Form 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

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

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 For the Quarterly Period Ended March 31, 1998

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 For the transition period from _______to_______

                            Commission File No. 0-22292

                            CORNERSTONE IMAGING, INC.
             (Exact name of registrant as specified in its charter)

    A Delaware Corporation                                77-0104275
    ----------------------                                ----------
(State or other jurisdiction of                       (I. R. S. Employer
incorporation or organization)                        Identification No.)

                 1710 Fortune Drive,  San Jose, California  95131
                    (Address of principal executive offices)

Registrant's telephone number, including area code: (408) 435-8900

                                   (No Change)
         ---------------------------------------------------------------
               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 ninety days.  Yes [X]   No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of 
Common Stock, as of March 31, 1998:  6,216,299





<PAGE>
Part 1.  Financial Information
Item 1.   Financial Statements

                              CORNERSTONE IMAGING, INC.
                       CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                 March 31,    December 31,
                                                 1998         1997
                                                 -----------  -----------
                                                 (Unaudited)
<S>                                              <C>          <C>
                       ASSETS  
Current assets:
  Cash and cash equivalents ....................    $12,138      $12,284
  Accounts receivable...........................      2,768        2,946
  Deferred income taxes and
     other current assets.......................      5,499        5,521
                                                 -----------  -----------
    Total current assets........................     20,405       20,751

Property and equipment, net.....................        900        1,056
Other assets....................................        424          424
Net assets related to the 
     discontinued display division..............     10,713       15,462
                                                 -----------  -----------
                                                    $32,442      $37,693
                                                 ===========  ===========

       LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities:
  Accounts payable..............................       $374         $463
  Deferred revenue..............................        783          654
  Accrued liabilities...........................      2,310        2,653
                                                 -----------  -----------
    Total current liabilities...................      3,467        3,770
                                                 -----------  -----------

Stockholders' equity:
  Common stock..................................         63           67
  Paid in capital...............................     22,413       24,747
  Retained earnings.............................      6,499        9,109
                                                 -----------  -----------
    Stockholders' equity........................     28,975       33,923
                                                 -----------  -----------
                                                    $32,442      $37,693
                                                 ===========  ===========
</TABLE>
       The accompanying notes are an integral part of these consolidated
                        condensed financial statements
<PAGE>
                       CORNERSTONE IMAGING, INC.
             CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                              (UNAUDITED)
                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                    Three Months Ended
                                        March 31,
                                   -------------------
                                   1998      1997
                                   --------- ---------
<S>                                <C>       <C>
Net revenues from continuing 
  operations......................   $3,387    $2,519
Cost of revenues..................      425       171
                                   --------- ---------
Gross profit                          2,962     2,348

Sales and marketing...............    1,476     1,172
Research and development..........    1,072     1,090
General and administrative........      507       509
                                   --------- ---------
  Operating loss..................      (93)     (423)

Interest income/other.............      143       186
                                   --------- ---------
  Income (loss) before
     income taxes.................       50      (237)
Provision (benefit) for
     income taxes.................       15       (81)
                                   --------- ---------
  Net income (loss) from
     continuing operations........       35      (156)

Discontinued operations:
Income (loss) from operations
  of display division (net of
  income tax benefit of $143
  in 1998 and tax provision
  of $623 in 1997)................     (361)    1,211
Estimated net loss on sale of
  display division (net of
  income tax benefit of $1,522)...   (2,284)      --
                                   --------- ---------
  Net income (loss) from
    display division..............   (2,645)    1,211
                                   --------- ---------
  Net income (loss), consolidated.  ($2,610)   $1,055
                                   ========= =========
Basic and diluted EPS:
  Income (loss) from
     continuing operations........    $0.01    ($0.02)
  Income (loss) from
     discontinued operations......    (0.06)     0.16
  Estimated loss on sale of
     display division.............    (0.36)      --
                                   --------- ---------
  Net income (loss)...............   ($0.41)    $0.14
                                   ========= =========

Shares used in EPS calculations:
   Basic .........................    6,375     7,508
   Diluted........................    6,394     7,577
                                   ========= =========
</TABLE>
       The accompanying notes are an integral part of these consolidated
                        condensed financial statements
<PAGE>

                        CORNERSTONE IMAGING, INC.
            CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                         (UNAUDITED - IN THOUSANDS)

<TABLE>
<CAPTION>

                                                          Three Months Ended
                                                               March 31,
                                                          -------------------
                                                          1998      1997
                                                          --------- ---------
<S>                                                       <C>       <C>
Cash flows from operating activities:
 Net income (loss)......................................   ($2,610)   $1,055
 Adjustments to reconcile net income
   (loss) to net cash provided by
   operating activities:
   Depreciation and amortization........................       230       175
 Discontinued operations                                     4,749     2,214
 (Increase) decrease in assets and liabilities:
    Accounts receivable.................................       178       130
    Deferred income taxes and other assets..............        22      (928)
    Accounts payable....................................       (89)       95
    Accrued liabilities and deferred revenue............      (214)    1,659
                                                          --------- ---------
    Net cash provided by operating activities...........     2,266     4,400
                                                          --------- ---------
Cash flows from investing activities:
 Property and equipment additions.......................       (74)     (133)
                                                          --------- ---------
    Net cash used in investing activities...............       (74)     (133)
                                                          --------- ---------
Cash flows from financing activities:
 Repurchase of common stock.............................    (2,338)     (743)
                                                          --------- ---------
    Net cash used in financing activities...............    (2,338)     (743)
                                                          --------- ---------
Net decrease in cash and cash equivalents...............      (146)    3,524

Cash and cash equivalents at beginning of period........    12,284    18,486
                                                          --------- ---------
Cash and cash equivalents at end of period..............   $12,138   $22,010
                                                          ========= =========
</TABLE>
       The accompanying notes are an integral part of these consolidated
                        condensed financial statements
<PAGE>












































                            CORNERSTONE IMAGING, INC.
            NOTES TO CONSOLIDATED CONDENSED 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, 
1997 balance sheet data was derived from audited financial statements 
contained in the Company's 1997 10k report but does not include all 
disclosures required by generally accepted accounting principles.  In 
addition, assets and liabilities related to the pending sale and 
discontinuation of the display division have been restated from the 
audited balance sheet. The unaudited financial statements for the three 
month periods ended March 31, 1998 and 1997 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 are not necessarily 
indicative of the results to be expected for an entire year.

        Recent Pronouncements:

        As of January 1, 1998 the Company adopted Statement of Financial 
Accounting Standards No. 130, "Reporting Comprehensive Income"("SFAS 
130"). This statement establishes requirements for disclosure of 
comprehensive income and its components; however, the adoption of SFAS 
130 had no impact on the Company's net income (loss)  or stockholders' 
equity.    


In June 1997 the FASB issued Statement of Financial Accounting 
Standards No. 131, "Disclosures about segments of an Enterprise on 
Related Information"("SFAS 131"), which changes the way public 
companies report information about operating segments.  SFAS No. 131, 
which is based on the management approach to segment reporting, 
establishes requirements to report elected segment information quarterly 
and to report entity-wide disclosures about products and services, major 
customers and the major countries in which the entity holds assets and 
reports revenues.  The Company has not yet evaluated the effects of this 
change or its reporting segment information.

        As of January 1, 1998 the Company has adopted the provisions of 
Statement of Position 97-2, ("SOP 97-2"), "Software Revenue 
Recognition, as amended by SOP 98-4 "Deferral of Effective Date of 
Certain Provisions of SOP 97-2".  This statement establishes 
requirements for revenue recognition for software companies. Under SOP 
97-2, the Company recognizes product revenues and license fees upon 
shipment if a signed contract exists, the fee is fixed and determinable, 
collection of resulting receivables is probable and product returns are 
reasonably estimable. In addition, for contracts with multiple 
obligations (e.g. deliverable and undeliverable products, service, and 
maintenance), revenue must be allocated to each component of the 
contract based on evidence of its fair value. Revenue allocated to 
undelivered products is recognized when the criteria for product and 
license revenue set forth above are met. Revenue allocated to 
maintenance fees for ongoing customer support and updates is recognized 
ratably over the period of the maintenance contract.  Payments for 
maintenance fees are generally made in advance and are non-refundable.  
Revenue related to other services is recognized as the related services 
are performed.  Royalty revenues that are contingent upon sale to an end 
user by OEMs are recognized upon receipt of a report of sale by the 
Company for the OEM.

In April 1998, the American Institute of Certified Public 
Accountants issued Statement of Position ("SOP 98-1") "Accounting for 
the Costs of Computer Software Developed or Obtained for Internal Use". 
This Statement of Position (SOP) provides guidance on accounting for the 
costs of computer software developed or obtained for internal use. The 
SOP applies to all nongovernmental entities and is effective for 
financial statements for fiscal years beginning after December 15, 1998. 
The Company has not yet determined the impact, if any, of the adoption 
of this statement on the financial statements of the Company.


2.      LINE OF CREDIT

        The Company has a line of credit facility with a bank which 
expires on July 1, 1999.  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 base rate and are 
collateralized by accounts receivable, equipment, and inventory of the 
Company.   At March 31, 1998 letters of credit securing inventory 
purchases totaling approximately $6.5 million were outstanding under 
this agreement. 


3.      DIVESTITURES:

        On April 17, 1998, the Company entered into a non-binding letter 
of intent to sell its display division to the current management team 
led by John Noellert, General Manager of the display division. 
Commensurate with the sale, estimated to be completed on or about June 
30, 1998, the Company will be renamed Input Software, Inc. Upon 
completion of the sale, the display division will operate as a private 
company named Cornerstone Display Technology, Inc. Under the terms of 
the letter, the Company will sell certain assets and transfer certain 
liabilities associated the display division. In addition, the Company 
will retain certain assets, including accounts receivable and certain 
inventory.  The value of the inventory will be realized by the Company 
through the sale, on its behalf, of that inventory by Cornerstone 
Display Technology, Inc. The Company estimates it will receive proceeds 
of $10.7 million for receivables and inventory less transaction expenses 
and certain display division liabilities.  The letter provides that the 
Company will also hold a $1.5 million subordinated note, payable over 
three years, and a minority equity interest in Cornerstone Display 
Technology, Inc. The minority interest may be repurchased in the first 
two years by Cornerstone Display Technology, Inc. for $1.5 million. As a 
result of the transaction, the Company has recorded a loss of 
approximately $2.6 million for the quarter ended March 31, 1998. All 
financial statements have been restated to account for the display 
division as a discontinued operation.

On February 4, 1997, the Company entered into an agreement to sell 
its ownership interest in Pegasus.  Under the terms of the agreement, 
the Company received 35,000 shares of Cornerstone's common stock and a 
note receivable totaling approximately $200,000.  The impact of this 
transaction on the financial position of the Company was not 
significant.


4.      INCOME TAXES:

        The Company's provision for income taxes reflect the Company's 
estimated 1998 annualized effective tax rate of 30%.


5.      STOCK REPURCHASE:

        On February 14, 1997, the Company's Board of Directors authorized 
the use of up to $5 million to repurchase the Company's common stock.  
This amount was increased to $15 million on September 17, 1997. The 
repurchased stock is expected to be held by the Company as treasury 
stock to be used to meet the Company's obligations under its stock plans 
and for other corporate purposes.  Purchases have been and will continue 
to be made from time-to-time on the open market or in privately 
negotiated transactions.  The timing and volume of purchases will be 
dependent upon market conditions and other factors.  The Company intends 
to use cash on hand to fund it purchases.  During the three months ended 
March 31, 1998, the Company repurchased  443,500 shares at an average 
cost per share of $5.27 bringing the cumulative repurchases since the 
inception of the program to 1.45 million shares. 


6.      STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS :

        On March 14, 1998, the Company's Board of Directors authorized an 
increase in the number of shares reserved for issuance under the 
Company's 1993 Stock Option/Stock Issuance Plan by 200,000 shares to 
2,674,852 shares of common stock for issuance under the Plan.  On the 
same date the Board also approved 100,000 shares for issuance under the 
1998 Employee Stock Purchase Plan. The proposed increases are still 
subject to shareholder approval.







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

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 and in the section 
captioned RISK FACTORS in the Company's most recent Annual Report on 
Form 10-K. 

RESULTS OF OPERATIONS:

In recent years the majority of the Company's revenues have been 
attributable to sales of display products.  However, the Company's 
software business has grown more rapidly than its display business in 
the past three years and on April 17, 1998 the Company entered into a 
letter of intent to sell its display products division. Upon completion 
of this sale, the Company will be renamed to Input Software, Inc. and 
will exclusively develop, market, and service software products for 
enterprise computing applications.  In 1994, the Company began providing 
software toolkits for scanning and DIP applications.  In November 1995, 
the Company began shipments of InputAccel-- a software product designed 
to automate the conversion of documents into electronic images.   

                The Company's software tools allow integrators and software 
developers to save both time and money by offering stable, supported 
libraries of software code to drive DIP peripherals rather than having 
to develop such software themselves.  Most of these tools are based on 
Cornerstone's Image & Scanner Interface Specification ("ISIS"), an 
industry standard interface for scanners.  ISIS provides a key component 
for InputAccel; a software product designed to automate the conversion 
of documents into electronic images. InputAccel , now the Company's 
flagship product, is a data capture system that lets organizations 
integrate incoming documents-paper, fax, microfilm-with enterprise 
workflow and document management systems.  InputAccel is a customizable, 
open architecture software product that runs under Windows NT.

                The Company's  products are used by a diverse set of 
customers in a wide variety of applications, such as insurance claim 
processing, loan application processing, FDA submissions, and the 
storage of personnel records and technical manuals.  Most often, data 
capture  systems are used by large, service-oriented companies and 
government agencies for which document management or transaction 
processing is critical.  Data capture, which is often used in 
conjunction with document image processing, document management, and 
other computer applications, enables multiple users to electronically 
capture, file, and retrieve documents. Hence the Company's products are 
often sold through or in conjunction with systems integrators and value 
added resellers.  

RISK FACTORS:

Limited Software Operating History; History of Losses; Future Operating 
Results Uncertain

The Company has operated its Software Division since June 1994. 
Accordingly, the Company's prospects must be considered in light of the 
risks and difficulties frequently encountered by companies in the early 
stage of development, particularly companies in new and rapidly evolving 
markets.  To address these risks, the Company must, among other things, 
respond to competitive developments, continue to attract, retain and 
motivate qualified personnel and continue to improve its products.  For 
the past several years, the Company has been investing in its software 
business and as a result, on a stand alone basis, the Software Division 
has not achieved operating profitability and has incurred net losses in 
each quarter from inception through the quarter ending June 30, 1997.  
As of March 31, 1998, the Company's Software Division had cumulative 
pre-tax operating losses of approximately $3.6 million.  The Company's 
operating losses have been due in part to the commitment of significant 
resources to the Company's research and development and sales and 
marketing organizations.  The Company expects to continue to devote 
substantial resources to these areas and as a result will need to 
recognize significant quarterly revenues to achieve profitability.  In 
particular, the Company intends to continue to hire additional sales and 
research and development personnel in 1998 and beyond, which the Company 
believes is required if the Company is to achieve significant revenue 
growth in the future.  Although the Company's software related revenues 
generally have increased in recent periods, there can be no assurance 
that the Company's revenues will grow in future periods, that they will 
grow at past rates or that the Company will remain profitable on a 
quarterly or annual basis in the future. 

Operating Results Subject to Significant Fluctuations; Seasonality

The Company's quarterly revenues, expenses and operating results have 
varied significantly in the past and are likely to vary significantly in 
the future due to a variety of factors, such as demand for the Company's 
products, the size and timing of significant orders and their 
fulfillment, the number, timing and significance of product enhancements 
and new product announcements by the Company and its competitors, 
changes in pricing policies by the Company or its competitors, customer 
order deferrals in anticipation of enhancements or new products offered 
by the Company or its competitors, the ability of the Company to 
develop, introduce and market new and enhanced versions of its products 
on a timely basis, changes in the Company's level of operating expenses, 
budgeting cycles of its customers, product life cycles, software defects 
and other product quality problems, the Company's ability to attract and 
retain qualified personnel, changes in the Company's sales incentive 
plans, changes in the mix of domestic and international revenues, the 
level of international expansion, foreign currency exchange rate 
fluctuations, performance of indirect channel partners, changes in the 
mix of indirect channels through which the Company's products are 
offered, the impact of acquisitions of competitors and indirect channel 
partners, the Company's ability to control costs and general domestic 
and international economic and political conditions.  The Company 
operates with virtually no order backlog because its software products 
are shipped shortly after orders are received, which makes product 
revenues in any quarter substantially dependent on orders booked and 
shipped throughout that quarter.  As a result, if orders in the first 
month or two of a quarter fall short of expectations, it is unlikely 
that the Company will be able to meet its revenue targets for that 
quarter.  In addition, the Company achieves a significant portion of 
revenues from indirect sales channels over which the Company has little 
or no control.  Moreover, the Company's expense levels are based to a 
significant extent on the Company's expectations of future revenues and 
therefore are relatively fixed in the short term.  If revenue levels are 
below expectations, operating results are likely to be adversely and 
disproportionately affected because only a small portion of the 
Company's expenses vary with its revenues.

The Company's business has experienced and is expected to continue to 
experience seasonality, largely due to customer buying patterns.  In 
recent years, the Company has had relatively stronger demand for its 
products during the quarter ending December 31 and demand has been 
relatively weaker in the quarter ending March 31.  The Company believes 
that this pattern will continue. Based upon all of the factors described 
above, the Company believes that its quarterly revenues, expenses and 
operating results are likely to vary significantly in the future, that 
period-to-period comparisons of its operating results are not 
necessarily meaningful and that, in any event, such comparisons should 
not be relied upon as indications of future performance.  The Company 
has limited ability to forecast future revenues, and it is likely that 
in some future quarter the Company's operating results will be below the 
expectations of public securities analysts and investors.  In the event 
that operating results are below expectations, or in the event that 
adverse conditions prevail or are perceived to prevail generally or with 
respect to the Company's business, the price of the Company's Common 
Stock would likely be materially adversely affected. 

Significant Competition 

The market for the Company's products is intensely competitive and 
subject to rapid change.  In addition, because there are relatively low 
barriers to entry in the software market, the Company may encounter 
additional competition from other established and emerging companies.  
Many of the Company's competitors have longer operating histories, 
significantly greater financial, technical, marketing and other 
resources than the Company, significantly greater name recognition and a 
large installed base of customers.  As a result, the Company's 
competitors may be able to respond more quickly to new or emerging 
technologies and changes in customer requirements, or to devote greater 
resources to the development, promotion and sale of competitive 
products, than can the Company.  There is also a substantial risk that 
announcements of competing products by large competitors could result in 
the cancellation of customer orders in anticipation of the introduction 
of such new products.  In addition, current and potential competitors 
have established or may establish cooperative relationships among 
themselves or with third parties to increase the ability of their 
products to address customer needs and which may limit the Company's 
ability to sell its products through particular reseller partners.  
Accordingly, new competitors or alliances among current and new 
competitors may emerge and rapidly gain significant market share.  The 
Company also expects that competition will increase as a result of 
software industry consolidation.  Increased competition is likely to 
result in price reductions, fewer customer orders, reduced margins and 
loss of market share, any of which could materially adversely affect the 
Company.  There can be no assurance that the Company will be able to 
compete successfully against current and future competitors or that the 
competitive pressures faced by the Company will not materially adversely 
affect its business, operating results and financial condition. 

Product Concentration 

The Company currently expects the sale and license of its InputAccel 
products, and these products are currently expected to account for 
substantially all of the Company's revenues for the foreseeable future.  
The Company's future operating results are dependent upon continued 
market acceptance of its InputAccel products and enhancements to these 
products.  Consequently, a decline in the demand for, or market 
acceptance of, the Company's InputAccel products as a result of 
competition, technological change or other factors, would have a 
material adverse effect on the Company's business, operating results and 
financial condition.

Dependence on Continued Growth of the Market for Document Management 
Applications

Although demand for document capture software for document management 
applications has grown in recent years, this market is still emerging 
and there can be no assurance that it will continue to grow or that, 
even if the market does grow, organizations will continue to adopt the 
Company's products.  The Company has spent, and intends to continue to 
spend, considerable resources educating potential customers about the 
Company's software products and the document processing market 
generally.  However, there can be no assurance that such expenditures 
will enable the Company's products to achieve any additional degree of 
market acceptance.  The rate at which organizations have adopted the 
Company's products has varied significantly and the Company expects to 
continue to experience such variations in the future.  There can be no 
assurance that the market for the Company's products will continue to 
develop or that the Company's products will be widely accepted.  If the 
markets for the Company's products fail to develop, or develop more 
slowly than the Company currently anticipates, the Company's business, 
operating results and financial condition would be materially adversely 
affected.

Rapid Technological Change and New Products 

The market for the Company's products is characterized by rapid 
technological change, frequent new product introductions and 
enhancements, uncertain product life cycles, changes in customer demands 
and evolving industry standards.  The introduction of products embodying 
new technologies and the emergence of new industry standards can render 
existing products obsolete and unmarketable.  The Company's future 
success will depend upon its ability to continue to enhance its current 
products and to develop and introduce new products on a timely basis 
that keep pace with technological developments and satisfy increasingly 
sophisticated customer requirements.  As a result of the complexities 
inherent in document image processing software, new products and product 
enhancements can require long development and testing periods.  As a 
result, significant delays in the general availability of such new 
releases or significant problems in the installation or implementation 
of such new releases could have a material adverse effect on the 
Company's business, operating results and financial condition.  The 
Company has experienced delays in the past in the release of new 
products and new product enhancements. There can be no assurance that 
the Company will be successful in developing and marketing, on a timely 
and cost effective basis, new products or new product enhancements that 
respond to technological change, evolving industry standards or customer 
requirements, that the Company will not experience difficulties that 
could delay or prevent the successful development, introduction or 
marketing of these products or that the Company's new products and 
product enhancements will achieve market acceptance. 

Risk of Software Defects 

Software products as complex as those offered by the Company may contain 
errors or defects, particularly when first introduced or when new 
versions or enhancements are released.  The Company has in the past 
discovered software errors in certain of its new products after their 
introduction.  There can be no assurance that, despite testing by the 
Company, defects and errors will not be found in current versions, new 
versions or enhancements of its products after commencement of 
commercial shipments, resulting in loss of revenues or delay in market 
acceptance, which could have a material adverse effect on the Company's 
business, operating results and financial condition. 

Year 2000 Compliance 

The Company believes that the purchasing patterns of customers and 
potential customers may be affected by Year 2000 issues in a variety of 
ways. Many companies are expending significant resources to correct or 
patch their current software systems for Year2000 compliance.  These 
expenditures may result in reduced funds available to purchase software 
products such as those offered by the Company. Potential customers may 
also choose to defer purchasing Year 2000 compliant products until they 
believe it is absolutely necessary, thus resulting in potentially 
stalled market sales within the industry.  Conversely, Year 2000 issues 
may cause other companies to accelerate purchases, thereby causing an 
increase in short-term demand and a consequent decrease in long-term 
demand for software products.  Additionally, Year 2000 issues could 
cause a significant number of companies, including current Company 
customers, to reevaluate their current software needs, and as a result 
switch to other systems or suppliers.  Any of the foregoing could result 
in a material adverse effect on the Company's business, operating 
results and financial condition. 

Risks Associated with International Sales and Operations 

The Company anticipates that for the foreseeable future a significant 
portion of its revenues will be derived from sources outside North 
America and the Company intends to continue to expand its sales and 
support operations internationally.  In order to successfully expand 
international sales, the Company must establish additional foreign 
operations, expand its international sales channel management and 
support organizations, hire additional personnel, customize its products 
for local markets, recruit additional international resellers and 
increase the productivity of existing international resellers.  To the 
extent that the Company is unable to do so in a timely and cost-
effective manner, the Company's sales growth internationally, if any, 
will be limited, and the Company's business, operating results and 
financial condition could be materially adversely affected.  Even if the 
Company is able to successfully expand its international operations 
there can be no assurance that the Company will be able to maintain or 
increase international market demand for its products.
The Company's international operations are generally subject to a number 
of risks, including costs of customizing products for foreign countries, 
protectionist laws and business practices favoring local competition, 
dependence on local vendors, compliance with multiple, conflicting and 
changing government laws and regulations, longer sales cycles, greater 
difficulty or delay in accounts receivable collection, import and export 
restrictions and tariffs, difficulties in staffing and managing foreign 
operations, foreign currency exchange rate fluctuations, multiple and 
conflicting tax laws and regulations and political and economic 
instability.  To date, a majority of the Company's revenues and costs 
have been denominated in U.S. dollars.  However, the Company believes 
that in the future, an increasing portion of the Company's revenues and 
costs will be denominated in foreign currencies.  Although the Company 
may from time to time undertake foreign exchange hedging transactions to 
reduce its foreign currency transaction exposure, the Company does not 
currently attempt to eliminate all foreign currency transaction 
exposure. 

Dependence on Key Personnel 

The Company's success depends to a significant extent upon the efforts 
of its key management, sales and marketing, technical support and 
research and development personnel, none of whom are bound by an 
employment contract.  The loss of key management or technical personnel 
could adversely affect the Company.  The Company believes that its 
future success will depend in large part upon its continuing ability to 
attract and retain highly skilled managerial, sales and marketing, 
technical support and research and development personnel.  Like other 
software companies, the Company faces intense competition for such 
personnel, and the Company has at times experienced and continues to 
experience difficulty in recruiting qualified personnel.  There can be 
no assurance that the Company will be successful in attracting, 
assimilating and retaining additional qualified personnel in the future.  
The loss of the services of one or more of the Company's key 
individuals, or the failure to attract and retain additional qualified 
personnel, could have a material adverse effect on the Company's 
business, operating results and financial condition. 

Limited Protection of Proprietary Technology; Risks of Infringement; Use 
of Licensed Technology 

The Company relies primarily on a combination of copyright, trademark 
and trade secret laws, confidentiality procedures and contractual 
provisions to protect its proprietary rights.  The Company licenses its 
software products primarily under license agreements.  There can be no 
assurance that others will not develop technologies that are similar or 
superior to the Company's technology or design around the copyrights and 
trade secrets owned by the Company.  Despite the Company's efforts to 
protect its proprietary rights, unauthorized parties may attempt to copy 
aspects of the Company's products or to obtain and use information that 
the Company regards as proprietary. Policing unauthorized use of the 
Company's products is difficult, and although the Company is unable to 
determine the extent to which piracy of its software products exists, 
software piracy can be expected to be a persistent problem.  In 
addition, the laws of some foreign countries do not protect the 
Company's proprietary rights as fully as do the laws of the U.S. 
The Company is not aware that it is infringing any proprietary rights of 
third parties.  There can be no assurance, however, that third parties 
will not claim infringement by the Company of their intellectual 
property rights.  The Company expects that software product developers 
increasingly will be subject to infringement claims as the number of 
products and competitors in the Company's industry segment grows and the 
functionality of products indifferent industry segments overlaps.  Any 
such claims, with or without merit, could be time consuming to defend, 
result in costly litigation, divert management's attention and 
resources, cause product shipment delays or require the Company to enter 
into royalty or licensing agreements.  Such royalty or licensing 
agreements, if required, may not be available on terms acceptable to the 
Company, if at all.  In the event of a successful claim of product 
infringement against the Company and failure or inability of the Company 
to either license the infringed or similar technology or develop 
alternative technology on a timely basis, the Company's business, 
operating results and financial condition could be materially adversely 
affected. 

The Company relies upon certain software that it licenses from third 
parties, including software that is integrated with the Company's 
internally developed software and used in its products to perform key 
functions.  There can be no assurance that these third-party software 
licenses will continue to be available to the Company on commercially 
reasonable terms.  The loss of or inability to maintain any such 
software licenses could result in shipment delays or reductions until 
equivalent software could be developed, identified, licensed and 
integrated which could materially adversely affect the Company's 
business, operating results and financial condition.

Product Liability 

Although the Company's license agreements with its customers typically 
contain provisions designed to limit the Company's exposure to potential 
product liability claims, it is possible that such limitation of 
liability provisions may not be effective as a result of existing or 
future laws or unfavorable judicial decisions.  The Company has not 
experienced any material product liability claims to date; however, the 
sale and support of the Company's products may entail the risks of such 
claims, which may be substantial in light of the use of the Company's 
products in business-critical applications.  A successful product 
liability claim brought against the Company could have a material 
adverse effect on the Company's business, operating results and 
financial condition.


Net Revenues

The Company's software revenues increased 34% in the first quarter of 
1998 to $3.4 million from $2.5 million in the first quarter of 1997, and 
decreased 6% from $3.6 million in the fourth quarter of 1997.  The 
increase in revenue growth in 1998 compared to 1997 is due to increased 
revenues from InputAccel.  The decrease compared to fourth quarter of 
1997 is attributed primarily to seasonality.


Gross Profit

Gross profit of $3 million for the first quarter of 1998 is up 26% from 
$2.3 million for the first quarter of 1997 and down 10% from $3.3 
million in the fourth quarter of 1997. The differences are primarily due 
to revenue fluctuations, though gross margin for the most recent quarter 
of 87% is down from 93% for the same period last year largely due to the 
percentage of revenues derived from software maintenance and 
professional services, which have lower margins than revenues from 
product licensing. The Company expects revenues from maintenance and 
services to continue to increase as a percentage of overall revenues


Sales and Marketing

Sales and marketing expenses increased 36% to $1.5 million in the first 
quarter of 1998 from $1.1 million in the first quarter of 1997.  The 
Company expects that sales and marketing expenses will increase in the 
future, in absolute terms, as the Company continues to expand sales and 
marketing programs related to new software products.


Research and Development

Research and development expenses decreased 9% to $1.1 million in the 
first quarter of 1998 from $1.2 million in the first quarter of 1997. 
The decrease in spending from 1997 is attributable to a non-recurring 
purchase of technology of $240,000 in the first quarter of 1997. Current 
staffing levels exceed those of prior periods.  The Company believes 
that continued 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 
likely to increase during 1998.


General and Administrative

General and administrative expenses in the first quarter of 1998 were 
essentially unchanged from the first quarter in 1997 at $509,000.  
General and administrative expenses have decreased as a percentage of 
revenues from 20% in the first quarter of 1997 to 15% in the first 
quarter of 1998, the decrease being  primarily attributable to increased 
revenue levels. Certain G&A expenses have, to date, been absorbed by the 
display division. Accordingly, the Company expects general and 
administrative expenses to increase in succeeding future periods.


Divestiture

The pending sale of the display division resulted in a net loss of $2.6 
million, or 41 cents per share.  This charge includes a loss from 
display division operations in the first quarter, net of tax benefit, of 
$361,000. In addition, it includes an estimated loss of $2.3 million, 
net of tax benefit, on the sale of the net assets of the display 
division.  This loss includes expenses related to the pending 
transaction and a reduction in value of certain inventory which is not 
strategic to the new display business.


Benefit (Provision) for Income Taxes

The benefit (provision) for federal and state income taxes as a 
percentage of pretax income from operations was 30% and 34% for the 
first quarter of 1998 and 1997, respectively. In addition, a tax benefit 
related of 40% was netted against the estimated losses on the sale of 
the display division.


Liquidity and Capital Resources 

At March 31, 1998, the Company had cash and cash equivalents of $12.1 
million, compared to $12.3 million at December 31, 1997.   At March 31, 
1998, the Company had a line of credit that provides for the issuance of 
commercial and standby letters of credit up to $15 million.  At March 
31, 1997, one such letter credit securing inventory purchases totaling 
$6.5 million was outstanding under this agreement.  The agreement 
expires July 1, 1999.

Net cash provided by operating activities was $2.1 million in the first 
quarter of 1998 compared to $4.7 million in the first quarter of 1997.   

Net cash used in investing activities, exclusively additions to property 
and equipment, was $54,000 for the first quarter of 1998, compared to  
$435,000 in the first quarter of 1997.

On February 14, 1997, the Company's Board of Directors authorized the 
use of up to $5 million to repurchase the Company's common stock.  This 
amount was increased to $15 million on Sept 17, 1997.  The repurchased 
stock is expected to be held by the Company as treasury stock to be used 
to meet the Company's obligations under its stock plans and for other 
corporate purposes.  Purchases will be made from time-to-time on the 
open market or in privately negotiated transactions.  The timing and 
volume of purchases will be dependent upon market conditions and other 
factors.  The Company intends to use cash on hand to fund its purchases.  
During the three month period ended March 31, 1998, the Company 
repurchased 443,500 shares at an average cost per share of $5.27.

The Company believes that its cash and cash equivalents, 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 and 
competitive factors.  Accordingly, the Company may require additional 
funds to support its working capital requirements or for other purposes 
and may seek to raise such additional funds through public or private 
equity or other sources.  There can be no assurance that additional 
financing will be available at all or that it, if available, will be 
obtainable on terms favorable to the Company and would not be dilutive.



PART II - OTHER INFORMATION

Item 1.   Legal Proceedings - Not Applicable

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


                                  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


Date: May 15,1998                                /s/ John Finegan
                                                 ------------------------------
                                                 John Finegan
                                                 Chief Financial Officer
                                                 and Secretary
                                                 (Principal Financial and
                                                 Accounting Officer)



                               EXHIBIT INDEX


Exhibit          Description                                          
---------       ------------------------------------------------------------

11.1            Statement of Computation of Earnings per Share

27              Financial Data Schedule