UNITED STATES
                                       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:                              June 30, 1998
Commission file Number:                                 0-12661
Exact Name of Registrant as Specified in its Charter:   IMTEC, Inc.
State of Incorporation:                                 Delaware
I. R. S. Employer Identification Number:                03-0283466
Address of Principal Executive Offices:                 One Imtec Lane
                                                        Bellows Falls, VT  05101
Registrant's Telephone Number:                          802-463-9502
Securities registered pursuant to Section 12(g) of the Act:
                  Class:           Common
                  Exchange:     NASDAQ SmallCap Market


         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 shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. [X] YES [ ] NO

         Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Regulation S-K (229.405 of the this chapter)is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive 
proxy or information statements incorporated by reference in Part III of this 
Form 10-K or any amendment to this Form 10-K.                               [X]

         State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of August 19, 1998:     $7,465,430.

APPLICABLE ONLY TO CORPORATE ISSUERS:

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

         Common shares outstanding as of August 19, 1998:              1,585,713

DOCUMENTS INCORPORATED BY REFERANCE
         Part     III  Registrant's  Proxy  Statement  for  its  Annual  Meeting
                  scheduled to be convened on October 26, 1998



<PAGE>

PART I
Item 1.  BUSINESS

         (a) General Development of Business

         IMTEC,  Inc. (the "Company")  designs,  manufactures and sells labeling
systems.   These  systems  include  label  printer  laminators,   label  printer
applicators,  preprinted  labels  and  labeling  supplies.  IMTEC  products  are
designed  for  automated   identification  (bar  coding)   applications  in  the
electronics, pharmaceutical, transportation, textile, automotive and warehousing
industries.

         The Company  acquired the Customark  division of Markem  Corporation in
August 1997. Reference is made to the Company's report on Form 8-K, dated August
26,  1997,  the  contents of which are  incorporated  herein by  reference,  for
further information in these regards.

         The  Company  was  incorporated  in Vermont on March 17, 1982 under the
name Imaging  Technologies,  Inc., and was  reincorporated in Delaware under its
present name on September 22, 1983. The Company's  executive offices are located
at One Imtec Lane,  Bellows Falls,  Vermont 05101,  and its telephone  number is
(802) 463-9502.

         (b) Financial Information About Industry Segments

                Not Applicable.

         (c) Narrative Description of Business


Products and Services

         The Company markets  high-performance  labels, label material,  ribbons
and laminates,  and produces preprinted bar code labels for customers who prefer
outsourcing  of label  printing.  Although the Company  sells a broad variety of
label  materials,  the  Company  focuses on high  performance  label  materials,
designed to perform in demanding  environments.  Sales of such labeling supplies
accounted  for 71.5 %, 72.1% and 56.5% of the Company's  revenues  during fiscal
years 1998, 1997 and 1996, respectively.

         The  Company  also  markets bar code label  printer/applicators,  label
applicators,   label   dispensers   and  bar  code   label   printer/laminators.
Printer/applicators  print bar codes and variable alphanumeric  information onto
pressure  sensitive  labels  and  automatically  applies  the  label in a single
integrated process to a product or package.  These devices are typically used to
automate  information  transfer and labeling processes in a real time production
or distribution  environment.  Label  applicators  apply  pre-printed  labels to
product  or  packages.  Label  dispensers  present  pre-printed  labels for hand
application.  Printer/laminators enable rapid automated printing of bar code and
variable information on labels with a laminated surface.  These labels are often
used in environments where resistance to temperatures, chemicals and weather are
valued.

         These   labeling   systems  are   microprocessor   driven  and  involve
proprietary  software,  label  applicator  elements and  transport,  cutting and
laminating devices.  The systems often include scanners,  detectors and printers
supplied by  unaffiliated  manufactures.  Equipment  sales  accounted for 28.5%,
27.9% and 43.5% of the  Company's  revenue  during  fiscal years 1998,  1997 and
1996, respectively.

<PAGE>

Marketing and Sales

         The Company's  marketing  efforts are directed to those  industries and
businesses that have need for bar coded labels and labeling systems. The Company
conducts its  marketing and sales efforts  primarily  through an in-house  sales
staff of 26 full-time employees and its executive  officers;  2 sales management
offices  in  the  Metropolitan   areas  of  Chicago,   IL  and  Roseville,   CA,
respectively,  each of which  employs  one full-  time  sales  employee;  and an
independent  reseller  network  consisting of 41 certified  distributors  and an
additional 60 resellers  throughout  the United States who market other bar code
products in addition to the Company's.

         The  Company  also  conducts  marketing  efforts  and sales  throughout
Canada,  Latin  America,  Europe,  and the  Pacific Rim  through  resellers  and
distributors.

         The  Company  supplements  these  efforts  by  advertising,  publishing
articles in trade and business journals, and participation in trade shows.


Manufacturing and Sources of Supply

         The  Company  purchases  substantially  all of  the  printers  that  it
incorporates into its bar code printers from  non-affiliated  manufacturers.  As
there are numerous  manufacturers and distributors of printers, the Company does
not anticipate experiencing any curtailment in the availability of printers.

         The Company is not  materially  dependent  on any one  supplier for its
computer  software,  bar code printing supplies or components used in assembling
its  present  or  proposed  products.  It  currently  uses a number  of  outside
contractors to fabricate machine parts and  sub-assemblies  for its products but
is not currently materially dependent on any one such contractor.


Patents and Trademarks

         During the current fiscal year the Company received one new patent.  As
of June 30, 1998,  the Company  owned nine patents and  licensing  rights to two
others,  expiring  at  various  dates  ranging  from  2001 to 2009,  and  eleven
trademarks, respectively.  Registrations of trademarks in nine foreign countries
have been issued.  Applications  for three patents were also pending at June 30,
1998. The Company does not believe the proprietary  protection  afforded by such
patents  and  trademarks  is of  material  importance  to its  current or future
operations or prospects.


Warranty

         The  Company's  personnel  install its  products  and train  customers'
personnel in their operation and service.  The Company's  personnel also service
such  products  when a  customer's  own staff is unable to diagnose or correct a
problem.  The Company provides warranty for its enhanced printers for a one-year
period for parts and  in-house  labor.  The  Company  also  offers  service  and
warranty  contracts  directly to its  customers  as well as through  third party
service groups.


Customers

         The Company's primary customers are those businesses in industries that
utilize bar code labels and labeling systems.  The Company's  customers include,
but are not limited to, the fields of electronics,  distribution, automotive and
consumer's  goods  manufacturers.  During fiscal year 1996,  sales pursuant to a
single customer (United Parcel Service)  accounted for  approximately 13% of the
Company's  revenues.  No  other  customer  accounted  for  more  than 10% of the
Company's revenues during fiscal year 1998, 1997 and 1996.

<PAGE>
Backlog

         The aggregate  backlog of firm orders for the Company's  products as of
June 30, 1998 was  approximately  $1,590,000 as compared with $1,510,000 at June
30, 1997.  Approximately $1,259,000 of the current backlog is for media supplies
with  scheduled  shipping  dates  over the next 12  months.  The  balance of the
current  backlog  ($331,000)  is for  equipment,  including  several  orders for
multiple  units,  with  scheduled  delivery  over  several  months.  The Company
anticipates  that  substantially  all of its backlog  will be filled  during the
current fiscal year.


Competition

         The Company  competes with several  other  companies in the sale of its
bar code accessories,  supplies and services,  many of which are larger and have
greater  financial  resources.  The Company  recognizes  approximately 10 direct
competitors in its field;  however,  the Company believes that no one competitor
is a dominant factor therein.

         The  Company  may  face  potential  competition  with  respect  to  its
specialized bar code labeling  systems from other  companies  engaged in various
areas of the bar code  industry  which  have  both the  technical  knowledge  to
develop competing  systems and financial  resources  substantially  greater than
those of the Company.

         The Company  believes that it presently  competes based on performance,
simplicity of operation,  reliability of products, and price. It also expects to
compete with respect to specialized  bar code labeling  systems  presently under
development, based upon its chemical and systems engineering capabilities.


Research and Development

         The Company  conducts  on-going  research  and  development  to refine,
improve and enhance its product lines.  Research and  development  expenses were
$577,864,  $591,767 and  $625,149 in the fiscal years ended June 30, 1998,  1997
and 1996,  respectively.  The research and  development  expenses were primarily
attributable  to the Company's  efforts with respect to its specialized bar code
labeling systems and proprietary materials.


Employees

         As of August 30, 1998,  the Company  employed 88 persons on a full time
basis, including 6 employees in administration,  28 in marketing and sales, 8 in
research and development and 46 in service and manufacturing. .

         None of the Company's  employees are represented by a labor union,  and
the Company has  experienced no work  stoppages.  The Company  believes that its
employee relations are good.

<PAGE>

(d)      Financial Information about Foreign and Domestic Operations
         and Export Sales

         Export  sales  aggregated  approximately  $2,125,000  in  fiscal  1998,
$1,979,000  in fiscal 1997 and  $1,435,000 in fiscal 1996,  representing  17.0%,
22.5% and 15.7%, respectively,  of the Company's sales in such fiscal years. The
Company has no  significant  assets  outside of the United States and all export
sales in such years were made to persons or entities that had no  affiliation to
the Company.

<TABLE>
<CAPTION>
                                                           Fiscal Years Ended June 30,
<S>                                                  <C>               <C>              <C> 
                                                     1998              1997             1996
                                                    _____             _____            _____
                  Pacific Rim                        35%               46%              57%
                  Latin America                      32%                 -                -
                  Canada                             14%               15%              12%
                  Europe                             12%               26%              18%
                  Others                              7%               13%              13%
                                                     ----              ---              ---
                                                     100%              100%             100%
                                                     ====              ====             ====
</TABLE>

Item 2.  PROPERTIES

         The  Company  occupies  approximately  15,000  square  feet  in  leased
facilities and a plot of land  measuring  11.59 acres situated in the Rockingham
Industrial Park, Bellows Falls, Vermont, which house the Company's executive and
administrative  offices, and its bar code manufacturing and shipping facilities.
The lease expires on December 31, 1999.  The Company has the right to extend the
lease for an additional  five-year term and to purchase the building at any time
at a purchase price equal to the then outstanding  principal balance and accrued
interest  of a $525,000  Vermont  Industrial  Development  Authority  Industrial
Development  Revenue Bond,  issued in May, 1985. Annual rent at this facility is
$54,000.  The lease  provides  that the  Company  shall pay  property  taxes and
utility charges. Sufficient land is available to allow for future expansion.

         The Company also leases  approximately 19,100 square feet in facilities
at  33  Bridge  Street,   Bellows  Falls,   Vermont,   which  house   additional
manufacturing and storage  facilities.  This lease expires December 31, 2000 and
the  Company has the right to extend the lease for two terms of five years each.
Annual rent through December 31, 1998 at this facility is $68,000.

         The Company also leases  approximately  9,000 square feet in facilities
at 17 Bradco Road,  Keene, New Hampshire,  which house additional  manufacturing
and sales  facilities.  This lease  expires May 31, 2000 and the Company has the
right to extend the lease for another term of three  years.  Annual rent through
December 31, 1998 at this facility is $52,920.

         The Company also leases  approximately  5,500 square feet in facilities
at  90  Pattison  Street,  Evans  City,  Pennsylvania,  which  house  additional
manufacturing facilities.  This lease expires April 30, 2001 and the Company has
the right to extend  the lease for  another  term of three  years.  Annual  rent
through December 31, 1998 at this facility is $19,250.

         The Company believes that these facilities are adequate for its present
and currently contemplated future operations.

<PAGE>

Item 3.  LEGAL PROCEEDINGS

         There is no material litigation currently pending, or, to the Company's
knowledge, threatened against the Company.


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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year ended June 30, 1998.


PART II


Item 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         (a) Market Information

         The Company's Common Stock is quoted on Nasdaq-SmallCap  Market tier of
The Nasdaq Stock Market under the symbol IMTC.  The following  table sets forth,
for the periods  indicated,  the bid price range of the Common Stock as reported
by National  Quotation Bureau  Incorporated.  These quotations  represent prices
between dealers, do not include retail markups,  markdowns or commissions and do
not necessarily represent actual transactions:


1997                                        HIGH TRADE        LOW TRADE

First Quarter                               $  8              $  5-3/4
Second Quarter                                 9-1/4             6-3/4
Third Quarter                                 10-3/4             7
Fourth Quarter                                10-1/2             8

1998

First Quarter                               $ 10              $  8
Second Quarter                                12-1/2             8-1/2
Third Quarter                                 11-1/2             8-3/4
Fourth Quarter                                13                10-1/16

         (b)  Holders

         At  August  19,  1998,   there  were   approximately   233   registered
shareholders of record of the Company's Common Stock.

         (c) Dividends

         The Company has not paid any cash dividends since its inception and the
Board of  Directors  does not  contemplate  doing  so in the  near  future.  Any
decision  as to future  payment of  dividends  will depend on the  earnings  and
financial  position  of the  Company  and such  other  factors  as the  Board of
Directors deem relevant.

<PAGE>

Item 6.  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended June 30,
                           1998             1997              1996              1995             1994
                           ----             ----              ----              ----             ----
<S>                        <C>              <C>               <C>               <C>              <C>        
Net sales                  $12,510,555      $8,801,389        $9,114,405        $10,272,846      $ 6,529,755

Earnings (Loss)
Before Income Tax          $ 1,632,801      $  921,458        $1,176,569        $ 1,196,532      $(1,099,956)

Income Tax
Expense (Benefit)          $   648,179      $  365,384        $  457,246        $   345,437      $  (228,598)

Net income
(loss)                     $   984,622      $  556,074        $  719,323        $   851,095      $  (871,358)

Basic income (loss) per
common share               $       .63      $      .36        $      .48        $       .58      $      (.65)

Diluted income (loss) per
common share               $       .60      $      .34        $      .46        $       .57      $      (.65)

At year end:
Total Assets               $ 8,353,749      $6,152,363        $5,439,085        $ 5,268,176      $ 3,763,499

Long-term debt and
capital lease
obligation                 $   575,118      $        0        $        0        $         0      $   386,904
----------------
</TABLE>

<PAGE>

         Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS OF OPERATIONS

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995

         The statements contained in the following  Management's  Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations  which  are not
historical are "forward looking statements" within the meaning of Section 27A of
the  Securities  Act of 1933,  as amended,  and  Section  31E of the  Securities
Exchange Act of 1934, as amended. These forward looking statements represent the
Company's present expectations or beliefs concerning future events,  however the
Company cautions that such statements are qualified by important factors such as
the  Company's  continued  ability to develop  and  introduce  innovative  label
products  and  applications,  actions by  competitors,  the  effect of  economic
conditions and other  considerations  and risks  identified from time to time in
the Company's filings with the Securities and Exchange Commission. Such factors,
considerations  and risks could cause actual results to differ  materially  from
those indicated in Management's  Discussion and Analysis of Financial  Condition
and Results of Operations.


Fiscal year ended June 30, 1998, as compared to fiscal year ended June 30, 1997.

         Revenues   for  the  fiscal   year   ended  June  30  1998,   increased
approximately 42.1% over the fiscal year ended June 30, 1997.

         Revenues from Bar Code labels and printing supplies were $8,942,540 for
the fiscal year ended June 30,  1998,  as compared  to  $6,345,046  for the year
ended June 30,  1997,  an  increase  of 40.9%.  The sale of Bar Code  labels and
printing supplies  represented  approximately 71.5% of total revenues for fiscal
year  1998 as  compared  to  72.1% of  total  revenues  for  fiscal  year  1997.
Approximately  70% of the  increase  is the  result  of the  acquisition  of the
Customark division of Markem Corporation in August, 1997.

         Revenues  from the sales and service of Industrial  Bar Code  Equipment
were  $3,568,015  for the year ended June 30,  1998,  up 45.3% when  compared to
$2,456,343  for the year  ended June 30,  1997.  Industrial  Bar Code  Equipment
revenues  represented  28.5% of total  revenues in fiscal year 1998  compared to
27.9% of total  revenues in fiscal year 1997. The increase in bar code equipment
sales in fiscal year 1998,  when  contrasted with fiscal year 1997, is primarily
attributable to the increase in sales and marketing activity and a broader, more
comprehensive product line.

         Cost of sales  improved to 52.5% of net sales for fiscal 1998  compared
to 53.2% for fiscal 1997.

         Selling, general and administrative expenses represented 29.5% of sales
in fiscal year 1998 and 30.1% of sales in fiscal year 1997.  These  expenses for
fiscal 1998 increased by $1,036,332 over fiscal 1997 levels. The majority of the
dollar increase is related to  compensation  for the growing sales and marketing
personnel.

         Research and Development  expenses  represented 4.6% of sales in fiscal
year 1998 and 6.7% of sales in fiscal year 1997.  The actual costs  decreased by
about $13,900.

         Interest  Expense  for  fiscal  year 1998 was  $78,242,reflecting  debt
incurred to finance the acquisition of the Customark  business.  The Company had
no interest expense for fiscal years 1997 and 1996.

         Interest Income generated during fiscal year 1998 was $28,502, compared
to $42,357  during  fiscal year 1997.  This interest is earned on the balance of
cash and cash equivalents and marketable investment securities.  The decrease is
the result of using the cash to acquire the above-mentioned business.
<PAGE>
         Income  before  taxes was  $1,632,801  in fiscal year 1998  compared to
$921,458 in fiscal year 1997, reflecting a 77.2% increase.

         Income tax expense was  $648,179  for fiscal year ended June 30,  1998,
compared to $365,384 in fiscal year 1997. The tax rate remains approximately 40%
of income before taxes.

         At June 30,  1998 and  1997,  the  Company  had  accrued  $124,570  and
$149,306,  respectively,   against  future  product  warranty  claims  based  on
experience with customer claims. Warranty expense charged to operations amounted
to an expense of $77,266 and $77,095 for the years ended June 30, 1998 and 1997,
respectively.

Fiscal year ended June 30, 1997, as compared to fiscal year ended June 30, 1996.

         Revenues   for  the  fiscal   year   ended  June  30  1997,   decreased
approximately 3.4% over the fiscal year ended June 30, 1996.

         Revenues from Bar Code labels and printing supplies were $6,345,046 for
the fiscal year ended June 30,  1997,  as compared  to  $5,146,749  for the year
ended June 30,  1996,  an  increase  of 23.3%.  The sale of Bar Code  labels and
printing supplies  represented  approximately 72.1% of total revenues for fiscal
year 1997 as compared  to 56.5% of total  revenues  for fiscal  year 1996.  This
increase is the result of increased sales activity.

         Revenues  from the sales and service of Industrial  Bar Code  Equipment
were  $2,456,343  for the year ended June 30, 1997,  down 38.0% when compared to
$3,967,656  for the year  ended June 30,  1996.  Industrial  Bar Code  Equipment
revenues  represented  27.9% of total  revenues in fiscal year 1997  compared to
43.5% of total  revenues in fiscal year 1996. The decrease in bar code equipment
sales in fiscal year 1997,  when  contrasted with fiscal year 1996, is primarily
attributable  to the completion,  in October,  1996, of a contract with a single
customer.  Excluding this contract,  the core equipment business decreased 11.3%
from $2,768,240 in fiscal year 1996. The decrease in the core equipment business
is the  result of a change  in the  Company's  equipment  sales  personnel.  The
Company has increased it product line with the  announcement of ten new products
and has hired an equipment-marketing specialist.

         Cost of sales  improved  to 53.2% of net sales for fiscal  1997  verses
55.2% for fiscal 1996.

         Selling, general and administrative expenses represented 30.1% of sales
in fiscal year 1997 and 26.0% of sales in fiscal year 1996.  These  expenses for
fiscal 1997  increased by about $285,000 over fiscal 1996 levels.  However,  the
majority of the increase is  attributable  to the Vermont Supreme Court's ruling
in favor of the  Company  in a  wrongful  termination  suit,  reversing  a lower
court's earlier ruling in favor of the plaintiff, in the amount of $175,000 plus
interest.  The Supreme Court's decision resulted in the Company's  reversal of a
$215,000  reserve in fiscal 1996, the majority of which was originally  expensed
in June, 1994.

         Research and Development  expenses  represented 6.7% of sales in fiscal
year 1997 and 6.9% of sales in fiscal year 1996.  The actual costs  decreased by
about $33,000.

         There was no Interest  Expense for either  fiscal year 1997 or 1996. At
June 30, 1995, all of the Company's  long-term and short-term debt had been paid
in full, with funds generated through operations.

         Interest Income generated during fiscal year 1997 was $42,357, compared
to $48,578  during  fiscal year 1996.  This interest is earned on the balance of
cash and cash equivalents and marketable investment securities.

         Income  before  taxes was  $921,458  in fiscal  year 1997  compared  to
$1,176,569 in fiscal year 1996, reflecting a 21.7% decrease.
<PAGE>
         Income tax expense was  $365,384  for fiscal year ended June 30,  1997,
compared to $457,246 in fiscal year 1996. The tax rate remains approximately 40%
of income before taxes.

         At June 30,  1997 and  1996,  the  Company  had  accrued  $149,306  and
$119,954,  respectively,   against  future  product  warranty  claims  based  on
experience with customer claims. Warranty expense charged to operations amounted
to an expense  of $ 77,095 and a benefit of $9,546 for the years  ended June 30,
1997 and 1996, respectively. The increased warranty expense is the result of new
products entering the markets.

         Accounts  receivable at June 30, 1997 increased  17.0% when compared to
June 30,  1996,  while  revenues  during the 4th  quarter  increased  15.7% when
compared to the 4th quarter in the prior year . The increase in shipments in the
fourth quarter contributed to a corresponding increase in accounts receivable.



CAPITAL RESOURCES AND LIQUIDITY:

         As of June 30,  1998,  the  Company's  principal  available  sources of
liquidity were, respectively,  operations, a $1,000,000 bank line of credit, all
of which was  available  as of June 30,  1998 and a five year term loan,  with a
remaining balance of $810,685 at June 30, 1998. The purpose of the term loan was
the  acquisition  of Customark,  discussed in the Company's 8-K filing on August
26, 1997.


         Accounts  receivable at June 30, 1998 increased  50.7% when compared to
June 30, 1997,  while revenues  during the fourth quarter  increased  64.8% when
compared to the fourth  quarter in the prior year.  The increase in shipments in
the  fourth  quarter  contributed  to  a  corresponding   increase  in  accounts
receivable.

         Inventories increased by $883,805,  from $1,402,318 at June 30, 1997 to
$2,286,123  at June 30, 1998,  as a result of  increasing  levels of business in
sales across the entire product line.

         The Company's capital commitments for fiscal 1999 are expected to be at
approximately the same level as fiscal 1998.

         The  Company  believes  that it will be able to offset  the  effects of
inflation by selected price  increases in its products,  although it can give no
assurances in this regard.

         The Company anticipates that cash flows from operations,  together with
current cash and marketable  securities  balances and funds  available under the
Company's  line of credit,  will be  sufficient  to meet the  Company's  working
capital and  capital  equipment  expenditure  requirements  for the  foreseeable
future.

Recent Accounting Pronouncements:

         In June 1997,  the FASB issued 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 and its components  (revenues,  expenses,  gains
and losses) in a full set of general-purpose financial statements.  SFAS No. 131
establishes  standards  for the way  that  public  business  enterprises  report
information about operating segments in annual financial statements and requires
that those enterprises  report selected  information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services,  geographic areas and major customers. SFAS No. 130
will be adopted by the Company  during the first quarter of fiscal 1999 and SFAS
No. 131 will be adopted by the Company during the fourth quarter of fiscal 1999.
These  standards  are not  expected to have a material  effect on the  Company's
financial position or results of operations.  However,  SFAS No. 131 may have an
impact on the Company's financial statement disclosures.
<PAGE>
Year 2000

         The  Company  has  reviewed  the  issue  of  Year  2000.   All of  the 
manufacturing  and  accounting   software  has  been  brought  into  compliance,
effective June 16, 1998. There are neither internal clocks nor dating mechanisms
within the  Company's  products  that would be effected by changing  dates.  The
Company is confident that its products and services will continue  uninterrupted
into the new millennium.  No material  additional costs are anticipated at this 
time.

     The Companys  contingency plan in the event other parties should be unable
to  provide  Year  2000  compliant   electronic  data  is  to  revert  to  paper
documentation from these parties. However, to the extent that customers, vendors
or other  entities  with which the Company  has  material  relationships  do not
adequately  address  Year 2000  issues,  the Company  could  experience  payment
delays.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         As of June  30,1998,  the  Company  maintains a portion of its cash and
cash  equivalents  in financial  instruments  with original  maturities of three
months or less.  These financial  instruments are subject to interest rate risk,
and will decline in value if interest rates  decline.  Due to the short duration
of these  financial  instruments,  an immediate 10 percent  decrease in interest
rates would not have a material effect on the Company's financial condition.

         The Company's  outstanding  long-term and  short-term  debt at June 30,
1998 bears  interest at variable  rates;  therefore,  the  Company's  results of
operations would be affected by interest rate changes to the extent of the notes
outstanding.  Due to the  short-term  nature  and  insignificant  amount  of the
Company's  notes payable and the  decreasing  amounts of the long-term  debt, an
immediate 10 percent change in interest  rates would not have a material  effect
on the Company's results of operations over the next fiscal year.
<PAGE>



INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of IMTEC, Inc.
Bellows Falls, Vermont

We have audited the  accompanying  balance sheets of IMTEC,  Inc. as of June 30,
1998 and 1997, and the related statements of operations,  stockholders'  equity,
and cash flows for the years then ended.  Our audits also included the financial
statement  schedule listed in the Index at Item 14. These  financial  statements
and  financial  statement  schedule  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to  express  an  opinion  on the  financial
statements and financial statement 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 are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial  position of IMTEC,  Inc. as of June 30, 1998 and 1997,
and the results of its  operations  and its cash flows for the years then ended,
in  conformity  with  generally  accepted  accounting  principles.  Also, in our
opinion,  such financial statement schedule,  when considered in relation to the
basic  financial  statements  taken as a whole,  presents fairly in all material
respects the information set forth therein.



/s/ Deloitte & Touche LLP

Worcester, Massachusetts
August 5, 1998

<PAGE>
     INDEPENDENT AUDITORS REPORT



The Board of Directors and Stockholders of IMTEC, Inc.
Bellows Fall, Vermont

     We have audited the  accompanying  statements of operations,  stockholders
equity,  and cash flows of IMTEC,  Inc.  for the year ended  June 30,  1996.  In
connection with our audit of the financial statements,  we also have audited the
financial  statement  schedule for the year ended June 30,  1996,  listed in the
index included  herein in Part IV, Item 14. These  financial  statements and the
financial statement schedule are the responsibility of the Companys management.
Our  responsibility  is to express an opinion on these financial  statements and
the financial statement schedule based on our audit.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the results of IMTEC,  Inc.s operations and its cash
flows for the year ended June 30, 1996, in conformity  with  generally  accepted
accounting  principles.  Also in our opinion,  the related  financial  statement
schedule for the year ended June 30, 1996,  when  considered  in relation to the
basic financial  statements taken as a whole,  presents fairly,  in all material
respects, the information set forth therein.
                                                      /s/ KPMG Peat Marwick LLP


Albany, New York
August 2, 1996




<PAGE>


IMTEC, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
JUNE 30, 1998 AND 1997
-------------------------------------------------------------------------------------------------------------------------



ASSETS                                                                                          1998           1997

CURRENT ASSETS:
<S>                                                                                            <C>            <C>       
  Cash and cash equivalents                                                                    $   84,100     $1,352,562

  Marketable investment securities                                                                      -         92,999
  Accounts receivable (less allowance for doubtful accounts of $198,000 in 1998
     and $175,000 in 1997)                                                                      2,259,107      1,499,283
  Inventories                                                                                   2,286,123      1,402,318
  Prepaid expenses, deferred charges and other current assets                                      60,725         45,423
  Deferred income taxes                                                                            85,941        159,508

            Total current assets                                                                4,775,996      4,552,093

PROPERTY AND EQUIPMENT - Net                                                                    1,587,914      1,234,488

DEPOSITS                                                                                           60,347         48,991

COMPUTER SOFTWARE - Net                                                                            97,469         94,759

OTHER INTANGIBLES - Net                                                                         1,832,023        222,032
                                                                                               ----------     ----------
                                                                                               $8,353,749     $6,152,363
                                                                                               ==========     ==========     
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt                                                             $ 235,567     $        -
  Accounts payable                                                                                469,972        324,651
  Income taxes payable                                                                             33,323        223,935
  Accrued liabilities:
     Salaries and wages                                                                           486,555        191,502
     Commissions                                                                                   68,375         95,229
     Other                                                                                        432,165        351,275
                                                                                                ---------      ---------
            Total current liabilities                                                           1,725,957      1,186,592
                                                                                                ---------      ---------
LONG-TERM DEBT                                                                                    575,118              -
                                                                                                ---------      ---------
COMMITMENTS AND CONTINGENT LIABILITIES

STOCKHOLDERS' EQUITY:
  Common stock - $.01 par value; authorized, 5,000,000 shares; issued and
     outstanding: 1998, 1,585,713 shares; 1997, 1,553,088 shares                                   15,857         15,531
  Additional paid-in capital                                                                    2,591,629      2,489,674
  Retained earnings                                                                             3,445,188      2,460,566
                                                                                                ---------      ---------
            Total stockholders' equity                                                          6,052,674      4,965,771
                                                                                                ---------      ---------
                                                                                               $8,353,749     $6,152,363
                                                                                               ==========     ==========
See notes to financial statements.
</TABLE>

<PAGE>

IMTEC, INC.
<TABLE>
<CAPTION>

STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
-------------------------------------------------------------------------------------------------------------------------------


                                                                              1998               1997              1996
<S>                                                                           <C>                <C>                <C>       
NET SALES                                                                     $12,510,555        $ 8,801,389       $ 9,114,405

COST  OF SALES                                                                  6,568,050          4,682,513         5,029,394
                                                                              -----------        -----------        ----------

GROSS PROFIT                                                                    5,942,505          4,118,876         4,085,011

SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES                                                                      3,689,271          2,652,939         2,367,674

RESEARCH AND DEVELOPMENT EXPENSE                                                  577,864            591,767           625,149
                                                                              -----------         ----------         ---------

OPERATING INCOME                                                                1,675,370            874,170         1,092,188
                                                                              -----------         ----------         ---------

OTHER INCOME (EXPENSE):
  Interest income                                                                  28,502             42,357            48,578
  Interest expense                                                                (78,242)                 -                 -
  Gain on disposal of property and equipment
    and other assets                                                                7,171              4,931            35,803
                                                                              -----------         ----------         ---------

                                                                                  (42,569)            47,288            84,381
                                                                              -----------         ----------         ---------

INCOME BEFORE INCOME TAX EXPENSE                                                1,632,801            921,458         1,176,569

INCOME TAX EXPENSE                                                                648,179            365,384           457,246
                                                                              -----------         ----------         ---------

NET INCOME                                                                    $   984,622        $   556,074       $   719,323
                                                                              ===========        ===========       ===========

BASIC INCOME PER COMMON SHARE                                                 $      0.63        $      0.36       $      0.48
                                                                              ===========        ===========       ===========

DILUTED INCOME PER COMMON SHARE                                               $      0.60        $      0.34       $      0.46
                                                                              ===========        ===========        ==========

SHARES FOR BASIC COMPUTATION                                                    1,566,652          1,548,095         1,509,533
                                                                              ===========        ===========        ==========

SHARES FOR DILUTED COMPUTATION                                                  1,654,658          1,617,739         1,574,129
                                                                              ===========        ===========        ==========

See notes to financial statements.
</TABLE>

<PAGE>

IMTEC, INC.
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
-----------------------------------------------------------------------------------------------------------------------------------


                                               Common Stock                       Additional
                                                  Number of                         Paid-in         Retained
                                                    Shares        Amount            Capital         Earnings           Total


<S>                                               <C>            <C>              <C>              <C>             <C>        
BALANCE, JULY 1, 1995                             1,470,138      $  14,701        $ 2,199,689      $ 1,185,169     $ 3,399,559

   Tax benefit from exercise of stock options         -               -                73,614           -               73,614

   Common stock issued                               74,950            750            176,214           -              176,964
                                                                                                 
   Net income                                         -               -                -               719,323         719,323
                                                  ---------       --------         ----------       ----------      ----------

BALANCE, JUNE 30, 1996                            1,545,088         15,451          2,449,517        1,904,492       4,369,460

   Tax benefit from exercise of stock options         -               -                19,393           -               19,393

   Common stock issued                                8,000             80             20,764           -               20,844

   Net income                                         -               -                -               556,074         556,074
                                                  ---------       --------         ----------       ----------      ----------

  BALANCE, JUNE 30, 1997                          1,553,088         15,531          2,489,674        2,460,566       4,965,771

   Common stock issued                               32,625            326            101,955           -              102,281

   Net income                                         -               -                 -              984,622         984,622
                                                  ---------       --------         ----------       ----------      ----------
BALANCE, JUNE 30, 1998                            1,585,713      $   15,857       $ 2,591,629      $ 3,445,188     $ 6,052,674
                                                 ==========      ==========       ===========      ===========     ===========


See notes to financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
--------------------------------------------------------------------------------------------------------------------

                                                                              1998           1997           1996

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                         <C>            <C>            <C>      
  Net income                                                                $ 984,622      $ 556,074      $ 719,323
  Adjustments  to reconcile  net income to net 
    cash provided by operating activities:
      Depreciation and amortization                                           544,899        534,024        532,744
      Gain on disposal of property and equipment and
        other intangible assets                                                (7,171)        (4,931)       (35,803)
      Deferred income taxes                                                    73,567        (63,178)        52,159
      Tax benefit from exercise of stock options                                    -         19,393         73,614
      Increase (decrease) in cash from:
       Accounts receivable                                                   (759,824)      (218,182)       358,907
       Inventories                                                           (770,798)       109,719       (270,074)
       Marketable investment securities                                        92,999        (38,328)       345,329
       Prepaid expenses, deferred charges and other assets                    (15,302)        89,227        (55,967)
       Income tax refund receivable                                                 -         87,086        (87,086)
       Accounts payable                                                       145,321       (105,769)      (206,301)
       Income taxes payable                                                  (190,612)       223,935         (4,161)
       Accrued liabilities                                                    349,089         (1,199)      (588,530)
                                                                            ---------      ---------      ---------
            Net cash provided by operating activities                         446,790      1,187,871        834,154
                                                                            ---------      ---------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Expenditures for computer software                                          (43,100)       (46,704)       (20,359)
  Proceeds from disposal of property and equipment                              7,171          6,199         59,525
  Expenditures for property and equipment and other intangible assets        (680,933)      (723,771)      (407,102)
  Deposits                                                                    (11,356)       101,490       (122,276)
  Acquisition of Customark                                                 (1,900,000)             -              -
                                                                          ------------     ----------     ---------
             Net cash used in investing activities                         (2,628,218)      (662,786)      (490,212)
                                                                          ------------     ----------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from  long-term debt                                             1,200,000              -              -
  Principal payments on long-term debt                                       (389,315)             -              -
  Proceeds from issuance of common stock                                      102,281         20,844        176,964
                                                                            ---------       --------      -------
            Net cash provided by financing activities                         912,966         20,844        176,964
                                                                            ---------       --------      -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       (1,268,462)       545,929        520,906
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                1,352,562        806,633        285,727
                                                                          -----------      ---------      -------
CASH AND CASH EQUIVALENTS, END OF YEAR                                         84,100      1,352,562        806,633
                                                                             ========    ===========      =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Income taxes paid                                                        $  765,000     $  182,000     $  423,000
  Interest paid                                                            $   78,242     $        -     $        -

See notes to financial statements.
</TABLE>


<PAGE>


IMTEC, INC.

NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


1.    DESCRIPTION OF THE COMPANY'S BUSINESS

IMTEC,  Inc. (the "Company")  designs,  manufactures and sells labeling systems.
These  systems  include  label printer  laminators,  label printer  applicators,
preprinted  labels and  labeling  supplies.  IMTEC  products  are  designed  for
automated   identification   (bar  coding)   applications  in  the  electronics,
pharmaceutical,  transportation, textile, automotive and warehousing industries.
The Company  conducts its  marketing  and sales  efforts  primarily  through its
in-house sales staff, three sales offices in different metropolitan areas in the
United States and  throughout  Canada,  Latin  America,  Europe and the Far East
through resellers and distributors.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying financial statements have been prepared
on an accrual basis. The preparation of financial  statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Significant  estimates  include the  allowance  for doubtful
accounts, useful lives of depreciable assets and intangibles,  warranty accrual,
and deferred income taxes, among others.  Actual results could differ from those
estimates.

Revenue  Recognition  - Product  sales,  including  sales  under  contract,  are
recorded  when  the  products  are  shipped  or  in  accordance   with  customer
agreements.

Cash and Cash Equivalents - Cash and cash equivalents  include all highly liquid
investments purchased with a remaining maturity of three months or less.

Marketable  Investment  Securities - Under  Statement  of  Financial  Accounting
Standards  ("SFAS") No. 115,  "Accounting  for Certain  Investments  in Debt and
Equity  Securities,"  the  Company  classifies  its debt and  marketable  equity
securities  in  one  of  three  categories:  trading,   available-for-sale,   or
held-to-maturity.  Trading  securities are bought and held  principally  for the
purpose of selling them in the near term.  Held-to-maturity securities are those
securities  in which the Company has the ability and intent to hold the security
until maturity. All other securities not included in trading or held-to-maturity
are classified as available-for-sale.  Trading and available-for-sale securities
are recorded at fair value.  Marketable  investment  securities at June 30, 1997
consisted of state bonds, which the Company considered as trading securities.

Inventories  -  Inventories  are stated at the lower of cost or market.  Cost is
determined by the first-in, first-out method.


<PAGE>


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property  and   Equipment  -  Property  and   equipment  are  carried  at  cost.
Depreciation, including amortization of leasehold improvements and capital lease
assets, is computed using the straight-line  method.  When assets are retired or
otherwise  disposed  of,  the  cost  and  related  accumulated  depreciation  or
amortization  are removed from the accounts,  and any resulting  gain or loss is
recognized  in income for the  period.  The cost of  maintenance  and repairs is
charged to expense as incurred  and  significant  renewals and  betterments  are
capitalized.

Computer  Software - The cost of developing  computer software to be included in
the Company's  products is expensed until the  technological  feasibility of the
software is established. Subsequent costs are capitalized.  Capitalized computer
software  costs are amortized  over the greater of the ratio of current  product
revenue to estimated future revenues or the straight-line method using estimated
lives of two to five years.  Accumulated amortization was approximately $492,000
and $451,000 at June 30, 1998 and 1997,  respectively.  Included in amortization
expense is amortization of computer software of approximately  $40,000,  $61,000
and $73,000 during 1998, 1997 and 1996, respectively.

Other  Intangibles  -  Other  intangibles   consists  of  the  cost  of  product
documentation,  goodwill,  patents and  trademarks  which are amortized over the
estimated useful lives. The composition at June 30 is as follows:
<TABLE>
<CAPTION>
                                                                                              Period of
                                                              1998              1997         Amortization
<S>                                                            <C>          <C>                   <C>
        Goodwill                                               $1,655,112   $      -               20 years
        Patents and trademarks                                    243,134       225,704            17 years
        Product documentation                                     556,386       521,554             3 years
                                                                ---------     ---------
                                                                2,454,632       747,258

        Less accumulated amortization                            (622,609)     (525,226)
                                                               ----------     ---------
                                                               $1,832,023     $ 222,032
                                                               ==========     =========
</TABLE>

Amortization  expense  related to other  intangibles  amounted to  approximately
$97,000, $79,000 and $84,000 during 1998, 1997 and 1996, respectively.

Income Taxes - The Company accounts for income taxes in accordance with SFAS No.
109,  "Accounting  for  Income  Taxes."  This  statement  requires  an asset and
liability approach to accounting for income taxes based upon the expected future
values  of  the  related  assets  and  liabilities.   Deferred  tax  assets  and
liabilities  are  recognized  for the future tax  consequences  attributable  to
temporary  differences  between  the  financial  statement  carrying  amounts of
existing  assets and liabilities  and their  respective tax bases.  Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is  recognized in operations in the period that includes the
enactment date.

<PAGE>

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Per Share - In February 1997, the Financial  Accounting  Standards  Board
("FASB") issued SFAS No. 128, "Earnings Per Share," which establishes  standards
for  computing  and  presenting  earnings per share and applies to entities with
publicly held common stock or potential common stock. Prior to 1998, the Company
computed  income per common  share  using the  methods  outlined  in  Accounting
Principles  Board  ("APB")  Opinion  No.  15,  "Earnings  Per  Share,"  and  its
interpretations.  The  Company  adopted  SFAS No. 128 in 1998 and  restated  its
income per share for 1997 and 1996.  Basic  income per common  share is computed
using the weighted-average number of common shares outstanding during each year.
Diluted income per common share reflects the effect of the Company's outstanding
options,  except where such items would be  antidilutive.  A  reconciliation  of
weighted-average  shares  used for the basic  computation  and that used for the
diluted computation is as follows:
<TABLE>
<CAPTION>
                                                               Years Ended June 30
                                                          1998              1997              1996
<S>                                                     <C>               <C>               <C>      
Weighted-average shares - basic                         1,566,652         1,548,095         1,509,533
Dilutive effect of options                                 88,006            69,644            64,596
                                                        ---------         ---------         --------- 

Weighted-average shares - diluted                       1,654,658         1,617,739         1,574,129
                                                       ==========        ==========         =========
</TABLE>

Product  Warranties - Estimated costs related to product warranties are recorded
at the time of the sale of the product.

Fair Value of Financial  Instruments  - The carrying  amounts of cash,  accounts
receivable, accounts payable and accrued expenses approximate fair value because
of the short  maturity of these  instruments.  The fair value of long-term  debt
approximates  the carrying value due to the  consistency of interest rates since
its issuance.

Stock-Based  Compensation - The Company accounts for stock-based compensation in
accordance  with APB Opinion  No. 25,  using the  intrinsic  value  method.  The
difference between accounting for stock-based compensation under APB Opinion No.
25 and SFAS No. 123 is disclosed in Note 12.

Impairment of Long-Lived Assets - During 1997, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed  Of."  SFAS  No.  121  establishes  accounting  standards  for  the
impairment of long-lived assets, certain identifiable intangibles,  and goodwill
when events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. This statement has had no effect on the financial
position and results of operations of the Company.

<PAGE>

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New  Accounting  Pronouncements  - In June 1997,  the FASB  issued 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 and its components  (revenues,
expenses,  gains  and  losses)  in  a  full  set  of  general-purpose  financial
statements.  SFAS No. 131 establishes standards for the way that public business
enterprises  report  information  about operating  segments in annual  financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports.  It also establishes  standards
for related disclosures about products and services,  geographic areas and major
customers.  SFAS No. 130 will be adopted by the Company during the first quarter
of fiscal 1999 and SFAS No. 131 will be adopted by the Company during the fourth
quarter of fiscal  1999.  These  standards  are not  expected to have a material
effect on the Company's  financial  position or results of operations.  However,
SFAS  No.  131  may  have  an  impact  on  the  Company's   financial  statement
disclosures.

Reclassifications  - Certain  amounts in the 1997 and 1996 financial  statements
have been reclassified to conform with the 1998 presentation.

3.    ACQUISITION OF CUSTOMARK

In  August  1997,   the  Company   completed  the   acquisition  of  the  Markem
Corporation's Customark Division ("Customark") for a cash purchase price of $1.9
million. The Customark acquisition has been accounted for by the purchase method
of accounting, and, accordingly,  the results of operations of Customark for the
period  from  August  11,  1997  are  included  in  the  accompanying  financial
statements.  The assets acquired consist  primarily of $113,000 of inventory and
$132,000 of property and  equipment.  The excess of cost over the estimated fair
value of net assets  acquired was  allocated to goodwill.  A total of $1,655,112
was allocated to goodwill and will be amortized on a straight-line basis over 20
years.  Customark's  accounting  policies have been  conformed with those of the
Company.  The following unaudited pro forma information  presents the results of
operations  of the  Company  as if the  acquisition  had  taken  place as of the
beginning of each period presented:
<TABLE>
<CAPTION>
                                                               Year Ended         Year Ended
                                                             June 30, 1998      June 30, 1997
<S>                                                            <C>                <C>        
        Revenues                                               $12,705,159        $10,746,845
        Net earnings                                              $968,597           $688,798
        Diluted income per common share                            $.59               $.43
</TABLE>

These  pro forma  results  of  operations  have been  prepared  for  comparative
purposes  only and do not purport to be  indicative of the results of operations
which  actually  would have  resulted had the  acquisition  occurred on the date
indicated, or which may result in the future.

4.    INVENTORIES

Inventories consist of:
<TABLE>
<CAPTION>
                                                                                  1998              1997
<S>                                                                            <C>              <C>       
        Finished products                                                      $  158,907       $   78,263
        Work in process                                                           190,122          145,391
        Raw materials and purchased components                                  1,937,094        1,178,664
                                                                               -----------      ----------

                                                                               $2,286,123       $1,402,318
</TABLE>
<PAGE>

5.    MARKETABLE INVESTMENT SECURITIES

Marketable  investment  securities consisted of state bonds due October 1, 1998,
which were  classified as trading  securities at June 30, 1997.  Their amortized
cost of $92,999  approximated  fair value,  therefore,  there were no unrealized
gains or losses included in income.

6.    PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
<TABLE>
<CAPTION>
                                                                                                           Estimated
                                                                                                            Useful
                                                                          1998              1997             Lives
<S>                                                                      <C>              <C>             <C>       
       Machinery, equipment and tooling                                  $  3,609,794     $  3,256,336    3-10 years
       Furniture and fixtures                                                 872,570          547,383     5-7 years
       Leasehold improvements                                                 447,445          365,536    5-10 years
                                                                          -----------      -----------    
                                                                            4,929,809        4,169,255

       Less accumulated depreciation and amortization                      (3,341,895)      (2,934,767)
                                                                          -----------      -----------

       Property and equipment, net                                       $  1,587,914     $  1,234,488
                                                                         ============     ============
</TABLE>

7.    OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of:
<TABLE>
<CAPTION>
                                                                           1998            1997
<S>                                                                     <C>             <C>     
       Accrued warranty                                                 $124,570        $149,306
       Accrued medical                                                    69,837          50,000
       Other                                                             237,758         151,969
                                                                        --------        --------

       Total                                                            $432,165        $351,275
                                                                        ========        ========
</TABLE>

8.    NOTE PAYABLE AND LONG-TERM DEBT

The Company has a secured line-of-credit  agreement in the amount of $1,000,000,
all of which is  available at June 30, 1998 and expires  October 31,  1998.  The
interest rate varies from time to time with changes in the prime interest rate.
Long-term debt consists of the following at June 30:
<TABLE>
<CAPTION>
                                                                                     1998            1997

       Term note payable to a commercial lender; payable in monthly installments
         of $24,620 including principal and interest at
<S>                                                                                 <C>             <C>     
         8.5% through August 2002                                                   $ 810,685       $      -

       Less current portion                                                          (235,567)             -
                                                                                    ---------       ---------
                                                                                    $ 575,118       $      -
                                                                                    ==========      =========
</TABLE>

<PAGE>


8.    NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)

During fiscal 1998, the Company made additional  principal payments of $115,000.
The  line of  credit  and  term  note  are  secured  by the  Company's  accounts
receivable, inventories and property and equipment.

The following is a summary of the maturities of long-term debt as of June 30:

       Year Ending

       1999                                      $235,567
       2000                                       256,389
       2001                                       279,051
       2002                                        39,678
                                                ---------

                                                 $810,685
                                                =========  
9.    INCOME TAXES

Income tax expense (benefit)  consists of the following for the years ended June
30:
<TABLE>
<CAPTION>

                                                                  1998            1997            1996
       Federal:
<S>                                                             <C>             <C>             <C>     
         Current                                                $454,664        $340,964        $320,237
         Deferred                                                 54,421         (50,584)         40,406
                                                                --------        ---------       --------

                                                                 509,085         290,380         360,643
                                                                --------        ---------       --------

       State:
         Current                                                 119,948          87,598          84,850
         Deferred                                                 19,146         (12,594)         11,753
                                                                --------        ---------       -------- 

                                                                 139,094          75,004          96,603
                                                                --------        ---------       -------- 

                                                                $648,179        $365,384        $457,246
                                                                ========        ========        ========
</TABLE>


Total  income tax expense  differs  from the amount  computed  by  applying  the
statutory federal income tax rate of 34% to pretax income.  The computed amount,
and the items which make total income tax expense (benefit) vary from it, are as
follows for the years ended June 30:
<TABLE>
<CAPTION>
                                                                        1998     1997     1996

<S>                                                                       <C>      <C>      <C> 
         Federal statutory rate                                           34 %     34 %     34 %
         State income taxes, net of federal income tax effect              6        6        5
                                                                         ----     ----     ---- 

         Income tax expense                                               40 %     40 %     39 %
                                                                          ====     ====     ====
</TABLE>

<PAGE>


9.    INCOME TAXES (CONTINUED)

Deferred  tax  assets  and  liabilities  as  of  June  30,  1998  and  1997  are
attributable to the following:
<TABLE>
<CAPTION>
                                                                                        1998            1997

       Deferred tax assets:
         Accounts receivable, principally due to allowance
<S>                                                                                   <C>             <C>      
            for doubtful accounts                                                     $  79,651       $  69,937
         Inventories, principally due to reserves for obsolescence                       35,609          67,066
         Vacation accrual                                                                13,501          13,079
         Warranty accrual                                                                43,823          59,633
                                                                                       --------         -------

       Total gross deferred tax assets                                                  172,584         209,715
                                                                                       --------         -------

       Deferred tax liabilities:
         Prepaid expenses and other assets                                               27,267          17,905
         Property and equipment, computer software and other
           intangible assets principally due to differences in depreciation
           and amortization methods                                                      59,376          32,302
                                                                                       --------         -------

       Total gross deferred tax liabilities                                              86,643          50,207
                                                                                       --------         -------

       Net deferred tax asset                                                         $  85,941        $159,508
                                                                                      =========        ========
</TABLE>

In  assessing  the  reliability  of deferred  tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which those temporary  differences become deductible.  Management  considers the
projected  future  taxable  income and tax  planning  strategies  in making this
assessment.  Based upon the level of historical  taxable income and  projections
for future  taxable income over the periods during which the deferred tax assets
are deductible,  management believes it is more likely than not that the Company
will realize the benefits of these deductible differences.

10.   COMMITMENTS AND CONTINGENT LIABILITIES

The Company leases its facilities under lease  agreements  expiring through 2001
which are  classified  as operating  leases.  The lease for the  Company's  main
building is  noncancelable  by the  Company  except  through the  exercise of an
option to purchase the property for the remaining principal and interest balance
on the Vermont  Industrial  Revenue  Bond held by the lessor.  The lease for the
remaining three locations are noncancelable.

The  Company is also  subject to various  other  legal  proceedings  and claims,
either  asserted or unasserted,  which arise in the ordinary course of business.
While the outcome of these claims cannot be predicted with certainty, management
does not  believe  that the outcome of any of these  legal  matters  will have a
material  adverse  effect on the  Company's  financial  position  or  results of
operations.


<PAGE>


10.   COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

Future minimum rental payments under the noncancelable operating leases for each
of the years subsequent to June 30, 1998 are as follows:

          1999                              $  193,848
          2000                                 162,438
          2001                                  49,880
                                            ----------

                                            $  406,166

Rental expense under cancelable and  noncancelable  operating leases amounted to
approximately  $151,000,  $107,000  and  $104,000  during  1998,  1997 and 1996,
respectively.

11.   EMPLOYEE BENEFIT PLAN

The Company has a 401(k) savings plan under which eligible employees are allowed
to contribute certain  percentages of their pay, up to the maximum allowed under
Section  401(k) of the  Internal  Revenue  Code.  The plan covers all  employees
meeting certain eligibility requirements.  The Company contributed approximately
$60,000,   $45,000  and  $52,000  to  the  plan  during  1998,  1997  and  1996,
respectively.

12.   STOCKHOLDERS' EQUITY

Stock  Option  Plans - The Company has three  plans:  the 1985  Incentive  Stock
Option Plan, the 1993 Stock Option Plan,  and the 1997 Stock Option Plan.  These
plans  provide  for  granting of options  for common  stock to officers  and key
employees.  The  options  granted  are  generally  exercisable  in  four  annual
installments  beginning  one year after the date of the grant and expire five to
ten years after the date of the grant, depending on stock ownership on the grant
date. The following is a summary of the option activity for the Company:
<TABLE>
<CAPTION>
                                                                               Weighted-
                                                                                Average
                                                                             Exercise Price       Shares
                                                               Shares          Per Share       Exercisable

<S>                                                                <C>           <C>               <C>
       Balance, July 1, 1995                                       269,400       $3.48

         Granted                                                    23,000        7.60
         Exercised                                                 (99,950)       2.52
         Canceled                                                  (31,750)       5.48
                                                                 ---------
       Balance, June 30, 1996                                      160,700        4.27              54,700
                                                                                                    ======

         Granted                                                     3,000        6.75
         Exercised                                                  (8,000)       2.61
         Canceled                                                   (4,000)       7.60
                                                                  --------

       Balance, June 30, 1997                                      151,700        4.32              98,300
                                                                                                    ======
         Granted                                                    53,000        8.51
         Exercised                                                 (32,625)       3.14
         Canceled                                                   (1,000)       8.50
                                                                  --------
       Balance, June 30, 1998                                      171,075       $5.80             159,075
                                                                 =========                         =======
</TABLE>

<PAGE>

12.   STOCKHOLDERS' EQUITY (CONTINUED)

Stock Option Plans  (Continued)  - The  following  table sets forth  information
regarding options outstanding at June 30, 1998:
<TABLE>
<CAPTION>
                                Options
                              Outstanding                                   Options Exercisable
       -----------------------------------------------------------       ---------------------------
                                       Weighted-
                                        Average       Weighted-                         Weighted-
          Range of                     Remaining       Average                           Average
          Exercise       Number       Contractual      Exercise                         Exercise
           Prices      Outstanding    Life (Years)      Prices              Number       Prices

<S>     <C>                   <C>         <C>           <C>                     <C>      <C>  
        $1.38 - 2.38          7,700       3.65          $1.98                   7,700    $1.98
         2.50 - 3.31         66,000       4.78           2.75                  66,000     2.75
            3.75              1,625       5.93           3.75                   1,625     3.75
        6.75 - 8.50          80,750       8.15           7.98                  80,750     8.04
            9.63             15,000       9.33           9.63                   3,000     9.63
                           --------                                           -------

                            171,075       6.73           5.80                 159,075     5.54
                           ========                                          ========
</TABLE>

As  described  in Note 2,  the  Company  uses the  intrinsic  value  method  (in
accordance  with APB No. 25) to measure  compensation  expense  associated  with
grants of stock options to employees. Had the Company used the fair value method
to measure  compensation,  the  Company's  net income and diluted net income per
share for the years ended June 30, 1998,  1997 and 1996 would have been $949,791
or $.57 per share,  $539,782  or $.33 per share and  $711,740 or $.45 per share,
respectively.

The fair value of each  option is  estimated  on the date of the grant using the
Black-Scholes option-pricing model with the following assumptions used:
<TABLE>
<CAPTION>
                                                            1998           1997          1996

<S>                                                          <C>          <C>             <C>
       Dividend yield                                        None          none           none
       Expected volatility factor                            38.1 %        45.8 %         45.8 %
       Average risk-free interest rate                        5.4 %         6.2 %          6.2 %
       Expected lives                                        6 years       6 years        6 years
</TABLE>

The  weighted-average  fair value of options  granted in 1998, 1997 and 1996 was
$3.94, $4.50 and $3.95, respectively.

The  option-pricing  model used was  designed to value  readily  tradable  stock
options with  relatively  short lives.  The options granted to employees are not
tradable and have contractual lives of ten years.  However,  management believes
that the  assumptions  used and the model  applied to value the  awards  yield a
reasonable   estimate   of  the  fair  value  of  the  grants   made  under  the
circumstances.

13.   CONCENTRATION OF SALES

During  1998 and 1997,  no single  customer  accounted  for 10% or more of total
sales.  During 1996,  sales to one customer  accounted  for 10% or more of total
sales.  Export  sales  aggregated  approximately   $2,125,000,   $1,979,000  and
$1,435,000 in 1998, 1997 and 1996, respectively.
                                                    * * * * * *


<PAGE>
<TABLE>
<CAPTION>



                                                                                                        Schedule II

                                                    IMTEC, Inc.
                                         Valuation and Qualifying Accounts
                                     Years ended June 30, 1998, 1997, and 1996



                                            Balance at        Charged to
                                            beginning         cost and                  Additions                  Balance
         Description                        of year           expenses     other accounts   (deductions)      end of year

Allowance for doubtful accounts:
<S>                                         <C>                 <C>                     <C>      <C>               <C>    
         Year ended 6/30/98                 $175,104            88,404                  -        (65,987)          197,521
         Year ended 6/30/97                 $  93,915           98,400                  -        (17,211)          175,104
         Year ended 6/30/96                 $101,042             6,000                  -        (13,127)           93,915

Reserve for obsolete inventory:
         Year ended 6/30/98                 $167,918            95,536                  -       (168,599)           94,855
         Year ended 6/30/97                 $ 67,086           168,480                  -        (67,648)          167,918
         Year ended 6/30/96                 $109,134            85,358                  -       (127,406)           67,086
</TABLE>

<PAGE>


PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

   (a)   1. Financial Statements:

         Included in Part II, Item 8, of this report:

                  (a)  Reports of Independent Auditors

                  (b)  Balance Sheets, June 30, 1998 and 1997.

                  (c)  Statements  of  Operations  for the years  ended June 30,
                       1998, 1997 and 1996.

                  (d)  Statements of  Stockholders'  Equity for the years ended
                       June 30, 1998, 1997 and 1996.

                  (e)  Statements  of Cash  Flows for the years  ended  June 30,
                       1998, 1997 and 1996.

                  (f)  Notes to Financial Statements.

         2. Financial Statement Schedule.

                      Schedule  II  -  Valuation  and  Qualifying  Accounts  and
                      Reserves, years ended June 30, 1998, 1997 and 1996.

                      All other  schedules  have  been  omitted  because  of the
                      absence  of  conditions  requiring  them  or  because  the
                      required  information is shown in financial  statements or
                      the notes thereto.

         3. Exhibits

                  (a) Certificate of Incorporation as amended (1).

                  (b) By-Laws, as amended (1).

                  (c) The  Exhibits  required by 601 of  Regulation  S-K are set
                      forth in (3) (a) above.

                  (d) The   financial   statement   schedule   required   by
                      Regulation  S-K,  which is  excluded  from the  Annual
                      Report to Shareholders is set forth in (2) above.

   (b)   Reports on Form 8-K

         None
------------------------------
(1) Denotes document filed as an Exhibit to the Company's Registration Statement
on Form S-1 (File No. 2-86978) and incorporated herein by reference.


<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 be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                              IMTEC, INC.


                                           By:   /s/ Richard L. Kalich
                                             ----------------------------------
                                                Richard L. Kalich, President
                                                (Principal Executive Officer)


                                           By:   /s/ George S. Norfleet III
                                             ----------------------------------
                                   George S. Norfleet III, Secretary - Treasurer
                                     (Principal Financial & Accounting Officer)


Dated:  September 15, 1998

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following person in the capacities and on the
dates indicated:

                  Signatures                Title                      Date


 /s/ Ralph E. Crump                 Chairman, Director        September 15, 1998
-------------------------
Ralph E. Crump


 /s/ Douglas T. Granat                        Director        September 15, 1998
-------------------------
Douglas T. Granat


 /s/ Robert W. Ham                            Director        September 15, 1998
-------------------------
Robert W. Ham


 /s/ David C. Sturdevant                      Director        September 15, 1998
-------------------------
David C. Sturdevant




<PAGE>



EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
                                                                       Years Ended June 30,
                                                                     1998           1997           1996
BASIC
<S>                                                             <C>                <C>               <C>      
Weighted Average Shares Outstanding                             1,566,652          1,548,095         1,509,533

                                                               ----------         ----------         ---------
                                          TOTAL                 1,566,652          1,548,095         1,509,433
                                                                 ========           ========          ========
Net income                                                       $984,622           $556,074          $719,323
                                                                 ========           ========          ========
Net income per share                                                $0.63              $0.36             $0.48
                                                                 ========           ========          ========

DILUTED

Weighted Average Shares Outstanding                             1,566,652          1,548,095         1,509,433

Net effect of dilutive stock options-
     Based on the treasury stock method
     Using average market price                                    88,006             69,644            64,596
                                                               ----------         ----------         ---------
                                          TOTAL                 1,654,658          1,617,739         1,574,129
                                                                 ========           ========          ========
Net income                                                       $984,622           $556,074          $719,323
                                                                 ========           ========          ========
Net income per share                                                $0.60              $0.34             $0.46
                                                                 ========           ========          ========
</TABLE>

<PAGE>


EXHIBIT 23.1

The Board of Directors
IMTEC, Inc.

     We consent the  incorporation  by reference in Registration  Statement Nos.
33-62361 and  33-00666 of IMTEC,  Inc. on Form S-8 of our report dated August 5,
1998,  appearing in this Annual Report on Form 10-K of IMTEC,  Inc. for the year
ended June 30, 1998.

/s/ Deloitte & Touche LLP

Worcester, Massachusetts
September 15, 1998

<PAGE>


EXHIBIT 23.2

The Board of Directors
IMTEC, Inc.

We consent to the incorporation by  reference  in  Registration  Statement  Nos.
33-62361 and  33-00666 of IMTEC,  Inc. on Form S-8 of our report dated August 2,
1996, relating to the statements of operations,  stockholders'  equity, and cash
flows of IMTEC,  Inc.  for the year ended June 30,  1996,  and the  schedule  of
valuation and qualifying accounts for the year ended June 30, 1996, which report
appears in the June 30, 1998 annual report on Form 10-K of IMTEC, Inc.


/s/ KPMG Peat Marwick LLP

Albany, New York
September 15, 1998