SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K


|X|  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended December 28, 1996

                                       OR

|_|  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the transition period from _______________ to
     _______________.

                                     0-17541
                              (Commission File No.)

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

        Delaware                                                 02-0415170
(State or other juris-                                        (I.R.S. Employer
diction of incorporation or                                  Identification No.)
     organization)

              8-9 Commercial Street, Hudson, New Hampshire 03051
           (Address of principal executive offices including zip code)

Registrant's telephone number, including area code:  (603) 595-7000

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

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

                          Common Stock, $.01 par value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. Yes X   No ___

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

The  aggregate   market  value  of  the   registrant's   Common  Stock  held  by
non-affiliates  of the  registrant  as of February 28, 1997,  was  approximately
$640,000,000.

As of February 28, 1997, there were 15,393,996 shares of the registrant's Common
Stock outstanding.

                    Documents Incorporated by Reference: None


<PAGE>


                                     PART I

Item 1.  Business.

Set forth below is a glossary of certain terms used in this report:

A2(4-up)            a printing term  referring to a standard  paper size capable
                    of printing four 8.5" x 11" pages on a sheet of paper

A3(2-up)            a printing term referring to a standard paper size capable
                    of printing two 8.5" x 11" pages on a sheet of paper

Ablation            a controlled detachment/vaporization caused by a thermal
                    event. This process is used during the imaging of the
                    Company's PEARL(R) consumables

Bitmap              a rasterized computer file containing picture elements that
                    define whether to image or not, a map of laser sites

Color               a printing industry classification denoting prepress
service bureaus     functions


Commercial          a printing industry classification denoting print providers
printers            offering general printing services


Computer-to-plate   a general term referring to the exposure of
(direct-to-plate)   lithographic plate material from a digital database,
                    off-press

Dampening solution  traditional  lithographic  printing  chemical bath
                    used to coat the non-image areas of a printing plate

Direct Imaging (DI) Digital Imaging systems that allow image carriers
technologies        (film and plates) to be imaged from a digital
                    database, on-and off-press

Dots per inch (dpi) a measurement of the resolving power or the
                    addressability of an imaging device

                                      -2-
<PAGE>

Effluents           waste materials that flow from photographic processing
                    equipment, which are often toxic in nature

Electrophotography  an imaging and reproduction method similar to xerography in
                    which a corona charges and attracts a toner-based material
                    to image areas and then transfers the image to paper

GTO-DI              the first generation of Direct Imaging, waterless presses
                    available in two, four and five printing station
                    configuration, a joint effort between Heidelberg and
                    Presstek

Heidelberg          Heidelberger Druckmaschinen AG, the world's largest printing
                    press manufacturer, headquartered in Heidelberg, Germany

Imagesetter         a graphic arts term referring to digital exposure of an
                    image carrier, most often used when referring to film

Imposition          a graphic arts term referring to the positioning of pages on
                    a press sheet to ensure the correct order after the printed
                    sheet is folded and trimmed

Infrared            lying outside of the visible spectrum at its red-end longer
                    wavelengths; used in the Company's thermal imaging process

Ink density         a numerical reading from a densitometer (light measuring
                    tool) used to determine the proper ink coating on
                    a printed sheet

Large format        a printing term referring to printing layouts that
                    include four or more pages on a single sheet of paper

Lithographic        printing from a single plane surface under the principle
                    that image area carries ink and the nonimage area does not,
                    and that ink and water do not mix

                                      -3-
<PAGE>

On-demand           a manufacturing philosophy when applied to printing provides
                    faster service, shorter run lengths and less inventory

PEARL(R)            the name associated with Presstek's current laser imaging
                    technologies and related products and consumables

PEARL Imaging       the Presstek components required to convert a conventional
systems             printing press into a Direct Imaging press, including laser
                    diode arrays, computers, electronics

PEARLsetter(TM)     the Company's product line of computer-to-plate, off-press
                    plate making equipment

Photosensitive      silver halide emulsions exposed by a reaction to light
                    requiring a subsequent chemical development and
                    stabilization process

Platemaking         the process of applying a printable image to a printing
                    plate

PostScript(R)       a page description programming language developed by Adobe
                    Systems, Inc., a defacto standard in the printing industry

Prepress            graphic arts operations and methodologies that occur prior
                    to the printing process; typically these include
                    photography, scanning, image assembly, exposure of image
                    carriers (film and/or plate), proofing

Quickmaster 46-4;   the second generation of Direct Imaging, waterless
Quickmaster DI      presses, highly automated with roll-fed PEARL plate
                    material, a joint effort between Heidelberg and Presstek

Semiconductor       a high-powered, infrared imaging technology employed in
laser diode         the PEARL imaging system

Separations         the division of hues into discrete images with the standard
                    method being four-color process separations of cyan,
                    magenta, yellow and black

                                      -4-
<PAGE>

Short-run           a graphic arts classification used to denote an
markets/printing    emerging trend for lower print quantities

Spark Discharge     the Company's first Direct Imaging technology in
Technology          which a proprietary printing plate was
                    imaged by means of discharging an electrical spark

Subtractive primary Yellow, magenta and cyan; the hues used for
colors              process color printing inks

Thermally-based     a method of digitally exposing a material via the heat
                    generated from a laser beam

Vapor disposition   a technology to accurately, uniformly coat substrates
process             in a controlled environment

Waterless           a lithographic printing method that uses dry offset printing
                    plates and inks thus it does not require a dampening system

General

     Presstek, Inc. (the "Company" or "Presstek"), which was incorporated in the
State of Delaware in September 1987, continues to further develop and market its
proprietary,   digital  imaging  technologies  and  system  architectures,   and
non-photographic  consumables (the "Direct Imaging"  technologies)  primarily to
the graphic arts and related imaging  industries.  The Company's  current Direct
Imaging technologies, referred to as PEARL, permit the direct digital imaging of
the  Company's   printing  plates  and  films  which  eliminates  the  need  for
photosensitive  materials  and the  hazardous  waste  by-products  and effluents
usually   associated  with  these   processes.   The  Company's  system  accepts
PostScript(R)(1)  compatible  files from  digitally  based  electronic  prepress
systems  and  images  the color  separated  pages  directly  onto the  Company's
proprietary thermal imaging based consumables.

     PEARL is a high resolution,  high powered semiconductor laser diode imaging
technology  and is the result of  significant  past  development  efforts by the
Company. The Company believes that PEARL represents a technological breakthrough
for the worldwide printing and publishing industry and has several  applications
for it and its  consumables in the graphic arts industry:  a printing press (the
"Direct Imaging  Printing  Press") and a stand-alone  computer-to-plate  imaging
device (the "PEARLsetter"), both of which incorporate the Company's PEARL Direct
Imaging technologies. PEARL uses its precision, high powered semiconductor laser
diode to  ablate,  or remove the  materials  from the  surface of the  Company's
plates to produce  precisely  positioned

----------
(1)   PostScript is a registered trademark of Adobe Systems, Inc.


                                      -5-
<PAGE>

and formed laser dots at resolutions up to 2540 dots per inch.  When these laser
dots are combined by the Company's  proprietary  system (software,  firmware and
hardware) they form printers' dots from which high quality,  lithographic  color
print  images  are  printed.  The  graphic  arts  industry  recognizes  that the
automation and  simplification  of the color printing process resulting from the
use of these types of computer  direct-to-plate and direct-to-press devices will
provide significant reductions in the time and cost of multi-color  lithographic
printing.  Therefore,  the Company  believes the graphic arts industry will move
with  ever  increasing  speed  towards  computer-to-plate  imaging  devices  and
computer-to-press  printing  systems.  The Company also  believes that its PEARL
laser  ablation  imaging  technology's  ability to produce high quality  printed
materials,  with freedom from the  environmental  concerns  found in traditional
chemically  based imaging  methods,  represents a breakthrough  in the expanding
market for  computer-to-plate/press  products. As a result, the Company believes
its past  investments in its proprietary  PEARL Direct Imaging  technologies and
its  years of  experience  in  developing  digital  imaging  systems  (software,
firmware  and  hardware)  places the  Company in a  significant  position in the
markets it has chosen to serve.

Strategic Alliances/Proposed New Products

     The  Company  continues  to  pursue  a  strategy  based  on  alliances  and
relationships  with major  corporations in the graphic arts and other industries
encompassing    licensing,    product    development   and    commercialization,
manufacturing,  marketing,  distribution,  sales and  services.  The Company and
Heidelberger Druckmaschinen AG ("Heidelberg"),  the world's largest manufacturer
of printing presses and printing equipment,  based in Germany, jointly developed
the first  Heidelberg  Direct  Imaging  Printing  Press (the  "GTO-DI")  and its
successor,  the four color, fully automated  lithographic press, the Quickmaster
DI 46-4  ("Quickmaster  DI") to take full  advantage of the  Company's  improved
implementation  of its Direct Imaging  technologies.  The  Quickmaster DI press,
which was  introduced  by Heidelberg in May 1995 to replace the GTO-DI (which is
no longer being  produced),  has a smaller  "footprint" than existing four color
presses  and employs the  Company's  automatic  plate  changing  cylinder  which
eliminates the need for manually  changing  plates between jobs. This press also
contains  other features which will result in reduced costs per printed page and
contains or employs nine of the Company's patented  technologies,  some of which
have been licensed to Heidelberg.  The Company believes that the  Quickmaster-DI
will be able to compete on jobs  requiring  as few as 200 sheets per job,  while
also being able to produce runs in excess of 20,000 sheets at a cost that cannot
be equalled  by any  existing  "on  demand"  four color  printing  system.  Both
Heidelberg and the Company  believe the  Quickmaster-DI  will greatly expand the
use of the Company's Direct Imaging technologies and allow a broad cross section
of the  graphic  arts  market to  experience  the  productivity  and lower  cost
benefits of direct-to-press  digital,  high quality lithographic  printing.  The
Company also has an agreement with the Adast-Adamov  Company,  a manufacturer of
offset lithographic presses. This agreement has resulted in the use of Company's
Direct Imaging technologies on a larger format (19" x 26") multicolor press. The
Company  believes


                                      -6-
<PAGE>

     the  availability  of a larger format  Direct  Imaging press will provide a
greater number of market applications and will strengthen the Company's position
in the  direct-to-press  market.  The Company is currently  pursuing  additional
strategic  relationships and/or arrangements focused on the use of the Company's
Direct Imaging  technologies for a broader array of  applications.  In addition,
Nilpeter A/S of Denmark has announced the  introduction of an offset label press
that  utilizes  the  Company's  technology.  Moreover,  other  systems are under
development  which will use the  Company's  imaging  and plate  technology  in a
broader range of printing applications.

Background

     The Company believes thermally based computer-to-press  imaging devices and
computer-to-plate  offline imaging systems,  free of the environmental  concerns
that are found in photo chemically based imaging systems, will eventually become
the preferred method for providing printing plates in the graphic arts industry.
The most current and widely used method for producing  color printing plates for
the full-color printing process employs computers, which output PostScript files
to a film imaging device,  known as a film recorder,  or  imagesetter.  The film
recorder  is  used  to  expose  four  pieces  of  film,   each   representing  a
corresponding  color  separation  for  yellow,  cyan,  magenta  and  black,  the
subtractive  primary  colors  used  in  combination  to  produce  process  color
printing.  Each of these  unprocessed  films  must then be  developed  utilizing
photographic chemical developing systems which generate waste effluents that are
difficult to dispose of in an  environmentally  sound manner. The four processed
films  are then  delivered  to the  printer  for  imposition,  platemaking,  and
printing.  Imposition is a costly,  time and labor intensive  process  preceding
platemaking,  in which  all of the  image  elements  required  to  maximize  the
available  imaging  area of the plate are  manually  assembled  to make the most
efficient use of the plate material.  Once the components of the press sheet are
imposed for each of the four  separations,  each is then exposed  onto  separate
plates, typically using ultra-violet light sources and vacuum frames to hold the
imposed image tightly  against the plate material  during its exposure cycle. To
produce the final  printing  plates,  the exposed  plates must then go through a
chemical  development  process  similar  to that  which is used to  develop  the
separation  films.  This process  also  produces  chemical  wastes which must be
disposed of in an environmentally sound manner at an ever increasing cost to the
printer.  The printer then brings the plates to the press,  mounts the plates on
the press, registers or precisely aligns all four plates one to another, adjusts
the ink density and settings, and then begins the actual printing process on the
press.  The complex nature of color printing  utilizing a conventional  press is
such that the quality of the printed  materials are very  dependent on the press
operators performing these highly skilled functions.

                                      -7-
<PAGE>

     In  response  to  perceived   market   opportunities   for  more  time  and
cost-effective color printing (an opportunity that would encompass taking better
advantage of the growing use of PostScript based digital prepress  systems;  one
that  would be less  reliant  on  operator  skills  and that  would be free from
chemical   processes  and   environmental   concerns),   the  Company  undertook
development of its proprietary Direct Imaging technologies.

     The original  implementation  of the Company's Direct Imaging  technologies
employed a complex  system of  software  and  hardware.  This  first  generation
process imaged or etched the Company's  proprietary  printing plates by means of
discharging an electrical spark (the "spark discharge" technology). In 1992, the
Company  began  shipping to  Heidelberg  spark  discharge  based Direct  Imaging
systems for integration into GTO presses.

     In response to the market's  demand for higher quality  printed  materials,
even in the  short-run  markets,  the  Company  developed  its  high  resolution
semiconductor laser diode based imaging  technology,  PEARL, which it introduced
in 1993. This second  generation  technology is based on the same concept as the
spark  discharge  technology  except  that it  employs  the  use of an  infrared
semiconductor  laser in place of the spark  discharge.  This  second  generation
PEARL  technology  completely  replaced  the  Company's  prior  spark  discharge
technology.

     The GTO-DI was reintroduced by Heidelberg with PEARL in September 1993. The
Company began shipping  initial  systems  necessary to install the PEARL Imaging
System on the GTO-DI to  Heidelberg  in  September  1993,  with full  production
commencing in February 1994. The GTO-DI has been replaced by the  Quickmaster DI
which uses the Company's third generation of its Direct Imaging technologies.

     The  Company   believes  the  radically   different  press  design  of  the
Quickmaster-DI, in concert with the Company's third generation of Direct Imaging
technologies  targeted  towards the growing short run process color print market
has been well received by the print  industry.  The  Quickmaster DI won the 1995
Intertech New Technology Award and in February 1996 two Seybold Editors' Awards.
One award was made to the Company for it PEARL Direct Imaging  technologies  and
one to Heidelberg for the Quickmaster DI. The Company also received the National
Association of Printers and Lithographers  Award for the contribution its Direct
Imaging technologies have made to the printing industry.

The Company's PEARL Direct Imaging Technology System and Consumables

     The Company's PEARL Direct Imaging  technology is part of the PEARL imaging
system for producing imaged color printing plates and nonphotosensitive films in
a simple one-step process (the "PEARL Imaging System").  The primary elements of
the PEARL Imaging System are:

                                      -8-
<PAGE>

          (i) DI Server Computer - which accepts,  stores and allows for viewing
     the  bitmapped  files of the digital page and then  transmits  that data to
     implement  the  imaging  function.  The DI  Server  consists  of  either  a
     Pentium(R)(2) or a DEC Alpha(R)(3) based computer,  image capture software,
     viewing software and memory.

          (ii)  The  Imaging  Computer  -  communicates  with the DI  Server  to
     receive, store and implement the imaging function.

          (iii) Imaging heads - consist of the semi-conductor laser diodes and
drivers, lens assembly, precision carriage assembly and related systems.

          (iv)  Consumables - consist of wet and/or dry aluminum  based printing
     plates and wet and dry polyester based printing plates.

The Direct Imaging Press

     The Direct  Imaging  Printing  Press  automates or  eliminates  most of the
intermediate  processes and steps necessary for full color  printing,  including
many of the highly skilled  functions  required to prepare the press. The plates
are imaged in register directly on the press.  After the plates are wiped either
automatically or manually,  an operator can begin the printing process.  The use
of dry offset plates in the printing process  eliminates the need for a chemical
dampening  solution  and its  required  water  balancing.  Proper ink density is
automatically  pre-set by the computer.  The Company and its licensees typically
jointly  develop  and/or work  together  on the  development  of the press.  The
Company,  as more  fully  described  below,  supplies  hardware  components  and
subassemblies  and software  necessary for installation of PEARL Imaging systems
into two, four and five color presses. The advantages and features of the Direct
Imaging presses include:

     o    the  ability to accept and  buffer the  bitmapped  image data of fully
          composed pages, particularly those utilizing PostScript interpreters;

     o    imaging on-press of all two, four or five plates simultaneously;

     o    imaging of the plates  directly  on the plate  cylinders,  in register
          (i.e., the fitting of two or more printing images in precise alignment
          with each other);

     o    elimination of the need for plate development  processes,  by-products
          of which cause environmental concerns;

----------
(2)  Pentium is a registered trademark of Intel Corp.

(3)  Alpha is a registered trademark of Digital Equipment Corporation.


                                      -9-
<PAGE>


     o    the imaged plates are waterless, therefore eliminating the need of the
          chemical dampening solution and its required balancing; and

     o    automatic pre-setting of the ink keys from the bitmap already resident
          in the computer.

     As a result,  process  color offset  lithographic  printing can be produced
with  fewer  complex  steps  and at a  lower  cost  than in the  case  of  other
conventional  color printing methods.  The time savings in producing  four-color
work would permit a printer to perform a greater number of printing jobs per day
more cost effectively with less waste.

     Further, by accepting the digital data directly from a prepress page layout
system,  the  user  of a  press  equipped  with  the  Company's  Direct  Imaging
technology  benefits from the efficiency and cost  advantages of electronic page
make up and,  by  extending  the use of digital  data to the  printing  process,
permits a closure of the digital loop in the production of color printing.

     The Company believes that its PEARL based Direct Imaging  computer-to-press
technology  with PEARL has been well  received  by the  industry.  By the end of
1996, the Company had shipped 330 of its PEARL Imaging systems for  Heidelberg's
Quickmaster DI presses, 115 of which were shipped in 1995.

Presstek Consumables

     The Company has and continues to develop its  proprietary,  thermally based
consumables  that are  imaged by its PEARL  semiconductor  laser  diode  imaging
technology.  As part of the PEARL laser diode development  process,  the Company
has increased the number, types and functional characteristics of its consumable
products.  These  consumables  currently  include a polyester based dry printing
plate, an aluminum based dry printing plate,  and an aluminum based wet printing
plate. There are additional consumable products in various stages of development
which may, in the future, provide new sources of consumable revenues.

     The Company has developed  and is currently  having  manufactured  by Rexam
Industries  Corp  ("Rexam"),  a custom maker of  precision  films based in North
Carolina,  both  the  polyester-based  and  aluminum-based  dry and  wet  offset
printing plates. The Company believes that wet offset plates imaged by its PEARL
Direct Imaging  technology have applications for use on the large installed base
of existing printing presses.  This population of printing presses operates with
a dampening  system which  requires  wet offset  printing  plates.  Although the
Company believes that it can complete the development and  commercialization  of
the polyester and aluminum based wet offset printing plates and other consumable
products, there can be no assurance that it can do so.

                                      -10-
<PAGE>

     The Company,  realizing  that sources for the  Company's  requirements  for
current and new PEARL consumables,  plates and films, would have to be found, in
February  1996  acquired 90% of the  outstanding  Common  Stock (the  "Purchased
Shares") of Catalina Coatings, Inc. ("Catalina"), an Arizona corporation engaged
in the development, manufacture, and sale of vacuum deposition coating equipment
and the  licensing  and  sublicensing  of patent  rights with respect to a vapor
deposition  process  to coat  moving  webs of  materials  at  high  speeds.  The
aggregate  consideration  paid by the  Company  pursuant  to the stock  purchase
agreement was $8,400,000,  of which $8,200,000 represented the purchase price of
the   Purchased   Shares  and  $200,000   represented   consideration   for  the
non-competition   and   confidentiality   covenants  of  two  of  the  principal
shareholders of Catalina who sold their shares to the Company.

     Catalina,  which operates as a subsidiary of the Company, is developing and
manufacturing  the equipment the Company believes it will require to manufacture
its PEARL thermal  printing  plates in a more cost  effective  manner than using
currently  available  conventional  technology.  In September  1996, the Company
began  construction  of a new  100,000  square  foot  consumables  manufacturing
facility located on a 60 acre site in Hudson, New Hampshire,  approximately four
miles from the  Company's  existing  offices.  This new building  will house the
Company's first Catalina manufactured thin film vacuum coating system along with
other  manufacturing  equipment  needed to produce all or part of the  Company's
thermal plate  consumables  products.  The Company has already  installed  plate
converting  and  finishing  equipment in its recently  leased 33,200 square foot
facilities  located in Hudson,  New  Hampshire.  Even if the  Company  commences
manufacturing of PEARL thermal printing plates,  it may still need to enter into
manufacturing  arrangements with third parties. The Company is currently engaged
in  discussions  with certain other parties  relating to entering into strategic
alliances,  arrangements or relationships with respect to the manufacture and/or
the distribution of the Company's PEARL  consumables.  There can be no assurance
that  the  Company  will  be  able  to  enter  into  any  arrangements  for  the
manufacturing  of its  consumables,  or that such  arrangements  will  result in
successful commercial products. Additionally, there can be no assurance that the
Company through  Catalina will be able to successfully  complete the development
and undertake the manufacture of the PEARL consumables.

Direct Imaging Printing Press

     In January 1991, the Company  entered into a master  agreement (the "Master
Agreement"),  a technology  license  agreement (the "Technology  License") and a
supply  agreement  (the "Supply  Agreement")  (the  foregoing  agreements  being
sometimes  collectively referred to herein as the "Heidelberg  Agreements") with
Heidelberg.  These relate to the  integration of the Direct  Imaging  technology
into various presses  manufactured by Heidelberg (the "Heidelberg  Presses") and
the manufacture of components for and the commercialization of such presses.

                                      -11-
<PAGE>

     Pursuant  to the  Heidelberg  Agreements,  the Company  granted  Heidelberg
certain  exclusive  rights,  for use of the Direct  Imaging  technology  for the
Quickmaster DI format size. In consideration for such rights,  Heidelberg agreed
to pay to the Company  royalties  on the net sales  prices of various  specified
types of Heidelberg Presses.

     The Heidelberg Agreements and amendments further provide for the Company to
supply Direct Imaging systems to Heidelberg at specified rates. The terms of the
Heidelberg  agreements  are for periods  ending in December  2011 in the case of
each of the Master Agreement and Technology License.  The Supply Agreement which
related  primarily  to the  GTO-DI,  which is no  longer  manufactured,  expired
December  1995.  The  Heidelberg  Agreements  also contain,  among other things,
certain early termination provisions and extension provisions.

     On  September  3,  1992,  the  Company  and  Heidelberg  signed a  contract
modification agreement that details arrangements with respect to the development
of additional products planned to be introduced in the future.

     On  April  27,  1993,  the  Company  and   Heidelberg   signed  a  contract
modification   agreement   that  details  the   arrangements   with  respect  to
Heidelberg's  licensing of the Company's PEARL Direct Imaging technology,  which
was not otherwise encompassed within the prior arrangements.

     The Company also granted  Heidelberg a forty-five  month exclusive  license
expiring in January  1997 for the  manufacture  and sale of the  Quickmaster  DI
which  uses  PEARL  technology.  After  the  initial  forty-five  month  period,
Heidelberg's rights remain exclusive subject to the Company's right to terminate
such  exclusivity on three months'  written notice to Heidelberg.  Certain other
modifications  have  been  made to  certain  exclusive  arrangements  under  the
previous  agreements  between  Heidelberg  and the Company  which  provide for a
non-exclusive license for the balance of the term of the original agreement.

     In  November  1995,  the  Company  and  Heidelberg  agreed  (the  "November
Agreement") to certain other arrangements  whereby the Company was provided with
incremental engineering revenue,  certain price increases,  and modifications of
the Quickmaster DI royalty  billing and payment terms by Heidelberg.  The Master
Agreement was also modified by the November Agreement to provide Heidelberg with
a fixed royalty rate on the  Quickmaster DI. These  arrangements  were made as a
result of a schedule  change  requested by Heidelberg in November 1995 to reduce
the number of PEARL imaging systems being manufactured by the Company each month
for Heidelberg from the amount then being produced.  The production schedule for
Quickmaster  DI imaging  systems was  subsequently  increased by  Heidelberg  in
September  1996,  requiring the Company to produce three systems per day (60 per
month)  commencing in April 1997.  In March 1997,  the  production  schedule was
further increased, requiring the Company to manufacture four systems per day (80
per month)  commencing  in  September  1997,  and in March 1997 the  Company and
Heidelberg  agreed  to a fixed  royalty  rate for the  Direct  Imaging  systems,
subject to Heidelberg maintaining an exclusive license on the Quickmaster DI.

                                      -12-
<PAGE>

The PEARL Platesetter

     The PEARL Platesetter, now referred to as the PEARLsetter, is an additional
application of the Company's  PEARL Direct Imaging  technology and  consumables.
The  PEARLsetter is a  computer-to-plate  imaging device that can image both the
Company's  wet and dry offset  plates in both an A3 (2-up) and A2 (4-up)  format
size.

     The PEARLsetter  directly  accepts a PostScript file from a prepress system
and utilizing its high powered semiconductor laser diodes,  produces a precisely
shaped and located laser dot. The imaged plates  require no further  processing,
other than  wiping the ablated  debris from the imaging  process off the plates,
and  accordingly,  do not create  chemical  waste which must be disposed of. The
plates can then be immediately mounted and registered on the press.

     The  Company  has  entered  into  distribution  agreements  with the Pitman
Company in the United States,  KNP-BT in certain European countries,  Heidelberg
Australia  in  Australia  and New  Zealand,  and EAC (East  Asiatic  Company) in
certain  Asian and  Scandinavian  countries.  The Company has also  entered into
distribution agreements covering Switzerland, Israel, Germany, and Greece. These
agreements  provide for the  distribution of the Company's  PEARLsetter  product
line and its PEARL based  consumables.  The Company  has also  entered  into OEM
relationships  with Sakurai  Machinery Company for the resale of its PEARLsetter
product  under  private  label by this  company.  The Company is also  currently
engaged in  additional  discussions  with  certain  other  parties  relating  to
entering into strategic  alliances and OEM  arrangements or  relationships  with
respect to the  PEARLsetter  product  line and its PEARL based  consumables.  In
addition,    the   Company   has   continued    independent    development   and
commercialization of one or more PEARLsetter products. There can be no assurance
that the Company  will be able to enter into any  additional  arrangements  with
respect  to,  or that any such  arrangements  will  result  in,  the  successful
commercialization of additional PEARLsetter products. Additionally, there can be
no assurance  that the Company  will have the  resources or otherwise be able to
successfully   complete   development  and  undertake  the  manufacture  of,  or
successfully commercialize, additional PEARLsetter products.

Manufacturing, Marketing Component Procurement

     The Company engages in certain manufacturing,  as described below, and also
is engaged in the  distribution and sales of PEARL based offset printing plates,
which  are  manufactured  exclusively  for the  Company  by  third  parties.  In
addition,  the Company  engages in certain  marketing  activities  which include
informing the industry of the Company's  products and  capabilities;  contacting
potential   strategic  partners;   establishing   relationships  with  potential
resellers  including both OEM partners and dealers;  establishing  liaisons with
companies  which  manufacture  and/or market  products which may incorporate the
Company's PEARL Direct Imaging  technology,  or jointly develop new applications
of the  Company's  intellectual  property  portfolio.  The Company also provides
Heidelberg and its other licensees and distribution  partners with marketing and
sales support.



                                      -13-
<PAGE>

     The Company's agreements provide,  among other things, for it to supply its
PEARL Imaging Systems for integration into certain printing presses. In November
1994,  the Company  commenced  manufacturing  operations in a 36,000 square foot
facility located in Hudson, New Hampshire, adjacent to its existing facility. In
June 1996, the Company leased an additional 33,200 square foot facility at 18-20
Hampshire Drive in Hudson, New Hampshire. This building now houses the Company's
consumables  development  group and plate  converting  and finishing  equipment.
These  additional  facilities were required based on both existing and projected
development  and  manufacturing  requirements  for PEARL  Imaging  Systems.  The
Company  believes  that it has the available  resources  and personnel  with the
knowledge  and  experience  to further  increase its  manufacturing  capacity to
satisfy any future product demand.

     The Company obtains  certain  components and supplies used in production of
PEARL Imaging Systems from a number of suppliers.  Although the Company believes
that there are available  various  sources for necessary  components,  parts and
disposable  items  (including  printing  plates and inks) for both the Company's
manufacturing  activities  and to support the market for products  incorporating
the Company's PEARL Direct Imaging technology, sources for certain of such items
are  limited  and  there  can  be  no  assurance  that   procurement  or  supply
arrangements will be available on satisfactory terms; any inability to establish
satisfactory  manufacturing or procurement or supply arrangements or significant
delays in  establishing  such  arrangements  could have an adverse effect on the
Company  and/or  cause  delays in the  Company's  ability  to  deliver  products
incorporating its PEARL Direct Imaging technology.

     The PEARL laser diode system includes semiconductor laser diodes.  Although
the  Company  currently  uses only one source for the laser  diode  devices,  it
believes that there will be several  sources  available to manufacture the laser
diodes to the Company's specification, if required, in the future. Additionally,
the Company has "in-house",  limited laser diode  development and  manufacturing
capabilities.  The Company would still require the  surmounted  "diode chips," a
component  of the laser  diode,  to be  supplied by a third  party.  The Company
believes  that  several  sources  are  available  to supply this  component,  if
required.  The  Company's  laser  diode  manufacturing   capabilities  currently
function  principally  for  research  and  development,  quality  assurance  and
manufacturing  engineering.  However, the Company believes that, if required, it
could expand these facilities in the future as a primary or secondary source.

     The Company has developed and continues to develop proprietary  consumables
that are imaged by its PEARL  semiconductor  laser diode  imaging  technology as
well as other  thermally  based  direct-to  plate systems.  As part of the PEARL
laser diode development process the Company has increased the number,  types and
functional


                                      -14-
<PAGE>

characteristics of the consumable products it has under development or which are
currently being  manufactured.  These consumables  currently include a polyester
based dry printing plate, an aluminum based dry printing plate,  and an aluminum
based wet printing plate.  There are additional  consumable  products in various
stages  of  development  which  may,  in the  future,  provide  new  sources  of
consumable  revenues.  The Company's PEARL offset printing plates, both aluminum
and polyester  based are being  supplied by Rexam.  The Company,  realizing that
sources for the Company's  requirements  for current and new PEARL  consumables,
plates and films,  would have to be found,  acquired  Catalina in February 1996.
The Company  anticipates  that  Catalina,  which operates as a subsidiary of the
Company,  will  successfully  complete the  development  and  manufacture of the
equipment the Company  believes it will require to manufacture its Pearl thermal
printing plates and films (which are currently manufactured by third parties) in
a more  cost  effective  manner  than  using  currently  available  conventional
technology.  However, even if the Company commences manufacture of PEARL thermal
printing  plates and  consummables,  additional  sources  to satisfy  all of the
Company's  requirements  for current and new  consumables,  printing  plates and
films, may have to be found.  Therefore,  the Company is actively pursuing these
additional  sources at this time.  However,  there can be no assurance  that the
Company will be able to enter into any arrangements for the volume manufacturing
of its  consumables,  or that any such  arrangement  will  result in  successful
commercial  products.  Additionally,  there can be no assurance that the Company
through  Catalina  will be able to  successfully  complete the  development  and
undertake the manufacture of the PEARL consumables.

     The Company currently  anticipates that the PEARLsetter will continue to be
marketed through  traditional  graphic arts distribution sales channels and will
be positioned as an alternative to existing imagesetter or platesetter products.

     Market acceptance for any products  incorporating the Company's  technology
will require substantial  marketing efforts and expenditure of significant sums,
either by the Company, its strategic partners or both. There can be no assurance
that any existing  products will continue to achieve  market  acceptance or that
any new product that may be  introduced  will achieve  market  acceptance  or be
commercially viable.

Development Program

     During the fiscal years ended  December 31,  1994,  December 30, 1995,  and
December 28, 1996, the Company expended $5,123,000,  $6,155,000, and $8,894,000,
respectively,  on engineering and product development.  The Company is currently
concentrating its development  efforts on refining and improving the performance
of its current and future  technologies,  and  proprietary  printing  plates and
anticipates  that  it  will  continue  to  do  so,  both  independently  and  in
conjunction with strategic  partners.  The Company is also engaged in continuing
development  efforts with respect to its PEARLsetter  product line. There can be
no  assurance  that the  Company,  in  conjunction  with a strategic  partner or
independently,   will  successfully


                                      -15-
<PAGE>

complete development of any additional marketable products, or that technical or
other  problems  will not occur in  connection  with the  Company's  development
program, products or technology.

Patents and Proprietary Rights

     As of February  28,  1997,  the  Company  has been  issued  fifty (50) U.S.
patents,  of which the Company has elected to maintain  forty-one (41) in force.
The Company has also been issued six (6)  Canadian  patents,  five (5)  European
patents registered in the following nine countries  (Austria,  Belgium,  France,
Germany,  Great Britain,  Italy, the Netherlands,  Sweden and Switzerland),  and
three (3) Great  Britain  patents,  two (2)  German  patents,  one (1)  Japanese
patent,  and five (5) Australian  patents,  and has received notice of allowance
for an  additional  fifteen  (15)  patents,  eight (8) in the  U.S.,  two (2) in
Australia, one (1) in Canada, and five (5) European patents. The Company intends
to register these  additional  European  patents in one or more of the following
countries:   Austria,  Belgium,  France,  Germany,  Great  Britain,  Italy,  the
Netherlands, Switzerland and Sweden. The Company has applied for and is pursuing
its  applications  for twenty (20) additional  U.S.  patents and sixty-nine (69)
foreign patents (consisting of 25 Japan, 17 Canada, 12 Europe, 9 Australia,  and
2 in each of Belgium,  France,  and Italy. The Company  anticipates that it will
apply for additional patents and for copyrights, as deemed appropriate. Catalina
has one (1) U.S. patent issued and one (1) U.S.  patent  pending.  Catalina also
has seventeen (17) foreign applications pending. There can be no assurance as to
the  issuance of any such patents or the breadth or degree of  protection  which
the  Company's  patents or  copyrights  may afford the  Company.  There is rapid
technological  development  in the computer and image  reproduction  industries,
resulting  in  extensive  patent  filings  and a rapid rate of  issuance  of new
patents.   Although  the  Company   believes  that  its   technology   has  been
independently  developed and that the products it markets and proposes to market
will not infringe the patents or violate other proprietary  rights of others, it
is possible that such infringement of existing or future patents or violation of
proprietary  rights may occur.  In such event the  Company  may be  required  to
modify  its  design or obtain a  license.  No  assurance  can be given  that the
Company  will be able to do so in a timely  manner,  upon  acceptable  terms and
conditions,  or at all.  The  failure  to do any of the  foregoing  could have a
material adverse effect on the Company.  Furthermore,  there can be no assurance
that the  Company  will  have the  financial  or other  resources  necessary  to
successfully  defend a  patent  infringement  or  proprietary  rights  violation
action.  Moreover, the Company may be unable, for financial or other reasons, to
enforce its rights under any of its patents.

     The Company  also  intends to rely on  proprietary  know-how  and to employ
various methods to protect the source codes,  concepts,  ideas and documentation
of its proprietary software, which methods may include copyrights. However, such
methods may not afford  complete  protection  and there can be no assurance that
others will not  independently  develop  such  know-how or obtain  access to the
Company's  know-how  or  software  codes,  concepts,  ideas  and  documentation.
Furthermore,  although  the  Company  has and  expects  to have  confidentiality
agreements with its employees and appropriate vendors, there can be no assurance

                                      -16-
<PAGE>

that such arrangements will adequately protect the Company's trade secrets.

Competition

     The Company believes that its developed and proprietary  technologies,  its
alliance with Heidelberg,  the world's largest printing press manufacturer,  and
other press manufacturing  companies;  the application of its imaging technology
to a broader  array of uses its  relationships  with graphic  arts  distribution
organizations and its established  presence in the Direct Imaging market provide
the Company with a competitive advantage.

     The Company is aware of several companies employing  electrophotography  as
their  imaging   technology.   Electrophotography,   sometimes  referred  to  as
xerography,  is a technology which historically has been used primarily in black
and white copiers, and more recently in color copying.  Canon Inc. was the first
company  to  successfully  employ  electrophotography  in a  full  color  copier
product, the CLC 500.

     Indigo N.V., a company with  research and  development,  and  manufacturing
operations in Israel,  introduced  their digital,  sheet-fed offset color press,
the  E-Print   1000  in   September   1993.   The  E-Print   1000   utilizes  an
electrophotographic  imaging technology,  with a liquid toner, and prints at 800
dots  per  inch.  Xeikon,   N.V.  of  Belgium  also  introduced  their  digital,
web-(roll)fed color printing product, the Xeikon DCP-1 in September 1993, and an
improved model,  the DCP-2,  in late 1996.  Versions of these products which are
being marketed by Agfa Gevaert,  N.V. ("Agfa") as the Chromopress,  also utilize
an electrophotographic  imaging technology with a dry toner and print a variable
dot density of 600 dots per inch.

     Canon  and  Xerox  Corp.  are  two  major  corporations  along  with  other
traditional copier  manufacturers which have also developed and introduced color
electrophotographic copier products that could impact the very short-run digital
color printing  markets.  Canon has at least two color copier  products which it
claims provide improved print quality even at their resolution limitation of 400
dots per inch. They also claim faster speeds. Xerox also has color copiers which
it is  currently  marketing.  Scitex  Corp.  has also  introduced  its  Spontane
xerographic  based color imaging  system which uses a  xerographic  color copier
engine supplied by Fuji Xerox.

     The  Company is also aware that there is a direction  in the  graphic  arts
industry to create stand-alone  computer-to-plate  imaging devices.  The Company
anticipates  that most of the major  corporations  in the graphic arts  industry
have or are  considering a  computer-to-plate  imaging  device.  To date,  these
devices,  for the most part, utilize printing plates that require a post imaging
photochemical  developing  step,  and in some  cases,  also  require  a  heating
process. This is, nonetheless, an important step in the printing industry, as it
eliminates the use of films.  Potential  competitors in this area would include,
among others,  Creo Products,  Gerber  Scientific Inc.,  Misomex,  Optronics,  a
Division of Intergraph  Corporation,  Komori,  Krause,  Scitex Corporation Ltd.,
Linotype-Hell, Dainippon Screen, Agfa, Polaroid Corp. and Fuji Photo Film

                                      -17-

<PAGE>

Co. Ltd. The  Company's  stand-alone  computer-to-plate  imagesetter  is, in the
Company's  opinion,   a  further   technological   advancement.   The  Company's
computer-to-plate  imagesetter  eliminates  not  only  the  films,  but also the
post-imaging  photochemical  developing steps. The Company believes that some of
the graphic arts companies  mentioned  above are likely to be working on similar
plate  imaging  processes  that  would  also  eliminate  the  production  of the
hazardous materials associated with the photochemical developing process. Others
of this group have expressed  interest in (and are, in fact) using the Company's
thermally based consumable plate products in their systems.

     The Company also anticipates  competition from printing plate manufacturing
companies that either manufacture,  or have the potential to manufacture digital
plates.  Such companies include Agfa,  Polychrome Corp., a Division of Dainippon
Ink & Chemicals,  Inc., Toray, Howson, a Division of Dupont,  Horsell/Anitec,  a
Division of International Paper, Kodak, Polaroid Corp.,  Mitsubishi,  Fuji Photo
Film Co., Ltd. and Imation Corp.

     Products  incorporating  Direct Imaging  technology can also be expected to
face  competition  from  conventional  presses and products  utilizing  existing
platemaking  technology,  as well as presses and other  products  utilizing  new
technologies.  Leading press manufacturers  include Heidelberg,  Komori Printing
Machinery Co., Ltd.,  Mitsubishi,  and MAN Roland,  and, in the single color and
two color press market,  Ryobi Limited,  Hamada and AB Dick. Companies marketing
conventional imagesetter equipment include Agfa, Linotype-Hell, ECRM, Optronics,
Crosfield and Scitex  Corporation Ltd. Other  companies,  which may include such
major  corporations  as  International  Business  Machines  Corporation,   Xerox
Corporation,  Polaroid Corp.,  Canon and Kodak, are considered by the Company to
have the  type of  electronic  and  image  reproduction  expertise  which  could
encourage them to attempt to develop and market competitive products.

     Most of the companies marketing  competitive products or with the potential
to do so are well established,  have  substantially  greater financial and other
resources than the Company and have established records in the development, sale
and service of products. There can be no assurance that the Company, any Company
product or any products  incorporating the Company's  technology will be able to
compete successfully in the future.

Backlog

     As of March 27, 1997,  the Company had a backlog of products under contract
aggregating  approximately  $56,297,000  (including  royalties  payable  to  the
Company)  compared  to a  backlog  of  $16,822,000  as  of  February  29,  1996,
(including  royalties payable to the Company).  Substantially all of the backlog
of products under contract as of March 7, 1997, is expected to be shipped by the
Company in 1997.

                                      -18-
<PAGE>

Employees

     As of February 28,  1997,  the Company had one hundred  eighty-three  (183)
employees,  seventy-seven  (77) of whom are engaged  primarily  in  engineering,
service  and  marketing;  eighty-five  (85) of whom  are  engaged  primarily  in
manufacturing,  manufacturing  engineering and quality  control;  and twenty-one
(21) of whom are engaged primarily in corporate  management,  administration and
finance. The Company considers its relationship with its employees to be good.

Item 2.  Properties.

     The  Company  leases  approximately  24,000  square  feet of space  for its
research  and  development  facilities  at  8  Commercial  Street,  Hudson,  New
Hampshire.  The lease of these premises, which expires in March 1998, subject to
two one-year  renewal options,  provides for rent of $9,500 per month,  adjusted
annually,  plus a pro rata share of real  estate  taxes,  utilities  and certain
other  expenses.  The Company also leases  approximately  36,000  square feet to
accommodate  its  manufacturing  and  administrative  facilities at 9 Commercial
Street, Hudson, New Hampshire.  The lease, as amended,  specifies a base monthly
rent of $12,400,  adjusted annually, plus a pro rata share of real estate taxes,
utilities,  and certain other expenses. The lease expires on September 30, 2000,
subject to an option to renew for an  additional  three years and the  Company's
right of first refusal to purchase the property.

     In 1996, the Company entered into a lease for  approximately  33,200 square
feet of space at 18-20  Hampshire  Drive,  Hudson,  New  Hampshire  to allow for
expansion of its consumables  development group and its current plate converting
and finishing equipment capabilities. The lease of these premises, which expires
in May 1999,  subject to two one-year renewal options,  provides for rent at the
rate of $9,683  per  month,  adjusted  annually,  plus a pro rata  share of real
estate taxes, utilities, and certain other expenses.

     Catalina also leases four suites totaling  approximately 10,500 square feet
of space at 2555 North Coyote Drive in Tucson,  Arizona which  provides for rent
of $5,400  per  month.  The leases  expire in May 1997,  at which time  Catalina
becomes a tenant-at-will subject to monthly renewals.

     In June  1996,  Catalina  acquired  a 13  acre  parcel  of land in  Tucson,
Arizona. Construction of a new 60,000 square foot manufacturing facility on this
parcel began in September and is currently expected to be completed in May 1997.
This new building will house all of Catalina's operations and includes space for
future expansion.

     In  August  1996,  the  Company  purchased  a 60 acre site in  Hudson,  New
Hampshire.  The first phase of construction for the Company's future  facilities
commenced in September.  This first phase will include construction of a 100,000
square  foot  consumables  manufacturing  operation  that  will  house the first
Catalina


                                      -19-
<PAGE>

Coating system  designed and developed  exclusively  for the  manufacture of the
Company's  PEARL based thermal  plates.  The Company  believes that its existing
facilities  and its  facilities  under  construction  will be  adequate  for its
current operations and future capacity increases.

Item 3.  Legal Proceedings.

     On October 15, 1996, the Company was notified that an arbitration  panel of
the  International  Chamber  of  Commerce  issued  its Award in the  arbitration
proceeding commenced against the Company by AGFA Gevaert,  N.V. ("Agfa") in June
1995. The Award directs Agfa to transfer to the Company  Agfa's U.S.  Patent No.
5,378,580  including  its  underlying  applications,  return to the  Company all
copies of confidential  information  that the Company  provided to Agfa, and pay
the Company's legal expenses in the arbitration in the amount of $769,140.  Agfa
has  complied  with the  financial  terms of the Award and has  assigned  to the
Company the foregoing patent and underlying applications. Agfa has also returned
to the Company the  confidential  documents  which Agfa asserts  contitutes full
compliance with its obligation to return such material as required by the Award.
The arbitrators  rejected the request for  affirmative  relief sought by Agfa in
the arbitration.

     The Company has been advised that the  Securities  and Exchange  Commission
(the  "Commission")  has entered a formal  order of private  investigation  with
respect to activities by certain unnamed persons and entities in connection with
the securities of the Company.  The Company has been advised by its counsel that
the  investigation  includes,  among  other  things,  trading  in the  Company's
securities  as well as the  adequacy  and  accuracy  of  statements  made by the
Company and others.  In that  connection,  the Company and some of its officers,
directors and employees have received  subpoenas duces tecum  requesting them to
produce certain  documents and testify,  and have complied with those subpoenae.
The Company has not been advised by the Staff of the  Commission  that the Staff
intends to recommend to the Commission that it initiate a proceeding against the
Company in connection with the foregoing investigation.

     As previously disclosed, seven class action lawsuits were filed against the
Company and others in either the United States  District  Court for the District
of New Hampshire or the Southern  District of New York. By court orders,  all of
such actions have been  consolidated  before the United States  District  Court,
District  of New  Hampshire,  under the common  caption  Bill  Berke,  et al. v.
Presstek,  Inc., et al.  Following such  consolidation,  the plaintiffs  jointly
filed  and  served a  Consolidated




                                      -20-

<PAGE>

Amended Class Action Complaint naming as defendants (i) the Company; (ii) Robert
Howard,  Lawrence  Howard,  Bert  DePamphilis  and  Harold  N.  Sparks,  who are
directors of the Company,  Richard A. Williams,  and Robert E. Verrando, who are
officers and directors of the Company,  and Frank G.  Pensavecchia  and Glenn J.
DiBenedetto who are officers of the Company (sometimes hereinafter  collectively
referred to as the  "Officer  and Director  Defendants");  (iii) Cabot  Heritage
Corp., Cabot Market Letter,  Carlton G. Lutts,  Timothy Lutts,  Robert Lutts and
Cabot Money Management  (sometimes  hereinafter  collectively referred to as the
"Cabot Defendants");(iv)  Donald Chapman, Everen Securities,  Inc., Mack Walker,
John T. Oxley,  John C. Oxley and Thomas E. Oxley as  co-executors of the estate
of John T. Oxley ("Oxley"), the Oxley Estate and the Oxley Foundation (sometimes
hereinafter  collectively  referred to as the  "Individual  Investor  and Broker
Defendants");  and (v) BDO Seidman, LLP ("Seidman"),  the Company's  independent
auditors.  The  plaintiffs  allege that the Company and the Officer and Director
Defendants,  the Cabot Defendants, the Individual Investor and Broker Defendants
and Seidman  violated Section 10(b) ("Sect.  10(b)") of the Securities  Exchange
Act of 1934,  (the  "Exchange  Act") and Rule 10b-5 ("Rule  10b-5")  promulgated
thereunder,  (ii) the Officer and Director  Defendants,  Timothy Lutts,  Carlton
Lutts,  Robert Lutts, Everen Securities and Oxley violated Section 20(a) ("Sect.
20(a)") of the  Exchange  Act,  (iii) the  Company,  the  Officer  and  Director
Defendants,  the Cabot  Defendants  and Seidman  committed  common law negligent
misrepresentation,  (iv) all defendants  committed common law fraud and violated
the New Hampshire  Blue Sky Laws.  The alleged basis for the action  against the
Company and/or the Officer and Director Defendants includes, among other things,
the  Company's  allegedly  issuing  false and  misleading  reports or failure to
disclose  material facts  including a misstatement  of earnings in the Company's
financial  statements  for the years ending  December 31, 1994, and December 30,
1995,  and for the  first  quarter  ending  March 30,  1996,  as a result of the
allegedly improper application of certain accounting  principles relating to the
tax benefits received upon exercise of certain stock options  previously granted
by the Company,  the alleged  failure to disclose to the public certain  alleged
adverse  information  concerning  the  Company's  patents  and  its  proprietary
technology  as  well  as  patent  and  confidentiality  issues  involved  in the
Company's  arbitration  with Agfa,  the alleged  failure to fully  disclose  the
nature and extent of the  investigation  into trading in the  securities  of the
Company being conducted by the Commission (the "SEC Investigation"), and alleged
material misstatements of the Company's backlog of orders from, supply contracts
with, and orders  received by its principal  customer.  The Officer and Director
Defendants are alleged to have sold the Company's  common stock at  artificially
increased prices after allegedly causing an artificial inflation in the price of
the Company's common stock and helping maintain such increase while they were in
possession of material non-public  information concerning the Company. The basis
for the plaintiffs'  allegations  against the Cabot Defendants  includes,  among
other things,  the allegation  that the Cabot  Defendants  were in possession of
material nonpublic information concerning the Company, that certain of the Cabot
Defendants  issued false reports about the Company and its prospects in order to
artificially  inflate the market price of the Company's  common stock to benefit
themselves  financially,  while, at the same time,  other Cabot  Defendants were
privately


                                      -21-
<PAGE>

recommending to clients to sell stock of the Company,  that certain of the Cabot
Defendants  failed  to  timely  file  required  disclosure  documents  with  the
Commission regarding their ownership of the Company's common stock, and that the
Cabot  Defendants  together with the Individual  Investor and Broker  Defendants
engaged in an illegal plan and scheme to manipulate and artificially inflate the
price of Presstek  common  stock.  The Investor and Broker  Defendants  are also
alleged to have  manipulated  the price of the Company's  common stock by, among
other things,  withdrawing  common stock from availability to short sellers such
that the  short  sellers  would be caught  in a "short  squeeze".  The basis for
plaintiffs'  allegations  against Seidman is, among other things, the allegation
that  Seidman  gave false and  misleading  advice to the Company  regarding  the
application  of  certain  accounting  principles  relating  to the tax  benefits
received  upon  exercise  of certain  stock  options  previously  granted by the
Company.  The plaintiffs seek  unspecified  compensatory  and punitive  damages,
attorney and expert fees and other costs and expenses incurred by the plaintiffs
in connection with the action.

     On July 16, 1996,  Richard Strauss commenced a derivative suit on behalf of
the  Company  in the Court of  Chancery  of the State of  Delaware,  New  Castle
County,  against  Robert  Howard,  Lawrence  Howard,  Richard  Williams,  Robert
Verrando,  Bert  DePamphilis and Harold Sparks.  The plaintiff  alleges that the
defendants  breached the fiduciary  duties they each owed to the Company and its
other  shareholders  and wasted  corporate assets by making false and misleading
statements of fact or concealing  material facts concerning the viability of the
Company's "key" patent and its proprietary interest in its PEARL technology, its
failure  to  properly  disclose  the  scope  of the SEC  Investigation,  and its
misstatement  of its financial  results for the first quarter of 1996,  and that
they used this information for their personal use by selling common stock of the
Company at artificially  inflated prices.  The plaintiff also alleges that these
actions by the  defendants  resulted in  breaches of Sect.  10(b) and Rule 10b-5
which resulted in other lawsuits being commenced  against the Company which will
require  the  Company to expend  resources  to defend.  The  plaintiff  seeks to
recover against the defendants,  on behalf of the Company,  unspecified  damages
allegedly  sustained  by the  Company  as a results of the  defendants'  alleged
breaches of  fiduciary  duty,  a return to the Company of all  salaries  and the
value of other  remuneration  paid to the  defendants by the Company  during the
time they were in breach of their  fiduciary  duties,  and  accounting of and/or
constructive  trust on the proceeds of  defendants'  trading  activities  in the
Company's common stock and recovery of costs and disbursements of the action.

     On March 14, 1997,  James P. Cassidy  commenced a derivative suit on behalf
of the  Company in the United  States  District  Court for the  District  of New
Hampshire,  against Robert Howard,  Lawrence Howard,  Richard  Williams,  Robert
Verrando,  Bert  DePamphilis,  Harold Sparks and Seidman.  The plaintiff alleges
that the individual  defendants  breached the fiduciary duties they each owed to
the Company and its other  shareholders  and wasted  corporate  assets by making
false and misleading  statements of fact or concealing material facts concerning
the scope and  viability  of the  Company's  "key"  patents and its  proprietary
interest  in  PEARL(R)  technology,  causing  the  Company  to issue  false  and
misleading   reports  or  failure  to  disclose   material  facts   including  a
misstatement  of earnings in the  Company's  financial  statements  for the year
ending  December 30, 1995,  and for the first quarter  ending March 30,1996 as a
result of the allegedly improper  application of certain  accounting  principles
relating to the tax benefits  received  upon  exercise of certain  stock options
previously granted by the Company,  and that they sold securities of the Company
while they were in possession of material non-public  information concerning the
Company.  The  plaintiff  also  alleges  that these  actions  by the  individual
defendants constituted violations of Section 10(b) and Rule 10b-5 which resulted
in other lawsuits being commenced  against the Company to which will require the
Company to expend resources to defend, and also constituted gross negligence and
branches  of these  defendants'  contractual  obligations  to the  Company.  The
plaintiff also alleges that Seidman  negligently  permitted the Company to issue
financial  statements  for 1995 and the first quarter of 1996 that were prepared
in violation of recognized accounting procedures. The plaintiff seeks to recover
against the defendants, on behalf of the Company,  unspecified damages allegedly
sustained by the Company as a result of the defendants' actions as alleged,  and
recovery  of costs,  disbursements,  and fees of  attorneys  and  experts by the
plaintiff.

     The Company  intends to  vigorously  defend all of the  foregoing  actions.
However,  the  outcome  of  any  litigation  is  subject  to  uncertainty  and a
successful  claim against the Company,  in any of the foregoing  actions,  could
have a material adverse effect on the Company.


Item 4.  Submission of Matters to a Vote of Security Holders.

     Not Applicable.


                                      -22-
<PAGE>


                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

     The Company's Common Stock has traded in the over-the-counter market on the
NASDAQ  National  Market System under the symbol PRST since July 18, 1990,  and,
prior thereto, from May 11, 1990, to July 17, 1990, traded on the NASDAQ System.
Prior thereto,  from the Company's  initial public  offering until May 11, 1990,
the principal redemption date of the Warrants, the Company's Units, Common Stock
and Warrants were traded on the NASDAQ System.  The following  table sets forth,
for the periods indicated, the high and low sales prices of the Company's Common
Stock as reported by NASDAQ and  retroactively  adjusted for the Company's  five
for four stock split effected in the form a 25% stock dividend paid in September
1994 and the  Company's  two for one stock split  effected in the form of a 100%
stock divided paid in May 1995.


Year Ended                            High                     Low
December 30, 1995                     ----                     ----
-----------------
First Quarter                      $ 37 1/8                   $21 1/2
Second Quarter                       62 1/2                    23 1/2
Third Quarter                        63                        49 1/2
Fourth Quarter                      100                        38 1/2

Year Ended
December 28, 1996
-----------------
First Quarter                      $127 1/4                   $76
Second Quarter                      200                        40
Third Quarter                        75 1/2                    44 3/4
Fourth Quarter                       95                        68 1/4

     As of February 28, 1997, there were  approximately  1,395 holders of record
of the Company's Common Stock.

Dividend Policy

     To date,  the Company has not paid any cash  dividends on its Common Stock.
The payment of cash dividends, if any, in the future is within the discretion of
the Company's  Board of Directors  and will depend upon the Company's  earnings,
its capital requirements and financial condition and other relevant factors. The
Board of  Directors  does not  intend  to  declare  any  cash  dividends  in the
foreseeable future, but


                                      -23-
<PAGE>

instead  intends  to  retain  all  earnings,  if any,  for use in the  Company's
business operations.


                                      -24-
<PAGE>


Item 6.  Selected Financial Data.

     The following  selected financial data of the Company has been derived from
the financial  statements of the Company appearing  elsewhere herein (except for
the  statement of  operations  data for the years ended  December 31, 1992,  and
1993,  and the balance sheet data at December 31, 1992,  1993, and 1994 which is
not included in such financial statements).  All references to average number of
shares  outstanding  and per  share  data have been  restated  retroactively  to
reflect the 1994 five-for-four and the 1995 two-for-one stock splits effected in
the form of stock  dividends.  The 1996 data  includes  the accounts of Catalina
Coatings,  Inc.,  which was acquired as a subsidiary of the Company during 1996.
See Note 3 of Notes to Financial Statements.

<TABLE>
<CAPTION>
                                                                                     Year Ended
                                               ------------------------------------------------------------------------------------
Statements of                                       DEC 31           DEC 31            DEC 31            DEC 30            DEC 28
Income:                                             1992              1993              1994              1995              1996
                                                    ----             -----              -----            -----              ----
<S>                                            <C>               <C>               <C>               <C>               <C>
Revenues                                       $ 12,558,434      $ 11,682,154      $ 16,517,858      $ 27,611,456      $ 48,627,569
                                               ------------      ------------      ------------      ------------      ------------
Costs and Expenses:
  Costs of products sold                          1,762,688           754,700         6,944,268        14,923,968        21,825,697
  Engineering and product
    development                                   4,695,370         5,647,562         5,123,439         6,155,421         8,894,420
  Marketing                                       1,268,311         1,147,926         1,225,756         1,727,301         2,587,490
  General and administrative                      1,459,911         1,535,289         1,603,729         2,050,075         4,739,951
  Nonrecurring charge                                  --           1,948,878              --                --                --
                                               ------------      ------------      ------------      ------------      ------------
    Total costs and expense                       9,186,280        11,034,355        14,897,192        24,856,765        38,047,558
                                               ------------      ------------      ------------      ------------      ------------
Other Income (Expense):
  Dividend and interest income                      359,361           412,025           407,977           327,213           786,095
  Other                                              34,844              --                 166            (2,276)         (244,817)
                                               ------------      ------------      ------------      ------------      ------------
    Other income - net                              394,205           412,025           408,143           324,937           541,278
                                               ------------      ------------      ------------      ------------      ------------
Income Before Income Taxes                        3,766,359         1,059,824         2,028,809         3,079,628        11,121,289
Provision for Income Taxes                         (160,000)         (100,000)         (186,600)         (220,000)       (4,000,000)
                                               ------------      ------------      ------------      ------------      ------------
Net Income                                     $  3,606,359      $    959,824      $  1,842,209      $  2,859,628      $  7,121,289
                                               ============      ============      ============      ============      ============
Net Income per Common
  and Common Equivalent Share                  $        .25      $        .07      $        .12      $        .18      $        .43
                                               ============      ============      ============      ============      ============
Weighted Average Number of
Common  and Common
Equivalent Shares                                14,216,666        14,222,574        14,865,344        15,855,076        16,581,254
                                               ============      ============      ============      ============      ============

</TABLE>

                                      -25-
<PAGE>

<TABLE>
<CAPTION>
                                                                                      As of
                                             ---------------------------------------------------------------------------------------
                                                DEC 31              DEC 31           DEC 31              DEC 30            DEC 28
Balance Sheet Data:                              1992                1993             1994                1995              1996
                                                 ----                ----             ----                ----              ----
<S>                                          <C>                <C>                <C>                <C>                <C>
Working Capital                              $ 7,647,449        $ 9,916,103        $ 7,675,713        $16,836,997        $29,383,351
Total Assets                                  13,230,844         13,802,718         18,324,030         26,668,618         68,823,096
Short-Term Debt                                     --                 --                 --                 --                 --
Long-Term Debt                                      --                 --                 --                 --                 --
Stockholders' Equity                          10,627,896         12,145,410         16,472,920         22,726,436         57,442,522
Cash Dividends                                      --                 --                 --                 --                 --
</TABLE>


                                      -26-
<PAGE>



Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

"Safe Harbor"  Statement under the Private  Securities  Litigation Reform Act of
1995:

     The statements  which are not historical facts contained in this Item 7 and
elsewhere in this Form 10-K are forward looking statements that involve a number
of  risks  and  uncertainties,  including,  but not  limited  to,  the  risks of
uncertainty  of  patent  protection,  the  impact of  supply  and  manufacturing
constraints or  difficulties,  possible  technological  obsolescence,  increased
competition, litigation, and other risks detailed in the Securities and Exchange
Commission filings of the Company.

Results of Operations

     The Company was organized as a Delaware  corporation  on September 3, 1987,
and  was  a  development   stage  company   through  1991.  In  September  1991,
Heidelberger  Druckmaschinen A.G.  ("Heidelberg"),  the world's largest printing
press  manufacturer  introduced  the  Company's  initial spark  discharge  based
imaging  technology,  in a jointly developed product,  the Heidelberg GTO-DI. In
1993, after investing  substantial  effort and resources,  the Company completed
the development of PEARL,  its high resolution  semiconductor  laser diode based
imaging  technology for the printing and graphic arts industries.  PEARL's laser
diode technology is capable of imaging various types of Presstek printing plates
either  off-press  or on-press  which may then be used to produce  high-quality,
full-color  lithographic  printed  materials  at what the Company  believes is a
lower  cost  than  competitive  processes.  This  second  generation  technology
replaced the Company's spark discharge  technology.  The GTO-DI was reintroduced
with PEARL in September  1993. The Company's  relationship  with  Heidelberg has
been  expanded to include the  development  and  manufacture  of Direct  Imaging
systems utilized in Heidelberg's four color, fully automated lithographic press,
the Quickmaster DI 46-4. This press was introduced by Heidelberg in May 1995, to
replace the GTO-DI,  which is no longer  manufactured.  Shipments of  production
systems to Heidelberg for use in the Quickmaster commenced in the second quarter
of 1995.  This press  incorporates  certain  improvements to the Company's PEARL
Direct Imaging  technologies and employs the Company's  automatic plate changing
cylinder which  eliminates the need for manually  changing  plates between jobs.
The Company is now building an installed  base of customers  which  utilizes its
proprietary consumable printing plates on PEARL equipped Heidelberg presses.

     The Company is also engaged in the  development of additional  products and
applications  that  incorporate  the  use of its  proprietary  technologies  and
consumables,    including   both    computer-to-plate    and   computer-to-press
applications.  Some of these additional activities have resulted in an agreement
with the Adast Adamov Company, a manufacturer of sheet fed offset presses.  This
agreement has resulted in the


                                      -27-
<PAGE>

availability of the Company's PEARL Direct Imaging technology on a larger format
Omni-Adast (19" x 26") multicolor  press,  the first showing of which took place
at an industry  trade show during the first  quarter of 1996.  Shipments  of the
Omni Adast Direct Imaging systems began in December 1996. Also, during the first
quarter of 1996,  the Company  began  shipments  of its PEARL  platesetter,  now
referred to as the PEARLsetter.  The PEARLsetter is a computer-to-plate  imaging
device  that  images  both the  Company's  wet and dry  offset  plates.  Another
agreement  entered  into  with  Nilpeter  A/S  of  Denmark  will  result  in the
utilization of the PEARL technology on a high-speed  rotary label printing press
called the OFFSET  3300.  Presstek  will  supply a special  PEARL-based  digital
imaging system which will image Presstek's  thermal plates directly on the press
plate cylinder.

     On February 15, 1996, the Company  acquired 90% of the  outstanding  Common
Stock  (the  "Purchased   Shares")  of  Catalina  Coatings,   Inc.,  an  Arizona
corporation  ("Catalina").  Catalina is engaged in the development,  manufacture
and  sale  of  vacuum  deposition   coating  equipment  and  the  licensing  and
sublicensing of patent rights with respect to a vapor deposition process to coat
moving webs of material at high speeds.  The Company has  continued the business
of Catalina which operates as a subsidiary of the Company.  The Purchased Shares
were  acquired  from  the  selling  shareholders  pursuant  to a Stock  Purchase
Agreement (the "Stock Purchase  Agreement") dated and effective as of January 1,
1996.  The  aggregate  consideration  paid by the Company  pursuant to the Stock
Purchase Agreement was $8,400,000,  of which $8,200,000 represented the purchase
price of the Purchased  Shares and $200,000  represented  consideration  for the
non-competition and confidentiality covenants of the selling shareholders.

     Simultaneous with the closing of the acquisition,  the Company entered into
a Put and Call Option  Agreement  (the "Option  Agreement")  which  provides the
Company with the right,  at any time after  February  15,  2000,  to acquire the
remaining  10% of the  outstanding  Common  Stock of Catalina  for an  aggregate
consideration  of  $2,000,000.  The Option  Agreement  also provides the selling
shareholders  and another employee of Catalina with the right, at any time after
August 15, 2000,  to cause the Company to purchase the  remaining  shares for an
aggregate  consideration  of $1,000,000.  The Option Agreement will terminate if
Catalina  consummates  an initial  public  offering of its  securities  prior to
February 15, 2000.

     The  Company  granted the selling  shareholders  and the other  employee of
Catalina  five-year  non-qualified  options to purchase an  aggregate of 100,000
shares of the Company's  Common Stock at an exercise  price of $89.50 per share,
and Catalina  granted to the same individuals an option to purchase an aggregate
5% of the issued and  outstanding  Common  Stock of Catalina in the event that a
registration statement relating to an initial public offering of Catalina Common
Stock is declared effective by February 15, 2000.

                                      -28-
<PAGE>

     The  acquisition  was  accounted for as a purchase  and,  accordingly,  the
results of  Catalina's  operations  have been  included  in the  Company's  1996
financial  statements.  Significant  intercompany accounts and transactions have
been eliminated.

     On June 19, 1995, the Company's Board of Directors determined to change its
fiscal year from a calendar  year ending  December 31 to a fiscal year ending on
the Saturday closest to December 31. Accordingly,  the 1996 fiscal year ended on
December  28,  1996,  and the fiscal  years 1995 and 1994 ended on December  30,
1995, and December 31, 1994, respectively.

Revenues

     Revenues  for the years ended  December 28,  1996,  December 30, 1995,  and
December 31, 1994,  of  $48,628,000  ( of which  $1,950,000  related to sales by
Catalina),  $27,611,000,  and  $16,518,000,  respectively,  consisted of product
sales,  royalties,  fees  and  other  reimbursements.  Product  sales  for  1996
increased  $13,540,000  over 1995,  primarily as a result of volume increases in
sales by the Company of products to be used in the  Quickmaster DI 46-4, as well
as sales of the  PEARLsetter,  consumable  printing  plates,  and  spare  parts.
Royalties  and fees from  licensees  increased  $7,475,000  in 1996  over  1995,
primarily as a result of increases in royalties of $946,000,  of which  $802,000
was earned on product  sales to  Heidelberg,  and  increases  of  $6,529,000  in
engineering  fees and other revenues which are based primarily on amounts agreed
upon between the Company and  Heidelberg.  Revenues for the year ended  December
30, 1995,  totaled  $27,611,000,  an increase of  $11,093,000  (67%) compared to
$16,518,000  recorded for the year ended  December 31, 1994.  Product  sales for
1995 increased $10,567,000 over 1994, principally as a result of increased sales
volume  of the  Company's  PEARL  on-press  direct  imaging  technology  used in
Heidelberg's  GTO-DI and  Quickmaster DI 46-4, and consumable  printing  plates.
Revenues from royalties and fees for the year ended December 30, 1995, increased
$527,000,  compared  to 1994,  as a  result  of an  increase  of  $3,595,000  in
royalties  earned on product sales and a decrease of  $3,068,000 in  engineering
fees and other revenues  which are based  primarily on amounts  annually  agreed
upon between the Company and Heidelberg.  During 1996,  revenues generated under
the  Company's   agreements   with   Heidelberg  and  revenues  to  Heidelberg's
distributors represented 73% of the Company's total revenues. Prior to 1996, the
Company relied on Heidelberg to generate substantially all of its revenues.

Cost of Products Sold

     Costs of products sold for the years ended December 28, 1996,  December 30,
1995, and December 31, 1994, of  approximately  $21,826,000 (of which $1,416,000
related to Catalina),  $14,924,000, and $6,944,000,  respectively,  consisted of
the material,  labor,  and overhead costs associated with product sales, as well
as anticipated  future  warranty costs.  The increases in such costs,  comparing
1996 with 1995,  and 1995 with 1994,  relate  primarily  to increases in related


                                      -29-
<PAGE>

product  sales.  Improvement  in the  percentage  relationship  between costs of
products sold and product  sales,  comparing 1996 with 1995,  results  primarily
from product mix and manufacturing efficiencies.

Engineering and Product Development

     Engineering  and product  development  expenses for the year ended December
28, 1996, totaled $8,894,000  compared to $6,155,000 for the year ended December
30, 1995. The increase of $2,739,000  (45%) resulted  principally from increased
expenditures for parts, supplies,  labor, and contracted services related to the
Company's continued development of products  incorporating its PEARL technology,
as well as other product  development  efforts including the Company's  PEARLwet
and PEARLdry plates.

     Engineering and product  development  expenses were $6,155,000 for the year
ended  December 30, 1995, as compared to $5,123,000  for the year ended December
31, 1994. The increase in such expenses of $1,032,000 (20%) resulted principally
from  increased  expenditures  for  parts,  supplies  and labor  related  to the
Company's  PEARL  technology  as well as other product  development  efforts and
matters relating to the Company's technologies.

Marketing

     Marketing   expenses  for  the  year  ended  December  28,  1996,   totaled
$2,587,000,  compared to  $1,727,000  for the year ended  December 30, 1995,  an
increase  of  $860,000  (50%).   Marketing  expenses  increased  $501,000  (41%)
comparing  1995 with 1994.  These  increases  related  principally  to increased
expenditures  for  additional  personnel  and  related  costs as well as various
promotional activities.

General and Administrative

     General and  administrative  expenses for the year ended December 28, 1996,
totaled  $4,740,000  (of  which  $588,000  related  to  Catalina),  compared  to
$2,050,000  for the year ended  December  30, 1995.  The increase of  $2,690,000
(131%)  related  primarily  to the  addition in 1996 of  Catalina's  general and
administrative  expenses in addition to the  amortization  of goodwill and other
assets  acquired in the  acquisition of Catalina of $416,000 and to increases in
legal fees incurred in connection  with certain legal  proceedings,  regulatory,
and other matters of $1,055,000  and  expenditures  for salaries and other costs
required to conduct various general and administrative functions of the Company.

                                      -30-
<PAGE>

     General and administrative  expenses for 1995 increased $446,000 (28%) over
the  $1,604,000  recorded for the year ended  December 31, 1994.  The  increased
expenses in 1995 related principally to increased  expenditures for salaries and
other costs required to conduct various general and administrative functions for
the Company.

Dividend and Interest Income

     Dividend and interest  income earned on the Company's cash and  investments
increased  $459,000 for the year ended  December 28, 1996,  compared to the year
ended  December  30,  1995,  principally  as a  result  of the  increased  funds
available for investment.

Income Taxes

     The  provision  for income  taxes for the year  ended  December  28,  1996,
represents  substantially  the charge in lieu of income taxes arising during the
periods relating to the tax benefit of stock option deductions.  The tax benefit
related to such stock options has been credited to stockholders' equity.

     The provision for income taxes for the years ended  December 30, 1995,  and
December  31,  1994,  represents  substantially  charges in lieu of state income
taxes  arising  during the periods  relating to the tax benefit of stock  option
deductions.  No charges for federal  income taxes were required for 1995 or 1994
due  to the  availability  of  federal  net  operating  loss  carryforwards  for
accounting purposes.

Net Income

     As a result of the foregoing,  the Company had net income of $7,121,000 for
the year ended  December  28,  1996,  compared to net income of  $2,860,000  and
$1,842,000  for the years ended  December  30,  1995,  and  December  31,  1994,
respectively.  The operations of Catalina did not have a material  effect on net
income for the year ended December 28, 1996.

Liquidity and Capital Resources

     At December 28, 1996, the Company had working  capital of  $29,383,000,  an
increase  of  $12,546,000  as  compared  to working  capital of  $16,837,000  at
December 30, 1995.  This increase was primarily  attributed to the proceeds from
the issuances of Common Stock of $23,759,000,  and net income from operations of
$7,121,000,  plus non-cash  items,  including the tax benefit arising from stock
option deductions of $3,876,000, offset by the Company's investment in Catalina,
net of cash  acquired,  of  $7,456,000  and  additions  to  property,  plant and
equipment of $16,390,000.

                                      -31-
<PAGE>

     Net cash provided by operating  activities of $4,231,000 for the year ended
December  28,  1996,  resulted  primarily  from net income  from  operations  of
$7,121,000  plus noncash  items,  including  the tax benefit  arising from stock
option  deductions of $3,876,000 and an increase in accounts payable and accrued
expenses of $5,613,000, offset by increases in accounts receivable and inventory
of $9,470,000 and $5,036,000.

     Net cash used for investing  activities of  $28,087,000  for the year ended
December 28, 1996, resulted primarily from the Company's investment in Catalina,
net of cash acquired,  of $7,456,000,  purchases of marketable securities net of
maturities of $3,456,000, and additions to property, plant and equipment used in
the Company's business of $16,390,000.

     Net cash provided by financing  activities  during the year ended  December
28, 1996,  totaled  $23,759,000,  which  included the private  placements  of an
aggregate of 282,846 shares of the Company's  Common Stock for gross proceeds of
$20,209,000,  net of costs of $33,500,  and the sale of Common Stock incident to
the exercise of various stock options.

     The Company is currently  constructing two new facilities;  a 60,000 square
foot  facility  in Tucson,  Arizona  for  Catalina,  and a 100,000  square  foot
manufacturing  facility  in Hudson,  New  Hampshire.  The  Hudson  manufacturing
facility  is expected  to  accommodate  the  Company's  new plate  manufacturing
operations,  which will utilize a new vacuum deposition coating system currently
being developed and built for the Company by Catalina,  along with the necessary
plate finishing and packaging  equipment.  The Company  estimates that the total
capital cost of these projects,  including land purchases,  to be  approximately
$30,000,000.

     During the year ended December 28, 1996, the Company expended approximately
$2,427,000  for the land  purchases and  approximately  $3,875,000  for the land
improvements  and  construction  of the two new  facilities.  As of December 28,
1996,  the  Company  had  outstanding   purchase  commitments  of  approximately
$7,280,000 with respect to the new facilities. In addition, the Company expended
approximately   $7,809,000  for  the  new  plate   manufacturing  and  packaging
equipment.  As of  December  28,  1996,  the Company  had  outstanding  purchase
commitments of approximately  $8,448,000 with respect to the plate manufacturing
and packaging equipment.

     On December 18, 1996,  the Company  entered into an agreement with Citizens
Bank New Hampshire  for a revolving  line of credit loan under which the Company
may borrow a maximum of $10,000,000 for working capital requirements and general
corporate purposes. Borrowings are secured by substantially all of the Company's
assets and are guaranteed by the Company's subsidiary,  Catalina Coatings,  Inc.
and secured by its assets.  Under the terms of the revolving  credit  agreement,
the Company is required to meet certain  financial  covenants on a quarterly and
annual


                                      -32-
<PAGE>

     basis.  Interest  on the line of credit is  payable  at the LIBOR rate plus
1.75% (7.34% at December 28, 1996).  The loan  agreement  terminates on July 31,
1997,  at which  date,  the entire  principal  and  accrued  interest is due and
payable.  As of December 28, 1996, the Company had  $10,000,000  available under
the line.

     The Company is currently  exploring  various long term funding options with
respect to  financing  the cost of its new  facilities  and plate  manufacturing
equipment.  Also, in order to fund  increased  production of Quickmaster DI Kits
during 1997, the Company will require  additional working capital if its current
line of credit loan  agreement is not renewed or replaced upon its expiration in
July 1997, or if the Company is unable to obtain long-term financing for its new
facilities.  These can be no  assurance  that the  Company  can obtain long term
financing, or that the current line of credit loan agreement will be renewed.

     During 1996 the Company  received certain payments for engineering fees and
other revenue from Heidelberg based upon a previously negotiated amount. No such
amount has yet been negotiated for 1997.

     In  connection  with the  award  issued  by the  International  Chamber  of
Commerce  in the  arbitration  between  Presstek  and  Agfa-Gevaert  N.V.,  Agfa
reimbursed  Presstek's  legal  expenses  in the  arbitration  in the  amount  of
$769,140.  These funds were recorded as an offset to general and  administrative
expenses and are not included in revenues or other income.

Effect of Inflation

     Inflation has not had, and is not expected to have, a material  impact upon
the Company's operations.

Net Operating Loss Carryforwards

     As of December 28, 1996, the Company had net operating  loss  carryforwards
totaling approximately  $28,550,000 resulting from compensation deductions,  for
tax purposes, relative to stock option plans. To the extent net operating losses
resulting from stock option plan compensation deductions become realizable,  the
benefit will be credited  directly to additional paid in capital.  The amount of
the net operating loss carryforwards  which may be utilized in any future period
may be subject to certain  limitations,  based upon changes in the  ownership of
the Company's Common Stock.


                                      -33-
<PAGE>

Item 8.  Financial Statements and Supplementary Data.

SELECTED QUARTERLY FINANCIAL DATA (unaudited)
(in thousands except per share data)

<TABLE>
<CAPTION>
QUARTER ENDED
1995                                                    MAR 31              JUL 1            SEP 30          DEC 30
                                                        ------              -----            ------          ------
<S>                                                    <C>                <C>               <C>             <C>
Total revenues                                          $5,084             $5,503            $7,629          $9,395
Total costs & expenses                                   4,972              5,435             6,740           7,709
Net income                                                 160                177               872           1,650
Net income per share                                     $0.01              $0.01              $.05           $0.10
Weighted average number of common and common
equivalent shares                                       15,533             15,934            16,067          16,122

QUARTER ENDED
1996                                                    MAR 30             JUN 29            SEP 28          DEC 28
                                                        ------             ------            ------          ------
Total revenues                                         $11,005            $11,880           $12,366         $13,377
Total costs & expenses                                   9,141              9,070             9,680          10,157
Net income                                               1,289              1,647             1,831           2,354
Net income per share                                     $0.08              $0.10             $0.11           $0.14
Weighted average number of common and common
equivalent shares                                       16,501             16,706            16,459          16,567
</TABLE>

The audited financial statements appear in a separate section of this report
following Part IV.

Item 9.   Changes in and  Disagreements  with  Accountants  on Accounting and
          Financial Disclosure.

     The  information  required by this item has previously been reported in the
Company's  Current  Report on Form 8-K for the event dated December 28, 1995 and
Amendment No. 1 thereto,  and its Current Report on Form 8-K for the event dated
January 11, 1996.


                                      -34-
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     The current directors and executive  officers of the Company and their ages
and positions are as follows:

<TABLE>
<CAPTION>
         Name                      Age                         Position
         ----                      ---                         --------
<S>                                <C>               <C>
Robert Howard                      73                Chairman of the Board and Director

Dr. Lawrence Howard                44                Director

Richard A. Williams                62                Chief Executive Officer, Secretary, Vice-Chairman of the Board and Director

Robert E. Verrando                 63                President, Chief Operating Officer and Director

Frank G. Pensavecchia              62                Senior Vice President - Engineering

Glenn J. DiBenedetto               47                Chief Financial Officer

Harold N. Sparks(1)                75                Director

Bert DePamphilis(1)                64                Director

John W. Dreyer                     59                Director
</TABLE>

(1)  Member of the Company's Audit Committee and 1991 and 1994 Stock Option Plan
     Committees.

     Robert Howard, a founder of the Company,  has been Chairman since June 1988
and a  director  since  September  1987.  Mr.  Howard  served as  President  and
Treasurer of the Company from October 1987 until June 1988.  Mr.  Howard was the
founder of Howtek,  Inc.  ("Howtek"),  a  publicly-held  company  engaged in the
manufacture of electronic prepress equipment,  and has served as Chairman of the
Board of Howtek since August 1984.  Mr Howard  served as the President of Howtek
from August 1984 through  November 1987 and as its Chief Executive  Officer from
August 1984 to December 1993.  Mr. Howard,  the inventor of the first impact dot
matrix  printer,  was  the  founder  of  Centronics  Data  Computer  Corporation
("Centronics"),  a manufacturer


                                      -35-
<PAGE>

of printers. From 1969 to April 1980, he served as President and Chairman of the
Board of Directors of  Centronics,  and he resigned  from  Centronics'  Board of
Directors  in 1983.  From April  1980 until  1983,  Mr.  Howard was  principally
engaged in the management of his personal investments. Mr. Howard devotes only a
limited portion of his business time to consulting  with  management  concerning
the Company's  affairs.  In February  1994, Mr. Howard entered into a settlement
agreement  in the form of a consent  decree  with the  Securities  and  Exchange
Commission (the "Commission") in connection with the Commission's  investigation
covering  trading in the Common Stock of Howtek by an acquaintance of Mr. Howard
and a business associate of such acquaintance.  Mr. Howard, without admitting or
denying the Commission's  allegations of securities laws  violations,  agreed to
pay a fine and to the entry of a permanent  injunction against future violations
of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.

     Dr. Lawrence Howard,  a founder of the Company,  has been a director of the
Company  since  November  1987 and served as Vice  Chairman of the Company  from
November  1992 to  February  1996.  He served  as Chief  Executive  Officer  and
Treasurer of the Company from June 1988 to June 1993;  served as President  from
June 1988 to November  1992;  and was Vice  President  from October 1987 to June
1988.  From March 1997 to the present,  Dr. Howard has been a general partner of
Hudson Ventures,  LP., a limited partnership that has prepared an application to
qualify as a small business  investment  company.  From July 1995 to March 1997,
Dr. Howard was President of Howard Capital Partners, Inc., an investment banking
firm.  From July 1994 to July 1995 Dr.  Howard was Senior  Managing  Director of
Whale Securities Co. L.P., an NASD registered  broker-dealer.  From October 1992
through June 1994 Dr.  Howard was President  and Chief  Executive  Officer of LH
Resources,  Inc., a management  and financial  consulting  firm. Dr. Howard is a
director of Resurgence Properties, Inc., a public company engaged in investments
in and management of real estate. Dr. Howard is the son of Robert Howard.

     Richard A. Williams has been Chief Executive  Officer and  Vice-Chairman of
the Board of the Company  since  February  1996.  He has been  Secretary  of the
Company since June 1988 and a director of the Company since November 1987.  From
June 1988 to February 1996, Mr.  Williams served as Executive Vice President and
Chief  Operating  Officer of the Company.  From November 1987 to June 1988,  Mr.
Williams  served as Vice  President of the  Company.  From June 1985 to February
1987, Mr. Williams served as Vice President of Engineering for Centronics, where
he  was  responsible  for  line  matrix,  and  laser  printer   development  and
introduction.

     Robert E. Verrando has been  President and Chief  Operating  Officer of the
Company since  February 1996, and a director of the Company since November 1994.
From October 1994 to February 1996, he served as Executive Vice President of the
Company.  From July  1993 to  October  1994,  Mr.  Verrando  was  employed  as a
consultant to the graphic arts industry. From October 1986 through July 1993, he
was   employed  in  a  variety  of   executive   positions   with   Compugraphic
Corporation/Agfa


                                      -36-
<PAGE>

Compugraphic/Agfa Division, Miles, Inc; most recently as Vice President, General
Manager Business Imaging Systems Group.  From April 1981 through September 1986,
he was employed as Vice President-Business Development of A.B. Dick Company.

     Frank G.  Pensavecchia  has served as Senior  Vice  President  -Engineering
since  October 1991 and was the  Company's  Vice  President -  Engineering  from
August 1988 to October 1991.  From  September  1987 to August 1988, he served as
the Company's Director of Engineering.  From October 1983 to September 1987, Mr.
Pensavecchia served as Director of Laser Printer Engineering for Centronics.

     Glenn J.  DiBenedetto has served as Chief Financial  Officer since November
1990.  Mr.  DiBenedetto  has been a  principal  with the firm of  DiBenedetto  &
Company, P.A., certified public accountants,  since July 1989. From 1984 to July
1989,  Mr.  DiBenedetto  was a principal  with the firm of Newton & DiBenedetto,
P.A., certified public accountants.  Under his arrangement with the Company, Mr.
DiBenedetto  engages in other  activities and is not required to devote his full
business time to the affairs of the Company.

     Harold N.  Sparks has been a director  since  February  1989.  From 1971 to
September  1995,  Mr. Sparks was the President  and Chief  Executive  Officer of
Fashion  Neckwear Co., Inc., a manufacturer  of men's  neckties.  Mr. Sparks has
served as a consultant to Fashion Neckwear Co., Inc. since September 1995.

     Bert  DePamphilis has been a director since June 1990. Mr.  DePamphilis has
been an independent consultant to the graphic arts industry since May 1995. From
September  1994  through  April 1995 he was a  consultant  to  Applied  Graphics
Technology  ("AGT"),  the world's largest prepress service.  Mr. DePamphilis was
the founder,  and from 1976 through August 1994, a principal of PDR Royal, Inc.,
a color prepress service for advertising agencies and Fortune 100 companies that
ceased  independent  operations  when it became a division  of AGT in  September
1994.

     John Dreyer has been a director  since  February  1996. Mr. Dreyer has been
employed by Pitman  Company,  the largest graphic arts and image supplier in the
United States,  since 1965. He has served as Pitman's  President  since 1977 and
has also served as its Chief Executive Officer since 1978.

     Directors are elected  annually by the  stockholders.  Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.

Item 11. Executive Compensation.

     The following table discloses the compensation for the person who served as
the Company's  principal executive officer during the fiscal year ended December
28,  1996,  and for the only  other  executive  officers  of the  Company  whose
salaries


                                      -37-
<PAGE>

exceeded  $100,000 for the Company's  fiscal year ended December 28, 1996,  (the
"Named Executive  Officers").  The number of securities  underlying  options has
been adjusted to give retroactive effect to the Company's  five-for-four  Common
Stock split in the form of a 25% stock dividend effected in September 1994 and a
two-for-one split in the form of a 100% stock dividend effected in May 1995.

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                                         Long-Term
                                                           Annual       Compensation
                                                        Compensation       Awards
                                                        ------------    -----------
                                                                         Securities
   Name and Principal                                      Salary       Underlying
        Position                              Year           ($)        Options (#)
------------------------                      ----      ------------    -----------
<S>                                           <C>         <C>            <C>
Richard A. Williams                           1996        153,000         20,000
Chief Executive Officer                       1995        134,000           --
                                              1994        125,000         40,000

Robert E. Verrando                            1996        179,000         20,000
President and                                 1995        179,000           --
Chief Operating Officer                       1994         28,000        100,000

Frank G. Pensavecchia                         1996        137,000         20,000
Senior Vice President-                        1995        114,000           --
Engineering                                   1994        105,000         40,000
</TABLE>

     No stock options were granted during fiscal 1995 to any of the Named
Executive Officers.


                                      -38-
<PAGE>


     The following table provides  information  with respect to individual stock
options granted during fiscal 1996 to each of the Named Executive Officers.

                        Option Grants in Last Fiscal Year

                                Individual Grants
<TABLE>
<CAPTION>

                                                                                     Potential Realizable
                                             % of                                      Value at Assumed
                                            Total                                      Annual Rates of
                                           Options                                       Stock Price
                               Shares     Granted to                                   Appreciation for
                             Underlying   Employees    Exercise                        Option Term (1)
                              Options     in Fiscal      Price     Expiration      ----------------------
         Name                Granted (#)   Year (2)     ($/sh)        Date          5%($)          10%($)
         ----                -----------   --------     ------        ----         ------          ------
<S>                          <C>               <C>       <C>        <C>           <C>            <C>
Robert E. Verrando           20,000 (3)        6.4       $71.00     12/2/01       $392,320       $866,924
Richard A. Williams          20,000 (3)        6.4       $71.00     12/2/01       $392,320       $866,924
Frank G. Pensavecchia        20,000 (3)        6.4       $71.00     12/2/01       $392,320       $866,924
</TABLE>

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

(1)  The potential  realizable value columns of the table illustrate values that
     might be realized upon exercise of the options  immediately  prior to their
     expiration,   assuming  the  Company's  Common  Stock  appreciates  at  the
     compounded  rates specified over the term of the options.  These numbers do
     not  take  into  account   provisions  of  certain  options  providing  for
     termination   of  the  option   following   termination  of  employment  or
     nontransferability  of the options and do not make any  provision for taxes
     associated  with  exercise.  Because  actual gains will depend upon,  among
     other  things,  future  performance  of the Common  Stock,  there can be no
     assurance that the amounts reflected in this table will be achieved.

(2)  The  percentage  has been  calculated  based upon total options  granted to
     employees in fiscal 1996 under the  Company's  1988,  1991,  and 1994 stock
     option plans.

(3)  Non-qualified stock options;  all options were granted under the 1994 Stock
     Option Plan and became exercisable on the date of grant, December 2, 1996.


                                      -39-
<PAGE>


     The  following  table  sets  forth  information  concerning  the  value  of
unexercised  stock options held by the Named  Executive  Officers as of December
28, 1996, and the options  exercised by the Named Executive  Officers during the
fiscal year ended December 28, 1996.

       Aggregated Option Exercises for Fiscal Year-Ended December 28, 1996
                        and Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                                          Number of Securities Underlying                 Value of Unexercised
                                                                Unexercised Options                       In-the-Money Options
                                                                at December 28 1996                      at December 28, 1996*
                         Shares                                 -------------------                      ---------------------
                        Acquired
                           on            Value
         Name           Exercise       Realized+          Exercisable       Unexercisable       Exercisable        Unexercisable
         ----           --------       ---------          -----------       -------------       -----------        -------------
<S>                      <C>          <C>                   <C>                 <C>             <C>                <C>
Richard A. Williams      50,000       $3,700,526            122,500             12,500          $6,651,750         $  724,375
Robert E. Verrando       10,000       $  966,563             55,000             55,000          $1,940,000         $2,970,000
Frank G. Pensavecchia    17,500       $1,701,094             92,500             12,500          $4,667,750         $  724,375
</TABLE>
----------
+    Value realized represents the positive spread between the exercise price of
     such options and the market value of the Common Stock on date of exercise.

*    Year-end values for unexercised in-the-money options represent the positive
     spread between the exercise  price of such options and the year-end  market
     value of the Common Stock which was $73.50 on December 27, 1996.

Compensation of Directors

     Directors received no cash compensation for serving on the Board during the
year ended  December 28, 1996.  However,  during such year, the Company paid Mr.
Robert  Howard,  the  Chairman of the Board,  $125,000 for  consulting  services
rendered to the Company. In addition, in December 1996, Mr. Howard was granted a
five-year  option  under the  Company's  1994 Plan  (defined  below) to purchase
20,000 shares of Common Stock at $71.00 per share.

     Effective  December 1993,  the Company  adopted its  Non-Employee  Director
Stock Option Plan (the  "Director  Plan").  Only  non-employee  directors of the
Company  (other  than Robert  Howard or Dr.  Lawrence  Howard)  are  eligible to
receive grants under the Director Plan. The Director Plan provides that eligible
directors  automatically  receive a grant of options to purchase 5,000 shares of
Common  Stock  at  fair  market  value  upon  first  becoming  a  director  and,
thereafter,  an annual grant,  in January of each year, of 2,500 options at fair
market  value.  In 1996,  Messrs.  DePamphilis  and Sparks  received  options to
purchase 2,500 shares each of Common Stock under the Director Plan.

     Since  joining  the Board in  February  1996,  in addition to the grants of
five-year  options to  purchase  7,500  shares of Common  Stock that he received
pursuant to the Director  Plan,  Mr. Dreyer has been granted under the 1994 Plan
options  to  purchase  5,000,   2,500,   and  10,000  shares  of  Common  Stock,
respectively, at exercise prices of $94.75, $99.25, and $70.25, respectively.

     Under each of the  Company's  1988 Stock  Option Plan ("1988  Plan"),  1991
Stock Option ("1991 Plan") and 1994 Stock Option Plan ("1994  Plan"),  directors
who are not  employees of the Company  (other than  directors who


                                      -40-
<PAGE>

are members of the Stock Option  Committee of the particular  plan) are eligible
to be granted  nonqualified  options under such plan.  The Board of Directors or
the Stock Option  Committee (the  "Committee") of each plan, as the case may be,
has  discretion to determine the number of shares  subject to each  nonqualified
option (subject to the number of shares available for grant under the particular
plan), the exercise price thereof  (provided such price is not less than the par
value of the underlying  shares of Common  Stock),  the term thereof (but not in
excess of 10 years from the date of grant,  subject to  earlier  termination  in
certain  circumstances),  and the manner in which the option becomes exercisable
(amounts,  intervals and other  conditions).  Directors who are employees of the
Company (but not members of the Committee of the  particular  plan) are eligible
to be granted incentive stock options or nonqualified  options under such plans.
The Board or Committee of each plan, as the case may be, also has  discretion to
determine the number of shares subject to each incentive  stock option  ("ISO"),
the exercise price and other terms and conditions thereof,  but their discretion
as to the exercise  price,  the term of each ISO and the number of ISOs that may
vest may be in any year is  limited by the  Internal  Revenue  Code of 1986,  as
amended.  As of  February  25,  1997,  there were 4,382  shares of Common  Stock
available for grant under the 1988 Plan,  6,016 shares of Common Stock available
for grant under the 1991 Plan, 224,976 shares available for grant under the 1994
Plan and 85,000  shares of Common Stock  available  for grant under the Director
Plan.

Employment Arrangements

     The Company has an employment agreement with Mr. Richard A. Williams, which
provides  for an  annual  salary  which is  subject  to  periodic  review by the
Company's  Board of Directors.  The  employment  agreement  expires on March 31,
1998, and contains certain  non-disclosure  provisions.  Effective January 1997,
the Board increased Mr. Williams' annual salary to $175,000.

Compensation  Committee  Interlocks and Insider  Participation  in  Compensation
Decisions

     The  Company  does  not  have a  Compensation  Committee  of its  Board  of
Directors.  Decisions  as to  compensation  are made by the  Company's  Board of
Directors.  Mr.  Richard  A.  Williams,  and Mr.  Robert E.  Verrando,  in their
capacity  as  a  director,   each  participated  in  the  Board's  deliberations
concerning  compensation  of executive  officers for the  Company's  fiscal year
ended December 28, 1996. During the fiscal year ended December 28, 1996, none of
the  executive  officers of the Company has served on the Board of  Directors or
the compensation committee of any other entity, any of whose officers has served
on the Board of Directors of the Company.

                                      -41-
<PAGE>

Item 12. Security Ownership of Certain
         Beneficial Owners and Management.

     The following table sets forth  information at February 28, 1997,  based on
information  obtained  from  the  persons  named  below,  with  respect  to  the
beneficial  ownership  of shares of Common Stock by (i) each person known by the
Company  to be the  owner of more  than 5% of the  outstanding  shares of Common
Stock, (ii) each director,  (iii) each of the Named Executive Officers, and (iv)
all executive officers and directors of the Company as a group.


                                         Amount and Nature          Percentage
     Name of                               of Beneficial          of Outstanding
Beneficial Owner (1)                       Ownership (2)           Shares Owned
--------------------                     -----------------        -------------
Robert Howard                                 1,370,724(3)                8.7
Dr. Lawrence Howard                           1,354,326(4)                8.7
Richard A. Williams                             331,400(5)                2.1
Robert E. Verrando                               55,000(6)                 (7)
Harold N. Sparks                                 47,900(8)                 (7)
Bert DePamphilis                                 16,050(9)                 (7)
Frank Pensavecchia                              105,000(10)                (7)
John W. Dreyer                                   22,500(11)                (7)
John C. Oxley                                   997,300(12) (13)          6.5
Thomas E. Oxley                                 806,700(12) (14)          5.2
Charles C. Killin                               813,200(12) (15)          5.3

All executive officers
and directors as a
group (nine persons)                          3,309,900(16)               20.1
----------

(1)  The address of Dr.  Lawrence  Howard is 120 East End Avenue,  New York, New
     York 10028. The address of Robert Howard is 303 East 57th Street, New York,
     New York 10022.

(2)  The Company believes that except as set forth herein,  all persons referred
     to in the table have sole voting and  investment  power with respect to all
     shares of Common Stock reflected as beneficially owned by them.

(3)  Includes  options to purchase  329,000  shares of Common  Stock held by Mr.
     Howard which are currently  exercisable.  Also includes 12,000 shares owned
     by Mr.  Howard's  wife.  Does not  include  shares  owned by the son of Mr.
     Howard's  wife,  with respect to which Mr. Howard  disclaims any beneficial
     interest.

                                      -42-
<PAGE>

(4)  Includes  options to purchase  131,500  shares of Common  Stock held by Dr.
     Howard which are currently  exercisable.  Also includes 17,500 shares owned
     by Dr. Howard's wife, 26,892 shares owned by Dr. Howard's wife as custodian
     for Dr.  Howard's  children  and  22,500  shares  owned  by Dr.  Howard  as
     custodian for his children.

(5)  Includes  options to purchase  122,500  shares of Common  Stock held by Mr.
     Williams which are currently exercisable. Also includes 11,000 shares owned
     by Mr.  Williams'  wife.  Does not include  shares  owned by Mr.  Williams'
     children  with  respect  to which Mr.  Williams  disclaims  any  beneficial
     interest.

(6)  Represents  shares  issuable upon exercise of options held by Mr.  Verrando
     which are currently exercisable.

(7)  Less than 1%.

(8)  Includes  options to  purchase  13,750  shares of Common  Stock held by Mr.
     Sparks which are currently exercisable.

(9)  Includes  options to  purchase  13,750  shares of Common  Stock held by Mr.
     DePamphilis which are currently exercisable.

(10) Includes  options to  purchase  92,500  shares of common  stock held by Mr.
     Pensavecchia which are currently exercisable.

(11) Represents  shares  issuable  upon  exercise of options held by Mr.  Dreyer
     which are currently exercisable.

(12) The information with respect to the securities ownership of Messrs. John C.
     Oxley,  Thomas E. Oxley,  and Charles C. Killin has been derived from their
     respective  Schedules  13-D as  filed  with  the  Securities  and  Exchange
     Commission.

(13) Represents  19,600 shares of Common Stock held by Mr. Oxley,  individually;
     750,700  shares of Common Stock held by Mr. Oxley as a  co-executor  of the
     estate of John T.  Oxley (the  "Oxley  Estate");  171,000  shares of Common
     Stock held by Mr. Oxley as a co-trustee of the Oxley Foundation; and 56,000
     shares of Common Stock held of record by Boca Polo,  Inc.  ("Boca  Polo") a
     Nevada corporation.  Mr. Oxley is owner of 50% of the outstanding shares of
     Boca  Polo.  The  address  of Mr.  John C.  Oxley is One  West 3rd  Street,
     Williams Center Tower I, Suite 1300, Tulsa, OK 74103.

(14) Represents  750,700  shares of Common  Stock held by the Oxley  Estate,  of
     which Mr. Oxley is a co-executor; and 56,000 shares of Common Stock held of
     record  by Boca  Polo.  Mr.  Oxley is a  director  and  owner of 50% of the

                                      -43-
<PAGE>

     outstanding  shares of Boca Polo. The address of Mr. Thomas E. Oxley is One
     West 3rd Street, Williams Center Tower I, Suite 1305, Tulsa, OK 74103.

(15) Represents  750,700  shares  of  Common  Stock  held  by  Mr.  Killin  as a
     co-executor of the Oxley Estate;  43,500 of Common Stock held by Mr. Killin
     as the trustee of the Mary Jane Tritsch Trust dated  September 3, 1952; and
     19,000  shares of Common  Stock  held by Mr.  Killin as the  trustee of the
     Thomas E. Oxley Trust dated  September 3, 1952.  The address for Mr. Killin
     is 15 East 5th Street, Suite 2400, Tulsa, OK 74103.

(16) Includes options to purchase 329,000,  131,500,  122,500,  55,000,  92,500,
     13,750,  13,750,  22,500,  and  7,000  shares  held by Robert  Howard,  Dr.
     Lawrence   Howard,   Richard  A.  Williams,   Robert  E.  Verrando,   Frank
     Pensavecchia, Bert DePamphilis, Harold Sparks, John W. Dreyer, and Glenn J.
     DiBenedetto,  respectively,  which  are  currently  exercisable.  Does  not
     include options to purchase 12,500, 55,000, 12,500, 2,500, 2,500, and 2,500
     shares of Common Stock held by Richard Williams,  Robert E. Verrando, Frank
     Pensavecchia,   Harold  Sparks,   Bert  DePamphilis  and  John  W.  Dreyer,
     respectively,  none of which are  exercisable  within 60 days from the date
     hereof.

Item 13. Certain Relationships and Related Transactions.

     The Company paid Mr. Robert Howard, its Chairman of the Board, $125,000 for
consulting  services  provided to the Company  during  1996.  In  addition,  the
Company paid Mr. Howard $35,513 as a tenant-at-will sublessee of certain offices
from Mr. Howard.

     During the year ended  December 28, 1996, the Company  purchased  equipment
from Howtek totaling $53,721. Mr. Robert Howard, is the Chairman of the Board of
Directors and a principal  stockholder of Howtek, and the father of Dr. Lawrence
Howard. Dr. Howard currently serves as a director to the Company.

     During 1996,  the Company  recorded  sales of equipment and  consumables to
Pitman of $3,379,000,  and had accounts  receivable from Pitman of $2,279,000 at
December 28, 1996.  John  Dreyer,  who has been a director of the Company  since
February 1996, is Pitman's President and Chief Executive Officer.


                                      -44-
<PAGE>


                                     PART IV

   Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

<TABLE>
<CAPTION>
(a)(1)            Financial Statements
                                                                                                 Page
                                                                                                 ----
<S>                                                                                              <C>
                  Report of Independent Certified Public
                  Accountants                                                                    F-2

                  Independent Auditors' Report                                                   F-3

                  Balance Sheets as of December 30, 1995, and
                  December 28, 1996                                                              F-4

                  Statements of Income for the Years Ended
                  December 31, 1994, December 30, 1995,
                  and December 28, 1996                                                          F-5

                  Statement of Changes in Stockholders' Equity
                  for the three years ended December 28, 1996                                    F-6-7

                  Statements of Cash Flows for the Years Ended
                  December 31, 1994, December 30, 1995,
                  and December 28, 1996                                                          F-8

                  Notes to Financial Statements                                                  F-9

(a)(2)            Financial Statement Schedules

                  Schedule II-Valuation and Qualifying Accounts and
                  Reserves.                                                                      FS-1

                  All other schedules are omitted because they are not
                  applicable or the required information is shown in the
                  financial statements or notes thereto.

(a)(3)            Exhibits
</TABLE>

Exhibit
Number    Description

2(a)      Stock  Purchase  Agreement  dated and effective as of January 1, 1996,
          among the Company  and David G. Shaw,  Marc G.  Langlois  and David G.

                                      -45-
<PAGE>

          Shaw and  Lynn R.  Shaw,  as  Trustees  of the  David  and  Lynn  Shaw
          Charitable  Remainder  Unitrust,  dated February 12, 1996, and John E.
          Madocks and Catalina. **

2(b)      Put and Call Option Agreement by and among the Company, David G. Shaw,
          Marc G. Langlois and John E. Madocks. **

2(c)      Confidentiality  and  Non-Competition   Agreement  by  and  among  the
          Company, David G. Shaw and Catalina. **

2(d)      Confidentiality  and  Non-Competition   Agreement  by  and  among  the
          Company, Marc G. Langlois and Catalina. **

2(e)      Confidentiality  and  Non-Competition   Agreement  by  and  among  the
          Company, John E. Madocks and Catalina. **

2(f)      Special Option Agreement,  among the Company, Catalina, David G. Shaw,
          Marc G. Langlois and John E. Madocks. **

3(a)      Amended and Restated  Certificate of Incorporation  of the Company, as
          amended, incorporated by reference to Exhibit 3 to the Company's
          Quarterly Report on Form 10-Q for the Quarter ended June 29, 1996.

3(b)      By-laws of the Company.***

10(a)     Employment Agreement dated August 23, 1988, by and between the Company
          and Richard  Williams,  incorporated  by reference to Exhibit 10(b) of
          Registration Statement 33-27112, effective March 28, 1989.

10(b)     1988 Stock Option Plan,  incorporated by reference to Exhibit 10(c) of
          Registration Statement 33-27112, effective March 28, 1989.

10(c)     1988  Restricted  Stock  Purchase Plan,  incorporated  by reference to
          Exhibit 10(d) of Registration Statement 33-27112,  effective March 28,
          1989.

10(d)     Confidentiality   Agreement   between  the  Company  and  Heidelberger
          Druckmaschinen   A.G.,   effective   December   7,  1989  as  amended,

                                      -46-
<PAGE>

          incorporated  by reference to Exhibit  10(i) of the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 1989.

10(e)     Development  and Supply  Agreement dated July 23, 1991, by and between
          the Company and Inx  Incorporated,  incorporated  by  reference to the
          Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30,
          1991.

10(f)     Master   Agreement   effective   January  1,  1991,   by  and  between
          Heidelberger   Druckmaschinen   Aktiengesellschaft  and  the  Company,
          incorporated  by reference to the Company's Form 8-K, dated January 1,
          1991.

10(g)     Technology   License   effective  January  1,  1991,  by  and  between
          Heidelberger   Druckmaschinen   Aktiengesellschaft  and  the  Company,
          incorporated  by reference to the Company's Form 8-K, dated January 1,
          1991.

10(h)     Supply   Agreement   effective   January  1,  1991,   by  and  between
          Heidelberger   Druckmaschinen   Aktiengesellschaft  and  the  Company,
          incorporated  by reference to the Company's Form 8-K, dated January 1,
          1991.

10(i)     Memorandum  of  Performance  No. 3 dated April 27, 1993, to the Master
          Agreement,  Technology  License,  and  Supply  Agreement  between  the
          Company   and    Heidelberger    Druckmaschinen    Aktiengesellschaft,
          incorporated  by reference to the Company's  Quarterly  Report on Form
          10-Q for the Quarter Ended June 30, 1993.

10(j)     Modification  to Memorandum of Performance No. 3 dated April 27, 1993,
          to the Master  Agreement,  Technology  License,  and Supply  Agreement
          between     the    Company     and     Heidelberger     Druckmaschinen
          Aktiengesellschaft.+

10(k)     Memorandum  of  Understanding  No. 4 dated  November  9, 1995,  to the
          Master Agreement and Technology  License and Supply Agreement  between
          the Company and Heidelberger Druckmaschinen Aktiengesellschaft.****

10(l)     Lease  relating  to real  property  located  at 8  Commercial  Street,
          Hudson, New Hampshire.

                                      -47-
<PAGE>

10(m)     Lease  relating  to real  property  located  at 9  Commercial  Street,
          Hudson, New Hampshire.

10(n)     Lease  relating to real  property  located at 18-20  Hampshire  Drive,
          Hudson, New Hampshire.

10(o)     Development  and Supply  Agreement  dated  November 13,  1991,  by and
          between the Company and Gans Ink & Supply Co., Inc.*

10(p)     Amendment  to  Employment  Agreement  between  the Company and Richard
          Williams.

10(q)     1991 Stock Option Plan.*

10(r)     1994 Stock Option Plan.+

10(s)     Non Employee Director Stock Option Plan.+

10(t)     Memorandum  of  Understanding  No.5 dated  March 7, 1997  between  the
          Company and Heidelberger Druckmashchinen Aktiengesellschaft. ****

10(u)     Loan Agreement between the Company and Citizens Bank, New Hampshire.

10(v)     Revolving  Line of Credit  Promissory  Note in favor of Citizens Bank,
          New Hampshire.

21        Subsidiaries of the Company.

23(a)     Consent of BDO Seidman LLP.

23(b)     Consent of Deloitte & Touche LLP.

27        Financial Data Schedule (for SEC use only)

(b)       During the quarter  ended  December 28,  1996,  no reports on Form 8-K
          were filed.

(c)       See Item 14(a)(3) above.

(d)       See Item 14(a)(2) above.
----------

*    Incorporated  by reference to the exhibit filed with the  Company's  Annual
     report on Form 10-K for the year ended December 31, 1991.

**   Incorporated  by reference to the exhibit filed with the Company's Form 8-K
     for the event dated February 15, 1996.

***  Previously  filed as an exhibit with the  Company's  Form 10-K for the year
     ended December 30, 1995.

**** The Company has requested that the SEC grant it confidential treatment with
     respect to a portion of this exhibit.



                                      -48-
<PAGE>

+    Incorporated  by reference to the exhibit filed with the  Company's  Annual
     report on Form 10-K for the year ended December 31, 1994


                                      -49-
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

                                                                      Page
                                                                      ----

Report of Independent Certified Public Accountants                     F-2

Independent Auditors' Report                                           F-3

Balance Sheets as of December 30, 1995,
   and December 28, 1996                                               F-4

Statements of Income for the Years Ended
   December 31, 1994, December 30, 1995,
   and December 28, 1996                                               F-5

Statements of Changes in Stockholders' Equity
   for the Three Years Ended December 28, 1996                         F-6-7

Statements of Cash Flows for the Years Ended
   December 31, 1994, December 30, 1995,
   and December 28, 1996                                               F-8

Notes to Financial Statements                                          F-9

Financial Statement Schedule:

   Schedule II - Valuation and qualifying accounts
      and reserves                                                     FS-1


<PAGE>


                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Presstek, Inc.
Hudson, New Hampshire

We have audited the accompanying balance sheets of Presstek, Inc. as of December
30, 1995 and December 28, 1996, and the related statements of income, changes in
stockholders'  equity,  and cash  flows for the years then  ended.  We have also
audited the financial statement schedule listed in the accompanying index. These
financial  statements  and  schedule  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about whether the financial  statements  and schedule are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial  statements and
schedule.  An audit also includes  assessing the accounting  principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
presentation  of the  financial  statements  and  schedule.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Presstek,  Inc. at December 30,
1995 and December 28, 1996, and the results of its operations and its cash flows
for the years  then  ended in  conformity  with  generally  accepted  accounting
principles.

Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.

/s/ BDO SEIDMAN, LLP
    BDO SEIDMAN, LLP

New York, New York
February 21, 1997 (except for Note 11 as to which
                   the date is March 26, 1997)


                                      F-2
<PAGE>

INDEPENDENT AUDITORS' REPORT

Presstek, Inc.:

We have audited the accompanying  statements of income, changes in stockholders'
equity and cash flows of Presstek,  Inc.  for the year ended  December 31, 1994.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects the results of operations and cash flows of Presstek, Inc. for the year
ended  December 31, 1994,  in  conformity  with  generally  accepted  accounting
principles.

As  discussed in Note 4 to the  Financial  Statements,  the Company  changed its
method of  accounting  for certain  investments  in debt and equity  securities,
effective  January 1, 1994, to conform with  Statements of Financial  Accounting
Standards No. 115.

/s/  DELOITTE & TOUCHE LLP
     DELOITTE & TOUCHE LLP

Bedford, New Hampshire
March 15, 1995


                                      F-3
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.           Financial Statements

                                 PRESSTEK, INC.

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                        December 30,    December 28,
                                                            1995            1996
                                                        ------------    ------------
<S>                                                     <C>             <C>
ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                          $  3,628,021    $  3,530,866
     Marketable securities                                 3,050,825       6,602,854
     Accounts receivable, net of allowance
       for doubtful accounts of $80,000 in 1995
       and $183,851 in 1996                                7,888,559      17,306,020
     Inventory                                             5,615,743      10,639,657
     Costs and estimated earnings in excess
       of billings on uncompleted contracts                  246,000       1,625,137
     Other current assets                                    350,031         855,287
                                                        ------------    ------------
         Total current assets                             20,779,179      40,559,821
                                                        ------------    ------------
PROPERTY, PLANT AND EQUIPMENT:
     Land                                                       --         2,426,827
     Buildings under construction                               --         3,873,157
     Machinery and equipment                               5,659,211      14,026,575
     Furniture and fixtures                                  372,889         681,648
     Leasehold improvements                                1,247,803       2,905,181
     Other                                                    34,498          34,498
                                                        ------------    ------------
         Total                                             7,314,401      23,947,886
     Less accumulated depreciation
       and amortization                                   (3,023,089)     (4,230,674)
                                                        ------------    ------------
         Property, plant and equipment, net                4,291,312      19,717,212
                                                        ------------    ------------
OTHER ASSETS:
     Goodwill, net                                              --         6,144,819
     Patent application costs and license rights, net      1,012,147       1,704,406
     Software development costs, net                         585,980         546,838
     Other                                                      --           150,000
                                                        ------------    ------------
         Total other assets                                1,598,127       8,546,063
                                                        ------------    ------------
         TOTAL                                          $ 26,668,618    $ 68,823,096
                                                        ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable                                   $  2,392,846    $  8,332,558
     Accrued expenses                                      1,091,036         802,692
     Accrued salaries and employee benefits                  458,300         686,090
     Billings in excess of costs and estimated
        earnings on uncompleted contracts                       --         1,355,130
                                                        ------------    ------------
         Total current liabilities                         3,942,182      11,176,470
                                                        ------------    ------------
COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST                                               --           204,104
                                                        ------------    ------------
STOCKHOLDERS' EQUITY:
     Preferred stock, $.01 par value; authorized
       1,000,000 shares; no shares issued or
       outstanding                                                --              --
     Common Stock, $.01 par value; authorized
       75,000,000 shares; issued and outstanding
       14,765,300 shares at December 30, 1995                147,653         153,923
       15,392,276 shares at December 28, 1996;
     Additional paid-in capital                           21,559,856      49,188,118
     Unrealized loss on marketable securities, net            (3,176)        (42,911)
     Retained earnings                                     1,022,103       8,143,392
                                                        ------------    ------------
     Stockholders' equity                                 22,726,436      57,442,522
                                                        ------------    ------------

         TOTAL                                          $ 26,668,618    $ 68,823,096
                                                        ============    ============
</TABLE>


                        See notes to financial statements


                                      F-4
<PAGE>


                                 PRESSTEK, INC.

                              STATEMENTS OF INCOME
                               For the Years Ended
<TABLE>
<CAPTION>
                                                December 31,     December 30,   December 28,
                                                    1994            1995            1996
                                                ------------    ------------    ------------
<S>                                            <C>             <C>             <C>
REVENUES:
         Product sales                         $  9,462,032    $ 20,028,548    $ 33,569,400
         Royalties and fees from licensees        7,055,826       7,582,908      15,058,169
                                               ------------    ------------    ------------
              Total revenues                     16,517,858      27,611,456      48,627,569
                                               ------------    ------------    ------------
COSTS AND EXPENSES:
         Cost of products sold                    6,944,268      14,923,968      21,825,697
         Engineering and product development      5,123,439       6,155,421       8,894,420
         Marketing                                1,225,756       1,727,301       2,587,490
         General and administrative               1,603,729       2,050,075       4,739,951
                                               ------------    ------------    ------------
              Total costs and expenses           14,897,192      24,856,765      38,047,558
                                               ------------    ------------    ------------
OTHER INCOME (EXPENSE):
         Dividend and interest                      407,977         327,213         786,095
         Other, net                                     166          (2,276)       (244,817)
                                               ------------    ------------    ------------
              Total other income - net              408,143         324,937         541,278
                                               ------------    ------------    ------------

INCOME BEFORE INCOME TAXES                        2,028,809       3,079,628      11,121,289

PROVISION FOR INCOME TAXES                         (186,600)       (220,000)     (4,000,000)
                                               ------------    ------------    ------------
NET INCOME                                     $  1,842,209    $  2,859,628    $  7,121,289
                                               ============    ============    ============
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES                                14,865,344      15,855,076      16,581,254
                                               ============    ============    ============
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE                        $        .12    $        .18    $        .43
                                               ============    ============    ============
</TABLE>


                        See notes to financial statements



                                      F-5
<PAGE>

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                   For the Three Years Ended December 28, 1996
<TABLE>
<CAPTION>
                                                                                         Unrealized Loss
                                                            Common Stock      Additional  On Investments   Retained
                                                       --------------------     Paid-in      Available      Earning    Stockholders'
                                                         Shares      Amount     Capital      For Sale      (Deficit)      Equity
                                                         ------      ------     -------      --------      ---------      ------
<S>                                                    <C>         <C>        <C>            <C>          <C>           <C>
BALANCE AT DECEMBER 31, 1993                           5,388,968   $ 53,890   $15,771,254    $    --      $(3,679,734)  $12,145,410
February through March 1994:
   Issuance of Common Stock relative to the exercise
   of warrants at $12.50 and $14.25 per share             50,000        500       668,250                                   668,750
August, 1994:
   Five for four stock split, effected in
   the form of a 25% stock dividend, net of
   fractional shares                                   1,410,235     14,102       (17,782)                                   (3,680)
January through December, 1994:
   Issuances of Common Stock relative to the
   exercise of incentive stock options at:
   $1.50 per share                                        54,361        544       341,126                                   341,670
   $1.20 per share                                        62,500        625        74,375                                    75,000
   Issuances of Common Stock relative to the
   exercise of nonqualified stock options at
   $5.00 - $16.75 per share                               74,856        748       612,963                                   613,711
   Issuances of Common Stock relative to the
   exercise of underwriters' warrants and unit
   warrants for cash at:
      $5.75 and $6.25 per share, respectively             95,254        953       570,571                                   571,524
      $4.60 and $5.00 per share, respectively             57,846        578       277,082                                   277,660
State tax benefit arising from stock option deductions                            140,000                                   140,000
Unrealized loss on marketable securities, net                                                 (199,334)                    (199,334)
Net income for the year                                                                                     1,842,209     1,842,209
                                                      ----------   --------   -----------    ---------    -----------   -----------
BALANCE AT DECEMBER 31, 1994                           7,194,020     71,940    18,437,839     (199,334)    (1,837,525)   16,472,920
January through December, 1995:
   Issuance of Common Stock relative to the
   exercise of incentive stock options at
   $10.00 - $15.55 per share                             112,877      1,129     1,628,242                                 1,629,371
   Issuance of Common Stock relative to the
   exercise of nonqualified stock options at
   $4.00 - $19.20 per share                              159,931      1,599     1,282,760                                 1,284,359
   Issuance of Common Stock relative to the
   exercise of underwriters' warrants
   and unit warrants for cash at $4.60 and $5.00
   per share, respectively                                22,500        225       107,775                                   108,000
May, 1995
   Two for One stock split effected in
   the form of a 100% stock dividend                   7,275,972     72,760       (72,760)                                       --
State tax benefit arising from stock option deductions                            176,000                                   176,000
Unrealized gain on marketable securities, net                                                  196,158                      196,158
Net income for the year                                                                                     2,859,628     2,859,628
                                                      ----------   --------   -----------    ---------    -----------   -----------
BALANCE AT DECEMBER 30, 1995                          14,765,300   $147,653   $21,559,856    $  (3,176)   $ 1,022,103   $22,726,436
</TABLE>


                        See notes to financial statements


<
                                      F-6
<PAGE>



                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                   For the Three Years Ended December 28, 1996

<TABLE>
<CAPTION>
                                                                                         Unrealized Loss
                                                            Common Stock      Additional  On Investments   Retained
                                                       --------------------     Paid-in      Available      Earning    Stockholders'
                                                         Shares      Amount     Capital      For Sale      (Deficit)      Equity
                                                         ------      ------     -------      --------      ---------      ------
<S>                                                    <C>         <C>        <C>            <C>          <C>           <C>
BALANCE BROUGHT FORWARD
AT DECEMBER 30, 1995                                   14,765,300  $147,653   $ 21,559,856   $   (3,176)  $ 1,022,103  $ 22,726,436
January through December 1996
   Issuance of Common Stock relative
      to the exercise of incentive stock
      options at $10.00 - $52.75 per share                130,330     1,304      1,875,917                                1,877,221
   Issuance of Common Stock relative
      to the exercise of non-qualified
      stock options at $4.30 - $21.875 per share          213,800     2,138      1,703,915                                1,706,053
January, 1996
   Issuance of Common Stock relative
      to the private placements at $73.00 per share       282,846     2,828     20,205,930                               20,208,758
Costs relative to the private placement                                            (33,500)                                 (33,500)
Tax benefit arising from stock option deductions                                 3,876,000                                3,876,000
Unrealized loss on marketable securities, net                                                   (39,735)                    (39,735)
Net income for the year                                                                                     7,121,289     7,121,289
                                                      -----------  --------   ------------   ----------   -----------  ------------
BALANCE AT DECEMBER 28, 1996                           15,392,276  $153,923   $ 49,188,118   $  (42,911)  $ 8,143,392  $ 57,442,522
                                                      ===========  ========   ============   ==========   ===========  ============
</TABLE>




                        See notes to financial statements


                                      F-7
<PAGE>

                                 PRESSTEK, INC.

                            STATEMENTS OF CASH FLOWS
                               For the Years Ended
<TABLE>
<CAPTION>
                                                                           December 31,          December 30,           December 28,
                                                                                1994                 1995                  1996
                                                                           ------------          ------------          ------------
<S>                                                                        <C>                   <C>                   <C>
CASH FLOWS - OPERATING ACTIVITIES:
   Net income                                                              $  1,842,209          $  2,859,628          $  7,121,289
   Adjustments to reconcile net income
   to net cash provided by (used for)
   operating activities:
      Tax benefit arising from stock option deductions                          140,000               176,000             3,876,000
      Depreciation                                                              601,197               819,507             1,253,812
      Amortization                                                               55,639               178,529               785,007
      Provision for warranty and other costs                                    215,000               916,242               728,235
      Other, net                                                                (28,388)                2,276               107,211
   (Increase) decrease in:
      Accounts receivable                                                    (3,384,070)           (3,759,012)           (9,469,737)
      Inventory                                                              (1,562,606)           (3,165,578)           (5,036,014)
      Costs and estimated earnings in excess of
        billings on uncompleted contracts                                          --                    --                (605,556)
      Other current assets                                                     (532,375)              406,561              (475,203)
   Increase (decrease) in:
      Accounts payable and accrued expense                                     (126,332)            1,222,816             5,109,014
      Accrued salaries and employee benefits                                    105,134               109,516               168,989
      Billings in excess of costs and estimated
      earnings on uncompleted contracts                                            --                    --                 667,805
                                                                           ------------          ------------          ------------
              Net cash provided by (used for)
                  operating activities                                       (2,674,592)             (233,515)            4,230,852
                                                                           ------------          ------------          ------------
CASH FLOWS - INVESTING ACTIVITIES:
   Investment in subsidiary, net of cash acquired                                  --                    --              (7,456,020)
   Purchases of property and equipment                                       (1,746,470)           (2,387,379)          (16,389,751)
   Proceeds from sale of equipment                                               31,017                76,300                66,400
   Increase in other assets                                                    (674,200)             (561,261)             (851,051)
   Sales and maturities of
      marketable securities                                                   5,157,394             2,179,510             3,500,000
   Purchases of marketable securities                                        (2,095,152)                 --              (6,956,117)
                                                                           ------------          ------------          ------------
              Net cash provided by (used for)
                  investing activities                                          672,589              (692,830)          (28,086,539)
                                                                           ------------          ------------          ------------
CASH FLOWS - FINANCING ACTIVITIES:
   Net proceeds from sale of common
      stock and warrants                                                      2,544,635             3,021,730            23,758,532
                                                                           ------------          ------------          ------------

INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                                             542,632             2,095,385               (97,155)
CASH AND CASH EQUIVALENTS -
   BEGINNING OF PERIOD                                                          990,004             1,532,636             3,628,021
                                                                           ------------          ------------          ------------
   END OF PERIOD                                                           $  1,532,636          $  3,628,021          $  3,530,866
                                                                           ============          ============          ============

SUPPLEMENTAL DISCLOSURE OF
   CASH FLOWS INFORMATION -
      Cash paid during the period for income taxes                         $       --            $     52,000          $     45,000
                                                                           ============          ============          ============

</TABLE>

                        See notes to financial statements


                                      F-8
<PAGE>

                                 PRESSTEK, INC.

                          NOTES TO FINANCIAL STATEMENTS

1.   NATURE OF BUSINESS

     Presstek,  Inc. ("the  Company" or "Presstek")  was organized as a Delaware
corporation  on September 3, 1987 and was a development  stage  company  through
1991. In September 1991,  Heidelberger  Druckmaschinen  A.G.  ("Heidelberg") the
world's largest  printing press  manufacturer  introduced the Company's  initial
spark discharge based imaging  technology,  in a jointly developed product,  the
Heidelberg  GTO-DI. In 1993, after investing  substantial  effort and resources,
the  Company  completed  the  development  of  PEARL(R),   its  high  resolution
semiconductor  laser  diode  based  imaging  technology.   PEARL's  laser  diode
technology  is capable of imaging  various  types of  Presstek  printing  plates
either  off-press or on-press  which may then be used to produce  high  quality,
full-color  lithographic  printed materials.  PEARL has completely  replaced the
Company's spark discharge technology.  The GTO-DI was reintroduced with PEARL in
September  1993.  During  the  second  quarter of 1995,  the  Company  commenced
shipments of Direct Imaging systems to be utilized on  Heidelberg's  Quickmaster
DI 46-4.  This press was  introduced  by  Heidelberg  in May 1995 to replace the
GTO-DI  which  is no  longer  manufactured.  Presstek  is  also  engaged  in the
development  of  additional  products  and  applications  that  incorporate  its
proprietary PEARL technologies and consumables, including both computer-to-plate
and other direct-to-press applications.  Shipments of Direct Imaging systems for
the larger  format  Omni Adast (19" x 26")  multicolor  press  began in December
1996. Also, during the first quarter of 1996, the Company began shipments of its
PEARL  platesetter,  now  referred  to as the  PEARLsetter.  The  Company is now
building  an  installed  base  of  customers   which  utilizes  its  proprietary
consumable printing plates on PEARL equipped  Heidelberg  presses.  During 1996,
revenues  generated under the Company's  agreements with Heidelberg and revenues
from Heidelberg's  distributors represented 73% of the Company's total revenues.
Prior to 1996, the Company relied on Heidelberg to generate substantially all of
its revenues.

     Catalina Coatings,  Inc.  ("Catalina"),  a corporation  organized under the
laws of Arizona on October 14, 1991,  became a subsidiary of the Company in 1996
(see Note 3) and is engaged in the development,  manufacture, and sale of vacuum
deposition  coating  equipment,  and licensing and sublicensing of patent rights
with  respect to a vapor  deposition  process to coat moving webs of material at
high speeds.  During 1996, a substantial part of Catalina's efforts were devoted
to developing  and  manufacturing  the  equipment  the Company  believes it will
require to manufacture PEARL thermal plates.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation - The financial statements include the accounts
of the Company and its 90% owned subsidiary and the results of operations of the
business  acquisition  (Note 3) since the beginning of fiscal 1996.  Significant
intercompany accounts and transactions have been eliminated.

                                      F-9
<PAGE>

     Fiscal  Year - On  January  19,  1995,  the  Company's  Board of  Directors
determined to change its fiscal year from a calendar year ending  December 31 to
a fiscal year ending on the Saturday closest to December 31; accordingly, fiscal
1996 ended  December 28 and fiscal 1995 ended  December 30,  1995.  Fiscal 1994,
1995, and 1996 each reflect 52 week periods. The first 53 week period will occur
in fiscal 1997.

     Use of Estimates - The  preparation  of financial  statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting  period.  Actual results could differ from these estimates.
Many of the Company's estimates and assumptions used in the financial statements
relate to the  Company's  products,  which are  subject  to rapid  technological
change.  It is reasonably  possible that changes may occur in the near term that
would affect  management's  estimates  with  respect to the  carrying  values of
inventories, equipment and software development costs.

     Revenue  Recognition  - The Company  records  revenues on product sales and
related royalties at the time of shipment. Certain fees and other reimbursements
are  recognized as revenue when the related  services have been performed or the
revenues otherwise earned.

     Revenues from fixed-price and modified fixed-price production contracts are
recognized on the percentage-of-completion method, measured by the percentage of
costs incurred to date to the estimated total of direct costs for each contract.
As contracts can extend over one or more accounting periods,  revisions in costs
and earnings  estimated  during the course of the work are reflected  during the
accounting period in which the facts that required such revisions become know.

     Product  Warranties - The Company  warrants its products against defects in
material and workmanship for a period of one year.  Anticipated  future warranty
costs are accrued by a charge to expense as products are shipped and the related
revenue  recognized.  At December  30, 1995,  and  December  28,  1996,  accrued
expenses  included accrued warranty costs of $601,000 and $514,000,  and product
replacement reserves for 1995 of $291,000.  Product replacement  activities were
completed in 1996 and the reserve was fully utilized.


                                      F-10
<PAGE>

     Inventory - Inventory  is valued at the lower of cost or market,  with cost
determined on the first-in, first-out method. At December 30, 1995, and December
28, 1996, inventory consisted of the following:

                                                    1995                 1996

Raw materials                                  $ 3,476,713           $ 6,155,277

Work in process                                  1,713,382             3,532,724

Finished goods                                     425,648               951,656
                                               -----------           -----------
     Total                                     $ 5,615,743           $10,639,657
                                               ===========           ===========


     Property and  Equipment - Property and equipment are stated at cost and are
depreciated  using a straight-line  method for both financial  reporting and for
tax purposes  over their  estimated  useful lives  (ranging from 3 to 10 years).
Leasehold  improvements  are amortized  over the life of the lease for financial
reporting purposes and a required longer period for tax purposes.

     Goodwill - The  excess of cost over the fair value of net assets  acquired,
which relates to the Company's  acquisition  of Catalina (Note 3), of $6,469,000
is being  amortized  over a twenty year period using the  straight  line method.
Amortization expense was $324,800 for the year ended December 28, 1996.

     Patent  Applications  Costs and License Rights - Patent  application  costs
represent  the  expense  of  preparing  and  filing  applications  to patent the
Company's  proprietary  technologies,  in addition to certain patent and license
rights acquired in the acquisition of Catalina. Such costs are amortized against
income over a period ranging from five to seven years, beginning on the date the
patents or rights are issued or  acquired.  Amortization  expense  for the years
ended December 31, 1994,  December 30, 1995, and December 28, 1996, was $55,639,
$72,530, and $212,055, respectively.

     Software  Development  Costs - Software  development costs for products and
certain product enhancements are capitalized  subsequent to the establishment of
their technological feasibility (as defined in Statement of Financial Accounting
Standards  No. 86) based upon the  existence  of working  models of the products
which are ready for  initial  customer  testing.  Costs  incurred  prior to such
technological  feasibility  or  subsequent  to a  product's  general  release to
customers  are  expensed as incurred.  Prior to 1994,  the Company did not incur
material costs subject to capitalization. Through 1996, the Company incurred and
capitalized  $895,000 of costs subject to capitalization.  Amortization of these
costs  commenced  in 1995 when the related  product was  released to  customers.
Amortization  for 1995 and 1996 was $98,500 and  $249,500,  respectively,  based
upon the  ratio  that  current  gross  revenues  bear to total  estimated  gross
revenues,  which was an amount  greater  than  amortization  on a  straight-line
method over the estimated economic life of the product from three to five years.
Based upon  current  sales  estimates,  software  costs are expected to be fully
amortized in less than three years.

                                      F-11
<PAGE>

     Non-Competition and  Confidentiality  Covenants - The consideration paid by
the  Company  to  the  selling   shareholders   of  Catalina   with  respect  to
non-competition  and  confidentiality is being amortized over a four year period
using the straight line method.

     Research  and  Development  Costs -  Research  and  development  costs  are
expensed as incurred for financial  reporting  purposes.  Such costs  aggregated
$5,123,439,  $6,155,421,  and  $8,894,420 for the years ended December 31, 1994,
December 30, 1995, and December 28, 1996, respectively.

     Cash Flows  Information - For purposes of reporting cash flows, the Company
considers all savings deposits,  certificates of deposit, and money market funds
and  deposits  purchased  with a  maturity  of three  months  or less to be cash
equivalents.  At  December  30,  1995,  and  December  28,  1996,  cash and cash
equivalents consisted of cash balances on deposit and money market funds.

     Reclassification   -  Various   accounts  in  the  prior  years'  Financial
Statements have been  reclassified for comparative  purposes to conform with the
presentation in the current-year Financial Statements.

     Long-Lived Assets - Long-lived assets, such as property and equipment,  are
evaluated for impairment when events or changes in  circumstances  indicate that
the carrying  amount of the assets may not be recoverable  through the estimated
undiscounted  future  cash  flows  from the use of these  assets.  When any such
impairment  exists,  the related  assets will be written down to fair value.  No
write downs were  necessary  for the years ended  December 30, 1995 and December
28, 1996.

     Stock-Based  Compensation  - The Company has not adopted the optional  fair
value based method for  accounting  for stock options  granted to employees,  as
permitted by Statement of Financial  Accounting  Standards No. 123, ("SFAS 123")
"Accounting for Stock-Based  Compensation",  which is effective for transactions
entered into in fiscal years that begin after  December 15, 1995.  See Note 8 of
the financial statements.

3.   BUSINESS ACQUISITION

     On February 15, 1996, the Company  acquired 90% of the  outstanding  Common
Stock (the  "Purchased  Shares")  of  Catalina  Coatings,  Inc.  The Company has
continued  the business of Catalina  which now  operates as a subsidiary  of the
Company.  The  Purchased  Shares were  acquired  from the  selling  shareholders
pursuant to a Stock Purchase  Agreement (the "Stock Purchase  Agreement")  dated
and  effective as of January 1, 1996.  The aggregate  consideration  paid by the
Company  pursuant  to the Stock  Purchase  Agreement  was  $8,400,000,  of which
$8,200,000  represented the purchase price of the Purchased  Shares and $200,000
represented  consideration for the non-competition and confidentiality covenants
of the selling shareholders.

     Simultaneous with the closing of the acquisition,  the Company entered into
a Put and Call Option  Agreement  (the "Option  Agreement")  which  provides the
Company with the right,  at any time after  February  15,  2000,  to acquire the
remaining  10% of the  outstanding  Common  Stock of Catalina  for an  aggregate
consideration


                                      F-12
<PAGE>

of $2,000,000.  The Option Agreement also provides the selling  shareholders and
another  employee of Catalina with the right, at any time after August 15, 2000,
to  cause  the  Company  to  purchase  the   remaining   shares  for   aggregate
consideration  of  $1,000,000.  The Option  Agreement will terminate if Catalina
consummates an initial public  offering of its securities  prior to February 15,
2000.

     The  Company  granted the selling  shareholders  and the other  employee of
Catalina five-year non-qualified options to purchase an aggregate 100,000 shares
of the  Company's  Common  Stock at an  exercise  price  of  $89.50  per  share,
representing fair market value at the date of grant, and Catalina granted to the
same  individuals  an option to  purchase  an  aggregate  5% of the  issued  and
outstanding Common Stock of Catalina in the event that a registration  statement
relating to an initial  public  offering of  Catalina  Common  Stock is declared
effective by February 15, 2000.

     A portion of the funds  raised from the private  placements  referred to in
Note 8 were utilized to complete the acquisition.

     The  acquisition  was  accounted for as a purchase  and,  accordingly,  the
results of  Catalina's  operations  have been  included  in the  Company's  1996
financial statements.

     The   purchase   price,   plus   aquisition   costs  of  $240,000,  net  of
non-competition  and  confidentiality  covenants,  has been  allocated to assets
acquired  and  liabilities  assumed  based on fair  market  value at the date of
acquisition, as follows:

          Current Assets                                       $ 1,976,000
          Property and Equipment                                   329,000
          Other Assets                                             222,000
          Intangibles                                              443,000
          Goodwill                                               6,469,000
          Current Liabilities                                    ( 999,000)
                                                               -----------
                                                               $ 8,440,000
                                                               ===========

     During  1996,  a  substantial  part of  Catalina's  efforts were devoted to
developing and  manufacturing the equipment the Company believes it will require
to manufacture  PEARL thermal printing plates.  Catalina's 1996 revenues,  after
eliminating   significant   intercompany  accounts  and  transactions,   totaled
approximately $1,950,000, and its results of operations were not material to the
Company.

     The following unaudited pro forma summary combines the consolidated results
of operations of the Company and Catalina as if the  acquisition had occurred at
the  beginning  of fiscal  1995,  after  giving  effect to  certain  adjustments
including  the  amortization  of excess of cost over net assets  acquired and to
eliminate the effect of  intercompany  transactions.  This pro forma summary for
fiscal 1995 does not necessarily reflect the results of operations as they would
have been if the Company and Catalina had constituted a single entity during the
period,  and is not  necessarily  indicative of results which may be obtained in
the future.


                                      F-13
<PAGE>

           Revenues                           $32,754,000
                                              ===========

           Costs and expenses                 $29,160,000
                                              ===========

           Net income                         $ 3,809,000
                                              ===========

           Net income per common
           and common equivalent share               $.24
                                                     ====

4.   MARKETABLE SECURITIES

     Effective  January 1, 1994, the Company adopted the provisions of Statement
of  Financial  Accounting  Standards  (SFAS) No.  115,  "Accounting  for Certain
Investments in Debt and Equity Securities." Marketable Securities are classified
as  available  for sale and  consist  of United  States  Treasury  Notes  having
maturity dates of more than three months, and are stated at fair value.

     Contractual  maturities  of  securities  as of December 28,  1996,  were as
follows:  February  1997 - $2,500,000;  July 1997 - $1,000,000;  December 1997 -
$2,000,000; April 1998 - $1,000,000.  Aggregate net unrealized holding losses of
$3,176 and $42,911 at December  30, 1995,  and December 28, 1996,  respectively,
have been  included  as a  separate  component  of  stockholders'  equity in the
accompanying balance sheets.


Certain information with respect to the Company's  marketable  securities as of
December 30, 1995, and December 28, 1996, is presented below:

                                                  1995              1996
                                                  ----              ----
                                                 Total              Total
                                                 -----              -----

Amortized Cost                               $ 3,054,001      $ 6,645,765
Gross Unrealized                                   7,810
   Holding Gains
Gross Unrealized
   Holding Losses                                (10,986)         (42,911)
                                             -----------      -----------
Fair Value                                   $ 3,050,825      $ 6,602,854
                                             ===========      ===========

For the years ended December 30, 1995, and December 28, 1996, the Company
received proceeds from the sale or maturity of available for sale securities of
$2,179,510 and $3,500,000 and recorded net realized losses of $28,024 in 1995.
In computing such realized losses, cost was determined using the specific cost
method.

5.   NET INCOME PER COMMON SHARE

     Net income per  common  share is  computed  by  dividing  net income by the
weighted  average  number of Common  Stock and Common  Stock  equivalent  shares
outstanding.  Common Stock  equivalents  represent  the  dilutive  effect of the
assumed exercise of outstanding  stock options and warrants.  On August 2, 1994,
the  Company's  Board of  Directors  authorized  a  five-for-four  stock  split,
effected in the form of a 25% stock dividend,  during the third quarter of 1994.
The split resulted in the issuance of 1,410,235 shares of Common Stock. On April
19, 1995, the Company's Board of Directors  declared a two-for-one  stock split,
effected  in the form of a 100% stock  dividend,  during  the second  quarter of
1995.  The split  resulted in the issuance of 7,275,972  shares of Common Stock.
All references to average number of shares outstanding and prices per share have
been restated retroactively to reflect the splits.


                                      F-14
<PAGE>

          A summary of the calculations for the years ended December 31, 1994,
December 30, 1995, and December 28, 1996, follows:

                        (In Thousands, Except Per Share)
<TABLE>
<CAPTION>
                                                          1994                          1995                          1996
                                                -----------------------       -----------------------       ------------------------
                                                                 Fully                        Fully                          Fully
                                                 Primary        Diluted       Primary        Diluted        Primary         Diluted
                                                --------       --------       --------       --------       --------       --------
<S>                                             <C>            <C>            <C>            <C>            <C>            <C>
Net Income                                      $  1,842       $  1,842       $  2,860       $  2,860       $  7,121       $  7,121
                                                ========       ========       ========       ========       ========       ========
Weighted average common
   shares outstanding                             14,026         14,388         14,562         14,562         15,189         15,189
Common equivalent shares
   from assumed conversion
   of outstanding options
   and warrants
   whose effect
   are not antidilutive
   on earnings per share                           1,938          2,131          1,742          1,770          1,736          1,736

Less shares assumed
   repurchased using the
   treasury method for
   calculation of net
   shares outstanding                             (1,099)          (917)          (449)          (239)          (344)          (344)
                                                --------       --------       --------       --------       --------       --------
Weighted average common
   and common equivalent
   shares outstanding                             14,865         15,602         15,855         16,093         16,581         16,581
                                                ========       ========       ========       ========       ========       ========

Net income per common
   and common equivalent
   shares                                       $    .12       $    .12       $    .18       $    .18       $    .43       $    .43
                                                ========       ========       ========       ========       ========       ========
</TABLE>


                                      F-15
<PAGE>


6.   INCOME TAXES

     The  Company  utilizes  an  asset  and  liability  approach  for  financial
accounting and reporting for income taxes. The primary  objectives of accounting
for income taxes are to (a)  recognize the amount of tax payable for the current
year and (b)  recognize  the amount of deferred  tax  liability or asset for the
future tax  consequences  of events that have been  reflected  in the  Company's
financial statements or tax returns.

     The  components  of the  provision  for  income  taxes for the years  ended
December 31, 1994, December 30, 1995, and December 28, 1996, were as follows:


                                                1994        1995         1996
                                            ----------   ----------   ----------
Current tax expense - State                 $   46,600   $   44,000   $  124,000

Charge in lieu of income taxes:

     Federal                                      --           --      3,360,000
     State                                     140,000      176,000      516,000

Change in deferred tax asset - net                --           --           --
                                            ----------   ----------   ----------
Total provision                             $  186,600   $  220,000   $4,000,000
                                            ==========   ==========   ==========

     The charges in lieu of income taxes  included in the 1994,  1995,  and 1996
provision for income taxes  represent the tax benefit  arising from stock option
deductions.  No charge in lieu of federal  income taxes was required for 1994 or
1995 due to the  availability  of federal net operating loss  carryforwards  for
accounting purposes. The tax benefit related to such stock option deductions has
been credited to shareholders' equity.

     Deferred income taxes reflect the impact of temporary  differences  between
the amount of assets and liabilities for financial  reporting  purposes and such
amounts  as  measured  by tax laws and  regulations.  Deferred  tax  assets  and
liabilities  consisted of the  following at December 30, 1995,  and December 28,
1996:


                                                        1995            1996
                                                    -----------     -----------
Deferred tax assets:
   Net operating loss carryforwards                 $ 5,600,000     $ 7,660,000
   Tax credits                                          350,000         500,000
   Warranty provisions and other accruals               640,000         635,000
                                                    -----------     -----------
      Gross deferred tax assets                       6,590,000       8,795,000
                                                    -----------     -----------

Deferred tax liabilities:
   Patent applications costs                            368,000         463,000
   Accumulated depreciation and amortization            187,000         282,000
                                                    -----------     -----------
      Gross deferred tax liabilities                    555,000         745,000
                                                    -----------     -----------

                                                      6,035,000       8,050,000

Less valuation allowance                             (5,985,000)     (8,000,000)
                                                    -----------     -----------
Deferred tax asset - net                            $    50,000     $    50,000
                                                    ===========     ===========


                                      F-16
<PAGE>


     The $50,000  deferred  tax asset was  included in other  current  assets at
December 30, 1995,  and December 28, 1996.  The  valuation  allowance  increased
$195,000, $3,057,000, and $2,015,000 in 1994, 1995, and 1996, respectively.

     The difference between income taxes at the United States federal income tax
rate and the  effective  income  tax rate was as  follows  for the  years  ended
December 31, 1994, December 30, 1995, and December 28, 1996:

                                                           1994    1995    1996
                                                           ----    ----    ----
Computed at federal statutory rate                           34%     34%     34%
Increase (decrease) resulting from:
   Expenses producing no current tax benefit                  2%     11%      1%
   State tax, net of federal benefit                          7%      7%      4%
   Alternative minimum tax                                    2%     -%      -%
   Net operating loss carryforwards                          -28%    -42%    -%
   Deductions for tax purposes in excess of
      expenses for financial statement purposes              -7%     -%      -2%
   Patent perfection costs and other                         -1%     -3%     -1%
                                                           ----    ----    ----
          Effective rate, net                                 9%      7%     36%

     As of December 28, 1996, the Company had net operating  loss  carryforwards
totaling  approximately  $28,550,000 resulting from compensation  deductions for
tax purposes  relative to stock option plans. To the extent net operating losses
resulting from stock option plan compensation deductions become realizable,  the
benefit will be credited  directly to additional paid in capital.  The amount of
the net  operating  loss  carryforwards  which may be utilized to offset  future
taxable income, when earned, may be subject to certain  limitations,  based upon
changes in the  ownership of the  Company's  Common  Stock.  The  following is a
breakdown of the net operating losses and their expirations dates:

                                                     Amount of remaining
            Expiration date                   net operating loss carryforwards
            ---------------                   --------------------------------
                  2005                                          $ 2,230,000
                  2006                                          $ 5,020,000
                  2008                                          $    50,000
                  2009                                          $   500,000
                  2010                                          $ 8,750,000
                  2011                                          $12,000,000

     In addition,  the Company has available tax credit carryforwards  (adjusted
to reflect  provisions of the Tax Reform Act of 1986) of approximately  $500,000
which are available to offset future income tax liabilities when incurred.

7.   RELATED PARTIES

     During the years ended  December  31, 1994,  and  December  30,  1995,  the
Company made various sales to Howtek, Inc. totaling  approximately  $114,500 and
$23,250,  respectively.  During 1996, the Company made equipment  purchases from
Howtek totaling $53,721. Mr. Robert Howard, Chairman and a principal stockholder


                                      F-17
<PAGE>

of the  Company,  is the  Chairman  of the Board of  Directors  and a  principal
stockholder of Howtek and the father of Dr. Lawrence  Howard.  Dr. Howard served
as Vice Chairman of the Board through February 1996. Dr. Howard currently serves
as a director to the Company.

     The Company  subleases  certain of its office  facilities  from Mr.  Robert
Howard,  Chairman,  as a tenant-at-will.  Payments totaled $35,379,  $35,400 and
$35,513, respectively, for the years ended December 31, 1994, December 30, 1995,
and December 28, 1996.  Mr.  Howard was paid  $100,000  during 1994 and $110,000
during 1995 as a bonus for consulting  services  rendered.  The Company paid Mr.
Howard $125,000 for consulting services provided to the Company during 1996.

     During 1996,  the Company  recorded  sales of equipment and  consumables to
Pitman Company of $3,379,000:  and at December 28, 1996 the Company had accounts
receivable  from Pitman of $2,279,000.  John Dreyer,  who has been a director of
the Company  since  February  1996, is Pitman's  President  and Chief  Executive
Officer.

8.   STOCKHOLDERS' EQUITY

     References  herein to shares,  options,  warrants  and the prices per share
have been restated for the 1994 and 1995 stock  splits,  effected in the form of
stock dividends, referred to in Note 5.

     Preferred Stock - The Company' certificate of incorporation empowers
the Board of Directors, without stockholder approval, to issue up to 1,000,000
shares of $.01 par value preferred stock, with dividend, liquidation,
conversion, and voting or other rights to be determined upon issuance by the
Board of Directors.

     Restricted  Stock Purchase Plan - On August 22, 1988, the Company adopted a
Restricted Stock Purchase Plan ("the Purchase Plan")  authorizing the sale of up
to 125,000  shares of Common Stock to its  employees at a price to be determined
by the  Board of  Directors,  but in no event to be less  than $.01 per share or
greater than 110% of the then fair market  value.  At December  28, 1996,  after
adjustment  for the 1994 and 1995 splits  40,000 shares  remained  available for
sale.

     Stock Option Plans - On August 22, 1988, the Company adopted the 1988 Stock
Option  Plan (the "1988  Plan"),  and  effective  August 19,  1991,  the Company
adopted the 1991 Stock Option Plan (the "1991  Plan"),  and  effective  April 8,
1994,  the Company  adopted the 1994 Stock Option Plan (the "1994  Plan").  Each
plan  originally  provided for the award,  to key employees  and other  persons,
options to purchase up to 500,000  shares of the Company's  Common  Stock.  As a
result of the 1994 and 1995 stock  splits,  the number of shares of Common Stock
issuable upon exercise of outstanding  options granted under the above plans and
upon exercise of options  available for future grants increased by 25% and 100%,
respectively.  Options  granted  under the plans may be either  Incentive  Stock
Options ("ISOs") or Nonqualified Options. Generally, ISOs may only be granted to
employees  of the  Company,  at an  exercise  price of not less than fair market
value of the stock at the date of grant.  Nonqualified Options may be granted to
any person,  at any exercise price.  Nonqualified  Options may be granted to any
person, at any exercise price not less than par value,  within the discretion of
the Board of  Directors  or a  committee  appointed  by the  Board of  Directors
("Committee").   Any  options  granted  will  generally  become  exercisable  in
increments  over a period not to exceed ten years from the date of grant,


                                      F-18
<PAGE>

to be  determined by the Board of Directors or  Committee,  and  generally  will
expire not more than 10 years from the date of grant.

     Statement  of  Financial   Accounting   Standards  No.  123  ("SFAS  123"),
"Accounting for Stock-Based  Compensation",  requires the Company to provide pro
forma  disclosure  of net income and earnings per share as if the optional  fair
value method had been applied to determine  compensation costs for the Company's
Stock Option plans. The Company has used the Black-Scholes  option-pricing model
to estimate  the fair value of each stock  option  issued in 1995 and 1996.  The
following weighted average assumptions were also used: a risk-free interest rate
of 6.0%; an expected option life of 4.0777 years; expected volatility of 68.3074
percent and no dividends paid.

Accordingly,  the  Company's  net income and  earnings per share would have been
reduced to the pro forma amounts indicated in the following table:

                                                      1995                  1996
                                             -------------         -------------
Net income
  As reported                                $   2,859,628         $   7,121,289
  Pro forma                                      2,303,720               249,000

Net income per
common and common
equivalent share
   As reported                                         .18                   .43
   Pro forma                                           .15                   .02

     The above pro forma net income  and net  income per share do not  recognize
the  related  tax   benefits  in  1995  and  1996  of $118,000  and   $2,470,000
respectively,  as these deferred tax assets would be fully offset by a valuation
allowance.

The following table summarizes information about stock options outstanding at
December 28, 1996.

<TABLE>
<CAPTION>
                                          $5.70         $11.00          $36.00           $55.25          $75.50           $5.70
Range of exercise prices              to $10.00      to $25.00       to $55.00        to $73.00       to $99.25       to $99.25
                                      ---------      ---------       ---------        ---------       ---------       ---------
<S>                                   <C>          <C>             <C>                <C>             <C>            <C>
Outstanding Options
  Number outstanding
    at December 28, 1996                673,267       724,749          62,250          180,400         145,500       1,786,166
  Weighted-average remaining
    contractual life (years)                1.3           3.4             4.5              5.1             4.4             2.9
  Weighted-average exercise price     $    7.46    $    16.89      $    49.68         $  69.88        $  87.75      $    25.61

Exercisable options
  Number outstanding
    at December 28, 1996                594,363       250,903           7,125           80,000            --           924,781
  Weighted-average exercise  price    $    7.30    $    16.59      $    51.35         $  71.00            --        $    14.20
</TABLE>



                                      F-19
<PAGE>


     Information  concerning  incentive  stock option  activity  under the 1988,
1991, and 1994 plans for the years ended  December 31, 1994,  December 30, 1995,
and December 28, 1996, is summarized as follows:

<TABLE>
<CAPTION>
                                                                                           Weighted
                                             Option              Option price            average price        Options
                                             Shares               per share                per share        Exercisable
                                             ------               ---------                ---------        -----------
<S>                                             <C>          <C>                            <C>               <C>
Outstanding at December 31, 1993                438,250      $  .60  - $25.00               $ 5.59            289,608
                                                                                                              =======
Granted                                         509,000      $15.55  - $19.50               $15.71
Exercised                                      (253,872)     $  .60  - $10.00               $ 1.64
Cancelled/Expired                              ( 17,188)     $10.00  - $25.00               $20.91
                                                -------
Outstanding at December 31, 1994                676,190      $10.00  - $19.50               $14.29             12,591
                                                                                                               ======
Granted                                          34,500      $41.375 - $52.75               $51.60
Exercised                                      (122,164)     $10.00  - $15.55               $13.34
Cancelled/Expired                                    --

Outstanding at December 30, 1995                588,526      $10.00  - $52.75               $16.68             76,279
                                                -------                                                        ======
Granted                                          13,750      $51.00  - $71.00               $67.33
Exercised                                      (130,330)     $10.00  - $52.75               $14.40
Cancelled/Expired                                    --
                                                -------
Outstanding at December 28, 1996                471,946      $10.00  - $71.00               $18.78            124,383
                                                =======                                                       =======
</TABLE>

     The proceeds to the Company from incentive stock options  exercised  during
the years ended  December  31, 1994,  December 30, 1995,  and December 28, 1996,
totaled $416,670, $1,629,371, and $1,877,221, respectively.


                                      F-20
<PAGE>

     Information  concerning  nonqualified stock option activity under the 1988,
1991, and 1994 Plans for the years ended  December 31, 1994,  December 30, 1995,
and December 28, 1996, is summarized as follows:

<TABLE>
<CAPTION>
                                                                                             Weighted
                                                   Option           Option price           average price       Options
                                                   Shares            per share               per share       Exercisable
                                                   ------            ---------               ---------       -----------
<S>                                              <C>            <C>                           <C>              <C>
Outstanding at December 31, 1993                 1,118,604      $  2.00  -  $ 9.70             $ 5.78           865,543
                                                                                                                =======

Granted                                            421,998      $  9.70  - $ 25.00             $17.33
Exercised                                        ( 183,074)     $  2.00  - $  6.70             $ 3.35
Cancelled/Expired                                (   4,844)     $  5.90  - $ 14.60             $ 7.04
                                                 ---------

Outstanding at December 31, 1994                 1,352,684      $   2.00 - $ 25.00             $ 9.71           878,802
                                                                                                                =======
Granted                                             52,750      $  22.31 - $ 62.00             $37.69
Exercised                                        ( 210,096)*    $   2.00 - $ 15.55             $ 6.11
Cancelled/Expired                                (     468)     $   6.10 - $  6.10             $ 6.10
                                                 ---------
Outstanding at December 30, 1995                 1,194,870      $   4.30 - $ 62.00             $11.58           802,800
                                                                                                                =======

Granted                                            301,150      $  56.00 - $ 99.25             $77.80
Exercised                                         (213,800)     $   4.30 - $21.875             $ 7.98
Cancelled/Expired                                (     500)     $  48.00 - $ 48.00             $48.00
                                                 ---------

Outstanding at December 28, 1996                 1,281,720      $   5.70 - $ 99.25             $27.72           785,510
                                                 =========                                                      =======
</TABLE>

*  Includes 31,450 additional options arising from the 1995 stock split.

     The incentive and nonqualified stock options summarized in the tables above
were granted  under various  vesting  schedules  ranging from  immediate to five
years, with termination dates ranging from five to six years from dates of grant
and may be subject to earlier termination as provided in the Plans.

     The  proceeds to the Company  from  nonqualified  stock  options  exercised
during the years ended  December 31, 1994,  December 30, 1995,  and December 28,
1996, totaled $613,711, $1,284,359, and $1,706,053, respectively.


                                      F-21
<PAGE>


     Director Stock Option Plan - Effective  December 1993, the Company  adopted
its  Nonemployee   Director  Stock  Option  Plan  (the  "Director  Plan").  Only
nonemployee  directors of the Company (other than Robert Howard or Dr.  Lawrence
Howard) are eligible to receive  grants under the  Director  Plan.  The Director
Plan provides that eligible directors  automatically  receive a grant of options
to  purchase  5,000  shares of Common  Stock at fair  market  value  upon  first
becoming a director and,  thereafter,  an annual grant, in January of each year,
options to purchase  2,500 shares at fair market  value.  Options  granted under
this plan become 100%  exercisable  after one year and terminate five years from
date of grant.  Information  concerning  activity  under this plan for the years
ended December 31, 1994, December 30, 1995, and December 28, 1996, is summarized
as follows:

<TABLE>
<CAPTION>
                                                                                          Weighted
                                                Option         Option price             average price         Options
                                                Shares           per share                per share         Exercisable
                                                ------           ---------                ---------         -----------
<S>                                             <C>         <C>                            <C>            <C>
Outstanding at December 31, 1993                    --                                                                 --
                                                                                                          ===============
Granted                                         12,500            $11.00                   $11.00
Exercised                                           --
Cancelled/Expired
                                                    --
                                                ------
Outstanding at December 31, 1994                12,500            $11.00                   $11.00                      --
                                                                                                          ===============

Granted                                         10,000           $24.375                   $24.375
Exercised                                           --
Cancelled/Expired
                                                    --
                                                ------
Outstanding at December 30, 1995                22,500      $11.00  - $24.375              $16.94                  12,500
                                                                                                          ===============

Granted                                         10,000      $94.75  - $97.00               $95.88
Exercised                                           --
Cancelled/Expired
                                                    --
                                                ------
Outstanding at December 28, 1996                32,500      $11.00  - $97.00               $44.23                  22,500
                                                ======                                                    ===============
</TABLE>

     Underwriter's  Warrants - In  connection  with an initial  public  offering
during 1989, the Company  issued the  underwriter  warrants to purchase  260,000
shares of Common Stock.

     Through  December  30,  1995,  138,034  shares of Common Stock at $5.75 per
share and 138,034 shares of Common Stock at $6.25 ($4.60 and $5.00 for exercises
after the  four-for-five  stock  split) were issued to certain  designees of the
underwriter  pursuant  to their  exercise  of warrants  and unit  warrants.  The
proceeds to the Company from these transactions totaled $1,559,993.  At December
30, 1995, there were no remaining warrants outstanding.

     Other - During February 1996, the Company completed  private  placements of
an  aggregate  of  282,846  shares of its  Common  Stock for gross  proceeds  of
$20,208,758  to a  limited  number  of  domestic  individual  and  institutional
investors,  net of costs of  $33,500.  A  portion  of the  proceeds  was used to
acquire Catalina as described in Note 3.


                                      F-22
<PAGE>

     On January  20,  1992,  in  consideration  of the  payment by Union Bank of
Switzerland  (the "Bank") to the Company of $25,000,  the Company  issued to the
Bank a warrant  which,  entitled  the Bank or its assigns to  purchase  from the
Company  25,000  shares  of  Common  Stock  at  $26.00  per  share,   which  was
subsequently amended to $14.25 per share. The Warrant was exercised during March
1994, generating proceeds to the Company of $356,250.

     On February 11, 1994, the Company issued 25,000 shares of Common Stock,  at
$12.50 per share,  to a  consultant,  in  consideration  of payment of  $312,000
pursuant to the exercise of a warrant granted on August 12, 1992.

9.   COMMITMENTS

     The Company leases its various  facilities  under  noncancelable  operating
leases, many of which contain renewal options.  The agreements generally require
minimum monthly rents,  adjusted annually,  plus a pro rata share of real estate
taxes and certain other  expenses.  Total rental  expenses on the agreements was
$201,500, $296,000, and $517,900 for 1994, 1995, and 1996, respectively.

     As of  December  28,  1996,  future  minimum  lease  payments  under  these
agreements were as follows:

                           1997                               $  414,545
                           1998                                  304,652
                           1999                                  217,286
                           2000                                  129,186
                                                              ----------
                           Total                              $1,065,669
                                                              ==========

     The Company is currently  constructing two new facilities;  a 60,000 square
foot  facility  in Tucson,  Arizona  for  Catalina,  and a 100,000  square  foot
manufacturing  facility  in Hudson,  New  Hampshire.  The  Hudson  manufacturing
facility  is expected  to  accommodate  the  Company's  new plate  manufacturing
operations,  which will utilize a new vacuum deposition coating system currently
being developed and built for the Company by Catalina,  along with the necessary
plate finishing and packaging  equipment.  The Company  estimates that the total
capital cost of these projects,  including land purchases,  to be  approximately
$30,000,000.

     During the year ended December 28, 1996, the Company expended approximately
$2,427,000  for the land  purchases and  approximately  $3,875,000  for the land
improvements  and  construction  of the two new  facilities.  As of December 28,
1996,  the  Company  had  outstanding   purchase  commitments  of  approximately
$7,280,000 with respect to the new facilities. In addition, the Company expended
approximately   $7,809,000  for  the  new  plate   manufacturing  and  packaging
equipment.  As of  December  28,  1996,  the Company  had  outstanding  purchase
commitments of approximately  $8,448,000 with respect to the plate manufacturing
and packaging equipment.


                                      F-23
<PAGE>


10.  HEIDELBERG AGREEMENTS

     In January 1991, the Company  entered into a master  agreement (The "Master
Agreement"),  a technology license agreement (the "Technology  License"),  and a
supply  agreement (the "Supply  Agreement")  which expired  December 1995;  (the
foregoing  agreements  being  sometimes  collectively  referred to herein as the
"Heidelberg  Agreements")  with  Heidelberg.  Pursuant to this series of related
agreements,  as  amended,  the Company and  Heidelberg  agreed to certain  terms
relating  to  the  integration  of  the  Company's  proprietary  Direct  Imaging
technology  into various  presses  manufactured by Heidelberg and certain of its
related parties (the "Heidelberg Presses") and the manufacture of components for
and the commercialization of such presses.

     Pursuant  to the  Heidelberg  Agreements,  the Company  granted  Heidelberg
certain exclusive rights, subject to the satisfaction of certain conditions, for
the use of the Direct Imaging  technology for the Quickmaster DI format size. In
consideration of such rights,  Heidelberg agreed to pay to the Company royalties
on the net sales prices of various specified types of Heidelberg Presses.

     The Heidelberg Agreements and Amendments further provide for the Company to
supply Direct  Imaging  systems to Heidelberg  at specified  rates,  among other
things,  engineering and  development  work based upon work projects and budgets
agreed to by the Company and Heidelberg.  The terms of the Heidelberg Agreements
are for  periods  ending  in  December  2011 in the  case of each of the  Master
Agreement and Technology License. The Heidelberg Agreements also contain,  among
other things, certain early termination provisions and extension provisions.

     The Company also granted  Heidelberg a forty-five  month exclusive  license
expiring in January  1997 for the  manufacture  and sale of the  Quickmaster  DI
which  uses  PEARL  technology.  After  the  initial  forty-five  month  period,
Heidelberg's rights remain exclusive subject to the Company's right to terminate
such  exclusivity on three months'  written notice to Heidelberg.  Certain other
modifications  have been made to the exclusive  arrangements  under the previous
agreements between Heildelberg and the Company which provide for a non-exclusive
license for the balance of the term of the original agreement.

     In  November  1995,  the  Company  and  Heidelberg  agreed  (the  "November
Agreement") to certain other arrangements  whereby the Company was provided with
incremental engineering revenue,  certain price increases,  and modifications of
the Quickmaster DI royalty  billing and payment terms by Heidelberg.  The Master
Agreement was also modified by the November Agreement to provide Heidelberg with
a fixed royalty rate on the  Quickmaster DI. These  arrangements  were made as a
result of a schedule  change  requested by Heidelberg in November 1995 to reduce
the number of PEARL imaging systems being manufactured by the Company each month
for Heidelberg from the amount then being produced.  The production schedule for
Quickmaster  DI imaging  systems was  subsequently  increased by  Heidelberg  in
September  1996,  requiring the Company to produce three systems per day (60 per
month)  commencing in April 1997.  In March 1997,  the  production  schedule was
further increased, requiring the Company to manufacture four systems per day (80
per month)  commencing in September 1997, and the Company and Heidelberg  agreed
to


                                      F-24
<PAGE>

a fixed  royalty  rate for the Direct  Imaging  systems,  subject to  Heidelberg
maintaining an exclusive license on the Quickmaster DI.

11.  OTHER INFORMATION



     On October 15, 1996, the Company was notified that an arbitration  panel of
the  International  Chamber  of  Commerce  issued  its Award in the  arbitration
proceeding  commenced  against the Company by AGFA Gevaert NV. ("Agfa") in June,
1995. The Award directs Agfa to transfer to the Company  Agfa's U.S.  Patent No.
5,378,580  including  its  underlying  applications,  return to the  Company all
copies of  confidential  information  that the  Company  provided  to Agfa,  and
reimburse  the  Company's  legal  expenses in the  arbitration  in the amount of
$769,140.  Agfa has  complied  with the  financial  terms of the  Award  and has
assigned to the Company the foregoing patent and underlying  applications.  Agfa
has also returned to the Company the  confidential  documents which Agfa asserts
constitutes  full  compliance  with its  obligation  to return such  material as
required by the Award.  The  arbitrators  rejected  the request for  affirmative
relief sought by Agfa in the arbitration.

     The Company has been advised that the  Securities  and Exchange  Commission
(the  "Commission")  has entered a formal  order of private  investigation  with
respect to activities by certain unnamed persons and entities in connection with
the securities of the Company.  The Company has been advised by its counsel that
the  investigation  includes,  among  other  things,  trading  in the  Company's
securities  as well as the  adequacy  and  accuracy  of  statements  made by the
Company and others.  In that  connection,  the Company and some of its officers,
directors and employees have received  subpoenas duces tecum  requesting them to
produce certain  documents and testify,  and have complied with those subpoenae.
The Company has not been advised by the Staff of the  Commission  that the Staff
intends to recommend to the Commission that it initiate a proceeding against the
Company in connection with the foregoing investigation.

     Since June 28, 1996,  several class action  lawsuits were filed against the
Company  and  certain  other  defendants,  including,  but  not  limited  to the
Company's officers and directors.

                                      F-25
<PAGE>

These  actions  have been  consolidated  in the  United  States  Distict  Court,
District of New Hampshire,  and a single consolidated amended complaint has been
filed by lead  counsel for the  plantiffs.  In  addition,  two actions have been
filed derivatively,  on behalf of the Company,  one in the Chancery Court of the
State of Delaware and the other in the United States District Court, District of
New Hamphsire.

     The lawsuits each contain a variety of allegations  including,  among other
things,  that the defendants  violated Section 10(b) of the Securities  Exchange
Act of  1934  (the  "Exchange  Act")  and  Rule  10b-5  promulgated  thereunder,
violations of Section  20(a) of the Exchange  Act,  common law fraud and deceit,
negligent  misrepresentation  and waste of  corporate  assets.  The  allegations
include  claims  that  the  Company   issued  false  and  misleading   financial
statements,  and failed to properly disclose (a) adverse information  concerning
the Company's  patents;  (b) The nature and extent of the  investigation  by the
Securities and Exchange  Commission;  and (c) the backlog of orders from, supply
contracts  with, and orders  received by its principal  customer.  The Company's
officers and  directors  are alleged to have sold the  Company's  stock while in
possession of material  non-public  information.  The  plaintiffs  generally are
seeking to recover  unspecified  damages  and  reimbursement  of their costs and
expenses incurred in connection with the action.  Moreover, the plaintiff in the
derivative  action in  Delaware  is also  seeking a return to the Company of all
salaries  and the  value of other  remuneration  paid to the  defendants  by the
Company  during  the time they were in breach of their  fiduciary  duties and an
accounting of and/or  constructive  trust on the proceeds of defendants  trading
activities in the Common Stock.

     The Company intends to vigorously defend all actions.  However, the outcome
of any litigation is subject to uncertainty  and a successful  claim against the
Company,  in any of the foregoing actions,  could have a material adverse effect
on the  financial  position and results of  operations  of the  Company.  At the
present time, the Company cannot reasonably estimate the ultimate liability,  if
any, resulting from these lawsuits.  Accordingly, no provision for any liability
that may result has been recorded in the accompanying financial statements.

12.  LINE OF CREDIT

     On December 18, 1996,  the Company  entered into an agreement with Citizens
Bank New Hampshire  for a revolving  line of credit loan under which the Company
may borrow a maximum of $10,000,000 for working capital requirements and general
corporate purposes. Borrowings are secured by substantially all of the Company's
assets and are guaranteed by the Company's subsidiary,  Catalina Coatings,  Inc.
and secured by its assets.  Under the terms of the revolving  credit  agreement,
the Company is required to meet certain  financial  covenants on a quarterly and
annual  basis.  Interest on the line of credit is payable at the LIBOR rate plus
1.75% (7.34% at December 28, 1996).  The loan  agreement  terminates on July 31,
1997,  at which  date,  the entire  principal  and  accrued  interest is due and
payable.  As of December 28, 1996, the Company had  $10,000,000  available under
the line.



                                      F-26
<PAGE>

                                 PRESSTEK, INC.

                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
                                                   Balance at     Charged to        Charged to           Charges          Balance at
                                                   Beginning       Costs and       Other Account       Add (Deduct)          End
Year          Description                           of Year        Expenses          Describe           Describe           of Year
----          -----------                           -------        --------          --------           --------           -------
<S>     <C>                                        <C>          <C>               <C>                 <C>                   <C>
1994    Allowance for doubtful
            accounts                               $ 22,610     $         --      $         --        $          -- (1)     $ 22,610
                                                   ========     ==============    ==============     ==============         ========
          Warranty reserve                           77,444            215,000              --              (93,360)(2)      199,084
                                                   ========     ==============    ==============     ==============         ========
          Equipment replacement
             reserve                                400,980                --               --             (373,230)(3)       27,750
                                                   ========     ==============    ==============     ==============         ========

1995    Allowance for doubtful
            accounts                                 22,610             57,502              --                 (112)(1)       80,000
                                                   ========     ==============    ==============     ==============         ========
          Warranty reserve                          199,084            467,500              --              (65,370)(2)      601,214
                                                   ========     ==============    ==============     ==============         ========
          Equipment replacement
             reserve                                 27,750            291,240              --              (27,750)(3)      291,240
                                                   ========     ==============    ==============     ==============         ========

1996    Allowance for doubtful
            accounts                                 80,000            114,518              --              (10,667)(1)      183,851
                                                   ========     ==============    ==============     ==============         ========
          Warranty reserve                          601,214            215,698              --              (302,892(2)      514,020
                                                   ========     ==============    ==============     ==============         ========
          Equipment replacement
             reserve                                291,240                --               --             (291,240)(3)         --
                                                   ========     ==============    ==============     ==============         ========
</TABLE>


(1)     Allowance for doubtful accounts

(2)    Warranty expenditures

(3)    Equipment replacement

                                     FS - 1


<PAGE>



                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  the registrant has duly caused this report to this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

                                                PRESSTEK, INC.

Dated:   March 27, 1997                        By:  /s/ Richard A. Williams
                                                    ------------------------
                                                         Richard A. Williams
                                                         Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  on the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         Signature                             Title                                             Date
         ---------                             -----                                             ----
<S>                                 <C>                                                    <C>
 /s/ Richard A. Williams            Chief Executive Officer,                               March 27, 1997
-------------------------------     Secretary and Director
Richard A. Williams                 (Principal Executive Officer)

 /s/ Robert E. Verrando             President, Chief Operating                             March 27, 1997
-------------------------------     Officer and Director
Robert E. Verrando

 /s/ Robert Howard                  Chairman of the Board and                              March 27, 1997
-------------------------------     Director
Robert Howard

 /s/ Dr. Lawrence Howard            Director                                               March 27, 1997
-------------------------------
Dr. Lawrence Howard

 /s/ Harold N. Sparks               Director                                               March 27, 1997
-------------------------------
Harold N. Sparks

 /s/ Bert DePamphilis               Director                                               March 27, 1997
-------------------------------
Bert DePamphilis

 /s/ John W. Dreyer                 Director                                               March 27, 1997
-------------------------------
John W. Dreyer

 /s/ Glenn J. DiBenedetto           Chief Financial Officer                                March 27, 1997
-------------------------------     (Principal Financial and
Glenn J. DiBenedetto                Accounting Officer)

</TABLE>


                                      -50-