which could negatively affect our revenues, increase our costs and harm our reputation.

Our systems are complex and may contain undetected and unexpected defects, errors or failures. If these product defects are substantial, the result could be
product recalls, an increased amount of product returns, loss of market acceptance and damage to our reputation, all of which could increase our costs and cause us to lose sales. We carry general
commercial liability insurance, including product liability, with a coverage limit of $2 million per occurrence plus an umbrella policy with a $5 million limit. It is possible that our
insurance may be insufficient to protect us against losses caused by severe defects in our products.

Our quarterly operating results may be volatile as a result of many factors and this may cause our stock price to fluctuate.

We have experienced fluctuations in our quarterly operating results and we expect those fluctuations to continue due to a variety of factors. Some of the factors
that influence our quarterly operating results include:



Because
of these factors, our quarterly operating results are difficult to predict and are likely to vary in the future. We have traditionally experienced lower net sales in the first
quarter and higher net sales in the third quarter. If our earnings are below financial analysts' expectations in any quarter, our stock price is likely to drop.

We may not be able to adequately protect or enforce our domestic or international intellectual property rights, which would allow our competitors to offer similar products
which could depress our prices and gross margins.

We believe that protecting our proprietary technology is important to our success and competitive positioning. We currently rely on a combination of patents,
trademarks, license agreements and contractual provisions to establish and protect our intellectual property rights. Our failure to protect our intellectual property rights could have a material
adverse effect on our business, results of operations and financial condition. We cannot be certain that the steps we take to protect our intellectual property will adequately protect our proprietary
rights, that others will not independently develop or otherwise acquire equivalent or superior technology or that we can maintain any of our technology as trade secrets. The laws of some of the
countries in which our systems are or may be sold may not protect our systems and intellectual property to the same extent as the United States or at all.

We may not be able to adequately protect ourselves against infringement claims of others, which if successfully brought could require us to redesign or cease marketing our
products.

We cannot be certain that we have not infringed the proprietary rights of others. Any such infringement could cause third parties to bring claims against us,
resulting in significant costs, possible damages and substantial uncertainty. We could also be forced to develop a non-infringing alternative which could be costly and
time-consuming.

16

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If we fail to attract and retain highly skilled managerial and technical personnel, we may fail to remain competitive.

Our future success depends, in significant part, upon the continued service and performance of our senior management and other key personnel, in particular Gary
R. Holland, our Chief Executive Officer. Although we have "key man" insurance on Mr. Holland with a death benefit of $3 million, losing the services of Mr. Holland could impair
our ability to effectively manage our company and to carry out our business plan. In addition, competition for skilled technical employees in our industry is intense. If we cannot attract and retain
sufficient qualified technical employees, we may not be able to effectively develop and deliver competitive products to the market.

We may need to raise additional capital to fund our future operations, and any failure to obtain additional capital when needed or on satisfactory terms could damage our
business.

We may need to raise or borrow additional capital in the future to fund our ongoing operations. Any equity or debt financing, if available at all, may be on terms
that are not favorable to us and, in the case of equity offerings, may result in dilution to our stockholders. Any difficulty in obtaining additional financial resources, including the inability to
borrow on satisfactory financial terms, could force us to curtail our operations or prevent us from pursuing our growth strategy or otherwise cause us financial harm.

In
addition, we currently have a significant level of debt under our credit facility agreement. This credit facility imposes several restrictive conditions on our ability to incur
additional indebtedness and pay dividends. This credit facility, and other future credit facilities, may prevent us from taking steps necessary to further our growth. In addition, this credit facility
has a short term (less than 18 months) expiration date. It is possible that our current lenders and other potential lenders may not extend us credit.

Item 2.    PROPERTIES

We currently lease approximately 90,240 square feet of space for our corporate headquarters and manufacturing facility in Eden Prairie, Minnesota. Our lease for
this facility expires in December 2006 and we have the option of extending this lease for an additional two or five year period.

Item 3.    LEGAL PROCEEDINGS

We do not believe that any legal matters exist that would have a material adverse effect on our business, financial condition or results of operations.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted for a vote of our security holders during the fourth quarter of the fiscal year covered by this report.

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Item 4A.    EXECUTIVE OFFICERS OF FARGO

Name

Age

PositionGary R. Holland

60

President, Chief Executive Officer, and Chairman of the Board of DirectorsScott Ackerman

38

Vice PresidentQuality and Management SystemsMark Andersen

41

Vice PresidentSalesTony Dick

29

Acting Chief Financial OfficerKathleen Phillips

37

Vice PresidentMarketingTom Platner

42

Vice PresidentEngineering and ManufacturingJeffrey D. Upin

43

Vice President and General Counsel


Gary R. Hollandhas served as our Chief Executive Officer since February 1998. From May 1997 to February 1998,
Mr. Holland was the general manager of Fargo. From 1992 to 1997, Mr. Holland owned and operated two business and strategy consulting firms, Decision Process International and
Holland & Associates. From 1982 to 1992, Mr. Holland was the President of Datacard Corporation. From 1979 to 1982, he was the President and Chief Operating Officer of CPT Corporation.
Mr. Holland also serves as a member of the boards of directors of Check Technology Corporation and is Chairman of DataKey Corporation.

Scott Ackermanis our Vice PresidentQuality and Management Systems, a position he has held since January 2001. He was
previously Director of Manufacturing for Fargo, and also served as General Manager of Fargo Electronics Jamaica Ltd., a Jamaican corporation located in Montego Bay, from 1995 through 1996. From
1993 to 1995, he was an Operations Manager at Piper Capital Management, and held various positions within the Audit Practice at the accounting firm KPMG from 1990 through 1993.

Mark Andersenhas been Vice PresidentSales since June 2000. He previously was Fargo's director of sales since 1997 and
joined Fargo in 1994 as a regional sales manager. Prior to joining Fargo, he served in various computer products sales positions with a division of United Stationers, Inc.

Tony DickActing Chief Financial Officera position he has held since February 2002. He was previously Director of
Finance since June 2000 and joined Fargo in 1997 as controller. Prior to joining Fargo, he worked for the accounting firm Larson, Allen, Weishair, LLP.

Kathleen Phillipshas been our Vice PresidentMarketing since June 2000. She joined Fargo in 1993, and has held various
management positions at Fargo, including technical support, inside sales, customer service and most recently product marketing. Prior to joining Fargo, she held various positions in research and
development, and technical support and services at Northgate Computer Systems from 1989 to 1992.

Tom Platnerhas been our Vice PresidentEngineering and Manufacturing since November 2000. He joined Fargo as Director
of Product Development in August 1999. Prior to joining Fargo, he worked as Engineering Manager and Director of Engineering at Rosemount Inc. (division of Emerson Electric) of Eden
Prairie from 1995 to 1999. He held various engineering positions at McQuay International of Minneapolis, from 1985 to 1995, and for Carrier Corporation (division of United Technologies) as a Field
Application Engineer from 1981 to 1985.

Jeffrey D. Upinhas served as our General Counsel since April 1995 and holds operational duties as Director of Supplies.
Mr. Upin was appointed as Fargo's Vice President and Corporate Secretary in September of 2000. Prior to joining Fargo, Mr. Upin served as Vice President of St. Paul Clothiers, a regional
retail operation.

18

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PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.



Our common stock is currently traded on the Nasdaq National Market under the symbol "FRGO." The following table sets forth, the high and low sales prices per
share as reported by the Nasdaq National Market for each full quarter since our initial public offering of common stock in February 2000.

2001

High

Low

2000

High

LowFirst Quarter

$
5.13

$
2.13Second Quarter


4.97


2.08

Second Quarter

$
11.88

$
2.75Third Quarter


7.22


4.21

Third Quarter


8.94


3.75Fourth Quarter


7.12


6.73

Fourth Quarter


6.16


1.59




As of March 18, 2002, we estimate that there were over 1,500 beneficial owners of shares of our common stock, which shares were held by 84 record holders.



We have not declared or paid any cash dividends on our common stock for the past three fiscal years, other than S corporation distributions prior to our
conversion to a C corporation in connection with our recapitalization in February 1998. Our Board of Directors presently intends to retain all earnings to repay remaining indebtedness under our
credit facility, to support our operations and to finance
expansion. Under Delaware law, we are permitted to pay dividends only out our surplus or net profits. In addition, our ability to declare and pay dividends is restricted by the terms of our credit
facility.



We did not sell any equity securities that were not registered under the Securities Act of 1933, as amended, during the fiscal year ended December 31,
2001.

19

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Item 6.    SELECTED FINANCIAL DATA.

The data presented below as of and for the years ended December 31, 2001, 2000 and 1999 are derived from our audited financial statements included
elsewhere in this report. The financial data as of and for the years ended December 31, 1998 and 1997 are derived from our audited financial statements that are not included in this report. The
information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this report and our financial
statements and related notes beginning on page F-1 and other financial information included elsewhere in this report.

Summary Statements of Operations Data

(in thousands, except per share data)

|                                                                |                                     | 2001                                    |        | 2000   |      | 1999   |        | 1998  |         | 1997   |       
|--------------------------------------------------------------- | ----------------------------------- | --------------------------------------- | ------ | ------ | ---- | ------ | ------ | ----- | ------- | ------ | ------
|Net sales                                                       |                                     | $                                       | 60,963 |        | $    | 57,845 |        | $     | 54,107  |        | $     
|Cost of sales                                                   |                                     |                                         | 37,497 |        |      | 34,721 |        |       | 28,928  |        |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|                                                                | Gross profit                        |                                         |        | 23,466 |      |        | 23,124 |       |         | 25,179 |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|Operating expenses:                                             |                                     |                                         |        |        |      |        |        |       |         |        |       
|                                                                | Research and development            |                                         |        | 4,053  |      |        | 4,934  |       |         | 4,011  |       
|                                                                | Selling, general and administrative |                                         |        | 10,341 |      |        | 10,027 |       |         | 8,525  |       
|                                                                | Recapitalization costs(1)           |                                         |        |       |      |        |       |       |         |       |       
|                                                                | Acquisition related costs(2)        |                                         |        | 1,434  |      |        |       |       |         |       |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|Total operating expenses                                        |                                     |                                         | 15,828 |        |      | 14,961 |        |       | 12,536  |        |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|Operating income                                                |                                     |                                         | 7,638  |        |      | 8,163  |        |       | 12,643  |        |       
|Other income (expense):                                         |                                     |                                         |        |        |      |        |        |       |         |        |       
|                                                                | Interest expense                    |                                         |        | (1,379 | )    |        | (2,830 | )     |         | (5,956 | )     
|                                                                | Interest income                     |                                         |        | 79     |      |        | 81     |       |         | 102    |       
|                                                                | Other, net                          |                                         |        | (33    | )    |        | 7      |       |         | 270    |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|Total other expense                                             |                                     |                                         | (1,333 | )      |      | (2,742 | )      |       | (5,584  | )      |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|Income before provision for income taxes and extraordinary loss |                                     |                                         | 6,305  |        |      | 5,421  |        |       | 7,059   |        |       
|Provision for income taxes                                      |                                     |                                         | 2,229  |        |      | 1,979  |        |       | 2,575   |        |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|Net income (loss) before extraordinary loss                     |                                     |                                         | 4,076  |        |      | 3,442  |        |       | 4,484   |        |       
|Extraordinary loss, net of applicable income taxes              |                                     |                                         |       |        |      | (385   | )      |       |        |        |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|Net income (loss)                                               |                                     |                                         | 4,076  |        |      | 3,057  |        |       | 4,484   |        |       
|Accrued dividends on Series B, 8% redeemable preferred stock    |                                     |                                         |       |        |      | (350   | )      |       | (2,620  | )      |       
|Accretion of convertible participating preferred stock          |                                     |                                         |       |        |      |       |        |       | (67,000 | )      |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|Net income (loss) available to common stockholders              |                                     | $                                       | 4,076  |        | $    | 2,707  |        | $     | (65,136 | )      | $     
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|Net income (loss) per common share:                             |                                     |                                         |        |        |      |        |        |       |         |        |       
|                                                                | Basic earnings:                     |                                         |        |        |      |        |        |       |         |        |       
|                                                                |                                     | Income before extraordinary loss        |        | $      | 0.35 |        | $      | 0.29  |         | $      | (37.56
|                                                                |                                     | Extraordinary loss                      |        |        |     |        |        | (0.04 | )       |        |      
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|                                                                |                                     | Net income (loss)                       |        | $      | 0.35 |        | $      | 0.25  |         | $      | (37.56
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|                                                                | Diluted earnings:                   |                                         |        |        |      |        |        |       |         |        |       
|                                                                |                                     | Income (loss) before extraordinary loss |        | $      | 0.34 |        | $      | 0.27  |         | $      | (37.56
|                                                                |                                     | Extraordinary loss                      |        |        |     |        |        | (0.03 | )       |        |      
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|                                                                |                                     | Net income (loss)                       |        | $      | 0.34 |        | $      | 0.24  |         | $      | (37.56
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|Weighted average common shares outstanding:                     |                                     |                                         |        |        |      |        |        |       |         |        |       
|                                                                | Basic shares outstanding            |                                         |        | 11,760 |      |        | 10,637 |       |         | 1,734  |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       
|                                                                | Diluted shares outstanding          |                                         |        | 11,958 |      |        | 11,413 |       |         | 1,734  |       
|                                                                |                                     |                                         |        |        |      |        |        |       |         |        |       

---

20

---

Summary Balance Sheet Data  (in thousands)

|                                          |  | As of December 31,
|----------------------------------------- |  | ------------------
|
|Cash and cash equivalents                 |  | $                 
|Working capital                           |  |                   
|Total assets                              |  |                   
|Note payable, stockholder                 |  |                   
|Bank debt                                 |  |                   
|Series B, 8% redeemable preferred stock   |  |                   
|Convertible participating preferred stock |  |                   
|Stockholders' equity (deficiency)         |  |                   

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Certain statements contained in this report include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors may include, among others, those factors listed in Item 1.A and elsewhere in this report and our other filings with the Securities
and Exchange Commission. The following discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this report.

Overview

We design, manufacture, sell and support a broad line of products for plastic card personalization and data encoding.

In
February 2000, we completed an initial public offering of 5,000,000 shares of our common stock, resulting in net proceeds of $69,750,000 before offering expenses. We used the
proceeds of the offering to repay debt and redeem our redeemable preferred stock. For more information about the use of proceeds from the offering, see Note 3 to our financial statements
beginning on page F-10.

Results of Operations

The following table sets forth, for the periods indicated, certain selected financial data expressed as a percentage of net sales:

Years Ended December 31,2001

2000

1999Net sales

100.0
%
100.0
%
100.0
%Cost of sales

61.5

60.0

53.5Gross profit

38.5

40.0

46.5Operating expenses:Research and development

6.6

8.5

7.4Selling, general and administrative

17.0

17.3

15.8Acquisition related costs

2.4



Total operating expenses

26.0

25.8

23.2Operating income

12.5
%
14.2
%
23.3
%


21

---

Comparison of Years Ended December 31, 2001 and 2000

Net sales.Net sales increased 5.4% to $61.0 million in 2001 from $57.8 million in 2000. The mix of net sales
continued to change with sales of plastic card personalization products increasing 5.9% to $60.6 million in 2001 from $57.2 million in 2000. Sales of products not related to plastic card
personalization decreased 43.0% to $358,000 in 2001 from $628,000 in 2000. Of the $60.6 million in sales attributable to plastic card personalization products in 2001, sales of equipment
increased 9.4% to $27.0 million from $24.7 million in 2000, and sales of supplies increased 3.3% to $33.6 million from $32.5 million in 2000. The increase in sales of
equipment is largely attributable to shipment of printers for the Department of Defense "Common Access" Identification Card Project. The increase in sales of supplies was the result of increased unit
volume of ribbons.

International
sales increased 0.4% to $22.3 million in 2001 from $22.2 million in 2000 and accounted for 36.6% of net sales in 2001 compared to 38.4% of net sales in 2000.
The decrease in international sales as a percent of total sales was principally due to the increase in sales in the United States from the shipment of printers to the Department of Defense for the
year ended December 31, 2001. We experienced increased international sales in Canada, primarily the result of increased sales of
equipment. This increase in international sales was partially offset by decreased sales in Asia Pacific. Asia Pacific sales were lower mainly due a decrease in sales of equipment.

Our
now terminated agreement to be acquired by Zebra Technologies Corporation was announced on July 31, 2001. We believe that the announcement of the acquisition and the delay in
the consummation of the transaction, which was terminated on March 27, 2002, due to the Hart-Scott-Rodino antitrust review has had, and will likely continue to have, an adverse
effect on our distributorship and reseller arrangements and, consequently, our sales.

Gross profit.Gross profit increased 1.6% to $23.5 million for 2001 from $23.1 million in 2000. Several
factors, however, led to a decline in the gross profit margin percent to 38.5% in 2001 from 40.0% in 2000, notably, increases in manufacturing start-up costs associated with our new
products, increased discounts and increased sales of lower margin printers in 2001. Lower material costs on supplies partially offset these negative factors.

Research and development.Research and development expenses decreased 17.9% to $4.1 million in 2001 from
$4.9 million in 2000. Research and development expenses as a percentage of net sales were 6.6% for 2001 compared to 8.5% for 2000. Lower salary expense as a result of lower staffing levels and
tighter controls on expenditures for prototype parts contributed to the decrease in research and development expenses.

Selling, general and administrative.Selling, general and administrative expenses increased 3.1% to $10.3 million in
2001 from $10.0 million in 2000. As a percentage of net sales, selling, general and administrative expenses were 17.0% in 2001, compared to 17.3% in 2000. The dollar increase is principally
attributable to additional legal and professional fees, which include fees paid to outside consultants to improve our manufacturing processes. These increases in fees were partially offset by lower
marketing trade show and marketing program expenses.

Acquisition related costs.In connection with our now terminated acquisition by Zebra Technologies Corporation, we incurred
legal, professional, and investment banking expenses of $1.4 million for the year ended December 31, 2001. As a percent of net sales, acquisition related costs were 2.4% in 2001. We
expect to incur additional legal, professional and investment banking expenses in 2002. As a result of the termination of this transaction in March 2002, we may incur additional costs to
rebuild our distribution channel, which may have a negative impact on our sales, gross profit, and operating income.

Operating income.Operating income decreased 6.4% to $7.6 million in 2001 from $8.2 million in 2000. As a
percentage of net sales, operating income was 12.5% in 2001 as compared to 14.1% in 2000.

22

---

Excluding the acquisition related costs, operating income increased 11.1% to $9.1 million in 2001 from $8.2 million in 2000.

Interest expense.Interest expense totaled $1.4 million in 2001 compared to $2.8 million in 2000. The reduction
in our outstanding debt combined with reduced interest rates led to the lower interest expense. The weighted average interest rate on our outstanding debt for the year ended December 31, 2001
was 6.5% as compared to 8.7% in 2000.

Extraordinary loss.In connection with our initial offering of common stock in February of 2000, we recorded an extraordinary
loss, net of tax, of $206,000 for the write-off of deferred financing costs related to the pay-down of senior bank debt. We also recorded an extraordinary loss, net of tax, of
$179,000 for the write-off of the remaining deferred financing costs related to the origination of the senior bank debt that was paid in full in September of 2000 using proceeds from a new
revolving credit facility.

Income tax expense.Income tax expense was $2.2 million in 2001, which results in an effective tax rate of 35.4%,
compared to income tax expense of $2.0 million and an effective tax rate of 36.5% in 2000. The decrease in the effective tax rate for 2001 relates to research and experimentation credits we
utilized in the fourth quarter of 2001.

Comparison of Years Ended December 31, 2000 and 1999

Net sales.Net sales increased 6.9% to $57.8 million in 2000 from $54.1 million in 1999. The mix of net sales
continued to change during this period with sales of plastic card personalization products increasing 8.5% to $57.2 million in 2000 from $52.8 million in 1999. Sales of products not
related to plastic card personalization decreased 53.6% to $628,000 in 2000 from $1.4 million in 1999. Of the $57.2 million in sales attributable to plastic card personalization products
in 2000, sales of equipment decreased 7.1% to $24.7 million from $26.5 million in 1999, and sales of supplies increased 24.2% to $32.5 million from $26.2 million in 1999.
The decrease in sales of equipment was principally due to our inability to meet demand caused from our manufacturing difficulties and increased dealer promotional activities. The increase in sales of
supplies was the result of increased unit volume of ribbons.

International
sales increased 13.8% to $22.2 million in 2000 from $19.5 million in 1999 and accounted for 38.4% of net sales in 2000 compared to 36.1% of net sales in 1999.
The increase in international sales was primarily due to increased demand of printers and supplies in most geographic markets.

Gross profit.Gross profit as a percentage of net sales decreased to 40.0% in 2000 from 46.5% in 1999. The decrease was
primarily due to manufacturing start-up costs related to our new products, an unfavorable change in the exchange rate on the Japanese yen versus the U.S. dollar which increased our
purchasing costs, increased discounts and increased sales of lower margin printers as a percentage of the total printers sold in 2000. The yen impacts our gross margin since we purchase our ribbons
from Japanese suppliers. In 2001, we began purchasing ribbons from our Japanese supplier in U.S. dollars.

Research and development.Research and development expenses increased 23.0% to $4.9 million in 2000 from
$4.0 million in 1999. Research and development expenses as a percentage of net sales were 8.5% for 2000 compared to 7.4% for 1999. The increase in 2000 was primarily due to the continued
development of our new high-definition printing (HDP) and direct-to-card (DTC) product lines and other new plastic card personalization technologies, and increased
payroll expense. Research and development expenses consist primarily of engineering salaries and prototype component costs.

Selling, general and administrative.Selling, general and administrative expenses increased 17.6% to $10.0 million in
2000 from $8.5 million in 1999. As a percentage of net sales, selling, general and administrative expenses were 17.3% in 2000, compared to 15.8% in 1999. The increase in selling,

23

---

general and administrative expenses was principally attributable to additional marketing expenses to promote our new products and increases in personnel expenses for payroll and benefits.

Operating income.Operating income decreased 35.4% to $8.2 million in 2000 from $12.6 million in 1999. As a
percentage of net sales, operating income was 14.1% in 2000 as compared to 23.4% in 1999.

Interest expense.Interest expense totaled $2.8 million in 2000 compared to $6.0 million in 1999. Upon
completion of the initial public offering of our common stock in February 2000, $33.9 million of the offering proceeds were used to reduce our outstanding debt. This reduction in our
debt contributed to the lower interest expense, although the decrease was partially offset by higher interest rates. We also refinanced our then outstanding senior bank debt with a revolving credit
facility. The weighted average interest rate on our outstanding debt was 8.7% in 2000 as compared to 8.4% in 1999.

Extraordinary loss.In connection with our initial offering of common stock in February of 2000, we recorded an extraordinary
loss, net of tax, of $206,000 for the write-off of deferred financing costs related to the pay-down of senior bank debt. We also recorded an extraordinary loss, net of tax, of
$179,000 for the write-off of the remaining deferred financing costs related to the origination of the senior bank debt that was paid in full in September of 2000 using proceeds from a new
revolving credit facility.

Income tax expense.Income tax expense was $2.0 million in 2000, which results in an effective tax rate of 36.5%,
compared to income tax expense of $2.6 million and an effective tax rate of 36.5% in 1999.

Liquidity and Capital Resources

We have historically financed our operations, debt service and capital requirements through cash flows generated from operations. Working capital was
$9.2 million, $14.9 million, and $7.6 million at December 31, 2001, 2000, and 1999, respectively. Our current ratio was 1.9, 4.3, and 1.8, at December 31, 2001,
2000, and 1999, respectively. Our working capital and current ratio declined in 2001 from 2000 because a significant portion of long-term debt became current debt in 2001.

Cash
generated from operating activities in 2001 totaled $11.7 million due to net income of $4.1 million and non-cash charges of $3.8 million primarily
for deferred income taxes and depreciation and amortization. Decreases in inventories of $2.7 million and an increase in accounts payable and accrued liabilities of $2.0 million also
contributed to an increase in cash provided by operating activities. The decrease in inventories is primarily due to management initiatives in 2001 focused on inventory reduction and also due to
increased product shipments. The increase in accounts payable and accrued liabilities is mainly due to the timing of purchases and increased revenue activity relative to the fourth quarter of 2000.
These cash flows were partially offset by an increase in accounts receivable of $1.0 million primarily related to the timing of sales. Cash used by investing activities was $650,000 exclusively
for the purchase of equipment and leasehold improvements. Cash used in financing activities was $8.7 million primarily due to payments on our credit facility.

Cash
generated from operating activities in 2000 totaled $4.5 million due to net income of $3.1 million and non-cash charges of $4.3 million for deferred
income taxes, extraordinary items, depreciation and amortization and the provision for obsolete inventories. These cash flows were partially offset by an increase in accounts receivable of
$1.3 million and an increase in inventories of $2.1 million. The increase in accounts receivable was primarily related to the timing of sales and the increase in inventories is primarily
related to decreased product shipments in relation to forecasted product shipments. Cash used by investing activities was $1.4 million primarily for the purchase of equipment and leasehold
improvements. Cash used in financing activities was $3.4 million primarily due to our initial public offering of common stock and payment on our notes payable bank and our revolving credit
facility.

24

---

As
of December 31, 2001, our borrowings consisted of $14.0 million owed under the credit agreement with LaSalle Bank and Harris Bank. In April 2001, we amended our
credit facility, which under the terms of the amendment, was converted to a $19.0 million term loan, of which $14.0 million was outstanding at December 31, 2001, and a
$5.0 million revolving credit facility, of which there was no outstanding balance at December 31, 2001. We have made debt payments of $8.9 million for the year ended
December 31, 2001.

In
February 2002, we further amended our credit facility to extend the maturity date from April 1, 2002 to April 1, 2003. In addition, under the terms of the amended
agreement, the interest rates charged on the balance outstanding under the credit facility were increased to the prime rate of interest plus a margin of .25% to .50% or LIBOR plus a margin of 1.75% to
2.00%, based upon the maintenance of certain financial coverage ratios. Interest is payable within 30 to 90 days, as defined by the agreement. The agreement calls for principal repayments of
$1.0 million per quarter, with the remaining balance due at maturity on April 1, 2003.

The
credit facility requires, among other things, the maintenance of specified financial ratios including fixed charge coverage and total debt to EBITDA, as defined in the agreement, and
restrictions on capital expenditures and the payment of dividends.

In
connection with our now terminated acquisition by Zebra Technologies Corporation, we incurred legal, professional, and investment banking expenses of $1.4 million for the year
ended December 31, 2001. We expect to incur additional legal, professional and investment banking expenses in 2002. As a result of the termination of this transaction in March 2002, we
may incur additional costs to rebuild our distribution channel, which may have a negative impact on our cash generated from operating activities.

We
believe that funds generated from operations and funds available to us under our revolving credit facility agreement will be sufficient to finance our current operations and planned
capital expenditure requirements for at least the next 12 months.

Inflation

We do not believe that inflation has had a material effect on our results of operations in recent years; however, there can be no assurance that our business will
not be adversely affected by inflation in the future.

Recently Issued Accounting Standards

Effective April 1, 2001, the Company adopted Financial Accounting Standards Board Emerging Issues Task Force (EITF) issue 00-14, "Accounting
for Certain Sales Incentives." In accordance with the EITF, the Company has reclassified certain sales incentive expenses totaling $1,255,000 and $800,000 for the years ended December 31, 2000
and 1999, respectively, from selling, general and administrative expenses and shown them as a reduction of net sales.

In
July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets"
and we adopted these standards effective January 1, 2002. All business combinations under SFAS No. 141 are to be accounted for using the purchase method of accounting. SFAS
No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets upon their acquisition and how they should be accounted for after initial recognition.
SFAS No. 142 states that an intangible asset with a finite useful life be amortized over the period the asset is expected to contribute to the future cash flows of the entity. An intangible
asset with an indefinite life is not to be amortized. All intangible assets are subject to periodic impairment tests. We have reviewed the requirements of these standards and determined that there is
no impact on our financials statements.

25

---

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires an entity to recognize the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. Upon initial recognition of a liability for an asset retirement obligation, an entity shall capitalize an asset retirement cost by
increasing the carrying amount of the related long-lived asset by the same amount as the liability. SFAS No. 143 is effective for financial statements issued for the fiscal years
beginning after June 15, 2002.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 deals with the recognition and measurement of the impairment of long-lived assets to be
held and used and the measurement of long-lived assets to be disposed of. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after
December 15, 2001.

We
are reviewing the requirements of SFAS No. 143 and No. 144, and we do not expect these standards to have a significant impact on our financial statements.

Accounting Policies

We have disclosed the accounting policies that we consider to be significant in determining the amounts to be utilized for communicating our financial position,
results of operations and cash flows in Note 1 to our financial statements included elsewhere herein.

In
applying our accounting principles, management must often make individual estimates and assumptions regarding expected outcomes or uncertainties. As one would expect, the actual
results or
outcomes are generally different than the estimated or assumed amounts. These differences are usually minor and are included in the financial statements by management as soon as they are known. The
individual estimates and assumptions generally do not involve a level of risk or uncertainty that would be material to the financial statements as a whole because, they generally are relatively
immaterial in amount. Many of these estimates and assumptions relate to current assets and liabilities and, accordingly, given the relatively short operating cycle of the company, they are reviewed
and updated frequently by our management.

Based
on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that the
Company's financial statements provide a meaningful and fair perspective of the Company. This is not to suggest that other general risk factors, such as changes in worldwide economic conditions,
fluctuations in foreign currency exchange rates, achievement of corporate growth objectives, changes in material costs, could not adversely impact the Company's financial position, results of
operations and cash flows in future periods.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument.
The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. Market risk is attributed to all
market sensitive financial instruments, including long term debt.

Interest Rate Risk

Under procedures and controls established by management, we enter into contractual arrangements (derivatives) in the ordinary course of business to hedge our
exposure to interest rate

26

---

risks. The counterparties to these contractual arrangements are major financial institutions. Although we are exposed to credit loss in the event of nonperformance by these counterparties, this
exposure is managed through credit approvals, limits and monitoring procedures and, to the extent possible, by restricting the period over which unpaid balances are allowed to accumulate. We do not
anticipate nonperformance by counterparties to these contracts, and no material loss would be expected from such nonperformance.

We
manage interest expense using a mix of fixed, floating and variable rate debt. To help manage borrowing costs, we may enter into interest rate swaps. Under these arrangements, we
agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. We had no
interest rate derivatives
outstanding at December 31, 2001 and 2000. The fair value of interest rate derivatives outstanding at December 31, 1999, was not material. A one-percentage point adverse
change in interest rates, upon which these contracts are based, would not cause these instruments to have a material impact on future earnings.

Foreign Currency Risk

We denominate all foreign sales in U.S. dollars and do not hedge against currency fluctuations. We purchase components and supplies from several Japanese
suppliers. The strengthening of the yen versus the U.S. dollar in 2000 caused the cost of these supplies to increase. To date, currency fluctuations have not had a material effect on our results of
operations or financial condition, but could in the future by causing our products to become less affordable or less price competitive than those of foreign manufacturers or by causing the costs of
our material supplies to increase. With the implementation of the agreement we made in February of 2001 with our supplier to purchase dye sublimation ribbons in dollars rather than in yen, we believe
that we have reduced the risks of increased purchasing costs that would otherwise occur if the dollar weakens relative to the yen. We have foregone the opportunity, however, to benefit from the full
potential cost savings if the dollar strengthens relative to the yen.

Equity Price Risk

We do not generally invest in marketable equity securities. At December 31, 2001, we had approximately $3.6 million in cash and cash equivalents,
comprising approximately 7.8% of our total assets. Accordingly, a sustained decrease in the rate of interest earned would not have a material adverse effect on our business.

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Financial Statements

Our financial statements and related notes are contained on pages F-1 to F-18 of this report. The index to such items is included in Item 14(a)(1).

27

---

Quarterly Results

The following table sets forth certain unaudited quarterly financial data for 2001 and 2000. In our opinion, this unaudited information has been prepared on the
same basis as the audited information and includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. The operating
results for any quarter are not necessarily indicative of results for any future period.

|                                               |                   | Three Monts Ended               
|---------------------------------------------- | ----------------- | --------------------------------
|
|
|Net sales                                      |                   | $                               
|Gross profit                                   |                   |                                 
|Operating expenses                             |                   |                                 
|Operating income                               |                   |                                 
|Net income before extraordinary loss           |                   |                                 
|Net income                                     |                   |                                 
|Net income available to common stockholders(1) |                   |                                 
|Net income (loss) per common share:            |                   |                                 
|                                               | Basic earnings:   |                                 
|                                               |                   | Income before extraordinary loss
|                                               |                   | Extraordinary loss              
|                                               |                   |                                 
|                                               |                   |                                 
|                                               |                   |                                 
|                                               | Diluted earnings: |                                 
|                                               |                   | Income before extraordinary loss
|                                               |                   | Extraordinary loss              
|                                               |                   |                                 
|                                               |                   |                                 
|                                               |                   |                                 

|                                            |                             | Three Months Ended
|------------------------------------------- | --------------------------- | ------------------
|
|Net sales                                   |                             | $                 
|Gross profit                                |                             |                   
|Operating expenses                          |                             |                   
|Operating income                            |                             |                   
|Net income available to common stockholders |                             |                   
|Net income (loss) per common share:         |                             |                   
|                                            | Basic earnings per share:   |                   
|                                            | Diluted earnings per share: |                   

---

Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

28

---

PART III

Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.



The
information under the caption "Election of Directors" in our 2002 Proxy Statement is incorporated herein by reference.



Information
concerning our Executive Officers is included in this Annual Report on Form 10-K under Item 4A, "Executive Officers of Fargo."



The
information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in our 2002 Proxy Statement is incorporated herein by reference.

Item 11.    EXECUTIVE COMPENSATION.

The information under the caption "Executive Compensation" in our 2002 Proxy Statement is incorporated herein by reference.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information under the caption "Security Ownership of Certain Beneficial Owners and Management" in our 2002 Proxy Statement is incorporated herein by
reference.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information under the caption "Executive CompensationCertain Transactions" in our 2002 Proxy Statement is incorporated herein by reference.

PART IV

Item 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) List of documents filed as part of this report:



The
following financial statements are included in this report on the pages indicated:

Page(s)Report of Independent Accountants

F-1Balance Sheets at December 31, 2001 and 2000

F-2Statements of Operations for the years ended
December 31, 2001, 2000 and 1999

F-3Statements of Changes in Stockholders' Equity (Deficiency)
for the years ended December 31, 2001, 2000 and 1999

F-4Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

F-5 to F-6Notes to Financial Statements

F-7 to F-18


29

---



The
following financial statement schedule is included herein and should be read in conjunction with the financial statements referred to above:



All
other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.

Report of Independent Accountants on  Financial Statement Schedule

To
the Stockholders and Board of Directors of Fargo Electronics, Inc.:

Our
audits of the financial statements referred to in our report dated January 30, 2002, except for the third paragraph of Note 5, as to which the date is
February 14, 2002, and except for Note 2, as to which the date is March 27, 2002, appearing in the 2001 Annual Report to Stockholders of Fargo Electronics, Inc. (which
report and financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2)
of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the
related financial statements.

/s/
PRICEWATERHOUSECOOPERS LLP

Minneapolis,
Minnesota
January 30, 2002, except for the third paragraph of
Note 5, as to which the date is February 14, 2002,
and except for Note 2, as to which the date is March 27, 2002

30

---

Schedule II  Valuation and Qualifying Accounts

|Description                                |                              | Balance at Beginning of Period |   | Charged to Costs and Expenses |  | Deductions |         | Balance at End of Period
|------------------------------------------ | ---------------------------- | ------------------------------ | - | ----------------------------- |  | ---------- | ------- | ------------------------
|Valuation account for accounts receivable: |                              |                                |   |                               |  |            |         |                         
|                                           | Year ended December 31, 2001 |                                | $ | 250,000                       |  | $          | 57,591  |                         
|                                           | Year ended December 31, 2000 |                                | $ | 300,000                       |  | $          | 90,983  |                         
|                                           | Year ended December 31, 1999 |                                | $ | 250,000                       |  | $          | 130,629 |                         
|Valuation account for inventory:           |                              |                                |   |                               |  |            |         |                         
|                                           | Year ended December 31, 2001 |                                | $ | 1,064,922                     |  | $          | 154,467 |                         
|                                           | Year ended December 31, 2000 |                                | $ | 711,676                       |  | $          | 547,619 |                         
|                                           | Year ended December 31, 1999 |                                | $ | 925,000                       |  | $          | 61,000  |                         



The
exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index contained on pages E-1 through E-6 of this
report.

We
will furnish a copy of any exhibit to a stockholder who requests a copy in writing. We reserve the right to charge a reasonable fee to cover our costs. Requests should be sent to:
Tony J. Dick, Acting Chief Financial Officer, Fargo Electronics, Inc, 6533 Flying Cloud Drive, Eden Prairie, MN 55344.

The
following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant
to Item 14(c):



(b)  Reports on Form 8-K:

None.

(c)  Exhibits:

The response to this portion of Item 14 is included as a separate section of this Annual Report on Form 10-K.

(d)  Financial Statement Schedules:

See Item 14, section (a) 2 above for the financial statement schedules filed herewith.

31

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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.

|FARGO ELECTRONICS, INC.
|-----------------------
|                       

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on April 1, 2002 by the following persons on behalf of the Registrant and in
the capacities indicated.

|Signature                           |  | Title                                                                                                  
|----------------------------------- |  | -------------------------------------------------------------------------------------------------------
|/s/GARY R. HOLLANDGary R. Holland   |  | Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
|/s/TONY J. DICKTony J. Dick         |  | Acting Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)          
|/s/MICHAEL C. CHILDMichael C. Child |  | Director                                                                                               
|/s/EVERETT V. COXEverett V. Cox     |  | Director                                                                                               
|/s/WILLIAM H. GIBBSWilliam H. Gibbs |  | Director                                                                                               
|/s/KENT O. LILLEMOEKent O. Lillemoe |  | Director                                                                                               
|/s/ELAINE A. PULLENElaine A. Pullen |  | Director                                                                                               

32

---

Fargo Electronics, Inc.

Index to Financial Statements

|                                                          |  | Page(s)   
|--------------------------------------------------------- |  | ----------
|Report of Independent Accountants                         |  | F-1       
|Balance Sheets                                            |  | F-2       
|Statements of Operations                                  |  | F-3       
|Statement of Changes in Stockholders' Equity (Deficiency) |  | F-4       
|Statements of Cash Flows                                  |  | F-5 - F-6 
|Notes to Financial Statements                             |  | F-7 - F-18

---

Report of Independent Accountants

To
the Stockholders and Board of Directors of
Fargo Electronics, Inc.:

In
our opinion, the accompanying balance sheets and the related statements of operations, changes in stockholders' equity (deficiency) and cash flows present fairly, in all material
respects, the financial position of Fargo Electronics, Inc. (the Company) at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/
PRICEWATERHOUSECOOPERS LLP

Minneapolis,
Minnesota
January 30, 2002, except for the third paragraph of
Note 5, as to which the date is February 14, 2002,
and except for Note 2, as to which the date is
March 27, 2002

F-1

---

Fargo Electronics, Inc.

Balance Sheets

At December 31, 2001 and 2000

(In thousands, except per share amounts)

|                                          |                                                                                                                                                     | 2001                                       |        | 2000     |       
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | -------- | ------
|ASSETS                                    |                                                                                                                                                     |                                            |        |          |       
|Current assets:                           |                                                                                                                                                     |                                            |        |          |       
|                                          | Cash and cash equivalents                                                                                                                           |                                            | $      | 3,586    |       
|                                          | Accounts receivable, net                                                                                                                            |                                            |        | 7,713    |       
|                                          | Inventories                                                                                                                                         |                                            |        | 5,244    |       
|                                          | Prepaid expenses                                                                                                                                    |                                            |        | 177      |       
|                                          | Deferred income taxes                                                                                                                               |                                            |        | 3,045    |       
|                                          |                                                                                                                                                     |                                            |        |          |       
|                                          |                                                                                                                                                     | Total current assets                       |        |          | 19,765
|                                          |                                                                                                                                                     |                                            |        |          |       
|Equipment and leasehold improvements, net |                                                                                                                                                     |                                            | 1,367  |          |       
|Deferred income taxes                     |                                                                                                                                                     |                                            | 24,994 |          |       
|Other                                     |                                                                                                                                                     |                                            | 87     |          |       
|                                          |                                                                                                                                                     |                                            |        |          |       
|                                          |                                                                                                                                                     | Total assets                               |        | $        | 46,213
|                                          |                                                                                                                                                     |                                            |        |          |       
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                                                                     |                                            |        |          |       
|Current liabilities:                      |                                                                                                                                                     |                                            |        |          |       
|                                          | Current portion of notes payable, bank                                                                                                              |                                            | $      | 4,000    |       
|                                          | Accounts payable                                                                                                                                    |                                            |        | 4,315    |       
|                                          | Accrued liabilities                                                                                                                                 |                                            |        | 2,260    |       
|                                          |                                                                                                                                                     |                                            |        |          |       
|                                          |                                                                                                                                                     | Total current liabilities                  |        |          | 10,575
|                                          |                                                                                                                                                     |                                            |        |          |       
|Revolving credit facility                 |                                                                                                                                                     |                                            |       |          |       
|Notes payable, bank, less current portion |                                                                                                                                                     |                                            | 10,000 |          |       
|Commitments                               |                                                                                                                                                     |                                            |        |          |       
|Stockholders' equity:                     |                                                                                                                                                     |                                            |        |          |       
|                                          | Common stock, $.01 par value; 50,000 shares authorized, 11,781 and 11,747 shares issued and outstanding at December 31, 2001 and 2000, respectively |                                            |        | 118      |       
|                                          | Additional paid-in capital                                                                                                                          |                                            |        | 145,229  |       
|                                          | Accumulated deficit                                                                                                                                 |                                            |        | (119,040 | )     
|                                          | Deferred compensation                                                                                                                               |                                            |        | (44      | )     
|                                          | Stock subscription receivable                                                                                                                       |                                            |        | (625     | )     
|                                          |                                                                                                                                                     |                                            |        |          |       
|                                          |                                                                                                                                                     | Total stockholders' equity                 |        |          | 25,638
|                                          |                                                                                                                                                     |                                            |        |          |       
|                                          |                                                                                                                                                     | Total liabilities and stockholders' equity |        | $        | 46,213
|                                          |                                                                                                                                                     |                                            |        |          |       

The
accompanying notes are an integral part of the financial statements.

F-2

---

Fargo Electronics, Inc.

Statements of Operations

For the years ended December 31, 2001, 2000 and 1999

(In thousands, except per share amounts)

|                                                                |                                     | 2001                                    |                          | 2000   |     | 1999   |       
|--------------------------------------------------------------- | ----------------------------------- | --------------------------------------- | ------------------------ | ------ | --- | ------ | ------
|Net sales                                                       |                                     | $                                       | 60,963                   |        | $   | 57,845 |       
|Cost of sales                                                   |                                     |                                         | 37,497                   |        |     | 34,721 |       
|                                                                |                                     |                                         |                          |        |     |        |       
|                                                                |                                     |                                         | Gross profit             |        |     | 23,466 |       
|                                                                |                                     |                                         |                          |        |     |        |       
|Operating expenses:                                             |                                     |                                         |                          |        |     |        |       
|                                                                | Research and development            |                                         |                          | 4,053  |     |        | 4,934 
|                                                                | Selling, general and administrative |                                         |                          | 10,341 |     |        | 10,027
|                                                                | Acquisition related costs           |                                         |                          | 1,434  |     |        |      
|                                                                |                                     |                                         |                          |        |     |        |       
|                                                                |                                     |                                         | Total operating expenses |        |     | 15,828 |       
|                                                                |                                     |                                         |                          |        |     |        |       
|Operating income                                                |                                     |                                         | 7,638                    |        |     | 8,163  |       
|                                                                |                                     |                                         |                          |        |     |        |       
|Other income (expense):                                         |                                     |                                         |                          |        |     |        |       
|                                                                | Interest expense                    |                                         |                          | (1,379 | )   |        | (2,830
|                                                                | Interest income                     |                                         |                          | 79     |     |        | 81    
|                                                                | Other, net                          |                                         |                          | (33    | )   |        | 7     
|                                                                |                                     |                                         |                          |        |     |        |       
|                                                                |                                     |                                         | Total other expense      |        |     | (1,333 | )     
|                                                                |                                     |                                         |                          |        |     |        |       
|Income before provision for income taxes and extraordinary loss |                                     |                                         | 6,305                    |        |     | 5,421  |       
|Provision for income taxes                                      |                                     |                                         | 2,229                    |        |     | 1,979  |       
|                                                                |                                     |                                         |                          |        |     |        |       
|Net income before extraordinary loss                            |                                     |                                         | 4,076                    |        |     | 3,442  |       
|Extraordinary loss, net of applicable income taxes of $222      |                                     |                                         |                         |        |     | (385   | )     
|                                                                |                                     |                                         |                          |        |     |        |       
|Net income                                                      |                                     |                                         | 4,076                    |        |     | 3,057  |       
|Accrued dividends on Series B, 8% redeemable preferred stock    |                                     |                                         |                         |        |     | (350   | )     
|Accretion of convertible participating preferred stock          |                                     |                                         |                         |        |     |       |       
|                                                                |                                     |                                         |                          |        |     |        |       
|Net income (loss) available to common stockholders              |                                     | $                                       | 4,076                    |        | $   | 2,707  |       
|                                                                |                                     |                                         |                          |        |     |        |       
|Net income (loss) per common share:                             |                                     |                                         |                          |        |     |        |       
|                                                                | Basic earnings:                     |                                         |                          |        |     |        |       
|                                                                |                                     | Income (loss) before extraordinary loss |                          | $      | .35 |        | $     
|                                                                |                                     | Extraordinary loss                      |                          |        |    |        |       
|                                                                |                                     |                                         |                          |        |     |        |       
|                                                                |                                     |                                         | Net income (loss)        |        | $   | .35    |       
|                                                                |                                     |                                         |                          |        |     |        |       
|                                                                | Diluted earnings:                   |                                         |                          |        |     |        |       
|                                                                |                                     | Income (loss) before extraordinary loss |                          | $      | .34 |        | $     
|                                                                |                                     | Extraordinary loss                      |                          |        |    |        |       
|                                                                |                                     |                                         |                          |        |     |        |       
|                                                                |                                     |                                         | Net income (loss)        |        | $   | .34    |       
|                                                                |                                     |                                         |                          |        |     |        |       
|Weighted average common shares outstanding:                     |                                     |                                         |                          |        |     |        |       
|                                                                | Basic                               |                                         |                          | 11,760 |     |        | 10,637
|                                                                | Diluted                             |                                         |                          | 11,958 |     |        | 11,413

The
accompanying notes are an integral part of the financial statements.

F-3

---

Fargo Electronics, Inc.

Statement of Changes in Stockholders' Equity (Deficiency)

For the years ended December 31, 2001, 2000 and 1999

(In thousands)

|                                                                        |  | Common Stock |   |   |     |   |   |         |   |   |          |   |  
|----------------------------------------------------------------------- |  | ------------ | - | - | --- | - | - | ------- | - | - | -------- | - | -
|
|Balance, December 31, 1998                                              |  | 1,688        |   | $ | 17  |   | $ | 1,546   |   | $ | (60,687  | ) |  
|Restrictive stock grants                                                |  | 78           |   |   | 1   |   |   | 124     |   |   |          |   |  
|Deferred compensation                                                   |  |              |   |   |     |   |   | 112     |   |   |          |   | $
|Amortization of deferred compensation                                   |  |              |   |   |     |   |   |         |   |   |          |   |  
|Accrued dividends on Series B, 8% redeemable preferred stock            |  |              |   |   |     |   |   |         |   |   | (2,620   | ) |  
|Accretion of convertible participating preferred stock                  |  |              |   |   |     |   |   |         |   |   | (67,000  | ) |  
|Net income                                                              |  |              |   |   |     |   |   |         |   |   | 4,484    |   |  
|                                                                        |  |              |   |   |     |   |   |         |   |   |          |   |  
|Balance, December 31, 1999                                              |  | 1,766        |   |   | 18  |   |   | 1,782   |   |   | (125,823 | ) |  
|Proceeds from initial public offering, net of $6,496 for offering costs |  | 5,000        |   |   | 50  |   |   | 68,454  |   |   |          |   |  
|Conversion of convertible participating preferred stock                 |  | 5,000        |   |   | 50  |   |   | 74,950  |   |   |          |   |  
|Accrued dividends on Series B, 8% redeemable preferred stock            |  |              |   |   |     |   |   |         |   |   | (350     | ) |  
|Shares issued from exercise of stock options                            |  | 12           |   |   |     |   |   | 18      |   |   |          |   |  
|Payment received for stock subscription                                 |  |              |   |   |     |   |   |         |   |   |          |   |  
|Restrictive stock cancellation                                          |  | (31          | ) |   | (1  | ) |   | (49     | ) |   |          |   |  
|Amortization of deferred compensation                                   |  |              |   |   |     |   |   |         |   |   |          |   |  
|Net income                                                              |  |              |   |   |     |   |   |         |   |   | 3,057    |   |  
|                                                                        |  |              |   |   |     |   |   |         |   |   |          |   |  
|Balance, December 31, 2000                                              |  | 11,747       |   |   | 117 |   |   | 145,155 |   |   | (123,116 | ) |  
|Shares issued from exercise of stock options                            |  | 22           |   |   | 1   |   |   | 36      |   |   |          |   |  
|Shares issued from exercise of employee stock purchase plan             |  | 28           |   |   |     |   |   | 63      |   |   |          |   |  
|Payment received for stock subscription                                 |  |              |   |   |     |   |   |         |   |   |          |   |  
|Restrictive stock cancellation                                          |  | (16          | ) |   |     |   |   | (25     | ) |   |          |   |  
|Amortization of deferred compensation                                   |  |              |   |   |     |   |   |         |   |   |          |   |  
|Net income                                                              |  |              |   |   |     |   |   |         |   |   | 4,076    |   |  
|                                                                        |  |              |   |   |     |   |   |         |   |   |          |   |  
|Balance, December 31, 2001                                              |  | 11,781       |   | $ | 118 |   | $ | 145,229 |   | $ | (119,040 | ) | $
|                                                                        |  |              |   |   |     |   |   |         |   |   |          |   |  

The accompanying notes are an integral part of the financial statements.

F-4

---

Fargo Electronics, Inc.

Statements of Cash Flows

For the years ended December 31, 2001, 2000 and 1999

(In thousands)

|                                                     |                                                                                   | 2001                                              |                     | 2000   |        | 1999   |        
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------- | ------------------- | ------ | ------ | ------ | -------
|Cash flows from operating activities:                |                                                                                   |                                                   |                     |        |        |        |        
|                                                     | Net income                                                                        |                                                   | $                   | 4,076  |        | $      | 3,057  
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities: |                                                   |                     |        |        |        |        
|                                                     |                                                                                   | Extraordinary loss                                |                     |        |       |        |        
|                                                     |                                                                                   | Depreciation and amortization                     |                     |        | 1,372  |        |        
|                                                     |                                                                                   | Loss (gain) on sale of equipment                  |                     |        | 33     |        |        
|                                                     |                                                                                   | Provision for doubtful accounts and sales returns |                     |        | 58     |        |        
|                                                     |                                                                                   | Provision for obsolete inventories                |                     |        | 154    |        |        
|                                                     |                                                                                   | Deferred income taxes                             |                     |        | 2,224  |        |        
|                                                     |                                                                                   | Deferred compensation                             |                     |        | 28     |        |        
|                                                     |                                                                                   | Changes in operating assets and liabilities:      |                     |        |        |        |        
|                                                     |                                                                                   |                                                   | Accounts receivable |        |        | (1,017 | )      
|                                                     |                                                                                   |                                                   | Inventories         |        |        | 2,720  |        
|                                                     |                                                                                   |                                                   | Prepaid expenses    |        |        | 71     |        
|                                                     |                                                                                   |                                                   | Accounts payable    |        |        | 1,483  |        
|                                                     |                                                                                   |                                                   | Accrued liabilities |        |        | 536    |        
|                                                     |                                                                                   |                                                   |                     |        |        |        |        
|                                                     |                                                                                   | Net cash provided by operating activities         |                     |        | 11,738 |        |        
|                                                     |                                                                                   |                                                   |                     |        |        |        |        
|Cash flows from investing activities:                |                                                                                   |                                                   |                     |        |        |        |        
|                                                     | Purchases of equipment and leasehold improvements                                 |                                                   |                     | (650   | )      |        | (1,378 
|                                                     | Proceeds from sale of equipment                                                   |                                                   |                     |       |        |        | 17     
|                                                     | Other                                                                             |                                                   |                     |       |        |        | 3      
|                                                     |                                                                                   |                                                   |                     |        |        |        |        
|                                                     |                                                                                   | Net cash used in investing activities             |                     |        | (650   | )      |        
|                                                     |                                                                                   |                                                   |                     |        |        |        |        
|Cash flows from financing activities:                |                                                                                   |                                                   |                     |        |        |        |        
|                                                     | Proceeds from initial public offering, net of $6,046 for offering costs           |                                                   |                     |       |        |        | 68,954 
|                                                     | Proceeds from revolving credit facility                                           |                                                   |                     |       |        |        | 26,500 
|                                                     | Payments on notes payable, bank                                                   |                                                   |                     | (5,000 | )      |        | (50,100
|                                                     | Payments on revolving credit facility                                             |                                                   |                     | (3,900 | )      |        | (3,600 
|                                                     | Payments on note payable, shareholder                                             |                                                   |                     |       |        |        | (10,000
|                                                     | Payments of deferred financing costs                                              |                                                   |                     |       |        |        | (185   
|                                                     | Payments of deferred offering costs                                               |                                                   |                     |       |        |        |       
|                                                     | Redemption of redeemable preferred stock, including accrued dividends             |                                                   |                     |       |        |        | (35,083
|                                                     | Proceeds from exercise of stock options and restricted stock                      |                                                   |                     | 175    |        |        | 68     
|                                                     |                                                                                   |                                                   |                     |        |        |        |        
|                                                     |                                                                                   | Net cash used in financing activities             |                     |        | (8,725 | )      |        
|                                                     |                                                                                   |                                                   |                     |        |        |        |        
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                   | 2,363               |        |        | (286   | )      
|Cash and cash equivalents, beginning of period       |                                                                                   |                                                   | 1,223               |        |        | 1,509  |        
|                                                     |                                                                                   |                                                   |                     |        |        |        |        
|Cash and cash equivalents, end of period             |                                                                                   | $                                                 | 3,586               |        | $      | 1,223  |        
|                                                     |                                                                                   |                                                   |                     |        |        |        |        

The
accompanying notes are an integral part of the financial statements.

F-5

---

|                                 |                                                                           | 2001 |   | 2000  |   | 1999
|-------------------------------- | ------------------------------------------------------------------------- | ---- | - | ----- | - | ----
|Cash paid during the period for: |                                                                           |      |   |       |   |     
|                                 | Interest                                                                  |      | $ | 1,752 |   | $   
|                                 | Income taxes                                                              |      |   |      |   |     
|Noncash transactions:            |                                                                           |      |   |       |   |     
|                                 | Restrictive stock grants (cancellations)                                  |      | $ | (25   | ) | $   
|                                 | Accrued dividends on Series B, 8% redeemable preferred stock              |      |   |      |   |     
|                                 | Accretion of convertible participating preferred stock                    |      |   |      |   |     
|                                 | Conversion of convertible participating preferred stock into common stock |      |   |      |   |     

The
accompanying notes are an integral part of the financial statements.

F-6

---

Fargo Electronics, Inc.

Notes to Financial Statements

1. Nature of Business and Summary of Significant Accounting Policies



Fargo Electronics, Inc. (Fargo or the Company) designs, manufactures, sells and supports a broad line of printers and supplies for plastic card
personalization and data encoding.



All highly liquid investments with original maturities of three months or less are considered cash equivalents. Substantially all of the Company's cash and cash
equivalents are held by two financial institutions.



Inventories, which consist primarily of raw materials, are stated at the lower of cost or market, with cost being determined by the first-in,
first-out (FIFO) method.



Equipment and leasehold improvements are stated at cost. Depreciation is recorded over the estimated useful lives of the assets (three to five years) using
accelerated methods. Leasehold improvements are amortized over the terms of the related leases.

Major
renewals or betterments are capitalized, while repair and maintenance expenditures are charged to operations as incurred. The cost and accumulated depreciation or amortization of
equipment and leasehold improvements disposed of or sold are eliminated from their respective accounts, and the resulting gain or loss is recorded in operations.



The Company periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of
unamortized balances through measurement of undiscounted operating cash flows on a basis consistent with accounting principles generally accepted in the United States of America.



Revenue is recognized at the time of shipment. The Company provides for estimated warranty costs and estimated returns in the period revenue is recognized. Two of
the Company's customers have arrangements which include stock balancing and return provisions. The Company provides an allowance for stock balancing based on estimated expected returns. Sales to these
customers represent 10.2%, 12.4% and 12.8%, respectively, of net sales for the years ended December 31, 2001, 2000 and 1999. Under the terms of the stock balancing agreements, the maximum
amount of returns is approximately $220,000 at December 31, 2001, of which the Company has recorded an allowance of $114,000 for estimated returns.



Research and development costs are charged to expense as incurred.

F-7

---



Deferred financing costs are being amortized to interest expense over the term of the related debt using the effective interest rate method.



Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between financial reporting amounts and the tax basis of existing assets and liabilities based on currently enacted tax laws and tax rates in effect for the
periods in which the differences are expected to reverse. Income tax expense is the tax payable for the period plus the change during the period in deferred income taxes. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected to be realized.



The Company considers that the carrying amount of financial instruments, including accounts receivable, accounts payable, accrued liabilities and revolving credit
facility, approximates fair value. Interest on notes payable is payable at rates which approximate fair value.



The Company's business is organized, managed and internally reported as a single segment.



The Company measures compensation expense for its stock-based compensation plan using the intrinsic value method. Accordingly, compensation cost for stock options
granted to employees is measured as the excess, if any, of the value of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company provides
disclosure of the effect on net income (loss) as if the fair value-based method has been applied in measuring compensation expense.



Basic earnings per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of outstanding common shares and potentially dilutive shares
relating to stock options and preferred stock.

F-8

---

The
following provides a reconciliation of shares used in the computation of basic and diluted earnings per share (in thousands):

2001

2000

1999Weighted average common shares outstanding:Basic

11,760

10,637

1,734Effect of dilutive stock options and convertible participating preferred stock

198

776

Diluted

11,958

11,413

1,734


Options
to purchase 404,000 and 370,000 shares of common stock were outstanding at December 31, 2001 and 2000, respectively, but were not included in the computations of diluted
earnings per share because the exercise prices were greater than the average market prices of the common shares for the periods. The options and convertible participating preferred stock were not
included in the computation of diluted net loss per common share for the year ended December 31, 1999, because they would not have had a dilutive effect.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates.



Effective April 1, 2001, the Company adopted Financial Accounting Standards Board Emerging Issues Task Force (EITF) issue 00-14, "Accounting
for Certain Sales Incentives." In accordance with the EITF, the Company has reclassified certain sales incentive expenses totaling $1,255,000 and $800,000 for the
years ended December 31, 2000 and 1999, respectively, from selling, general and administrative expenses and shown them as a reduction of net sales.

In
July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." The Company must adopt these standards no later than January 1, 2002. All business combinations under SFAS No. 141 are to be
accounted for using the purchase method of accounting. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets upon their acquisition and how
they should be accounted for after initial recognition. SFAS No. 142 states that an intangible asset with a finite useful life be amortized over the period the asset is expected to contribute
to the future cash flows of the entity. An intangible asset with an indefinite life is not to be amortized. All intangible assets are subject to periodic impairment tests. The Company has reviewed the
requirements of these standards and determined that there is no impact on the Company's financial statements.

F-9

---

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires an entity to recognize the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. Upon initial recognition of a liability for an asset retirement obligation, an entity shall capitalize an asset retirement cost by
increasing the carrying amount of the related long-lived asset by the same amount as the liability. SFAS No. 143 is effective for financial statements issued for the fiscal years
beginning after June 15, 2002.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 deals with the recognition and measurement of the impairment of long-lived assets to be
held and used and the measurement of long-lived assets to be disposed of. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after
December 15, 2001.

The
Company is reviewing the requirements of SFAS No. 143 and No. 144, and does not expect these standards to have a significant impact on the Company's financial
statements.

2. Tender Offer

On March 27, 2002, the Company and Zebra Technologies Corporation (Zebra) announced that the companies have mutually agreed to terminate the acquisition
agreement whereby Zebra would acquire
all outstanding shares of the Company's common stock for $7.25 per share in cash. The transaction had been under Hart-Scott-Rodino antitrust review by the Federal Trade Commission (FTC).
Based on discussion with representatives of the FTC, the companies believe it is unlikely that the FTC will approve the currently proposed transaction. Accordingly, the companies agreed to a mutual
termination of their acquisition agreement. Neither party will pay a break-up fee.

The
acquisition was announced on August 1, 2001. A tender offer for all outstanding shares of the Company's stock commenced on August 3, 2001, and was most recently
scheduled to expire on April 5, 2002. The tender offer was terminated, effective March 27, 2002. None of the Company's shares tendered in the tender offer will be accepted for payment
and paid for, and Zebra will return all shares of the Company's common stock tendered and not withdrawn in the tender offer.

3. Initial Public Offering

In February 2000, the Company completed an initial public offering in which 5,000,000 shares of the Company's common stock were sold at $15 per share. The
aggregate offering price of the shares was $75,000,000. The net proceeds from the offering were $69,750,000 after deducting the underwriting discounts and commissions of $5,250,000. Offering expenses
were approximately $1,246,000.

F-10

---

The
net proceeds from the offering were used as follows (in thousands):

Repayment of a note payable, stockholder, plus accrued interest

$
10,153Redemption of redeemable preferred stock, plus accrued dividends


35,083Repayment of principal and interest under our senior bank facility


23,268Total

$
68,504


Upon
the closing of the offering, all of the outstanding convertible preferred stock automatically converted into common stock at a rate of 625 shares of common stock for each share of
convertible preferred stock.

4. Selected Balance Sheet Information (in thousands)



December 312001

2000Trade accounts receivable

$
8,013

$
7,004Less allowance for doubtful accounts and sales returns


(300
)

(250
)$
7,713

$
6,754


For
the years ended December 31, 2001 and 2000, one customer accounted for approximately 8.3%, 10.0% and 8.9% of total net sales, respectively.

The
Company's ten largest distributors and resellers accounted for a combined total of 43.1%, 40.7% and 40.5% of sales in 2001, 2000, and 1999, respectively.



December 312001

2000Raw materials and purchased parts

$
5,017

$
8,241Work in process


148


289Finished goods


1,104


6536,269


9,183Less allowance for obsolete inventories


(1,025
)

(1,065
)$
5,244

$
8,118


F-11

---



December 312001

2000Tooling and manufacturing equipment

$
4,463

$
4,169Office and other equipment


3,296


3,013Leasehold improvements


488


4888,247


7,670Less accumulated depreciation and amortization


(6,880
)

(5,591
)$
1,367

$
2,079




December 312001

2000Accrued warranties

$
505

$
256Accrued vacation


375


320Customer advances


236


262Accrued interest


4


468Other


1,140


418$
2,260

$
1,724


5. Financing Arrangements

In September 2000, the Company entered into a $30 million dollar revolving credit facility. Proceeds from the revolving credit facility were used to
pay off outstanding senior bank debt. In connection with the payment of the senior bank debt, the Company recorded an extraordinary loss, net of income taxes, of $385,000 for the write-off
of deferred financing costs related to the senior bank debt.

In
April 2001, the Company amended its credit facility which, under the terms of the amendment, was converted to a $19.0 million term loan, of which $14.0 million
was outstanding at December 31, 2001, and a $5.0 million revolving credit facility, of which there was no outstanding balance at December 31, 2001. The borrowings under the
revolving credit facility are limited to eligible accounts receivable and inventories as defined by the agreement. Under the terms of the amended agreement, the Company borrowed at the prime rate of
interest plus a margin of 0% to .75% or LIBOR plus a margin of 1.25% to 2.75%, based upon the maintenance of certain financial coverage ratios. For the year ended December 31, 2001, borrowings
bore interest at a weighted average rate of 6.45%.

In
February 2002, the Company further amended its credit facility. Under the terms of the amended agreement, the Company may borrow at the prime rate of interest plus a margin of
..25% to .50% or LIBOR plus a margin of 1.75% to 2.00%, based upon the maintenance of certain financial coverage
ratios. Interest is payable within 30 to 90 days, as defined by the agreement. The agreement calls for principal repayments of $1.0 million per quarter, with the loan maturing on
April 1, 2003. The

F-12

---

credit facility requires, among other things, the maintenance of specified financial ratios including fixed charge coverage and total debt to EBITDA, as defined in the agreement, and restrictions on
capital expenditures and the payment of dividends.

Minimum
principal payments on the debt at December 31, 2001, are as follows (in thousands):

2002

$
4,0002003


10,000$
14,000




In 1998, the Company issued a $10,000,000 subordinated promissory note payable to the Company's founder. This note bore an interest rate of 12%, payable annually.
Subject to the terms of the senior bank facility, this note was payable at the earliest to occur of (a) the liquidation of the Company, (b) an initial public offering, or
(c) August 18, 2004. Upon the Company's IPO in February 2000, the note was paid. Interest expense incurred under this note for the years ended December 31, 2000 and 1999,
was $153,000 and $1,200,000, respectively.

6. Stock Option and Grant Plan

In February 1998, the Board of Directors and stockholders adopted the Fargo Electronics, Inc. 1998 Stock Option and Grant Plan (the Plan) which, as
amended, authorizes and reserves a maximum number of shares for issuance equal to 15% of the outstanding common stock, and at December 31, 2001, 1,767,183 shares were available for issuance
under the Plan. The Plan is administered by the Compensation Committee of the Board of Directors and provides for the grant of: (a) incentive stock options; (b) nonqualified stock
options; (c) restricted stock; and (d) unrestricted stock awards to employees, officers, directors and others, subject to certain limitations, as defined by the Plan. Stock
options issued under the Plan generally have an exercise price equal to the fair market value on the date of grant, vest and become exercisable ratably over four years, and expire from seven to ten
years from the date of grant.

The
restricted stock has an exercise price equal to the fair market value on the date of grant. Shares are awarded to employees, which are subject to certain forfeiture and
transferability restrictions that lapse after specified employment periods. The restrictions on the awards expire over a period not to exceed four years. Sales of the restricted stock are paid for by
means of recourse promissory notes with payment terms of five years. The restricted stock has a weighted average exercise price of $1.60.

F-13

---

Stock
option and restricted stock activity for 2001 and 2000 was as follows (in thousands, except per share data):

Shares
Available

Options
Outstanding

Restricted
Stock
Outstanding

Weighted
Average
Exercise Price
Per Share
of OptionsBalance, December 31, 1999

194

228

516

$
2.59Plan amendment

472






Granted

(663
)
663




Cancelled

110

(78
)
(32
)

8.19Exercised



(12
)
(31
)

1.60Balance, December 31, 2000

113

801

453


6.58Plan amendment

357






Granted

(71
)
71




Cancelled

82

(66
)
(16
)

7.81Exercised



(23
)
(47
)

1.60Balance, December 31, 2001

481

783

390

$
6.42


Information
related to stock options outstanding and exercisable at December 31, 2001, is as follows (in thousands, except per share data):

Options Outstanding

Range of
Exercise Prices

Number
Outstanding

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise
Price$1.60-$2.40

113

4.1 years

$
1.60$2.75-$4.13

264

8.0 years


3.04$4.81-$7.22

75

7.8 years


5.91$8.63-$11.00

331

5.4 years


10.86783



$
6.42


Options Exercisable

Range of
Exercise Prices

Number
Exercisable

Weighted
Average
Exercise
Price$1.60-$2.40

70

$
1.60$2.75-$4.13

38


2.75$4.81-$7.22

53


6.24$8.63-$11.00

84


10.86245

$
5.95


F-14

---

During
the year ended December 31, 1999, the Company recorded deferred compensation of $112,000 for 8,750 options granted at a discount from the estimated fair market value of the
Company's common stock. For the years ended December 31, 2001, 2000 and 1999, the Company recorded compensation expense of $28,000, $28,000 and $12,000, respectively, for these grants.

Had
compensation cost for the plan been determined based on the fair value of options at the date of grant, the Company's net income (loss) available to common stockholders and basic and
diluted net income (loss) per share would have been reduced to the following pro forma amounts:

2001

2000

1999Net income (loss) available to common stockholders (in thousands)As reported

$
4,076

$
2,707

$
(65,136
)Pro forma


2,901


1,866


(65,167
)Basic earnings per common share:As reported

$
.35

$
.25

$
(37.56
)Pro forma


.25


.18


(37.58
)Diluted earnings per common share:As reported

$
.34

$
.24

$
(37.56
)Pro forma


.24


.16


(37.58
)


The
weighted average grant-date fair value of options granted during 2001, 2000 and 1999 was $3.00, $7.27 and $3.97, respectively, which was determined using the
Black-Scholes method and the following key assumptions:

Assumptions

2001

2000

1999Volatility

85.23%

116.45%

43.41%Risk-free interest rates

4.93% to 5.21%

4.81% to 6.34%

4.64% to 5.76%Expected life

Six years

Six years

Four yearsExpected dividends

None

None

None




In January 2001, the Company's Board of Directors adopted a non-compensatory Employee Stock Purchase Plan (Purchase Plan). Under the Purchase
Plan, participating employees are granted options to purchase common stock at a 15 percent discount from the lower of the fair market value on the first day or last day of each calendar
quarter. The Purchase Plan permits an enrolled employee to make contributions to purchase shares of common stock through payroll deduction in an amount between 1 percent and 15 percent
of compensation. The number of shares that may be purchased by any single employee during a calendar quarter is limited to 250 shares and total shares having a maximum fair market value of $25,000 in
each calendar year. The compensation committee of the Board of Directors administers the Purchase Plan. The total number of shares of common stock that may be issued pursuant to options granted under
the Purchase Plan is 250,000 shares of common stock. As of December 31, 2001, approximately 28,000 shares of common stock have been issued under the Purchase Plan.

F-15

---

7. Benefit Plan

The Company has a retirement savings plan pursuant to Section 401(k) of the IRC whereby eligible employees may contribute up to 15% of their earnings
either before taxes (subject to IRS limitation) or after tax, not to exceed annual amounts allowed under the IRC. In addition, the Company may also make discretionary matching contributions. Company
matching contributions for the years ended December 31, 2001, 2000 and 1999, were $164,000, $175,000 and $149,000, respectively.

8. Income Taxes

The components of the provision for income taxes are as follows (in thousands):

2001

2000

1999Currently payable:Federal

$


$
57

$
360State


5


5


425


62


402Deferred:Federal


2,098


1,811


1,886State


126


106


2872,224


1,917


2,173Provision for income taxes

$
2,229

$
1,979

$
2,575


Temporary
differences comprising the net deferred tax assets recognized in the accompanying balance sheets at December 31, 2001 and 2000, are as follows (in thousands):

2001

2000Tax goodwill

$
26,652

$
28,992Other, net


1,387


1,271Net deferred tax assets

$
28,039

$
30,263


A
reconciliation between the Company's effective tax and the federal statutory tax is as follows (in thousands):

2001

2000

1999Provision for federal income taxes at statutory rate

$
2,144

$
1,843

$
2,400State income taxes, net of federal benefit


129


108


136Research and experimentation credits


(75
)




Other


31


28


39Total

$
2,229

$
1,979

$
2,575


During
the fourth quarter of 2001, the Company established a basis for recording research and experimentation credits. Accordingly, the Company recorded $75,000 of these credits in the
fourth quarter of 2001.

F-16

---

In
1998, the Company completed a recapitalization, which for federal and state income tax purposes, was a taxable business combination and is a qualified stock purchase. The buyer and
seller elected jointly to treat the recapitalization as an asset acquisition under Section 338(h)(10) of the IRC. In connection with the recapitalization, the Company recorded a deferred tax
asset with a corresponding credit to retained earnings of $35,936,000 at February 18, 1998, related to future tax deductions for the net excess of the tax bases of the assets and liabilities
over the financial statement carrying amounts.

Historically,
the Company has generated operating income. The realization of the deferred tax assets is dependent upon the Company's ability to generate sufficient future taxable income
which management believes is more likely than not. The Company anticipates future taxable income sufficient to realize the recorded deferred tax assets. Future taxable income is based on management's
forecasts of the operating results of the Company, and there can be no assurance that such results will be achieved.

9. Other Related Party Transactions



Fargo contracts with Fargo Electronics Jamaica, Ltd., a company solely owned by the Company's founder, to assemble certain components. Assembly charges
paid to Fargo Electronics Jamaica, Ltd. for the years ended December 31, 2001, 2000 and 1999, were approximately $944,000, $1,076,000 and $910,000, respectively.

10. Commitments

The Company leases office, warehouse and manufacturing space under an operating lease that expires in December 2006. Future minimum lease payments at
December 31, 2001, consist of the following:

2002

$
492,0002003


492,0002004


492,0002005


518,0002006


518,000Total minimum lease payments

$
2,512,000


Total
rent expense for the years ended December 31, 2001, 2000 and 1999, was $727,000, $706,000 and $649,000, respectively.

The
Company has entered into purchase agreements with certain suppliers which require the Company to purchase approximately $370,000 of inventory at December 31, 2001. The
contracts are reviewed on a semi-annual basis and unless terminated by either party, automatically renew for an additional six-month period. The agreements may be terminated by
either party with a 30-day written notice.

In
April 2001, the Company entered into management agreements with several of its employees, which provide certain benefits to these employees if they are terminated, as defined
in the management

F-17

---

agreement, in connection with a change in control of the Company. These employees will be entitled to receive a lump sum cash payment up to 100% of their base salary and will receive an additional
cash payment in an amount that assumes their stock options become fully vested.

11. Export Sales

Export sales were as follows (in thousands):

2001

2000

1999Europe

$
8,670

$
8,921

$
7,711Asia


4,289


5,028


4,487North and South America (other than the United States)


5,307


4,356


3,668Other


4,038


3,906


3,660$
22,304

$
22,211

$
19,526


12. Significant Vendor

The Company buys a significant portion of its ribbons, an important component of its revenue, from one supplier. Purchases of these ribbons represented 30%, 31%
and 35%, respectively, of total purchases in 2001, 2000 and 1999. Although there are a limited number of manufacturers of the ribbons, management believes that other suppliers could provide similar
ribbons on comparable terms. A change in suppliers, however, could cause a possible loss of sales, which would adversely affect operating results.

F-18

---

FARGO ELECTRONICS, INC.

Exhibit Index to Annual Report
on Form 10-K

For the fiscal year ended December 31, 2001

|Item
No. |  | Description                                                                                                                                      |  | Method of Filing                                                                                                              
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------
|2.2      |  | Certificate of Ownership and Merger between Fargo Electronics, Inc., a Minnesota corporation and Fargo Electronics, Inc., a Delaware corporation |  | Incorporated by reference to Exhibit 2.2 to Fargo's Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-90937)
|2.3      |  | Articles of Merger                                                                                                                               |  | Incorporated by reference to Exhibit 2.3 to Fargo's Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-90937)
|2.4      |  | Agreement and Plan of Merger, between Fargo Electronics, Inc., a Minnesota corporation and Fargo Electronics, Inc., a Delaware corporation       |  | Incorporated by reference to Exhibit 2.4 to Fargo's Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-90937)
|3.1      |  | Amended and Restated Certificate of Incorporation                                                                                                |  | Incorporated by reference to Exhibit 3.1 to Fargo's Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-90937)
|3.2      |  | Bylaws, as amended on August 3, 2000                                                                                                             |  | Incorporated by reference to Exhibit 3.2 to Fargo's 10-Q for the quarter ended September 30, 2000 (File No. 333-90937).       
|4.1      |  | Stockholder Rights Agreement                                                                                                                     |  | Incorporated by reference to Exhibit 4.1 to Fargo's Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-90937)
|10.1     |  | Office/Warehouse Lease, dated June 15, 1996, between Fargo Electronics, Inc. and Opus Northwest L.L.C., as amended                               |  | Incorporated by reference to Exhibit 10.1 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).                 
|10.2     |  | Amended and Restated 1998 Stock Option and Grant Plan, as amended                                                                                |  | Incorporated by reference to Appendix C to Fargo's 2001 Proxy Statement.                                                      
|10.3     |  | Form of Restricted Stock Agreement under the Amended and Restated 1998 Stock Option and Grant Plan                                               |  | Incorporated by reference to Exhibit 10.3 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).                 
|         |  |                                                                                                                                                  |  |                                                                                                                               

E-1

---

|10.4  |  | Form of Non-qualified Stock Option Agreement under the Amended and Restated 1998 Stock Option and Grant Plan                        |  | Incorporated by reference to Exhibit 10.4 to Fargo's Registration Statement on Form S-1 (File No. 333-90937). 
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------
|10.5  |  | Form of Incentive Stock Option under the Amended and Restated 1998 Stock Option and Grant Plan                                      |  | Incorporated by reference to Exhibit 10.5 to Fargo's Registration Statement on Form S-1 (File No. 333-90937). 
|10.6  |  | Technology and Trademark License Agreement, dated February 17, 1998, between Fargo Electronics, Inc. and Primera Technology, Inc.   |  | Incorporated by reference to Exhibit 10.6 to Fargo's Registration Statement on Form S-1 (File No. 333-90937). 
|10.7  |  | Consulting Agreement, dated March 16, 1999, between Fargo Electronics, Inc. and William Gibbs                                       |  | Incorporated by reference to Exhibit 10.7 to Fargo's Registration Statement on Form S-1 (File No. 333-90937). 
|10.8  |  | Amended and Restated Employment Agreement, dated April 15, 1999, between Fargo Electronics, Inc. and Gary R. Holland                |  | Incorporated by reference to Exhibit 10.8 to Fargo's Registration Statement on Form S-1 (File No. 333-90937). 
|10.9  |  | Form of Indemnification Agreement for directors and executive officers of Fargo Electronics, Inc.                                   |  | Incorporated by reference to Exhibit 10.9 to Fargo's Registration Statement on Form S-1 (File No. 333-90937). 
|10.10 |  | Stockholders' Agreement, dated February 18, 1998, between Fargo Electronics, Inc., Robert Cummins and certain Investors, as amended |  | Incorporated by reference to Exhibit 10.10 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).
|10.11 |  | Revolving Credit and Term Loan Agreement, dated February 18, 1998, between Fargo Electronics, Inc. and BankBoston, N.A., as amended |  | Incorporated by reference to Exhibit 10.11 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).
|      |  |                                                                                                                                     |  |                                                                                                               

E-2

---

|10.12 |  | Subordination Agreement, dated February 18, 1998, by and between Fargo Electronics, Inc., Robert Cummins and BankBoston, N.A.           |  | Incorporated by reference to Exhibit 10.12 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).                   
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------
|10.13 |  | Subordinated Promissory Note dated February 18, 1998 between Fargo Electronics, Inc. and Robert Cummins                                 |  | Incorporated by reference to Exhibit 10.13 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).                   
|10.14 |  | Security Agreement, dated February 18, 1998, between Fargo Electronics, Inc. and BankBoston, N.A.                                       |  | Incorporated by reference to Exhibit 10.14 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).                   
|10.15 |  | Trademark Collateral Security and Pledge Agreement, dated February 18, 1998, between Fargo Electronics, Inc. and BankBoston, N.A.       |  | Incorporated by reference to Exhibit 10.15 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).                   
|10.16 |  | Patent Collateral Assignment and Security Agreement, dated February 18, 1998, between Fargo Electronics, Inc. and BankBoston, N.A.      |  | Incorporated by reference to Exhibit 10.16 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).                   
|10.17 |  | Non-Compete Agreement dated Feb. 18, 1998 between Fargo Electronics, Inc., Robert Cummins and Primera Technology, Inc.                  |  | Incorporated by reference to Exhibit 10.17 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).                   
|10.18 |  | Amended and Restated Consulting Agreement, dated February 18, 1998, between Fargo Electronics, Inc. and Primera Technology, Inc.        |  | Incorporated by reference to Exhibit 10.18 to Fargo's Registration Statement on Form S-1 (File No. 333-90937).                   
|10.19 |  | Third Amendment to Revolving Credit and Term Loan Facility, dated February 7, 2000, between Fargo Electronics, Inc. and BankBoston N.A. |  | Incorporated by reference to Exhibit 10.19 to Fargo's Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-90937).
|10.20 |  | 2001 Employee Stock Purchase Plan                                                                                                       |  | Incorporated by reference to Exhibit 10.20 to Fargo's Form 10-K for the fiscal year ended December 31, 2000 (File No. 000-90937).
|      |  |                                                                                                                                         |  |                                                                                                                                  

E-3

---

|10.21 |  | Credit Agreement, dated September 15, 2000, between Fargo Electronics, Inc., LaSalle Bank National Association and the other parties thereto                                                                                                              |  | Incorporated by reference to Exhibit 10.1 to Fargo's 10-Q for the quarter ended September 30, 2000 (File No. 333-90937).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------
|10.22 |  | Security Agreement, dated September 15, 2000, between Fargo Electronics, Inc., LaSalle Bank National Association and the other parties thereto                                                                                                            |  | Incorporated by reference to Exhibit 10.2 to Fargo's 10-Q for the quarter ended September 30, 2000 (File No. 333-90937).
|10.23 |  | Note, dated September 15, 2000, payable to LaSalle Bank National Association                                                                                                                                                                              |  | Incorporated by reference to Exhibit 10.3 to Fargo's 10-Q for the quarter ended September 30, 2000 (File No. 333-90937).
|10.23 |  | Note, dated September 15, 2000, payable to Harris Trust & Savings Bank                                                                                                                                                                                    |  | Incorporated by reference to Exhibit 10.4 to Fargo's 10-Q for the quarter ended September 30, 2000 (File No. 333-90937).
|10.24 |  | Amended and Restated Employment Agreement dated June 19, 2001 between Fargo Electronics, Inc. and Gary R. Holland, as amended                                                                                                                             |  | Incorporated by reference to Exhibit 99(e)(6) of Fargo's Schedule 14D-9 filed on August 3, 2001 (File No. 005-59663).   
|10.25 |  | Control Agreement with a Securities Intermediary among Fargo Electronics, Inc., LaSalle Bank, NA and Wells Fargo Brokerage Services, LLC                                                                                                                  |  | Incorporated by reference to Exhibit 10.2 to Fargo's 10-Q for the quarter ended June 30, 2001 (File No. 333-90937)      
|10.26 |  | Control Agreement (Deposit Account), dated as of June 8, 2001, among Fargo Electronics, Inc., LaSalle Bank National Association, as agent for the banks party to that certain Credit Agreement dated as of September 15, 2000, and Wells Fargo Bank,
N.A. |  | Incorporated by reference to Exhibit 10.3 to Fargo's 10-Q for the quarter ended June 30, 2001 (File No. 333-90937).     
|10.27 |  | Pledge Agreement, dated as of June 29, 2001, by and between Fargo Electronics, Inc. and LaSalle National Bank National Association, as Agent for the Lender Parties                                                                                       |  | Incorporated by reference to Exhibit 10.4 to Fargo's 10-Q for the quarter ended June 30, 2001 (File No. 333-90937).     
|      |  |                                                                                                                                                                                                                                                           |  |                                                                                                                         

E-4

---

|10.28 |  | Form of Direct Reports Agreement dated April 30, 2001 between Fargo Electronics, Inc. and each of Scott Ackerman, Mark Andersen, Kathleen Phillips, Thomas Platner, Paul Stephenson and Jeffrey Upin |  | Incorporated by reference to Exhibit 99(e)(7) of Fargo's Schedule 14D-9 filed on August 3, 2001 (File No. 005-59663).   
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------
|10.29 |  | Form of Management Agreement dated April 30, 2001 between Fargo Electronics, Inc. and several of its employees                                                                                       |  | Incorporated by reference to Exhibit 99(e)(7) of Fargo's Schedule 14D-9 filed on August 3, 2001 (File No. 005-59663).   
|10.30 |  | Lease, dated February 28, 2001, between Fargo Electronics, Inc. and AETNA Life Insurance Company                                                                                                     |  | Incorporated by reference to Exhibit 10.1 to Fargo's 10-Q for the quarter ended September 30, 2001 (File No. 333-90937).
|10.31 |  | Acquisition Agreement dated as of July 31, 2001 among Zebra Technologies Corporation, Rushmore Acquisition Corp. and Fargo Electronics, Inc.                                                         |  | Incorporated by reference to Exhibit 2.1 of Fargo's Form 8-K filed on August 1, 2001 (File No. 333-90937).              
|10.32 |  | Form of Stockholder Agreement dated as of July 31, 2001 between Zebra Technologies Corporation and each of the Entities Affiliated with TA Associates, Inc. and St. Paul Venture Capital, Inc.       |  | Incorporated by reference to Exhibit 99.2 of Fargo's Form 8-K filed on August 1, 2001 (File No. 333-90937).             
|10.33 |  | Form of Stockholder Agreement dated as of July 31, 2001 between Zebra Technologies Corporation and each of Fargo's Directors and Executive Officers                                                  |  | Incorporated by reference to Exhibit 99.3 of Fargo's Form 8-K filed on August 1, 2001 (File No. 333-90937).             
|10.34 |  | Amendment No. 1 to Credit Agreement and Waiver, dated April 20, 2001, between Fargo Electronics, Inc., LaSalle Bank National Association and the other parties thereto.                              |  | Incorporated by reference to Exhibit 10.1 to Fargo's 10-Q for the quarter ended March 31, 2001 (File No. 333-90937).    
|10.35 |  | Amendment No. 2 to Credit Agreement dated February 14, 2002, between Fargo Electronics, Inc., LaSalle Bank National Association and the other parties thereto.                                       |  | Filed electronically herewith.                                                                                          
|      |  |                                                                                                                                                                                                      |  |                                                                                                                         

E-5

---

|10.36 |  | Amendment No. 1, dated August 30, 2001, to Acquisition Agreement among Zebra Technologies Corporation, Rushmore Acquisition Corp. and Fargo Electronics, Inc.  |  | Incorporated by reference to Exhibit 99.1(d)(6) to Amendment No. 3 to Fargo's Schedule TO filed on August 30, 2001 (File No. 005-59663).  
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|10.37 |  | Amendment No. 2, dated October 11, 2001, to Acquisition Agreement among Zebra Technologies Corporation, Rushmore Acquisition Corp. and Fargo Electronics, Inc. |  | Incorporated by reference to Exhibit 99.1(d)(6) to Amendment No. 6 to Fargo's Schedule TO filed on October 12, 2001 (File No. 005-59663). 
|10.38 |  | Amendment No. 3, dated February 5, 2002, to Acquisition Agreement among Zebra Technologies Corporation, Rushmore Acquisition Corp. and Fargo Electronics, Inc. |  | Incorporated by reference to Exhibit 99.1(d)(6) to Amendment No. 14 to Fargo's Schedule TO filed on February 6, 2002 (File No. 005-59663).
|10.39 |  | Termination Agreement, dated March 27, 2002, among Zebra Technologies Corporation, Rushmore Acquisition Corp. and Fargo Electronics, Inc.                      |  | Incorporated by reference to Exhibit 99.1(d)(6) to Amendment No. 3 to Fargo's Schedule TO filed on March 27, 2002 (File No. 005-59663).   
|23.1  |  | Consent of PricewaterhouseCoopers LLP                                                                                                                          |  | Filed electronically herewith.                                                                                                            

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