<PAGE>

                           FORM 10-K  
                          UNITED STATES  
               SECURITIES AND EXCHANGE COMMISSION  
                     Washington, D.C. 20549  

[X]  Annual Report Pursuant to Section 13 or 15(d) of the   
     Securities Exchange Act of 1934  

For the year ended December 31, 1997 
                                       OR
[ ]  Transition Report Pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934

For the transition period from _____________________to____________________

Commission file Number          0-20729  
                          ______________

                      PRINTWARE, INC.                  
_______________________________________________________
(Exact name of registrant as specified in its charter.)  
  
          Minnesota                   41-1522267
____________________________          __________

(State or other jurisdiction of    (I.R.S. Employer  
incorporation or organization)     Identification No.)  
  
1270 Eagan Industrial Road, St. Paul, MN       55121       
________________________________________       _____

(Address of principal executive offices)     (Zip Code)  

                      (612) 456-1400  
   (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, no par value ("Common Stock")

Based upon the $3.25 per share closing sales price of the
registrant's common stock as of January 30, 1998, the aggregate
value of the shares of Common Stock held by nonaffiliates as of
such date was approximately $8,312,385.

Common Stock - 4,914,939 shares outstanding as of March 5, 1998.

Indicate by check mark whether the registrant(1) has filed 
all reports required to be filed by Section 13 or 15(d) of the 
Securities Exchange Act of 1934 during the preceding 12 months 
(or for such shorter period that the registrant was required to 
file such reports), and (2) has been subject to such filing 
requirements for the past 90 days.  

                         YES [X]        NO [ ]  

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


<TABLE>  

                  DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference to the parts
indicated of this Annual Report on Form 10-K:

<CAPTION>

Parts of Annual Report                  Documents Incorporated
  on Form 10-K                             by Reference
_________________________________       ______________________
<S>                                     <C>

Part III

   Item 10.  Directors and              Reference is made to the
             Executive Officers         Registrant's definitive proxy
             of the Registrant.         statement ("Proxy Statement"),
                                        which will be filed with the
                                        Securities and Exchange
                                        Commission ("Commission") within
                                        120 days after December 31, 1997.

   Item 11.  Executive Compensation.    Reference is made to the 
                                        Registrant's Proxy Statement.

   Item 12.  Security Ownership of      Reference is made to the 
             Certain Beneficial         Registrant's Proxy Statement.
             Owners and Management.

   Item 13.  Certain Relationships      Reference is made to the
             and Related Transactions.  Registrant's Proxy Statement.

</TABLE>
<PAGE>

                                    PART I

    This Annual Report on Form 10-K contains forward-looking statements that 
are not statements of historical fact.  Forward-looking statements by their 
nature involve substantial risks and uncertainties, and actual results may 
differ materially from such statements.  Factors that may affect the Company's 
revenues, use of capital, expenses and/or operating profits include, but are 
not limited to, the introduction of competing products with performance 
equivalent to or exceeding that of the Company's products, a claim (whether or 
not successfully made) that the Company's products infringe a patent held by 
another company or individual, any performance problems involving the 
Company's products, changes in technology that could cause the Company's 
products to become obsolete, the departure of key members of management and/or 
key employees, and general economic conditions.

ITEM 1.  BUSINESS.

    Printware designs, builds and markets "Computer-to-Plate" systems which
are used by the printing industry to create printing plates directly
from computer data.  Computer-to-Plate systems are referred to as "Plate-
setters", which replace the traditional process of typesetting, paste-up, 
camera work and processing film.

    The key benefits of Computer-to-Plate technology are:
     - Lower costs from savings in supplies and labor
     - Faster turnaround times
     - Fewer pieces of equipment
     - Fewer environmental limitations on by-product disposal

    The heart of Printware's Platesetters is a high-resolution laser marker 
system, the key technology obtained from The 3M Company ("3M") in 1985.  The 
system is based on a resonant galvanometer, which management believes has 
certain performance advantages over conventional systems which use rotating 
multifaceted mirrors.  The Company's system uses a proprietary method where a 
mirror mounted on a resonating torsion bar, in conjunction with 
microprocessor-controlled electronics, precisely controls the laser raster 
scan.  The method was first used in Printware's laser printers, then later in 
its Platesetters.  
 
    Printware was organized in 1985 and began deliveries in 1987 of its first 
product, a high resolution laser based printer.  In 1988 Printware began 
selling its first Platesetter, based on electrostatic technology.  Printware 
subsequently expanded its product line with filmsetters and new laser 
printer models.  In 1993, however, Printware began to focus exclusively on 
Computer-to-Plate products and phased out its other product lines, resulting 
in a significant improvement in profitability. In 1995, Printware completed 
development of and began to deliver photographic (silver-halide) Platesetters) 
to serve a broader range of users.  This type of Platesetter has been marketed
since 1995 by Mitsubishi Imaging Inc. ("Mitsubishi") as the model SDP-1800.  
<PAGE>

The Company added a line of lower-cost silver-halide models in 1997 under the
Printware "PlateStream" brand name.

INDUSTRY OVERVIEW

    According to Printing Industries of America ("PIA"), a trade association,
there were approximately 52,400 printing firms in the United States in 1995.
The Company believes that most of the printing presses installed at these 
firms are small format (18" wide or less), which is the segment of 
the printing industry that the Company serves.

CUSTOMERS

    Sales to Deluxe Corporation ("Deluxe") accounted for $4.31 million, $4.12 
million and $3.50 million of revenue in 1997, 1996 and 1995, respectively, 
which constituted 61.8%, 55.5% and 41.7% of 1997, 1996 and 1995 revenue, 
respectively.  Sales to Mitsubishi, principally the SDP-1800 silver-halide
platesetter, accounted for $275,000, $1.07 million and $1.46 million of 
revenue in 1997, 1996 and 1995, respectively, which constituted 3.9%, 14.4%
and 17.5% of 1997, 1996 and 1995 revenue, respectively.  The loss of Deluxe 
or Mitsubishi as a customer, or a substantial reduction in their purchases,
would have a material adverse effect on the Company.  The Company provided 
a majority of the Platesetter supplies used by Deluxe under a multi-year 
contract that expired at the end of 1997.

    REVENUES FROM DELUXE.  The Company sells both equipment and consumable 
supplies to Deluxe.  In 1994 the Company entered into a purchase agreement 
with Deluxe under which Deluxe has agreed to purchase from the Company an 
increased, minimum annual amount of this plate material for each of the 
years 1995, 1996 and 1997 at a fixed price.  With the expiration of that 
agreement at the end of 1997, there can be no assurance that such revenues 
will not be reduced or eliminated.  The price of such sales may also be 
substantially reduced in the future, which could have a material adverse 
effect on the Company.

    During the period from 1991 to 1995, the Company sold to Deluxe various 
Platesetters, film imagers and other equipment under certain development and 
purchase order contracts.  The Company has no current commitments from Deluxe 
under these equipment contracts, except to retrofit certain Deluxe equipment 
with the results of a software research and development contract with Deluxe 
which the Company is performing.

PRODUCTS
 
    The Company makes two lines of Platesetters, silver-halide and 
electrostatic.  The Company also sells service, training, and proprietary 
supplies.
 
    SILVER-HALIDE PLATESETTERS.  These products use versatile commodity 
silver-halide plate material for a wide range of printing applications.  They
consist of two integrated modules: an imager module, where a laser "writes" 
the digital image on the plate; and a processor module, where the plate is 
developed and fixed, similar to conventional photography.  The units are 
loaded with silver-halide plate material on large rolls.  Imaged plates 
exit the machine into a tray already dried, cut to size and press-ready. 
These units are also available with integrated punches compatible with press 
registration systems.  A model for 18"-wide plates is sold by Mitsubishi under
its brand name as the SDP-1800, primarily through a network of large domestic 
graphic arts dealers.  A lower-cost silver-halide platesetter line, developed
in 1997, is sold under Printware's own PlateStream brand name.  Current 
PlateStream models include a model for 13" wide plates, and the PlateStream 
46 for 18" plates.  The Printware-branded products have started to be sold 
worldwide through a combination of direct sales and regional dealers.

<PAGE>

    ELECTROSTATIC (MODEL 1440) PLATESETTERS.  This product line has three 
models: one for economical paper-based plates; another for durable metal 
plates; and a third for either paper or metal.  The Model 1440 serves niche 
markets such as check printing, social printing, envelope printing and the 
emerging newspaper market. The units have an area to load a roll of plate 
material stock, or in the case of the metal plate version, a plate sheet 
feeder.  Imaged plates exit the machine into a tray or into optional post-
processing modules.  Electrostatic Platesetter sales have been declining 
over the years and are expected to continue to decline as printers shift to
newer technology such as silver-halide.
 
    Printware Platesetters have a speed of approximately two plates per minute,
which the Company believes is among the fastest products of their type.  The 
resolution of the Company's silver-halide Platesetters had been 1800 dots per 
inch (dpi), and was extended to 2400 dpi in 1997.  This resolution is 
suitable for medium-quality color and photographs.  The Model 1440 resolution 
is 1200 dpi, which is suitable for text, graphics and low to medium-quality 
photographs.  End-user pricing is $50,000 to $100,000 for silver-halide 
Platesetters and $80,000 to $150,000 for electrostatic Platesetters, depending
on the specific model and configuration.

    RASTER IMAGE PROCESSORS (RIPS). RIPs convert computer-based information 
into digital images which are used by Platesetters to produce printing plates.
The Company's RIPs are fully compatible with the industry-standard PostScript 
language and most popular networks.  The Company has several RIP models, sold
under its "ZAPrip" brand name, using interpreter software from leading 
developers.
 
    SUPPLIES.  Printware sells supplies for its electrostatic Platesetters,
Consisting primarily of digital plate material.  Most of these are sold in the
check-printing industry.  Weakness in this industry has had a negative impact
on supplies sales and is likely to continue to adversely affect revenues.

MARKETING
 
    From 1995 to 1997, the Company relied exclusively on Mitsubishi to market 
the Company's silver-halide Platesetters.  In 1997, in order to provide 
lower-priced products to reach a broader market, the Company introduced the
Printware PlateStream line of silver-halide Platesetters.  The Company 
launched a marketing campaign for its PlateStream silver-halide Platesetter 
designed to build Printware brand awareness with mainstream volume printers.

   The Company's goal is to significantly expand distribution of its products
in order to reach a broader customer base.  Management envisions this 
expansion taking place gradually as the Computer-to-Plate market grows.  The 
Company has begun to utilize a portion of the net proceeds of its initial 
public offering to expand its distribution by hiring additional sales and 
marketing personnel, marketing promotion, trade shows and to finance 
equipment leases.

RESEARCH AND DEVELOPMENT
 
    In 1997 the Company's research and development focused primarily on the 
development of its new PlateStream line of Platesetters.  With that effort 
substantially complete, the Company has programs underway or planned
to add more performance and functionality to its Platesetters.  The 
Company believes that these programs are necessary to maintain its 
competitive advantage.
<PAGE>

COMPETITION
 
    The growth in the Computer-to-Plate business has attracted considerable 
competition.  The Company's competitors and potential competitors are 
established companies that have significantly greater financial, technical and 
marketing resources than the Company.  There can be no assurance that the 
Company's competitors will not succeed in developing and marketing products 
which perform better and are less expensive than the Company's products, or 
that will render the Company's products and technology obsolete or 
noncompetitive in other ways.  The Company divides its competition into four 
categories: other Platesetters; film imagers; enhanced xerographic/laser 
printers; and supplies competitors.
 
    OTHER PLATESETTERS.  The Company faces significant competition from other 
silver-halide Platesetters.  Management believes the most significant of these
competitors include A. B. Dick Company and Purup-Eskofot A/S. The Company 
believes that its advantages over those products include higher speed, less 
plate waste, and high-speed integrated punching.  There are many competitive 
Platesetters that use metal plates.  Some of these products compete with the 
metal-plate versions of the Company's electrostatic Platesetters, as well as 
providing an alternative to the Company's silver-halide Platesetters.  Most 
of the competitive devices are relatively expensive and use expensive 
supplies.  Most competitive metal Platesetters are geared towards high-end 
color printing.  Printware's products are focused at mainstream, smaller 
presses and mid-range quality, which management believes currently accounts 
for most printing.

<PAGE>

    FILM IMAGERS.  Digital film imagers are used in the traditional multi-step 
platemaking process being obviated by Platesetters.  Several film imager 
manufacturers are attempting to adapt film imagers to image plates directly.
Competitors in this category include the Agfa division of Bayer Corp., 
PrePress Systems and ECRM Incorporated.  From discussions with customers, the 
Company believes that such "plate-enabled" film imagers represent a slow, 
awkward approach, compared to the Company's Platesetters.  The Company's 
systems are self-contained, providing so-called "dry-to-dry" operation.  The 
Company's Platesetters are faster than most film imagers and, unlike film 
imagers, have virtually no plate waste.
 
    XEROGRAPHIC/LASER PRINTERS.  Enhanced xerographic/laser printers can 
replace offset printing in certain applications, but are currently limited to 
lower-quality applications such as overseas check printing and low-quality 
business forms.  These devices also have a higher variable cost per impression 
than Computer-to-Plate technology.  Companies in this area include Check 
Technology Corporation, Delphax Systems and Xerox Corporation.  Management 
believes that competitors in this area are making efforts to improve the 
quality and reduce the cost of their systems, and there can be no assurance 
that systems marketed by the Company will sustain their advantage.
 
    SUPPLIES COMPETITION.  Printware has competitors which sell plate supplies
for the Company's electrostatic Platesetters.  The most significant 
competitive material is made by a Japanese paper mill and sold through a U. S.
distributor.  There have also been several less significant competitors in 
this market from time to time. Printware has addressed the competitive threat 
with lower prices where appropriate and programs to improve the quality and 
consistency of its supplies.  The Company believes that competitive materials 
are inferior to Printware supplies in certain respects, such as image quality
and dimensional stability, but not inferior in other respects.  The Company 
does not see long-term growth potential in this market, and anticipates 
continued competitive pricing pressure in its supplies business.

PROPRIETARY RIGHTS
 
    PATENTS AND TRADE SECRETS.  Printware's policy is to attempt to protect 
its technology by seeking patents, maintaining certain trade secrets and 
continuing technological innovation.  As of December 31, 1997, the Company had 
rights to 19 patents, consisting of 13 granted to Printware and six licensed 
from 3M.  The 3M patents expire between 2002 and 2004; the royalties which the 
Company paid to 3M in 1997, 1996, and 1995 for licenses of these patents were 
not material to the Company.  The Company's own patents begin to expire in 
2004.  In addition to patents, the Company relies on trade secrets and other 
unpatented proprietary technology.  Printware seeks to protect its trade 
secrets and proprietary know-how with confidentiality agreements with 
employees and suppliers.  There can be no assurance that the Company's patent 
portfolio will provide a competitive advantage in the future, or that the 
Company's agreements will adequately protect its trade secrets.

PRODUCT SUPPLY AGREEMENTS

    The Company has non-exclusive rights to raster image processing software 
used in the ZAPrip and to the plate processor module used in its silver-halide
Platesetters.  The Company has the exclusive right to sell the proprietary 
plate materials made by its suppliers.  All of the product supply agreements 
<PAGE>

to which the Company is a party can be canceled by either party under certain 
circumstances.  Such cancellation would seriously jeopardize the Company's 
ability to provide products that are critical to the Company's revenues.

SUPPLIERS

    The Company has a number of single source suppliers for materials that are
critical to production of its products.  These include the suppliers of the 
Company's Model 1440 paper plate material, Model 1440 metal plate material, 
Model 1440 liquid toner and certain key components used in Platesetters, 
and/or ZAPrip raster image processors.   Any significant interruption of 
supply from any of these vendors would have a material adverse effect on 
the Company.

ITEM 2.  PROPERTIES
 
    Printware's manufacturing operation consists of the assembly, integration, 
testing and quality audits of equipment.  The Company purchases all of its 
supplies and many of the hardware components it uses from third-party vendors, 
some of which are single-source vendors.  Printware's principal manufacturing 
areas include laser markers, transport mechanisms, electronics/RIPs and final 
assembly/test.  Printware makes extensive use of computer-aided design and 
transmits most of its fabricated part drawings to its suppliers 
electronically.  The Company believes that this use of technology shortens 
turnaround time and improves quality.
 
    Printware's offices and manufacturing facility are located at 1270 Eagan 
Industrial Road, St. Paul, Minnesota.  The Company occupies 35,410 square feet 
pursuant to a lease which expires July 31, 2005.  The lease was amended 
February 6, 1998 after the financial report date.  Management believes that 
this facility will be adequate for Printware's needs until the expiration of
the lease. Monthly rent expense is currently $7,029 but increases to $13,131
on August 1, 1998, based on the February 6, 1998 amendment plus a pro-rata 
share of real estate taxes and common area maintenance.

EMPLOYEES

    As of December 31, 1997, Printware had 42 employees, including 38 full-
time employees and 4 part-time or contract employees.  Of the 38 full-time 
employees, 12 were in manufacturing, 9 were in marketing, sales and customer 
service, 10 were in research and development and 7 were in general and 
administrative functions.  Management considers the future success of the 
Company to be dependent in part upon its continued ability to maintain a 
highly-skilled workforce and to attract, motivate and retain qualified 
employees.  No Printware employees are covered by collective bargaining 
agreements and the Company considers its relationship with its employees 
to be good.
 
ITEM 3.  LEGAL PROCEEDINGS.
 
    The Company is involved in various legal actions in the normal course of 
business.  Management is of the opinion that the outcome of such actions will 
not have a significant effect on the Company's financial position or its 
results of operations.

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

    No matters were submitted to security holders during the fourth quarter of 
1997.
<PAGE>

                                  PART II

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

    The Company's Common Stock is traded on the Nasdaq National Market, under
the symbol PRTW. The high and low closing interdealer sales prices for each 
quarter since trading commenced on July 2, 1996 are as follows: first quarter
1997 high of $4.50 and low of $3.875; second quarter 1997 high of $4.25 and 
a low of $3.125; third quarter 1997 high of $5.00 and low of $3.25; fourth 
quarter 1997 high of $4.92 and low of $3.25; third quarter 1996 high of 
$6.63 and low of $4.88; fourth quarter 1996 high of $5.00 and low of $4.50.

    As of December 31, 1997 the Company had approximately 200 
shareholders of record and approximately 1,200 beneficial shareholders.

    The Company has not paid and does not presently intend to pay any 
dividends on its Common Stock.
<PAGE>

<TABLE>
ITEM 6.  SELECTED FINANCIAL DATA.
    The following selected financial information is qualified by and should be 
read in conjunction with the Company's financial statement and notes thereto 
included elsewhere in this Annual Report on Form 10-K.

                                                Years Ended December 31,                    
                                ____________________________________________________________
                                   1997        1996       1995         1994         1993    
                                __________  __________  __________  __________   ___________
<S>                             <C>         <C>         <C>         <C>          <C>        
Statement of Operations Data:
Revenues from nonaffiliates     $2,672,051  $3,299,499  $4,889,761  $3,775,958   $ 4,348,484
Revenues from affiliates         4,314,111   4,116,536   3,498,387   2,850,967     2,948,000
                                __________  __________  __________  __________   ___________
Total revenues                   6,986,162   7,416,035   8,388,148   6,626,925     7,296,484
Cost of revenues                 3,912,367   4,350,696   5,003,956   4,102,401     5,344,519
                                __________  __________  __________  __________   ___________
  Gross Profit                   3,073,795   3,065,339   3,384,192   2,524,524     1,951,965

Research and development
  expenses                         865,392     789,824     757,131     956,807     1,314,355
Selling, general and 
  administrative expenses        1,241,823     982,250   1,072,878     945,533     1,851,507
                                __________  __________  __________  __________   ___________
Income (loss) from operations      966,580   1,293,265   1,554,183     622,184    (1,213,897)
Other income (expense) net         780,289     429,027     261,742      22,918        10,299
                                __________  __________  __________  __________   ___________
Income before income taxes 
  and extraordinary item         1,746,869   1,722,292   1,815,925     645,102    (1,203,598)
Income tax (benefit) expense      (412,100)   (661,112)     22,500       2,000         1,109
                                __________  __________  __________  __________   ___________
Income (loss) before extra- 
  ordinary item (1)              2,158,969   2,383,404   1,793,425     643,102    (1,204,707)
Extraordinary income                    --          --          --     140,927            --
                                __________  __________  __________  __________   ___________
Net income (loss)               $2,158,969  $2,383,404  $1,793,425  $  784,029   $(1,204,707)
                                ==========  ==========  ==========  ==========   ===========
Net income (loss) per common
share:
  Basic                         $      .44  $      .56  $      .48  $      .21   $      (.33)
                                ==========  ==========  ==========  ==========   ===========
  Diluted                       $      .44  $      .56  $      .49  $      .21   $      (.33)
                                ==========  ==========  ==========  ==========   ===========
Weighted average common shares
outstanding - Basic              4,875,054   4,226,504   3,626,437   3,618,040     3,614,751
                                ==========  ==========  ==========  ==========   ===========

Weighted average common shares
outstanding (2) - Diluted        4,889,195   4,237,629   3,699,814   3,680,934     3,633,942
                                ==========  ==========  ==========  ==========   ===========

                                                        December 31,                        
                                ____________________________________________________________
                                   1997       1996        1995       1994         1993    
                                __________  __________  __________  ___________  ___________
                                <C>         <C>         <C>         <C>          <C>
Balance Sheet Data:
Cash and cash equivalents       $  347,819  $  231,708  $2,568,852  $  860,668   $ 1,288,821
Current assets                  15,360,571  14,304,514   5,087,328   3,255,959     4,371,149
Working capital                 14,451,317  12,979,851   4,151,595   2,292,562     1,441,554
Total assets                    16,547,379  14,574,989   5,252,401   3,476,928     4,633,747
Shareholders' equity            15,638,125  13,250,326   4,316,668   2,513,531     1,704,152
<FN>
(1) The 1994 net income includes an extraordinary item of $140,927 consisting of a gain on
extinguishment of debt.  The net income per common share basic and diluted attributable to
such extraordinary gain was $.04 and $.04, respectively.
(2) EPS was restated for years prior to 1997.  See Note 1 to the financial statements for an
explanation of the determination of weighted average common shares outstanding.

</FN>
</TABLE>
<PAGE>  


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

                 RESULTS OF OPERATIONS FOR THE 12 MONTHS ENDED
                  DECEMBER 31, 1997 AND DECEMBER 31, 1996

MANAGEMENT'S DISCUSSION AND ANALYSIS

Introduction

    This discussion summarizes significant factors that affected the operating 
results and financial condition of Printware, Inc. for the three years ended 
December 31, 1997.  References to earnings per share are of the "Basic" type as 
defined by SFAS 128.  The Company recorded income tax benefits of $450,000 and
$730,000 in the fourth quarters of 1997 and 1996, respectively.  The tax 
benefits were due to reductions of the valuation allowance relating to 
deferred tax assets.  These tax benefits were based on the combination of the
Company's recent profit-ability and its net operating losses incurred from 
its formation in 1985 until turning profitable in 1994.  The Company completed
its initial public offering (IPO) in July 1996, which resulted in net proceeds
of $6.38 million.

    Statements made in this report concerning the Company's or management's 
intentions, expectations or predictions about future results or events are 
"forward-looking statements" within the meaning of the Private Securities 
Reform Act of 1995.  Such statements are necessarily subject to risks and 
uncertainties that could cause actual results to vary from stated expectations,
and such variations could be material and adverse.

Overall Summary

    Despite an increase of 25% in platesetter sales led by the new PlateStream
models, revenues in 1997 decreased 6% from 1996.  This decrease was primarily 
due to a decline in sales of supplies used in the Company's original model 
1440 platesetters by customers in the consolidating check-printing industry.
Pretax income in 1997 was $1.75 million, up from $1.72 million in 1996.  Net 
income in 1997 was $2.16 million including a net income tax benefit of 
$412,000, compared to $2.38 million including a net income tax benefit of 
$661,000 in 1996.  Basic earnings per share were $.44 in 1997, compared to 
$.56 in 1996, the year of the IPO.  Shareholders' equity increased to $15.6 
million from $13.3 million in 1996.

Results of Operations

    The table shown below summarizes the percentage of revenues for various 
items in the Company's statements of operations for the periods indicated.

<PAGE>

<TABLE>
<CAPTION>   
                                              Years Ended December 31,      
                                       _____________________________________
                                         1997           1996          1995 
                                       _______        _______        _______
<S>                                    <C>            <C>            <C>    

Revenues from nonaffiliates               38.2%          44.5%         58.3%
Revenues from affiliates                  61.8           55.5          41.7
                                       _______        _______        _______
Total revenues                           100.0          100.0         100.0
Cost of revenues                          56.0           58.7          59.7
                                       _______        _______        _______
Gross margin                              44.0           41.3          40.3

Research and development                  12.4           10.7           9.0
Selling, general and administrative       17.8           13.2          12.8
                                       _______        _______        _______
Income from operations                    13.8           17.4          18.5
Other income, net                         11.2            5.8           3.1
                                       _______        _______        _______
Income before income taxes                25.0           23.2          21.6
Income taxes (benefit)                    (5.9)          (8.9)          0.2
                                       _______        _______        _______
Net income                                30.9%          32.1%         21.4%
                                       =======        =======        =======
</TABLE>

    Revenues--Total 1997 revenues decreased 6% to $6.99 million from 
$7.42 million in 1996, after a decrease of 12% from $8.39 million in 1995.
The 1997 decrease was primarily due to a reduction of supplies sales to 
customers in the consolidating check-printing industry.  Supplies revenues 
in 1997 were down 10% compared to 1996, which in turn were up 7% over 1995.
Supplies declined to about 61% of 1997 total revenues compared to 64% and 
55% in 1996 and 1995, respectively.  Platesetter revenues were up a strong 
25% mostly due to the new PlateStream and PlateStream 46 models.  Sales to 
Mitsubishi of their private-label platesetter were 4% of total revenues 
compared to 10% in 1996 and 20% in 1995.  Nonaffiliate revenues in 1997 
decreased $630,000 from 1996 after a decrease of $1.59 million from 1995.
Affiliate revenues increased $200,000 over 1996 following an increase of 
$618,000 over 1995 due to increases of a mix of products, supplies and 
services.

    Gross margin--Gross margin increased to 44% in 1997 compared to 41%
in 1996 and 40% in 1995.  Tight expenditure control and a shift in product
mix towards higher-margin PlateStreams away from lower-margin supplies and
Mitsubishi platesetters was primarily responsible for the increase.  

    Research and development (R&D)--R&D expenses in 1997 increased $75,000
or 9% over 1996, which in turn showed an increase of $33,000 or 4% compared
to 1995.  The increased expenses in 1997 were due to the design of both
PlateStreams and their introduction into production.  In 1996 the Company
began the PlateStream design after the mid-year IPO.
<PAGE>

    Selling, general and administrative (SG&A)--SG&A expenses in 1997 
increased $260,000 or 26% over 1996 after a decrease of $91,000 or 8% 
from 1995.  The bulk of the changes were due to marketing and sales 
activities.  Selling expenses in 1997 increased $273,000 over 1996 
following a $65,000 decrease compared to 1995. The 1997 increase 
was due to investment spending on PlateStream marketing and sales 
activities.  The decrease in 1996 was largely due to reduced promotion/
trade show expenses and commissions.

    Other income (expense)--Other income in 1997 was $780,000 compared to
$429,000 and $262,000 in 1996 and 1995, respectively.  The 1997 increase
was due to a full year's interest earned on the investment of the IPO
proceeds and the excess cash from operations. The increase in 1996 was 
mostly due to additional interest following the IPO. 

    Income tax (benefit) expense--In 1997 the Company recognized an income 
tax benefit that resulted in a net tax benefit of $412,000, compared to a 
net tax benefit of $661,000 and a tax expense of $23,000 in 1996 and 1995,
respectively.  The tax benefits were realized from reductions of the valuation
allowance relating to deferred tax assets.

    Net income--Net income increased to $2.16 million compared to $2.38 
million in 1996 and $1.79 million in 1995.  The decrease in 1997 was due to
a lower income tax benefit compared to 1996, as pretax income was up $25,000
over 1996.

Financial Condition

    Liquidity--Cash provided by operating activities was $1.44 million in 
1997, compared to $1.71 million in 1996 and $1.72 million in 1995.  Working 
capital was $14.5 million at December 31, 1997 compared to $13.0 million and 
$4.15 million on that date in 1996 and 1995, respectively.  The 1997 current 
ratio was 17 to 1, compared to 10 to 1 for 1996 and 5 to 1 for 1995.
The increases came from operating profits, IPO proceeds, and interest income.

    Capital Resources--The Company had no long-term debt or lines of credit 
as of December 31, 1997 as it believes its working capital is adequate for its 
current needs.

    Outlook--The Company foresees a continuing revenue shift from supplies for 
its original model 1440 platesetters.  Success of the new PlateStream line of 
platesetters is seen as critical to the Company's future revenues and profit-
ability.  The PlateStreams will generate after-market service revenues, with 
no supplies sales anticipated.  The Company plans to significantly increase 
its investment spending to expand distribution of the PlateStreams, and to 
continue to add additional products using incremental innovation over the next
several years.  The new leasing division was formed to help grow sales of 
PlateStreams by offering favorable rates through use of the Company's 
strong balance sheet.  The resulting sales-type leases will be recognized 
as revenue as if purchases had occurred, with interest revenues spread over 
the multi-year terms of the leases.  If the Company improves its profitability, 
it will recognize future income tax benefits relating to deferred tax assets.

    The Company has conducted a review of its computer systems to identify 
those areas that could be affected by the "Year 2000" issue.  The Company 
presently believes, with modification to existing software, the Year 2000 
problem will not pose significant operational problems and the costs are not
anticipated to be material to its financial position or results of operations 
in any given year.

    The accompanying financial statements and related information are the 
responsibility of management.  They have been prepared in conformity with 
generally accepted accounting principles and include amounts that are based 
on our best estimates and judgments.  The financial information contained 
elsewhere in this report is consistent with that in the financial statements.

    The Company maintains internal accounting control systems that are 
adequate to provide reasonable assurance that the assets are safeguarded from
loss or unauthorized use.  These systems produce records adequate for 
preparation of financial information.

<PAGE>

    The audit committee has reviewed all financial data included in this 
report.  The audit committee is composed entirely of independent directors and
meets periodically with management and with the independent auditors on 
financial reporting matters.

    The role of the independent auditors is to render an independent, 
professional opinion on management's financial statements as required by 
generally accepted auditing standards.

<TABLE>
<CAPTION>

                            QUARTERLY RESULTS OF OPERATIONS

                       FIRST       SECOND        THIRD       FOURTH
                      QUARTER      QUARTER      QUARTER      QUARTER
                      _______      _______      _______      _______
<S>                   <C>          <C>          <C>          <C>
      1997
Revenue               $ 1,847      $ 1,925      $ 1,623      $ 1,591
Cost of Revenues        1,041        1,054          892          925
                      _______      _______      _______      _______
Gross Profit              806          871          731          666
Operating Income          265          299          194          209
                      _______      _______      _______      _______
Net Income                460          495          388          816
                      =======      =======      =======      =======
Per Share-Basic       $   .09      $   .10      $   .08      $   .17
                      =======      =======      =======      =======
Average Shares
Outstanding             4,852        4,853        4,889        4,908
                      =======      =======      =======      =======

      1996
Revenue               $ 1,832      $ 1,897      $ 1,676      $ 2,011
Cost of Revenues        1,110        1,002          966        1,273
                      _______      _______      _______      _______
Gross Profit              722          895          710          738
Operating Income          305          441          261          286
                      _______      _______      _______      _______
Net Income                331          464          405        1,183
                      =======      =======      =======      =======
Per Share-Basic       $   .09      $   .13      $   .08      $   .24
                      =======      =======      =======      =======
Average Shares
Outstanding             3,629        3,630        4,801        4,850
                      =======      =======      =======      =======

(1) During the fourth quarter 1997 and 1996, the company recorded a $450,000
and $730,000 income tax benefit from the reduction of the deferred tax asset
valuation allowance.
(2) Earnings per share amounts presented for 1996 and 1995 have been 
restated for the adoption of SFAS 128.

</TABLE>
<PAGE>

ITEM 8.  FINANCIAL STATEMENT AND SUPPLEMENTARY DATA.

    See Financial Statements and Notes.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE.

    There have been no changes in, or disagreements with, the accountants for 
the Company which require reporting under Item 9.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required by Item 10 is incorporated herein by reference 
to the sections entitled "Item 1:  Election of Directors" contained in the 
Company's proxy statement to be filed with the Securities and Exchange 
Commissions (the "Commission") within 120 days of December 31, 1997 (the 
"Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION.

    The information required by Item 11 is incorporated herein by reference to 
the section following "Compensation Committee Report on Executive 
Compensation" contained in the Company's Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    The information required by Item 12 is incorporated herein by reference to 
the section entitled "Security Ownership Of Certain Beneficial Owners and 
Management" contained in the Company's Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.

    The information required by Item 13 is incorporated herein by reference to 
the section entitled "Meetings and Compensation of Directors" contained in the 
Company's Proxy Statement.

                                    PART IV

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

    No Current Reports on Form 8-K were filed by the Company during the 
fourth quarter ended December 31, 1997.

    The following exhibits are hereby incorporated into this Annual Report on 
Form 10-K by reference to exhibits with the same exhibit number filed with the 
Company's Registration Statement on Form S-1 (Commission file No. 333-03629), 
as amended, which became effective on July 2, 1996 ("Registration Statement"):

Exhibits
   Exhibit 23.  Independent Auditors' Consent

   Exhibit 27.  Financial Data Schedule
<PAGE>

                          PRINTWARE, INC. 

                            SIGNATURES  

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

Date:  March 11, 1997            /s/ DANIEL A. BAKER
                                     ________________________ 
                                     Daniel A. Baker, Ph.D.,
                                     PRESIDENT
                                     & CHIEF EXECUTIVE OFFICER 
                                     (Principal Executive Officer)  

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

<TABLE>
<CAPTION>

    Name                          Title                         Dates
    _____________________         _______________               ______________
<S> <C>                           <C>                           <C>

/s/ Daniel A. Baker               President & Chief             March 11, 1998
 -  --------------------------    Executive Officer
    Daniel A. Baker               (Principal Executive Officer) ______________

/s/ Thomas W. Petschauer          Executive Vice President      March 11, 1998
 -  --------------------------    & Chief Financial Officer
    Thomas W. Petschauer          (Principal Financial Officer) ______________

/s/ Allen L. Taylor               Co-Chairman of the Board      March 11, 1998
 -  --------------------------                                  ______________
    Allen L. Taylor

/s/ Donald V. Mager               Co-Chairman of the Board      March 11, 1998
 -  --------------------------                                  ______________
    Donald V. Mager

/s/ Brian D. Shiffman             Secretary                     March 11, 1998
 -  --------------------------                                  ______________
    Brian D. Shiffman

/s/ Cordell E. Lomen              Controller                    March 11, 1998
 -  --------------------------                                  ______________
    Cordell E. Lomen

</TABLE>
<PAGE>

INDEPENDENT AUDITORS' REPORT

To The Board of Directors and Shareholders of Printware, Inc.:

We have audited the accompanying balance sheets of Printware, Inc. (the 
Company) as of December 31, 1997 and 1996 and the related statements of 
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997.  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 in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial 
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements present fairly, in all material 
respects, the financial position of Printware, Inc. at December 31, 1997 and
1996 and the results of its operations and its cash flows for each of the 
three years in the period ended December 31, 1997, in conformity with 
generally accepted accounting principles.




Deloitte & Touche LLP
________________________

Minneapolis, Minnesota
January 23, 1998

<PAGE> 

<TABLE>         
                            PRINTWARE, INC. 
                            BALANCE SHEETS  
                      DECEMBER 31, 1997 and 1996
<CAPTION>  
                                               December 31,      December 31,
                                                  1997              1996
                  ASSETS                       ____________      ___________ 
<S>                                            <C>               <C> 
CURRENT ASSETS:
  Cash and cash equivalents                    $   347,819       $   231,708 
  Investments                                   11,867,661        10,558,752 
  Receivables from nonaffiliates                   564,568           693,347 
  Receivables from affiliates                      359,619           467,036 
  Inventories                                    1,941,634         1,762,795 
  Prepaid expenses                                  14,849            40,034 
  Deferred income taxes                            264,421           550,842 
                                               ___________       ___________ 
Total Current Assets                            15,360,571        14,304,514 

PROPERTY AND EQUIPMENT, net of accumulated 
 depreciation and amortization                     134,965           109,239 

INTANGIBLE ASSETS, net of accumulated 
 amortization                                       28,078            31,236 
LEASE RECEIVEABLES--LONG TERM                      173,765                -- 
DEFERRED INCOME TAXES                              850,000           130,000 
                                               ___________       ___________ 
TOTAL ASSETS                                   $16,547,379       $14,574,989
                                               ===========       ===========
<CAPTION>  
                  LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                            <C>               <C>         
CURRENT LIABILITIES:
  Accounts payable                             $   457,200       $   521,486 
  Accrued expenses                                 412,017           453,449 
  Deferred revenues                                 40,037           349,728 
                                               ___________       ___________ 
    Total Current Liabilities                      909,254         1,324,663 

COMMITMENTS AND CONTINGENCIES 

SHAREHOLDERS' EQUITY:
  Preferred Stock, no specified par value;
   1,000,000 shares authorized; 
   none issued and outstanding                          --                -- 

  Common Stock, no par value, authorized 
   15,000,000 shares: issued and outstanding
   4,914,939 and 4,850,694 at 
   December 31, 1997, and 1996, respectively    22,174,940        21,984,596 
  Accumulated deficit                           (6,655,097)       (8,814,066) 
  Unearned compensation on stock options            (3,507)          (11,497) 
  Net unrealized gain on available-
   for-sale securities                             121,789            91,293 
                                               ___________       ___________ 
    Total shareholders' equity                  15,638,125        13,250,326 
                                               ___________       ___________ 
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY     $16,547,379       $14,574,989 
                                               ===========       =========== 
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>

<TABLE>  
                              PRINTWARE, INC.  
                         STATEMENTS OF OPERATIONS  
               YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995  

<CAPTION>  
                                               Years Ended December 31     
                                       ____________________________________
                                          1997         1996         1995    
                                       __________   __________   __________ 
<S>                                    <C>          <C>          <C>        
REVENUES FROM NONAFFILIATES            $2,672,051   $3,299,499   $4,889,761 
REVENUES FROM AFFILIATES                4,314,111    4,116,536    3,498,387 
                                       __________   __________   __________ 
TOTAL REVENUES                          6,986,162    7,416,035    8,388,148 
COST OF REVENUES                        3,912,367    4,350,696    5,003,956 
                                       __________   __________   __________ 
GROSS MARGIN                            3,073,795    3,065,339    3,384,192 

OPERATING EXPENSES:
  Research and development                865,392      789,824      757,131 
  Selling, general and administrative   1,241,823      982,250    1,072,878 
                                       __________   __________   __________ 
    Total                               2,107,215    1,772,074    1,830,009 
                                       __________   __________   __________ 
INCOME FROM OPERATIONS                    966,580    1,293,265    1,554,183 
OTHER INCOME (EXPENSE):
  Net gain on arbitration award                --           --      192,335
  Interest expense                             --         (236)      (3,333) 
  Interest and other income               780,289      429,263       72,740
                                       __________   __________   __________ 
INCOME BEFORE INCOME TAXES
  AND EXTRAORDINARY ITEM                1,746,869    1,722,292    1,815,925 
INCOME TAX (BENEFIT) EXPENSE             (412,100)    (661,112)      22,500 
                                       __________   __________   __________ 

NET INCOME                              2,158,969    2,383,404    1,793,425 
                                       ==========   ==========   ========== 

NET INCOME PER COMMON SHARE:  
 BASIC                                 $      .44   $      .56   $      .49 
                                       ==========   ==========   ========== 

 DILUTED                               $      .44   $      .56   $      .48 
                                       ==========   ==========   ========== 

WEIGHTED AVERAGE COMMON SHARES 
  OUTSTANDING - BASIC                   4,875,054    4,226,504    3,626,437 
                                       ==========   ==========   ========== 

WEIGHTED AVERAGE COMMON SHARES 
  OUTSTANDING - DILUTED                 4,889,195    4,237,629    3,699,814
                                       ==========   ==========    ========= 

<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>


<TABLE>
                                             PRINTWARE, INC.
                                    STATEMENTS OF SHAREHOLDERS' EQUITY
                               YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
                                                                     Unearned     Net unrealized
                                                                   compensation   gain on avail-
                             Common Stock           Accumulated     on stock      able-for-sale
                           Shares       Amount        deficit       options        securities
                         _________    ___________   ____________   ____________   ______________
<S>                      <C>          <C>           <C>            <C>            <C>
BALANCE AT 12/31/94      3,623,776    $15,504,426   $(12,990,895)  $         --   $           --
Shares issued pursuant to
 exercise of stock options     737          2,212             --             --               --
Shares issued for 
 services performed for
 the Company                 2,500          7,500             --             --               --
Net income                      --             --      1,793,425             --               --
                        __________    ___________   ____________   ____________   ______________

BALANCE AT 12/31/95      3,627,013     15,514,138    (11,197,470)            --               --
Shares issued in public
 Offering (net of issuance
 cost of $822,447)       1,200,000      6,377,553             --             --               --
Shares issued pursuant to
 exercise of stock options  42,455        127,365             --             --               --
Shares redeemed and 
 retired                   (21,274)      (113,922)            --             --               --
Shares issued for 
 services performed for
 the Company                 2,500          7,500             --             --               --
Compensation on issuance
 of stock options               --         71,962             --        (71,962)              --
Stock option compensation
 earned                                                                  60,465                 
Unrealized gain on 
 available-for-sale 
 securities, net of tax         --             --             --             --           91,293
Net income                      --             --      2,383,404             --               --
                        __________    ___________   ____________   ____________   ______________

BALANCE AT 12/31/96      4,850,694     21,984,596     (8,814,066)       (11,497)          91,293
Shares issued pursuant
 to employee stock 
 purchase plan              18,943         51,757             --             --               --
Shares issued pursuant
 to exercise of 
 stock options              40,302        123,587             --             --               --
Shares issued pursuant
 to exercise of warrants     5,000         15,000             --             --               --
Stock option compensation
 earned                         --             --             --          7,990               --
Unrealized gain on 
 available-for-sale
 securities, net of tax         --             --             --             --   $       30,496
Net income                      --             --      2,158,969             --               --
                        __________    ___________    ___________   ____________   ______________
BALANCE AT 12/31/97      4,914,939    $22,174,940    $(6,655,097)  $     (3,507)  $      121,789
                        ==========    ===========    ============  ============   ==============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>


<TABLE>  
                            PRINTWARE, INC. 
                        STATEMENTS OF CASH FLOWS 
             YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 

<CAPTION>   
                                             Years Ended December 31,      
                                      _______________________________________
                                         1997          1996          1995   
                                      ___________   ___________   ___________
<S>                                   <C>           <C>           <C>        

OPERATING ACTIVITIES:
Net income                            $ 2,158,969   $ 2,383,404   $ 1,793,425
Adjustments to reconcile net income
  to net cash provided by
  operating activities:
  Depreciation and amortization            56,913        63,653        71,271
  Common Stock issued for services             --         7,500         7,500
  Stock option compensation earned          7,990        60,465            --
  Gain on sale of available-for-sale
    securities                                 --       (19,502)           --
  Deferred income taxes                  (450,000)     (730,000)           --
  Changes in operating assets and 
    liabilities:
    Receivables from nonaffiliates        128,779      (182,262)     (234,795)
    Receivables from affiliates           107,417      (204,381)      (31,003)
    Inventories                          (178,839)      (35,453)      116,356 
    Prepaid expenses                       25,185       (22,640)       26,257 
    Accounts payable                      (64,286)       84,634        (8,207)
    Accrued expenses                      (41,432)      (15,659)      126,120 
    Deferred revenues                    (309,691)      319,955      (145,577) 
                                      ___________   ___________   ___________ 
  Net cash provided by
    operating activities                1,441,005     1,709,714     1,721,347 

INVESTING ACTIVITIES:
  Purchases of available-for-sale 
    securities                         (2,521,355)  (12,912,217)           -- 
  Sale of available-for-sale 
    securities                          1,259,363     2,513,418            -- 
  Increase in lease receivables          (173,765)           --            -- 
  Purchases of property and equipment     (79,481)      (39,055)      (15,375) 
                                       ___________   ___________   ___________
  Net cash used in
    investing activities               (1,515,238)  (10,437,854)      (15,375)

FINANCING ACTIVITIES:
  Proceeds from issuance of
    Common Stock                          190,344     6,504,918         2,212
  Common Stock redeemed and retired            --      (113,922)           -- 
                                      ___________   ___________   ___________ 
  Net cash provided by financing
    activities                            190,344     6,390,996         2,212
                                      ___________   ___________   ___________ 
NET INCREASE (DECREASE) IN CASH 
  AND CASH EQUIVALENTS                    116,111    (2,337,144)    1,708,184

CASH AND CASH EQUIVALENTS, 
  BEGINNING OF YEAR                       231,708     2,568,852       860,668 
                                      ___________   ___________   ___________ 
CASH AND CASH EQUIVALENTS, 
  END OF YEAR                         $   347,819   $   231,708   $ 2,568,852
                                      ===========   ===========   ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
  Cash paid during the period for:
    Interest                          $        --   $       236   $     3,333
                                      ===========   ===========   ===========
    Income taxes                      $    35,900   $    75,900   $    15,488
                                      ===========   ===========   ===========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE> 


                                 PRINTWARE, INC.  
                          NOTES TO FINANCIAL STATEMENTS 

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 
1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business
Printware, Inc. ("Printware" or the "Company") designs, builds and markets 
"Computer-to-Plate" systems that are used by the offset printing industry to
create printing plates directly from computer data.  These systems replace the 
traditional process of typesetting, paste-up, camera work and processing film 
to produce a printing plate.

Revenue Recognition
Revenue for equipment and supply sales is recognized at the time of shipment 
to customers.  Revenue from sales-type leases is recognized at the time of
customer acceptance.  Revenue from development projects and their related costs 
are recognized as the work is performed.  Revenue related to installation, 
training and support is recognized when the services are performed.  Revenue 
from development projects, installation, training and support is less than 10% 
of total revenues for the years ended December 31, 1997, 1996 and 1995.

Net Income Per Common Share
For earnings per common share in 1997 the Company adopted Statement of 
Financial Accounting Standard No. 128 (SFAS 128), "Earnings per Share".  
Earnings per share amounts presented for 1996 and 1995 have been restated 
for the adoption of SFAS 128.  SFAS 128 requires the disclosure of Basic and
Diluted Earnings per Share (EPS).  Basic EPS is calculated using income 
available to common shareholders divided by the weighted average common 
shares outstanding during the year.  Diluted EPS is similar to Basic EPS 
except that the weighted average common shares outstanding is increased 
to give effect to all dilutive potential common shares that were outstanding
during the period.  The total weighted average common shares outstanding 
has been adjusted to give effect to the reverse stock split authorized by
the Company's shareholders effective April 25, 1996.  See table below.

<TABLE>
<CAPTION>
                                              1997            1996            1995
                                          ___________     ___________     ___________
<S>                                       <C>             <C>             <C>
Income available to common shareholders   $ 2,158,969     $ 2,383,404     $ 1,793,425
                                          ===========     ===========     ===========
Weighted average shares outstanding         4,875,054       4,226,504       3,626,437
                                          ===========     ===========     ===========
Basic EPS                                 $       .44     $       .56     $       .49
                                          ===========     ===========     ===========

Weighted average  shares
  outstanding                               4,875,054       4,226,504       3,626,437
Dilutive shares issuable from stock
  options                                      14,141          11,125          73,377
                                           __________     ___________      __________
Total shares                                4,889,195       4,237,629       3,699,814
                                           ==========     ===========      ==========
Diluted EPS                                $      .44     $       .56      $      .48
                                           ==========     ===========      ==========


Combined options and warrants to purchase 452,270, 421,159 and nil shares of
common stock at exercise prices of $4.63 to $7.20 were outstanding during 1997,
1996, and 1995, respectively, but were not included in the computation of the
diluted EPS because the options' exercise price was greater than the average
market price of the common shares.

Cash Equivalents
Cash equivalents consist primarily of investments in commercial paper and 
certificates of deposit, which have original maturities of three months or 
less.

Investments
The Company classifies and accounts for debt and equity securities in 
accordance with (SFAS) No. 115, "Accounting for Certain Investments in Debt 
and Equity Securities".  The Company's portfolio is classified as available 
for sale; thus, securities are recorded at fair market value and any 
associated unrealized gain or loss, net of tax, is included as a separate 
component of shareholders' equity, "Net unrealized gain on available-for-sale
securities."  Gains or losses on securities are computed based on the cost 
of specific securities sold.  The Company had no available-for-sale 
securities at December 31, 1995.  A summary of amortized costs and market 
values on available-for-sale securities as of December 31, 1997 and 1996 
consists of the following:
<PAGE>



</TABLE>
<TABLE>
<CAPTION>
                                         1997
-------------------------------------------------------------------------------
                                          Gross          Gross
                          Amortized     Unrealized     Unrealized     Market
Description                  Cost          Gain           Loss         Value
_____________________    ___________    __________    __________    ___________
<S>                      <C>            <C>           <C>           <C>

Corporate Bonds          $ 8,985,675    $ 161,536     $   (2,289)   $ 9,144,922
Municipal & Agency Bonds   1,707,059       28,120             --      1,735,179
Others                       987,560           --             --        987,560
                         ___________    _________     __________    ___________
Totals                   $11,680,294    $ 189,656     $   (2,289)   $11,867,661
                         ===========    =========     ==========    ===========


                                         1996
-------------------------------------------------------------------------------
                                          Gross          Gross
                          Amortized     Unrealized     Unrealized     Market
Description                  Cost          Gain           Loss         Value
_____________________    ___________    __________    __________    ___________
<S>                      <C>            <C>           <C>           <C>

Corporate Bonds          $ 8,473,369    $ 127,475     $     (503)   $ 8,600,341
Municipal & Agency Bonds   1,508,981       14,650         (1,171)     1,522,460
Others                       435,951           --             --        435,951
                         ___________    _________     __________    ___________
Totals                   $10,418,301    $ 142,125     $   (1,674)   $10,558,752
                         ===========    =========     ==========    ===========
</TABLE>

<TABLE>
<CAPTION>

                                                   1997                    1996
                                                Fair Market              Fair Market
Description                                       Value                   Value
_____________________                           ___________              ___________
<S>                                             <C>                      <C>        
Less Than 1 Year                                $ 2,451,075              $   435,951
From 1 to 5 Years                                 9,416,586               10,122,801
                                                ___________              ___________
Total                                           $11,867,661              $10,558,752
                                                ===========              ===========
</TABLE>
Credit Risk
The Company generally does not require collateral for its trade accounts 
receivable.  The Company manages credit risk by regularly evaluating 
creditworthiness of its customers.  Accounts receivable for which 
collectibility is not assured are reserved for through establishment of 
an allowance for doubtful accounts. Customer accounts considered by 
management to be uncollectible are written off.

During 1997 the Company introduced a new lease-sale program whereby credit-
worthy customers were allowed to purchase platesetter equipment for $1 at
the end of up to 60 month sales-type leases.

Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-
out basis) or market.  Inventories are periodically reviewed for obsolescence 
or surplus stock. Items considered obsolete or surplus are written off or a 
valuation reserve is established to write such inventories down to their net 
realizable value. The Company has recorded inventory valuation reserves of 
$523,000 and $471,000 at December 31, 1997 and 1996, respectively.

The Company is dependent on several key suppliers for plate material and 
raster image processing software.  All of the Company's agreements with these 
suppliers can be canceled by either party under certain circumstances.

<PAGE>

Property and Equipment
Property and equipment are recorded at cost.  Office equipment, software, 
machinery and equipment and tooling are depreciated on a straight-line basis 
over five years.  Motor vehicles are depreciated on a straight-line basis over 
three years.  Leasehold improvements are amortized on a straight-line basis 
over the term of the lease.

Impairment of Long-Lived Assets
Management periodically reviews the carrying value of long-term assets for 
potential impairment by comparing the carrying value of these assets to the 
estimated undiscounted future cash flows expected to result from the use of 
these assets.  Should the sum of the related, expected future net cash flows 
be less than the carrying value, an impairment loss would be recognized.  An 
impairment loss would be measured by the amount by which the carrying value of 
the asset exceeds the fair value of the asset with fair value being determined
using discounted cash flows.  To date, management has determined that no 
impairment of these assets exists.

Intangible Assets
Intangible assets are recorded at cost and are being amortized on a straight-
line basis over 17 years for patents and between two and five years for 
license rights.

Research and Development Expenditures
Research and development expenditures are charged to expense as incurred.

Accounting for Warranty Costs
The Company records estimated future warranty costs when the equipment is 
shipped to customers.

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 revenues and expenses during the reporting period.  
Actual results could differ from those estimates.

Reclassifications
Certain reclassifications were made to the 1996 amounts to conform with the
1997 financial statement presentation.

Financial Risks and Uncertainties
In accordance with American Institute of Certified Public Accountants 
Statement of Position No. 94-6, "Disclosure of Certain Significant Risks and 
Uncertainties", the Company has disclosed in the financial statements certain 
financial risks and uncertainties to which it is subject, including 
concentration of sales to a limited number of customers, certain suppliers of 
raw materials and other key components included in its manufactured equipment 
and the use of estimates to review the carrying value of long-lived assets.  
The nature of the Company's operations exposes the Company to certain business 
risks.  The market for "Computer-to-Plate" systems is highly competitive and 
subject to rapid technological change and evolving industry standards that may 
affect both the operations, operating results and financial condition of the 
Company and its customers.
<PAGE>

2.  DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
                                                  December 31,           
                                       ____________________________________
                                           1997                    1996   
                                       ___________              ___________
<S>                                    <C>                      <C>

Receivables from Nonaffiliates:
Trade                                  $   556,311              $   719,804
Leases--current                             37,328                       --
Employees                                    3,794                      696
Allowance for doubtful accounts            (32,865)                 (27,153)
                                       ___________              ___________
Total receivables                      $   564,568              $   693,347
                                       ===========              ===========

Inventories:
Raw materials                          $   994,359              $   846,613
Work-in-process                            260,035                  196,279
Finished goods                             687,240                  719,903
                                       ___________              ___________

Total inventories                      $ 1,941,634              $ 1,762,795
                                       ===========              ===========

Property and Equipment:
Office equipment                       $   430,633              $   406,643
Software                                   108,107                  103,105
Machinery and equipment                    281,494                  244,650
Leasehold improvements                      74,762                   74,762
Tooling and spares                         334,761                  334,761
Motor vehicles                              23,708                   10,063
                                        __________              ___________
Total property and equipment             1,253,465                1,173,984
Less accumulated depreciation and
 amortization                           (1,118,500)              (1,064,745)
                                        __________              ___________
Net property and equipment             $   134,965              $   109,239
                                       ===========              ===========

Intangible Assets:
License rights                         $   560,020              $   560,020
Patents                                     53,701                   53,701
                                       ___________              ___________
Total intangible assets                    613,721                  613,721
Less accumulated amortization             (585,643)                (582,485)
                                       ___________              ___________
Net intangible assets                  $    28,078              $    31,236
                                       ===========              ===========

Accrued Expenses:
Accrued payroll and related            $    44,070              $    88,692
Accrued vacation and benefits              157,954                  147,656
Accrued professional services              143,135                  158,379
Accrued warranty reserve                    36,650                   35,940
Accrued income taxes                        15,000                       --
Accrued other                               15,208                   22,782
                                       ___________              ___________
Total accrued expenses                 $   412,017              $   453,449
                                       ===========              ===========
</TABLE>
<PAGE>

3. SHAREHOLDERS' EQUITY

On April 25, 1996 the Company's shareholders approved a one-for-four reverse 
stock split, effective immediately.  All references in the financial 
statements to the number of shares, per share amounts, stock option plan data 
and the statements of shareholders' equity have been restated to reflect the 
split.  On April 25, 1996 the Company's shareholders approved an amendment to 
the Company's Articles of Incorporation, whereby the authorized stock of the 
Company was stated as 15,000,000 shares of Common Stock, no par value and 
1,000,000 shares of Preferred Stock, no specified par value.  The Company's 
Board of Directors may designate any series and fix any relative rights and 
preferences of the Preferred Stock.  The authorized shares have been restated 
in the financial statements to reflect the impact of this amendment.  There 
were no shares of Preferred Stock issued or outstanding at December 31, 1997.

On July 2, 1996 the Company issued 1,200,000 shares of Common Stock at a price 
of $6.00 per share as part of its initial public offering.

During the years ended December 31, 1997, 1996 and 1995, certain employees 
exercised stock options and purchased a total of 40,302, 42,455 and 737 shares 
of Common Stock, respectively, at $3.00 per share. 

The Company issued 2,500 shares of Common Stock valued at $7,500 as 
consideration for services rendered during each of the years ended 
December 31, 1996, 1995.

Prior to July 2, 1996 Common Stock values were based on management's estimates 
of the fair value of the Company's Common Stock and prices after July 2, 1996 
were based on the fair market value of the Company's stock on The Nasdaq Stock
Market.

Stock Options
On April 25, 1996 the Company's shareholders approved a new stock option plan 
(the 1996 Stock Plan) which provides for the granting of options and 
restricted stock to certain officers, employees, directors and consultants to 
purchase up to 500,000 shares of Common Stock.  The 1996 Stock Plan also 
provides for the automatic grant of an option for 1,000 shares of the 
Company's Common Stock, exercisable for a period of five years, to each non-
employee director, upon the adoption of the 1996 Stock Plan and upon the 
election or re-election as a member of the Board of Directors.  Such Board of 
Directors options will be issued with an exercise price equal to the fair 
market value of the Common Stock on the date the option is granted.  Under this
plan the Company has issued options to purchase 3,000 and 2,000 shares under the
plan for the years ended December 31, 1997 and 1996, respectively.

The Company's prior incentive stock option plans provided that stock options 
to purchase an aggregate of 375,000 shares of Common Stock may be granted to 
certain officers and employees.  The exercise price could not be less than 
100% of the fair market value of the Common Stock on the date the option was 
granted. No additional options under the Company's prior plans will be 
granted. All options become exercisable either 100% after three years from 
date of grant, 100% on date of grant or 100% one year after date of grant. 
All of these options expire either five, six or ten years from the date of 
grant.

Stock option activity during the years ended December 31, 1997, 1996 and 1995 
is summarized below:

<PAGE>
<TABLE>
<CAPTION>
                                              Year Ended December 31,
                      __________________________________________________________________________
                             1997                     1996                        1995          
                      _____________________    ______________________     ______________________
                                 Wgtd. Avg.               Wgtd. Avg.                 Wgtd. Ave.
                      Shares     Exer.Price     Shares    Exer. Price      Shares    Exer. Price
                      _______    __________    ________   ___________     ________   ___________
<S>                   <C>        <C>           <C>        <C>             <C>        <C>

Outstanding at
  beginning of year   337,440    $     5.15     102,972   $      3.00       82,406   $      3 00
  Granted              95,870          5.06     278,681          5.61       23,087          3.00
  Canceled             (6,084)         3.83      (1,758)         3.00       (1,784)         3.00
  Exercised           (40,302)         3.00     (42,455)         3.00         (737)         3.00
                      _______    __________    ________   ___________     ________   ___________
Outstanding at 
  end of year         386,924    $     5.38     337,440   $      5.15      102,972   $      3.00
                      =======    ==========    ========   ===========     ========   ===========
Options exercisable
  at year end         212,079    $     5.28     178,084   $      5.01       79,548   $      3.00
                      =======    ==========    ========   ===========     ========   ===========
</TABLE>

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

<TABLE>
<CAPTION>

               Options       Wgtd. Avg.                        Options
Exercise     Outstanding     Contractual      Wgtd. Avg.     Exercisable      Wgtd. Avg.
 Prices      at 12/31/97     Life (Yrs.)     Exer. Price     at 12/31/97     Exer. Price
________     ___________     __________      ___________     ___________     ___________
<C>          <C>             <C>             <C>             <C>             <C>

$  3.00           51,654           6.95      $      3.00          48,779     $      3.00
   3.88            3,000           4.33             3.88           3,000            3.88
   4.63              900           5.69             4.63              --            4.63
   5.13           90,470           8.53             5.13              --            5.13
   5.63              900           4.67             5.63             300            5.63
   6.00          240,000           4.83             6.00         160,000            6.00
             ___________     __________      ___________     ___________     ___________
                 386,924           5.98      $      5.38         212,079     $      5.28
             ===========     ==========      ===========     ===========     ===========
</TABLE>
<PAGE>

The estimated fair value of options granted during 1997, 1996 and 1995 were 
$4.00, $4.09 and $1.52, respectively.  The Company applies Accounting 
Principles Board Opinion No. 25 (APB 25) and related interpretations in 
accounting for its stock option plans.  Total compensation costs of $71,962 
have been recognized for stock option grants during the year ended 
December 31, 1996 under the provisions of APB 25.  Had compensation cost 
for the Company's stock option plans been determined based on the fair value 
at the grant dates for awards under those plans consistent with Statement of 
Financial Accounting Standards No. 123, the Company's net income and earnings 
per share for the years ended December 31, 1997, 1996 and 1995 would have been
reduced to the pro forma amounts as indicated below.

The fair value of options granted under the Company's stock option plans 
during 1997 and 1996 was estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted-average assumptions 
used: no dividend yield, expected volatility of 71% to 75%, risk-free interest 
rates between 5.4% and 7.7% and expected lives between 5 and 10 years.

<TABLE>
<CAPTION>

                                    1997         1996           1995
                                ___________   ___________    ___________
<S>                             <C>           <C>            <C>
  Net income:
           As reported          $ 2,158,969   $ 2,383,404    $ 1,793,425
           Pro forma              1,821,742     1,747,096      1,761,112

  Net income per share - Basic:
           As reported          $       .44   $       .56    $       .48
           Pro forma                    .37           .41            .49
  Net income per share - Diluted:
           As reported          $       .44   $       .56    $       .48
           Pro forma                    .37           .41            .48



</TABLE>
<PAGE>
Warrants
Warrant activity is summarized as follows:
<TABLE>
<CAPTION>
                                                                 Aggregate
                                        Number of   Price per     Exercise
                                          Shares      Share        Price
                                        _________   __________    _________
<S>                                     <C>         <C>           <C>

Balance at December 31, 1995                5,000   $     3.00    $  15,000
Issued July 2, 1996                       120,000         7.20      864,000
                                        _________   __________    _________
Balance at December 31, 1996              125,000    3.00-7.20      879,000
Exercised August 28, 1997                  (5,000)        3.00      (15,000)
                                        _________   __________    _________
Balance at December 31, 1997              120,000   $     7.20    $ 864,000
                                        =========   ==========    =========
</TABLE>

In connection with the Company's initial public offering, the Representative 
of the Underwriters was granted warrants to purchase up to 120,000 shares of 
Common Stock at $7.20 per share, exercisable commencing July 2, 1997 and 
expiring July 2, 2001.

Restricted Stock
The Company has entered into a restricted stock compensation plan with an 
officer of the Company under which the Company issued 10,000 shares of 
restricted Common Stock to the officer over a four year period, provided that
the officer remained an employee of the Company as of the anniversary date 
of the plan.  Under this plan the last 2,500 shares were issued as of 
December 31, 1996.  Compensation expense related to these restricted stock 
issuances has been recorded in the statements of operations.

1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan") 
was adopted on April 25, 1996 and provides for the issuance of up to 100,000 
shares of Common Stock.  With certain exceptions, all employees of the Company 
who have been employed by the Company for at least six months and who are 
employed at least 20 hours per week and at least five months per year, 
including officers and directors who are employees, are eligible to 
participate in the Stock Purchase Plan.  The Stock Purchase Plan consists of 
periodic offerings.  Each offering under the Stock Purchase Plan will be for 
a period determined by a stock purchase committee appointed by the Board of 
Directors, but not to exceed 27 months.  An employee may elect to have up to a 
maximum of 10% deducted from his or her regular salary for the purpose of 
purchasing shares under the Stock Purchase Plan.  The price at which the 
employee's shares are purchased is the lower of (a) 85% of the closing price 
of the Common Stock on the day that the offering commences or (b) 85% of the 
closing price of the Common Stock on the day that the offering terminates.  In
1997 18,943 shares were issued under the Stock Purchase Plan.

4. LEASES

The Company leases office and manufacturing space of 35,410 square feet under 
a noncancelable operating lease which expires on July 31, 1998 and contains an 
option to renew for up to three additional years.  The Company is also 
responsible for all taxes, utilities and assessments.  Rent expense for all 
leases was $84,000, $84,000 and $87,000 for the years ended December 31, 
1997, 1996 and 1995, respectively.  

At December 31, 1997, future minimum lease payments due in 1998, excluding 
taxes and utilities, were $50,000.
<PAGE>

5. LEASE RECEIVABLES

In 1997, the Company began leasing equipment under sales-type lease agreements.
The lease receivable balances were as follows:

<TABLE>
<CAPTION>
Year Ended
____________________________________                  1997
                                                   __________
<S>                                                <C>       
Payments to be received under sales-
  type leases                                      $  252,240
Unearned income                                       (41,147)
Current portion                                       (37,328)
                                                   __________
Lease receivable-long term                         $  173,765
                                                   ==========
</TABLE>

Minimum future rentals due on lease receivables at December 31, 1997 are 
Summarized below:

<TABLE>
<CAPTION>
         Year Ending 
         December 31,
         ___________
         <C>
<S>                               <C>          
          1998                    $ 50,856
          1999                      50,856
          2000                      50,856
          2001                      50,856
          2002                      48,816
                                  ________
            Total                 $252,240
                                  ========
</TABLE>

6. DEFERRED REVENUES

In 1996 the Company entered into an agreement with a customer, who is a 
shareholder, to build certain equipment. The Company has shipped $252,635 and
$80,735 of equipment to this customer as of December 31, 1997 and 1996 under 
this contract.

The balances remaining under all the agreements at December 31, 1997 and 1996 
were $40,037 and $349,728, respectively.

7. MAJOR CUSTOMERS AND EXPORT REVENUES

Revenues to one customer, excluding the related party total revenues, amounted 
to $275,000 (3.9%), $1,066,000 (14.4%) and $1,464,000 (17.5%) for the years 
ended December 31, 1997, 1996 and 1995, respectively.  No other customer 
accounted for 10% or more of total revenues for these periods.  

The Company's export revenues did not exceed 10% of total revenues for the 
years ended December 31, 1997, 1996 and 1995.  

8. INCOME TAXES

The Company records income taxes under the provisions of Statement of 
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".

For income tax purposes, the Company had net operating loss carryforwards of 
approximately $6,800,000 as of December 31, 1997.  If not used, these 
carryforwards will begin to expire in 2003.  Under the Tax Reform Act of 1986, 
certain future changes in ownership resulting from the sale or issuance of 
stock may limit the amount of net operating loss carryforwards which can be 
utilized on an annual basis.

Deferred tax assets and liabilities represent temporary differences between 
the basis of assets and liabilities for financial reporting purposes and tax 
purposes.  Deferred tax assets are primarily comprised of reserves which have 
been deducted for financial statement purposes, but have not been deducted for 
income tax purposes and the tax effect of net operating loss carryforwards.
The Company annually estimates the amount of deferred tax assets which it 
expects to realize based on historical averages of pretax accounting income 
and estimates of future pretax accounting income.  The Company has recorded 
a valuation allowance to reduce recorded deferred tax assets to the amount 
of deferred tax benefit expected to be realized.

Deferred taxes as of December 31, 1997 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
                                                1997           1996   
                                            ___________      ___________
<S>                                         <C>              <C>
Current deferred taxes:
   
Inventory reserves                          $   183,000      $   165,000
Accrued vacation                                 47,000           39,000
Accrued professional fees                        50,100           55,400
Unrealized gain on investments                  (65,579)         (49,158)
Tax net operating loss carryforwards             19,600          318,500
Other                                            30,300           22,100
                                            ___________      ___________
Total                                       $   264,421      $   550,842
                                            ===========      ===========
<PAGE>
Long-term deferred taxes:
<S>                                         <C>              <C>        

Tax net operating loss carryforwards        $ 2,345,400      $ 2,656,500
Tax credit carryforwards                         91,400           76,500
Sales-type leases                                21,300               --
Valuation allowance                          (1,608,100)      (2,603,000)
                                            ___________      ___________
Total                                       $   850,000      $   130,000
                                            ===========      ===========
</TABLE>
<PAGE>

A reconciliation of the expected federal income taxes, using the effective 
statutory federal rate of 35%, with the provision (benefit) for income taxes 
is as follows:
<TABLE>
<CAPTION>
                                         1997            1996            1995   
                                      __________     ___________     ___________
<S>                                   <C>            <C>             <C>
Provision for income taxes:
Expected federal expense (benefit)    $  611,400     $   602,800     $   635,000
State taxes, net of federal benefit       10,500           7,900           2,000
Change in valuation allowance           (994,900)     (1,358,000)       (587,000)
AMT                                       27,000          44,500              --
Other                                    (66,100)         41,688         (27,500)
                                      __________     ___________     ___________
Total                                 $ (412,100)    $  (661,112)    $    22,500
                                      ==========     ===========     ===========

</TABLE>

Income tax expense for the years ended December 31, 1997, 1996 and 
1995 consist of the following:

<TABLE>
<CAPTION>
                                         1997        1996         1995  
                                      __________   _________    _________
<S>                                   <C>          <C>          <C>
Current tax provision:
  Federal                             $   27,400   $  60,988    $  16,150
  State                                   10,500       7,900        6,350
Deferred primarily federal              (450,000)   (730,000)          --
                                      __________   _________    _________
Income tax (benefit) expense          $ (412,100)  $(661,112)   $  22,500
                                      ==========   =========    =========

</TABLE>

9. RELATED PARTY TRANSACTIONS

The Company sells products to two of its shareholders and also contracts for 
certain products and production services with these shareholders.  A summary of 
these transactions with affiliates as of and for the years ended December 31, 
1997, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>

                                          1997          1996           1995  
                                      ___________    ___________    ___________
<S>                                   <C>            <C>            <C>
Total revenues                        $ 4,314,000    $ 4,117,000    $ 3,498,000
Total purchases of production 
  services                                  1,000          7,000         44,000
Accounts receivable                       360,000        467,000        263,000
Accounts payable                               --          1,000             --

</TABLE>
<PAGE>

10. COMMITMENTS AND CONTINGENCIES

During 1995, the Company received a favorable arbitration award from a dispute 
with A. B. Dick Company, a former customer.  The Company recognized a gain of 
$192,000 after expenses of approximately $142,000 in this dispute.  This gain 
is included in the statements of operations under other income (expense).  

The Company is involved in various other legal actions in the normal course of 
business.  Management is of the opinion that the outcome of such actions will 
not have a significant effect on the Company's financial position or results 
of operations.

11.  401(k) PROFIT SHARING PLAN

The Company's 401(k) Profit Sharing Plan (the "401(k) Plan") became effective 
August 1, 1994.  The 401(k) Plan is intended to qualify under Section 401(k) 
of the Internal Revenue Code.  All employees employed by the Company in the 
United States for at least 30 hours per week are eligible to participate in 
the 401(k) Plan as of the next calendar quarter following one year after date 
of hire by the Company.  Each eligible employee may contribute to the 401(k) 
Plan, through payroll deductions, up to 15% of his or her salary, subject to 
statutory limitations.  The 401(k) Plan permits, but does not require, 
additional contributions to the 401(k) Plan by the Company of up to 2% of the 
compensation paid by the Company to each employee in the previous calendar 
quarter.  The Company's contributions are made at the discretion of the Board 
of Directors, within the limits of the 401(k) Plan.  The Company has made a 
contribution of 1% of the compensation of each participating employee each 
quarter since the adoption of the 401(k) Plan.  The Company's contributions to 
the 401(k) Plan were $14,585, $13,411 and $13,352 for the years ended December 
31, 1997, 1996 and 1995, respectively.