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 January 3, 1998

                                       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. [ ]

The  aggregate   market  value  of  the   registrant's   Common  Stock  held  by
non-affiliates  of the  registrant  as of  March  19,  1998,  was  approximately
$650,000,000.

As of March 19, 1998, there were 31,990,614  shares of the  registrant's  Common
Stock outstanding.

                      Documents Incorporated by Reference:

Parts of the definitive Proxy Statement for the  Registrant's  Annual Meeting of
Stockholders to be held on May 28, 1998 are  incorporated by reference into Part
III of this Form 10-K.


<PAGE>

                                     PART I

Item 1.  Business.

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

     Certain statements contained in this Form 10-K constitute  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995. Such  forward-looking  statements involve a number of known and unknown
risks,  uncertainties  and other  factors  which may cause the  actual  results,
performance or achievements  of the Company to be materially  different from any
future  results,  performance  or  achievements  expressed  or  implied  by such
forward-looking  statements.  Such factors include,  but are 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  Company's
other filings with the Securities and Exchange Commission.  The words "believe",
"expect", "anticipate", "intend", "forecast", and "plan" and similar expressions
identify  forward-looking  statements.  Readers are cautioned not to place undue
reliance on these  forward-looking  statements,  which speak only as of the date
the statement was made.

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

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
                              technologies  carriers  (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

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

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

Halftone                      a printing reproduction process which converts the
                              image into dots of various sizes and equal spacing
                              between centers

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



                                      - 2 -
<PAGE>



Hydrophobic/                  used in printing  to describe  whether a material
Hydrophilic                   will be water  receptive (hydrophilic) or reject
                              water (hydrophobic)                               

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

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

Off-press                     making a printing plate from either an analog or
                              digital source independently of the press on which
                              it will be used

Oleophilic/                   used in printing to describe whether a material   
Oleophobic                    will be ink receptive (oleophilic) or reject ink  
                              (oleophobic)                                      
                              
On-demand                     a manufacturing philosophy when applied to
                              printing provides faster service, shorter run
                              lengths and less inventory

On-press                      the use of Presstek's Direct Imaging technologies
                              to make a plate directly from a digital file on
                              the press

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
systems                       a conventional 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

Plate making                  the process of applying a printable image to a
                              printing plate



                                      - 3 -
<PAGE>


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

Proofer/proof                 a machine that creates an image that is an exact
                              duplicate of what will be printed, or the
                              duplicated image itself.

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
laser diode                   employed in the PEARL imaging system

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

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

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

Vapor deposition process      a technology to accurately, uniformly coat
                              substrates 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

"YAG" laser                   one of the more commonly used laser sources for
                              direct-to-plate imaging systems


General

     Presstek, Inc. (the "Company" or "Presstek"), incorporated in Delaware, was
founded  in  September  of 1987 as a  development  company  to find a new way to
produce  color  offset  printing.  This new  printing  method  would  take  full
advantage of computer based,  electronic  prepress  processes which were rapidly
becoming  (and have now  become)  available  and  expedited  the  design,  image
manipulation,  page  assembly  and related  aspects used to produce high quality
color pages in a digital format. These digitally formatted pages, however, could
not be easily  converted to finished,  four or more color offset  printed pages.
The process used to do this involved costly and time consuming methods including
the use of specialized 



                                      - 4 -
<PAGE>


photosensitive  film recording  systems and related plate exposure devices along
with the need to  chemically  process  these  photosensitive  analog  films  and
plates. These photographically based methods generated waste effluents that were
difficult  to dispose  of in an  environmentally  sound  manner.  The  Company's
objective was to eliminate these non-digital  processes and develop a new system
that  would  allow  digitally  formatted  file  data to be used to image a plate
directly on the printing  press.  This would reduce cost,  eliminate the time it
normally takes to make films and plates, and improve the quality of the finished
printed offset page.

     The Company's  development work ultimately led to the  commercialization of
its proprietary PEARL based direct imaging  technology.  This new direct imaging
technology,  which now uses high powered  semiconductor laser diodes and thermal
ablation printing plate materials,  is currently being used in a variety of both
on-press and off-press applications.  The Company believes that PEARL represents
a technological breakthrough for the worldwide printing and publishing industry,
since PEARL can be used for both on-press and  off-press  (such as the Company's
PEARLsetter  computer-to-plate system) applications.  This capability provides a
number of new  applications  for the Company's  direct  imaging  systems and its
proprietary consumable thermally-based printing plates. The Company believes its
past  investments in its proprietary  PEARL direct imaging  technologies,  which
have  resulted  in more than 75 patents  issued  throughout  the  world,  and 19
additional  pending  applications  in the United  States,  together with its ten
years of experience in developing digital imaging systems,  place the Company in
a  significant  position  in the  markets  it has  chosen to serve.  To  further
strengthen its patent  portfolio,  on January 5, 1998, the Company  acquired the
stock of Heath Custom Press,  Inc.  ("Heath") of Seattle,  Washington.  Heath is
engaged in the design and manufacture of custom printing  presses.  See "Patents
and Proprietary Rights."

Strategy, Background, and Important Relationships

     The Company's  strategy is based on alliances and relationships  with major
companies in the graphic arts industry and other markets. This strategy includes
licensing the Company's intellectual  property,  specialized product development
based  on  the  Company's   proprietary   technologies,   manufacturing  imaging
subsystems for inclusion in other  manufacturers'  products,  manufacturing  the
Company's own end user and private label products, as well as the manufacture of
the Company's proprietary thermal plate materials.

     This  strategy  led  to  the  development  of an  important  and  long-term
relationship with Heidelberger  Druckmaschinen  AG  ("Heidelberg"),  the world's
largest  manufacturer  of printing  presses  and  printing  equipment,  based in
Germany. This relationship was formalized with the signing of a Master Agreement
and a Technology  License  Agreement in January 1991.  The Master



                                      - 5 -
<PAGE>


Agreement and Technology License Agreement are sometimes  collectively  referred
to hereafter as the "Heidelberg Agreements."

The Heidelberg Agreements

     The Heidelberg  Agreements  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.  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.

     The Heidelberg Agreements and amendments govern the Company's  relationship
with  Heidelberg and provide for the Company to supply Direct Imaging systems to
Heidelberg at specified  rates.  The Heidelberg  Agreements  currently expire in
December 2011 subject to certain  early  termination  and extension  provisions.
Under these agreements, Heidelberg agreed to pay to the Company royalties on the
net sales prices of various  specified types of Heidelberg  Presses on which the
Company's Direct Imaging technology would be used.

     The most important amendments and adjustments to the Heidelberg  Agreements
are summarized below.

     In 1993,  the Company  granted  Heidelberg  a  forty-five  month  exclusive
license  which  expired in January  1997 for the  manufacture  and sale of PEARL
technology  used on the  Quickmaster  DI.  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.

     In  November  1995,  the  Company  and  Heidelberg  agreed  (the  "November
Agreement")  to certain  arrangements,  whereby the Company  was  provided  with
incremental  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. In
March 1997 the Company and  Heidelberg  also agreed to a fixed  royalty rate for
the Direct  Imaging  systems,  subject to  Heidelberg  maintaining  an exclusive
license on the Quickmaster DI.



                                      - 6 -
<PAGE>


     In March 1998, the Company and Heidelberg concluded  negotiations  relating
to production  levels and  schedules for 1998,  which will result in the Company
materially  reducing  production  levels of Direct  Imaging  systems used in the
Quickmaster DI press for fiscal 1998.

     The Company believes the design of the  Quickmaster-DI  digital press using
the Company's  proprietary  Direct Imaging  technology has been well received by
the market.  The Quickmaster DI won the 1995 Intertech New Technology  Award and
in February 1996, two Seybold Editor's  Awards.  In March 1996, 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.

Other Business Relationships

     In addition to its on-going  association with  Heidelberg,  the Company has
also developed business relationships with:

     Adast-Adamov,  a Czech Republic  company,  which uses the Company's  Direct
Imaging technology on a larger format (19" x 26") multicolor offset press.

     Scitex  Corporation  Limited,  a leading  supplier of electronic  pre-press
products  and systems  which,  along with  KBA-Planeta  AG, a major  supplier of
medium and large format sheet-fed offset printing  presses,  established a joint
venture  with the  Company to develop,  produce and market a new digital  offset
press.  This new press,  called  the Karat 74,  also uses the  Company's  direct
imaging and related  intellectual  property (under license from  Presstek),  and
thermal ablation printing plates.

     Nilpeter  A/S of Denmark  which has begun  marketing  an offset label press
that utilizes the Company's direct imaging technology and printing plates.

     Alcoa Packaging  Equipment,  a division of the Aluminum Company of America,
which has publicly  shown a new method of printing  halftone  images on beverage
cans that is based on Presstek's direct imaging  technology and thermal ablation
printing plates.

     Imation Corp.  working together with Presstek have jointly  developed a new
method for the  production  of true  half-tone  "dot for dot" color press proofs
using the Company's computer-to-plate imaging system specially modified for this
unique application.

     Fuji Photo Film Ltd., one of the world's  leading  suppliers to the graphic
communications  industry,  which together with the Company announced in 1997 the
signing of a long-range  Development  and Sales Agreement which will involve the
use of the Company's proprietary intellectual property and know how.


                                     - 7 -
<PAGE>


     The Company is also pursuing other business relationships which it believes
should  result  in  broader  use of  the  Company's  direct  imaging  and  plate
technologies in existing as well as new applications.  However,  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 market.

     The Company has also established a worldwide  distribution  network through
which it markets,  sells and supports its PEARLsetter branded  computer-to-plate
and PEARL thermal  ablation  printing  plate  products.  This network  currently
encompasses 36 dealers  located  worldwide and includes the largest graphic arts
dealer in the  United  States,  the Pitman  Company,  which  sells its  products
through  multiple  branch  locations.  In addition,  Fuji Photo of Canada is the
Company's exclusive dealer for its products in Canada. Along with this worldwide
dealer  network the Company has  established  OEM,  private  label  distribution
arrangements  for its  computer-to-plate  system with  Sakurai  Graphic  Systems
Corporation,  and Horsell Graphic Industries Ltd. These OEM relationships  allow
these  companies to market,  sell and support  private  labeled  versions of the
Company's PEARLsetter product line.

The Company's PEARL Direct Imaging System and Its Manufacture

     The Company's  Direct Imaging system is composed of a series of solid state
semiconductor  laser  diodes  held in a fixed  array  that  can  range  in size,
depending on the  application,  from as few as 8 diodes to as many as 32 or more
diodes.  Each diode is  responsible  for imaging a specific area of the printing
plate.

     Each diode is under  computer  control and can be turned off and on at high
speeds, usually measured in microseconds. When the diode is turned on it creates
a miniature, precise, micron measured beam of high powered infrared laser light.
The beam is focused on a specific  area on the surface of the  thermal  printing
plate and causes  this area of the plate to  instantaneously  heat up causing an
ablation effect and creating a microscopic hole. This hole on the surface of the
printing plate is ink receptive. The area surrounding the hole that has not been
exposed to the laser beam is not and thus an image can be created by controlling
the placement of each laser beam.

     This   laser-based   imaging   concept  is  used  on  both  the   Company's
computer-to-press and computer-to-plate systems.

     These  imaging  systems  are  manufactured  by the  Company in its  systems
manufacturing  facility located at 9 Commercial Street in Hudson, New Hampshire.
The  Company  uses a number of outside  vendors  who supply  many of the imaging
system   sub-system   assemblies.   These   assemblies   along  with  components
manufactured by the Company are assembled by the Company into completed  systems
- either  computer-to-press  direct imaging  systems such as the  Quickmaster DI
systems, or PEARLsetter computer-to-plate imaging systems. Both of these systems
use semiconductor laser diode devices built to the 



                                     - 8 -
<PAGE>


Company's  specifications  and currently supplied by one source pursuant to open
purchase  orders.  The  Company  believes  however,  that  there will be several
sources  available to  manufacture  the laser diodes to its  specifications,  if
required in the future.

The Company's PEARL Thermal Ablation Printing Plate and Its Manufacture.

     The Company continues to develop its proprietary thermally-based consumable
plate products that are imaged by both its own direct imaging systems as well as
high-energy  laser based,  direct-to-plate  systems offered by companies such as
Gerber, Creo and others.

     The Company's PEARL thermal ablation  printing plates are available in both
waterless  -  PEARLdry,  (meaning  that the press has no  dampening  system)  or
PEARLgold, a wet, or dampening system equipped press plate configurations.  Both
of  these  plates  are  based  on the  Company's  proprietary  ablation  imaging
technology.  This means that they respond to heat and not to light. The Presstek
plate is able to  convert  the  laser  light  into  heat  because  of a  special
metalized  layer that is sensitive to the wave length of the laser light source.
The Company's plate materials have a wide infrared  spectral  sensitivity  range
(800 to 1200  nanometers) and can be used with a variety of both "YAG" and diode
based laser imaging systems.

     At  Imprinta,  an industry  trade show held in  Dusseldorf,  Germany in May
1997,  the Company  introduced  PEARLgold,  its newest  plate  product  which is
expected  to be in  controlled  sales  by the end of  second  quarter  of  1998.
PEARLgold is a "wet" or dampening  system  equipped  press  lithographic  offset
printing  plate that requires no post imaging  cleaning or chemical  processing.
The Company  believes that this new wet offset plate  product has  significantly
broader  market  potential due to the much larger number of wet offset  printing
presses installed on a worldwide basis.  However,  the customer must first adopt
the use of thermally-based  computer-to-plate  capabilities before being able to
use the Company's  PEARLgold plate  materials.  Although the Company believes it
can  compete  successfully  in this  newly  developing  market  there  can be no
assurances that it can do so.

     The PEARLdry plate, uses a specially  formulated silicone material which is
coated over the  metalized  infrared  absorbing  layer.  The  silicone  layer is
oleophobic and when the imaging laser causes the ablation  process to occur, the
resulting  hole  created by the laser in the  silicone  becomes  ink  receptive.
Presstek's PEARLdry plates are used on the Quickmaster DI, the GTO-DI, the Adast
705 DI, the Nilpeter Cassette Imaging system,  the Alcoa can decorating  imaging
system and the Kammann CD Imaging system. Other direct-to-plate systems also are
able  to  image  the  Company's  PEARLdry  plate  which  can  then  be used on a
conventional waterless press.



                                     - 9 -
<PAGE>


     The Company  currently is having its PEARLdry plates  manufactured by Rexam
Custom Coaters ("Rexam") based in North Carolina under an existing manufacturing
agreement.

     The Company's  PEARLgold is also an ablation  based  printing plate using a
metalized infrared absorbing material with an additional  metalized layer placed
over the  infrared  absorber.  This  additional  metal  layer  is a  hydrophilic
material  and ink will not adhere to it (ink,  which is oil based,  and water do
not mix) but ink will adhere to those areas of the plate that have been  ablated
away by the laser beam thus forming a printable image.

     In August 1997, the Graphic Arts Technical  Foundation ("GATF") awarded its
1997  GATF  Intertech   Technology  Award,  for  recently  launched   innovative
technologies,  to the Company for its PEARLgold thermal printing plate. Also, in
September  1997,  the Company was awarded  Publish  Magazine's  Impact Award for
PEARLgold.

     The  Company,  realizing  that  sources  for  its  current  and  new  PEARL
consumable products would have to be found, in February 1996 acquired 90% of the
outstanding  Common  Stock of  Catalina  Coatings,  Inc.,  now  renamed  Delta V
Technologies,   Inc.  ("Delta  V"),  an  Arizona   corporation  engaged  in  the
development, manufacture, and sale of vacuum deposition coating equipment. Delta
V also is in the business of licensing and  sub-licensing its patent rights with
respect to a vapor  deposition  process to coat moving webs of materials at high
speeds.  The  Company  purchased  Delta V for  $8,400,000,  of which  $8,200,000
represented the purchase price and $200,000  represented  consideration  for the
non-competition  and   confidentiality   agreements  of  two  of  the  principal
shareholders of Delta V who sold their shares to the Company.

     Delta V, which  operates as a subsidiary of the Company,  has developed and
manufactured  the equipment the Company  believes it requires to manufacture its
PEARL  thermal  ablation  based  printing  plates  at a lower  cost  than  using
currently  available  conventional  coating  technology.  In  1997  the  Company
completed  construction of a new 100,000 square foot  consumables  manufacturing
facility  located  on a site in  Hudson,  New  Hampshire,  four  miles  from the
Company's existing offices. This building now houses the Company's new thin film
vacuum coating system.  Housed in this same building is the other  manufacturing
equipment  which the  Company  believes  is needed to produce all or part of the
Company's thermal plate consumable  products.  The Company has already installed
plate  converting and finishing  equipment in 33,200 square foot of leased space
also located in Hudson,  New Hampshire.  Once the Company begins the manufacture
of PEARL thermal printing plates, it may still need to enter into  manufacturing
agreements  with third  parties.  While the  Company's  own plate  manufacturing
system  provided by Delta V, now being  installed  in the  Company's  new Hudson
facilities,  has  the  capability  to  produce  all or  part  of  the  Company's
proprietary  consumable  plate  materials,  there can be no  assurance  that the
Company will be able to successfully  complete the development and  installation
of this system and undertake the manufacture of PEARL consumables.



                                     - 10 -
<PAGE>


The PEARLsetter Product Line

     The PEARLsetter is a  computer-to-plate  imaging device that can image both
the  Company's  wet and dry  thermal  offset  plates in both an A3 (2-up) and A2
(4-up) format size. The product can produce  completely  imaged printing plates,
ready to be mounted on a printing press,  within 4 to 8 minutes depending on the
resolution  (number of dots per inch) chosen by the user. If the  PEARLsetter is
imaging PEARLgold plates,  these plates can be mounted  immediately on the press
with no further cleaning or processing. In the case of PEARLdry plates, the user
must first wipe the ablated  debris from the imaging  process off the surface of
the plate.

     In addition to making printing  plates,  a specially  modified  PEARLsetter
product referred to as the PEARLhdp (halftone dot proofer),  which uses proofing
materials  supplied by Imation  Corp.,  is also being sold by the Company.  This
halftone  proofing  system  offers  the user the  ability to make  proofs  which
replicate  the dot  structure  used for  imaging  plates.  Both  Imation and the
Company believe this is an important market  opportunity and are working jointly
to successfully market this product.

     The Company has entered into  distribution  agreements with 22 graphic arts
dealers to sell,  support and service its products in various  countries  around
the world,  including  in the United  States,  the Pitman  Company,  the world's
largest graphic arts dealer.  The Company has also entered into OEM arrangements
or relationships  with respect to the PEARLsetter  product line and/or its PEARL
based consumable  products with companies such as Sakurai  Machinery Company and
Horsell  Graphic  Industries Ltd. These  agreements  permit the OEM resellers to
sell the PEARL based products under their own label.

     The  Company  continues  to  develop  and  commercialize  its  PEARL  based
computer-to-plate  and  Imation  proofing  systems.  However,  there  can  be no
assurance   that  the  Company  will  be  able  to   successfully   complete  or
commercialize these or other products, or enter into any additional arrangements
which will  result in the further  commercialization  of its  PEARLsetter  based
product line.

     Market  acceptance  for any products  incorporating  the Company's  various
technologies and proprietary know-how will require substantial marketing efforts
and the  expenditure  of  significant  sums,  either by the Company,  and/or its
strategic and OEM partners.  There can be no assurance  that any existing or new
products will achieve market acceptance or be commercially viable.

Patents and Proprietary Rights

     As of March 3, 1998, the Company and its subsidiaries  hold sixty-four (64)
U.S.  patents,  (including  two (2) design  patents)  of which the  Company  has
elected to maintain forty-seven (47) in force. The Company has also been issued,
including  fourteen (14) design  patents,  nine (9) Canadian  patents,  ten (10)
European patents registered in the



                                     - 11 -
<PAGE>


following nine countries  (Austria,  Belgium,  France,  Germany,  Great Britain,
Italy,  the  Netherlands,  Sweden  and  Switzerland),  three (3)  Great  Britain
patents,  three (3)  Belgian  patents,  one (1)  French  patent,  two (2) German
patents,  three (3) Japanese patents,  and seven (7) Australian patents, and has
received notice of allowance for an additional fifteen (15) patents, nine (9) in
the U.S., two (2) in Australia,  one (1) in Canada,  and three (3) in Japan. The
Company has  applied for and is pursuing  its  applications  for  nineteen  (19)
additional U.S. patents and eighty-three (83) foreign patents (including six (6)
design patents)  consisting  of 23 in Japan, 21 in Canada,  16 in Europe,  17 in
Australia,  2 in Italy, 3 under the Patent Cooperative  Treaty, and 1 in France.
Included in the totals  above are the patents of Delta V and Heath.  Delta V has
one (1) U.S. patent issued and three (3) U.S. patents pending. Heath has two (2)
U.S.  patents  issued.  Delta V also has two (2) U.S. and seventeen (17) foreign
applications  pending. The Company anticipates that it will apply for additional
patents and for copyrights, as deemed appropriate.  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 on 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  intends to rely on proprietary  know-how and to employ various
methods to also 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
that such arrangements will adequately protect the Company's trade secrets.

Competition

     The Company believes that its imaging, thermal plate and other intellectual
property,  its  proprietary  technologies,  its new 



                                     - 12 -
<PAGE>


thermal plate manufacturing  facilities,  along with its strategic alliances and
its  worldwide  distribution  network  provide  the Company  with a  competitive
advantage.  However,  the  Company is also aware of a number of other  companies
that address markets in which Presstek products are used, and therefore could be
viewed as competitive to the Company's proprietary direct imaging, thermal plate
technologies and related capabilities.

     In the  area  of  direct  imaging  and  the  short-run,  on-demand  market,
potential competitive companies use  electrophotographic  technology,  sometimes
referred to as xerography,  as the basis of their product lines. These companies
include,  among  others,  Canon  Inc.,  Indigo  N.V.,  Xeikon  N.V.,  and  Xerox
Corporation.  Versions of products  manufactured  by these  companies  are being
marketed by Agfa Gevaert N.V.,  IBM and Scitex Corp.  These  electrophotographic
imaging  systems use either wet or dry toners to create one to four color images
on paper and typically offer resolutions of between 400 and 800 dots per inch.

     The Company is aware that most of the major  entities  in the graphic  arts
industry  have  developed   and/or  are   developing  and  marketing   off-press
computer-to-plate  imaging systems.  To date, these devices,  for the most part,
utilize  printing  plates that require a post imaging  photochemical  developing
step  and/or  other  post  processing  steps  such as heat  treating.  Potential
competitors in this area include, among others, Agfa Gevaert N.V., Creo Products
Inc.,   Dainippon  Screen  Mfg,  Ltd.,  Gerber  Scientific  Inc.,   Heidelberger
Druckmaschinen  AG, Krause GmbH,  Scitex  Corporation Ltd., and other smaller or
lesser known companies.  The Company's PEARLsetter  computer-to-plate  off-press
plate  imaging  system is, in the  Company's  opinion,  a further  technological
advancement  because it eliminates  the need for post chemical  processing.  The
Company  believes  however,  that some of the graphic arts  companies  mentioned
above are likely to be working on similar plate  concepts  that would  eliminate
the need for post image chemical processing.

     The Company also anticipates  competition from printing plate manufacturing
companies that either manufacture, or have the potential to manufacture, digital
thermal  plates.  Such  companies  include Agfa Gevaert N.V.,  Kodak  Polychrome
Graphics LLC, Fuji Photo Film Co., Ltd., Imation Corp., and others.

     Products  incorporating the Company's  technologies can also be expected to
face competition  from  conventional  methods of printing and creating  printing
plates.  While these  methods are  considered  by the Company to be more costly,
less  efficient  and  are  not  as  environmentally  conscious  as  those  being
implemented by the Company, they do offer their users the ability to continue to
employ their existing means of print and plate  production.  Companies  offering
these more traditional means and methods are also refining these technologies to
make them more acceptable to the market.



                                     - 13 -
<PAGE>


     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 8, 1998,  the  Company  and its  subsidiaries  had a backlog of
products  under  contract  aggregating   approximately   $39,316,000  (including
royalties paid to the Company)  compared to a backlog of $56,297,000 as of March
27,  1997.  Substantially  all of the backlog of products as of March 8, 1998 is
expected to be shipped in 1998.

Employees

     As of March 3, 1998,  the  Company  and its  subsidiaries  had two  hundred
forty-four (244) employees,  one hundred six (106) of whom are engaged primarily
in engineering, service and marketing; one hundred two (102) of whom are engaged
primarily in manufacturing,  manufacturing  engineering and quality control; and
thirty-six  (36)  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 has been  extended  to December
1998,  provides  for rent of $10,000  per  month,  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. 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.



                                     - 14 -
<PAGE>


     In June 1996, Delta V acquired a 13 acre parcel of land in Tucson, Arizona.
Construction of a new 70,000 square foot  manufacturing  facility on this parcel
began in September 1996, and was completed in May 1997. This new building houses
all of Delta V's operations and includes space for future expansion.

     In  August  1996,  the  Company  purchased  a 65 acre site in  Hudson,  New
Hampshire.  The first phase of construction for the Company's future  facilities
was completed in December 1997.  This first phase includes a 100,000 square foot
manufacturing  operation  that  houses the first Delta V new  thin-film,  vacuum
coating system  designed and developed  exclusively  for the  manufacture of the
Company's PEARL based thermal plates. Located in this same building is the other
manufacturing equipment the Company believes is needed to produce all or part of
the Company's thermal plate consumable  products.  The Company believes that its
existing  facilities  will be  adequate  for its current  operations  and future
capacity increases.

     On February 6, 1998, the Company obtained a ten-year  mortgage term loan in
the principal amount of $6,900,000, which is secured by the land and building in
Tucson,  Arizona,  and a certain  parcel of land and  building  in  Hudson,  New
Hampshire with an aggregate cost of $17,000,000.

Item 3.  Legal Proceedings.

     On December 24, 1997, the Company entered into a settlement  agreement with
the U.S.  Securities and Exchange Commission (the "SEC"). The agreement provides
for the  entry  of a cease  and  desist  order  in which  the  Company,  without
admitting or denying certain violations of the federal securities law, agrees to
abide by federal  securities  law and  regulations  in the  future.  No monetary
penalties  were imposed on the Company in this action.  The  allegations  giving
rise to the cease and desist  order  relate to certain  disclosures  made by the
Company at various times from 1994 to 1996.

     Simultaneously,  Robert Howard, Chairman of the Board, and President Robert
Verrando,  also entered into  settlement  agreements  with the  Commission  and,
without admitting or denying  allegations  relating to public statements made by
the Company,  consented to the entry of statutory injunctions prohibiting future
violations of the federal  securities laws. Civil penalties were assessed in the
amount of $2,700,000 and $200,000,  respectively.  These civil penalties are not
obligations  of the Company.  The  investigation  by the SEC has concluded  with
respect to Presstek and its personnel.




                                     - 15 -
<PAGE>


     As previously  disclosed,  seven  federal class action  lawsuits were filed
against the Company and others,  all of which 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. The plaintiffs have jointly
filed and served a Second Consolidated Amended Class Action Complaint naming the
Company,  certain of its present or former  officers and  directors  ("the Berke
Officer  and  Director  Defendants"),  and  other  parties  as  defendants.  The
plaintiffs allege, among other things, that the Company and/or the Berke Officer
and Director Defendants 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,  and  violated  New  Hampshire  law; and that the Berke
Officer and Director  Defendants  violated Section 20(a) ("Sect.  20(a)") of the
Exchange Act. The Complaint alleges, among other things, that the Company and/or
the Berke Officer and Director  Defendants issued false and misleading  reports,
failed to disclose  material facts  including a misstatement  of earnings in the
Company's  financial  statements  for the first  quarter  ended March 30,  1996,
misstated  or failed to fully  disclose the  Company's  supply  contracts  with,
payments  received  from,  sales made by,  backlog of orders  received from, and
delays  in  production  by  the  Company's  principal   customer,   and  alleged
circulation  of,  and  failed  to  correct  certain  analyst   research  reports
concerning  the Company  that  contained  alleged  misrepresentations  regarding
allegedly  inflated  financial  projections.  Certain of the Berke  Officer  and
Director  Defendants  are  alleged to have sold the  Company's  Common  Stock at
artificially   inflated  prices  while  in  possession  of  material  non-public
information concerning 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.

     As previously  disclosed,  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 certain  officers and directors of the
Company ("the Strauss Officer and Director  Defendants").  The plaintiff alleges
that the Strauss Officer and Director Defendants breached their fiduciary duties
to the Company  and its public  stockholders  and wasted  corporate  assets,  by
making allegedly 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,  causing  the  Company  to fail to  properly
disclose  the scope of an  investigation  by the SEC, and causing the Company to
misstate its financial results for the first quarter of 1996. The plaintiff also
alleges  that  certain of the  Strauss  Officer  and  Director  Defendants  sold
securities  of the Company at inflated  prices while they were in  possession of
material non-public  information  concerning the Company.  The plaintiff alleges
that the actions of the  Strauss  Officer and  Director  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, on behalf of the Company, unspecified
damages allegedly sustained by the Company as a result of the



                                     - 16 -
<PAGE>


defendants'  alleged  breaches of fiduciary  duty,  disgorgement  of any profits
derived from their sale of the Company's  Common Stock, as well as other relief.
This action had been stayed pending the outcome of the Berke action.

     As previously  disclosed,  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  certain of the  Company's  officers and
directors  (the "Cassidy  Officer and Director  Defendants"),  and the Company's
independent auditor. The plaintiff alleges that the Cassidy Officer and Director
Defendants  breached  their  fiduciary  duty  to  the  Company  and  its  public
stockholders  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 its
PEARL technology,  and 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 ended December 30, 1995, and for
the first quarter ended March 30, 1996.  The plaintiff also alleges that certain
of the Cassidy Officer and Director Defendants sold securities of the Company at
inflated prices while they were in possession of material non-public information
concerning  the  Company.  The  plaintiff  also  alleges that the actions of the
Cassidy Officer and Director  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,  and also
constituted  gross negligence and breaches of their  contractual  obligations to
the Company. The plaintiff seeks to recover on behalf of the Company unspecified
damages  allegedly  sustained  by the  Company  as a result  of the  defendants'
actions as alleged,  disgorgement  of any profits from the sale of the Company's
Common Stock,  as well as other relief against the  defendants.  By agreement of
the parties,  this action has been stayed pending the outcome of certain motions
made by the parties in the Berke action.

     As  previously  disclosed,  on  June  16,  1997,  Seena  Stevens  Silverman
commenced a purported  class action in the United States  District Court for the
District of New Hampshire  against the Company and certain of its present and/or
former officers and directors (the "Silverman Officer and Director Defendants"),
and other  parties.  The plaintiff  purports to bring this action on behalf of a
class of persons who sold put options in the Common Stock of the Company between
November 7, 1995 and June 20, 1996. The complaint  alleges,  among other things,
that the Company and/or the Silverman Officer and Director  Defendants  violated
Sect.  10(b) and Rule  10b-5,  and  violated  New  Hampshire  law;  and that the
Silverman  Officer and Director  defendants  violated Sect. 20(a). The plaintiff
alleges that the Defendants defrauded the putative class members by manipulating
the price and supply of the Company's Common Stock, issuing false and misleading
statements  regarding the nature of the Company's  proprietary PEARL technology,
failing to disclose  the true depth and target of an  investigation  by the SEC,
and making  misleading  statements  regarding the Company's  claims to its PEARL
technology and its contract with the Company's principal customer. The



                                     - 17 -
<PAGE>


plaintiff  also  alleges  that  certain of the  Silverman  Officer and  Director
Defendants  sold securities of the Company at inflated prices while they were in
possession  of material  non-public  information  concerning  the  Company.  The
plaintiff  seeks to recover  unspecified  compensatory  and punitive  damages on
behalf of the putative class, as well other relief.

     To date,  the  Company  has not been  required to file its answers to these
claimants.  The Company  expects that it will file its answer to the claims this
year.

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

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

     Not Applicable.



                                     - 18 -
<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
two-for-one  stock split  effected in the form of a 100% stock  divided  paid in
July 1997.

Fiscal Year Ended                            
January 3, 1998                              High                      Low
---------------                              ----                      ---
First Quarter                              $ 38 1/4                  $ 19 3/4
Second Quarter                               47 1/2                    22
Third Quarter                                54                        33 3/4
Fourth Quarter                               41 1/2                    24

Fiscal Year Ended
December 28, 1996
-----------------
First Quarter                              $ 63 5/8                  $ 38
Second Quarter                              100                        20
Third Quarter                                37 3/4                    22 3/8
Fourth Quarter                               47 1/2                    34 1/8

     On March 19,  1998  there were  1,648  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 instead intends to retain all earnings,  if any, for use
in the Company's business operations.



                                     - 19 -
<PAGE>


Issuances of Unregistered Securities

     During the  quarter  ended  January 3, 1998 the  Company  issued to certain
employees  options to  purchase  105,500  shares of its  Common  Stock at prices
ranging from $26.50 to $36.50 (or a weighted  average price of $31.17)  pursuant
to the Company's  1997 Interim  Stock Option Plan.  The options  expire  between
October  27,  2003 and  December  22,  2003.  In  addition,  on  January 2, 1998
five-year  options to purchase 2,500 shares of Common Stock at an exercise price
of $25.00  were  granted  to each of  Messrs.  John  Dreyer,  John  Evans,  Bert
DePamphilis,  and Harold Sparks pursuant to the Company's  Non-Employee Director
Stock  Option  Plan.  In  addition,  on  October 1, 1997 Mr.  Evans was  granted
five-year  options to purchase 5,000 shares of Common Stock at $39.625 per share
under the Director  Plan.  The  foregoing  options  were issued  pursuant to the
exemption  from  registration  provided by Section 2(3) of the Securities Act of
1933 (the "Act") as issuances not involving a "sale" under the Act.



                                     - 20 -
<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, 1994,  and
December 31, 1993, and the balance sheet data at December 30, 1995, December 31,
1994, and December 31, 1993 which is not included in such financial statements).
All  references  to common shares and earnings per share data have been restated
retroactively  to reflect the fiscal 1997 and fiscal  1995  two-for-one  and the
1994 five-for-four  stock splits,  effected in the form of stock dividends.  The
fiscal 1997 and fiscal 1996 data includes the accounts of Delta V  Technologies,
Inc. (formerly  Catalina Coatings,  Inc.), which was acquired as a subsidiary of
the Company during fiscal 1996. See Note 2 of Notes to Financial Statements. The
Company  has  adopted  Statement  of  Financial  Accounting  Standards  No. 128,
"Earnings per Share" (EPS). The required  reporting of basic and diluted EPS has
been retroactively applied. See Note 4 of Notes to Financial Statements.

<TABLE>
<CAPTION>
                                                                               Fiscal Year Ended
                                            ----------------------------------------------------------------------------------------
Statements of                                   JAN 3              DEC 28             DEC 30             DEC 31            DEC 31
Income:                                          1998               1996               1995               1994              1993
                                            -------------      -------------      -------------      -------------     -------------
<S>                                         <C>                <C>                <C>                <C>               <C>          
Revenues                                    $  91,561,480      $  48,627,569      $  27,611,456      $  16,517,858     $  11,682,154
                                            -------------      -------------      -------------      -------------     -------------
Costs and Expenses:
  Costs of products sold                       45,678,079         21,825,697         14,923,968          6,944,268           754,700
  Engineering and product
    development                                11,246,113          8,894,420          6,155,421          5,123,439         5,647,562
  Sales and Marketing                           4,521,936          2,587,490          1,727,301          1,225,756         1,147,926
  General and administrative                    6,507,508          4,739,951          2,050,075          1,603,729         1,535,289
  Nonrecurring charge                                  --                 --                 --                 --         1,948,878
                                            -------------      -------------      -------------      -------------     -------------
    Total costs and expense                    67,953,636         38,047,558         24,856,765         14,897,192        11,034,355
                                            -------------      -------------      -------------      -------------     -------------
Other Income (Expense):
  Dividend and interest income                    379,255            786,095            327,213            407,977           412,025
  Other                                          (155,171)          (244,817)            (2,276)               166                --
                                            -------------      -------------      -------------      -------------     -------------
    Other income - net                            224,084            541,278            324,937            408,143           412,025
                                            -------------      -------------      -------------      -------------     -------------

Income Before Income Taxes                     23,831,928         11,121,289          3,079,628          2,028,809         1,059,824
Provision for Income Taxes                      9,460,000          4,000,000            220,000            186,600           100,000

                                            -------------      -------------      -------------      -------------     -------------
Net Income                                  $  14,371,928      $   7,121,289      $   2,859,628      $   1,842,209     $     959,824
                                            =============      =============      =============      =============     =============

Basic Earnings Per Share                    $         .46      $         .24      $         .10      $         .07     $         .04
                                            =============      =============      =============      =============     =============
Diluted Earnings Per Share                  $         .44      $         .21      $         .09      $         .06     $         .03
                                            =============      =============      =============      =============     =============

Common Shares Outstanding                      31,300,054         29,858,419         29,124,034         28,053,088        26,510,000
                                            =============      =============      =============      =============     =============
Common Shares Assuming Dilution                32,695,016         33,162,508         31,710,152         29,730,688        28,445,148
                                            =============      =============      =============      =============     =============
</TABLE>


                                     - 21 -
<PAGE>


<TABLE>
<CAPTION>
                                                                                      As of
                                            ----------------------------------------------------------------------------------------
                                                JAN 3              DEC 28             DEC 30             DEC 31            DEC 31
Balance Sheet Data:                              1998               1996               1995               1994              1993
                                            -------------      -------------      -------------      -------------     -------------
<S>                                         <C>                <C>                <C>                <C>               <C>          
Working Capital                             $  32,961,687      $  29,179,247      $  16,836,997      $   7,675,713     $   9,916,103
Total Assets                                  100,472,781         68,823,096         26,668,618         18,324,030        13,802,718
Short-Term Debt                                 4,800,000                 --                 --                 --                --
Long-Term Debt                                         --                 --                 --                 --                --
Stockholders' Equity                           85,989,673         57,442,522         22,726,436         16,472,920        12,145,410
Cash Dividends                                         --                 --                 --                 --                --
</TABLE>



                                     - 22 -
<PAGE>


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

Background

     Presstek, Inc. (The "Company" or "Presstek"), incorporated in Delaware, was
founded in September 1987 as a development company. It was established to find a
new  way to  produce  color  offset  printing.  Heidelberger  Druckmaschinen  AG
("Heidelberg"), the world's largest printing press manufacturer, and the Company
established  a  relationship  that was  formalized  in 1991 and  resulted in the
introduction of the first jointly developed  product,  the spark discharge based
GTO-DI. In 1993, after investing  substantial effort and resources,  the Company
completed the  development  of its high  resolution,  semiconductor  based laser
diode imaging and thermal plate  technology  referred to as PEARL. The Company's
PEARL 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. These printed materials typically can
be  produced  at  a  lower  cost  than  traditional   competitive  methods.  The
PEARL-based  GTO-DI was introduced in late 1993, and in May of 1995,  Heidelberg
introduced the Quickmaster DI 46-4,  which replaced the GTO-DI product line. The
Quickmaster DI represents the second generation of Presstek's PEARL-based direct
imaging  technology.  It also employs the  Company's  automatic  plate  changing
cylinder which  eliminates  the need to manually  change plates between jobs, as
well as a number of other productivity  improvement features.  The Company began
shipment of its PEARL-based Quickmaster direct imaging kits to Heidelberg in the
second quarter of 1995. The Company  estimates that as of the end of 1997, there
are more than 700 PEARL-equipped



                                     - 23 -
<PAGE>


Heidelberg  presses  installed  utilizing the Company's  proprietary  consumable
printing plates.

     The Company is also engaged in the  development  of additional  PEARL-based
products  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 availability of the Company's PEARL Direct Imaging
technology on a larger format Omni-Adast (19" x 26") multicolor press, shipments
of which 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 system 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., now known as Delta V
Technologies,  Inc. ("Delta V"), an Arizona  corporation.  Delta V 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 Delta V which  operates as a  subsidiary  of the
Company.  The  Purchased  Shares were  acquired  from the  selling  shareholders
pursuant to a 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.

     The  acquisition  was  accounted for as a purchase  and,  accordingly,  the
results of Delta V's operations have been included in the Company's  fiscal 1997
and  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 1997 fiscal year ended on
January 3, 1998  ("fiscal  1997"),  and the fiscal  years 1996 and 1995 ended on
December  28, 1996  ("fiscal  1996"),  and December  30, 1995  ("fiscal  1995"),
respectively.

     On January 5, 1998,  the Company  acquired the stock of Heath Custom Press,
Inc.  ("Heath"),  of  Seattle,  Washington.  Heath is  



                                     - 24 -
<PAGE>


engaged in the design and  manufacture  of custom  printing  presses.  Heath was
purchased for 94,865 unregistered shares of the Company's Common Stock.

     The acquisition will be accounted for as a purchase and,  accordingly,  the
results  of Heath's  operations  will be  included  in the  Company's  financial
statements for the year ended January 2, 1999. The results of Heath's operations
would not have had a material impact on the Company's  results of operations for
fiscal 1997.

Results of Operations

     Revenues for the fiscal years ended January 3, 1998, December 28, 1996, and
December 30, 1995, of $91,561,000,  $48,628,000 and  $27,611,000,  respectively,
consisted of product sales, royalties, fees and other reimbursements.

     Total  revenues  for the  fiscal  year ended  January  3,  1998,  increased
$42,933,000  or 88%  compared  to the fiscal year ended  December  28, 1996 as a
result of the following:

     Product sales for fiscal 1997 increased  $39,288,000,  or 117%, over fiscal
1996,  primarily  as a result of volume  increases  in sales by the  Company  of
Direct Imaging systems used in the  Quickmaster DI, as well as volume  increases
in sales of the Company's thermal consumable printing plates.

     Royalties and fees from licensees increased  $3,646,000 in fiscal 1997 over
fiscal 1996,  primarily as a result of royalty increases of $10,907,000,  offset
by a decrease of $7,261,000 in  engineering  and other fees  primarily  received
from  Heidelberg.  Included  in fiscal  1997 were  certain  fees  related to the
Company's   agreement  to  license  its  on-press   imaging  patents  to  Scitex
Corporation Ltd.

     Total  revenues  for the fiscal  year ended  December  28,  1996  increased
$21,017,000,  or 76%,  compared  to the fiscal  year ended  December  30,  1995.
Product sales for fiscal 1996 increased  $13,540,000 over fiscal 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 fiscal 1996 over
fiscal 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 other revenues  which were based  primarily on amounts agreed upon
between the Company and Heidelberg.

     Other fees from licensees are based  primarily on amounts  annually  agreed
upon between the Company and  Heidelberg.  No significant  fees were received in
fiscal  1997,  and there can be no  assurance  that the Company will receive any
significant fees from Heidelberg for fiscal 1998.

     Revenues generated under the Company's  agreements with Heidelberg and from
Heidelberg distributors represented 81% and 73% of total revenues for the fiscal
years ended January 3, 1998 and 



                                     - 25 -
<PAGE>


December 28, 1996, respectively.  Substantially all revenues in fiscal 1995 were
generated under these Heidelberg agreements.

     Heidelberg has indicated to the Company that the  substantial  backlog that
existed  for its  Quickmaster  DI,  which  uses  the  Company's  Direct  Imaging
technology,  has now been reduced to normal  levels.  In March 1998, the Company
and  Heidelberg  concluded   negotiations  relating  to  production  levels  and
schedules for the year ending January 2, 1999 ("fiscal 1998"), which will result
in the Company materially  reducing  production levels of Direct Imaging systems
used in the Quickmaster DI press for fiscal 1998.

     The Company's Heidelberg based revenues for 1998 will be materially reduced
to an amount  currently  estimated  by the  Company at  $29,000,000,  due to the
production  decrease of Quickmaster  DIs.  However,  the Company expects to ship
higher volumes of its other Direct Imaging products and its proprietary  thermal
plates in fiscal 1998 as compared to fiscal 1997.  Although  this may reduce the
impact on the  Company  of the 1998  Heidelberg  production  plan,  the  Company
expects to achieve only slight  revenue growth in fiscal 1998 compared to fiscal
1997. The Company also  anticipates  that start up costs associated with its new
plate manufacturing facility will result in a decline in gross margin on product
sales, and earnings, in fiscal 1998 as compared to fiscal 1997.

Cost of Products Sold

     Costs of products sold for the fiscal years ended January 3, 1998, December
28, 1996, and December 30, 1995, of approximately $45,678,000,  $21,826,000, and
$14,924,000,  respectively,  consisted of the costs of the material,  labor, and
overhead  associated with product sales,  as well as future warranty costs.  The
increases in such costs  comparing the fiscal year 1997 with fiscal 1996 related
primarily to corresponding volume increases in product sales. The improvement in
the gross  margin on product  sales to 37% for the fiscal  year 1997 from 35% in
fiscal 1996, and 25% in fiscal 1995 resulted  primarily from a change in product
mix and certain volume related manufacturing efficiencies.

Engineering and Product Development

     Engineering  and  product  development  expenses  for the fiscal year ended
January 3, 1998, totaled $11,246,000  compared to $8,894,000 for the fiscal year
ended  December 28, 1996.  The increases of  $2,352,000,  or 26%, for the fiscal
year ended January 3, 1998 resulted principally from increased  expenditures for
parts,  supplies,  labor, and contracted services related to the Company's PEARL
technology,  including  the  Company's  PEARLgold(TM)  plates,  as well as other
product development efforts.

     Engineering and product development expenses were $8,894,000 for the fiscal
year ended  December 28,  1996,  as compared to  $6,155,000  for the fiscal year
ended December 30, 1995.  The increase in such expenses of  $2,739,000,  or 45%,
resulted principally from increased  expenditures for parts, supplies, and 



                                     - 26 -
<PAGE>


labor 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(TM) and PEARLdry(TM) plates.

Sales and Marketing

     Sales and  marketing  expenses  for the fiscal year ended  January 3, 1998,
totaled $4,522,000 compared to $2,587,000 for the fiscal year ended December 28,
1996.  The increase of  $1,935,000,  or 75%,  related  principally  to increased
expenditures  for  additional  personnel and related  costs,  as well as various
promotional activities.

     Sales and marketing expenses increased  $860,000,  or 50%, comparing fiscal
1996  with  fiscal  1995.  This  increase   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 fiscal year ended  January 3,
1998,  totaled  $6,508,000,  compared  to  $4,740,000  for the fiscal year ended
December  28, 1996,  an increase of  $1,768,000,  or 37%.  The increase  related
primarily to increased  expenditures for additional  personnel and other related
costs.

     General  and  administration   expenses  increased  $2,690,000,   or  131%,
comparing  fiscal 1996 to fiscal 1995.  The increase  related to the addition in
fiscal 1996 of Delta V's general and administrative  expenses in addition to the
amortization of goodwill and other assets acquired in the acquisition of Delta V
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.

Other Income and Expense

     Dividend and interest  income earned on the Company's cash and  investments
decreased  $407,000 for the fiscal year ended  January 3, 1998,  compared to the
same  period in fiscal  1996,  principally  as a result of the  decreased  funds
invested in securities.

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

Income Taxes

     The  provision  for income taxes for the fiscal years ended January 3, 1998
and  December  28, 1996  represents  substantially  the 



                                     - 27 -
<PAGE>


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 fiscal year ended December 30, 1995,
represents  substantially  charges in lieu of state income taxes arising  during
the period  relating to the tax benefit of stock option  deductions.  No charges
for federal  income  taxes were  recorded  for 1995 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 $14,372,000 for
the fiscal year ended January 3, 1998,  compared to net income of $7,121,000 and
$2,860,000  for the fiscal years ended  December 28, 1996 and December 30, 1995,
respectively.  The  operations of Delta V did not have a material  effect on net
income  for the  fiscal  years  ended  January 3, 1998 and  December  28,  1996.

Liquidity and Capital Resources

     At January 3, 1998,  the  Company had working  capital of  $32,962,000,  an
increase of $3,783,000 as compared to working capital of $29,179,000 at December
28, 1996.  This  increase was  primarily  attributed to the Company's net income
from  operations  of  $14,372,000,  the tax benefit  arising  from stock  option
deductions of $9,269,000,  depreciation and amortization of $3,123,000,  and the
proceeds from the issuances of Common Stock of  $4,865,000,  offset by additions
to property, plant and equipment of $27,918,000.

     Net cash  provided by operating  activities of  $14,342,000  for the fiscal
year ended January 3, 1998,  resulted  primarily from net income from operations
of  $14,372,000,  plus noncash items totaling  $14,560,000  ($9,269,000 of which
relates to the tax  benefit  arising  from stock  option  deductions)  offset by
increases in inventory and accounts  receivable of $2,669,000  and  $10,169,000,
respectively.

     Net cash used for investing  activities of $22,336,000  for the fiscal year
ended January 3, 1998, resulted primarily from additions to property,  plant and
equipment used in the Company's business of $27,918,000,  offset by the proceeds
from the sales of marketable securities of $5,494,000.

     The Company has completed the construction of a 70,000 square foot facility
in Tucson, Arizona for Delta V, and a 100,000 square foot manufacturing facility
in Hudson,  New Hampshire to accommodate  the Company's new plate  manufacturing
operations.   Through   January  3,  1998,  the  Company  had   expenditures  of
approximately  $18,416,000 for land, land improvements,  and construction of the
two new facilities.  Approximately $12,114,000 of this total was incurred during
fiscal  1997.  The  Company  had  also  entered  into  



                                     - 28 -
<PAGE>


     three  Purchase and Sale  Agreements in fiscal 1997 for the sale of certain
parcels of land located in Hudson.  The land is part of the 65-acre parcel which
was purchased in 1996, and has subsequently  been  subdivided.  As of January 3,
1998, two of those parcels have been sold for approximately  $536,000.  The sale
of the third parcel occurred in March 1998, for approximately $487,000.

     The  Hudson  facility  accommodates  the  new  thin-film,   vacuum  coating
equipment built for the Company by Delta V. Also located in this facility is the
plate  finishing  and packaging  equipment  the Company  believes is required to
manufacture the Company's thermal plate consumable products.  Through January 3,
1998, the Company had  expenditures of $19,197,000 for new plate  manufacturing,
finishing, and packaging equipment.  Approximately $11,388,000 of this total was
incurred  during fiscal 1997. As of January 3, 1998, the Company had outstanding
commitments  with respect to the Hudson facility,  and the plate  manufacturing,
finishing, and packaging equipment of approximately $750,000.

     Net cash provided by financing activities for the fiscal year ended January
3, 1998,  totaled $9,665,000 and consisted of net borrowings under the Company's
line of  credit  of  $4,800,000  and the sale of Common  Stock  incident  to the
exercise of various stock options of $4,865,000.

     On July 29, 1997, the Company  renewed its agreement with Citizens Bank New
Hampshire  ("Citizens")  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.  As of January 3, 1998, the Company had $4,800,000
outstanding and $5,200,000  available under the line of credit.  The Company was
in compliance with all debt covenants at January 3, 1998.

     On February 6, 1998, the Company obtained a ten-year  mortgage term loan in
the principal amount of $6,900,000 from Citizens. Borrowings are secured by land
and buildings with a cost of approximately  $17,000,000.  The loan bears a fixed
rate of interest  of 7.12% per year during the first five years,  and a variable
rate of  interest  at the LIBOR  rate plus 2% (7.72% at January 3, 1998) for the
remaining  five years.  Principal  and interest  payments  during the first five
years of the loan will be made in 60 monthly installments of $80,500. During the
remaining five years, principal and interest payments shall be made on a monthly
basis in the amount of one-sixtieth of the  outstanding  principal  amount as of
the  first  day of each  month of the  second  five year  period,  plus  accrued
interest through the monthly payment date. All outstanding principal and accrued
and unpaid interest is due and payable on February 6, 2008.

     The Company believes that existing funds,  cash flows from operations,  and
cash  available  under its revolving  line of credit and mortgage loan should be
sufficient to satisfy working capital  requirements and capital  expenditures in
the foreseeable future.



                                     - 29 -
<PAGE>


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 January 3, 1998,  the Company had net  operating  loss  carryforwards
totaling approximately  $27,400,000 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.

Recently Issued Accounting Standards

     In June 1997, the Financial  Accounting Standards Board ("FASB") issued two
new disclosure standards,  SFAS No. 130, "Reporting  Comprehensive  Income," and
SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information".

     SFAS  No.  130   establishes   standards   for  reporting  and  display  of
comprehensive  income,  its components and accumulated  balances.  Comprehensive
income is defined to include all changes in equity except those  resulting  from
investments by owners and  distributions  to owners.  This standard is effective
for the Company's financial  statements  commencing in the fiscal quarter ending
April 4, 1998.

     SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business  Enterprise,"  and  establishes  standards  for  the  way  that  public
enterprises report information about operating segments in financial  statements
issued to the public.  It also establishes  standards for disclosures  regarding
products and services,  geographic areas and major  customers.  This standard is
effective  for the  Company's  financial  statements  issued for the fiscal year
ending January 2, 1999.

     Both of these  standards  require  comparative  information to be restated.
Results  of   operations   and   financial   position   will  be  unaffected  by
implementation  of these new  standards.  Management  has not yet  completed its
evaluation  of the impact of these new standards on future  financial  statement
disclosures.

     In February  1998,  the FASB issued SFAS No. 132,  "Employers'  Disclosures
about  Pensions and Other  Postretirement  Benefits"  (SFAS 132),  which revises
employers'  disclosures  about pension and other  postretirement  benefit plans.
SFAS 132 is effective  for  financial  statements  for periods  beginning  after
December 15, 1997, and requires comparative  information for earlier years to be
restated. This standard currently does not apply to the Company.



                                     - 30 -
<PAGE>


YEAR 2000

     The software application  currently used by the Company for operational and
financial management is Year 2000 compliant. All other software products in use,
both  internally and in products  manufactured  for sale, are being evaluated to
ensure  their  ability to perform  properly  after the date change in 1999.  The
Company  does not expect the cost of  compliance  for these  other  products  to
materially affect the results of future operations.


Item 8. Financial Statements and Supplementary Data.

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


<TABLE>
<CAPTION>
QUARTER ENDED                                                        MAR 29             JUN 28             SEP 27             JAN 3
                                                                      1997               1997               1997               1998
                                                                    -------            -------            -------            -------
<S>                                                                 <C>                <C>                <C>                <C>    
Total revenues                                                      $20,008            $20,896            $24,294            $26,363
Total costs & expenses                                               14,884             15,294             18,010             19,766
Net income                                                            2,902              3,210              4,064              4,196
Basic earnings per share                                            $   .09            $   .10            $   .12            $   .13
Diluted earnings per share                                          $   .09            $   .10            $   .12            $   .13

Common shares outstanding                                            30,804             31,920             32,661             31,810
Common shares assuming dilution                                      32,992             33,163             33,472             32,918

<CAPTION>
QUARTER ENDED                                                        MAR 30             JUN 29             SEP 28             DEC 28
                                                                      1996               1996               1996               1996
                                                                    -------            -------            -------            -------
<S>                                                                 <C>                <C>                <C>                <C>    
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
Basic earnings per share                                            $   .04            $   .05            $   .06            $   .08
Diluted earnings per share                                          $   .04            $   .05            $   .06            $   .07

Common shares outstanding                                            29,944             30,536             30,590             30,690
Common shares assuming dilution                                      33,002             33,411             32,918             33,134
</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.

         Not applicable



                                     - 31 -
<PAGE>


                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     The  information  required by this item will be set forth under the caption
"Election of Directors" and "Executive  Officers" in the Proxy Statement for the
Annual  Meeting  of  Stockholders  to be  held  on  May  28,  1998  (the  "Proxy
Statement"), and is incorporated herein by reference.

Item 11. Executive Compensation.

     The  information  required by this item will be set forth under the caption
"Executive  Compensation"  in the Proxy Statement and is incorporated  herein by
reference.

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

     The  information  required by this item will be set forth under the caption
"Voting Security  Ownership of Certain  Beneficial Owners and Management" in the
Proxy Statement, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

     The  information  required by this item will be set forth under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement,  and is
incorporated herein by reference.



                                     - 32 -
<PAGE>


                                     PART IV


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

(a)(1)   Financial Statements                                              Page
       
         Report of Independent Certified Public Accountants                F-2

         Balance Sheets as of January 3, 1998, and
         December 28, 1996                                                 F-3

         Statements of Income for the fiscal years
         ended January 3, 1998, December 28, 1996,
         and December 30, 1995                                             F-4

         Statements of Changes in Stockholders'
         Equity for the fiscal years ended                                 F-5
         January 3, 1998, December 28, 1996, and                           and
         December 30, 1995                                                 F-6

         Statements of Cash Flows for the fiscal
         years ended January 3, 1998, December 28, 1996,
         and December 30, 1995                                             F-7

         Notes to Financial Statements                                     F-8

(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

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. 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. **



                                     - 33 -
<PAGE>


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,
         incorporated  by reference  to Exhibit  10(i) of the  Company's  Annual
         Report on Form 10-K for the fiscal 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 exhibit  filed with the  Company's  Form
          8-K, dated January 1, 1991.



                                     - 34 -
<PAGE>


10(h)    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(i)    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(j)    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.***(I)

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

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

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

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

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

10(p)    1991 Stock Option Plan.*

10(q)    1994 Stock Option Plan.+

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

10(s)    1997 Interim Stock Option Plan.++

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

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.

11       Calculations of earnings per Share.

21       Subsidiaries of the Company.



                                     - 35 -
<PAGE>


23(a)    Consent of BDO Seidman LLP.

27       Financial Data Schedule (for SEC use only)

(b)      During the quarter ended January 3, 1998, the Company filed, under Item
         5, a report on Form 8-K for the event dated December 22, 1997 to report
         the  settlement  of its  actions  with  the  SEC  and  certain  matters
         pertaining to order rates for the Company's  Direct Imaging systems and
         the Quickmaster DI.

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

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


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

*    Previously  filed as an exhibit to the Company's Annual report on Form 10-K
     for the fiscal year ended December 31, 1991 and  incorporated  by reference
     thereto.

**   Previously  filed as an  exhibit  to the  Company's  Form 8-K for the event
     dated February 15, 1996 and incorporated by reference thereto.

***  Previously  filed as an exhibit with the Company's Form 10-K for the fiscal
     year ended December 30, 1995 and incorporated by reference thereto.

(I)  The SEC has granted the Company's  request of  confidential  treatment with
     respect to a portion of this exhibit.

+    Previously  filed as an exhibit to the Company's Annual report on Form 10-K
     for the fiscal year ended December 31, 1994 and  incorporated  by reference
     thereto.

++   Incorporated by reference to the exhibit filed with the Company's Quarterly
     report on Form 10-Q for the quarter ended September 27, 1997.

+++  Previously  filed as an exhibit filed with the  Company's  Annual Report on
     Form 10-K for the fiscal year ended December 28, 1996 and  incorporated  by
     reference thereto.


                                     - 36 -
<PAGE>



                          INDEX TO FINANCIAL STATEMENTS


                                                                         Page
                                                                         ----

Report of Independent Certified Public Accountants                        F-2

Balance Sheets as of January 3, 1998 and
   December 28, 1996                                                      F-3

Statements of Income for the fiscal years ended
   January 3, 1998, December 28, 1996, and
   December 30, 1995                                                      F-4

Statements of Changes in Stockholders' Equity                             F-5
   for the fiscal years ended January 3, 1998,                            and
   December 28, 1996, and December 30, 1995                               F-6

Statements of Cash Flows for the fiscal  years ended
   January 3, 1998,  December 28, 1996, and
   December 30, 1995                                                      F-7

Notes to Financial Statements                                             F-8

Financial Statement Schedule:

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



                                       F-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 January
3, 1998 and December 28, 1996, and the related statements of income,  changes in
stockholders' equity, and cash flows for the fiscal years ended January 3, 1998,
December 28, 1996,  and  December 30, 1995.  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 January 3,
1998 and December 28, 1996, and the results of its operations and its cash flows
for the fiscal years ended January 3, 1998,  December 28, 1996, and December 30,
1995, 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 20, 1998



                                       F-2
<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                                 PRESSTEK, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                           January 3,      December 28,
                                                              1998             1996
                                                        -------------    -------------
<S>                                                     <C>              <C>          
ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                          $   5,201,071    $   3,530,866
     Marketable securities                                  1,008,171        6,602,854
     Accounts receivable, net of allowance
       for doubtful accounts of $373,000 in
       fiscal 1997 and $184,000 in fiscal 1996             26,400,561       17,306,020
     Inventories                                           13,308,504       10,639,657
     Costs and estimated earnings in excess
       of billings on uncompleted contracts                 1,095,579        1,625,137
     Other current assets                                     430,909          855,287
                                                        -------------    -------------
         Total current assets                              47,444,795       40,559,821
                                                        -------------    -------------

PROPERTY, PLANT AND EQUIPMENT:
     Land                                                   2,180,431        2,426,827
     Buildings                                             15,610,147        3,873,157
     Machinery and equipment                               29,962,939       14,026,575
     Furniture and fixtures                                   995,639          681,648
     Leasehold improvements                                 2,572,118        2,905,181
     Other                                                     34,498           34,498
                                                        -------------    -------------
         Total                                             51,355,772       23,947,886
     Less accumulated depreciation
       and amortization                                    (6,392,430)      (4,230,674)
                                                        -------------    -------------
         Property, plant and equipment, net                44,963,342       19,717,212
                                                        -------------    -------------

OTHER ASSETS:
     Goodwill, net                                          5,819,999        6,144,819
     Patent application costs and license rights, net       1,931,651        1,704,406
     Software development costs, net                          303,923          546,838
     Other                                                      9,071          150,000
                                                        -------------    -------------
         Total other assets                                 8,064,644        8,546,063
                                                        -------------    -------------

         TOTAL                                          $ 100,472,781    $  68,823,096
                                                        =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Note payable                                       $   4,800,000    $          --
     Accounts payable                                       7,530,187        8,536,662
     Accrued expenses                                       1,280,070          802,692
     Accrued salaries and employee benefits                   872,851          686,090
     Billings in excess of costs and estimated
       earnings on uncompleted contracts                           --        1,355,130
                                                        -------------    -------------
         Total current liabilities                         14,483,108       11,380,574
                                                        -------------    -------------

COMMITMENTS AND CONTINGENCIES

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
       31,866,554 shares at January 3, 1998;                  318,666          153,923
       15,392,276 shares at December 28, 1996
     Additional paid-in capital                            63,156,909       49,188,118
     Unrealized loss on marketable securities, net             (1,222)         (42,911)
     Retained earnings                                     22,515,320        8,143,392
                                                        -------------    -------------
       Stockholders' equity                                85,989,673       57,442,522
                                                        -------------    -------------

         TOTAL                                          $ 100,472,781    $  68,823,096
                                                        =============    =============
</TABLE>

                        See notes to financial statements



                                       F-3
<PAGE>


                                 PRESSTEK, INC.

                              STATEMENTS OF INCOME
                           For the Fiscal Years Ended


<TABLE>
<CAPTION>
                                            January 3,      December 28,    December 30,
                                               1998            1996            1995
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>         
REVENUES:
     Product sales                         $ 72,857,736    $ 33,569,400    $ 20,028,548
     Royalties and fees from licensees       18,703,744      15,058,169       7,582,908
                                           ------------    ------------    ------------
          Total revenues                     91,561,480      48,627,569      27,611,456
                                           ------------    ------------    ------------

COSTS AND EXPENSES:
     Cost of products sold                   45,678,079      21,825,697      14,923,968
     Engineering and product development     11,246,113       8,894,420       6,155,421
     Sales and marketing                      4,521,936       2,587,490       1,727,301
     General and administrative               6,507,508       4,739,951       2,050,075
                                           ------------    ------------    ------------
         Total costs and expenses            67,953,636      38,047,558      24,856,765
                                           ------------    ------------    ------------

INCOME FROM OPERATIONS:                      23,607,844      10,580,011       2,754,691
                                           ------------    ------------    ------------

OTHER INCOME (EXPENSE):
     Dividend and interest                      379,255         786,095         327,213
     Other, net                                (155,171)       (244,817)         (2,276)
                                           ------------    ------------    ------------
          Total other income - net              224,084         541,278         324,937
                                           ------------    ------------    ------------

INCOME BEFORE INCOME TAXES                   23,831,928      11,121,289       3,079,628

PROVISION FOR INCOME TAXES                    9,460,000       4,000,000         220,000
                                           ------------    ------------    ------------

NET INCOME                                 $ 14,371,928    $  7,121,289    $  2,859,628
                                           ============    ============    ============

BASIC EARNINGS PER SHARE                   $        .46    $        .24    $        .10
                                           ============    ============    ============

DILUTED EARNINGS PER SHARE                 $        .44    $        .21    $        .09
                                           ============    ============    ============

COMMON SHARES OUTSTANDING                    31,300,054      29,858,419      29,124,034
                                           ============    ============    ============

COMMON SHARES ASSUMING DILUTION              32,695,016      33,162,508      31,710,152
                                           ============    ============    ============
</TABLE>


                        See notes to financial statements



                                       F-4
<PAGE>


                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                           For the Fiscal Years Ended
            January 3, 1998, December 28, 1996, and December 30, 1995


<TABLE>
<CAPTION>
                                                                                                        Unrealized
                                                                                                         Loss On
                                                         Common Stock       Additional    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, 1994                         7,194,020   $ 71,940   $18,437,839    $(199,334)   $(1,837,525)   $16,472,920

Issuance of Common Stock relative to the
  exercise of incentive and non-qualified
  stock options at $2.00 - $9.60 per share             272,808      2,728     2,911,002                                  2,913,730
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
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 fiscal 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

Issuance of Common Stock relative to the
  exercise of incentive and non-qualified
  stock options at $2.15 - $26.375 per share           344,130      3,442     3,579,832                                  3,583,274
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 fiscal 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>



                                       F-5
<PAGE>


                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                           For the Fiscal Years Ended
            January 3, 1998, December 28, 1996, and December 30, 1995


<TABLE>
<CAPTION>
                                                                                                        Unrealized
                                                                                                         Loss On
                                                         Common Stock       Additional    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 28, 1996                                15,392,276   $153,923  $ 49,188,118     $(42,911)   $ 8,143,392    $57,442,522

Issuance of Common Stock relative
  to the exercise of incentive and
  non-qualified stock options at
  $2.85 - $35.00 per share                             924,416      9,244     4,855,290                                  4,864,534
Two-for-one stock split effected in the
  form of a 100% stock dividend                     15,549,862    155,499      (155,499)                                       --
Tax benefit arising from stock option deductions                              9,269,000                                  9,269,000
Unrealized gain on marketable securities, net                                                 41,689                        41,689
Net income for the fiscal year                                                                           14,371,928     14,371,928
                                                    ----------   --------  ------------    ---------    -----------    -----------

BALANCE AT JANUARY 3, 1998                          31,866,554   $318,666  $ 63,156,909     $( 1,222)   $22,515,320    $85,989,673
                                                    ==========   ========  ============    =========    ===========    ===========
</TABLE>


                        See notes to financial statements



                                       F-6
<PAGE>


                                 PRESSTEK, INC.

                            STATEMENTS OF CASH FLOWS
                           For the Fiscal Years Ended


<TABLE>
<CAPTION>
                                                                              January 3,          December 28,         December 30,
                                                                                 1998                 1996                 1995
                                                                             ------------         ------------         ------------
<S>                                                                          <C>                  <C>                  <C>         
CASH FLOWS - OPERATING ACTIVITIES:
    Net income                                                               $ 14,371,928         $  7,121,289         $  2,859,628
    Adjustments to reconcile net income
    to net cash provided by (used for)
    operating activities:
       Tax benefit arising from stock
         option deductions                                                      9,269,000            3,876,000              176,000
       Depreciation                                                             2,213,978            1,253,812              819,507
       Amortization                                                               909,432              785,007              178,529
       Provision for warranty and other costs                                   1,164,053              615,717              858,740
       Provision for losses on accounts receivable                              1,074,150              112,518               57,502
       Other, net                                                                 (70,833)             107,211                2,276
    (Increase) decrease in:
       Accounts receivable                                                    (10,168,691)          (9,469,737)          (3,759,012)
       Inventory                                                               (2,668,847)          (5,036,014)          (3,165,578)
       Costs and estimated earnings in excess of
         billings on uncompleted contracts                                        529,558             (605,556)                  --
       Other current assets                                                       424,378             (475,203)             406,561

    Increase (decrease) in:
       Accounts payable and accrued expense                                    (1,538,192)           5,109,014            1,222,816
       Accrued salaries and employee benefits                                     186,761              168,989              109,516
       Billings in excess of costs and estimated
         earnings on uncompleted contracts                                     (1,355,130)             667,805                   --
                                                                             ------------         ------------         ------------
               Net cash provided by (used for)
              operating activities                                             14,341,545            4,230,852             (233,515)
                                                                             ------------         ------------         ------------
CASH FLOWS - INVESTING ACTIVITIES:
    Investment in subsidiary, net of cash acquired                                     --           (7,456,020)                  --
    Purchases of property, plant and equipment                                (27,917,783)         (16,389,751)          (2,387,379)
    Proceeds from sale of land and equipment                                      537,648               66,400               76,300
    Increase in other assets                                                     (449,255)            (851,051)            (561,261)
    Sales and maturities of
      marketable securities                                                     5,493,516            3,500,000            2,179,510
    Purchases of marketable securities                                                 --           (6,956,117)                  --
                                                                             ------------         ------------         ------------
               Net cash provided by (used for)
                 investing activities                                         (22,335,874)         (28,086,539)            (692,830)
                                                                             ------------         ------------         ------------

CASH FLOWS - FINANCING ACTIVITIES:
    Net proceeds from sale of Common
      Stock and warrants                                                        4,864,534           23,758,532            3,021,730
    Net borrowings on line of credit                                            4,800,000                   --                   --
                                                                             ------------         ------------         ------------
    Net cash (used for) provided by
     financing activities                                                       9,664,534           23,758,532            3,021,730
                                                                             ------------         ------------         ------------
INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                                            1,670,205              (97,155)           2,095,385
CASH AND CASH EQUIVALENTS-
    BEGINNING OF FISCAL YEAR                                                    3,530,866            3,628,021            1,532,636
                                                                             ------------         ------------         ------------
    END OF FISCAL YEAR                                                       $  5,201,071         $  3,530,866         $  3,628,021
                                                                             ============         ============         ============

SUPPLEMENTAL DISCLOSURE OF
    CASH FLOWS INFORMATION-
     Cash paid during the fiscal year for interest                           $    170,539         $         --         $         --
                                                                             ============         ============         ============
     Cash paid during the fiscal year for income taxes                       $     90,406         $     45,000         $     52,000
                                                                             ============         ============         ============
</TABLE>


                        See notes to financial statements



                                       F-7
<PAGE>


                                 PRESSTEK, INC.

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Nature of Business -  Presstek,  Inc.  ("the  Company"  or  "Presstek")  is
engaged in the  development,  manufacture,  and sale of PEARL(R),  its patented,
proprietary, digital imaging system and process-free,  thermal ablation printing
plate  technology.  PEARL's  thermal  laser  diode  system is capable of imaging
various types of the Company's  printing plates either  off-press or on-press to
produce  high  quality,  full-color,  lithographic  printed  materials  for  the
printing and graphic arts  industries.  Revenues  generated  under the Company's
agreements  with  Heidelberger  Druckmaschinen  AG  ("Heidelberg"),  the world's
largest   printing  press   manufacturer,   and  from  Heidelberg   distributors
represented  81% and 73% of total revenues for the fiscal years ended January 3,
1998 and December 28, 1996,  respectively.  Substantially all revenues in fiscal
1995  were  generated  under  these  Heidelberg  agreements.  See  Note 9 of the
financial statements.

     Delta V Technologies,  Inc. ("Delta V"), formerly Catalina Coatings,  Inc.,
became a  subsidiary  of the Company in fiscal 1996 (see Note 2), and is engaged
in  the  development,   manufacture,  and  sale  of  vacuum  deposition  coating
equipment,  and licensing and  sub-licensing  of patent rights with respect to a
vapor deposition process to coat moving webs of material at high speeds.  During
fiscal 1997 and 1996,  a  substantial  part of Delta V's efforts were devoted to
developing  and   manufacturing  the  equipment  the  Company  will  require  to
manufacture PEARL thermal plates.  Delta V is currently expanding its commercial
relationships  with  other  companies,  and has a  backlog  for  its  customized
high-vacuum deposition systems.

     Principles of Consolidation - The financial  statements for fiscal 1997 and
fiscal 1996  include the  accounts of the Company and its 90% owned  subsidiary,
Delta  V.  Significant   intercompany   accounts  and  transactions   have  been
eliminated.

     Fiscal Year - In 1995, the Company  changed its fiscal year from a calendar
year  ending  December 31 to a fiscal  year  ending on the  Saturday  closest to
December 31;  accordingly,  fiscal 1997 ended January 3, 1998, fiscal 1996 ended
December 28, 1996, and fiscal 1995 ended December 30, 1995. The 1997 fiscal year
reflects 53 weeks, while the 1996 and 1995 fiscal years each reflect 52 weeks.

     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  



                                       F-8
<PAGE>


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,
property plant and equipment, goodwill, patents, 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 known.

     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 January 3, 1998, and December 28, 1996, accrued expenses
included accrued warranty costs of $933,000 and $514,000.

     Inventories - Inventories  are valued at the lower of cost or market,  with
cost  determined  on the first-in,  first-out  method.  At January 3, 1998,  and
December 28, 1996, inventories consisted of the following:


                                                1997                1996
                                            -----------         -----------
     Raw materials                          $ 7,698,000         $ 6,155,000

     Work in process                          3,840,000           3,533,000

     Finished goods                           1,771,000             952,000
                                            -----------         -----------
          Total                             $13,309,000         $10,640,000
                                            ===========         ===========

     Property, Plant and Equipment - Property, plant 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 30 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 



                                       F-9
<PAGE>


Delta V (Note 2), of  $6,469,000  is being  amortized  over a twenty year period
using the straight  line method.  Amortization  expense was $325,000 for each of
the fiscal years ended January 3, 1998 and 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 Delta V. Such costs are amortized 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 fiscal years ended
January 3, 1998,  December 28,  1996,  and  December  30,  1995,  was  $145,000,
$212,000, and $73,000, 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.  During  fiscal 1997,  the Company did not
incur material costs subject to capitalization. Through fiscal 1996, the Company
incurred  and   capitalized   $895,000  of  costs  subject  to   capitalization.
Amortization  of these costs  commenced in fiscal 1995 when the related  product
was released to  customers.  Amortization  for fiscal 1997,  1996,  and 1995 was
$376,000, $250,000, and $99,000, 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 two
more years.

     Non-Competition and  Confidentiality  Covenants - The consideration paid by
the  Company  to  the  selling   shareholders   of  Delta  V  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
$11,246,000,  $8,894,000,  and  $6,155,000 for the fiscal years ended January 3,
1998, December 28, 1996, and December 30, 1995, 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  January  3,  1998,  and  December  28,  1996,  cash  and  cash
equivalents consisted of cash balances on deposit and money market funds.



                                      F-10
<PAGE>


     Reclassification  - Various  accounts in the prior fiscal years'  Financial
Statements have been  reclassified for comparative  purposes to conform with the
presentation in the current fiscal 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 fiscal years ended January 3, 1998,  December
28, 1996, and December 30, 1995.

     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 7 of
the financial statements.

     Earnings  per  Share - The  Company  has  adopted  Statement  of  Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share",  issued in February
1997. The new pronouncement is effective for both the interim and annual periods
ending after December 15, 1997, and requires  restatement of prior periods.  See
Note 4 of the financial statements.

     Effect of New  Accounting  Pronouncements  - In June  1997,  the  Financial
Accounting  Standards Board ("FASB") issued two new disclosure  standards,  SFAS
No. 130, "Reporting  Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information".

     SFAS  No.  130   establishes   standards   for  reporting  and  display  of
comprehensive  income,  its components and accumulated  balances.  Comprehensive
income is defined to include all changes in equity except those  resulting  from
investments by owners and  distributions  to owners.  This standard is effective
for the Company's financial  statements  commencing in the fiscal quarter ending
April 4, 1998.

     SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business  Enterprise,"  and  establishes  standards  for  the  way  that  public
enterprises report information about operating segments in financial  statements
issued to the public.  It also establishes  standards for disclosures  regarding
products and services,  geographic areas and major  customers.  This standard is
effective  for the  Company's  financial  statements  issued for the fiscal year
ending January 2, 1999.

     Both of these  standards  require  comparative  information to be restated.
Results  of   operations   and   financial   position   will  be  unaffected  by
implementation  of these new  standards.  Management  



                                      F-11
<PAGE>


has not yet  completed  its  evaluation  of the impact of these new standards on
future financial statement disclosures.

     In February  1998,  the FASB issued SFAS No. 132,  "Employers'  Disclosures
about  Pensions and Other  Postretirement  Benefits"  (SFAS 132),  which revises
employers' disclosures about pension and other postretirement benefit plans.

     SFAS 132 is effective for financial  statements for periods beginning after
December 15, 1997, and requires comparative  information for earlier years to be
restated. This standard currently does not apply to the Company.

2.   BUSINESS ACQUISITION

     On February 15, 1996, the Company  acquired 90% of the  outstanding  Common
Stock (the "Purchased Shares") of Catalina Coatings, Inc., which now operates as
Delta V, 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  Delta V for an  aggregate
consideration  of  $2,000,000.  The Option  Agreement  also provides the selling
shareholders  of Delta V, and another  individual,  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
Delta V  consummates  an initial  public  offering  of its  securities  prior to
February 15, 2000.

     The  Company  granted  the selling  shareholders  and one other  individual
five-year  non-qualified  options to purchase an aggregate 200,000 shares of the
Company's  Common Stock at an exercise  price of $44.75 per share,  representing
fair market  value at the date of grant.  There are 190,000  shares  outstanding
under  this  grant as of  January  3,  1998.  Delta V also  granted  to the same
individuals an option to purchase an aggregate 5% of the issued and  outstanding
Common Stock of Delta V in the event that a registration  statement  relating to
an initial  public  offering of Delta V Common  Stock is declared  effective  by
February 15, 2000.

     A portion of the funds  raised from the private  placements  referred to in
Note 7 were utilized to complete the acquisition.



                                      F-12
<PAGE>


     The  acquisition  was  accounted for as a purchase  and,  accordingly,  the
results of Delta V's operations have been included in the Company's  fiscal 1997
and 1996 financial statements.

     The  purchase  price,   plus   acquisition   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 fiscal 1997 and 1996, a  substantial  part of Delta V's efforts were
devoted to developing and  manufacturing  the equipment the Company  believes it
will require to manufacture PEARL thermal printing plates. Delta V's fiscal 1997
and 1996  revenues,  after  eliminating  significant  intercompany  accounts and
transactions, totaled approximately $1,769,000 and $1,950,000, respectively, and
its results of  operations  were not material to the  Company.  As of January 3,
1998, Delta V's total assets were approximately $15,340,000,  including land and
buildings of $5,647,000 and goodwill,  net of amortization of $5,820,000.  As of
December  28,  1996,  Delta V's total  assets  were  approximately  $12,700,000,
including land and buildings of $1,360,000 and goodwill,  net of amortization of
$6,143,000.  The following unaudited pro forma summary combines the consolidated
results of  operations  of the  Company  and Delta V 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.

     Revenues                                                  $32,754,000
                                                               ===========
     Costs and expenses                                        $29,160,000
                                                               ===========
     Net income                                                $ 3,809,000
                                                               ===========
     Basic earnings per share                                         $.13
                                                                      ====
     Diluted earnings per share                                       $.12
                                                                      ====

3.   MARKETABLE 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.

     Securities as of January 3, 1998, of $1,000,000, will mature in April 1998.
Aggregate net unrealized holding losses of $1,222 and $42,911 at January 3, 1998
and December 28, 1996, respectively,  have been included as a separate component
of stockholders' equity in the accompanying balance sheets.



                                      F-13
<PAGE>


     Certain information with respect to the Company's marketable  securities as
of January 3, 1998, and December 28, 1996, is presented below:

                                                1997               1996
                                            -----------         -----------
     Amortized Cost                         $ 1,009,393         $ 6,645,765

     Gross Unrealized
      Holding Losses                             (1,222)            (42,911)
                                            -----------         -----------
     Fair Value                             $ 1,008,171         $ 6,602,854
                                            ===========         ===========

For the fiscal years ended January 3, 1998,  December 28, 1996, and December 30,
1995, the Company  received  proceeds from the sale or maturity of available for
sale  securities of $5,494,000,  $3,500,000,  and  $2,180,000,  and recorded net
realized  losses of $9,135,  and $28,000 in 1997 and 1995,  respectively.  There
were no net realized losses recorded in 1996. In computing such realized losses,
cost was determined using the specific cost method.

4.   EARNINGS PER SHARE

     In February 1997, the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting Standard (SFAS) No. 128 "Earnings per Share,"
which  requires  companies to report basic  earnings per share (EPS) and diluted
EPS as a replacement for primary and fully diluted EPS. Basic EPS is computed by
dividing  net income by the  weighted  average  number of shares of Common Stock
outstanding.  Diluted EPS is computed  by  dividing  net income by the  weighted
average number of Common Stock and Common Stock equivalent  shares  outstanding.
On May 30, 1997, the Company's Board of Directors  declared a two-for-one  stock
split, effected in the form of a 100% stock dividend during the third quarter of
fiscal 1997. The split  resulted in the issuance of 15,549,862  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 fiscal  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 earnings per share calculations for the fiscal years ended
January 3, 1998, December 28, 1996, and December 30, 1995 follows:


<TABLE>
<CAPTION>
                                                                   (In Thousands, Except Per Share)

                                                      1997                       1996                     1995
                                            -----------------------    ------------------------   ----------------------
                                                               Per                         Per                       Per
                                                              Share                       Share                     Share
                                             Income  Shares  Amount    Income   Shares   Amount   Income  Shares   Amount
                                            -------  ------  ------    ------   ------   ------   ------  ------   ------
<S>                                         <C>      <C>      <C>      <C>      <C>        <C>    <C>     <C>        <C> 
Basic Earnings
Per Share
--------------
Income available to 
common stockholders                         $14,372  31,300   $.46     $7,121   29,858     $.24   $2,860  29,124     $.10



Effect of
Dilutive Securities
-------------------
Effect of assumed conversion of
employee stock options                                1,395                      3,305                     2,586



Diluted Earnings
Per Share
----------------
                                            -------  ------   ----     ------   ------     ----   ------  ------     ----
Income available to common stockholders
and assumed conversions                     $14,372  32,695   $.44     $7,121   33,163     $.21   $2,860  31,710     $.09
                                            =======  ======   ====     ======   ======     ====   ======  ======     ====
</TABLE>

     Options to purchase  1,111,450  shares of Common  Stock at exercise  prices
ranging  from  $26.38 to $49.62 per share were  outstanding  during a portion of
fiscal 1997, but were not included in the  computation  of diluted  earnings per
share,  because the exercise prices of the options were greater than the average
market price of the common shares.  These options,  which expire between January
2, 2001, and December 22, 2003, were all outstanding at the end of fiscal 1997.



                                      F-15
<PAGE>


5.   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
fiscal 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 fiscal years ended
January 3, 1998, December 28, 1996, and December 30, 1995, were as follows:

                                              1997          1996         1995
                                          ----------    ----------    ----------
Current tax expense - State               $  191,000    $  124,000    $   44,000

Charge in lieu of income taxes:
  Federal                                  7,740,000     3,360,000            --
  State                                    1,529,000       516,000       176,000
                                          ----------    ----------    ----------
Total provision                           $9,460,000    $4,000,000    $  220,000
                                          ==========    ==========    ==========

     The charge in lieu of income  taxes  included in the fiscal 1997  provision
for income taxes represents the tax benefit arising from stock option deductions
in the current year and the  realization  of net  operating  loss  carryforwards
resulting from compensation  deductions for tax purposes. The charges in lieu of
income  taxes  included in the fiscal 1996 and 1995  provision  for income taxes
represent the tax benefit  arising from stock option  deductions in those years.
The tax benefit  related to such stock option  deductions  has been  credited to
stockholder's equity. No charge in lieu of federal income taxes was required for
1995 due to the  availability  of federal net operating loss  carryforwards  for
accounting purposes.



                                      F-16
<PAGE>


     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 January 3, 1998,  and December 28,
1996:

                                                         1997            1996
                                                    -----------      ---------- 
Deferred tax assets:
   Net operating loss carryforwards                $  9,500,000    $  7,660,000
   Tax credits                                        2,050,000         500,000
   Warranty provisions and other accruals             1,100,000         635,000
                                                    -----------      ---------- 
      Gross deferred tax assets                      12,650,000       8,795,000
                                                    -----------      ---------- 

Deferred tax liabilities:
   Patent applications costs                            700,000         463,000
   Accumulated depreciation and amortization            200,000         282,000
                                                    -----------      ---------- 
      Gross deferred tax liabilities                    900,000         745,000
                                                    -----------      ---------- 

                                                     11,750,000       8,050,000

Less valuation allowance                            (11,700,000)     (8,000,000)
                                                    -----------      ---------- 
Deferred tax asset - net                           $     50,000    $     50,000
                                                    ===========      ========== 

     The $50,000  deferred  tax asset was  included in other  current  assets at
January  3, 1998 and  December  28,  1996.  The  valuation  allowance  increased
$3,700,000,   $2,015,000,  and  $3,057,000  in  fiscal  1997,  1996,  and  1995,
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 fiscal years ended
January 3, 1998, December 28, 1996, and December 30, 1995:

                                                    1997      1996     1995
                                                    ----      ----     ----
Computed at federal statutory rate                   35%       34%      34%
Increase (decrease) resulting from:
  Expenses producing no current tax benefit           3%        1%      11%
  State tax, net of federal benefit                   4%        4%       7%
  Net operating loss carryforwards                   --        --      -42%
  Deductions for tax purposes in excess of
   expenses for financial statement purposes         -2%       -3%      -3%
                                                     --        --        - 
         Effective rate, net                         40%       36%       7%
                                                     ==        ==        = 

     As of January 3, 1998,  the Company had net  operating  loss  carryforwards
totaling  approximately  $27,400,000 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 



                                      F-17
<PAGE>


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 expiration dates:

                                       Amount of remaining
                                          net operating
            Expiration date            loss carryforwards
            ---------------            ------------------
                2006                     $ 3,250,000
                2008                     $    50,000
                2009                     $   500,000
                2010                     $ 8,750,000
                2011                     $14,850,000

     In addition,  the Company has available tax credit carryforwards  (adjusted
to reflect provisions of the Tax Reform Act of 1986) of approximately $2,050,000
which are available to offset future income tax liabilities when incurred.

6.   RELATED PARTIES

     During fiscal 1997 and 1996,  the Company  recorded  sales of equipment and
consumables to Pitman Company of $7,579,000 and $3,379,000, respectively, and at
January 3, 1998 and December 28, 1996, the Company had accounts  receivable from
Pitman of $1,460,000 and $2,279,000. John Dreyer, who has been a director of the
Company since February 1996, is Pitman's President and Chief Executive Officer.

     During  fiscal  1997,  the Company  agreed to make a loan in 1998 to Robert
Verrando  in the  amount of  $200,000.  Interest  on the note  accrues at 8% per
annum. The principal and accrued interest is payable on demand.  Mr. Verrando is
the President and Chief Operating Officer of the Company.

     During fiscal 1996, the Company made equipment  purchases from Howtek, Inc.
("Howtek") totaling $54,000. During the fiscal year ended December 30, 1995, the
Company made various sales to Howtek totaling  approximately $23,000. Mr. Robert
Howard,  Chairman and a principal stockholder 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 $36,000 for each of the
fiscal years ended  January 3, 1998,  December 28, 1996,  and December 30, 1995.
The Company paid Mr.  Howard  $145,000,  $125,000,  and $110,000 for  consulting
services   provided  to  the  Company  during  fiscal  1997,   1996,  and  1995,
respectively.



                                      F-18
<PAGE>


7.   STOCKHOLDERS' EQUITY

     References  herein to shares,  options,  warrants  and the prices per share
have been  restated for the fiscal 1997 and 1995 stock  splits,  effected in the
form of stock dividends, referred to in Note 4.

     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") originally  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 January 3, 1998,
80,000 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").  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 1997 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 400%.  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 not less than par value,  within the  discretion of the Board of
Directors or a committee appointed by the Board of Directors  ("Committee").  On
September 23, 1997, the Company  adopted the 1997 Interim Stock Option Plan (the
"1997 Plan").  The 1997 Plan provides for the award,  to key employees and other
persons, options to purchase up to 250,000 shares of the Company's Common Stock.
Only  nonqualified  options  may be  granted  under the 1997 Plan.  Any  options
granted will generally  become  exercisable  in increments  over a period not to
exceed  ten  years  from the date of  grant,  to be  determined  by the Board of
Directors or Committee,  and  generally  will expire not more than 10 years from
the date of grant.

     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



                                      F-19
<PAGE>



market value.  Options granted under this plan become 100% exercisable after one
year and terminate five years from date of grant.

     The following table summarizes  information about stock options outstanding
at January 3, 1998:

<TABLE>
<CAPTION>
                                  OPTIONS OUTSTANDING                                        OPTIONS EXERCISABLE
-------------------------------------------------------------------------------        --------------------------------

                       Outstanding        Weighted-Average          Weighted-          Exercisable
     Range of             as of              Remaining               Average               as of      Weighted-Average
  Exercise Prices        1/3/98          Contractual Years       Exercise Price           1/3/98       Exercise Price
  ---------------      ----------        -----------------       --------------        -----------    -----------------
<S>                     <C>                    <C>                   <C>                 <C>               <C>  
   $2.85 -  $7.50        542,505               1.0                    $4.82                533,757          $4.81

   $7.62 -  $8.50        804,273               2.4                    $7.78                479,523          $7.78

   $8.62 - $23.50        509,152               3.1                   $13.38                198,702         $10.37

  $23.62 - $35.00        501,550               5.0                   $28.35                 34,675         $26.95

  $35.12 - $49.62        674,200               3.9                   $39.47                278,125         $38.63
                       ---------                                                         ---------
                       3,031,680               3.0                   $18.64              1,524,782         $13.14
                       =========                                                         =========
</TABLE>

     Information  concerning  all stock option  activity  under the 1988,  1991,
1994,  and 1997 plans for the fiscal years ended  January 3, 1998,  December 28,
1996, and December 30, 1995 is summarized as follows:

                                                                      Weighted
                                  Option         Option price      average price
                                  Shares           per share          per share

Outstanding at
December 31, 1994                4,082,752      $ 1.00 - $12.50        $ 5.62

Granted                            194,500      $11.16 - $31.00        $20.63
Exercised                       (  664,520)     $ 1.00 - $ 7.78        $ 4.38
Cancelled/Expired               (      940)     $ 3.05 - $ 3.05        $ 3.05
                                 ---------
Outstanding at
December 30, 1995                3,611,792      $ 2.15 - $31.00        $ 6.65

Granted                            669,800      $25.50 - $49.62        $38.80
Exercised                       (  688,260)     $ 2.15 - $26.38        $ 5.21
Cancelled/Expired               (    1,000)     $24.00 - $24.00        $24.00
                                 ---------
Outstanding at
December 28, 1996                3,592,332      $ 2.85 - $49.62        $12.92

Granted                            604,600      $22.00 - $49.38        $29.70
Exercised                       (1,082,002)     $ 2.85 - $35.00        $ 4.50
Cancelled/Expired               (   83,250)     $ 7.90 - $44.75        $35.91
                                 ---------
Outstanding at
January 3, 1998                  3,031,680      $ 2.85 - $49.62        $18.64
                                 =========      


                                      F-20
<PAGE>


     The incentive  and  nonqualified  stock options  summarized in the previous
table 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 stock options  exercised during the fiscal
years ended  January 3, 1998,  December 28, 1996,  and December 30, 1995 totaled
$4,865,000, $3,583,000, and $2,913,000, respectively.

     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 1997,  1996, and 1995.
The  following  weighted  average  assumptions  were used in 1997:  a  risk-free
interest  rate of  5.62%;  an  expected  option  life of  4.65  years;  expected
volatility of 65.84%,  and no dividends  paid.  The following  weighted  average
assumptions  were used in 1995 and 1996: a risk-free  interest  rate of 6.0%; an
expected  option  life of 4.08  years;  expected  volatility  of 68.31%,  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:

                                       1997             1996           1995
                                       ----             ----           ----
    Net income
       As reported                 $14,372,000      $7,121,000      $2,860,000
       Pro forma                     8,772,000         249,000       2,304,000
    Basic earnings
     per share
       As reported                        $.46            $.24            $.10
       Pro forma                          $.28            $.01            $.08

    Diluted earnings
     per share
       As reported                        $.44            $.21            $.09
       Pro forma                          $.27            $.01            $.07

     The above pro forma net income  and net  income per share do not  recognize
the related tax benefits in fiscal  years 1997,  1996,  and 1995 of  $1,972,000,
$2,470,000,  and $118,000,  respectively,  as these deferred tax assets would be
fully offset by a valuation allowance.

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


                                      F-21
<PAGE>


     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  effected in 1994) 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 Delta V as described in Note 2.

8.   COMMITMENTS

     The Company leases various of its facilities under noncancellable 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 were
$542,000, $518,000, and $296,000 for fiscal 1997, 1996, and 1995, respectively.

     As of January 3, 1998, future minimum lease payments under these agreements
were as follows:

              1998                                $304,652
              1999                                 217,286
              2000                                 129,186
                                                  --------
              Total                               $651,124
                                                  ========

     The Company has completed the construction of a 70,000 square foot facility
in  Tucson,  Arizona  for  Delta  V's  operations,  and a  100,000  square  foot
manufacturing facility in Hudson, New Hampshire to accommodate the Company's new
plate  manufacturing  operations.  Through  January 3,  1998,  the  Company  had
expenditures  of  approximately  $18,416,000 for land,  land  improvements,  and
construction of the two new facilities.  Approximately $12,114,000 of this total
was incurred during fiscal 1997.

     The  Hudson  facility  accommodates  the  new  thin-film,   vacuum  coating
equipment built for the Company by Delta V. Also located in this facility is the
necessary  plate finishing and packaging  equipment  required to manufacture the
Company's  thermal  plate  consumable  products.  Through  January 3, 1998,  the
Company had expenditures of $19,197,000 for new plate manufacturing,  finishing,
and packaging  equipment.  Approximately  $11,388,000 of this total was incurred
during  fiscal  1997.  As of  January  3,  1998,  the  Company  had  outstanding
commitments  with respect to the Hudson facility,  and the plate  manufacturing,
finishing, and packaging equipment of approximately $750,000.


                                      F-22
<PAGE>

9.   HEIDELBERG AGREEMENTS

     In  January  1991,  the  Company  entered  into a  Master  Agreement  and a
Technology  License  Agreement  (collectively  referred  to as  the  "Heidelberg
Agreements") with Heidelberg.

     The Heidelberg  Agreements  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.  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.

     The Heidelberg Agreements and amendments govern the Company's  relationship
with  Heidelberg and provide for the Company to supply Direct Imaging systems to
Heidelberg at specified  rates.  The Heidelberg  Agreements  currently expire in
December  2011 subject to certain  early  termination  provisions  and extension
provisions.  Under  these  agreements,  Heidelberg  agreed to pay to the Company
royalties  on the net sales  prices of  various  specified  types of  Heidelberg
Presses on which the Company's Direct Imaging technology would be used.

     The most important amendments and adjustments to the Heidelberg  Agreements
are summarized below.

     In 1993,  the Company  granted  Heidelberg  a  forty-five  month  exclusive
license  which  expired in January  1997 for the  manufacture  and sale of PEARL
technology  used on the  Quickmaster  DI.  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.

     In  November  1995,  the  Company  and  Heidelberg  agreed  (the  "November
Agreement") to certain other arrangements, whereby the Company was provided with
incremental  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)


                                      F-23
<PAGE>


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

     The Company and  Heidelberg  recently  concluded  negotiations  relating to
production  levels and schedules for the year ending January 2, 1999,  which has
resulted in the Company materially  reducing production levels of Direct Imaging
systems used in the Quickmaster DI press for 1998.

10.  OTHER INFORMATION

     On December 24, 1997, the Company entered into a settlement  agreement with
the U.S.  Securities and Exchange Commission (the "SEC"). The agreement provides
for the  entry  of a cease  and  desist  order  in which  the  Company,  without
admitting or denying certain violations of the federal securities law, agrees to
abide by federal  securities  law and  regulations  in the  future.  No monetary
penalties  were imposed on the Company in this action.  The  allegations  giving
rise to the cease and desist  order  relate to certain  disclosures  made by the
Company at various times from 1994 to 1996.

     Simultaneously,  Robert Howard, Chairman of the Board, and President Robert
Verrando,  also entered into  settlement  agreements  with the  Commission  and,
without admitting or denying  allegations  relating to public statements made by
the Company,  consented to the entry of statutory injunctions prohibiting future
violations of the federal  securities laws. Civil penalties were assessed in the
amount of $2,700,000 and $200,000,  respectively.  These civil penalties are not
obligations  of the Company.  The  investigation  by the SEC has concluded  with
respect to Presstek and its personnel.

     As previously  disclosed,  seven  federal class action  lawsuits were filed
against the Company and others,  all of which 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. The plaintiffs have jointly
filed and served a Second Consolidated Amended Class Action Complaint naming the
Company,  certain of its present or former  officers and  directors  ("the Berke
Officer and  Director  Defendants"),   and  other  parties  as  defendants.  The
plaintiffs allege, among other things, that the Company and/or the Berke Officer
and Director Defendants violated Section 10(b) ("Sect. 10(b)") of the Securities
Exchange Act of 1934, (the


                                      F-24
<PAGE>

"Exchange  Act") and Rule  10b-5  ("Rule  10b-5")  promulgated  thereunder,  and
violated New Hampshire  law; and that the Berke Officer and Director  Defendants
violated  Section  20(a)  ("Sect.  20(a)") of the Exchange  Act.  The  Complaint
alleges,  among  other  things,  that the Company  and/or the Berke  Officer and
Director  Defendants  issued false and  misleading  reports,  failed to disclose
material facts including a misstatement  of earnings in the Company's  financial
statements  for the first quarter  ended March 30, 1996,  misstated or failed to
fully disclose the Company's  supply  contracts  with,  payments  received from,
sales made by, backlog of orders  received from, and delays in production by the
Company's principal customer,  and alleged circulation of, and failed to correct
certain analyst research reports  concerning the Company that contained  alleged
misrepresentations  regarding allegedly inflated financial projections.  Certain
of the Berke  Officer  and  Director  Defendants  are  alleged  to have sold the
Company's  Common Stock at  artificially  inflated prices while in possession of
material  non-public  information  concerning 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.

     As previously  disclosed,  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 certain  officers and directors of the
Company ("the Strauss Officer and Director  Defendants").  The plaintiff alleges
that the Strauss Officer and Director Defendants breached their fiduciary duties
to the Company  and its public  stockholders  and wasted  corporate  assets,  by
making allegedly 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,  causing  the  Company  to fail to  properly
disclose  the scope of an  investigation  by the SEC, and causing the Company to
misstate its financial results for the first quarter of 1996. The plaintiff also
alleges  that  certain of the  Strauss  Officer  and  Director  Defendants  sold
securities  of the Company at inflated  prices while they were in  possession of
material non-public  information  concerning the Company.  The plaintiff alleges
that the actions of the  Strauss  Officer and  Director  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, on behalf of the Company, unspecified
damages  allegedly  sustained  by the  Company  as a result  of the  defendants'
alleged  breaches of fiduciary  duty,  disgorgement  of any profits derived from
their sale of the Company's  common stock, as well as other relief.  This action
had been stayed pending the outcome of the Berke action.

     As previously  disclosed,  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  certain of the  Company's  officers and
directors  (the "Cassidy  Officer and Director  Defendants"),  and the Company's
independent auditor. The plaintiff alleges that the Cassidy Officer and Director
Defendants breached


                                      F-25
<PAGE>

their  fiduciary  duty to the  Company  and its public  stockholders  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 its PEARL technology, and 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 ended  December 30,  1995,  and for the first  quarter  ended March 30,
1996.  The  plaintiff  also  alleges  that  certain of the  Cassidy  Officer and
Director Defendants sold securities of the Company at inflated prices while they
were in possession of material  non-public  information  concerning the Company.
The plaintiff also alleges that the actions of the Cassidy  Officer and Director
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, and also constituted gross negligence and
breaches of their contractual obligations to the Company. The plaintiff seeks to
recover on behalf of the Company  unspecified damages allegedly sustained by the
Company as a result of the defendants'  actions as alleged,  disgorgement of any
profits from the sale of the  Company's  Common  Stock,  as well as other relief
against the defendants. By agreement of the parties, this action has been stayed
pending the outcome of certain motions made by the parties in the Berke action.

     As  previously  disclosed,  on  June  16,  1997,  Seena  Stevens  Silverman
commenced a purported  class action in the United States  District Court for the
District of New Hampshire  against the Company and certain of its present and/or
former officers and directors (the "Silverman Officer and Director Defendants"),
and other  parties.  The plaintiff  purports to bring this action on behalf of a
class of persons who sold put options in the Common Stock of the Company between
November 7, 1995 and June 20, 1996. The complaint  alleges,  among other things,
that the Company and/or the Silverman Officer and Director  Defendants  violated
Sect.  10(b) and Rule  10b-5,  and  violated  New  Hampshire  law;  and that the
Silverman  Officer and Director  Defendants  violated Sect. 20(a). The plaintiff
alleges that the defendants defrauded the putative class members by manipulating
the price and supply of the Company's common stock, issuing false and misleading
statements  regarding the nature of the Company's  proprietary PEARL technology,
failing to disclose  the true depth and target of an  investigation  by the SEC,
and making  misleading  statements  regarding the Company's  claims to its PEARL
technology and its contract with the Company's principal customer. The plaintiff
also alleges that certain of the Silverman Officer and Director  Defendants sold
securities  of the Company at inflated  prices while they were in  possession of
material non-public  information  concerning the Company. The plaintiff seeks to
recover unspecified  compensatory and punitive damages on behalf of the putative
class, as well other relief.

     To date,  the  Company  has not been  required to file its answers to these
claimants.  The Company  expects that it will file its answer to the claims this
year.


                                      F-26
<PAGE>


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

11.  LINE OF CREDIT

     On July 29, 1997, the Company  renewed its agreement with Citizens Bank New
Hampshire  ("Citizens")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,  Delta V
Technologies,  Inc. and secured by its assets. Interest on the line of credit is
payable  at the LIBOR  rate plus 1.75%  (7.47% at  January  3,  1998).  The loan
agreement  terminates on July 31, 1999, at which date, the entire  principal and
accrued  interest  is due and  payable.  As of January 3, 1998,  the Company had
$5,200,000 available under the line of credit. The credit facility was unused at
December  28,  1996.  Under the terms of the  revolving  credit  agreement,  the
Company is required  to meet  certain  financial  covenants  on a quarterly  and
annual basis.  The Company was in compliance  with all debt covenants at January
3, 1998.

12.  SUBSEQUENT EVENTS

     On January 5, 1998,  the Company  acquired the stock of Heath Custom Press,
Inc.  ("Heath"),  of  Seattle,  Washington.  Heath is  engaged in the design and
manufacture  of  custom  printing  presses.   Heath  was  purchased  for  94,865
unregistered shares of the Company's Common Stock.

     The acquisition will be accounted for as a purchase and,  accordingly,  the
results  of Heath's  operations  will be  included  in the  Company's  financial
statements for the year ended January 2, 1999. The results of Heath's operations
would not have had a material impact on the Company's  results of operations for
fiscal 1997.

     On February 6, 1998, the Company obtained a ten-year  mortgage term loan in
the principal amount of $6,900,000 from Citizens. Borrowings are secured by land
and buildings with a cost of approximately  $17,000,000.  The loan bears a fixed
rate of interest  of 7.12% per year during the first five years,  and a variable
rate of  interest  at the LIBOR  rate plus 2% (7.72% at January 3, 1998) for the
remaining  five years.  Principal  and interest  payments  during the first five
years of the loan will be made in 60 monthly installments of $80,500. During the
remaining five years, principal and interest payments shall be made on a monthly
basis in the amount of one-sixtieth of the  outstanding  principal  amount as of
the first day of the second five year period,  plus accrued interest through the
monthly payment date. All outstanding  principal and accrued and unpaid interest
is due and payable on February 6, 2008.


                                      F-27
<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, 1998                  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.

         Signature                     Title                          Date
         ---------                     -----                          ----

/s/ Richard A. Williams       Chief Executive Officer,            March 27, 1998
--------------------------    Secretary and Director
Richard A. Williams           (Principal Executive Officer)


/s/ Robert E. Verrando        President, Chief Operating          March 27, 1998
--------------------------    Officer and Director
Robert E. Verrando        


/s/ Robert Howard             Chairman of the Board and           March 27, 1998
--------------------------    Director
Robert Howard


/s/ Dr. Lawrence Howard       Director                            March 27, 1998
--------------------------
Dr. Lawrence Howard


/s/ Harold N. Sparks          Director                            March 27, 1998
--------------------------
Harold N. Sparks


/s/ Bert DePamphilis          Director                            March 27, 1998
--------------------------
Bert DePamphilis


/s/ John W. Dreyer            Director                            March 27, 1998
--------------------------
John W. Dreyer


/s/ John B. Evans             Director                            March 27, 1998
--------------------------
John B. Evans

/s/ Glenn J. DiBenedetto      Chief Financial Officer             March 27, 1998
--------------------------    (Principal Financial and
Glenn J. DiBenedetto          Accounting Officer)


                                     - 37 -
<PAGE>

                                 PRESSTEK, INC.

                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
                             (NUMBERS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                              Charges
                                           Balance at       Charged to      Charged to          Add           Balance at
 Fiscal                                   Beginning of      Costs and     Other Account       (Deduct)          End of
  Year             Description            Fiscal Year       Expenses         Describe         Describe       Fiscal Year
  ----             -----------            -----------       --------         --------         --------       -----------
<S>         <C>                             <C>            <C>                 <C>         <C>                <C>
  1995      Allowance for losses on
              accounts receivable           $ 23,000       $   57,000           --         $      -- (1)      $ 80,000
            Warranty reserve                 199,000          467,000           --          ( 65,000)(2)       601,000
            Equipment replacement
              reserve                         28,000          291,000           --          ( 28,000)(3)       291,000


  1996      Allowance for losses on
              accounts receivable             80,000          115,000           --          ( 11,000)(1)       184,000
            Warranty reserve                 601,000          216,000           --          (303,000)(2)       514,000
            Equipment replacement
              reserve                        291,000               --           --          (291,000)(3)            --


  1997      Allowance for losses on
              accounts receivable            184,000        1,074,000           --          (317,000)(1)       941,000
            Warranty reserve                 514,000        1,135,000           --          (716,000)(2)       933,000
            Equipment replacement
              reserve                             --               --           --                -- (3)            --
</TABLE>

(1)  Allowance for doubtful accounts

(2)  Warranty expenditures

(3)  Equipment replacement

                                     FS - 1