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SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

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FORM 10-K

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2000

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from  to

Commission File No.: 000-29029

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

Delaware

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

(I.R.S. Employer
Identification No.)6533 Flying Cloud Drive
Eden Prairie, Minnesota(Address of principal executive offices)

55344(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 /x/  No / /

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
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. / /

As
of March 13, 2001, 11,749,608 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 $19,716,862.

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 2001 Annual Meeting to be held on May 3, 2001.

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PART I

Item 1. 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:



Our
strong relationships with our distributors and resellers provide us with a competitive advantage. We distribute our products through a global network of distributors and resellers
in more than 75 countries. We have manufactured and sold more than 50,000 card personalization systems in the past seven years.

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. We distributed certain assets and product lines to Primera
Technology, Inc., a corporation solely owned by our founder. The distributed assets were part of separate product lines that we determined were not going to be a part of our future business
strategy.

In
the recapitalization, a group of investors acquired an 80% interest in our company and our founder retained a 20% interest. For more information about the recapitalization, see
Note 3 to our financial statements beginning on page F-10.

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 2 to our financial statements
beginning on page F-9.

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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 web site address is www.fargo.com.



Our business is organized, managed and internally reported as a single segment. Geographical sales information is contained in Note 12 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 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 High Definition Printing (HDP), 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.

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. 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.

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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 two principal product series with variations within each series 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.
Because our systems are relatively compact, they are easily moved from one location to another. Although our systems are technically sophisticated, 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.

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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 substantially all of the printers that we have manufactured to date.

We
began shipping our new line of High Definition Printing systems in January of 2000. High definition printing is a new process in which the printer first prints images onto a
special clear 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 for greater durability 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 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. In summary, high definition printing produces
higher quality images than direct to card printing, and the ability to print on virtually any card size, type or chemical composition, 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 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.

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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 most commonly
accessed by direct electrical contact with a smart card reader that makes 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.

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 to incorporate proximity encoding operations into our HDP printers. We are currently investigating 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 two different product series with a variety of options within each series 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    |  | 41 seconds
(YMCK)                      |  | 30 seconds
(YMCK / Lam)               
|Printing Sides         |  | HD720: Dual
HD710: Single              |  | Dual                                  
|Magnetic Stripe Option |  | Yes                                    |  | Yes                                   
|Smart Card Option      |  | 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 55%, 49% and 50% of our net sales of card
personalization products in 2000, 1999 and 1998, respectively. Our consumable supplies business provides us with recurring revenues because 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 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. Both the ribbons
and the overlaminates include proprietary technology owned by their respective manufacturers and, in some cases, technology owned by us. 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

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free as reasonably possible. 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 75 countries worldwide. We believe that our distribution network is the largest and most dedicated in our industry. During 2000, we have consolidated the number of distributors
and resellers both internationally and domestically in order to streamline our channel based on our Professional Series limited distribution strategy.

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 new 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 printers.
Our Professional Series is currently sold through five exclusive distributors and 130 value-added resellers who have agreed to meet the 80% volume requirement.

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 379 direct resellers, as well as nine distributors who distribute our products to their approximately 1,500 resellers nationwide.

Our
international distribution network includes 98 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 12 to our financial statements on page F-18 of this report.

Our
largest ten distributors and resellers accounted for a combined total of 40% of sales in 2000, one of which accounted for more than 10% of our sales in 2000. We support our
distribution network and end-user customers through our offices in Eden Prairie, Minnesota. As of December 31, 2000, 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 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. Our
web site provides visitors

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

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 proximity cards, 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

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December 31, 2000, we had 37 employees engaged in new product design, engineering and development.

As
we implement our strategy to invest significant engineering resources in product development, our research and development costs grew to approximately 8.4% of net sales in 2000,
compared to 7.3% of net sales in 1999 and 3.3% of net sales in 1998.

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, 2000, we held 12 United States patents related to our card business. We have also filed applications for 50 additional United States patents that are
currently pending. Our existing patents expire during the period between January 2009 and September 2018. 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. 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 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 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.

We
entered into a transition period in the last half of 2000 as we introduced several new products. The introduction of these products was delayed for several months as we encountered
unforeseen

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engineering and manufacturing difficulties. As a result of these problems, we were unable to meet our sales forecasts and we incurred additional production costs that lowered our profit margins in
2000. We anticipate this transition period to continue through the second quarter of 2001.

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 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.

The
card personalization industry includes approximately 15 companies that manufacture digital card printers; however, the market is dominated by three manufacturers. We believe that
Fargo is the leading manufacturer of desktop, or instant issue, systems. Our two largest competitors based on market share are DataCard Corporation and Zebra Technologies Corporation, which
manufactures card printers under the Eltron brand name. We also compete with manufacturers of analog lamination systems, such as Polaroid Corporation.

Employees

As of February 28, 2001, we employed approximately 198 persons, of whom 83 are engaged in manufacturing, 37 in research and development, 43 in sales,
marketing and technical support and the balance in management and administrative positions. None of our employees are represented by a 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 12 on page F-18 of our financial statements for information about export sales.

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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:

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 microprocessors 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.

11

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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 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 Profession Series systems to effectively market and sell these products could impede our exclusive distribution strategy and negatively effect 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.

12

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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. 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 Asia. International sales accounted for 38% of our net
sales in fiscal 2000. International sales represented 36% of our net sales in fiscal 1999 and fiscal 1998. We expect that shipments to international customers, including customers in Asia, will
continue to account for a material 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

13

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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. Because we use foreign currencies to make
our largest purchases, currency fluctuations caused our purchasing costs to increase in 2000, and could continue to adversely affect our results of operations. 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 continuing 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 experienced engineering and manufacturing problems with some of our systems during 2000. Similar problems in the future could lead to production delays that
cause our distribution network to choose to sell competing systems. In addition, manufacturing problems could result in higher material,

14

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labor and other costs which could increase the total cost of our systems and could decrease our profit margins. See "Manufacturing and Sources of Supply" on page 9 and "Results of Operations"
on page 21.

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.

15

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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.

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 revolving credit facility. This revolving credit facility imposes several restrictive conditions on our ability to
incur additional indebtedness and pay dividends. This revolving credit facility, and other future credit facilities, may
prevent us from taking steps necessary to further our growth. We anticipate we will not be in compliance with certain covenants in our revolving credit facility at March 31, 2001. Although we
expect to amend the credit agreement on satisfactory terms, our failure to do so could increase the interest we pay on our debt and result in other negative consequences. See the Liquidity and Capital
Resources section beginning on page 23 for more information about our revolving credit facility.

Item 2. PROPERTIES

We currently lease approximately 70,576 square feet of space for our corporate headquarters and manufacturing facility in Eden Prairie, Minnesota. Our lease
for this facility expires in September 2001 and we have the option of extending this lease for an additional two years. We are planning to extend our lease in our current facility through 2006
and lease an additional 25,000 square feet starting in January 2002.

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.

16

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Item 4A. EXECUTIVE OFFICERS OF FARGO

Name

Age

PositionGary R. Holland

59

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

37

Vice PresidentQuality and Management SystemsMark Andersen

40

Vice PresidentSalesI. Tony Haugen

48

Vice PresidentManufacturingKathleen Phillips

36

Vice PresidentMarketingTom Platner

41

Vice PresidentEngineering and ManufacturingJeffrey D. Upin

42

Vice PresidentAdministration and General Counsel


Gary R. Hollandhas served as our President and 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 and CEO 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 board of directors of Check Technology Corporation and as Chairman of the board of directors 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 Andersen hasbeen Vice PresidentSales, since June 2000. He 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.

I. Tony Haugenis our Vice PresidentManufacturing, a position he has held since 1992. From 1979 to 1992, Mr. Haugen
held various manufacturing management and engineering positions at Seagate Technology, a leading manufacturer of disc drives.

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. 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 as a Field Application Engineer from 1981 to 1985.

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

17

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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.

Fiscal 2000

High

LowSecond Quarter

$
12.13

$
2.50Third Quarter

$
9.50

$
3.50Fourth Quarter

$
6.31

$
1.47




As
of March 6, 2000, we estimate that there were over 2,618 beneficial owners of shares of our common stock, which shares were held by 49 record holders.



We have not declared or paid any cash dividends on our common stock for past two 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,
2000.

18

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Item 6.  SELECTED FINANCIAL DATA.

The data presented below as of and for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 are derived from our audited financial statements.
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)

|                                                                |                                                 | Year Ended December 31, |       
|--------------------------------------------------------------- | ----------------------------------------------- | ----------------------- | ------
|
|Net sales                                                       |                                                 | $                       | 59,100
|Cost of sales                                                   |                                                 |                         | 34,721
|                                                                |                                                 |                         |       
|                                                                | Gross profit                                    |                         |       
|                                                                |                                                 |                         |       
|Operating expenses:                                             |                                                 |                         |       
|                                                                | Research and development                        |                         |       
|                                                                | Selling, general and administrative             |                         |       
|                                                                | Recapitalization costs(1)                       |                         |       
|                                                                |                                                 |                         |       
|Total operating expenses                                        |                                                 |                         | 16,216
|                                                                |                                                 |                         |       
|Operating income                                                |                                                 |                         | 8,163 
|Other income (expense):                                         |                                                 |                         |       
|                                                                | Interest expense                                |                         |       
|                                                                | Interest income                                 |                         |       
|                                                                | Other, net                                      |                         |       
|                                                                |                                                 |                         |       
|Total other expense                                             |                                                 |                         | (2,742
|                                                                |                                                 |                         |       
|Income before provision for income taxes and extraordinary loss |                                                 |                         | 5,421 
|Provision for income taxes                                      |                                                 |                         | 1,979 
|                                                                |                                                 |                         |       
|Net income (loss) before extraordinary loss                     |                                                 |                         | 3,442 
|Extraordinary loss, net of applicable income taxes              |                                                 |                         | (385  
|                                                                |                                                 |                         |       
|Net Income (loss)                                               |                                                 |                         | 3,057 
|                                                                |                                                 |                         |       
|Accrued dividends on redeemable preferred stock                 |                                                 |                         | (350  
|Accretion of convertible participating preferred stock          |                                                 |                         |      
|                                                                |                                                 |                         |       
|Net income (loss) available to common stockholders              |                                                 | $                       | 2,707 
|                                                                |                                                 |                         |       
|Net income (loss) per common share:                             |                                                 |                         |       
|                                                                | Basic income (loss) before extraordinary loss   |                         | $     
|                                                                | Extraordinary loss                              |                         |       
|                                                                |                                                 |                         |       
|                                                                |                                                 | Net income (loss)       |       
|                                                                |                                                 |                         |       
|                                                                | Diluted income (loss) before extraordinary loss |                         | $     
|                                                                | Extraordinary loss                              |                         |       
|                                                                |                                                 |                         |       
|                                                                |                                                 | Net income (loss)       |       
|                                                                |                                                 |                         |       
|Weighted average common shares outstanding:                     |                                                 |                         |       
|                                                                | Basic                                           |                         |       
|                                                                |                                                 |                         |       
|                                                                | Diluted                                         |                         |       
|                                                                |                                                 |                         |       

---

19

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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, the 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 1998, we recapitalized our company pursuant to which a group of investors acquired an 80% interest in Fargo. In connection with this recapitalization, we received
$32 million in equity financing and incurred indebtedness of $70 million. The outstanding shares of common stock held by our founder and sole stockholder were redeemed with
$87 million in cash, issuance of $6 million of redeemable preferred stock and the issuance of a $10 million note payable. This stockholder retained a 20% interest in Fargo
immediately after the recapitalization.

The
transaction was accounted for as a leveraged recapitalization such that our assets and liabilities remain at their historical bases for financial reporting purposes. For income
tax purposes, the transaction was treated as a taxable business combination such that the financial statements reflect a "step-up" in tax basis.

In
1998, non-recurring expenses of $8.4 million were incurred, primarily in the form of cash and stock bonuses to employees, immediately prior to the
recapitalization.

As
part of the recapitalization we distributed, as a dividend, certain assets and product lines to Primera Technology, Inc., a corporation solely owned by our founder. The
distributed assets were part of separate product lines that we determined were not going to be a part of our future business strategy. Net assets distributed to Primera totaled approximately
$1,183,000. From January 1, 1998 to February 18, 1998, these product lines distributed represented approximately $670,000 in net sales and $180,000 in gross profit.

20

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Subsequent to the recapitalization, we have focused our business strategy on the design, manufacture and sales of products for plastic card personalization and data encoding. Product
lines that are not related to our current strategy are in the process of being discontinued. These products, excluding product lines distributed to Primera Technology, Inc. in the
recapitalization, constituted approximately $628,000, $1.4 million, and $4.1 million in net sales in 2000, 1999, and 1998, respectively.

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 2 to our financial statements
beginning on page F-9.

The
following table sets forth, for the periods indicated, the net sales related to plastic card personalization and encoding (card) products, and products not related to plastic card
personalization (non-card) including non-card product lines distributed to Primera in the recapitalization:

Years Ended December 31,2000

1999

1998(in thousands)Card products

$
58,472

$
53,554

$
41,652Non-card products


628


1,353


5,995Net sales

$
59,100

$
54,907

$
47,647


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 31,2000

1999

1998Net sales

100.0
%
100.0
%
100.0
%Cost of sales

58.7

52.7

48.7Gross profit

41.3

47.3

51.3Operating expenses:Research and development

8.4

7.3

3.3Selling, general and administrative

19.1

17.0

17.4Recapitalization costs





17.6Total operating expenses

27.5

24.3

38.3Operating income

13.8
%
23.0
%
13.0
%


Comparison of Years Ended December 31, 2000 and 1999

Net sales.Net sales increased 7.6% to $59.1 million in 2000 from $54.9 million in 1999. The mix of net
sales continued to change during this period with sales of plastic card personalization products increasing 9.1% to $58.5 million in 2000 from $53.6 million in 1999. Sales of products
not related to plastic card personalization decreased 53.6% to $628,000 in 2000 from $1.3 million in 1999. Of the $58.5 million in sales attributable to plastic card personalization
products in 2000, sales of equipment decreased 5.5% to $25.9 million from $27.4 million in 1999, and sales of supplies increased 24.0% to $32.6 million from $26.2 million
in 1999. The decrease in sales of equipment was principally due to our inability to meet demand caused from unforeseen engineering and manufacturing difficulties as we ramped up production on our new
products. The increase in sales of supplies was the result of increased volume of units in the field.

21

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International sales increased 13.7% to $22.6 million in 2000 from $19.9 million in 1999 and accounted for 38.3% of net sales in 2000 compared to 36.2% of net sales in
1999. The increase in international sales was primarily due to increased demand in most geographic markets.

Gross profit.Gross profit as a percentage of net sales decreased to 41.3% in 2000 from 47.3% 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 the mix of printers sold. The yen impacts our gross margin since we purchase our ribbons from Japanese suppliers, however, with our new agreement with our
Japanese supplier to purchase ribbons in dollars, this impact should be limited in 2001.

We
anticipate that our gross profit percentage for the first quarter of 2001 will be lower than the first quarter of 2000 due to continued manufacturing start-up costs on
new products.

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 8.4% for 2000 compared to 7.3% 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. Research and
development expenses consist primarily of engineering salaries and prototype component costs.

Selling, general and administrative.Selling, general and administrative expenses increased 21.0% to
$11.3 million in 2000 from $9.3 million in 1999. As a percentage of net sales, selling, general and administrative expenses were 19.1% in 2000, compared to 17.0% in 1999. These increases
are
principally attributable to increased dealer promotional activities and additional marketing expenses to promote our new products.

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 13.8% in 2000 as compared to 23.0% 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.

Comparison of Years Ended December 31, 1999 and 1998

Net sales.Net sales increased 15.2% to $54.9 million in 1999 from $47.6 million in 1998. The mix of net
sales changed significantly during this period with sales of plastic card personalization products increasing 28.6% to $53.6 million in 1999 from $41.7 million in 1998. Sales of products
not related to plastic card personalization decreased 77.4% to $1.3 million in 1999 from $5.9 million in 1998. Of the $53.6 million in sales attributable to plastic card
personalization products in 1999, sales of equipment increased 30.0% to $27.4 million from $21.0 million in 1998, and sales of supplies increased 27.1% to $26.2 million from
$20.7 million in 1998.

22

---



International
sales increased 14.3% to $19.9 million in 1999 from $17.4 million in 1998 and accounted for 36.2% of net sales in 1999 compared to 36.4% of net sales in
1998.

Gross profit.Gross profit as a percentage of net sales decreased to 47.3% in 1999 from 51.3% in 1998. The decrease was
primarily due to an unfavorable exchange rate on the yen and changes in our discounts and pricing structure, but this was partially offset by overhead efficiencies attributable to being focused solely
on products related to plastic card personalization. The yen impacts our gross profit since we purchase our ribbons from Japanese suppliers.

Research and development.Research and development expenses increased 152.9% to $4.0 million in 1999 from
$1.6 million in 1998. Engineering expenses as a percentage of net sales were 7.3% for 1999 compared to 3.3% for 1998. The increase in 1999 was primarily due to the development of our new
high-definition (HDP) product line and other new plastic card personalization technologies. Research and development expenses consist primarily of engineering salaries and prototype
component costs.

Selling, general and administrative.Selling, general and administrative expenses increased 12.3% to
$9.3 million in 1999 from $8.3 million in 1998. As a percentage of net sales, selling, general and administrative expenses were 17.0% in 1999, compared to 17.4% in 1998. The dollar
increase in 1999 was principally attributable to additional marketing promotion expenses. In addition, we incurred higher professional fees related to updating our internal accounting and
manufacturing systems to address year 2000 compliance.

Operating income.Operating income increased 104.8% to $12.6 million in 1999 from $6.2 million in 1998.
As a percentage of net sales, operating income was 23.0% in 1999 as compared to 13.0% in 1998. The increase in operating income as a percentage of net sales in 1999 was principally attributable to the
recapitalization costs of $8.4 million or 17.6% of net sales recorded in 1998. Without these recapitalization costs, 1998 operating income would have been $14.6 million or 30.6% of net
sales.

Interest expense.Interest expense totaled $6.0 million in 1999 compared to $5.3 million in 1998. Prior
to the recapitalization in February 1998, we had no debt and, therefore, no interest expense. The weighted average interest rate on our term loan in 1999 and 1998 was 8.4%. The interest rate on
the note payable to stockholder was 12% for 1999 and 1998.

Income tax expense.Income tax expense was $2.6 million in 1999 which results in an effective tax rate of 36.5%.
The difference between our effective tax rate and the statutory rate is primarily due to state income taxes. Income tax expense for 1998 was $2.8 million. Prior to the recapitalization in
February 1998, we had elected S Corporation status and, therefore, the periods prior to February 18, 1998 do not reflect income tax expense.

Liquidity and Capital Resources

We have historically financed our operations, debt service and capital requirements through cash flows generated from operations. Working capital was
$14.9 million, $7.6 million, and $5.2 million at December 31, 2000, 1999, and 1998, respectively. Our current ratio was 4.3, 1.8, and 1.7 at December 31, 2000, 1999,
and 1998, respectively.

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 due to the timing of sales and the increase in inventory resulted primarily from
inventory purchased to support new product introductions. Cash used by investing activities was $1.4 million primarily for the purchase of equipment and leasehold

23

---

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.

Cash
generated by operating activities in 1999 totaled $5.9 million due to net income of $4.5 million and non-cash charges of $3.2 million for
deferred income taxes and depreciation and amortization. The cash generated from operations also included increases in accounts payable and accrued liabilities of $1.4 million. These cash flows
were partially offset by an increase in accounts receivable of $844,000 and an increase in inventory of $2.3 million. In 1999, we used $1.6 million for the purchase of equipment and
leasehold improvements. Cash flows from investing activities during 1999 were primarily for the repayment on notes payable to our bank of $3.4 million and $450,000 for payments of deferred
offering costs.

At
December 31, 2000, our borrowings consisted of $22.9 million owed under the revolving credit agreement with LaSalle Bank and Harris Bank. In 2000, the weighted
average interest rate on the
revolving credit facility was 8.95%. We anticipate that, as of March 31, 2001, we will not be in compliance with certain financial covenants in our existing credit agreement. We are currently
negotiating with our banks and we have signed a non-binding term sheet containing the terms upon which we expect to amend the agreement in a manner that we believe will result in a satisfactory
outcome. If we are unable to amend the agreement on the terms outlined in the term sheet, the adverse consequences could include: the revolving credit facility immediately terminating, and the loans
and all other obligations becoming immediately due and payable; the inability to borrow at the LIBOR rate; and the annual interest increasing by 2.00%.

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

The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements," in
December 1999. The SAB summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. During the fourth quarter
of 2000, we performed a comprehensive review of our revenue recognition policies and determined that they are in compliance with SAB 101.

In
June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." We must adopt this standard
no later than January 1, 2001. We have reviewed the requirements of this standard and expect that this standard will not affect our financial position or results of operations.

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.

24

---

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 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, 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 make purchases from a material supplier using foreign currency 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 manufactures 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, 2000, we had approximately $1.2 million in cash and cash equivalents,
comprising approximately 2.5% 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)(i).

Quarterly Results

The following table sets forth certain unaudited quarterly financial data for 2000 and 1999. 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.

25

---

|                                                       |  | Three Months Ended
|------------------------------------------------------ |  | ------------------
|
|
|Net sales                                              |  | $                 
|Gross profit                                           |  |                   
|Operating expenses                                     |  |                   
|Operating income                                       |  |                   
|Net income                                             |  |                   
|Net income (loss) available to common stockholders (1) |  |                   
|Basic earnings per share                               |  | $                 
|Diluted earnings per share                             |  | $                 

|                                                |                   | Three Months 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
|------------------------------------------------------------ |  | ------------------
|
|Accrued dividends on Series B, 8% redeemable preferred stock |  | $                 
|Accretion of convertible participating preferred stock       |  |                   

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

Not applicable.

26

---



PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

(a)Directors of the Registrant.

The
information under the caption "Election of DirectorsInformation About Nominees" and  "Other Information About Nominees" in our 2001
Proxy Statement is incorporated herein by reference.

(b)Executive Officers of the Registrant.

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

(c)Compliance with Section 16(a) of the Exchange Act.

The
information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in our 2001 Proxy Statement is incorporated herein by reference.

Item 11.  EXECUTIVE COMPENSATION.

The information under the caption "Executive Compensation" in our 2001 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 2001 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 2001 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:

(1)Financial Statements:

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, 2000 and 1999

F-2Statements of Operations for the years ended
December 31, 2000, 1999 and 1998

F-3Statements of Changes in Stockholders' Equity (Deficiency)
for the years ended December 31, 2000, 1999 and 1998

F-4Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998

F-5 to F-6Notes to Financial Statements

F-7 to F-18


27

---



(2)Financial Statement Schedule:

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 26, 2001, appearing in the December 31, 2000, Annual Report to Stockholders of Fargo
Electronics, Inc. (which report and financial statements are included 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.



Minneapolis,
Minnesota
January 26, 2001

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, 2000    |                                | $ | 300,000                       |  | $          | 90,983  |                         
|                                           | Year ended December 31, 1999    |                                | $ | 250,000                       |  | $          | 130,629 |                         
|                                           | Year ended December 31, 1998(1) |                                | $ | 440,000                       |  | $          | 123,759 |                         

|Valuation account for inventory: |                                 |  |   |           |  |   |         |  |   |         |  |  
|-------------------------------- | ------------------------------- |  | - | --------- |  | - | ------- |  | - | ------- |  | -
|                                 | Year ended December 31, 2000    |  | $ | 711,676   |  | $ | 547,619 |  | $ | 194,373 |  | $
|                                 | Year ended December 31, 1999    |  | $ | 925,000   |  | $ | 61,000  |  | $ | 274,324 |  | $
|                                 | Year ended December 31, 1998(2) |  | $ | 1,300,000 |  | $ | 61,600  |  | $ | 436,600 |  | $

---

28

---

(3)Exhibits

The
exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index contained on pages E-1 through E-4 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:
Jeffrey D. Upin, Vice President of Administration and General Counsel, 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.

29

---



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 March 23, 2001 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         |  | Director of Finance (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                                                                                               

30

---

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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2000, 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 audits 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.

January
26, 2001

F-1

---



Fargo Electronics, Inc.        Balance Sheets        At December 31, 2000 and 1999(In thousands)

|                                                                                                                                                    |                                                                                                                                                               | 2000                                                    |        | 1999     |       
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------ | -------- | ------
|ASSETS                                                                                                                                              |                                                                                                                                                               |                                                         |        |          |       
|Current assets:                                                                                                                                     |                                                                                                                                                               |                                                         |        |          |       
|                                                                                                                                                    | Cash and cash equivalents                                                                                                                                     |                                                         | $      | 1,223    |       
|                                                                                                                                                    | Accounts receivable, net                                                                                                                                      |                                                         |        | 6,754    |       
|                                                                                                                                                    | Inventories                                                                                                                                                   |                                                         |        | 8,118    |       
|                                                                                                                                                    | Prepaid expenses                                                                                                                                              |                                                         |        | 248      |       
|                                                                                                                                                    | Deferred income taxes                                                                                                                                         |                                                         |        | 3,063    |       
|                                                                                                                                                    |                                                                                                                                                               |                                                         |        |          |       
|                                                                                                                                                    |                                                                                                                                                               | Total current assets                                    |        |          | 19,406
|                                                                                                                                                    |                                                                                                                                                               |                                                         |        |          |       
|Equipment and leasehold improvements, net                                                                                                           |                                                                                                                                                               |                                                         | 2,079  |          |       
|Other assets:                                                                                                                                       |                                                                                                                                                               |                                                         |        |          |       
|                                                                                                                                                    | Deferred income taxes                                                                                                                                         |                                                         |        | 27,200   |       
|                                                                                                                                                    | Deferred financing costs, net                                                                                                                                 |                                                         |        | 108      |       
|                                                                                                                                                    | Other, primarily deferred offering costs in 1999                                                                                                              |                                                         |        | 22       |       
|                                                                                                                                                    |                                                                                                                                                               |                                                         |        |          |       
|                                                                                                                                                    |                                                                                                                                                               | Total assets                                            |        | $        | 48,815
|                                                                                                                                                    |                                                                                                                                                               |                                                         |        |          |       
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)                                                                                                   |                                                                                                                                                               |                                                         |        |          |       
|Current liabilities:                                                                                                                                |                                                                                                                                                               |                                                         |        |          |       
|                                                                                                                                                    | Current portion of notes payable, bank                                                                                                                        |                                                         |        |          |       
|                                                                                                                                                    | Accounts payable                                                                                                                                              |                                                         | $      | 2,832    |       
|                                                                                                                                                    | Accrued liabilities                                                                                                                                           |                                                         |        | 1,724    |       
|                                                                                                                                                    |                                                                                                                                                               |                                                         |        |          |       
|                                                                                                                                                    |                                                                                                                                                               | Total current liabilities                               |        |          | 4,556 
|                                                                                                                                                    |                                                                                                                                                               |                                                         |        |          |       
|Revolving credit facility                                                                                                                           |                                                                                                                                                               |                                                         | 22,900 |          |       
|Notes payable, bank, less current portion                                                                                                           |                                                                                                                                                               |                                                         |        |          |       
|Note payable, stockholder                                                                                                                           |                                                                                                                                                               |                                                         |        |          |       
|Series B, 8% redeemable preferred stock including accrued dividends, $.01 par value; 30,000 shares authorized, 30,000 shares issued and outstanding |                                                                                                                                                               |                                                         |        |          |       
|Convertible participating preferred stock, $.01 par value; 10,000 shares authorized, 8,000 shares issued and outstanding                            |                                                                                                                                                               |                                                         |        |          |       
|Commitments                                                                                                                                         |                                                                                                                                                               |                                                         |        |          |       
|Stockholders' equity (deficiency):                                                                                                                  |                                                                                                                                                               |                                                         |        |          |       
|                                                                                                                                                    | Common stock, $.01 par value; 50,000 and 12,500 shares authorized, 11,746 and 1,766 shares issued and outstanding at December 31, 2000 and 1999, respectively |                                                         |        | 117      |       
|                                                                                                                                                    | Additional paid-in capital                                                                                                                                    |                                                         |        | 145,155  |       
|                                                                                                                                                    | Accumulated deficit                                                                                                                                           |                                                         |        | (123,116 | )     
|                                                                                                                                                    | Deferred compensation                                                                                                                                         |                                                         |        | (72      | )     
|                                                                                                                                                    | Stock subscription receivable                                                                                                                                 |                                                         |        | (725     | )     
|                                                                                                                                                    |                                                                                                                                                               |                                                         |        |          |       
|                                                                                                                                                    |                                                                                                                                                               | Total stockholders' equity (deficiency)                 |        |          | 21,359
|                                                                                                                                                    |                                                                                                                                                               |                                                         |        |          |       
|                                                                                                                                                    |                                                                                                                                                               | Total liabilities and stockholders' equity (deficiency) |        | $        | 48,815
|                                                                                                                                                    |                                                                                                                                                               |                                                         |        |          |       

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, 2000, 1999 and 1998(In
thousands, except per share amounts)

|                                                                |                                     | 2000                                    |                          | 1999   |      | 1998    |       
|--------------------------------------------------------------- | ----------------------------------- | --------------------------------------- | ------------------------ | ------ | ---- | ------- | ------
|Net sales                                                       |                                     | $                                       | 59,100                   |        | $    | 54,907  |       
|Cost of sales                                                   |                                     |                                         | 34,721                   |        |      | 28,928  |       
|                                                                |                                     |                                         |                          |        |      |         |       
|                                                                |                                     |                                         | Gross profit             |        |      | 24,379  |       
|                                                                |                                     |                                         |                          |        |      |         |       
|Operating expenses:                                             |                                     |                                         |                          |        |      |         |       
|                                                                | Research and development            |                                         |                          | 4,934  |      |         | 4,011 
|                                                                | Selling, general and administrative |                                         |                          | 11,282 |      |         | 9,325 
|                                                                | Recapitalization costs              |                                         |                          |        |      |         |       
|                                                                |                                     |                                         |                          |        |      |         |       
|                                                                |                                     |                                         | Total operating expenses |        |      | 16,216  |       
|                                                                |                                     |                                         |                          |        |      |         |       
|Operating income                                                |                                     |                                         | 8,163                    |        |      | 12,643  |       
|                                                                |                                     |                                         |                          |        |      |         |       
|Other income (expense):                                         |                                     |                                         |                          |        |      |         |       
|                                                                | Interest expense                    |                                         |                          | (2,830 | )    |         | (5,956
|                                                                | Interest income                     |                                         |                          | 81     |      |         | 102   
|                                                                | Other, net                          |                                         |                          | 7      |      |         | 270   
|                                                                |                                     |                                         |                          |        |      |         |       
|                                                                |                                     |                                         | Total other expense      |        |      | (2,742  | )     
|                                                                |                                     |                                         |                          |        |      |         |       
|Income before provision for income taxes and extraordinary loss |                                     |                                         | 5,421                    |        |      | 7,059   |       
|Provision for income taxes                                      |                                     |                                         | 1,979                    |        |      | 2,575   |       
|                                                                |                                     |                                         |                          |        |      |         |       
|Net income (loss) before extraordinary loss                     |                                     |                                         | 3,442                    |        |      | 4,484   |       
|Extraordinary loss, net of applicable income taxes of $222      |                                     |                                         | (385                     | )      |      |         |       
|                                                                |                                     |                                         |                          |        |      |         |       
|Net income (loss)                                               |                                     |                                         | 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              |                                     | $                                       | 2,707                    |        | $    | (65,136 | )     
|                                                                |                                     |                                         |                          |        |      |         |       
|Net income (loss) per common share:                             |                                     |                                         |                          |        |      |         |       
|                                                                | Basic earnings:                     |                                         |                          |        |      |         |       
|                                                                |                                     | Income (loss) before extraordinary loss |                          | $      | .29  |         | $     
|                                                                |                                     | Extraordinary loss                      |                          |        | (.04 | )       |       
|                                                                |                                     |                                         |                          |        |      |         |       
|                                                                |                                     |                                         | Net income (loss)        |        | $    | .25     |       
|                                                                |                                     |                                         |                          |        |      |         |       
|                                                                | Diluted earnings:                   |                                         |                          |        |      |         |       
|                                                                |                                     | Income (loss) before extraordinary loss |                          | $      | .27  |         | $     
|                                                                |                                     | Extraordinary loss                      |                          |        | (.03 | )       |       
|                                                                |                                     |                                         |                          |        |      |         |       
|                                                                |                                     |                                         | Net income (loss)        |        | $    | .24     |       
|                                                                |                                     |                                         |                          |        |      |         |       
|Weighted average common shares outstanding:                     |                                     |                                         |                          |        |      |         |       
|                                                                | Basic                               |                                         |                          | 10,637 |      |         | 1,734 
|                                                                | Diluted                             |                                         |                          | 11,413 |      |         | 1,734 

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, 2000, 1999 and 1998(In thousands)

|                                                                        |  | Common Stock |   |   |      |   |   |         |   |   |          |   |  
|----------------------------------------------------------------------- |  | ------------ | - | - | ---- | - | - | ------- | - | - | -------- | - | -
|
|
|Balance, December 31, 1997                                              |  | 21,561       |   | $ | 216  |   |   |         |   | $ | 11,219   |   |  
|Redemption of stock and distribution to founder                         |  | (19,918      | ) |   | (199 | ) |   |         |   |   | (96,801  | ) |  
|Exchange of common stock                                                |  | (393         | ) |   | (4   | ) |   |         |   |   | (5,996   | ) |  
|Agreement with founder                                                  |  |              |   |   |      |   |   |         |   |   | (687     | ) |  
|Cash dividend declared and paid to founder                              |  |              |   |   |      |   |   |         |   |   | (1,673   | ) |  
|Cash contribution from founder                                          |  |              |   |   |      |   |   |         |   |   | 2,700    |   |  
|Distribution of PTI assets                                              |  |              |   |   |      |   |   |         |   |   | (1,183   | ) |  
|Stock bonus to employees                                                |  |              |   |   |      |   | $ | 850     |   |   |          |   |  
|Deferred income taxes recorded as part of the recapitalization          |  |              |   |   |      |   |   |         |   |   | 35,936   |   |  
|Restrictive stock grants                                                |  | 438          |   |   | 4    |   |   | 696     |   |   |          |   |  
|Accrued dividends on Series B, 8% redeemable preferred stock            |  |              |   |   |      |   |   |         |   |   | (2,113   | ) |  
|Net loss                                                                |  |              |   |   |      |   |   |         |   |   | (2,089   | ) |  
|                                                                        |  |              |   |   |      |   |   |         |   |   |          |   |  
|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 | ) | $
|                                                                        |  |              |   |   |      |   |   |         |   |   |          |   |  

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, 2000, 1999 and 1998(In
thousands)

|                                                     |                                                                                                    | 2000                                                                        |                     | 1999    |        | 1998   |       
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------- | ------- | ------ | ------ | ------
|Cash flows from operating activities:                |                                                                                                    |                                                                             |                     |         |        |        |       
|                                                     | Net income (loss)                                                                                  |                                                                             | $                   | 3,057   |        | $      | 4,484 
|                                                     | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                                             |                     |         |        |        |       
|                                                     |                                                                                                    | Extraordinary loss                                                          |                     |         | 385    |        |       
|                                                     |                                                                                                    | Depreciation and amortization                                               |                     |         | 1,427  |        |       
|                                                     |                                                                                                    | Gain on sale of equipment                                                   |                     |         | (3     | )      |       
|                                                     |                                                                                                    | Provision for doubtful accounts and sales returns                           |                     |         | 91     |        |       
|                                                     |                                                                                                    | Provision for obsolete inventories                                          |                     |         | 548    |        |       
|                                                     |                                                                                                    | Deferred income taxes                                                       |                     |         | 1,917  |        |       
|                                                     |                                                                                                    | Deferred compensation                                                       |                     |         | 28     |        |       
|                                                     |                                                                                                    | Stock bonus to employees                                                    |                     |         |        |        |       
|                                                     |                                                                                                    | Changes in operating items exclusive of assets and liabilities distributed: |                     |         |        |        |       
|                                                     |                                                                                                    |                                                                             | Accounts receivable |         |        | (1,307 | )     
|                                                     |                                                                                                    |                                                                             | Inventories         |         |        | (2,088 | )     
|                                                     |                                                                                                    |                                                                             | Prepaid expenses    |         |        | 116    |       
|                                                     |                                                                                                    |                                                                             | Accounts payable    |         |        | 450    |       
|                                                     |                                                                                                    |                                                                             | Accrued liabilities |         |        | (103   | )     
|                                                     |                                                                                                    |                                                                             |                     |         |        |        |       
|                                                     |                                                                                                    | Net cash provided by (used in) operating activities                         |                     |         | 4,518  |        |       
|                                                     |                                                                                                    |                                                                             |                     |         |        |        |       
|Cash flows from investing activities:                |                                                                                                    |                                                                             |                     |         |        |        |       
|                                                     | Purchases of equipment and leasehold improvements                                                  |                                                                             |                     | (1,378  | )      |        | (1,610
|                                                     | Proceeds from sale of equipment                                                                    |                                                                             |                     | 17      |        |        | 10    
|                                                     | Other                                                                                              |                                                                             |                     | 3       |        |        | 53    
|                                                     |                                                                                                    |                                                                             |                     |         |        |        |       
|                                                     |                                                                                                    | Net cash used in investing activities                                       |                     |         | (1,358 | )      |       
|                                                     |                                                                                                    |                                                                             |                     |         |        |        |       
|Cash flows from financing activities:                |                                                                                                    |                                                                             |                     |         |        |        |       
|                                                     | Proceeds from initial public offering, net of $6,046 for offering costs                            |                                                                             |                     | 68,954  |        |        |       
|                                                     | Proceeds from notes payable, bank                                                                  |                                                                             |                     |         |        |        |       
|                                                     | Proceeds from revolving credit facility                                                            |                                                                             |                     | 26,500  |        |        |       
|                                                     | Payments on notes payable, bank                                                                    |                                                                             |                     | (50,100 | )      |        | (3,400
|                                                     | Payments on revolving credit facility                                                              |                                                                             |                     | (3,600  | )      |        |       
|                                                     | Payments on note payable, shareholder                                                              |                                                                             |                     | (10,000 | )      |        |       
|                                                     | Payments of deferred financing costs                                                               |                                                                             |                     | (185    | )      |        | (134  
|                                                     | Payments of deferred offering costs                                                                |                                                                             |                     |         |        |        | (450  
|                                                     | Issuance of preferred stock                                                                        |                                                                             |                     |         |        |        |       
|                                                     | Repurchase of common stock                                                                         |                                                                             |                     |         |        |        |       
|                                                     | Redemption of redeemable preferred stock, including accrued dividend                               |                                                                             |                     | (35,083 | )      |        |       
|                                                     | Proceeds from exercise of stock options                                                            |                                                                             |                     | 68      |        |        |       
|                                                     | Cash dividends                                                                                     |                                                                             |                     |         |        |        |       
|                                                     | Contribution from stockholder                                                                      |                                                                             |                     |         |        |        |       
|                                                     |                                                                                                    |                                                                             |                     |         |        |        |       
|                                                     |                                                                                                    | Net cash used in financing activities                                       |                     |         | (3,446 | )      |       
|                                                     |                                                                                                    |                                                                             |                     |         |        |        |       
|Net (decrease) increase in cash and cash equivalents |                                                                                                    |                                                                             | (286                | )       |        | 406    |       
|Cash and cash equivalents, beginning of period       |                                                                                                    |                                                                             | 1,509               |         |        | 1,103  |       
|                                                     |                                                                                                    |                                                                             |                     |         |        |        |       
|Cash and cash equivalents, end of period             |                                                                                                    | $                                                                           | 1,223               |         | $      | 1,509  |       
|                                                     |                                                                                                    |                                                                             |                     |         |        |        |       

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

F-5

---

|                                 |                                                                           | 2000 |   | 1999   |   | 1998
|-------------------------------- | ------------------------------------------------------------------------- | ---- | - | ------ | - | ----
|Cash paid during the period for: |                                                                           |      |   |        |   |     
|                                 | Interest                                                                  |      | $ | 2,607  |   | $   
|                                 | Income taxes                                                              |      |   |        |   |     
|Noncash transactions:            |                                                                           |      |   |        |   |     
|                                 | Restrictive stock grants (cancellations)                                  |      | $ | (50    | ) | $   
|                                 | Deferred tax asset related to step-up in basis                            |      |   |        |   |     
|                                 | Stockholder agreement                                                     |      |   |        |   |     
|                                 | Distribution of net assets to stockholder                                 |      |   |        |   |     
|                                 | Note payable, stockholder, issued in exchange for common stock            |      |   |        |   |     
|                                 | Accrued dividends on Series B, 8% redeemable preferred stock              |      |   | 350    |   |     
|                                 | Issuance of preferred stock in exchange for common stock                  |      |   |        |   |     
|                                 | Accretion of convertible participating preferred stock                    |      |   |        |   |     
|                                 | Conversion of convertible participating preferred stock into common stock |      |   | 75,000 |   |     

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 one financial institution.



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 generally accepted accounting principles.



Revenue is recognized at the time of shipment. The Company provides for estimated warranty costs in the period revenue is recognized. Certain of the Company's
customer arrangements include stock balancing and return provisions. The Company provides an allowance for estimated returns when revenue is recognized.

The
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements," in December 1999. The SAB summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. During the fourth quarter of 2000, the Company performed a comprehensive
review of its revenue recognition policies and determined that they are in compliance with SAB 101.



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.



Prior to the Recapitalization (see Note 3), the Company had elected S Corporation status under the applicable sections of the Internal Revenue Code (IRC) and
relevant state income tax regulations, whereby income of the Company was included in the income tax returns of its founder and sole stockholder. Accordingly, the financial statements for the periods
prior to the Recapitalization do not reflect the income tax effects of the Company's operations. Effective February 18, 1998, the Company elected to be taxed as a C Corporation under the provisions of
the IRC.

For
the periods subsequent to February 18, 1998, deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the
tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and tax rates in effect for the periods in which the differences are expected to
reverse. The tax effects of the temporary differences which resulted from the "step-up" in tax basis (Notes 3 and 9) have been reflected in stockholders' equity (deficiency) at February 18, 1998. The
provision for income taxes 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

F-8

---

average number of outstanding common shares and potentially dilutive shares relating to stock options and preferred stock.

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

2000

1999

1998Weighted average common shares outstanding:Basic

10,637

1,734

4,307Effect of dilutive stock options and convertible participating preferred stock

776Diluted

11,413

1,734

4,307


Options
to purchase 369,400 shares of common stock were outstanding at December 31, 2000, but were not included in the computation of diluted earnings per share because the exercise
prices were greater than the average market price of the common shares. The options and convertible participating preferred stock were not included in the computation of diluted net loss per common
share for the years ended December 31, 1999 and 1998, 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 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.



In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company must
adopt this standard no later than January 1, 2001. The Company has reviewed the requirements of this standard and expects that this standard will not affect its financial position or results of
operations.

2. 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 offered was $75,000,000. All of the offered shares were sold, and 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, including $450,000 of offering cost included in other assets at December 31, 1999.

F-9

---

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


23,718Total

$
68,954


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.

3. Recapitalization

On February 18, 1998, the Company completed a recapitalization (the Recapitalization) pursuant to which Fargo Electronics Holdings, Inc. (FEHI) acquired an 80
percent interest in Fargo. In connection with the Recapitalization, the Company received $32,000,000 in equity financing from FEHI, consisting of $24,000,000 of Series B 8% redeemable preferred stock
and $8,000,000 of convertible participating preferred stock, and incurred indebtedness of $70,000,000. The outstanding shares of common stock of Fargo held by its founder and sole stockholder totaling
19,918,519 shares were redeemed for $4.87 per share with $87,000,000 in cash and a $10,000,000 note payable. The founder then exchanged his remaining 1,642,731 shares of the Company's common stock for
1,250,000 shares of the Company's common stock and 6,000 shares of the Company's Series B 8% redeemable preferred stock. The stockholder retained a 20 percent interest in Fargo.

The
transaction was accounted for as a leveraged recapitalization such that the Company's assets and liabilities remained at their historical bases for financial reporting purposes.
For income tax purposes, the transaction was treated as a taxable business combination such that the financial statements reflected a "step-up" in tax basis (Note 9).

The
effects of the Recapitalization on the Statement of Changes in Stockholders' Equity (Deficiency) are summarized as follows (in thousands):

Redemption and distribution to founder paid in cash

$
(87,000
)Redemption and distribution to founder in exchange for a note payable


(10,000
)Issuance of preferred stock in exchange for common stock


(6,000
)Agreement with founder


(687
)Dividend declared and paid to founder


(1,673
)Cash contribution from founder


2,700Distribution of PTI assets


(1,183
)Stock bonus to employees


850Deferred income taxes


35,936$
(67,057
)


Non-recurring
expenses of $8,385,942 were incurred by the Company, in the form of cash bonuses to employees ($6,981,653), stock bonuses to employees ($850,000) and professional fees
($554,289), immediately prior to the Recapitalization. The stock bonuses to employees, in the preceding sentence

F-10

---

and the table above, were recorded based on the transfer to employees by the founder of 132,812.5 shares of common stock at the fair market value of $1.60 per share and 637.5 shares of redeemable
preferred stock at the fair market value of $1,000 per share. The bonuses paid to employees were for efforts specifically related to the recapitalization and accordingly were recorded as part of the
recapitalization costs.

Immediately
prior to the recapitalization, certain assets and product lines manufactured by the Company were distributed to Primera Technology, Inc. (PTI), a corporation solely owned
by the Company's founder. Net assets distributed had a net book value of approximately $1,183,000. From January 1, 1998, to February 18, 1998, the product lines distributed represented approximately
$670,000 in net sales and $180,000 in gross profit.

Subsequent
to the Recapitalization, Fargo has focused its business strategy on the design, manufacture and sales of printers and supplies for plastic card personalization and data
encoding. Product lines that are not related to the Company's current strategy are in the process of being discontinued. Net sales related to these product lines for the years ended December 31, 2000,
1999 and 1998, were approximately $628,000, $1,400,000 and $4,100,000, respectively.

4. Selected Balance Sheet Information (in thousands)



December 312000

1999Trade accounts receivable

$
7,004

$
5,838Less allowance for doubtful accounts and sales returns


(250
)

(300
)$
6,754

$
5,538


For
the year ended December 31, 2000, one customer accounted for approximately 10% of total net sales.



December 312000

1999Raw materials and purchased parts

$
8,241

$
6,683Work in process


289


134Finished goods


653


4739,183


7,290Less allowance for obsolete inventories


(1,065
)

(712
)$
8,118

$
6,578


F-11

---



December 312000

1999Tooling and manufacturing equipment

$
4,169

$
3,214Office and other equipment


3,013


2,616Leasehold improvements


488


4887,670


6,318Less accumulated depreciation and amortization


(5,591
)

(4,312
)$
2,079

$
2,006




December 312000

1999Deferred financing costs

$
119

$
1,106Less accumulated amortization


(11
)

(450
)$
108

$
656




December 312000

1999Accrued interest

$
468

$
426Accrued vacation


320


250Customer advances


262


247Accrued warranties


256


250Accrued advertising


224


179Payable to stockholder (Note 10)





212Other


194


263$
1,724

$
1,827


5. Financing Arrangements



In September 2000, the Company entered into a $30 million dollar revolving credit facility which expires on April 1, 2003. Proceeds from the revolving credit
facility were used to pay off the outstanding senior bank debt. Under the terms of the facility, the Company may borrow at the prime rate of interest plus a margin of 0% to .5% or LIBOR plus a margin
of 1.0% to 1.75%, based upon meeting certain financial coverage ratios. Interest based on the prime rate and LIBOR rate is due monthly. The maximum borrowings under the facility are based on a
multiple of the Company's trailing

F-12

---

twelve-month EBITDA, as defined in the agreement, and is reduced quarterly by $1,000,000 beginning September 30, 2000. At December 31, 2000, the Company had $981,000 available under the facility.

At
December 31, 2000, borrowings bore interest at a weighted average rate of 8.95% based on a combination of prime and LIBOR rates plus applicable margins (prime was 9.50% and LIBOR
was 6.48% at December 31, 2000). The agreement also requires the Company to pay a fee equal to .375% of the unused portion of revolving credit facility. Borrowings under the facility are
collateralized by substantially all of the Company's assets. The revolving credit facility requires, among other things, the maintenance of specified financial ratios including interest coverage and
total debt to EBITDA, as defined in the agreement, restrictions on capital expenditures and the payment of dividends. The Company was in compliance with its debt covenants at December 31, 2000. The
Company anticipates it will be in violation of these covenants at March 31, 2001; however, the Company is currently negotiating with its banks to amend the loan agreement and presently anticipates a
successful resolution to these negotiations. If the Company is unable to successfully negotiate with the banks, the adverse consequences could include: the revolving credit facility immediately
terminating, and the loans and all other obligations becoming immediately due and payable; the inability to borrow at the LIBOR rate; and the margin increasing by 2.00% per year.

Minimum
principal payments on the revolving credit facility at December 31, 2000, are as follows (in thousands):

2002

$
2,9002003


20,000$
22,900




The Company had a $58,000,000 senior bank facility with a syndicate of banks. The senior bank facility provided for two term loans aggregating $55,000,000 and
a revolving credit loan facility of $3,000,000.

Borrowings
under the senior bank facility bore interest at variable rates, generally based on the Eurodollar rate plus applicable margin. The weighted average interest rate on the
senior bank facility was 8.4% for the years ended December 31, 1999 and 1998, respectively.

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 connection with the Recapitalization, 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. Interest expense incurred under this note for the years ended December 31, 2000, 1999 and 1998, was $153,000, $1,200,000 and $1,039,000, respectively. Upon the
Company's IPO in February 2000, the note was paid.

F-13

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6. Preferred Stock

In connection with the Recapitalization, the Company issued 30,000 shares of Series B, 8% redeemable preferred stock (Redeemable Preferred) and 8,000 shares of
convertible participating preferred stock (Convertible Preferred).

The
holders of the Redeemable Preferred were entitled to receive quarterly cash dividends at the rate of 8% per year subject to the restrictions of the senior bank facility. These
dividends were mandatory, cumulative and compounded semi-annually. The Redeemable Preferred had liquidation preference to the Convertible Preferred and common stock. The Redeemable Preferred shares
were redeemed upon the closing of the IPO at a redemption price of $1,000 per share plus $5,083,000 in accrued dividends.

The
Convertible Preferred participated with the Company's common stock in voting and had liquidation preference to common stock. At December 31, 1999, the Convertible Preferred was
recorded at the estimated fair market value of the common stock which was approximately $15 per share. The Convertible Preferred was converted into 5,000,000 shares of the Company's common stock on a
625 for 1 basis upon the closing of the IPO.

7. 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 12% of the outstanding common stock, not to exceed 1,500,000. At December 31, 2000, 1,409,522 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 four years. The restricted stock has a weighted average exercise price of $1.60.

F-14

---

Stock option and restricted stock activity for 2000 and 1999 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, 1998

114

143

438

$
1.60Plan amendment

243Granted

(173
)
95

78

$
3.97Cancelled

10

(10
)


$
1.60Balance, December 31, 1999

194

228

516

$
2.59Plan amendment

472Granted

(663
)
663Cancelled

107

(75
)
(32
)
$
8.05Exercised



(12
)
(31
)
$
8.19Balance, December 31, 2000

110

804

453

$
6.58


Information
related to stock options outstanding and exercisable at December 31, 2000 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

147

7.7 years

$
1.60$2.75-$4.13

208

9.5 years


2.75$5.09-$7.64

79

8.9 years


5.87$8.63-$11.00

370

9.3 years


10.87804



$
6.58


Options Exercisable

Range of
Exercise Prices

Number
Exercisable

Weighted
Average
Exercise
Price$1.60-$2.40

62

$
1.60$5.09-$7.64

12


6.4074

$
2.36


F-15

---

During
February 2000, 46,875 options became fully vested upon the IPO.

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 year ended December 31, 2000 and 1999, the Company recorded compensation expense of $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:

2000

1999

1998Net income (loss) available to common stockholders
(in thousands)As reported

$
2,707

$
(65,136
)
$
(4,202
)Pro forma


1,866


(65,167
)

(4,208
)Basic earnings per common share:As reported

$
.25

$
(37.56
)
$
(.98
)Pro forma


.18


(37.58
)

(.98
)Diluted earnings per common share:As reported

$
.24

$
(37.56
)
$
(.98
)Pro forma


.16


(37.58
)

(.98
)


The
weighted average grant-date fair value of options granted during 2000, 1999 and 1998 was $7.27, $3.97 and $1.60, respectively, which was determined using the Black-Scholes method
and the following key assumptions:

Assumptions

2000

1999

1998Volatility

116.45%

43.41%

50.76%Risk-free interest rates

4.81% to 6.34%

4.64% to 5.76%

4.16% to 5.60%Expected life

Six years

Four years

Four yearsExpected dividends

None

None

None


8. 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, 2000, 1999 and 1998, were $175,000, $149,000 and $109,000, respectively.

F-16

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9. Income Taxes

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

2000

1999

1998Currently payable:Federal

$
57

$
360

$
904State


5


42


9162


402


995Deferred:Federal


1,811


1,886


1,700State


106


287


1051,917


2,173


1,805Provision for income taxes

$
1,979

$
2,575

$
2,800


Temporary
differences comprising the net deferred tax assets recognized in the accompanying balance sheets at December 31, 2000 and 1999, are as follows (in thousands):

2000

1999Tax goodwill

$
28,992

$
31,306Other, net


1,271


652Net deferred tax assets

$
30,263

$
31,958


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

2000

1999

1998Provision for federal income taxes at statutory rate

$
1,843

$
2,400

$
242State income taxes, net of federal benefit


108


136


15S Corporation loss from January 1, 1998 to February 18, 1998








2,394Other


28


39


149Total

$
1,979

$
2,575

$
2,800


As
discussed in Note 3, the Company's financial statements for the periods prior to February 18, 1998, do not reflect income taxes as the Company had elected S Corporation status.

For
federal and state income tax purposes, the Recapitalization (Note 3) was a taxable business combination and is a qualified stock purchase. The buyer and seller have 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

F-17

---

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.

10. 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, 2000, 1999 and 1998, were approximately $1,076,000, $910,000 and $774,000, respectively.



The Company historically had contracted with Fargo Aviation, Inc. (FAI), a company solely owned by the Company's founder to provide travel services for the
Company and its founder. All contracts and obligations of the Company relating to FAI were terminated in connection with the Recapitalization. Expenses incurred under these arrangements were
approximately $141,000 in 1998.



The Company had an agreement with the Company's founder, which was assigned to PTI. The agreement required Fargo to pay approximately $27,000 per month for a
period of three years from the date of the Recapitalization. The agreement provided that the Company may terminate the agreement, at its discretion, upon completion of an IPO prior to the end of the
agreement and upon payment of 50% of any unpaid balance. On March 1, 2000, the Company paid $158,500 to terminate the agreement.

11. Commitments

The Company leases office, warehouse and manufacturing space under an operating lease that expires in September 2001. Future minimum lease payments in 2001 are
$246,000. Total rent expense for the years ended December 31, 2000, 1999 and 1998, was $706,000, $649,000 and $1,141,000, respectively.

12. Export Sales

Export sales were as follows (in thousands):

2000

1999

1998Europe

$
9,020

$
7,861

$
7,312Asia


5,133


4,581


3,078North and South America (other than the United States)


4,469


3,747


3,950Other


3,987


3,702


3,015$
22,609

$
19,891

$
17,355


F-18

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FARGO ELECTRONICS, INC.    EXHIBIT INDEX TO ANNUAL REPORT  ON FORM 10-K    For the fiscal year ended December 31, 2000

|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                                                                                |  | Filed electronically herewith.                                                                                                
|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                                                                                                      |  | Filed electronically herewith.                                                                                                   
|      |  |                                                                                                                                        |  |                                                                                                                                  

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).
|23.1  |  | Consent of Pricewaterhouse Coopers, LLP                                                                                                        |  | Filed electronically herewith.                                                                                          

E-4

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