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, 1997
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 Principle 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 filled 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.                                   $6,583,566.

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 September 3, 1997:   1,553,088




<PAGE>


PART I
Item 1.  BUSINESS

         (a) General Development of Business

         IMTEC, Inc. (the "Company" or "IMTEC") designs, assembles,  markets and
sells high performance barcode labels and labeling systems.

         The  Company's Hot Stamp printer  business was  discontinued  in August
1994.  Reference is made to the Company's  report on Form 8-K,  dated August 19,
1994,  the contents of which are  incorporated  herein by reference  for further
information in these regards.

         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 72.1%,  56.5% and 50.7% of the Company's  revenues  during fiscal
years 1997, 1996 and 1995, respectively.

         The  Company  also  markets bar code label  printer/applicators,  label
applicators,  label  dispensers  and  bar  code  label  printer/laminators.  The
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.  The  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 27.9%,
43.5% and 49.3% of the  Company's  revenue  during  fiscal years 1997,  1996 and
1995, respectively.

<PAGE>
Marketing and Sales

         The Company's  marketing  efforts are directed to those  industries and
businesses  which  have need of bar  coding  labels and  labeling  systems.  The
Company conducts its marketing and sales efforts  primarily  through an in-house
sales  staff of 18  full-time  employees  and its  executive  officers;  3 sales
management offices in the Metropolitan areas of Chicago, IL,  Philadelphia,  PA,
and  Roseville,  CA,  respectively,  each of which  employs one full- time sales
employee; and approximately 12 independent reseller organizations 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  Far  East  through  resellers  and
distributors.

         The  Company  supplements  these  efforts  by  advertising,  publishing
articles in trade and business journals, and participation at 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 no new patents.  As
of June 30, 1997,  the Company owned eight  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 five patents were also pending at June 30,
1997. 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.  This customer  accounted for 31% of the Company's revenues
during  fiscal  1995.  No other  customer  accounted  for  more  than 10% of the
Company's revenues during fiscal year 1997, 1996 and 1995.

<PAGE>
Backlog

         The aggregate  backlog of firm orders for the Company's  products as of
June 30, 1997 was  approximately  $1,510,000 as compared with $2,228,000 at June
30, 1996.  Approximately $1,210,000 of the current backlog is for media supplies
with  scheduled  shipping  dates  over the next 12  months.  The  balance of the
current  backlog  ($300,000)  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
$591,767,  $625,149 and  $643,081 in the fiscal years ended June 30, 1997,  1996
and 1995,  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, 1997,  the Company  employed 72 persons on a full time
basis, including 6 employees in administration, 19 in marketing and sales, 10 in
research and development and 37 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.


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

         Export  sales  aggregated  approximately  $1,979,000  in  fiscal  1997,
$1,435,000  in fiscal 1996 and  $1,704,000 in fiscal 1995,  representing  22.5%,
15.7% and 16.6%, 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.

                                                 Fiscal Years Ended June 30,
                                        1997              1996             1995
                                        ---------------------------------------
      Pacific Rim                        46%               57%              49%
      Europe                             26%               18%              24%
      Canada                             15%               12%              19%
      Others                             13%               13%               8%



<PAGE>


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, 1997 at this facility is $68,000.

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


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, 1997.



<PAGE>


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

1996

First Quarter                               $ 14              $  9
Second Quarter                                13                10
Third Quarter                                 10-3/4             7-1/2
Fourth Quarter                                 8-3/4             6-1/4


         (b)  Holders

         At  September  3,  1997,  there  were   approximately   258  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>

<TABLE>
<CAPTION>

Item 6.  SELECTED FINANCIAL DATA

Years Ended June 30,
                           1997             1996              1995              1994             1993
                           ----             ----              ----              ----             ----

<S>                        <C>              <C>               <C>               <C>              <C>       
Net sales                  $8,801,389       $9,114,405        $10,272,846       $ 6,529,755      $7,120,594

Earnings (Loss)
Before Income Tax          $  921,458       $1,176,569        $1,196,532        $(1,099,956)     $ (129,979)

Income Tax
Expense (Benefit)          $  365,384       $  457,246        $  345,437        $  (228,598)     $   (2,200)

Net income
(loss)                     $  556,074       $  719,323        $   851,095       $  (871,358)     $ (127,779)

Income (loss) per common
share and common
share equivalents          $      .34       $      .46        $      .57        $      (.62)     $     (.09)

At year end:
Total Assets               $6,152,363       $5,439,085        $5,268,176        $ 3,763,499      $4,407,415

Long-term debt and
capital lease
obligation                 $         0      $         0       $         0       $   386,904      $   21,476
----------------
</TABLE>


<PAGE>


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

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
55.1% 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 years 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.

         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.



Fiscal year ended June 30, 1996, as compared to fiscal year ended June 30, 1995.

         Revenues for the fiscal year ended June 30 1996, decreased 
approximately 11.3% over the fiscal year ended June 30, 1995.
<PAGE>
         Revenues from Bar Code labels and printing supplies were $5,146,749 for
the fiscal year ended June 30,  1996,  as compared  to  $5,187,457  for the year
ended  June 30,  1995,  a  decrease  of 0.8%.  The sale of Bar Code  labels  and
printing supplies  represented  approximately 56.5% of total revenues for fiscal
year 1996 as compared to 50.7% of total revenues for fiscal year 1995. There was
a backlog of  $1,319,601  as of June 30, 1996 for Bar Code  labels and  printing
supplies, as compared to $956,402 for June 30, 1995.

         Revenues  from the sales and service of Industrial  Bar Code  Equipment
were  $3,967,656  for the year ended June 30, 1996,  down 21.5% when compared to
$5,051,666  for the year  ended June 30,  1995.  Industrial  Bar Code  Equipment
revenues  represented  43.5% of total  revenues in fiscal year 1996  compared to
49.3% of total  revenues in fiscal year 1995. The decrease in bar code equipment
sales in fiscal year 1996,  when  contrasted with fiscal year 1995, is primarily
attributable  to the completion,  in October,  1995, of a contract with a single
customer.  When this contract is removed from the revenues,  the core  equipment
business  increased  49.3% from $1,854,071 in fiscal year 1995, to $2,768,240 in
fiscal year 1996. The increase in the core equipment business is a direct result
of increased sales and marketing  activities and efforts to expand the Company's
distribution  network.  Backlog as of June 30, 1996, was $908,175 for Industrial
Bar  Code  Equipment  as  contrasted  with   $1,846,535  (of  which   $1,115,752
represented orders from the above-mentioned  single customer) for June 30, 1995.
This  represents a net increase of 24.3% in backlog for the core  equipment when
the single customer is excluded.

         Cost of sales remained steady,  at 55.1% of revenues,  not withstanding
the Company's  inability to secure volume discounts on purchased parts in fiscal
1996 as it had in fiscal 1995.

         Selling, general and administrative expenses represented 26.0% of sales
in fiscal year 1996 and 27.1% of sales in fiscal year 1995.  These  expenses for
fiscal 1996  decreased by about $411,000 over fiscal 1995 levels.  However,  the
majority of the decrease 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, the majority of which was originally expensed in June, 1994.

         Research and Development  expenses  represented 6.9% of sales in fiscal
year  1996 and 6.3% of sales in  fiscal  year  1995,  though  the  actual  costs
decreased by about $18,000.

         There was no Interest  Expense for fiscal year 1996 compared to $39,603
for the previous  fiscal year.  This decrease is the result of efforts to reduce
debt. 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 1996 was $48,578, compared
to $11,925  during  fiscal year 1995.  This interest is earned on the balance of
cash and cash equivalents and marketable investment securities.

         Income  before  taxes was  $1,176,569  in fiscal year 1996  compared to
$1,196,532  in fiscal year 1995,  reflecting an 1.7%  decrease,  compared to the
11.3% decrease in revenues.

         Income tax expense was  $457,246  for fiscal year ended June 30,  1996,
compared to $345,437 in fiscal year 1995.  The difference is due primarily to an
increase in the  effective  tax rate from 28.9% for fiscal year 1995 to 38.9% of
income for fiscal year 1996.  Fiscal year 1995 income tax expense was  favorably
impacted by the utilization of a loss carryforward.

         At June 30,  1996 and  1995,  the  Company  had  accrued  $119,954  and
$289,906,  respectively,   against  future  product  warranty  claims  based  on
experience with customer claims. Warranty expense charged to operations amounted
to a benefit of $9,546 and an expense of  $215,171  for the years ended June 30,
1996 and 1995,  respectively.  The 1995 warranty accrual included  approximately
$140,000  of  additional  reserve due to  estimated  warranty  costs  related to
shipments  of a new  product  during  fiscal  year 1995,  and  fiscal  year 1996
reflects a reversal of that reserve of $127,000 during fiscal year 1996 as those
units came out of warranty.

         Accounts  receivable at June 30, 1996 decreased  21.9% when compared to
June 30,  1995,  while  revenues  during the 4th  quarter  decreased  13.9% when
compared to the 4th quarter in the prior year . The decrease in shipments in the
fourth quarter contributed to a corresponding  decrease in accounts  receivable.
Account receivable days (the number of days to collect the receivable) decreased
from 58 days  during  fiscal  year  1995 to 51 days  during  fiscal  year  1996,
reflecting a better  efficiency  in  collections.  The Company  considers all of
these amounts to be collectible.






<PAGE>


CAPITAL RESOURCES AND LIQUIDITY:

         During fiscal year 1997,  the Company's  principal  source of liquidity
was cash flow from operations. The Company had no bank borrowings as of June 30,
1997.  The Company  believes that the cash  generated  from  operations and bank
borrowings,  including  borrowings  available under its line of credit,  will be
sufficient  to meet its cash needs on both a  short-term  (i.e.,  12 months) and
long-term ( i.e., at least 24 months) basis.

         The  Company has  secured a line of credit  agreement  in the amount of
$1,000,000,  all of which was available at June 30, 1997. The Company's accounts
receivable,  inventory and property and equipment secure the line of credit. The
interest rate varies from time to time with changes in the prime interest rate.

         During  fiscal year 1997,  the Company  spent  $770,475 on property and
equipment,  computer software and other intangible assets,  which is an increase
over the previous year's $427,461.  The majority of this increase was for a high
speed  converting  machine,   valued  at  over  $300,000.  The  cash  for  these
expenditures was generated from the Company's operating activities.

         The Company believes that its capital expenditures for fiscal year 1998
will remain about the same as the capital expenditures for fiscal 1997.

NEW ACCOUNTING STANDARDS:

         In February 1997,  the Financial  Accounting  Standards  Board ("FASB")
issued SFAS No. 128,  "Earnings  per  Share," and SFAS No. 129,  "Disclosure  of
Information  about Capital  Structure."  SFAS No. 128 establishes  standards for
computing  and  presenting  earnings  per share and  applies  to  entities  with
publicly held common stock or potential  common stock.  SFAS No. 129 establishes
standards for disclosing  information  about an entity's  capital  structure and
applies to all  entities.  The Company will adopt both SFAS No. 128 and SFAS No.
129 in the second quarter of fiscal 1998. The  implementation of these standards
is not expected to have a material  effect on its financial  position or results
of operations.

         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.  Both
standards will be adopted by the Company during the first quarter of fiscal 1999
and are not  expected  to have a  material  effect  on its  financial  position,
results of operations or financial statement disclosures.













<PAGE>












INDEPENDENT AUDITORS' REPORT


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

We have audited the  accompanying  balance  sheet of IMTEC,  Inc. as of June 30,
1997, and the related statements of operations,  stockholders'  equity, and cash
flows for the year then ended.  Our audit 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 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,  such  financial  statements  present  fairly,  in all material
respects,  the financial  position of IMTEC,  Inc. as of June 30, 1997,  and the
results  of its  operations  and its cash  flows  for the year  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, 1997 (August 11, 1997
  as to Note 13)






<PAGE>



                          INDEPENDENT AUDITORS' REPORT

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

We have audited the  accompanying  balance  sheet of IMTEC,  Inc. as of June 30,
1996, and the related statements of operations,  stockholders'  equity, and cash
flows for each of the years in the  two-year  period  ended  June 30,  1996.  In
connection with our audits of the financial statements, we also have audited the
financial statement schedule for the years ended June 30, 1996 and 1995, listed
in the index included herein in Part IV, Item 14. These financial statements and
the  financial  statement  schedule  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and the financial statement schedule based on our audit.

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,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of IMTEC,  Inc. as of June 30,
1996, and the results of its operations and its cash flows for each of the years
in the  two-year  period  ended June 30,  1996,  in  conformity  with  generally
accepted  accounting  principles.  Also in our  opinion,  the related  financial
statement  schedule for the years ended June 30, 1996 and 1995,  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>

<TABLE>
<CAPTION>

IMTEC, INC.
BALANCE SHEETS
JUNE 30, 1997 AND 1996
------------------------------
ASSETS                                                      1997           1996
                                                       ----------     ----------
CURRENT ASSETS:
<S>                                                    <C>            <C>       
  Cash and cash equivalents                            $1,352,562     $  806,633
  Marketable investment securities                         92,999         54,671
  Accounts Receivable (less allowance for doubtful 
     accounts of $175,000 in 1997 and
     $94,000 in 1996)                                   1,499,283      1,281,101
  Inventories                                           1,402,318      1,512,037
  Prepaid expenses, deferred charges and other 
     current assets                                        45,423        134,650
  Income tax refund receivable                                -           87,086
  Deferred income taxes                                   159,508         96,330
                                                       ----------     ----------
          Total current assets                          4,552,093      3,972,508

PROPERTY AND EQUIPMENT - Net                            1,234,488        995,450
DEPOSITS                                                   48,991        150,481
COMPUTER SOFTWARE - Net                                    94,759        109,008
OTHER INTANGIBLES - Net                                   222,032        211,638
                                                       ----------     ----------
                                                       $6,152,363     $5,439,085
                                                       ==========     ==========
LIABILITIES AND STOCKHOLDERS EQUITY

CURRENT LIABILITIES:
  Accounts payable                                     $  324,651     $  430,420
  Income taxes payable                                    223,935            -
  Accrued liabilities:
    Salaries and wages                                    191,502        176,276
    Commissions                                            95,229         45,899
    Other                                                 351,275        417,030
                                                       ----------     ----------
          Total current liabilities                     1,186,592      1,069,625
                                                       ----------     ----------
LONG-TERM DEBT                                                -             -
                                                       ----------     ----------
COMMITMENTS

STOCKHOLDERS' EQUITY
  Common stock - $.01 par value; authorized, 5,000,000
    shares; issued and outstanding: 1997, 1,553,088
    shares, 1996, 1,545,088 shares                         15,531         15,451
  Additional paid-in capital                            2,489,674      2,449,517
  Retained earnings                                     2,460,566      1,904,492
                                                       ----------     ----------
          Total stockholders' equity                    4,965,771      4,369,460
                                                       ----------     ----------
                                                       $6,152,363     $5,439,085
                                                       ==========     ==========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

IMTEC, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997,1996 AND 1995
-----------------------------------------------
                                                            1997           1996           1995
<S>                                                    <C>            <C>            <C>        
NET SALES                                              $8,801,389     $9,114,405     $10,272,846
COST OF SALES                                           4,682,513      5,029,394       5,657,545
                                                       ----------     ----------     -----------
  Gross profit                                          4,118,876      4,085,011       4,615,301

SELLING, GENERAL AND ADMINSITRATIVE
  EXPENSES                                              2,652,939      2,367,674       2,779,066
RESEARCH AND DEVELOPEMENT EXPENSES                        591,767        625,149         643,081
                                                       ----------     ----------     -----------
  Operating income                                        874,170      1,092,188       1,193,154
                                                       ----------     ----------     -----------
OTHER INCOME (EXPENSE):
  Interest income                                          42,357         48,578          11,925
  Gain on disposal of property and equipment
    and other assets                                        4,931         35,803          31,056
  Interest expense                                            -              -           (39,603)
                                                       ----------     ----------     -----------
                                                           47,288         84,381           3,378
                                                       ----------     ----------     -----------
INCOME BEFORE INCOME TAXES                                921,458      1,176,569       1,196,532
INCOME TAX EXPENSE                                        365,384        457,246         345,437
                                                       ----------     ----------     -----------
NET INCOME                                             $  556,074     $  719,323     $   851,095
                                                       ==========     ==========     ===========
INCOME PER COMMON SHARE AND 
  COMMON SHARE EQUIVALENTS                             $     0.34     $     0.46     $      0.57
                                                       ==========     ==========     ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARE
  AND COMMON SHARE EQUIVALENTS OUTSTANDING              1,617,739      1,574,129       1,482,892
                                                       ==========     ==========     ===========
See notes to the financial statements.                
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
-----------------------------------------------


                                                        Common Stock          Additional
                                                   Number of                    Paid-in      Retained
                                                    Shares        Amount        Capital      Earnings          Total
                                                   ---------      -------     ----------     ----------     ---------
<S>           <C>                                  <C>            <C>         <C>            <C>            <C>       
BALANCE, JULY 1,1994                               1,331,664      $13,317     $1,860,714     $  334,074     $2,208,105
  Tax benefit from exercise of stock options             -            -           84,706            -           84,706
  Common stock issued                                138,474        1,384        254,269            -          255,653
  Net income                                             -            -              -          851,095        851,095
                                                   ---------      -------     ----------     ----------     ----------
BALANCE, JUNE 30,1995                               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
                                                   =========      =======     ==========     ==========     ==========
 
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
-----------------------------------------------


                                                                     1997           1996           1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                              <C>            <C>            <C>       
  Net income                                                     $  556,074     $  719,323     $  851,095
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation and amortization                                 534,024        532,744        528,069
      Gain on disposal of property and equipment and
        other intangible assets                                      (4,931)       (35,803)       (31,056)
      Deferred income taxes                                         (63,178)        52,159       (102,113)
      Tax benefit from exercise of stock options                     19,393         73,614         84,706
      Increase (decrease) in cash from:
        Accounts Receivable                                        (218,182)       358,907       (606,456)
        Inventories                                                 109,719       (270,074)      (336,209)
        Marketable investment securities                            (38,328)       345,329       (400,000)
        Prepaid expenses, deferred charges and other assets          89,227        (55,967)          (838)
        Income tax refund receivable                                 87,086        (87,086)       177,602
        Accounts payable                                           (105,769)      (206,301)       242,566
        Income taxes payable                                        223,935         (4,161)         4,161
        Accrued liabilities                                          (1,199)      (588,530)       695,529
                                                                 ----------     ----------     ----------
          Net cash provided by operating activities               1,187,871        834,154      1,107,056
                                                                 ----------     ----------     ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from disposal of property and equipment                    6,199         59,525         50,719
  Expenditures for property and equipment, computer
    software and other intangible assets                           (770,475)      (427,461)      (494,297)
  Deposits                                                          101,490       (122,276)        (7,998)
                                                                 ----------     ----------     ----------
          Net cash used in investing activities                    (662,786)      (490,212)      (451,576)
                                                                 ----------     ----------     ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of note payable to bank                        -             -           201,847
  Principal payments on note payable to bank                            -             -          (351,071)
  Principal payments on long-term debt                                  -             -          (473,638)
  Principal payments under capital lease obligationa                    -             -            (6,171)
  Proceeds from issuance of common stock                             20,844        176,964        255,653
                                                                 ----------     ----------     ----------
          Net cash provided by (used in) financing activities        20,844        176,964       (373,380)
                                                                 ----------     ----------     ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS                           545,929        520,906        282,100

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                        806,633        285,727          3,627
                                                                 ----------     ----------     ----------
CASH AND CASH EQUIVALENTS, END OF YEAR                           $1,352,562     $  806,633     $  285,727
                                                                 ==========     ==========     ==========
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,  pre-printed 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,  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  - For purposes of the statement of cash flows,
      the Company  considers as cash  equivalents all highly liquid  investments
      purchased with a remaining maturity of three months.

      Marketable  Investment  Securities - Marketable  investment  securities at
      June 30, 1997 and 1996 consist of state bonds which the Company  considers
      as trading securities.  The Company adopted the provisions of Statement of
      Financial  Accounting  Standards ("SFAS") No. 115, "Accounting for Certain
      Investments in Debt and Equity  Securities,"  during 1995.  Under SFAS No.
      115, 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.

      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 $451,000 and $390,000 at
      June 30, 1997 and 1996, respectively.

      Other  Intangibles  - The  cost of  product  documentation,  organization,
      patents and  trademark  applications  and license  agreements is amortized
      over the estimated  useful lives of the assets,  which range from three to
      seventeen years, using the straight-line method.  Accumulated amortization
      was  approximately  $525,000  and  $447,000  at June 30,  1997  and  1996,
      respectively.

      Income  Taxes - The Company  accounts for income taxes using the asset and
      liability  method.  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.

      Income Per Common  Share - Income per common  share is computed  using the
      weighted average number of common and common equivalent shares outstanding
      during each period presented.  Common stock  equivalents  consist of stock
      options. Income per common share is computed by dividing net income by the
      weighted average number of common and common equivalent shares outstanding
      based on the higher of the ending or average market price of the Company's
      common stock (under the treasury stock method).

      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.

      Stock-Based  Compensation - During 1997, the Company adopted SFAS No. 123,
      "Accounting for Stock-Based  Compensation."  SFAS No. 123 encourages,  but
      does not require,  the  recognition of  compensation  expense for the fair
      value of stock  options and other equity  instruments  issued to employees
      and  nonemployee   directors.   The  Company   continues  to  account  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 11.



<PAGE>



2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      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  had  no  effect  on  the  financial  position  and  results  of
      operations of the Company.

      New Accounting Pronouncements - In February 1997, the Financial Accounting
      Standards  Board ("FASB")  issued SFAS No. 128,  "Earnings per Share," and
      SFAS No. 129,  "Disclosure of Information  about Capital  Structure." SFAS
      No. 128  establishes  standards for computing and presenting  earnings per
      share and applies to entities with publicly-held common stock or potential
      common  stock.   SFAS  No.  129   establishes   standards  for  disclosing
      information  about  an  entity's  capital  structure  and  applies  to all
      entities. The Company will adopt both SFAS No. 128 and SFAS No. 129 in the
      second quarter of fiscal 1998. The  implementation  of these  standards is
      not  expected  to have a  material  effect on its  financial  position  or
      results of operations.

      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.  Both standards will be adopted by
      the Company  during the first  quarter of fiscal 1999 and are not expected
      to have a material effect on its financial position, results of operations
      or financial statement disclosures.

      Reclassifications  -  Certain  amounts  in the  1996  and  1995  financial
      statements have been reclassified to conform with the 1997 presentation.

3.    INVENTORIES

      Inventories consist of:

                                                           1997           1996
 
          Finished products                           $   78,263     $   39,299
          Work in process                                145,391         97,310
          Raw materials and purchased components       1,178,664      1,375,428
                                                      ----------     ----------
                                                      $1,402,318     $1,512,037
                                                      ==========     ==========


4.    MARKETABLE INVESTMENT SECURITIES

      Marketable  investment  securities  consist of state  bonds due October 1,
      1998 which are classified as trading  securities.  Their amortized cost of
      $92,999  and  $54,671  approximates  fair value at June 30, 1997 and 1996,
      respectively;  therefore, there are no unrealized gains or losses included
      in income.



<PAGE>


<TABLE>
<CAPTION>

5.    PROPERTY AND EQUIPMENT

      Property and equipment consists of the following:

                                                                                          Estimated
                                                                                            Useful
                                                                 1997           1996         Lives
<S>                                                         <C>            <C>            <C>       
       Machinery, equipment and tooling                     $3,256,336     $2,766,871     3-10 years
       Furniture and fixtures                                  547,383        474,807     5- 7 years
       Leasehold improvements                                  365,536        327,334     5-10 years
                                                            ----------     ----------
                                                             4,169,255      3,569,012
       Less accumulated depreciation and amortization        2,934,767      2,573,562
                                                            ----------     ----------
       Property and equipment, net                          $1,234,488     $  995,450
                                                            ==========     ==========
</TABLE>

      Included in  depreciation  and  amortization  expense is  amortization  of
      computer software cost of approximately  $61,000,  $73,000 and $74,000 and
      amortization of other  intangibles of approximately  $79,000,  $84,000 and
      $86,000 in 1997, 1996 and 1995, respectively.

6.    OTHER ACCRUED LIABILITIES

      Other accrued liabilities consist of:

                                           1997           1996

          Accured warranty              $149,306       $119,954
          Accrued medical                 50,000        135,256
          Other                          151,969        161,820
                                        --------       --------
          Total                         $351,275       $417,030
                                        ========       ========


7.    SHORT-TERM 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, 1997. The line of credit
      is secured by the Company's accounts receivable, inventories, and property
      and equipment, and expires October 31, 1997. The interest rate varies from
      time to time with changes in the prime interest rate.

      The Company paid $39,603 for interest on notes  payable,  long-term  debt,
      and capital lease obligations for the year ended June 30, 1995.



<PAGE>



8.    INCOME TAXES

      Income tax expense (benefit) consists of the following at June 30:

                            1997           1996           1995

       Federal:         
        Current          $340,964       $320,237       $353,887
        Deferred          (50,584)        40,406        (71,153)
                         --------       --------       --------

                          290,380        360,643        282,734
                         --------       --------       --------

       State:
        Current            87,598         84,850         93,663
        Deferred          (12,594)        11,753        (30,960)
                         --------       --------       --------

                           75,004         96,603         62,703
                         --------       --------       --------
                         $365,384       $457,246       $345,437
                         ========       ========       ========

      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 at June 30:
<TABLE>
<CAPTION>

                                                                     1997      1996      1995

<S>                                                                   <C>       <C>       <C>
          Federal statutory rate                                      34%       34%       34%
          State income taxes, net of federal income tax effect         6         5         5
          Change in valuation allowance for deferred tax assets        -         -       (11)
          Other - net                                                  -         -         1
                                                                      ---       ---       ---
          Income tax expense                                          40%       39%       29%
                                                                      ===       ===       ===
</TABLE>



      The Company paid approximately $182,000,  $423,000 and $181,000 for income
      taxes during 1997, 1996 and 1995, respectively.



<PAGE>



8.    INCOME TAXES (CONTINUED)

      Deferred  tax  assets  and  liabilities  as of June 30,  1997 and 1996 are
      attributable to the following:
<TABLE>
<CAPTION>

                                                                         1997           1996

       Deferred tax assets:
         Accounts receivable, principally due to allowance
<S>                                                                   <C>            <C>     
          for doubtful accounts                                       $ 69,937       $ 37,510
         Inventories, principally due to reserves for obsolescence      67,066         26,446
         Vacation accrual                                               13,079         11,273
         Warranty accrual                                               59,633         44,444
                                                                      --------       --------
       Total gross deferred tax assets                                 209,715        119,673
                                                                      --------       --------

       Deferred tax liabilities:
         Prepaid expenses and other assets                              17,905         16,871
         Property, plant and equipment, computer software and other
          intangible assets principally due to differences in 
          depreciation and amortization methods                         32,302          6,472
                                                                      --------       --------
       Total gross deferred tax liabilities                             50,207         23,343
                                                                      --------       --------
       Net deferred tax assets                                        $159,508       $ 96,330
                                                                      ========       ========
</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.

9.    COMMITMENTS

      The Company leases its facilities under lease agreements  expiring in 2000
      which are classified as operating leases.  The lease for the 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 Bridge Street plant is  noncancelable.  The Company also leases office
      equipment under short-term, cancelable operating leases.



<PAGE>



9.    COMMITMENTS (CONTINUED)

      Future minimum rental payments under the  noncancelable  operating  leases
      for each of the years subsequent to June 30, 1997 are as follows:

          1998                $121,680
          1999                 121,680
          2000                  94,680
          2001                  33,840
          2002                     -
                              --------
                              $371,880
                              ========


      Rental  expense  under  cancelable  and  noncancelable   operating  leases
      amounted to  approximately  $107,000,  $104,000 and $107,000  during 1997,
      1996 and 1995, respectively.

10.   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 $45,000, $52,000 and $14,000 to the plan during
      1997, 1996 and 1995, respectively.

11.   STOCKHOLDERS' EQUITY

      Stock Option Plans - The Company has three plans: the 1983 Incentive Stock
      Option Plan,  the 1985  Incentive  Stock  Option Plan,  and the 1993 Stock
      Option Plan.  These plans  provide for granting of options on common stock
      to officers and key employees. The options granted are 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 Company  granted an option on 25,000  shares of its common  stock to a
      Director on November 15, 1990. The option was  exercisable on November 19,
      1990 and annually thereafter in 5,000 share increments through January 31,
      1995 at $3.00 per share,  which was the  approximate  market  value of the
      shares when the  Director  agreed to join the Board of  Directors.  During
      1995, all of these options were exercised.

      The Company  granted an option on 25,000  shares of its common  stock to a
      Director on November 1, 1993.  The option is  exercisable  on November 18,
      1993 and annually thereafter in 5,000 share increments through January 31,
      1998 at $2.75 per share, which was the market value of the shares when the
      Director  agreed to join the  Board.  As of June 30,  1997,  none of these
      options have been exercised.



<PAGE>



11.   STOCKHOLDERS' EQUITY (CONTINUED)

      Stock Option Plans  (Continued) - The following is a summary of the option
        activity for the Company:

                                                               Weighted
                                                                Average
                                                             Exercise Price
                                              Shares           Per Share

          Balance, July 1, 1994              302,499             $2.53

          Granted                             43,500              8.11
          Exercised                          (51,599)             2.03
          Canceled                           (25,000)             3.03
                                             -------
          Balance, June 30, 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

          Granted                              3,000              6.75
          Exercised                           (8,000)             2.61
          Canceled                            (4,000)             7.60
                                             -------
          Balance, June 30, 1997             151,700             $4.32
                                             =======

      The following table sets forth information  regarding options  outstanding
        at June 30, 1997:
<TABLE>
<CAPTION>

                                                                 Options Exercisable
                      Options                                           and/or
                    Outstanding                                  Shares Transferable
     ---------------------------------------------------       ----------------------
                                   Weighted
                                   Average      Weighted                     Weighted
     Range of                     Remianing      Average                     Average
     Exercise       Number       Contractual    Exercise                     Exercise  
       Prices     Outstanding    Life (Years)    Prices          Number       Prices 

<S>      <C>         <C>             <C>         <C>              <C>          <C>  
         $1.38       5,700           2.38        $1.38            5,700        $1.38
     2.50 - 3.31    96,000           5.63         2.44           74,475         2.72
          3.75       3,500           7.00         3.75            2,375         3.75
     6.75 - 8.50    46,500           8.47         8.03           15,750         8.32
                   -------                                      -------

                   151,700           6.41         4.05           98,300         3.57
                   =======                                       =======                   
</TABLE>

<PAGE>

11.   STOCKHOLDERS' EQUITY (CONTINUED)

      Stock Option Plans  (Continued) - 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 net income per share for the years ended June 30,
      1997 and 1996 would have been  $539,782 or $.33 per share and  $711,740 or
      $.45 per share, respectively.

      The fair  value of each  stock  option is  estimated  on the date of grant
      using  the   Black-Scholes   option-pricing   model  with  the   following
      weighted-average  assumptions  in 1997 and  1996:  an  expected  life of 6
      years,  expected  volatility  of  45.8%,  a  dividend  yield  of 0%  and a
      risk-free  interest  rate of 6.20%.  The  weighted-average  fair  value of
      options granted in 1997 and 1996 was $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.

      Stock Warrants - On August 12, 1985, the Company sold warrants to purchase
      123,750  shares  of  common  stock  for a total  of $750 to  three  of its
      directors.  These warrants were originally  exercisable at $4.00 per share
      and expired July 14, 1990. On September 28, 1988,  the Directors  approved
      modification  of the terms of the warrants to be exercisable at $1.375 per
      share.  During 1989,  22,500 shares of common stock were  purchased  under
      these  warrants  for  $30,938.  During 1990,  the  Directors  extended the
      expiration date to July 14, 1991. During 1991, the Directors  extended the
      expiration  date to  July  14,  1995.  During  1995,  61,875  shares  were
      purchased under these warrants at $1.375 per share.

12.   CONCENTRATION OF SALES

      During 1997, no single customer  accounted for 10% or more of total sales.
      During 1996 and 1995, there were sales to one customer which accounted for
      10% or more of total sales.

      Export  sales   aggregated   approximately   $1,979,000,   $1,435,000  and
      $1,704,000 in 1997, 1996 and 1995, respectively.

13.   SUBSEQUENT EVENT

      On  August  11,  1997,  the  Company  acquired  certain  assets  of Markem
      Corporation's Customark Division for approximately $1,900,000 in cash. The
      assets acquired consist primarily of inventory, property and equipment and
      the registered U.S. service mark "Customark." The Company also assumed the
      facility  lease  obligation  of  Customark  and  intends to  continue  its
      operations as a separate division.

                                                    * * * * * *



<PAGE>


<TABLE>
<CAPTION>


                                                                                                        Schedule II

                                   IMTEC, Inc.
                        Valuation and Qualifying Accounts
                    Years ended June 30, 1997, 1996, and 1995



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

Allowance for doubtful accounts:
<S>                                         <C>               <C>                       <C>      <C>               <C>    
         Year ended 6/30/97                 $  93,915         98,400                    -        (17,211)          175,104
         Year ended 6/30/96                 $ 101,042          6,000                    -        (13,127)           93,915
         Year ended 6/30/95                 $  59,320         16,305                    -         25,417           101,042

Reserve for obsolete inventory:
         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
         Year ended 6/30/95                 $ 193,029         248,000                    -      (331,895)          109,134
</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) Report of Independent Auditors

                  (b) Balance Sheets, June 30, 1997 and 1996.

                  (c) Statements of Operations for the years ended June 30, 
                        1997, 1996 and 1995.

                  (d) Statements of  Stockholders'  Equity for the years ended
                        June 30, 1997, 1996 and 1995.

                  (e)  Statements  of Cash  Flows for the years  ended  June 30,
                         1997, 1996 and 1995.

                  (f) Notes to Financial Statements.

         2. Financial Statement Schedule.

                      Schedule  II  -  Valuation  and  Qualifying  Accounts  and
                      Reserves, years ended June 30, 1997, 1996 and 1995.

                      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


                                         By:  /s/ George S. Norfleet III
                                             ------------------------------
                                  George S. Norfleet III, Secretary - Treasurer


Dated:  September 17, 1997

         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 17, 1997
------------------
Ralph E. Crump


/s/ Robert W. Ham                       Director          September 17, 1997
-----------------
Robert W. Ham


/s/ David C. Sturdevant                 Director          September 17, 1997
-----------------------
David C. Sturdevant




<PAGE>



<TABLE>
<CAPTION>

EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNONGS

                                                                       Years Ended June 30,
                                                                     1997           1996           1995
PRIMARY

<S>                                                             <C>                <C>               <C>      
Average Shares Outstanding                                      1,548,095          1,509,433         1,386,428

Net effect of dilutive stock options-
     Based on the treasury stock method
     Using average market price                                    69,644             64,596            75,047

Net effect of common stock warrants                                     -                  -            21,417
                                                                ---------          ---------         ---------
                                          TOTAL                 1,617,739          1,574,129         1,482,892
                                                                =========          =========         =========
Net income                                                       $556,074           $719,323          $851,095
                                                                =========          =========         =========
Net income per share                                                $0.34              $0.46             $0.57
                                                                =========          =========         =========

FULLY DILUTED

Average Shares Outstanding                                      1,548,095          1,509,433         1,386,428

Net effect of dilutive stock options-
     Based on the treasury stock method
     Using average market price                                    76,708             64,596            96,969

Net effect of common stock warrants                                     -                  -            26,211
                                                                ---------          ---------         ---------
                                          TOTAL                 1,624,803          1,574,129         1,509,608
                                                                =========          =========         =========
Net income                                                       $556,074           $719,323          $851,095
                                                                =========          =========         =========
Net income per share                                                $0.34              $0.46             $0.56
                                                                =========          =========         =========
</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,
1997 (August 11, 1997 as to Note 13),  appearing  in this Annual  Report on Form
10-K of IMTEC, Inc. for the year ended June 30, 1997.


/s/ Deloitte & Touche LLP



Worcester, Massachusetts
September 17, 1997





EXHIBIT 23.2

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 2,
1996,  relating to the balance sheet of IMTEC, Inc. as of June 30, 1996, and the
related statements of operations,  stockholders' equity, and cash flows for each
of the years in the two-year  period  ended June 30,  1996,  and the schedule of
valuation  and  qualifying  accounts for the years ended June 30, 1996 and 1995,
which report  appears in the June 30, 1997 annual  report on Form 10-K of IMTEC,
Inc.


                                                      /s/ KPMG Peat Marwick LLP




Albany, New York
September 17, 1997