<PAGE>
===============================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q



(Mark One)


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



                   For the fiscal quarter ended June 30, 2000

                                       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: 0-23034


                       ENCAD-Registered Trademark-, INC.
             (Exact name of registrant as specified in its charter)


               DELAWARE                                  95-3672088
   (State or other jurisdiction of          (I.R.S. Employer Identification No.)
   incorporation or organization)

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


       Registrant's telephone number, including area code: (858) 452-0882

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 / /

The number of shares outstanding of the Registrant's Common Stock as of July 31,
2000, was 11,846,022.

<PAGE>

ENCAD, INC.

INDEX

<TABLE>
<CAPTION>

                                                                                                        PAGE
<S>                                                                                                     <C>
PART I - FINANCIAL INFORMATION


ITEM 1.           CONSOLIDATED FINANCIAL STATEMENTS

                  Consolidated Balance Sheets at
                    June 30, 2000 and December 31, 1999...................................................1

                  Consolidated Statements of Operations for the
                    three and six months ended June 30, 2000 and 1999.....................................2

                  Consolidated Statements of Cash Flows for the
                    six months ended June 30, 2000 and 1999...............................................3

                  Notes to Consolidated Financial Statements..............................................4

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS...................................................6

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                    MARKET RISK..........................................................................11


PART II - OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS......................................................................12

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS..............................................13

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES........................................................13

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................13

ITEM 5.           OTHER INFORMATION......................................................................13

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K.......................................................13

SIGNATURES...............................................................................................14
</TABLE>

<PAGE>

PART I. - FINANCIAL INFORMATION

ITEM 1.           CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)                                     JUNE 30,             December 31,
                                                                            2000                   1999
                                                                      ------------------   -----------------
                                                                         (UNAUDITED)              (Note)
<S>                                                                     <C>                    <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                               $ 15,457            $   3,953
  Accounts receivable - net                                                 23,094               30,546
  Income taxes receivable                                                        -                  281
  Inventories                                                               13,866               11,992
  Deferred income taxes                                                      5,163                4,004
  Prepaid expenses                                                           1,644                1,018
                                                                      ------------         ------------
            Total current assets                                            59,224               51,794

PROPERTY - NET                                                               7,363               14,264
RESTRICTED CASH                                                              1,222                    -
OTHER ASSETS                                                                 2,794                2,421
                                                                      ------------         ------------

TOTAL ASSETS                                                              $ 70,603             $ 68,479
                                                                      ------------         ------------


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                        $  7,881             $  7,882
  Accrued expenses and other liabilities                                     7,276                8,090
                                                                      ------------         ------------
         Total current liabilities                                          15,157               15,972
                                                                      ------------         ------------

OTHER LIABILITIES                                                            6,681                1,263

STOCKHOLDERS' EQUITY:
  Preferred stock - $.001 par value; 5,000 shares authorized,
     Series A Junior Participating Preferred Stock - no shares
     issued and outstanding                                                      -                    -

     Common stock, par value - $.001 per share, 60,000 shares
       authorized, 11,846 and 11,780 shares issued and
       outstanding at June 30, 2000 and December 31, 1999                       12                   12

     Additional paid -in capital                                            19,569               19,341
     Accumulated earnings                                                   29,184               31,891
                                                                      ------------         ------------
          Total stockholders' equity                                        48,765               51,244
                                                                      ------------         ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $ 70,603             $ 68,479
                                                                      ------------         ------------

</TABLE>

Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

See Notes to Consolidated Financial Statements.

                                                       1

<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(in thousands, except per share data)

<TABLE>
<CAPTION>

                                                        THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                             JUNE 30,                          JUNE 30,
                                                  --------------------------------  -------------------------------
                                                       2000             1999            2000             1999
                                                  ----------------  --------------  --------------   --------------
<S>                                                 <C>               <C>             <C>              <C>
NET SALES                                           $    26,685       $   29,253      $   49,490       $   58,235
COST OF SALES                                            15,543           16,448          28,903           33,027
                                                  ----------------  --------------  --------------   --------------
GROSS PROFIT                                             11,142           12,805          20,587           25,208
                                                  ----------------  --------------  --------------   --------------

MARKETING AND SELLING                                     6,668            5,653          13,079           11,375
RESEARCH AND DEVELOPMENT                                  2,380            3,328           5,554            6,260
GENERAL AND ADMINISTRATIVE                                2,924            2,522           6,259            5,613
                                                  ----------------  --------------  --------------   --------------
                                                         11,972           11,503          24,892           23,248
                                                  ----------------  --------------  --------------   --------------

(LOSS) INCOME FROM OPERATIONS                              (830)           1,302          (4,305)           1,960

OTHER INCOME                                                195             -                325             -
INTEREST INCOME (EXPENSE) - NET                             152              (51)            300             (169)
                                                  ----------------  --------------  --------------   --------------

(LOSS) INCOME BEFORE INCOME TAXES                          (483)           1,251          (3,680)           1,791
PROVISION FOR INCOME TAXES                                 (171)             444            (973)             635
                                                  ----------------  --------------  --------------   --------------
NET (LOSS) INCOME                                   $      (312)      $      807      $   (2,707)      $    1,156
                                                  ----------------  --------------  --------------   --------------

(LOSS) EARNINGS PER SHARE - BASIC                   $     (0.03)      $     0.07      $    (0.23)      $     0.10
                                                  ----------------  --------------  --------------   --------------

(LOSS) EARNINGS PER SHARE - DILUTED                 $     (0.03)      $     0.07      $    (0.23)      $     0.10
                                                  ----------------  --------------  --------------   --------------

WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDING - BASIC                             11,811           11,694          11,797           11,665
                                                  ----------------  --------------  --------------   --------------

WEIGHTED AVERAGE COMMON AND COMMON
  EQUIVALENT SHARES OUTSTANDING - DILUTED                11,811           11,954          11,797           11,811
                                                  ----------------  --------------  --------------   --------------

</TABLE>

See Notes to Consolidated Financial Statements.


                                                           2

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands)

<TABLE>
<CAPTION>

                                                                                  SIX MONTHS ENDED JUNE 30,
                                                                              -----------------------------------
                                                                                   2000               1999
                                                                              ----------------  -----------------
<S>                                                                             <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income                                                             $  (2,707)        $   1,156
  Adjustments to reconcile net (loss) income to cash provided by
     operating activities:
       Depreciation and amortization                                                1,434             1,649
       Provision for losses on accounts receivable and inventories                   (425)             (144)
       Tax benefit from exercise of stock options                                       6                16
       Amortization of deferred gain on sale of headquarters                         (326)                -
       Changes in assets and liabilities:
           Accounts receivable                                                      7,439             2,972
           Income taxes receivable                                                    281             2,403
           Inventories                                                             (1,436)            2,974
           Deferred income taxes                                                   (1,159)            1,305
           Prepaid expenses and other assets                                         (999)             (288)
           Accounts payable                                                            (1)           (3,335)
           Accrued expenses and other liabilities                                    (542)              747
                                                                              -----------       -----------
              Cash provided by operating activities                                 1,565             9,455
                                                                              -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property                                                         (1,016)           (1,171)
     Net proceeds from sale of headquarters                                        11,955                 -
                                                                              -----------       -----------
                 Cash provided by (used in) investing activities                   10,939            (1,171)
                                                                              -----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Exercise of common stock options and sale of stock under
        employee stock purchase plan                                                  222               391
     Increase in restricted cash                                                   (1,222)                -
     Net borrowings under line of credit                                                -            (6,000)
                                                                              -----------       -----------
                 Cash used in financing activities                                 (1,000)           (5,609)
                                                                              -----------       -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               11,504             2,675
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                    3,953               586
                                                                              -----------       -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      $  15,457         $   3,261
                                                                              -----------       -----------


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash received during the period for income taxes - net                     $   2,118         $   3,416
     Cash paid during the period for interest                                   $       0         $     210

</TABLE>

See Notes to Consolidated Financial Statements.

                                                         3

<PAGE>

ENCAD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited (in thousands, except per
share data)

1)    BASIS OF PRESENTATION - The accompanying consolidated financial statements
      as of June 30, 2000 and for the three and six month periods ended June 30,
      2000 and 1999 are unaudited and reflect all adjustments (consisting only
      of normal recurring adjustments) which are, in the opinion of management,
      necessary for a fair presentation of the financial position and operating
      results for the interim period. These consolidated financial statements
      should be read in conjunction with the consolidated financial statements
      and notes thereto, together with management's discussion and analysis of
      financial condition and results of operations, contained in the Company's
      Annual Report on Form 10-K for the year ended December 31, 1999 ("1999
      Annual Report"). The results of operations for the interim periods are not
      necessarily indicative of the results to be expected for any other interim
      period or for the entire fiscal year.

      The consolidated financial statements include the accounts of ENCAD, Inc.
      and its wholly owned subsidiaries (collectively, the "Company"). All
      intercompany transactions and balances are eliminated in consolidation.
      Certain reclassifications have been made to amounts included in the prior
      year's financial statements to conform to the financial statement
      presentation for the three and six month periods ended June 30, 2000.

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect amounts reported in the consolidated financial
      statements and related notes. Changes in those estimates may affect
      amounts reported in future periods.

2)    INVENTORIES:

<TABLE>
<CAPTION>
                                                                  JUNE 30,   December 31,
                                                                    2000          1999
                                                               ----------    -----------
                   <S>                                         <C>           <C>
                   Raw materials                                  $ 5,450        $ 6,017
                   Work-in-process                                     18            131
                   Finished goods                                   8,398          5,844
                                                               ==========    ===========
                          Total                                   $13,866        $11,992
                                                               ==========    ===========
</TABLE>

3)    COMPREHENSIVE INCOME - There are no material current differences between
      net income and comprehensive income, and accordingly, no amounts have been
      reflected in the accompanying consolidated financial statements.

4)    RESTRICTED CASH - At June 30, 2000, the Company had $1,222 of collateral
      deposits to secure a letter of credit required by the headquarters
      building lease. These deposits are invested in money market funds. The
      non-current classification is determined based upon the expected term of
      the collateral requirement and not necessarily the maturity date of the
      underlying investment. See Note 7.

5)    REVOLVING LINE OF CREDIT - At June 30, 2000, the Company had available a
      $15,000 revolving line of credit which expires in April 2002. No amounts
      were outstanding under the line of credit at June 30, 2000 or at December
      31, 1999. The line bears interest at the bank's prime rate (9.50% at June
      30, 2000) or, at the Company's option, a rate based on the London
      Interbank Overnight Rate (6.64% at June 30, 2000) plus 1.25% on
      outstanding balances. The Company pays a commitment fee on the unused
      portion of the line. In addition, the availability of the line is subject
      to maintaining financial covenants including profitability, working
      capital and tangible net worth.

6)    EARNINGS PER SHARE - Basic earnings per share is computed by dividing net
      income by the weighted average common shares outstanding. Diluted earnings
      per share is computed by dividing net income by the weighted average
      number of common and common equivalent shares outstanding.

                                    4

<PAGE>

      The following table is a reconciliation of the basic and diluted earnings
      per share computations for the three and six month periods ended June 30,
      2000 and 1999:

<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED         SIX MONTHS ENDED
                                                          JUNE 30,                  JUNE 30,
                                                  -----------------------   -----------------------
                                                     2000         1999         2000         1999
                                                  ----------   ----------   ----------   ----------
<S>                                                <C>          <C>          <C>          <C>
Net (loss) income                                  $    (312)   $     807    $  (2,707)   $   1,156
                                                  ----------   ----------   ----------   ----------
(Loss) earnings per share - basic                  $   (0.03)   $    0.07    $   (0.23)   $    0.10
                                                  ==========   ==========   ==========   ==========
Basic weighted average common
      shares outstanding                              11,811       11,694       11,797       11,665
Effect of dilutive securities:
      Stock options                                        0          260            0          146
                                                  ----------   ----------   ----------   ----------
Diluted weighted average common and
      common equivalent shares outstanding            11,811       11,954       11,797       11,811
                                                  ==========   ==========   ==========   ==========
(Loss) earnings per share - diluted                $   (0.03)   $    0.07    $   (0.23)   $    0.10
                                                  ==========   ==========   ==========   ==========
</TABLE>

7)    HEADQUARTERS BUILDINGS SALE-LEASEBACK - In January 2000, the Company
      received net cash proceeds of $11,955 for a transaction in which the
      Company sold its headquarters buildings and land in San Diego, California
      and leased the property back for a period of seven years. The leaseback is
      accounted for as an operating lease. The sale-leaseback resulted in a gain
      of $5,472 which was deferred and is being amortized to income over the
      term of the lease. The lease requires the Company to pay customary
      operating and repair expenses and to observe certain operating
      restrictions and covenants.

      Future scheduled minimum rental payments required are as follows: 2000 -
      $611; 2001 - $1,319; 2002 - $1,414; 2003 - $1,465; 2004 - $1,523;
      thereafter - $3,324; total - $10,166.

8)    SUBSEQUENT EVENT - In July 2000, an officer of the Company left under a
      severance agreement and release. Under the agreement, the Company is
      obligated to pay this officer a monthly salary of $35 plus certain
      benefits for a period of 12 months after termination.

9)    RECENT ACCOUNTING PRONOUNCEMENTS - In December 1999, the Securities and
      Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101,
      "Revenue Recognition in Financial Statements" ("SAB No. 101"), which
      summarizes the SEC's interpretation of applying generally accepted
      accounting principals to revenue recognition in the financial statements.
      SAB No. 101 was subsequently amended in June 2000 and becomes effective
      for the fourth quarter of fiscal years beginning after December 15, 1999.
      Based on the Company's current revenue recognition policies, the Company
      does not expect the adoption of SAB No. 101, as amended, to have a
      material impact on the Company's consolidated financial position or the
      results of operations.

      In March 2000, the Financial Accounting Standards Board issued
      Interpretation No. 44, "Accounting for Certain Transactions Involving
      Stock Compensation - an Interpretation of APB No. 25" ("FIN No. 44"). FIN
      No. 44 clarifies the application of Opinion No. 25 for certain issues
      including: (a) the definition of employee for purposes of applying Opinion
      No. 25, (b) the criteria for determining whether a plan qualifies as a
      noncompensatory plan, (c) the accounting consequence of various
      modifications to the terms of a previously fixed stock option or award,
      and (d) the accounting for an exchange of stock compensation awards in a
      business combination. FIN No. 44 is effective July 1, 2000, but certain
      conclusions cover specific events that occur after either December 15,
      1998 or January 12, 2000. The Company does not expect that the adoption of
      FIN No. 44 will have a material effect on its financial position or
      results of operations.

                                       5

<PAGE>

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS (in thousands, except percentages)

      This discussion may contain forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from the results
discussed in such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risks and
Uncertainties" below. We undertake no obligation to release publicly the results
of any revisions to these forward-looking statements to reflect events or
circumstances arising after the date hereof.

      The following table sets forth, as a percentage of net sales, consolidated
statements of income data for the periods indicated.

<TABLE>
<CAPTION>

                                        THREE MONTHS ENDED JUNE 30,           SIX MONTHS ENDED JUNE 30,
                                      ----------------------------         ----------------------------
                                            2000             1999              2000              1999
                                      ----------------------------         ----------------------------
<S>                                        <C>             <C>                <C>               <C>
NET SALES                                  100.0%          100.0%             100.0%            100.0%
COST OF SALES                               58.2%           56.2%              58.4%             56.7%
                                      ---------------------------          ---------------------------
GROSS PROFIT                                41.8%           43.8%              41.6%             43.3%
                                      ---------------------------          ---------------------------
MARKETING AND SELLING                       25.0%           19.3%              26.4%             19.5%
RESEARCH AND DEVELOPMENT                     8.9%           11.4%              11.2%             10.8%
GENERAL AND ADMINISTRATIVE                  11.0%            8.6%              12.7%              9.6%
                                      ---------------------------          ---------------------------
(LOSS) INCOME FROM OPERATIONS               (3.1%)           4.5%              (8.7%)
                                                                                                  3.4%
OTHER INCOME                                 0.7%                               0.7%
                                                             -                                    -
INTEREST INCOME (EXPENSE) - NET              0.6%           (0.2%)              0.6%             (0.3%)
                                      ---------------------------          ---------------------------
(LOSS) INCOME BEFORE INCOME TAXES           (1.8%)           4.3%              (7.4%)             3.1%
PROVISION FOR INCOME TAXES                  (0.6%)           1.5%              (1.9%)             1.1%
                                      ---------------------------          ---------------------------
NET (LOSS) INCOME                           (1.2%)           2.8%              (5.5%)             2.0%
                                      ---------------------------          ---------------------------
</TABLE>

RESULTS OF OPERATIONS

      NET SALES - Our net sales for the three and six month periods ended
June 30, 2000 decreased 9% and 15%, respectively, from the same periods of
1999. This decrease was due to lower sales to our European distributors,
caused partially by a strengthening of the U.S. dollar against many European
currencies which causes our products to be more expensive, lower supplies
sales to our OEM partners during the second quarter of 2000, and lower North
American distribution sales during the three months ended March 31, 2000 as a
result of the switch to a single-tier distribution model. During the three
and six month periods ended June 30, 2000, supply sales increased 14% and
decreased 2%, respectively, from the same periods of 1999, and accounted for
approximately 36% and 35% of net sales during the three and six month periods
ended June 30, 2000, respectively, as compared to 29% and 32% during the same
periods of 1999.

      No one customer accounted for more than 10% of net sales during the
three and six month periods ended June 30, 2000, whereas one customer,
Tekgraf, Inc., accounted for 14% and 13%, respectively, during the same
periods of 1999. Net sales to OEM customers for the three and six month
periods ended June 30, 2000 accounted for 16% and 21% of net sales,
respectively, as compared to 20% for each of the same periods of 1999.
International sales accounted for approximately 58% and 60% for the three and
six month periods ended June 30, 2000, compared to 56% and 62% of net sales
for the same periods of 1999.

      COST OF SALES - Cost of sales includes costs related to product shipments,
including materials, labor, overhead, inventory reserves, manufacturing
variances, and other direct or allocated costs involved in the manufacture,
warehousing, delivery, support and maintenance of products. Cost of sales as a
percentage of net sales stood at 58% for both the three and six month periods
ended June 30, 2000 as compared to 56% and 57% for the three and six month
periods ended June 30, 1999, respectively. This increase was due largely to
lower average selling prices for our newest generation of NovaJet products. Our
future success will depend, in part, on our ability to develop and manufacture
competitive higher margin products and continue to achieve cost reductions for
our existing products.

                                     6
<PAGE>

      MARKETING AND SELLING - Marketing and selling expenses were 25% and 26%,
respectively, of net sales during the three and six month periods ended June 30,
2000 compared to 19% and 20% during the same periods of 1999, which represents
an increase in absolute dollars of 18% and 15%, respectively. This increase was
due to increased travel and entertainment expenditures, increased spending for
tradeshow attendance and increased labor and related expenses required to
support the one tier North American channel.

      RESEARCH AND DEVELOPMENT - Research and development expenses were 9% and
11%, respectively, of net sales for the three and six month periods ended June
30, 2000 compared to 11% during both of the same periods of 1999. In absolute
dollars, 2000 research and development spending decreased by 28% and 11% from
the three and six month periods ended June 30, 1999, respectively. The decrease
in spending is due to reduced expenses for consulting, relocation, internal
product usage, prototyping and testing, all primarily related to the launch of
multiple printer products during the second quarter of 1999 compared to the
launch of a single printer during the same period of 2000. We expect to continue
to invest significant resources in our strategic programs and enhancements to
existing products and consequently expect that research and development expenses
for the remainder of 2000 will increase in absolute dollars over 1999.

      GENERAL AND ADMINISTRATIVE - General and administrative expenses were 11%
and 13% of net sales during the three and six month periods ended June 30, 2000,
respectively, compared to 9% and 10% during the same periods of 1999 and
increased by 16% and 12% over the three and six month periods ended June 30,
1999, respectively. This increase was due largely to increased legal fees
related primarily to the Hewlett-Packard lawsuits which were settled mid-way
through the second quarter.

      OTHER INCOME - Other income for the three and six month periods ended June
30, 2000 is due primarily to the amortization of the deferred gain on the sale
of our headquarter buildings.

      INTEREST INCOME (EXPENSE) - NET - Interest income net of interest expense
for the three and six month periods ended June 30, 2000 was $152 and $300,
respectively, as compared to interest expense net of interest income of $51 and
$169 during the same periods of 1999. Investment of excess cash during the first
half of 2000 yielded the income as compared to borrowings under our line of
credit during the same period of 1999.

      PROVISION FOR INCOME TAXES - The effective income tax rate during the
three and six month periods ended June 30, 2000 was approximately 35% and 26%,
respectively, compared to 35% during both of the same periods of 1999,
respectively. The decrease in the effective tax rate for the six month period
ended June 30, 2000 is due primarily to a benefit received in 2000 which
resulted from an adjustment of prior estimates of the foreign sales corporation
benefit, caused by filing the tax returns, and other book to tax differences
from prior tax years.

      NET (LOSS) INCOME - The previously described elements caused net loss
during the three and six months periods ended June 30, 2000 to stand at 1% and
5% of net sales, respectively, as compared to net income of 3% and 2% for the
same periods of 1999.

LIQUIDITY AND CAPITAL RESOURCES

      Cash balances increased during the first six months of 2000 by $11,504 as
operating cash inflows of $1,565 and net inflows from investing activities of
$10,939 exceeded financing outflows of $1,000. During the comparable 1999
period, operations provided cash inflows of $9,455, exceeding investing outflows
of $1,171 and financing outflows of $5,609. Operations inflows during the 2000
period resulted primarily from cash collections exceeding the net loss and
increases in inventory, deferred income taxes and prepaid expenses and other
assets. Investing inflows during the first six months of 2000 principally
resulted from the sale, and subsequent leaseback, of our headquarters buildings
for $11,955 net of fees and commissions. Capital expenditures decreased to
$1,016 during the first six months of 2000, compared with $1,171 in the 1999
period, primarily for computer and related systems. Financing cash outflows
during the first six months of 2000 resulted from restricted collateral deposits
of $1,222 as security for our headquarters building lease. The major factor
affecting financing outflows in the comparable 1999 period was a $6,000
reduction of borrowings under our line of credit.

                                       7
<PAGE>

      REVOLVING LINE OF CREDIT - At June 30, 2000, the Company had available a
$15,000 revolving line of credit which expires in April 2002. No amounts were
outstanding under the line of credit at June 30, 2000 or at December 31, 1999.
The line bears interest at the bank's prime rate (9.50% at June 30, 2000) or, at
the Company's option, a rate based on the London Interbank Overnight Rate (6.64%
at June 30, 2000) plus 1.25% on outstanding balances. The Company pays a
commitment fee on the unused portion of the line. In addition, the availability
of the line is subject to maintaining financial covenants including
profitability, working capital and tangible net worth.

      We believe that our existing cash and cash equivalents, cash generated
from operations, and funds available under the bank line of credit will be
sufficient to satisfy our currently anticipated working capital needs for the
next twelve months. Actual cash requirements may vary from planned amounts,
depending on the timing of the launch and extent of acceptance of new
products, as well as the selling price and costs of these products. Future
cash requirements to fund operations may require us to seek additional
capital which may not be available when required on terms acceptable to us.
To date, inflation has not had a significant effect on our operating results.

      NEW ACCOUNTING PRONOUNCEMENTS - In December 1999, the Securities and
Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements", which summarizes the SEC's
interpretation of applying generally accepted accounting principals to revenue
recognition in the financial statements. SAB No. 101 was subsequently amended in
June 2000 and becomes effective for the fourth quarter of fiscal years beginning
after December 15, 1999. Based on the Company's current revenue recognition
policies, the Company does not expect the adoption of SAB No. 101, as amended,
to have a material impact on the Company's consolidated financial position or
the results of operations.

      In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of APB No. 25" ("FIN No. 44"). FIN No. 44
clarifies the application of Opinion No. 25 for certain issues including: (a)
the definition of employee for purposes of applying Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan, (c)
the accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN No. 44 is effective July 1,
2000, but certain conclusions cover specific events that occur after either
December 15, 1998 or January 12, 2000. The Company does not expect that the
adoption of FIN No. 44 will have a material effect on its financial position or
results of operations.

RISKS AND UNCERTAINTIES

      OUR QUARTERLY OPERATING RESULTS CAN FLUCTUATE SIGNIFICANTLY.
      Our quarterly operating results can fluctuate significantly depending on a
number of factors. Any one of these factors could have a material adverse effect
on our financial condition or results of operations.
Factors affecting net sales include:

      -     the timing of product announcements and subsequent introductions of
            products by us and our competitors;
      -     timing of shipments of our products, including the mix of product
            families shipped;
      -     market acceptance of new products;
      -     seasonality;
      -     changes in prices by us and our competitors; and
      -     price protection for price reductions offered to customers.

      In addition, the availability and cost of components, the timing of
expenditures for staffing and related support costs, marketing programs and
research and development can have an effect on our operating results. Of course,
changes in general economic conditions and currency fluctuations can also affect
quarterly performance. We may experience significant quarterly fluctuations in
net sales as well as operating expenses with respect to future new product
introductions. Our component purchases, production and spending levels are based
upon forecast demand for our products. Accordingly, any inaccuracy in
forecasting could adversely affect our financial condition and results of
operations. Demand for our products could be adversely affected by a slowdown in
the overall demand for computer systems, printer products or digitally printed
images. Quarterly results are not necessarily indicative of future performance
for any particular period.

                                       8
<PAGE>

      THE MARKETS FOR OUR PRODUCTS ARE HIGHLY COMPETITIVE AND RAPIDLY CHANGING
      AND WE MAY NOT BE SUCCESSFUL IN COMPETING IN THIS MARKET.

      The markets for our printers and supplies are highly competitive and
rapidly changing. Several new competitors have entered the market. Our principal
competitor is Hewlett-Packard, which dominates the CAD category of the
wide-format inkjet markets and is our principal competition in the graphic arts
category. In addition to direct competition in inkjet printers and related
supplies, our products also face competition from other technologies in the
wide-format market. The competition to sell ink, media and software products to
the customer is also intense. Some of our current and prospective competitors,
particularly Hewlett-Packard, have significantly greater financial, technical,
manufacturing and marketing resources than us. Our ability to compete in the
wide-format inkjet market depends on a number of factors within and outside our
control, including:

      -     the success and timing of product introductions by us and our
            competitors;
      -     selling prices;
      -     product performance;
      -     product distribution;
      -     marketing ability; and
      -     customer support.

      THE MARKETS IN WHICH WE COMPETE ARE CHARACTERIZED BY SHORT PRODUCT LIFE
      CYCLES AND REDUCTIONS IN UNIT SELLING PRICES.

      The markets for wide-format printers and related supplies are
characterized by rapidly evolving technology, frequent new product introductions
and significant price competition. Consequently, short product life cycles and
reductions in unit selling prices due to competitive pressures over the life of
a product are common. Our financial condition and results of operations could be
adversely affected if we are unable to develop and manufacture new, competitive
products in a timely manner. Our future success will depend on our ability to
develop and manufacture technologically competitive products, price them
competitively, and achieve cost reductions for our existing products. Advances
in technology will require increased investment to maintain our market position.

      WE ARE DEPENDENT ON OUR DISTRIBUTORS, VARS, DEALERS AND OEMS TO SELL AND
      MARKET OUR PRODUCTS AND THEY MAY NOT DEVOTE SUFFICIENT RESOURCES TO THIS
      TASK TO ENSURE OUR SUCCESS.

      Our sales are principally made through independent distributors, VARs and
dealers, which may carry competing product lines. We believe that our future
growth and success will continue to depend in large part upon our distribution
channels. They could reduce or discontinue sales of our products, which could
have a material adverse effect on our business. They may not devote the
resources necessary to provide effective sales, service and marketing support of
our products. In addition, we are dependent upon their continued viability and
financial stability, and many of them are organizations with limited capital.
They, in turn, are substantially dependent upon general economic conditions and
other unique factors affecting the wide-format printer market.

      In the first quarter of 2000, we began to move from a two-tier to a
single-tier distribution network. This strategy initially occurred in North
America and shifted sales from distributors to VARs. As a result, we
currently sell our products directly to a network of approximately 85 major
VARs. This model allows us to increase our knowledge of our customers and
improve end-user customer satisfaction. Although VARs are, in general, not as
well financed as distributors, any collection risk we may have will be spread
over more accounts.

      Actual bad debts may in the future exceed recorded allowances resulting in
a material adverse effect on our business. In order to prevent inventory
write-downs, to the extent that OEM customers do not purchase products as
anticipated, we may need to convert such products to make them salable to other
customers. Such a conversion would increase product costs and would likely
result in a delay in selling such products.

                                     9

<PAGE>

      A SIGNIFICANT PORTION OF OUR NET SALES IS DERIVED FROM SALES TO COUNTRIES
      OUTSIDE THE UNITED STATES AND FACTORS OUTSIDE OUR CONTROL COULD ADVERSELY
      AFFECT THOSE SALES.

      For the six months ended June 30, 2000 and 1999, sales outside the United
States represented approximately 60% and 62% of our net sales, respectively. We
expect export sales to continue to represent a significant portion of our sales.
All of our products sold in international markets are denominated in U.S.
dollars; therefore an increase in the value of the U.S. dollar relative to
foreign currencies could make our products less competitive in these markets.
International sales and operations may also be subject to risks such as:

      -     currency exchange fluctuations;
      -     difficulties in staffing and managing international operations;
      -     collecting accounts receivable;
      -     restrictions on the export of critical technology;
      -     changes in tariffs;
      -     trade restrictions;
      -     export license requirements;
      -     political instability; and
      -     the imposition of governmental controls.

               In addition, the laws of some countries do not protect our
products and intellectual property rights to the same extent as the laws of the
United States. As we continue to pursue our international business, these
factors may have an adverse effect on our net sales and, consequently, on our
business.

      OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED
      EMPLOYEES AND CONSULTANTS.

Our success is dependent, in part, on our ability to attract and retain
qualified management and technical employees. Competition for such personnel is
intensifying. The inability to attract additional key employees or the loss of
key employees could adversely affect our ability to execute our business
strategy. We do not have employment agreements with members of senior
management. We may not be able to retain our key personnel. We rely heavily on
industry consultants and other specialists to assist and influence decisions,
keep abreast of technological and industry advances, and assist in other
processes.

      THE GROWTH OF OUR BUSINESS WILL REQUIRE SUBSTANTIAL CAPITAL RESOURCES THAT
      MAY NOT BE AVAILABLE WHEN NEEDED.

      The growth of our business will require the commitment of substantial
capital resources. If funds are not available from operations, we will need
additional funds. Such additional funds may not be available when required on
terms acceptable to us. Insufficient funds may require us to delay, reduce or
eliminate some or all of our planned activities.

      MANY OF OUR COMPONENTS ARE SUPPLIED BY SINGLE-SOURCE SUPPLIERS THAT MAY
      NOT BE ABLE TO BE REPLACED WITHOUT DISRUPTING OUR OPERATIONS.

      Selected components used in our products are only available from single
sources. We generally do not have long-term agreements with our suppliers.
Although alternate suppliers are readily available for many of these components,
for some components the process of qualifying replacement suppliers, replacing
tooling or ordering and receiving replacement components could take up to six
months and cause substantial disruption to our operations. If a supplier is
unable to meet our needs or supplies parts which we find unacceptable, we may
not be able to meet production demands. Key components of our products are
supplied indirectly by our principal competitor, Hewlett-Packard.

      IF OUR COMPETITORS PROVE THAT OUR PRODUCTS VIOLATE THEIR INTELLECTUAL
      PROPERTY RIGHTS, OUR BUSINESS WOULD BE ADVERSELY AFFECTED.

      From time to time, various competitors, including Hewlett-Packard, have
asserted patent rights relevant to our business. We expect that this will
continue. We carefully evaluate each assertion relating to our products. If
our competitors are successful in establishing that asserted rights have been
violated, we could be prohibited from marketing the products that incorporate
such rights or be required to obtain a license. We could also incur
substantial costs to redesign our products or

                                     10

<PAGE>

to defend any legal action taken against us. If our products should be found to
infringe upon the intellectual property rights of others, we could be enjoined
from further infringement and be liable for any damages. The measures adopted by
us for the protection of our intellectual property may not be adequate to
protect our interests. In addition, our competitors may independently develop
technologies that are substantially equivalent or superior to our technologies.

      MANAGEMENT OF THE GROWTH OF OUR BUSINESS MAY PLACE STRAINS ON OUR
      OPERATIONS.

      We have experienced growth in the past which placed, and, if continued,
will continue to place, a significant strain on our management, employees,
systems and operations. Our future operating results will depend on our ability
to continue to broaden our senior management group, attract, hire and retain
skilled employees and enhance or replace existing operational information and
financial control systems. We may encounter difficulties in successfully
integrating new personnel into the organization, and changes to our information
and financial control systems may not be effective.

      AS THE MARKET PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE IN THE PAST AND
      MAY CONTINUE TO DO SO IN THE FUTURE, AN INVESTMENT IN OUR COMMON STOCK MAY
      YIELD UNCERTAIN RESULTS.

      The market price of our common stock has fluctuated significantly since
our initial public offering in December 1993. We believe factors such as the
following could cause further significant volatility in the price of the common
stock:

      -     general stock market trends;
      -     adverse results of pending litigation;
      -     announcements of developments related to our business;
      -     fluctuations in our operating results;
      -     general conditions in the computer peripheral market or the markets
            we serve;
      -     general economic conditions;
      -     shortfalls in sales or earnings from securities analysts'
            expectations;
      -     announcements of technological innovations, new inkjet products or
            enhancements by us or our competitors;
      -     developments in patents or other intellectual property rights; and
            developments in our relationships with our customers or suppliers.

      In addition, in recent years the stock market in general, and the market
for shares of technology stocks in particular, have experienced extreme
volatility, which have often been unrelated to the operating performance of
affected companies. The market price of the common stock may continue to
experience significant fluctuations that are unrelated to our operating
performance.

      WE DO NOT PAY DIVIDENDS ON THE COMMON STOCK AND YOU WILL HAVE TO RELY ON
      INCREASES IN ITS PRICE TO GET A RETURN ON YOUR INVESTMENT.

      We have not paid dividends on the common stock. We currently intend to
continue this policy to retain earnings, if any, for use in our business. In
addition, our line of credit arrangement prohibits the payment of cash dividends
without prior bank approval if amounts are outstanding under such line of
credit.

      OUR CHARTER DOCUMENTS AND RIGHTS PLAN MAY PREVENT A CHANGE OF CONTROL
      WHICH IS IN YOUR BEST INTERESTS.

      The stockholder rights plan and some of our charter provisions may
discourage transactions involving an actual or potential change in control of
your company, including transactions in which you might otherwise receive a
premium for your shares over then-current market prices. These provisions may
limit your ability to approve transactions that you deem to be in your best
interests.


ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (in
            thousands, except percentages)

      Our only financial instruments with market risk exposure are excess cash
held in money market funds and, to a lesser extent, domestic revolving line of
credit borrowings, of which no amounts were outstanding at June 30, 2000. The
primary objective of our investment activities is to preserve principal while at
the same time maximizing yields

                                        11
<PAGE>

without significantly increasing risk. To achieve this objective, we
currently maintain a portfolio solely of money market funds.

      Our debt instruments are non-trading in nature and carry interest at the
bank's prime rate (9.50% at June 30, 2000) or, at our option, a rate based on
the London Interbank Overnight Rate (6.64% at June 30, 2000) plus 2.25%. Our
objective in maintaining these variable rate borrowings is the flexibility
obtained regarding early repayment without penalties and lower overall cost as
compared with fixed rate borrowings.

      Under our current policies, we do not use interest rate derivative
instruments to manage our exposure to interest rate changes. A hypothetical 100
basis point adverse move in interest rates along the entire interest rate yield
curve would result in no material change in our pre-tax earnings and cash flow.

      FOREIGN CURRENCY RISK. We conduct business on a global basis and all of
our products sold in international markets are denominated in U.S. dollars.
Historically, export sales have represented a significant portion of our sales
and we expect export sales to continue to represent a significant portion of our
sales.

      Our international business is subject to risks typical of an international
business, including, but not limited to:

      -     currency exchange fluctuations;
      -     difficulties in staffing and managing international operations;
      -     collecting accounts receivable;
      -     restrictions on the export of critical technology;
      -     changes in tariffs;
      -     trade restrictions;
      -     export license requirements;
      -     political instability; and
      -     the imposition of government controls.

  Accordingly, our future results could be materially adversely impacted by
changes in these or other factors.

      Our sales offices in France, Germany, the United Kingdom, China and Japan
incur costs which are denominated in local currencies. As exchange rates vary,
these results, when translated, may vary from expectations and adversely impact
overall expected results. The effect of exchange rate fluctuations on our
results during the first half of 2000 was not material.

PART II - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

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

      In November 1998, a class-action lawsuit was filed against us in the U.S.
District Court for the District of Colorado, alleging anti-trust violations
pertaining to our sales of a specified printer product. Class members seek
damages caused by the allegedly faulty ink, including the cost of the ink, the
cost of third-party replacement ink, and damage to printing projects caused by
the ink. Discovery is in progress. The outcome of this lawsuit cannot be
determined, however, we believe that the claims are without merit. We intend to
vigorously defend against such claims. No amounts have been reported in the
financial statements for any losses that may result from this lawsuit.

      In April 2000, we executed a settlement and patent cross-license
agreement with Hewlett-Packard whereby all pending litigation between the two
companies has been terminated. Included under this agreement was a lawsuit
filed against us by Hewlett-Packard in February 1998, alleging that some of
our products infringed two of their patents, and a lawsuit filed by us
against Hewlett-Packard in January of 1999, alleging sales of competitive
products below cost in violation of the California Unfair Trade Practices Act.

                                   12

<PAGE>

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

      None

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

      None

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

      None.

ITEM 5.  OTHER INFORMATION

      None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)         Exhibits

         3.1      Certificate of Incorporation of the Company (filed as Exhibit
                  3.1). (1)

         3.2      Bylaws of the Company (filed as Exhibit 3.2). (1)

         3.3      Certificate of Designation for Series A Junior Participating
                  Preferred Stock (filed as Exhibit 3.2).(2)

         4.1      Rights Agreement, dated as of March 19, 1998, between the
                  Company and Harris Trust Company of California, which includes
                  the Form of Certificate of Designation for the Series A
                  Preferred Stock as Exhibit A, the Form of Rights Certificate
                  as Exhibit B and the Summary of Rights to Purchase Shares as
                  Exhibit C. (2)

         4.2      First Amendment to the Company's Rights Plan.(3)

         10.1     Credit Agreement between Sanwa Bank California and the
                  Company.

       + 10.2     Settlement and Patent Cross-License Agreement between
                  Hewlett-Packard Company and the Company.

         27.1     Financial Data Schedule.


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

(1)  Filed as an exhibit to Registrant's Current Report on Form 8-K dated
     January 5, 1998 and incorporated herein by reference.

(2)  Filed as an exhibit to Registrant's Current Report on Form 8-K dated March
     20, 1998 and incorporated herein by reference.

(3)  Filed as an exhibit to Registrant's Registration Statement on Form 8-A12G/A
     (No. 000-23034) and incorporated herein by reference.

+    Certain confidential portions of this Exhibit were omitted by means of
     marking such portions with an asterisk (the "Mark"). This Exhibit has been
     filed separately with the Secretary of the Commission without the Mark
     pursuant to the Company's Application Requesting Confidential Treatment
     under Securities and Exchange Commission Rule 24b-2.

(b)  Reports on Form 8-K - No reports on Form 8-K were filed during the quarter
     ended June 30, 2000.

                                          13

<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.

Dated: August 14, 2000

                                   ENCAD, Inc.
                                  (Registrant)



                                   /s/ Todd W. Schmidt
                                   -----------------------------------------
                                   (Todd W. Schmidt)
                                   Vice President, Chief Financial Officer
                                   (Principal Financial and Accounting Officer)


                                     14