11
              SECURITIES & EXCHANGE COMMISSION
                   WASHINGTON, D.C.  20549
                              
                              
                          FORM 10Q
/Mark One/

/X/QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d)  OF  THE
   SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1996

                             OR

/ /TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF  THE
   SECURITIES EXCHANGE ACT OF 1934.

For the transition period from _____________ to ____________

              Commission file number:  0-22292
                              
                             CORNERSTONE IMAGING, INC.
   (Exact name of registrant as specified in its charter)
                              
DELAWARE                                  77-0104275
State  or other jurisdiction of       Employer ID No.
incorporation or organization
                              
1710 Fortune Drive, San Jose, California                95131
Address  of principal executive offices               Zipcode
                              
Registrant's telephone number, including area code:  
408-435-8900
                              
_____________________________________________________________
Former name, former address and former fiscal year, if
changed since last report
                              

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.



                 /X/Yes               /  /No
                              
                              
                              
                              
                              
                              
As  of September 30, 1996, there were 7,500,461 shares of the
issuer's classes of Common Stock.
<PAGE>

                  CORNERSTONE IMAGING, INC.
                            Index
                              

Part I          FINANCIAL INFORMATION                Page
                ---------------------                ----
          Item 1Financial Statements
                Consolidated Condensed Balance 
                 Sheets at September 30, 1996 and 
                 December 31, 1995                      3
                Consolidated Condensed Statements 
                 of Income for the three and nine 
                 month periods ended September 30, 
                 1996 and 1995                          4
                Consolidated Condensed Statements 
                 of Cash Flows for the nine month 
                 periods ended September 30, 
                 1996 and 1995                          5
                Notes to Financial Statements           6

          Item 2  Management's Discussion and Analysis 
                   of Financial Condition and Results   
                   of Operations                        8

Part II         OTHER INFORMATION
                -----------------
           Item  1 Legal  Proceedings                  11
           Item  2 Changes in  Securities              11
           Item  3 Defaults Upon Senior Securities     11
           Item  4 Submission of Matters to a Vote 
                   of Security Holders                 11
           Item  5 Other  Information                  11
           Item  6 Exhibits and Reports on Form 8-K    11

Signature Page                                         12

Exhibit Index                                          13

Exhibits                                               14

           Statement of Computation of Earnings per Share
           Financial Data Schedule

<PAGE>
Part I - Financial Information  Item 1 - Financial Statements
<TABLE>
<CAPTION>
                  CORNERSTONE IMAGING, INC.
            CONSOLIDATED CONDENSED BALANCE SHEETS
                       (IN THOUSANDS)

                    September 30, 1996     December 31, 1995
                    ------------------     -----------------
                    (Unaudited)
<S>                     ASSETS                            
                               <C>                   <C>
Current assets:
  Cash and cash equivalents    $  918              $  4,671
  Marketable securities        11,903                 5,770
  Accounts receivable,
   net of allowance of $712
   and $698 in 1996 and 1995   14,441                17,885
  Inventories                   9,498                14,075
  Deferred income taxes and
   other current assets         5,466                 5,387
                              -------               -------
     Total current assets      42,226                47,788

Property and equipment - net    2,309                 3,356
Deferred income taxes and
  other assets                  1,368                 1,412
                              -------               -------
                              $45,903               $52,556
                              =======               =======

                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable            $ 4,034               $ 8,825
  Accrued liabilities           3,734                 3,963
  Deferred revenue                765                   437
                              -------               -------
     Total liabilities          8,533                13,225
                              -------               -------
Stockholders' equity:
  Common stock                     75                    73
  Paid-in-capital              30,537                30,067
  Retained earnings             6,758                 9,191
                              -------               -------
   Stockholders'equity         37,370                39,331
                              -------               -------
                              $45,903               $52,556
                              =======               =======
</TABLE>
                              
                              
                              
                              
                              
                              
                              
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE>                              
                  CORNERSTONE IMAGING, INC.
         CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                         (UNAUDITED)
          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                              
<TABLE>
<CAPTION>
                    Three Months Ended    Nine Months Ended
                         September 30,         September 30,
                     -----------------    -----------------
<S>                      <C>      <C>           <C>      <C>
                        1996     1995          1996     1995

Net revenues         $26,687  $24,465       $67,088  $62,389
Cost of revenues      18,302   15,619        46,460   39,130
                     -------  -------       -------  -------
  Gross profit         8,385    8,846        20,628   23,259

Sales and marketing    4,036    2,918        11,607    8,150
Research/development   2,491    1,984         7,252    5,481
General/administrative 1,251    1,037         3,973    2,702
Restructuring charge                          1,404
Non-recurring charge;
  purchased in-process
  technology                    2,415                  2,415
                     -------  -------       -------  -------
  Operating income       605      492       (3,608)    4,511

Interest income           10      107           129      435
                     -------  -------       -------  -------
  Income (loss) before 
  provision (benefit) 
  for income tax         615      599       (3,479)    4,946
Provision (benefit) for
     income tax          185    (506)       (1,045)    1,005
                     -------  -------       -------  -------
  Net income (loss)  $   430  $ 1,105      $(2,434)  $ 3,941
                     =======  =======       =======  =======
Net income (loss) 
  per share          $   .06  $  0.14      $ (0.33)  $  0.52
                     =======  =======       =======  =======
Shares used in per share
   calculation         7,558    7,785         7,452    7,651
                     =======  =======       =======  =======

</TABLE>
                              
                              
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>


                  CORNERSTONE IMAGING, INC.
       CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                 (UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>                   Nine Months Ended September 30,
                            ------------------------------
<S>                                     <C>         <C>
                                       1996        1995
Cash flows from operating activities:  ----        ----
Net income (loss)                     $(2,434)    $ 3,941
Adjustments to reconcile net income
 (loss) to net cash provided by (used in)
  operating activities:
  Depreciation and amortization          1,464        836
  Non-recurring charge associated with
   purchased technology                             2,415
(Increase) decrease in assets and 
liabilities:
  Accounts receivable                    3,444    (4,448)
  Inventories                            4,577   (10,121)
    Deferred income taxes and 
    other assets                          (35)    (2,736)
    Accounts payable                   (4,791)      5,809
    Accrued liabilities                     99      1,404
                                       -------    -------
        Net cash provided by (used in)
        operating activities             2,324    (2,900)
                                       -------    -------
Cash flows from investing activities:
  Sales of marketable securities         4,565     19,225
  Purchases of marketable securities  (10,698)   (13,034)
  Property and equipment additions       (816)    (1,563)
  Loss on asset to be disposed of          400
  Pegasus acquisition, less cash acquired           (453)
                                       -------    -------
    Net cash provided by (used in)
      investing activities             (6,549)      4,175
                                       -------    -------
Cash flows from financing activities:
Net proceeds from issuance of 
 common stock                              472        501
                                       -------    -------
Net cash provided by financing 
activities                                 472        501
                                       -------    -------
Net increase (decrease) in cash and
  cash equivalents                     (3,753)      1,776
Cash and cash equivalents at 
 beginning of period                     4,671      3,110
                                       -------    -------
Cash and cash equivalents at end 
 of period                                $918    $ 4,886
                                       =======    =======
Supplemental schedule of noncash 
 investing and financing activities:
  Common stock issued in connection with
  the acquisition of Pegasus Storage
  Technology, Inc. and Pixel Translations, Inc.   $ 2,028
                                                  =======
Unrealized holding gain on marketable
  securities, net                      $    68    $    66
                                       =======    =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE>  
                CORNERSTONE IMAGING, INC.
                NOTES TO FINANCIAL STATEMENTS
                         (UNAUDITED)

1. Summary of Significant Accounting Policies:
     Interim Unaudited Financial Information:

The accompanying interim unaudited consolidated condensed
financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission.
The December 31, 1995 balance sheet data was derived from
audited financial statements but does not include all
disclosures required by generally accepted accounting
principles.  The unaudited financial statements for the three
and nine month periods ended September 30, 1996 and 1995
include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary to
present fairly the financial information set herein.  The
results of operations for the interim periods is not
necessarily indicative of the results to be expected for an
entire year.

     Revenue Recognition:

     Revenue from  hardware and software sales related to the
Company's  document imaging processing products is recognized
(except as noted below) upon shipment  if no significant
vendor obligations exist and collection of the resulting
receivable is deemed probable.  Software maintenance revenues
for supporting and providing upgrades are deferred and
recognized over the maintenance period which is generally one
year.  Training, consulting and implementation services are
recognized as such services are performed.  Unearned income
on prepaid service contracts is amortized by the straight-
line method over the term of the contracts.  Related costs
are charged to expense as incurred.

2.   Inventories:
<TABLE>
<CAPTION>
                         September  30, 1996  December  31,1995
                               (unaudited)
                         -------------------  -----------------
              <S>                      <C>              <C>
            Raw materials     $1,306           $ 2,318
            Work in process    1,322             2,123
            Finished goods     6,868             9,634
                              ------           -------
                              $9,498           $14,075
                              ======           =======
</TABLE>

3.   Line of Credit

     The Company has a line of credit facility with a bank
which expires on July 1, 1997.  The agreement provides for
borrowings up to the lesser of $15 million or 75% of eligible
receivables.  Borrowings under the agreement bear interest at
the bank's prime rate plus 0.25% and are collateralized by
accounts receivable, equipment, and inventory of the Company.
The agreement requires that the Company provide financial
information to the lender, obtain approval of the lender for
any payment of dividends or material disposition of
collateral except in the ordinary course of business and meet
certain financial ratios, quarterly operating
results and minimum tangible net worth amount.  At September
30, 1996 there were no borrowings outstanding.

4.   Restructuring Charge

     In the first quarter of  1996, the Company recorded a
$1.4 million restructuring charge  primarily related to its
decision to cancel its PrintAccel product line.  This amount
included $1.1 million for prepaid royalties, committed
payments for exclusivity rights , engineering services, and a
$270,000 write-down of PrintAccel inventory.  As of September
30, 1996, the Company had completed making such committed
payments, terminated all sales and marketing efforts, and
disposed of all inventory related to this product line.










                              
                              
                              
                              


























CORNERSTONE IMAGING, INC.
_____________________________________________________________
This Quarterly Report on Form 10-Q may contain forward-
looking statements that involve risks and uncertainties.  The
Company's actual results may differ materially from the
results discussed in any such forward-looking statements.
Factors that might cause such a difference include, but are
not limited to those discussed below, those discussed under
the caption "Risk Factors" in the Company's most recent
annual report on Form 10-K as well as the following: the
emergence of the document image processing market, potential
fluctuations in quarterly results, competition, new products
and technological change, general economic conditions and
dependence on capital spending of customers, a lengthy sales
cycle and dependence on system sales, inherent risks
associated with international sales and international sources
of supply, limited sources of supply and reliance upon third-
party manufacturers and distributors, and dependence upon key
personnel.
_____________________________________________________________

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

RESULTS OF OPERATIONS:

The Company develops, markets, and services hardware and
software products and toolkits for document image processing
(DIP) display subsystems and input subsystems.  Substantially
all of the Company's current revenues are derived from
display products based on its ImageAccel technology.  In
ImageAccel, key DIP functionality is embedded in a
Cornerstone-designed integrated circuit.  In June 1994, the
Company acquired Pixel Translations, Inc., a provider of DIP
software toolkits and now also a provider of input
subsystems.  In July, 1995, the Company acquired Pegasus Disk
Technologies, Inc. a supplier of software products used in
DIP to manage data stored on optical disk drives.

Substantially all of the Company's revenues in recent years
have been attributable to sales of DIP display subsystems.
These products, together with existing and planned software
products, are expected to account for substantially all of
the Company's future revenues.  Although demand for DIP
systems (including the Company's products) has grown in
recent years, the DIP market is still a relatively small and
emerging market and there can be no assurance that the market
for DIP systems will continue to grow.  If the DIP market
fails to grow or grows more slowly than the Company currently
anticipates, its business, operating results and financial
condition would be materially and adversely affected.

The Company's quarterly operating results have in the past
and may in the future vary significantly depending on factors
such as the timing and success of new product introductions,
product mix, references from DIP systems integrators, changes
in pricing policies by the Company, its competitors or
suppliers, market acceptance of current and new versions of
the Company's products, forecasting of future sales levels,
timing of significant orders, seasonality and relatively long
sales cycles and color monitor inventory lead times. In
addition, a substantial portion of the Company's revenues in
each quarter results from orders booked and shipped in that
quarter.  The Company's expenses are based, in part, on its
expected future revenues.  As a result, if revenue levels are
below expectations, operating results will likely be
adversely affected and net income or loss may be
disproportionately affected because only a small portion of
the Company's expenses vary with its revenues.  There can be
no assurance that the Company's revenues will grow in future
periods, that they will grow at historic rates, or that the
Company will remain profitable on a quarterly basis.  As a
result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of
future performance.  Due to all of the foregoing factors, it
is likely that in some future quarters, the Company's
operating results will be below the expectations of public
market analysts and investors.  In such an event, the price
of the Company's common stock would likely be materially
adversely affected.

The Company currently sells both color and grayscale
subsystems.  Color subsystems are higher priced but lower
gross margin products than grayscale subsystems.  There can
be no assurance that the Company's current gross margins will
not decline in future periods.  In addition, a significant
portion of the Company's sales are made through systems
integrators and distributors and the Company relies on
certain key suppliers for important components and monitors.
There can be no assurance that the loss of a major system
integrator, distributor, or key supplier would not have a
material adverse effect on the Company's business or results
of operations over the short term, thereby causing
fluctuations in its quarterly results.

The DIP industry is characterized by rapid technological
change, including emergence of faster microprocessors,
frequent new product introductions, and evolving industry
standards.  The introduction of products embodying new
technology and the emergence of new industry standards can
create downward price pressure and render existing products
obsolete and unmarketable.  The Company's future success will
depend upon its ability to address the increasingly
sophisticated needs of its customers by enhancing its current
products and by developing and introducing on a timely basis
new products that keep pace with technological developments
and emerging industry standards.  There can be no assurance
that the Company will be successful in developing and
marketing product enhancements or new products that respond
to technological change or evolving industry standards, that
the Company will not experience difficulties that could delay
or prevent the successful development, introduction, and sale
of these products, or that its new products and product
enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance.  If the Company is
unable, for technological or any other reason, to develop,
introduce, and sell its products in a timely manner, the
Company's business, operating results, and financial
condition will be materially and adversely affected.

Net Revenues

The Company's net revenues increased 9.0% to $26.7 million in
the third quarter of 1996 from $24.5 million in the third
quarter of 1995.  For the nine months ended September 30,
1996, net revenues increased 7.5% to $67.1 million over
revenues of $62.4 million in the nine months ended September
30, 1995.  The growth in such periods is primarily
attributable to the continued growth in the document image
processing (DIP) market, increased input subsystem and
software tools sales, increased unit volumes resulting from a
more aggressive pricing model and continued acceptance of the
Company's products.



Gross Profit

Gross profit decreased 5.2% to $8.4 million in the third
quarter of 1996 from $8.8 million in the third quarter of
1995.  For the nine months ended September 30, 1996, gross
profit decreased 11.3.% to $20.6 million from gross profit of
$23.2 million for the nine months ended September 30, 1995.
The gross margin was 31.4%  and 36.2% for the third quarter
of 1996 and 1995, respectively, and was 30.8% and 37.3% for
the nine months ended September 30, 1996 and 1995,
respectively.  In the first quarter of  1996, the Company
announced a significant reduction in the price for most of
the Company's display products.  In September 1996, the
Company announced a significant reduction in the price for
most of the Company's display boards.  Although partially
offset by increased sales of higher margin software products
and decreased component costs,  these price reductions are
the principle reason for the decline in the Company's gross
profit and gross margin.  Management expects gross margins
for the full year in 1996 to remain relatively consistent
with the first nine months of 1996.  There can be no
assurance, however, that the Company's gross profit and gross
margins will not continue to decline in future periods.

Sales and Marketing

Sales and marketing expenses increased  38.3% to $4.0 million
in the third quarter of 1996 from $2.9 million in the third
quarter of 1995 and for the nine months ended September 30,
1996, increased 42.4% to $11.6 million over $8.1 million for
the nine months ended September 30, 1995.  The increase in
1996 is primarily attributable to an increase in staffing
associated with an expansion of the Company sales and
marketing organizations to support the sales of new software
products together with write downs of certain trade show
equipment totalling $100,000.  The Company expects that sales
and marketing expenses will continue to increase in the
future, as the Company continues to expand sales and
marketing programs related to these new software products.

Research and Development

Research and development expenses increased  25.6% to $2.5
million in the third quarter of 1996 from $2.0 million in the
third quarter of 1995 and for the nine months ended September
30, 1996, increased 32.3% to $7.3 million over $5.5 million
for the nine months ended September 30, 1995.  The increase
was primarily due to staffing increases and technology
acquisitions to support the development of new software
products and write downs of certain engineering equipment
totaling $300,000.  The Company believes that continued
growth investment in research and development is critical to
its future growth and will continue to commit substantial
resources to this area.  As a result, quarterly research and
development expenses are expected to continue to increase in
the near term and possibly longer.

General and Administrative

General and administrative expenses increased 20.7% to $1.3
million in the third quarter of 1996 from $1.0 million in the
third quarter of 1995 and for the nine months ended September
30, 1996, increased 47.0% to $4.0  million from $2.7 million
for the nine months ended September 30, 1995.  General and
administrative expenses have increased as a percentage of
revenues from 4.3% in the third quarter of 1995 to 4.7% in
the third quarter of 1996.  The Company expects general and
administrative expenses to increase slightly in succeeding
future periods. There can be no assurance, however, that the
increases will not be significant in future periods.

Restructuring Charge

In the first quarter of 1996 the company recorded a one-time
$1.4 million restructuring charge related to its decision to
cancel its PrintAccel product line.  This amount includes
$1.1 million for prepaid royalties, committed payment for
exclusivity rights, engineering services, and a $270,000
write-down of PrintAccel inventory.

Interest Income

Interest income decreased 90.7% to $10,000 in the third
quarter of 1996 from $107,000 in the third quarter of 1995
and for the nine month period ended September 30, 1996
decreased 70.3% to $129,000 from $435,000 for the first nine
months of 1995.  The Company earned interest income primarily
as a result of funds invested in tax exempt municipal debt
securities.

Provision (benefit) for Income Taxes

The Company's effective income tax rate as a percentage of
pretax income was 30% for the third quarter of 1996 and for
the nine month period ended September 30, 1996.

The provision for income taxes for the three month and nine
month periods ended September 30, 1995, calculated at an
effective rate of 34% and 35%, was $203,000 and $1.7 million,
respectively, before being offset by a reduction in the
deferred tax asset valuation allowance of $709,000 in the
quarter ended September 30, 1995.  The reduction in the
valuation allowance was recognized based on the expected
reduction in future tax obligations.  In addition, the non-
recurring charge related to purchased in-process technology
is deductible for tax purposes over 15 years.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1996, the Company had cash and marketable
securities of approximately $12.8 million, an increase from
$10.4 million at December 31, 1995, and working capital
totaling $33.7 million, an increase of $870,000 since
December 31, 1995.  Net cash provided by operating activities
was $2.3 million in the first nine months of 1996 compared to
$2.9 million used in operating activities for the first nine
months of 1995.  The increase in the cash provided by
operating activities for the nine months ended September 30,
1996 results primarily from decreased accounts receivable and
inventory levels.

Additions to property and equipment were $816,000 and $1.6
million for the first nine months of 1996 and 1995,
respectively.  Net cash provided by investing activities was
$6.5 million for the first nine months of 1996, compared to
$4.2 million in the first nine months of 1995.  Cash provided
by investing activities is related primarily to maturities of
short term investments.

The Company believes that its cash on hand, short-term
investments, and line of credit, together with cash flows
from operations, will be sufficient to meet the Company's
liquidity and capital requirements for the next 12 months.
The Company may, however, seek additional equity or debt
financing to fund further expansion.  The timing and amount
of such capital requirements cannot be precisely determined
at this time and will depend on a number of factors,
including demand for the Company's products, product mix
changes and competitive factors.


Part II  -  Other Information

Item 1:        Legal Proceedings

                    In 1995, the Company was named as a
               defendant in three class action lawsuits.  The
               Company was named together with the majority
               of companies who manufacture or sell computer
               monitors.  The complaints alleged that the
               Company falsely advertised the size of the
               viewing area of its computer monitors.  In
               April 1996, the Company was dropped as a
               defendant and is no longer a party to any of
               the three lawsuits.

Item 2:        Changes in Securities  -  Not Applicable

Item 3:        Defaults Upon Senior Securities  -  Not
Applicable

Item 4:        Submission of Matters to a Vote of Security
Holders -                     Not Applicable

Item 5:        Other Information  -  Not Applicable

Item 6:        Exhibits and Reports on Form 8-K

          (a) Exhibits

               11.1  Statement of Computation of Earnings Per Share
               27    Financial Data Schedule

               (b) Reports on Form 8-K  -  Not Applicable

<PAGE>


                         SIGNATURES
                              


Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.


                                   CORNERSTONE IMAGING, INC.
                                   --------------------------
                                   Registrant



                                   /S/ JOHN FINEGAN
Date:November 14, 1996             _____________________________
                                   John Finegan
                                   Vice President
                                   Finance and Administration
                                   (Principal Financial and
                                   Accounting Officer)
                              
                              
                        EXHIBIT INDEX
                              

                                                  Sequential
Exhibits                                         Page Number
---------                                        -----------

11.1     Statement of Computation of Earnings  
         per  Share                                   14
27       Financial Data Schedule                      15

Part II  -  Other Information

Exhibit 11.1

<TABLE>
<CAPTION>
              COMPUTATION OF EARNINGS PER SHARE
                         (UNAUDITED)
          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                       Three Months             Nine Months
                       Ended September 30,      Ended September 30,
                       -------------------       -------------------
                          1996     1995        1996     1995
                          ----     ----        ----     ----
<S>                        <C>      <C>         <C>      <C>
Primary

  Weighted average shares
  outstanding            7,496    7,272       7,140    7,452

  Common stock equivalents  62      513         511      199
                         -----   ------    --------  -------
  Total shares           7,558    7,785       7,452    7,651
                         =====   ======    ========  =======
  Net income              $430   $1,105    $(2,434)   $3,941
                         =====   ======    ========  =======
  Per share amount       $0.06    $0.14     $(.033)     $.52
                         =====   ======    ========  =======


</TABLE>