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 (FEE REQUIRED)
                  For the fiscal year ended December 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                         ACT OF 1934 (NO FEE REQUIRED)
                  For the transition period from ____ to ____

                        Commission File Number: 0-21449

                             STORM TECHNOLOGY, INC.
             (Exact name of Registrant as specified in its charter)

 Delaware                                                  77-0239305
 (State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                          Identification No.)
                              1395 Charleston Road
                            Mountain View, CA 94043
              (Address of principal executive office and zip code)

                                 (650) 691-6600
              (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:
                                      NONE
          Securities registered pursuant to Section 12(g) of the Act:
                         COMMON STOCK, $0.001 PAR VALUE

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

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







  The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on February
27, 1998 ($2.56) as reported on the Nasdaq National Market, was approximately
$12,521,000. Shares of Common Stock held by each officer and director and by
each person who owned 5% or more of the Registrant's outstanding Common Stock on
that date have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

  The number of shares of the Registrant's Common Stock outstanding as of
February 28, 1998 was 12,834,564.

                      DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form 10-K.
<PAGE>







































                             STORM TECHNOLOGY, INC.
                               TABLE OF CONTENTS
                                 1997 FORM 10-K


                                     PART I

Item 1.  Business

Item 2.  Properties

Item 3.  Legal Proceedings

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

                                    PART II


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

Item 6.  Selected Consolidated Financial Data

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

Item 8.  Financial Statements and Supplementary Data

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

                                    PART III


Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

                                    PART IV


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

Signatures


<PAGE>





PART I

        Forward looking statements in this Annual Report on Form 10-K are
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Stockholders are cautioned that all
forward-looking statements pertaining to the Company involve risks and
uncertainties, including, without limitation, those contained in Item 7
of this report under the caption entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Factors That
May Affect Future Results" and other risks detailed from time to time in
the Company's periodic reports and other information filed with the
Securities and Exchange Commission.

Item 1. Business

        Storm Technology, Inc. ("Storm" or the "Company") is a leading
provider of personal scanners that enable consumers and small businesses
to input, organize, store and use digital images easily with their
personal computers ("PCs"). The Company's vision is to empower consumers
to use all forms of digital images to create more personal, memorable
and effective communications. Storm has been competing and gaining
market share based on a strategy of product innovation and price
performance leadership to develop and market personal scanners using the
latest technology with high quality at affordable consumer price points.

Products

        EasyPhoto Software

        The EasyPhoto organizer software provides a user friendly, easy to
install environment for consumers to input, organize, store, enhance and
use photos on their PCs. EasyPhoto enables users to build galleries of
photos using a familiar film strip metaphor for display and to perform
photo adjustment and improvement functions such as editing, cropping and
resizing of photos. In addition to being integrated with each of the
Company's own personal scanners, EasyPhoto software has been distributed
broadly through OEM partners, including Acer, Epson, HP, Intel, Netcom,
Netscape, Nikon, Polaroid and Sharp, in conjunction with PCs, scanners,
printers and digital cameras. EasyPhoto is now available in seven
languages, including US English, UK English, Japanese, German, French,
Spanish and Dutch, and the Company estimates that it has an installed
base of over 3.5 million units as of February 28, 1998.

        Sheetfed Personal Scanners

        In February 1995, the Company introduced the EasyPhoto Reader, which
was the first consumer-oriented photo scanner designed specifically to
read photo prints of up to 5" x 7" into a personal computer. Smaller
than a standard mousepad, the device was designed with the consumer in
mind to occupy limited desk space. Installation is easy, with no
interface boards required. The device plugs directly into the parallel
port of a computer with a pass-through connector that enables printers
to utilize the same port. The EasyPhoto Reader includes a motorized
feeder and photo guides to read photos automatically at the push of a
single button and to ensure consistently high quality. When detached
from the feeder, the EasyPhoto Reader may be used to scan photos out of
bound materials such as books or magazines. It also reads over 16.7
million colors and its standard optical resolution is 200 dots per inch
(dpi), with software interpolation enabling resolutions of up to 1200
dpi.
        The EasyPhoto SmartPage Pro is a full page-sized, sheetfed color
scanner capable of scanning wallet-sized to full-page photos and
documents (up to 8 " x 14"). The EasyPhoto SmartPage Pro is positioned
beyond the capabilities of text-based document scanners toward the more
demanding requirements of color rich photo-centric usage. The EasyPhoto
SmartPage Pro, which began shipping in August 1997, plugs directly into
the parallel port of a computer, reading over one billion colors at a
300 dpi optical resolution, with software interpolation enabling
resolutions of up to 1200 dpi. Documents, which may include a
combination of photos, text and graphics, may be stored either in
bitmapped form for applications such as electronic faxing or in text
form for use in computer data files via the bundled OCR software from
Xerox. Additionally, bundled document management software allows scanned
documents to be organized, stored and retrieved via an intuitive
electronic file cabinet. The EasyPhoto SmartPage Pro is sold at a
targeted street price of $149. The EasyPhoto SmartPage Pro hardware is
currently purchased on an OEM basis from a third party.

        In December 1997, Storm acquired PageScan USB, a full page-sized
sheetfed color scanner previously distributed by Logitech, Inc. and its
affiliates (collectively "Logitech"). PageScan USB offers a Universal
Serial Bus (USB) connection which provides the convenience of plug-and-
play via a single cable. The PageScan USB is also capable of scanning
wallet-sized to full-page photos and documents at a 300 dpi optical
resolution, with software interpolation enabling resolutions of up to
1200 dpi. Currently distributed in Europe, Storm expects to begin its
U.S. distribution of this product in the second quarter of 1998.

        Flatbed Personal Scanners

        The EasyPhoto ImageWave represents Storm's first flatbed scanner
product offering. Introduced in October 1997, the EasyPhoto ImageWave is
a full page-sized flatbed color scanner which plugs into the parallel
port of a computer and scans digital images at a 300 x 600 dpi optical
resolution, with software interpolation enabling resolutions of up to
1200 dpi. Also positioned to handle the requirements of color rich
photo-centric usage as well as text-based usage, the EasyPhoto ImageWave
includes bundled OCR and document management software from Xerox. The
EasyPhoto ImageWave hardware is purchased on an OEM basis from a third
party and is distributed in both the U.S. and Europe with a targeted
U.S. street price of $99.

        TotalScan, Storm's most recent product offering, was introduced in
February 1998.  This professional quality flatbed scanner scans digital
images at a 600 x 1200 dpi optical resolution with 30 bits of color,
enabling TotalScan to read over one billion colors. TotalScan also plugs
into the parallel port of a computer and comes bundled with OCR and
document management software from Xerox as well as desktop publishing
software from Design Intelligence. TotalScan hardware is purchased on an
OEM basis from a third party and is distributed in both the U.S. and
Europe with a targeted U.S. street price of $149.

        Product Warranty

        The Company's products are all sold with a 12-month end-user hardware
warranty.

Marketing and Sales

        The Company pursues a two-pronged approach to marketing and sales.
The first focuses on the sale of personal scanners to existing PC users
through leading computer retail channels. The second focuses on follow-
on sales of new products and upgrades to Storm's existing installed base
of customers.

        Marketing

        The Company's marketing group is responsible for positioning and
promoting the Company's products on a worldwide basis. It employs a
variety of consumer marketing techniques to broaden end-user awareness
of and demand for Storm products. First among these is its effort to
generate broad-based press coverage, including in part product reviews,
application stories and visual product demonstrations in trade and
consumer media. A small sampling of past press coverage encompasses such
publications and media as wide ranging as The Wall Street Journal, The
Today Show, CNN, PC Magazine, MacWorld, Family PC, Brides Magazine and
Rolling Stone.

        While press coverage has been an essential component in building
demand for Storm's products, additional key elements include consumer
advertising, sampling, direct marketing, retail promotions and trade
show participation. The Company also seeks to reach a wide array of
consumers through its World Wide Web ("web") site located at
http://www.stormtech.com. Information contained in the Company's web
site shall not be deemed part of this Form 10-K.

        Retail Distribution

        Retail distribution for the Company's products includes computer
superstores, consumer electronics superstores, office supply
superstores, mass merchants and specialty computer stores. In addition,
the Company's retail distribution includes on-line companies (such as
America Online) and Internet stores, mail order catalogs and direct
consumer order fulfillment. The Company also has distribution
relationships with several North American distributors, resulting in a
broad distribution of the Company's products through smaller regional,
local and independent computer resellers and VARs. Overall, the
Company's products are sold through many of the leading retailers and
distributors of computer products in North America, including the
following:








<TABLE>
<CAPTION>

                       RETAIL CHAINS/CATALOGS                           DISTRIBUTORS
-----------------------------------------------------------------   --------------------
<S>               <C>                          <C>                  <C>
America Online    Computer Discount Warehouse  OfficeMax            Beamscope
Best Buy          Doppler                      PC Connection, Inc.  D&H Distributing
Business Depot    Future Shop                  Sam's Club           Ingram Micro
Circuit City      London Drugs                 Sears                Ingram Micro-Canada
CompUSA           MicroCenter                  Staples              Merisel
Computer City     MicroWarehouse               The Good Guys        Tech Data Corp.
</TABLE>

        Customer Concentration

        Historically, a relatively small number of customers have accounted
for a significant percentage of the Company's total revenues, and the
Company expects that it will continue to experience significant customer
concentration for the foreseeable future. In the year ended December 31,
1997, sales to Hewlett-Packard (HP), Best Buy and Ingram Micro accounted
for 33%, 13% and 12% respectively, of total revenues. The Company does
not expect that these customer percentages for 1997 will necessarily be
representative of customer concentrations for any future period. There
can be no assurance that such customers or any other customers will in
the future continue to license or purchase products or services from the
Company at levels that equal or exceed those of prior periods, if at
all.

        International

        The Company entered into a Joint Sales and Marketing Agreement with
Logitech in December 1997 which provides for, among other things,
Logitech to provide sales and distribution support for Storm products in
Europe through December 31, 1998.  The term of this agreement may be
extended upon agreement by both parties.

        Rights of Return and Price Protection

        As is common practice in the industry, in the event of a price
decrease, the Company generally gives its distributors and resellers
credit equal to the difference between the price originally paid and the
new price on units remaining in the customers' inventories on the date
of the price decrease. When a price decrease is anticipated, the Company
establishes reserves for amounts estimated to be reimbursed to
qualifying customers. In addition, resellers and distributors generally
have the right to return excess inventory within specified time periods.
There can be no assurance that the Company's reserves for price
protection and product returns will be sufficient or that any future
returns will not have a material adverse effect on the Company's
business, financial condition and results of operations.





Competition

        The market for the Company's products is highly competitive. Current
competitors include HP, Mustek, PlusTek, UMAX and Visioneer. A source of
potential increased future competition may arise from other current
significant participants in the digital imaging market. Certain
companies, including Epson, Kodak and Polaroid, some of which are OEM
customers of the Company, have previously shipped photo input devices.
In addition, competition with the Company's EasyPhoto organizer software
may emanate from developers of photo-oriented software such as Fractal
Design, Microsoft, and a significant number of small companies now
developing such software. This latter group of companies may in the
future compete with the Company by developing advanced software
capabilities to be offered on a stand-alone basis, bundled with
hardware, or integrated as part of an operating system. The Company
believes that as the digital imaging market evolves, it will face
competition from a variety of sources, including those identified above.

        Many of the Company's existing and potential competitors have longer
operating histories and significantly greater financial, technical,
sales, marketing and other resources, as well as greater name
recognition and larger customer bases, than the Company. As a result,
these competitors may be able to respond more effectively to new or
emerging technologies and changes in customer requirements, withstand
significant price decreases or devote greater resources to the
development, promotion, sale and support of their products than the
Company. There can be no assurance that the Company will be able to
compete successfully in the future or that competition will not have a
material adverse effect on the Company's business, operating results and
financial condition.

        The Company believes that the principal competitive factors in its
market are integration of hardware and software design, ease of use,
product performance, feature functionality, reliability, price,
availability of third-party applications, timeliness of new product
introductions, service, support and size of installed base. Although the
Company believes that it is competitive with respect to most of these
factors, there can be no assurance that it will remain competitive in
the future.

Manufacturing

        The Company currently relies on Primax Electronics, Ltd. ("Primax")
for a majority of its manufacturing needs, including materials
procurement, assembly, system integration, testing and quality
assurance. There can be no assurance that Primax will be able to meet
the Company's requirements for quality manufactured products at
competitive prices. Any inability to obtain hardware components at
competitive prices from Primax or to increase manufacturing capacity
from Primax as required could have a material adverse effect on the
Company's business, results of operations and financial condition. The
Company also relies on certain other manufacturers for the production of
certain products. However, there can be no assurance that the Company
will be able to maintain or obtain such alternative manufacturing
sources on favorable terms, if at all. Moreover, commencement of
production of products at new facilities involves certain start-up risks
and delays, such as those associated with the procurement of materials
and training of production personnel.

Product Development

        The Company's research and development team is located at the
Company's headquarters in Mountain View, California, and, as of December
31, 1997, employed 34 software and hardware design engineers,
technicians and support staff. The primary activities of these employees
are new product development, enhancement of existing products, product
testing and technical documentation development.

        A principal focus of the Company's development activities is to
integrate its hardware and software systems with an intelligent user
interface. To achieve this, software development activities play a
significant role in designing a user-friendly interface, incorporating
advanced user features and developing an open environment accessible to
third-party developers.

        The Company believes that continued investment in research and
development is critical to the Company's future success. The Company is
focusing on the development of enhanced versions of its EasyPhoto
software, new image capture solutions and ongoing enhancements to
existing scanner products. During the years ended December 31, 1997,
1996 and 1995 the Company's research and development expenses were
approximately $4.9 million, $2.9 million and $1.5 million, respectively.

Proprietary Rights

        The Company's ability to compete successfully will depend, in part,
on its ability to protect its proprietary technology. Although the
Company continues to implement protective measures and intends to defend
its proprietary rights, there can be no assurance that these measures
will be successful. The Company relies on a combination of patent,
copyright and trade secret protection, nondisclosure agreements and
cross-licensing arrangements to establish and protect its proprietary
rights. The Company has several patent applications pending in the
United States and abroad and intends to file additional applications as
appropriate for patents covering its products. There can be no assurance
that patents will issue from any of these pending applications or, if
patents do issue, that claims allowed will be sufficiently broad to
protect the Company's technology. There can also be no assurance that
any patents issued to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide
proprietary protection to the Company. In addition, the laws of certain
foreign countries may not protect the Company's proprietary rights to
the same extent as do the laws of the United States. The Company
believes, however, that its success does not depend primarily on its
ownership of patents or other intellectual property rights, but instead
depends primarily upon innovative management, technical expertise and
sales and marketing skills.

        The Company has from time to time received, and may receive in the
future, communications from third parties asserting that the Company's
products, trademarks or trade names infringe on the proprietary rights
of third parties. In response to such communications, the Company
consults with its counsel to assess the basis for any claims of
infringement by the Company's products.

        The Company is not aware of any pending or threatened claims of
infringement of the proprietary rights of others with respect to the
Company's current or planned products. However, there can be no
assurance that third parties will not assert such claims or that any
such claims will not require the Company to enter into license
agreements or result in costly protracted litigation, regardless of the
merits of such claims. No assurance can be given that any necessary
licenses will be available or that, if available, such licenses will be
obtainable on commercially reasonable terms.

Employees

        As of December 31, 1997, the Company had a total of 102 employees. Of
this total, 34 were engaged in research, product development and
engineering, 28 were engaged in sales and marketing, and 40 were engaged
in finance, operations, customer support and administrative activities.
Competition for employees in the Company's industry is intense. None of
the Company's employees are represented by a labor union. The Company
has not experienced any work stoppages and considers its relations with
its employees to be good.

Item 2. Properties

        Substantially all of the Company's operations are currently located
in one approximately 64,000 square foot facility of leased office space
located in Mountain View, California. This lease will expire in May
2000. The Company believes that this facility will be adequate for its
current needs.

Item 3. Legal Proceedings

        In March 1997, a suit was filed in the Superior Court of California
naming Storm, certain of the Company's officers and certain other
entities as defendants in a purported class action lawsuit. The lawsuit
alleges certain violations of state and federal securities laws in
connection with the Company's operating results for the fourth quarter
of 1996, and seeks unspecified damages. In July 1997, the court
dismissed the plaintiff's complaint with leave to amend certain causes
of action.  An amended complaint was filed in October 1997 and a similar
complaint was filed in the United States District Court by the same
plaintiffs in December 1997. The Company believes that the allegations
contained in the lawsuits are without merit and intends to vigorously
defend itself in such actions.

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

        No matters were submitted to a vote of security holders during the
quarter ended December 31, 1997.







PART II

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

        The Company's Common Stock has been trading on the Nasdaq National
Market under the symbol "EASY" since October 1, 1996. As of February 28,
1998, there were approximately 150 holders of record and 2,000
beneficial shareholders of Storm Technology, Inc. Common Stock. The
following table sets forth the high and low sales prices for the Common
Stock during the quarter indicated.

                                              HIGH      LOW
                                            --------  --------
             Fiscal 1997
--------------------------------------
 Fourth Quarter                               $4.50     $1.50
 Third Quarter                                $4.75     $1.88
 Second Quarter                               $4.13     $1.13
 First Quarter                                $5.36     $3.50


             Fiscal 1996
--------------------------------------
 Fourth Quarter                              $17.00     $4.38

        The Company has never declared or paid cash dividends on its Common
Stock and is currently restricted from paying such dividends under its
existing line of credit. The Company currently anticipates that it will
retain any future earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future.

























Item 6. Selected Consolidated Financial Data

                             STORM TECHNOLOGY, INC.
                      SELECTED CONSOLIDATED FINANCIAL DATA
                     (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                      For the Years Ended December 31,
                                            -----------------------------------------------------
                                              1997       1996       1995       1994       1993
                                            ---------  ---------  ---------  ---------  ---------
<S>                                         <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues...............................      $34,202    $24,537     $5,794     $3,200     $2,983
Cost of revenues.......................       35,712     17,119      3,735        178        276
                                            ---------  ---------  ---------  ---------  ---------
Gross profit (loss)....................       (1,510)     7,418      2,059      3,022      2,707
                                            ---------  ---------  ---------  ---------  ---------
Operating expenses:
  Research and development.............        4,922      2,901      1,494      2,102      1,845
  Marketing and selling................        8,756      7,837      3,384      1,981      1,604
  General and administrative...........        5,002      2,333        633        628        625
  In-process research and development..        9,160      5,000        --         500        --
                                            ---------  ---------  ---------  ---------  ---------
     Total operating expenses..........       27,840     18,071      5,511      5,211      4,074
                                            ---------  ---------  ---------  ---------  ---------
Loss from operations...................      (29,350)   (10,653)    (3,452)    (2,189)    (1,367)
Interest income, net...................          329        229         56         96         42
                                            ---------  ---------  ---------  ---------  ---------
Net loss...............................     ($29,021)  ($10,424)   ($3,396)   ($2,093)   ($1,325)
                                            =========  =========  =========  =========  =========

Basic and diluted net loss per share...       ($2.75)    ($3.04)    ($3.74)    ($2.38)    ($1.51)
                                            =========  =========  =========  =========  =========
Weighted average number of
  common shares outstanding............       10,538      3,426        909        879        879
                                            =========  =========  =========  =========  =========



                                                                December 31,
                                            -----------------------------------------------------
                                              1997       1996       1995       1994       1993
                                            ---------  ---------  ---------  ---------  ---------
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
 investments...........................       $5,310    $13,801     $1,865     $2,289     $1,663
Working capital (deficit)..............       (1,156)    18,787      2,573      2,396        422
Total assets...........................       22,882     27,809      5,979      3,026      2,261
Long-term liability....................        4,401        --         --         100        --
Total stockholders' equity (deficit)...       (2,339)    20,030      2,733      2,541        727
</TABLE>









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

        This report contains forward-looking statements which reflect the
current views of the Company with respect to future events that will
have an effect on its future financial performance. These statements
include the words "expects," "believes" and similar expressions. These
forward-looking statements are subject to various risks and
uncertainties, including those referred to under "Factors That May
Affect Future Results" and elsewhere herein and contained in the
Company's Form S-3 Registration Statement, that could cause actual
results to differ materially from historical results or those currently
anticipated.

Overview

        Storm creates personal scanners that enable consumers to input,
organize, store and use digital images easily with their personal
computers. The Company's vision is to empower consumers to use all forms
of digital images to create more personal, memorable and effective
communications. Storm has been competing and gaining market share based
on a strategy of product innovation and price performance leadership to
develop and market personal scanners using the latest technology with
high quality at affordable consumer price points.

        In 1995, the Company entered the personal scanner market by bundling
its EasyPhoto organizer software with a snapshot-sized photo scanner
manufactured by Primax. In 1996, Storm established its own internal
personal scanner hardware and software product development teams,
continued to build leadership in the personal photo scanner market and
leveraged OEMs to enter the page-sized sheetfed scanner market segment.
During 1997, Storm established itself as the market leader in the
personal photo scanner product segment, acquired certain scanner assets
from Logitech (the "Logitech Acquisition"), resulting in a market
leadership position in page-sized sheetfed personal scanners, and
leveraged OEMs to enter the flatbed personal scanner market segment.
With the Logitech Acquisition, the Company has expanded distribution in
Europe through Logitech's existing European infrastructure, providing
access to over 8,000 retail outlets in the region, broadened its
underlying product portfolio and digital imaging technology, and
effectively doubled its worldwide market share. Based on external
research studies, Storm expects that worldwide scanner sales will
increase from 6.5 million units in 1997 to over 11 million units by
1999.












Results of Operations

        The following table sets forth for the periods indicated certain line
items from the Company's Consolidated Statement of Operations as a
percentage of the Company's revenues:

                                               Years Ended December 31,
                                            -------------------------------
                                              1997       1996       1995
                                            ---------  ---------  ---------

Revenues...............................        100.0%     100.0%     100.0%
Cost of revenues.......................        104.4%      69.8%      64.5%
                                            ---------  ---------  ---------
Gross profit (loss)....................         -4.4%      30.2%      35.5%
                                            ---------  ---------  ---------
Operating expenses:
  Research and development.............         14.4%      11.8%      25.8%
  Marketing and selling................         25.6%      31.9%      58.4%
  General and administrative...........         14.6%       9.5%      10.9%
  In-process research and development..         26.8%      20.4%       --
                                            ---------  ---------  ---------
     Total operating expenses..........         81.4%      73.6%      95.1%
                                            ---------  ---------  ---------
Loss from operations...................        -85.8%     -43.4%     -59.6%
Interest income, net...................          0.9%       0.9%       1.0%
                                            ---------  ---------  ---------
Net loss...............................        -84.9%     -42.5%     -58.6%
                                            =========  =========  =========

Comparison of 1997, 1996 and 1995 Operating Results

        Revenues

        Revenues totaled $34.2 million, $24.5 million and $5.8 million in
1997, 1996 and 1995, respectively. The growth in 1997 revenues was due
primarily to the introduction of Storm's first flatbed scanner, the
EasyPhoto ImageWave, in October 1997 and higher OEM unit sales of the
Company's EasyPhoto Reader and PhotoDrive products. Annual revenue
growth exceeded 300% from 1995 to 1996, primarily due to the
introduction of the Company's EasyPhoto SmartPage and EasyPhoto Drive
products in June and August 1996, respectively. The Company currently
anticipates continued year-to-year revenue growth in 1998, due in part
to the expansion of sales in Europe resulting from the Logitech
Acquisition and growth in domestic personal scanner sales volumes.

        Product revenues from customers are generally recognized when the
product is shipped, provided collectibility is probable. Product
revenues from distributors and resellers are subject to agreements
allowing price protection and certain rights of return. Accordingly,
reserves for estimated future returns and credits for price protection
are provided for upon revenue recognition and when a price decrease is
anticipated, respectively. Such reserves are estimated based on
historical rates of returns and allowances, distributor and reseller
inventory levels and other factors. However, there can be no assurance
that these accruals will be sufficient or that any future returns or
price protection charges will not have a material adverse effect on the
Company's business and operating results, especially in light of the
rapid product obsolescence that often occurs during product transitions.

        Cost of revenues

        Cost of revenues increased to $35.7 million (104.4% of revenues) in
1997 from $17.1 million and $3.7 million (69.8% and 64.5% of revenues) in 1996
and 1995, respectively. Cost of revenues increased in dollar amounts as the
Company incurred higher costs associated with higher unit sales of its
personal scanner products.  Cost of revenues also included $3.5 million
of inventory write-downs in 1997 associated with the reconfiguration and
sale of certain EasyPhoto Drive products to OEM customers and the
consolidation of scanner product offerings after the Logitech
Acquisition.

        Gross profit (loss)

        Gross profit (loss) was ($1.5) million, $7.4 million and $2.1
million, respectively, for 1997, 1996 and 1995, representing (4.4%),
30.2% and 35.5%, respectively, of total revenues for such periods. The
decrease in gross margin percentage during 1997 was primarily due to the
significant decrease in personal scanner retail prices throughout 1997
and the Company's transition from competing based on brand leadership in
the digital photo scanner market to competing on price performance
leadership in the overall personal scanner market which resulted in
significant price protection charges and certain inventory charges as
described above. The decrease in gross margin percentage from 1995 to
1996 was primarily attributable to a reduction in royalty revenues as a
percentage of total revenues as the Company increased its focus on
supplying integrated hardware and software solutions primarily on a
retail basis.

        The Company currently expects gross margins to increase in 1998 as
the Company  believes, based upon external market research, that
personal scanner price decreases will moderate in 1998 relative to 1997
as competition between personal scanner suppliers focuses on features
and performance within established price ranges. Furthermore, the
Company anticipates that its cost of personal scanner hardware will
generally decrease at least proportionately with any such decreases in
personal scanner prices.

        Research and development

        Research and development expenses totaled $4.9 million, $2.9 million
and $1.5 million (14.4%, 11.8% and 25.8% of revenues) in 1997, 1996 and
1995, respectively. The increase in these expenses in dollar amounts
from 1995 to 1997 is primarily attributable to an increase in research
and development personnel to support the Company's continued growth. The
increase in research and development expenses as a percentage of total
revenues in 1997 as compared to 1996 was primarily due to the growth in
personnel to support the hardware development team which was established
in mid-1996. The decrease in research and development expenses as a
percentage of total revenues from 1995 to 1996 is attributable to the
significant percentage growth of the Company's revenues from 1995 to
1996. The Company intends to continue to allocate substantial resources
to research and development, including a significant increase in dollar
amounts from 1997 to 1998. However, research and development expenses
may vary as a percentage of total revenues.

        Marketing and selling

        Marketing and selling expenses increased to $8.8 million (25.6% of
revenues) in 1997 from $7.8 million and $3.4 million (31.9% and 58.4% of
revenues) in 1996 and 1995, respectively. The increase in these expenses
in dollar amounts from 1995 to 1997 is primarily the result of increased
marketing, advertising and promotional expenses associated with new and
existing retail products and an increase in the number of sales
personnel. The decrease in marketing and selling expenses as a
percentage of total revenues from 1995 to 1997 is attributable to the
rapid growth of the Company's revenues in 1996 and 1997. The Company
believes that such expenses will increase in dollar amounts as the
Company expands its sales and marketing staff and promotional efforts to
support the Company's continued domestic growth and its expansion in the
European market resulting from the Logitech Acquisition, although
marketing and selling expenses may vary as a percentage of total
revenues.

        General and administrative

        General and administrative expenses increased to $5.0 million (14.6%
of revenues) in 1997 from $2.3 million and $0.6 million (9.5% and 10.9%
of total revenues) in 1996 and 1995, respectively. The increase in these
expenses in dollar amounts from 1995 to 1997 and as a percentage of
total revenues from 1996 to 1997 is primarily attributable to an
increase in operations, customer service and administrative personnel to
support the Company's continued growth. The decrease in general and
administrative expenses as a percentage of total revenues from 1995 to
1996 is attributable to the significant percentage growth of the
Company's revenues from 1995 to 1996. The Company believes that such
expenses will increase in dollar amounts as the Company increases its
staffing to support the Company's continued domestic growth and its
expansion in the European market resulting from the Logitech
Acquisition, although general and administrative expenses may vary as a
percentage of total revenues.

        As a result of the December 1997 Logitech Acquisition, the Company
recorded goodwill of $1.7 million. Additional goodwill associated with
the acquisition may be recorded in 1998 contingent upon the achievement
of certain 1998 revenue objectives in Europe.  The amortization of such
existing and contingent goodwill will have a significant adverse effect
on the Company's 1998 net operating results.

        In-process research and development

        In December 1997, the Company acquired certain products and in-
process technology from Logitech, which resulted in a write-off of
acquired in-process research and development of $9.2 million. In March
1996, the Company acquired certain in-process photo scanner technologies
from Primax, resulting in a write-off of $5.0 million of acquired in-
process research and development.

        Interest income, net

        Interest income, net consists primarily of interest earned on cash
equivalents and short-term investments offset by interest expense
incurred in connection with the Company's line of credit and long-term
obligations. Interest income, net increased to $0.3 million in 1997 from
$0.2 million and $0.1 million in 1996 and 1995, respectively, primarily
due to the significant increase in interest bearing securities in the
fourth quarter of 1996 resulting from the Company's initial public
offering. The Company expects interest expense to increase from 1997 to
1998 in conjunction with increased borrowings under the Company's line
of credit to help fund the Company's growth and interest incurred on
notes payable issued and issuable to Logitech in conjunction with the
Logitech Acquisition.

        Provision for income taxes

        No provision for federal and state income taxes has been recorded as
the Company has incurred net operating losses through December 31, 1997.
As of December 31, 1997, the Company has net operating loss
carryforwards of approximately $28 million for federal income tax
purposes, which can be used to reduce future taxable income. These net
operating loss carryforwards begin to expire in 2007.

Liquidity and Capital Resources

        From inception through the third quarter of 1996, the Company
financed its working capital and capital expenditure requirements
primarily through the private sale of equity securities. On October 1,
1996, the Company completed a public offering of its common stock,
selling 3,277,500 shares (including 850,000 shares sold by selling
stockholders) at $10.50 per share. Net proceeds to the Company were
approximately $22.7 million after deducting related issuance costs.

        During 1997 the Company generated $6.4 million from financing
activities, primarily from the sale of equity securities and to a lesser
extent debt financing. These funds in combination with the $5.2 million
of cash sourced from the sale of short-term investments were principally
used for the Logitech Acquisition and to support operating activities,
which used cash of $8.4 million for the year ended December 31, 1997.
During 1996 and 1995 the Company generated $24.3 million and $3.6
million, respectively, from the sale of equity securities. These funds
were principally used to support operating activities, which used cash
of $12.1 million and $3.9 million in 1996 and 1995, respectively.

        As of December 31, 1997, the Company had approximately $5.3 million
in cash and cash equivalents. On February 27, 1998, the Company
completed an amendment to its existing line of credit which increased
the total borrowing capacity under the line to the lesser of $10 million
or 70% of eligible receivables. The line of credit is secured by the
assets of the Company. At December 31, 1997, the Company had $1.0
million of borrowings under this line of credit. As of December 31,
1997, the Company's principal commitments consisted primarily of the
above-mentioned line of credit, long-term obligations associated with
equipment financings, a note payable to Logitech associated with the
Logitech Acquisition and a lease for its office facilities. To date, the
Company has not invested in derivative securities or any other financial
instruments that involve a high level of complexity or risk. The Company
expects that in the future, cash in excess of current requirements will
continue to be invested in investment grade, interest-bearing
securities.

        The Company believes that its existing cash and investment balances,
its bank line of credit and other potential financing alternatives will
be sufficient to meet the Company's capital and operating requirements
for the next 12 months. If expenditures required to achieve the
Company's plans are greater than projected, or if the Company is unable
to generate adequate cash flow from sales of its products, the Company
may need to seek additional sources of capital. The Company's management
is currently exploring financing alternatives to supplement Storm's cash
position.  Potential sources of additional financing for the Company
include private equity financings, mergers, strategic investments,
strategic partnerships, an increase in its available bank line of credit
or other forms of debt financings. In addition, although there are no
present understandings, commitments or agreements with respect to any
material acquisition of other businesses, products or technologies, the
Company from time to time evaluates potential acquisitions of
businesses, products and technologies and may in the future require
additional equity or debt financings to consummate such potential
acquisitions.

Factors That May Affect Future Results

        Investors in the Company should be aware of the following risks and
uncertainties that could materially and adversely affect the Company and
the market for the Company's securities.

        The Company, which was founded in January 1990, has incurred net
losses in every period since inception. There can be no assurance that
it will attain profitability, or, if profitability is attained, that the
Company will sustain profitability on a quarterly or an annual basis.
Management believes that its existing cash and investment balances, its
bank line of credit and other potential financing alternatives will be
sufficient to meet the Company's capital and operating requirements for
the next 12 months. If expenditures required to achieve the Company's
plans are greater than projected, or if the Company is unable to
generate adequate cash flow from sales of its products, the Company may
need to seek additional sources of capital. Storm has no commitments or
arrangements to obtain any additional funding and there can be no
assurance that the Company will be able to obtain such funding, if
necessary, on acceptable terms or at all. The failure to raise needed
funds on sufficiently favorable terms could have a material adverse
effect on the Company's business, operating results and financial
condition.

        The Company recently completed the acquisition of Logitech's scanner
product line, primarily to expand its presence in the European consumer
scanner market, a market which is relatively new to the Company. While
the Company believes that the scanner products acquired from Logitech
offer an opportunity for the Company to increase its market share and
product offerings, there can be no assurance that the Company will be
successful in doing so. Furthermore, as the Company increases its
foreign sales, it may be materially and adversely affected by
fluctuations in currency exchange rates, changes in regulatory
requirements or duty rates, difficulties in staffing and managing
foreign operations and other risks inherent in conducting business on an
international level. There can be no assurance that one or more of such
factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business,
operating results and financial condition.

        The market for the Company's products is intensely competitive and
rapidly evolving. The Company currently derives substantially all of its
revenues from its personal scanner products and expects that revenues
from these products will continue to account for substantially all of
its revenues for the foreseeable future. There can be no assurance that
the market for personal scanner products will develop as anticipated by
the Company, or that the Company's products will be broadly accepted.
Furthermore, many of the Company's existing and potential competitors
have longer operating histories and significantly greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition and larger customer bases, than the Company. As a result,
these competitors may be able to respond more effectively to new or
emerging technologies and changes in customer requirements, withstand
significant price decreases or devote greater resources to the
development, promotion, sale and support of their products than the
Company. There can be no assurance that the Company will be able to
compete successfully in the future or that competition will not have a
material adverse effect on the Company's business, operating results and
financial condition.

        The Company has experienced and will continue to experience
significant fluctuations in revenues and operating results from quarter
to quarter and from year to year due to a combination of factors, many
of which are outside of the Company's direct control. These factors
include development of consumer demand for digital images on PCs in
general and for the Company's products in particular, the Company's
success in developing, introducing and shipping new products and product
enhancements in a timely manner, the purchasing patterns and potential
product returns from the Company's retail distribution, the potential
for reduced revenue due to price protection granted to distributors and
resellers, the performance of the Company's contract manufacturers and
component suppliers, the Company's ability to respond to new product
introductions and price reductions by its competitors, the timing,
cancellation or rescheduling of significant orders from the Company's
customers, the availability of key components and changes in the cost of
materials for the Company's products, the level of demand for PCs, the
Company's ability to attract, retain and motivate qualified personnel,
the timing and amount of research and development, marketing and selling
and general and administrative expenditures, and general economic
conditions. In addition, the Company has experienced seasonality in its
operating results. The Company believes that the seasonality of its
revenues results primarily from the purchasing habits of consumers and
the timing of the Company's fiscal year end. The Company currently
believes that such seasonality will generally continue.

        Revenues and operating results in any quarter depend on the volume
and timing of and ability to fulfill customer orders, the receipt of
which is difficult to forecast. A significant portion of the Company's
operating expenses is relatively fixed in advance, based in large part
on the Company's forecasts of future sales. If sales are below
expectations in any given period, the adverse effect of a shortfall in
sales on the Company's operating results may be magnified by the
Company's inability to adjust operating expenses in the short term to
compensate for such shortfall. Accordingly, any significant shortfall in
revenues relative to the Company's expectations would have an immediate
material adverse impact on the Company's operating results and financial
condition. The Company may also be required to reduce prices in response
to competition or increase spending to pursue new product or market
opportunities. In the event of significant price competition in the
market for the Company's products, the Company would be required to
decrease costs at least proportionately in order to maintain profit
margins and would be at a significant disadvantage compared to
competitors with substantially greater resources, which could more
readily withstand an extended period of downward pricing pressure.

        Primax and a third party are currently the primary manufacturing
sources for the hardware component of the Company's personal scanner
products. There can be no assurance that such suppliers will be able to
meet the Company's requirements for quality manufactured products at
competitive prices. Furthermore, obtaining products from an alternative
manufacturing source involves certain production start-up risks and
delays, such as those associated with the procurement of materials and
training of production personnel. Therefore, any inability to obtain
quality hardware components at competitive prices from these suppliers
or to increase manufacturing capacity from such suppliers as required
could have a material adverse effect on the Company's business, results
of operations and financial condition.

        Since February 1995, most of the Company's sales have been made to
distributors, OEMs, and resellers such as computer superstores, consumer
electronics superstores, office supply superstores, specialty computer
stores, on-line companies and mass merchants. Accordingly, the Company
is dependent upon the continued viability and financial stability of
these customers. The Company's customers generally offer products of
several different companies, including scanner products that are
competitive with the Company's products. Accordingly, these customers
may give higher priority to products of suppliers other than the Company
through increased shelf space or promotions, thus reducing their efforts
to sell the Company's products. In addition, as is typical in the
personal computer industry, the Company grants its distributors and
resellers price protection and certain rights of return with respect to
products purchased by them. The Company accrues for expected returns and
anticipated price reductions in amounts that the Company believes are
reasonable. However, there can be no assurance that these accruals will
be sufficient, especially in light of the rapid product obsolescence
that often occurs during product transitions. In order to respond to
competitive pricing actions, increase sales or expand the distribution
of its products, the Company may reduce the prices of its products,
which could give rise to significant price protection charges and which
would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the
difficulty in predicting future sales and the anticipated short product
life cycles of the Company's products due to frequent upgrades increase
the risk that new product introductions, price reductions by the Company
or its competitors, or other factors affecting the digital imaging
market could result in significant product returns. Any price protection
charges or product returns in excess of recorded allowances would have a
material adverse effect on the Company's business, operating results and
financial condition.

        In March 1997, a suit was filed in the Superior Court of California
naming Storm, certain of the Company's officers and certain other
entities as defendants in a purported class action lawsuit. The lawsuit
alleges certain violations of state and federal securities laws in
connection with the Company's operating results for the fourth quarter
of 1996, and seeks unspecified damages. An amended complaint was filed
in October 1997 and a similar complaint was filed in the United States
District Court by the same plaintiffs in December 1997. The Company
believes that the allegations contained in the lawsuits are without
merit and intends to vigorously defend itself in such actions. However,
there can be no assurance that the ultimate outcome of such lawsuits
will not have a material adverse effect on the Company's business,
operating results and financial condition.

        The Company's common stock is quoted on the Nasdaq National Market.
Principally as the result of the payment of cash and issuance of notes
pursuant to the Logitech Acquisition, the Company does not currently
meet the National Market maintenance criteria. If the Company is not
able to raise sufficient equity or otherwise take action to meet such
requirements, the Company may be delisted from the National Market and
the quotation of the Company's stock could be included on the Nasdaq
SmallCap Market or in the non-Nasdaq over-the-counter market. As a
result of any such delisting, an investor may find it more difficult to
trade in shares of the Company's Common Stock.

        The Company has recently experienced and may continue to experience
growth in the number of employees, the scope of its operating and
financial systems and the geographic distribution of its operations and
customers due to an anticipated increase in annual sales. The Company's
ability to compete effectively and to manage future growth, if any, will
require the Company to continue to assimilate such new personnel and to
implement and improve its financial and management controls, reporting
systems and procedures on a timely basis and expand, train and manage
its employee work force. There can be no assurance that the Company will
be able to do so successfully.

        While the Company does not anticipate any material "Year 2000" issues
from its own information systems or products, the Company could be
adversely impacted by Year 2000 issues faced by its vendors, customers
and financial service providers. The Year 2000 issue arises because most
computer systems and programs were designed to handle only a two-digit
year, not a four-digit year, thus the year 2000 could be interpreted as
the year 1900 resulting in the incorrect processing of data. The Company
does not believe such issues, if any, will have a material adverse
effect on the Company's operations or capital resources. However, there
can be no assurance that the Company will not be adversely affected by
unanticipated Year 2000 issues.
<PAGE>

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of
Storm Technology, Inc.
        In our opinion, the consolidated financial statements listed in the
index appearing under Item 14 (a) (1) present fairly, in all material
respects, the financial position of Storm Technology, Inc. and its
subsidiary at December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.

Price Waterhouse LLP
San Jose, California
January 26, 1998
















<PAGE>










                             STORM TECHNOLOGY, INC.
                           CONSOLIDATED BALANCE SHEET
                       (In thousands, except share data)
<TABLE>
<CAPTION>
                                                          December 31,
                                                      --------------------
                                                        1997       1996
                                                      ---------  ---------
<S>                                                   <C>        <C>
                            ASSETS
Current assets:
  Cash and cash equivalents........................     $5,310     $7,335
  Short-term investments...........................        --       6,466
  Accounts receivable, net (Note 4)................     10,204      7,768
  Inventories......................................      3,795      4,750
  Other current assets.............................        355        247
                                                      ---------  ---------
     Total current assets..........................     19,664     26,566

Property and equipment, net (Note 4)...............      1,523        692
Goodwill...........................................      1,655        448
Other assets.......................................         40        103
                                                      ---------  ---------
       Total assets................................    $22,882    $27,809
                                                      =========  =========
             LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable.................................     $3,903     $2,567
  Accrued liabilities (Note 4).....................      3,935      1,444
  Trade payables to related parties................     11,831      3,768
  Line of credit...................................      1,000        --
  Current portion of lon-term obligations..........        151        --
                                                      ---------  ---------
     Total current liabilities.....................     20,820      7,779

Convertible note payable to related party..........      4,000        --
Long-term obligations..............................        401        --
                                                      ---------  ---------
     Total liabilities.............................     25,221      7,779
                                                      ---------  ---------
Commitments and contingency (Notes 8 and 9)

Stockholders' equity (deficit) (Note 6):
  Convertible preferred stock, $0.001
   par value, 500,000 shares authorized;
   30,000 and 0 shares issued and outstanding......          1        --
  Common stock, $0.001 par value,
   30,000,000 and 10,000,000 shares
   authorized; 12,758,050 and 10,424,331
   shares issued and outstanding...................         13         10
  Additional paid-in capital.......................     45,662     39,117
  Deferred compensation............................        (80)      (183)
  Accumulated deficit..............................    (47,935)   (18,914)
                                                      ---------  ---------
     Total stockholders' equity (deficit)..........     (2,339)    20,030
                                                      ---------  ---------
       Total liabilities and
        stockholders' equity (deficit).............    $22,882    $27,809
                                                      =========  =========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>

                             STORM TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                      (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                            --------------------------------
                                               1997       1996       1995
                                            ---------- ---------- ----------
<S>                                         <C>        <C>        <C>
Revenues................................      $34,202    $24,537     $5,794
Cost of revenues........................       35,712     17,119      3,735
                                            ---------- ---------- ----------
Gross profit (loss).....................       (1,510)     7,418      2,059
                                            ---------- ---------- ----------

Operating expenses:
     Research and development...........        4,922      2,901      1,494
     Marketing and selling..............        8,756      7,837      3,384
     General and administrative.........        5,002      2,333        633
     In-process research and development        9,160      5,000        --
                                            ---------- ---------- ----------
       Total operating expenses.........       27,840     18,071      5,511
                                            ---------- ---------- ----------
Loss from operations....................      (29,350)   (10,653)    (3,452)
Interest income, net....................          329        229         56
                                            ---------- ---------- ----------
Net loss................................     ($29,021)  ($10,424)   ($3,396)
                                            ========== ========== ==========
Basic and diluted net loss per
 share..................................       ($2.75)    ($3.04)    ($3.74)
                                            ========== ========== ==========

Weighted average number of
 common shares outstanding..............       10,538      3,426        909
                                            ========== ========== ==========
</TABLE>
  The accompanying notes are an integral part of these financial statements.
<PAGE>














                            STORM TECHNOLOGY, INC.
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                       (In thousands, except share data)
<TABLE>
<CAPTION>

                                    Convertible                           Addi-
                                  Preferred Stock        Common Stock    tional   Deferred   Accum-
                                ------------------- -------------------  Paid-in   Compen-   ulated
                                  Shares    Amount    Shares    Amount   Capital   sation    Deficit    Total
                                ----------- ------- ----------- ------- --------- --------- --------- ----------
<S>                             <C>         <C>     <C>         <C>     <C>        <C>      <C>       <C>
BALANCE AT DECEMBER 31, 1994.    1,688,004      $2     879,481      $1    $7,632       --    ($5,094)    $2,541
Issuance of common stock
 under stock option plan.....          --       --      59,260      --        24       --         --         24
Issuance of Series D
 convertible preferred
 stock for cash, net of
 issuance costs of $23.......      689,892      --        --        --     3,564       --         --      3,564
Net loss.....................          --       --        --        --       --        --     (3,396)    (3,396)
                                ----------- ------- ----------- ------- --------- --------- --------- ----------
BALANCE AT DECEMBER 31, 1995.    2,377,896       2     938,741       1    11,220       --     (8,490)     2,733
Issuance of common stock
 under stock option plan.....          --       --     307,630      --       123       --         --        123
Repurchase of common stock...          --       --     (17,586)     --        (7)      --         --         (7)
Issuance of Series E
 convertible preferred stock
 for acquired business and
 technology, net of issuance
 costs of $128...............    4,214,329       5        --        --     3,238       --         --      3,243
Issuance of Series F
 convertible preferred stock
 for cash, net of issuance
 costs of $10................      171,428      --        --        --     1,490       --         --      1,490
Deferred stock compensation
 related to the issuance of
 certain stock options.......          --       --        --        --       233      (233)       --         --
Issuance of common stock in
 initial public offering, net
 of issuance costs of $2,749.          --       --   2,427,500       2    22,737       --         --     22,739
Conversion of convertible
 preferred stock into
 common stock................   (6,763,653)     (7)  6,763,653       7       --        --         --         --
Other........................          --       --       4,393      --        83        50        --        133
Net loss.....................          --       --        --        --       --        --    (10,424)   (10,424)
                                ----------- ------- ----------- ------- --------- --------- --------- ----------
BALANCE AT DECEMBER 31, 1996.          --       --  10,424,331      10    39,117      (183)  (18,914)    20,030
Issuance of common stock
 under stock option plan.....          --       --      81,073      --        32       --         --         32
Repurchase of common stock...          --       --     (57,246)     --       (23)      --         --        (23)
Issuance of common stock
 under employee stock
 purchase plan...............          --       --      48,314      --       123       --         --        123
Issuance of Series A
 convertible preferred stock
 for cash, net of issuance
 costs of $300...............       30,000       1        --        --     2,699       --         --      2,700
Issuance of common stock
 and warrants, net of
 issuance costs of $50.......          --       --   1,094,665       1     2,015       --         --      2,016
Issuance of common stock for
 acquired Logitech assets....          --       --   1,159,413       1     1,739       --         --      1,740
Other........................          --       --       7,500       1       (40)      103        --         64
Net loss.....................          --       --        --        --         --      --    (29,021)   (29,021)
                                ----------- ------- ----------- ------- --------- --------- --------- ----------
BALANCE AT DECEMBER 31, 1997.       30,000      $1  12,758,050     $13   $45,662      ($80) ($47,935)   ($2,339)
                                =========== ======= =========== ======= ========= ========= ========= ==========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>






                             STORM TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                (In thousands)
<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                            --------------------------------
                                               1997       1996       1995
                                            ---------- ---------- ----------
<S>                                         <C>        <C>        <C>
Cash flows from operating activities:
 Net loss...........................         ($29,021)  ($10,424)   ($3,396)
 Adjustments to reconcile net loss to
  net cash used in operating activities:
   Depreciation and amortization........          608        384        142
   Write-off of purchased in-process
    research & development..............        9,160      5,000        --
   Other non-cash charges...............          490         69        --
   Changes in assets and liabilities:
    Accounts receivable, net............       (2,436)    (2,667)    (2,445)
    Inventories.........................          955     (1,086)    (1,181)
    Other current assets................         (108)      (181)       164
    Other assets........................           63       (103)       --
    Accounts payable....................        1,336      2,065      2,833
    Accrued liabilities.................        2,491       (646)        28
    Trade payables to related parties...        8,063     (4,473)       --
                                            ---------- ---------- ----------
     Net cash used in operating
      activities........................       (8,399)   (12,062)    (3,855)
                                            ---------- ---------- ----------
Cash flows from investing activities:
  Purchase of property and equipment....       (1,339)      (715)       (57)
  Cash paid for purchase of
   Logitech assets......................       (5,176)       --         --
  Sales (purchases) of short-term
   investments, net.....................        6,466     (6,366)     1,747
  Other.................................          --         268       (100)
                                            ---------- ---------- ----------
     Net cash (used in) provided by
      investing activities..............          (49)    (6,813)     1,590
                                            ---------- ---------- ----------
Cash flows from financing activities:
  Proceeds from issuance of convertible
   preferred stock, net.................        2,700      1,490      3,564
  Proceeds from issuance of common
   stock, net...........................        2,193     22,862         24
  Proceeds from line of credit..........        1,000        --         --
  Proceeds from equipment financing.....          587        --         --
  Other.................................          (57)        (7)       --
                                            ---------- ---------- ----------
     Net cash provided by financing
      activities........................        6,423     24,345      3,588
                                            ---------- ---------- ----------
Net increase (decrease) in cash and
 cash equivalents.......................       (2,025)     5,470      1,323
Cash and cash equivalents at the
 beginning of the period................        7,335      1,865        542
                                            ---------- ---------- ----------
Cash and cash equivalents at the end of
 the period.............................       $5,310     $7,335     $1,865
                                            ========== ========== ==========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>

                            STORM TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)


NOTE 1-DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:

        Storm Technology, Inc. (the Company or Storm) was incorporated in
California on January 17, 1990. The Company is a leading provider of
digital imaging solutions which enable consumers and small businesses to
input, store, organize, enhance and use digital images on their personal
computers.

        These consolidated financial statements contemplate the realization
of assets and the satisfaction of liabilities in the normal course of
business. As is typical with emerging stage companies, the Company has
incurred net losses in every period since inception and there can be no
assurance that the Company will attain profitability. At December 31,
1997, the Company had aggregate consolidated net losses of $47,935 and a
working capital deficit of $1,156. Management believes that its existing
cash and investment balances, its bank line of credit and other
potential financing alternatives will be sufficient to meet the
Company's capital and operating requirements for the next 12 months. If
expenditures required to achieve the Company's plans are greater than
projected, or if the Company is unable to generate adequate cash flow
from sales of its products, the Company may need to seek additional
sources of capital. Storm has no commitments or arrangements to obtain
any additional funding and there can be no assurance that the Company
will be able to obtain such funding, if necessary, on acceptable terms
or at all. The failure to raise needed funds on sufficiently favorable
terms could have a material adverse effect on the Company's business,
operating results and financial condition.

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

        The following is a summary of the Company's significant accounting
policies:

        Revenue recognition

        Revenue from product sales to customers is generally recognized when
the product is shipped, provided collectibility is probable. Revenues
from sales to distributors and resellers are subject to agreements
allowing price protection and certain rights of return. Accordingly,
reserves for estimated future returns are provided for upon revenue
recognition and reserves for price protection are recorded when a price
decrease is anticipated. Such reserves are estimated based on historical
rates of returns and allowances, distributor and reseller inventory
levels and other factors.

        Cash and cash equivalents and short-term investments

        The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less at the date of
purchase to be cash equivalents and investments with original maturity
dates of greater than three months to be short-term investments. All of
the Company's short-term investments, comprised primarily of debt
instruments with contractual maturities of less than one year, have been
classified as available-for-sale.

        Fair value of financial instruments

        The carrying amount of the Company's financial instruments, including
short-term investments, accounts receivable, the line of credit, note
and trade payables to related parties and long-term obligations,
approximate fair values.

        Concentrations of credit risk

        Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
equivalents, short-term investments and accounts receivable. Cash
equivalents and short-term investments, which are primarily comprised of
investments in money market funds and institutional debt instruments,
are maintained with high quality institutions and the composition and
maturities are regularly monitored by management. The Company's accounts
receivable are derived from revenues earned from customers located
primarily in the U.S. The Company performs ongoing evaluations of its
customers' financial condition and maintains an allowance for doubtful
accounts based upon the expected collectibility.

        The following table summarizes the revenues from customers in excess
of 10% of total revenues for each applicable period:

                                       Years Ended December 31,
                                   -------------------------------
                                     1997       1996       1995
                                   ---------  ---------  ---------
Hewlett-Packard.............             33%       --         --

Best Buy Company, Inc.......             13%        14%        11%

Ingram Micro Inc............             12%        20%       --

America Online Inc..........            --          15%       --

Circuit City Stores, Inc....            --          14%        27%

        At December 31, 1997, Best Buy Company, Inc. and Ingram Micro Inc.
accounted for 33% and 31% of total accounts receivable, respectively. At
December 31, 1996, Best Buy Company, Inc., Ingram Micro Inc., America
Online Inc. and Circuit City Stores, Inc. accounted for 20%, 20%, 18%
and 13% of total accounts receivable, respectively.

        Inventories

        Inventories, which consist principally of finished goods, are stated
at the lower of cost, determined using the first-in, first-out method,
or market.

        Property and equipment

        Property and equipment are stated at cost. Depreciation is computed
using the straight-line method based upon the estimated useful lives of
the assets ranging from two to five years.

        Software development costs

        Software development costs incurred prior to establishment of
technological feasibility are expensed as incurred. The Company defines
establishment of technological feasibility as the completion of a
working model. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general
market availability of products will be capitalized, if material. To
date, all software development costs have been expensed.

        Goodwill

        Goodwill represents cost in excess of net assets acquired from
Logitech, Inc. and affiliates (collectively Logitech) on December 18,
1997 (see Note 3). Such goodwill is being amortized over a period of
approximately two years. The Company periodically reviews the value of
its goodwill to determine if an impairment has occurred. The Company
measures the potential impairment of recorded goodwill by comparing the
undiscounted expected future operating cash flows in relation to its net
investment. Based on its review, the Company does not believe that an
impairment of its goodwill has occurred.

        Advertising expense

        Advertising is expensed as incurred and amounted to $1,068, $993 and
$423 for the years ended December 31, 1997, 1996 and 1995, respectively.

        Income taxes

        Income taxes are accounted for under the asset and liability
approach. The asset and liability approach requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and
the tax bases of assets and liabilities.

        Net loss per share

        Effective December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS 128).  SFAS 128 requires the disclosure of both basic
earnings per share, which is based on the weighted average number of
common shares outstanding, and diluted earnings per share, which is
based on the weighted average number of common shares and dilutive
potential common shares outstanding. All prior year earnings per share
data have been restated to reflect the provisions of SFAS 128. Potential
common shares, including outstanding convertible preferred stock,
convertible notes payable, stock options and warrants, have been
excluded from the calculation of diluted earnings per share for all
periods presented, as their effect is antidilutive.

        Stock-based compensation

        The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees",  and adopted the "disclosure only" alternative described
in Statement of Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123) (see Note 6).

        Management estimates

        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.

        Reclassification

        Certain prior period balances have been reclassified to conform with
current period presentation.

NOTE 3-ACQUISITIONS:

        On December 18, 1997, the Company acquired certain tangible and
intangible assets related to image scanning products from Logitech. The
transaction was accounted for under the purchase method of accounting.
The purchase price of $10,900 included $5,000 in cash, $4,000 in a
convertible note payable and 1,159,413 shares of Storm Technology, Inc.
Common Stock. Approximately $9,200  and $1,700 of the purchase price was
allocated to in-process research and development and goodwill,
respectively. The value assigned to in-process research and development
was determined by an independent appraiser and was immediately charged
to operations.  In conjunction with the acquisition, the Company entered
an agreement providing for the marketing, sale and distribution of the
Company's products in Europe by Logitech and committed to spend no less
than $500 during 1998 on certain international marketing expenditures.
Additional consideration may be paid to Logitech in conjunction with the
above agreements contingent upon the achievement of certain 1998 revenue
objectives in Europe.

        As the Company acquired select product lines and temporary and
limited geographic rights to use Logitech's brand name, pro forma
financial data relating to the historical operating results of
Logitech's scanner operations is not material to an understanding of the
Company's future operations and is thus not included herein.

        On March 18, 1996, the Company acquired all outstanding shares of
Primax USA, Primax's U.S. subsidiary, and certain technologies from
Primax in exchange for 4,214,329 shares of the Company's Series E
Convertible Preferred Stock. The transaction was accounted for under the
purchase method of accounting. Approximately $5,000 of the purchase
price was allocated to in-process research and development. The value
assigned to in-process research and development was determined by an
independent appraiser and was immediately charged to operations.

        In conjunction with the acquisition, liabilities were assumed as
follows:

   Tangible assets...................................      $5,287
   In-process research and development...............       5,000
   Goodwill..........................................         604
   Series E Preferred Stock issued, net..............      (3,243)
                                                         ---------
   Liabilities assumed...............................     ($7,648)
                                                         =========

        The Company's consolidated financial statements for the year ended
December 31, 1996 include Primax USA for the period subsequent to the
acquisition date. The following table presents the unaudited pro forma
consolidated results of operations for the years ended December 31, 1996
and 1995 as if the transaction completed in 1996 had been completed at
the beginning of the periods presented, with the pro forma adjustments
giving effect principally to the elimination of service revenues
recognized by Primax USA related to services performed for Storm, the
elimination of the non-recurring charge for in-process research and
development acquired from Primax and the amortization of goodwill:

                                              Year ended December 31,
                                              --------------------
                                                1996       1995
                                              ---------  ---------
                                                    (unaudited)
   Total revenues............................  $26,641    $13,895
   Net loss..................................   (5,903)    (4,746)
   Pro forma basic net loss per common share.   ($1.72)    ($5.22)

NOTE 4-BALANCE SHEET COMPONENTS:

                                                  December 31,
                                              --------------------
                                                1997       1996
                                              ---------  ---------

   ACCOUNTS RECEIVABLE, NET CONSISTED OF:
     Accounts receivable.....................  $12,111     $8,909
     Allowance for sales returns and other
      credits................................   (1,474)      (732)
     Allowance for doubtful accounts.........     (433)      (409)
                                              ---------  ---------
                                               $10,204     $7,768
                                              =========  =========







   PROPERTY AND EQUIPMENT, NET CONSISTED OF:
     Computer equipment......................   $1,846     $1,194
     Furniture and fixtures..................      607        118
     Tooling.................................      298        --
                                              ---------  ---------
                                                 2,751      1,312
     Less: accumulated depreciation..........   (1,228)      (620)
                                              ---------  ---------
                                                $1,523       $692
                                              =========  =========

   ACCRUED LIABILITIES CONSISTED OF:
     Accrued employee benefits...............     $499       $366
     Marketing costs.........................    1,640        360
     Inventory costs.........................    1,300        --
     Other...................................      496        718
                                              ---------  ---------
                                                $3,935     $1,444
                                              =========  =========

NOTE 5-RELATED PARTY TRANSACTIONS:

        During the years ended December 31, 1997 and 1996, Storm purchased
inventories from Primax totaling approximately $14,000 and $10,400,
respectively. During the years ended December 31, 1997 and 1996 Storm
earned royalty and other revenues from Primax totaling approximately
$200 and $950, respectively.

        The trade payable to related parties at December 31, 1997 and 1996
consists of amounts payable to Primax for purchased inventories in the
amount of $10,101 and $3,768, respectively, and amounts payable to
Logitech for purchased inventories in the amount of $1,730 at December
31, 1997.

NOTE 6-STOCKHOLDERS' EQUITY:

        Initial Public Offering

        On October 1, 1996, the Company completed an initial public offering
of its common stock, selling 3,277,500 shares (including 850,000 shares
sold by selling stockholders) at $10.50 per share. Net proceeds to the
Company were $22,739 after deducting related issuance costs. In
connection with the initial public offering, all outstanding shares of
convertible preferred stock were converted into Common Stock.

        Convertible Preferred Stock

        On December 18, 1997, the Company issued 30,000 shares of Series A
Convertible Preferred Stock (the Series A shares). The Series A shares
are convertible into shares of Common Stock at a variable conversion
rate based on the fair market value of the Company's Common Stock on the
three days preceding conversion (Conversion Value). The conversion rate
equals (i) the Conversion Value for Conversion Values below $1.89, (ii)
$1.89 for Conversion Values between  $1.89 and  $2.23 or (iii) higher
rates on a sliding scale for Conversion Values in excess of $2.23. The
Series A shares bear an annual 8.5% cumulative dividend rate, payable in
shares of Common Stock on the date of the Series A conversion, and are
redeemable by the Company at a variable premium based on the fair market
value of the Company's Common Stock. Holders of the Series A shares have
no voting rights and  have a liquidation preference to the holders of
Common Stock in the event of the Company's dissolution.

        Delaware reincorporation and reverse stock split

        In September 1996, the Company completed a reincorporation in the
State of Delaware, including a one for four reverse stock split of the
outstanding shares of the Company's Common Stock. All share and per
share data have been retroactively adjusted to reflect this
reincorporation.

        Warrants for Common Stock

        In conjunction with the sale of the Series A shares described above,
the Company issued warrants for the purchase of 150,000 shares of Common
Stock at an exercise price of $3.00 per share. Additional warrants for
the purchase of Common Stock, at an exercise price of 70% of the fair
market value of the Company's Common Stock, will be issued in the event
the Series A shares are converted when the fair market value of the
Company's Common Stock  is less than $2.23. The number of such warrants
issued will range from 0% - 15% of the shares of Common Stock issued
upon the Series A conversion, based on the Conversion Value of the
Company's Common Stock. If the Company fails to deliver shares of Common
Stock issuable upon the exercise of such warrants or the conversion of
the Series A shares within 5 days of exercise or conversion, as
applicable, penalties, as defined, are assessable until such shares are
delivered.

        On December 18, 1997, the Company issued warrants for the purchase of
102,625 shares of Common Stock, at an exercise price of $1.90, in
conjunction with the sale of 1,094,665 shares of Common Stock to certain
executives of the Company.

        On May 22, 1996, in connection with a strategic marketing agreement,
the Company issued a warrant, as amended, to Intel to purchase 39,680
shares of Common Stock at a price of $8.75 per share. In connection with
the issuance of such warrant and the related sale of Series F
Convertible Preferred stock to Intel, the Company entered into an
agreement whereby it is required to notify Intel of any proposed
transaction that would result in a change of control or a sale of
substantially all of the Company's assets. In the event of such a
proposed transaction, Intel has the right to propose a competitive offer
that the Company's Board of Directors must consider in good faith.

        Amended and Restated Stock Option Plan

        The Amended and Restated Stock Option Plan (the Option Plan) allows
for the issuance of incentive and nonqualified stock options for the
purchase of the Company's Common Stock by employees and consultants of
the Company. The Option Plan provides for the issuance of up to
approximately 1,500,000 stock options as of December 31, 1997 and
provides for an annual increase in the shares reserved for grant equal
to 4% of the Company's outstanding Common Stock at the end of the
immediately preceding fiscal year.

        Initial options granted under the Option Plan generally vest 25%
after the first year and ratably each month over the remaining thirty
six month period. Options granted subsequent to the initial grant vest
ratably over four years. Options granted under the Option Plan are
immediately exercisable and subject to a repurchase option which expires
over the four year vesting period.

        The following table summarizes activity under the Option Plan:
<TABLE>
<CAPTION>
                                                                              Weighted
                                                                  Exercise     Average
                                                                   Price      Exercise
                                       Shares       Options         Per         Price
                                     Available    Outstanding      Share      Per Share
                                    ------------  ------------  ------------  ---------
<S>                                 <C>           <C>           <C>           <C>
  Balance at December 31, 1994.....     131,013       229,556         $0.40      $0.40
    Options granted ...............     (36,705)       36,705          0.40       0.40
    Options exercised .............         --        (59,260)         0.40       0.40
    Options canceled ..............      87,896       (87,896)         0.40       0.40
                                    ------------  ------------
  Balance at December 31, 1995.....     182,204       119,105          0.40       0.40
    Additional shares authorized ..     597,577            --           --         --
    Shares repurchased.............      17,586            --           --         --
    Options granted ...............    (753,817)      753,817    0.40 - 12.63     3.92
    Options exercised .............         --       (307,630)   0.40 -  5.00     0.41
    Options canceled ..............      96,518       (96,518)   0.40 -  8.00     5.16
                                    ------------  ------------
  Balance at December 31, 1996.....     140,068       468,774    0.40 - 12.63     5.01
    Additional shares authorized ..     416,973            --           --         --
    Shares repurchased.............      57,246            --           --         --
    Options granted ...............  (1,041,286)    1,041,286    1.44 -  5.06     3.65
    Options exercised .............         --        (81,073)         0.40       0.40
    Options canceled ..............     456,232      (456,232)   0.40 - 12.63     6.10
                                    ------------  ------------
  Balance at December 31, 1997.....      29,233       972,755    0.40 -  6.00     3.43
                                    ============  ============
</TABLE>
        During January 1997, the Company offered its optionholders the
opportunity to cancel outstanding options in exchange for grants of new
options, with certain restrictions and limitations, at the then current
market price.  Under the terms of the program, approximately 220,000
options were exchanged and are reflected in the 1997 grant and
cancellation activity above.

        Employee Stock Purchase Plan

        In June 1996, the Board approved the 1996 Employee Stock Purchase
Plan (the Purchase Plan). The Purchase Plan permits eligible employees
to purchase Common Stock at a discount through accumulated payroll
deductions. The price at which shares are purchased under the Purchase
Plan is equal to 85% of the fair market value of a share of Common Stock
on the first day of the offering period or the last day of the purchase
period, whichever is lower. As of December 31, 1997, a total of 450,000
shares of Common Stock have been reserved for issuance and 48,314 shares
have been issued under the Purchase Plan.

        Outside Directors Stock Option Plan

        In June 1996, the Company commenced the 1996 Outside Directors Stock
Option Plan (the Directors Plan). The Directors Plan provides for the
automatic grant of nonstatutory stock options to directors of the
Company who are not employees of the Company (Outside Directors). The
exercise price per share of options granted under the Directors Plan
will be equal to the fair market value of a share of Common Stock on the
date of grant. Shares subject to an option granted under the Directors
Plan vest over two years and options granted under the Directors Plan
must be exercised within ten years from the date of grant. Each Outside
Director was initially granted an option to purchase 11,250 shares of
Common Stock at a price of $4.00 per share. A total of 112,500 shares of
Common Stock have been reserved for issuance under the Director's Plan,
including 56,157 options granted prior to December 31, 1997.

        Outside Directors Stock Plan

        In June 1997, the Company commenced the 1997 Outside Directors Stock
Plan, which provides for the grant of 500 shares of Common Stock to each
Outside Director for each Board of Directors meeting an Outside Director
attends. 25,000 shares of Common Stock were reserved for issuance under
such plan and 4,500 shares were granted during 1997.

        Option  Plan and Directors Plan Summary

        The following table summarizes information about employee and
director stock options outstanding at December 31, 1997:

<TABLE>
<CAPTION>
                                                                Range of exercise prices
                                                     -----------------------------------------------------
                                                        $0.40     $1.44 - 3.50  $3.51 - 6.00  $0.40 - 6.00
                                                     -----------  ------------  ------------  ------------
<S>                                                  <C>          <C>           <C>           <C>
Options outstanding:
  Number outstanding..............................       62,365       370,200       596,347     1,028,912
  Weighted average remaining
    contractual life (years)......................          6.8           9.6           9.1           9.1
  Weighted average exercise price.................        $0.40         $2.15         $4.52         $3.42

Options vested:
  Number vested...................................       42,864        28,711       125,070       196,645
  Weighted average exercise price.................        $0.40         $1.89         $4.68         $3.34

</TABLE>





        Fair value disclosure

        Had compensation cost for the Company's option and purchase plans
been determined based on fair value at the grant dates, as prescribed in
SFAS 123, the Company's 1997 and 1996 net loss and basic and diluted net
loss per share would have been $(29,695) and $(10,516) and $(2.82) and
$(3.07), respectively. The related pro forma impact on the reported 1995
results of operations is immaterial.

        The fair value of each option grant is estimated on the date of grant
using the Black-Scholes model with the following assumptions: zero
dividend yield; risk-free interest rate of approximately 6%; a weighted
average expected option term of approximately 3.5 years; and an expected
volatility rate of approximately 67% for options granted during the
period October 1, 1996 to December 31, 1997. The weighted average fair
value of options granted during the years ended December 31, 1997, 1996
and 1995 was $1.50, $0.71 and $0.07, respectively. These pro forma
amounts exclude the effects of stock options granted prior to January 1,
1995. Accordingly, the above pro forma disclosures are not
representative of the pro forma effects of reported net income for
future years.

NOTE 7-INCOME TAXES:

        No provision for federal and state income taxes has been recorded as
the Company has incurred net operating losses through December 31, 1997.
As of December 31, 1997, the Company has net operating loss
carryforwards of approximately $28,000 for federal income tax purposes,
which can be used to reduce future taxable income. These net operating
loss carryforwards begin to expire in 2007.

  Deferred income tax assets (liabilities) consist of the following:

                                                December 31,
                                            ---------------------
                                               1997       1996
                                            ---------- ----------
Deferred tax assets:
   Federal and state loss carryforwards
    and credits.........................      $10,676     $4,256
   Purchased intangibles................        5,302        925
   Reserves and accruals................        1,383        480
   Deferred tax asset valuation
    allowance...........................      (17,361)    (5,661)
                                            ---------- ----------
Net deferred tax assets.................       $   --     $   --
                                            ========== ==========

        Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the
realizability of the deferred tax assets such that a full valuation
allowance has been recorded.

        Under the Tax Reform Act of 1986, the annual benefit from net
operating loss carryforwards is restricted by cumulative ownership
changes of 50 percent over a three-year period, as defined. The
acquisition of Primax USA and certain technologies from Primax in March
1996 triggered such an ownership change thus restricting the potential
benefits from utilization of tax net operating loss carryforwards
generated through the date of acquisition to usage of approximately $300
to $400 per year. Accordingly, the balance of net operating loss
carryforwards at December 31, 1997 has been adjusted to reflect the
limitation.

NOTE 8-LONG-TERM OBLIGATIONS AND COMMITMENTS:

        Long-term obligations

        On July 21, 1997 the Company entered into a loan and security
agreement for the financing of certain of the Company's capital
expenditures up to a maximum of $1,000. The loan bears an effective
interest rate of approximately 18% and is secured by the underlying
capital equipment. As of December 31, 1997, future minimum payments
under this loan facility are as follows:


        Year ending December 31,
--------------------------------------------
     1998...............................         $151
     1999...............................          181
     2000...............................          220
                                            ----------
                                                 $552
                                            ==========

        The Company issued a $4,000 convertible note payable, in conjunction
with the acquisition of certain assets from Logitech.  The note is non-
interest bearing until March 1998, at which time it bears interest at
10% per annum. The note is due on March 26, 1999 and is convertible into
shares of Common Stock by the holder at a rate based on the average
closing market price of the Common Stock for the five trading days
ending March 27, 1998. The note requires that 50% of future Company
equity financing proceeds, as defined, be used to repay any outstanding
note balance.

        Leases

        The Company has entered into a noncancelable operating lease for
office space and certain equipment leases which expire at various dates
through 2000. As of December 31, 1997, future minimum noncancelable
lease commitments under the Company's leases are as follows:

        Year ending December 31,
--------------------------------------------
     1998...............................       $1,319
     1999...............................        1,357
     2000...............................          922
                                            ----------
                                               $3,598
                                            ==========


        Rent expense for the years ended December 31, 1997, 1996 and 1995 was
$827, $399 and $315, respectively.

        Line of credit

        In May 1996, the Company entered into a loan and security agreement
with a bank, as amended, providing for a $10,000 revolving line of
credit. Borrowings under the line of credit are limited to 70% of
eligible accounts receivable and bear interest at the bank's prime rate
plus 2% (10.5% at December 31, 1997). The line of credit is secured by
the Company's cash, cash equivalents, investments, accounts receivable,
inventories, property and equipment and all intellectual property and
contains certain covenants limiting any dividend payments as well as the
maintenance of a minimum adjusted tangible net worth. The line of credit
expires on February 27, 1999.

NOTE 9-CONTINGENCY:

        In March 1997, a suit was filed in the Superior Court of California
naming Storm, certain of the Company's officers, and certain other
entities as defendants in a purported class action lawsuit. The lawsuit
alleges certain violations of state and federal securities laws in
connection with the Company's operating results for the fourth quarter
of 1996, and seeks unspecified damages. An amended complaint was filed
in October 1997 and a similar complaint was filed in the United States
District Court by the same plaintiffs in December 1997. The Company
believes that the allegations are without merit and intends to
vigorously defend itself in such matters.




























Quarterly Results of Operations (Unaudited)

        The following table presents the Company's unaudited operating
results for each of the eight quarters in the period ended December 31,
1997 and certain items as a percentage of total revenues for the
respective periods.

<TABLE>
<CAPTION>
                                                              Three Months Ended
                                -------------------------------------------------------------------------------
                                Mar. 31,  June 30,  Sept. 30, Dec. 31,  Mar. 31,  June 30,  Sept. 30, Dec. 31,
                                  1996      1996      1996      1996      1997      1997      1997      1997
                                --------- --------- --------- --------- --------- --------- --------- ---------
<S>                             <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Consolidated Statement of                           (In thousands, except percentages)
  Operations Data:
Revenues......................    $2,529    $5,492    $8,214    $8,302    $2,047    $6,602   $12,550   $13,003
Cost of revenues..............     1,981     3,716     5,805     5,617     3,768     6,300    10,976    14,668
                                --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit (loss)...........       548     1,776     2,409     2,685    (1,721)      302     1,574    (1,665)
                                --------- --------- --------- --------- --------- --------- --------- ---------
Operating expenses:
  Research and development....       459       666       865       911     1,116     1,289     1,206     1,311
  Marketing and selling.......     1,402     2,017     1,988     2,430     2,088     1,991     2,233     2,444
  General and administrative..       225       477       761       870     1,431     1,158     1,198     1,215
  In-process research and
   development................     5,000       --        --        --        --        --        --      9,160
                                --------- --------- --------- --------- --------- --------- --------- ---------
   Total operating expenses...     7,086     3,160     3,614     4,211     4,635     4,438     4,637    14,130
                                --------- --------- --------- --------- --------- --------- --------- ---------
Loss from operations..........    (6,538)   (1,384)   (1,205)   (1,526)   (6,356)   (4,136)   (3,063)  (15,795)
Interest income, net..........        19        14       (30)      226        90        90        85        64
                                --------- --------- --------- --------- --------- --------- --------- ---------
Net loss......................   ($6,519)  ($1,370)  ($1,235)  ($1,300)  ($6,266)  ($4,046)  ($2,978) ($15,731)
                                ========= ========= ========= ========= ========= ========= ========= =========

As a percentage of total revenues:
Revenues......................     100.0%    100.0%    100.0%    100.0%    100.0%    100.0%    100.0%    100.0%
Cost of revenues..............      78.3%     67.7%     70.7%     67.7%    184.1%     95.4%     87.5%    112.8%
                                --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit (loss)...........      21.7%     32.3%     29.3%     32.3%    -84.1%      4.6%     12.5%    -12.8%
                                --------- --------- --------- --------- --------- --------- --------- ---------

Operating expenses:
  Research and development....      18.2%     12.1%     10.5%     10.9%     54.5%     19.5%      9.6%     10.1%
  Marketing and selling.......      55.4%     36.7%     24.2%     29.3%    102.0%     30.2%     17.8%     18.8%
  General and administrative..       8.9%      8.7%      9.3%     10.5%     69.9%     17.5%      9.5%      9.3%
  In-process research and
   development................     197.7%      --        --        --        --        --        --       70.5%
                                --------- --------- --------- --------- --------- --------- --------- ---------
   Total operating expenses...     280.2%     57.5%     44.0%     50.7%    226.4%     67.2%     36.9%    108.7%
                                --------- --------- --------- --------- --------- --------- --------- ---------
Loss from operations..........    -258.5%    -25.2%    -14.7%    -18.4%   -310.5%    -62.6%    -24.4%   -121.5%
Interest income, net..........       0.7%      0.3%     -0.3%      2.7%      4.4%      1.3%      0.7%      0.5%
                                --------- --------- --------- --------- --------- --------- --------- ---------
Net loss......................    -257.8%    -24.9%    -15.0%    -15.7%   -306.1%    -61.3%    -23.7%   -121.0%
                                ========= ========= ========= ========= ========= ========= ========= =========
</TABLE>





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

        Not applicable.

PART III

        Certain information required by Part III is omitted from this Annual
Report on Form 10-K because the Company will file a definitive proxy
statement pursuant to Regulation 14A (the "Proxy Statement") within 120
days after the end of the fiscal year covered by this Report, and
certain information included in the Proxy Statement is incorporated
herein by reference.

Item 10.        Directors and Executive Officers of the Registrant

(a)     The information concerning the Company's directors required by
this item is incorporated by reference to the information under the
heading "Election of Directors" in the Company's Proxy Statement.

(b)     Executive Officers of the Registrant

        The names, ages and positions of the executive officers of the
Company, as of February 28, 1998, are as follows:

         Name           Age                 Position
---------------------- ------ ------------------------------------
L. William Krause         55  President, Chief Executive Officer and
                                Director
Rick M. McConnell         32  Chief Financial Officer and Vice
                                President, Finance and Administration
Robert F. Preston         40  Vice President, Sales and Marketing
Joseph G. Finegold        47  Vice President, Operations

        L. William Krause has served as President and Chief Executive Officer
of the Company since joining the Company in October 1991. Prior to
joining the Company, Mr. Krause spent ten years at 3Com Corporation, a
manufacturer of global data networking systems, where he was President
and Chief Executive Officer until he retired in September 1990. He
continued as Chairman of the Board for 3Com Corporation until 1993.
Previously, Mr. Krause served in various marketing and general
management executive positions at Hewlett-Packard, a manufacturer of
computer hardware and software. Mr. Krause currently serves as a
director of Sybase, Inc. and Aureal Semiconductor, Inc.

        Rick M. McConnell has served as Chief Financial Officer and Vice
President, Finance and Administration of the Company since January 1994.
Prior to that, Mr. McConnell was Director of Finance and Administration
from June 1992 until January 1994, after receiving his Masters in
Business Administration from the Stanford Graduate School of Business.
From July 1987 to June 1990, Mr. McConnell was employed as a financial
engineer by The First Boston Corporation, predecessor to CS First
Boston, a financial services firm.

        Robert F. Preston has served as Vice President, Sales of the Company
since February 1996. From July 1993 to January 1996, Mr. Preston was
Vice President of Sales of Xircom, Inc., a manufacturer of network
access products. In January 1989, Mr. Preston founded Robert Preston &
Associates, a full service sales and marketing consulting firm, and
served as its President from January 1989 to July 1993. Prior to 1989,
Mr. Preston served in various sales and marketing positions at Personal
Computer Products, Inc., AST Research, Inc. and International Business
Machine Corp.

        Joseph G. Finegold has served as Vice President, Operations of the
Company since June 1996. From November 1995 to June 1996, Mr. Finegold
served as Director of Production at Silicon Graphics, Inc., a
manufacturer of engineering workstations. From October 1994 to November
1995, Mr. Finegold was Vice President of FAFCO, Inc., a solar heating
and thermal energy storage company. From December 1991 to October 1994,
Mr. Finegold served as a product marketing manager and a manufacturing
manager for Quantum Corporation, a disk drive company. From June 1985 to
December 1991, Mr. Finegold served in the positions of manufacturing
manager and product manager for Hewlett-Packard.

Item 11.        Executive Compensation

        The information required by this Item is incorporated by reference to
the Company's Proxy Statement under the heading "Executive Compensation
and Other Matters."

Item 12.        Security Ownership of Certain Beneficial Owners and
                Management

        The information required by this Item is incorporated by reference to
the Company's Proxy Statement under the heading "Stock Ownership of
Certain Beneficial Owners and Management."

Item 13.        Certain Relationships and Related Transactions

        The information required by this Item is incorporated by reference to
the Company's Proxy Statement under the heading "Certain Relationships
and Related Transactions."

PART IV

Item 14.        Exhibits, Financial Statement Schedules and Reports on Form
                8-K
(a)     The following documents are filed as a part of this Form 10-K:

        Financial Statements:

        Report of Independent Accountants

        Consolidated Balance Sheet

        Consolidated Statement of Operations

        Consolidated Statement of Stockholders' Equity (Deficit)

        Consolidated Statement of Cash Flows

        Notes to Consolidated Financial Statements


2.      Financial Statement Schedules:

        Financial statement schedules have been omitted because the
information called for is not required or is shown in the Consolidated
Financial Statements or Notes thereto

3.      Exhibits:

        Exhibit
        Number          Exhibit Title
        2.1*    Form of Agreement and Plan of Merger between Storm Primax,
                Inc., a California corporation ("Storm California"), and Storm
                Primax, Inc., a Delaware corporation ("Storm Delaware").
        3.1*    Sixth Amended and Restated Articles of Incorporation of Storm
                California.
        3.2*    Certificate of Incorporation of Storm Delaware.
        3.3*    Bylaws of Storm California.
        3.4*    Bylaws of Storm Delaware.
        10.1*   Form of Indemnity Agreement for officers and directors.
        10.2*   The Registrant's Amended and Restated Stock Option Plan.
        10.4*   The Registrant's 1996 Outside Directors Stock Option Plan.
        10.5*   The Registrant's 1996 Employee Stock Purchase Plan.
        10.10*  Series F Preferred Stock Purchase Agreement dated June 11,
                1996.
        10.11*  Fourth Amended and Restated Rights Agreement dated June 11,
                1996, as amended.
        10.12*  Agreement and Plan of Reorganization by and among Storm
                Software, Inc., Storm Acquisition Corporation, Primax
                Electronics (U.S.A.) Inc., and Primax Electronics, Ltd.
                ("Primax") dated February 24, 1996.
        10.13*  Manufacturing and Purchase Agreement by and between Storm
                California and Primax dated February 24, 1996.
        10.17*  Distribution Agreement by and between Storm California and
                Primax dated February 29, 1996.
        10.19*  Agreement by and between Intel Corporation and Storm California
                dated May 22, 1996.
        10.20*  Warrant to purchase Stock of Storm California issued to Intel
                Corporation dated May 16, 1996 (incorporated by reference to
                Exhibit D to Exhibit 10.19).
        10.25*  Amendment No. 1 dated July 24, 1996 to the Agreement by and
                between Storm California and Intel, dated May 22, 1996.
        10.28*  Addendum One dated June 11, 1996 to the Manufacturing and
                Purchase Agreement between Primax and Storm California.
        10.30*  Amendment One to the Distribution Agreement by and between
                Storm California and Primax dated February 29, 1996.
        12.2**  Agreement for Purchase and Sale of Assets dated as of December
                18, 1997.
        12.3**  Joint Sales and Marketing Agreement dated as of December 18,
                1997.
        13.1**  Certificate of Designation for Series A 8.5% Convertible
                Preferred Stock filed December 18, 1997.
        23.1    Consent of Price Waterhouse LLP, independent accountants.
        27      Financial Data Schedule.

*       Incorporated by reference from the exhibits with corresponding
        numbers from the Company's Registration Statement (No. 333-06911), as
        amended on September 30, 1996.
**      Filed as an exhibit to the Company's Report on Form 8-K filed on
        January 2, 1998 and incorporated herein by reference.

(b)     Reports on Form 8-K

        No report on Form 8-K was filed during the fourth quarter of the year
        ended December 31, 1997.

<PAGE>











































                                  SIGNATURES


  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant, Storm Technology, Inc., a corporation organized and
existing under the laws of the State of Delaware, has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Sunnyvale, State of California, on March 30, 1998.

                             STORM TECHNOLOGY, INC.

                           By: /S/RICK M. MCCONNELL
                               --------------------

                               RICK M. MCCONNELL

                            CHIEF FINANCIAL OFFICER

                 AND VICE PRESIDENT, FINANCE AND ADMINISTRATION

                  (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)


                               POWER OF ATTORNEY

  Each of the officers and directors of Storm Technology, Inc. whose signature
appears below hereby constitutes and appoints L. William Krause and Rick
McConnell and each of them, their true and lawful attorneys-in-fact and agents,
with full power of substitution, each with power to act alone, to sign and
execute on behalf of the undersigned any amendment or amendments to this Report
on Form 10-K, and to perform any acts necessary to be done in order to file such
an amendment, and each of the undersigned does hereby ratify and confirm all
that said attorneys-in-fact and agents, or their and his substitutes, shall do
or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed below on March 30, 1998 by the following
persons in the capacities indicated.

          Signature                               Title
-----------------------------  --------------------------------------------

    /S/ L. WILLIAM KRAUSE      Chief Executive Officer, President and
----------------------------     Director (Principal Executive Officer)
      L. William Krause


    /S/ RICK M. MCCONNELL      Chief Financial Officer and Vice President,
----------------------------     Finance and Administration (Principal
      Rick M. McConnell        Financial and Accounting Officer)


   /S/ ADRIAAN LIGTENBERG      Chairman of the Board of Directors
----------------------------
     Adriaan Ligtenberg


  /S/ RICHARD C. ALBERDING     Director
----------------------------
     Richard C. Alberding


  /S/ MARY JANE ELMORE         Director
----------------------------
      Mary Jane Elmore


  /S/ WILLIAM H. LANE III      Director
----------------------------
      William H. Lane III


  /S/ JAMES M. KOSHLAND        Director
----------------------------
      James M. Koshland

<PAGE>