(LOGO and Cover Page)

                           Plasti-Line, Inc.
                              ============
                                  1996
                              ============
                             Annual Report


<PAGE>

                                       96

                                   Our Mission

            Our mission is to exceed our customer's expectations. To
                              achieve this mission:

   We will create and provide corporate identification and point-of-purchase
                        marketing products and services.

                We will be the highest quality, most responsive,
                  and consistently competitive supplier to the
                               customers we serve.

      We will create an environment that offers involvement, opportunity,
        recognition, and personal satisfaction, based on a foundation of
                             continuous improvement.

   We will achieve a superior return for our stockholders, maintain mutually
  profitable long-term relationships with our suppliers, and be a responsible
                            member of our community.

                                Plasti-Line, Inc.


<PAGE>



Plasti-Line,  Inc. Is an industry leader providing a complete range of corporate
identity products and services to the retailing  industry.  Our expertise is the
design, manufacture,  installation,  and maintenance of exterior,  interior, and
on-premise signage and  point-of-purchase  products,  integrated by a systemized
project  management  capability.  Headquartered  in  Knoxville,  Tennessee,  the
Company also has  facilities in Kentucky,  South  Carolina,  and  California and
employs 1,100 people.



<PAGE>
                           (Graphs excluded)
<TABLE>
<CAPTION>
Financial Highlights (1) (2)  (in thousands, except per share data)

                                        1996    1995     1994     1993     1992
                                        ----    ----     ----     ----     ----
<S>                                 <C>      <C>      <C>      <C>     <C>
Net sales ......................... $130,876 $103,247 $77,309  $90,362 $ 83,220
Income (loss) before taxes
  and cumulative effect
  of accounting change .............   4,929   2,202   (5,361)   4,643    4,006
Income (loss) before
  cumulative effect
  of accounting change .............   3,148   1,397   (4,837)   2,854    2,385
Cumulative effect of
  accounting change ................     -       -        -        -       (648)
--------------------------------------------------------------------------------
 Net income (loss) ................. $ 3,148 $ 1,397  $(4,837) $ 2,854  $ 1,737
--------------------------------------------------------------------------------
Income (loss) per share
  before cumulative effect
  of accounting change ............. $   .83 $   .38  $(1.31)  $   .77  $   .65
Cumulative effect of
  accounting change ................     -       -        -        -       (.18)
--------------------------------------------------------------------------------
 Net income (loss) per share ....... $   .83 $   .38 $ (1.31) $    .77 $    .47
--------------------------------------------------------------------------------
Working capital .................... $25,753 $33,112 $ 23,349 $ 18,713 $ 17,554
Total assets .......................  67,244  77,150   51,450   49,522   53,424
Long-term debt less
  current maturities ...............  12,220  23,575   12,004    6,536    7,960
Stockholders' equity ...............  27,202  23,891   22,353   27,081   24,084
</TABLE>

1 Please refer to Notes to Consolidated  Financial Statements contained herein.

2 The Company has paid no dividends during the above periods.

3 Included  $3.9 million  write-off  of goodwill and $2.4 million  restructuring
  charge. See Notes 4 and 5 Consolidated Financial Statements.




<PAGE>

                          (Customer Logo Page)

<PAGE>


                          To Our Stockholders

I am pleased to report  the  continued  strengthening  our the  results  for our
Company.  For 1996,  sales were $131  million,  up $28 million or 27%,  from the
prior year.  This increase  represented the second  consecutive  year of greater
than 25% sales  growth.  In addition,  our  earnings  more than doubled from the
prior year level to $.83 per share. Finally, our balance sheet position improved
dramatically  with a $7 million,  or 22%,  reduction in our net working  capital
despite the growth in the business. I am proud of each of these  accomplishments
and believe that they provide a solid foundation for future growth.

In addition to our financial accomplishments during 1996, our Company made great
strides in  enhancing  its  marketing  strategy  and in  improving  its internal
operations. I will address each of these in turn.

Let me begin with the progress we have made in  transforming  the Company into a
leading  retail  communications  company.  First,  we have  aligned our business
management and sales capability  along market lines. For example,  we now have a
Financial  Services  Strategic  Business Unit that focuses on all aspects of the
communication needs of our bank customers,  from in-house  merchandising kiosks,
to creative ATM surround solutions, to exterior signage requirements. We believe
that this  market-oriented  approach  will better  enable us to  understand  and
fulfill the varying needs of each of the major retail markets we serve.  Second,
we have placed a renewed emphasis on our research and development  capabilities.
We believe  that a more  focused,  market-driven  approach to this  process will
result  in  creative  solutions  to the  problems  and  needs of our  customers.
Finally,  we have taken several steps to add to the in-store sales and marketing
resources  of Design  Performance  Group,  our retail  design and  merchandising
services firm, in order to capitalize on the in-store  opportunities  that exist
with both our customers and retailers in general.  The opportunities  created by
our in-store and exterior  signage sales forces working together are expected to
provide incremental future revenues.

From an operating  standpoint,  the Company has made considerable  progress over
the past several years, beginning with the business re-engineering we started in
1994. The investments in the Company's  infrastructure have been made to support
future growth, to reduce costs, and, most importantly, to improve the speed with
which we fulfill our customer's  demands.  By being the most responsive supplier
to our customers,  we will achieve a significant  competitive advantage.  Let me
provide you with some  examples of the progress we made  towards  these goals in
1996. First, during the year, we began a process to centralize the management of
many key  operating  functions  (for  example  customer  service)  to allow  for
improved  responsiveness  and lower  costs by more  standardized  and  efficient
processes.  Second,  at our manufacturing  facilities,  we have made significant
progress  toward  shortening  manufacturing  lead-times by migrating  fully to a
make-to-order  environment.  This step has  allowed us to improve  our  capacity
utilization,  lower our  inventory  investment,  and improve our response to our
customer's  need.  These  are just a couple  of the  steps we are  taking in our
continuous  improvement  process aimed at providing  differentiated  value-added
service to our customers.
In addition,  I would like to welcome F. Joseph Brang to the management  team as
our new Vice  President  of  Operations.  Joe brings  many years of  progressive
manufacturing  experience  to  our  Company,  and  we  are  confident  that  his
contribution will continue to improve our manufacturing and technical expertise.

I am  optimistic  about  our  Company's  future  and am  confident  that we will
continue to  capitalize  on the  opportunities  that our markets  have to offer.
Thank you for your support.

/s/ James R. Martin
James R. Martin
Chairman and Chief Executive Officer

<PAGE>

                    Building For A New Retailing Era

The Market

Retailing today is an extremely dynamic and rapidly changing industry.  The pace
of change is accelerating due to emerging customer shopping trends,  competitive
forces,  and the  technological  explosion.  The retail  industry is entering an
unprecedented era of upheaval,  turmoil, progress and uncertainty because change
is  not  only  occurring  at  a  faster  rate  but  also  is  less  predictable,
understandable  and  controllable  due to the complexity of the market dynamics.
This  seemingly  turbulent  state is being  primarily  driven  by the  impact of
changing shopping habits and practices and artificial intelligence.

In this mature,  yet fractionated  marketplace,  the shifting within segments is
constant as  undifferentiated  retail  concepts  perish and new, more meaningful
ones take their place.  Store and product  merchandising  displays and decor are
often  altered for each  merchandising  season,  placing an exacting  premium on
speed- to-market as well as innovation. In this hostile environment, all aspects
of store marketing communications must be anticipated,  integrated, well-planned
and implemented,  well within the time parameters of this shrinking  horizon for
change.

Realizing the fast-changing nature of the retail communications market, our goal
is to become a  valuable  partner  for  retail and  manufacturing  customers  by
helping them plan and implement their identity and merchandising programs.

<PAGE>

The Company in 1996

In 1996, Plasti-Line focused on several initiative that collectively put us in a
noticeably  superior  position  relative to our  competition.  The primary focal
points were, and continue to be,  providing  superior  market-  driven  customer
service  and  innovative   retail  marketing   communications   techniques  that
significantly  enhance retailer and manufacturer  branding and  merchandising at
the  store.  These  initiatives  are  interrelated  and  yield a  total  quality
impression of superiority. Our results indicate that these efforts closely match
our company to the needs of retailers and manufacturers.

Project Management

Without question,  our project  management  expertise is the glue that binds our
entire  business  together.   In  order  to  ensure  the  Company's  competitive
advantage,  a  substantial  investment  was made in 1995 in a  technology  based
system  to link  manufacturing,  sales,  engineering  and  design,  and  service
capabilities.  This integrated network provided us with significant dividends in
1996 in terms of improved  customer  response time,  increased ability to handle
national or multi-regional  quick turn  assignments,  better linkage between our
production facilities, more geographic flexibility for customers,  significantly
improved  product  quality,  and  heightened  production  efficiencies.  We  are
continuing to make  refinements and  enhancements to this network to even better
match it to evolving  customer needs. This effort will place us in the forefront
of all competitors for the next decade in terms of customer satisfaction.

<PAGE>

Manufacturing

Major  investments  in our  facilities,  equipment,  and systems  catapulted our
production  effectiveness  to new heights.  The acquisition of the assets of the
former Carter-Miot  Engineering in 1995 significantly broadened our product line
and placed us in a favorable  position to service the growing financial services
market.  Computerized  laser  cutting  machinery  enabled  the  company to offer
quintessential  product quality.  Equipment advances like these have resulted in
new products that deliver innovative communication solutions.

Additionally,  the  growth  and  development  of  Plasti-Line  West has  greatly
improved  our  ability  to serve  West Coast  markets  in a timely  manner.  Our
Florence,  Kentucky  plant is performing at record  levels,  and our  Knoxville,
Tennessee  plant has  installed  systems and  procedures  that are  becoming the
standard for the standard for the Company.

The four plant facilities are being joined through an advanced  computer network
which enables us to efficiently  schedule  customer  assignments  and constantly
monitor  production  status and  inventory  levels.  This  network  has not only
improved our production status and inventory  levels.  This network has not only
improved our production speed but more  importantly has reduced  operating costs
and is helping us greatly  improve our ability to reliably and quickly serve our
customers.

Research and Development

A focused  effort  to  improve  our  product  offering  required  dedication  to
improving our Research and Development function. A concerted effort was

<PAGE>

undertaken  in 1996 to invest in the people and  systems  that would allow us to
develop  products that better fulfill  customer  needs.  This 1996 initiative is
still  underway,  and early  signs are that it will  enable us to make a quantum
leap in terms of offering a new  generation  of products  that are  distinctive,
customer focused and add to our total offering, well ahead of competition.

Market-focused Sales and Project Management Units

One of the  most  important  changes  in 1996  was the  decision  to  align  our
production  management and sales staff by key market  segments.  This initiative
will  position  us to better  anticipate  our  customer  needs and  respond in a
superior  fashion to the  demands  of similar  customers  within  segments.  Our
knowledge  and  experienced  sales and project  management  staff  provides  the
greatest breadth of selling and customer  service  capabilities in the industry.
From technical "know-how" to the conceptual arena, the Plasti-Line  organization
has created a standard of  excellence  that  positions the company as a business
partner  committed to acting with  integrity and fully  contributing  to achieve
superior  business  results.  Plasti-Line  has the selling and service  force to
provide  total  solution  programs  to our  clients  targeted at their goals and
objectives.

The  approach  will enable us to build and  leverage  our vast  knowledge  about
markets and to work proactively with customers on these valuable  insights.  The
market-focused units are Automotive,  Financial Services, Food Service,  General
Retail, Petroleum, and Merchandising Design.

<PAGE>

Automotive

Our long standing,  dominant  position in this segment was enhanced in 1996 with
the acquisition of several new customers from the 1995  Carter-Miot  Engineering
acquisition,  namely Ford/Lincoln Mercury,  Mercedes, and Subaru. Our ability to
be involved in a wide variety of automotive identity and merchandising  programs
has resulted in sharp  revenue gains and also  broadened our sales,  service and
manufacturing  knowledge base about emerging  customer needs.  The key to future
performance  is in using our knowledge  and  resources to better solve  customer
problems in retail site marketing and merchandising areas.

Food Service

The share position in this segment was  strengthened in 1996 due to growth among
our large existing chain accounts (McDonald's,  Burger King, Taco Bell, KFC) and
new concepts like Boston Market. Performance was also positively affected by our
menu  products,  especially  the new  drive  through  items.  Our  research  and
development  efforts identified several new menu products that were successfully
test marketed in 1996.  The expansion  and constant  improvement  of our product
line will continue to lead to robust growth.

Financial Services

Consolidation activity in this market segment in 1996 was exceptionally high and
was responsible for our  substantiated  share gains.  Our  participation  in the
Wells Fargo and  NationsBank  acquisitions  of First  Interstate  and Boatment's
respectively,   moved  us  into  a  leadership   position  within  the  segment.
Additionally,  an  acquisition  expanded our bank product  offering and customer
base in Financial  Services.  We are projecting  continued  strong growth in the
next  few  years  due  to  new  product  introductions  and  continued  industry
consolidation.

<PAGE>

General Retail

This is a  relatively  new  segment  for the  company and one that shows all the
vital signs of being a lucrative segment over the long-term.  The segment offers
us an  opportunity to market our extensive  exterior and interior  product lines
for both brand awareness and  merchandising.  Growth should be further propelled
by mergers and acquisitions  within the retail arena and move toward  innovative
retail environments designed to promote increased shopping frequency.

Petroleum

We are increasing our level of focus in this market segment. It is an attractive
segment  because of its  heightened  retail  orientation  as food and additional
service  offerings are added.  Petroleum  companies are placing more emphasis on
their  total  offering,  which will call for a higher  level of  quality  retail
communications at the point of sale.

Merchandising Design

Design  Performance  Group, our retail design and  merchandising  services firm,
exhibited strong performance  across all market segments.  This strength appears
to be linked to increased  retailers and  manufacturer's  focus on point of sale
activity.  Entering  1997, two accounts,  Ameritech and Midas,  have put us in a
strong position.  We will continue to broaden and expand our strategic marketing
capabilities in this area by adding key resources that are  complimentary to our
strong customer orientation.

<PAGE>

                          (Customer Logo Page)

<PAGE>

Consolidated
Statements of
Operations

<TABLE>
<CAPTION>
Fiscal Years Ended
(in thousands,  except per share data)
                                                  Dec. 29,   Dec. 31,   Jan. 1,
                                                      1996       1995      1995
--------------------------------------------------------------------------------
           Revenue

           <S>                                   <C>        <C>        <C>
           Net sales ........................... $ 130,876  $ 103,247  $ 77,309
           Other income ........................       303        571       853
--------------------------------------------------------------------------------
              Total revenue ....................   131,179    103,818    78,162

           Cost and expenses
           Cost of sales .......................   107,956     85,114    63,060
           Selling, general and administrative .    16,701     14,979    13,349
           Interest expense, net ...............     1,593      1,040       712
           Goodwill write-off ..................       -          -       3,986
           Provision for restructuring costs ...       -          -       2,416
           Provision for pension curtailment ...       -          483       -
--------------------------------------------------------------------------------
              Total cost and expenses ..........   126,250    101,616    83,523
--------------------------------------------------------------------------------
           Income (loss) before (provision)
              benefit for income taxes .........     4,929      2,202    (5,361)
           (Provision) benefit for income taxes     (1,781)      (805)      524
--------------------------------------------------------------------------------
           Net income (loss) ................... $   3,148  $   1,397  $ (4,837)
================================================================================
           Net income (loss) per share ......... $     .83  $     .38  $  (1.31)
================================================================================
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

<PAGE>

Consolidated
Balance
Sheets
<TABLE>
<CAPTION>
(in thousands of dollars,  except par values)

                                                       1996     1995
--------------------------------------------------------------------------------
Assets
Current assets
<S>                                                <C>      <C>
Cash ..............................................$     10 $     10
Accounts receivable, net ..........................  22,870   27,050
Inventories .......................................  27,331   31,564
Prepaid expenses ..................................     754    1,080
Deferred income taxes .............................   1,337    1,876
--------------------------------------------------------------------------------
   Total current assets ...........................  52,302   61,580

Property and equipment, net .......................  13,260   13,854
Goodwill ..........................................   1,403    1,508
Other assets ......................................     279      208
--------------------------------------------------------------------------------
   Total assets ...................................$ 67,244 $ 77,150
================================================================================

   Liabilities and Stockholders' Equity

Current liabilities

Current portion of long-term debt .................$    745    1,723
Accounts payable ..................................   8,096   14,660
Accrued liabilities ...............................   6,116    5,704
Income taxes currently payable ....................      83      708
Customer deposits and deferred revenue ............  11,509    5,673
--------------------------------------------------------------------------------
   Total current liabilities ......................  26,549   28,468

Long-term debt ....................................  12,220   23,575
Deferred income taxes .............................   1,196    1,123
Deferred liabilities ..............................      77       93
Commitments and contingencies (Notes 7 and 12)
Stockholders' equity
Preferred stock - $.001 par value, 5,000,000 shares
   authorized, none issued and outstanding ........       -        -
Common stock - $.001 par value, 20,000,000 shares
   authorized, issued and outstanding:
   1996:  3,803,414  1995:  3,779,157                     4        4
Additional paid-in-capital ........................   2,859    2,729
Notes receivable, common stock ....................    (136)    (169)
Retained earnings .................................  24,475   21,327
--------------------------------------------------------------------------------
   Total stockholders' equity .....................  27,202   23,891
--------------------------------------------------------------------------------
   Total liabilities and stockholders' equity .....$ 67,244 $ 77,150
================================================================================
</TABLE>

The accompanying notes are an integral part of these  consolidated  financial
statements.

<PAGE>

Consolidated
Statements of
Stockholders' Equity
<TABLE>
<CAPTION>
Fiscal Years Ended
(in thousands of dollars)
                                             Dec. 29,    Dec. 31,     Jan. 1,
                                                 1996        1995        1995
--------------------------------------------------------------------------------
Common stock

<S>                                          <C>        <C>         <C>
Balance at beginning of year .........       $      4   $       4   $       4
Sales of common stock to
  employees and directors ............              -           -           -
--------------------------------------------------------------------------------
Balance at end of year ...............       $      4   $       4   $       4
================================================================================

Additional paid-in-capital
Balance at beginning of year .........       $  2,729   $   2,571   $   2,484
Sale of common stock to
   employees and directors, ...........           130         158          87
   1996:  6,000 shares
   1995: 30,000 shares
   1994: 11,000 shares
--------------------------------------------------------------------------------
Balance at end of year ................      $  2,859   $   2,729   $   2,571
================================================================================

Notes receivable, common stock
Balance at beginning of year .........       $   (169)  $    (152)  $    (174)
Issuance of notes receivable
  common stock ........................             -         (99)        (28)
Payments of notes receivable,
  common stock ........................            33          82          50
--------------------------------------------------------------------------------
Balance at end of year ................      $   (136)  $    (169)  $    (152)
================================================================================

Retained earnings
Balance at beginning of year                 $ 21,327   $  19,930   $  24,767
Net income (loss) .....................         3,148       1,397      (4,837)
--------------------------------------------------------------------------------
Balance at end of year ................      $ 24,475   $  21,327   $  19,930
================================================================================
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

<PAGE>

Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

   Fiscal Years Ended ........................       Dec. 29, Dec. 31,  Jan. 1,
   (in thousands of dollars) .................           1996     1995     1995
--------------------------------------------------------------------------------
   Cash flows from operating activities:
   <S>                                               <C>      <C>      <C>
   Net income (loss) .........................       $  3,148 $  1,397 $ (4,837)
   Adjustments to reconcile net income
       (loss) to net cash provided  by
       (used in) operating activities
   Depreciation and amortization .............          2,262    1,710    1,875
    (Gain) loss on disposal of fixed assets ..              -       82      138
   Provision for losses on accounts receivable            332      206      121
   Deferred tax provision (benefit) ..........            612      129     (694)
   Goodwill write-off ........................              -        -    3,986
   Provision for restructuring costs .........              -        -    2,416
   Provision for pension curtailment .........              -      483        -
   Changes in assets and liabilities,
     net of acquisition:
      Receivables ............................          3,848  (10,058)  (2,497)
      Inventories ............................          4,233   (9,959)  (2,637)
      Prepaid expenses and other assets ......            206      161     (756)
      Accounts payable .......................         (6,564)   7,579    1,696
      Accrued liabilities ....................            412    1,202     (519)
      Income taxes payable ...................           (625)     754     (473)
      Deferred liabilities ...................          5,820      313     (838)
--------------------------------------------------------------------------------
   Net cash provided by (used in)
     operating activities) ...................         13,684   (6,001)  (3,019)
--------------------------------------------------------------------------------

   Cash flows from investing activities:
   Proceeds from sales of  fixed assets ......              -       23        1
   Proceeds from sales  of investments .......              -      593      400
   Investment in marketable securities .......              -        -     (499)
   Capital expenditures ......................         (1,514)  (2,755)  (2,460)
   Purchase of Plasti-Line Columbia,
     Inc. assets .............................              -   (4,550)       -
--------------------------------------------------------------------------------
   Net cash used by investing activities .....         (1,514)  (6,689)  (2,558)
--------------------------------------------------------------------------------

   Cash flows from financing activities:
   Net borrowings (payments) under
      line of credit .........................        (11,586)  13,295    6,213
   Repayments of long-term debt ..............           (747)    (746)    (745)
   Sale of common stock ......................            130       59       59
   Payments of notes receivable,
      common  stock ..........................             33       82       50
--------------------------------------------------------------------------------
   Net cash provided by (used in)
       financing activities ..................        (12,170)  12,690    5,577
--------------------------------------------------------------------------------

   Net increase (decrease) in cash ...........              -        -        -

   Cash, beginning of year ...................             10       10       10
--------------------------------------------------------------------------------
   Cash, end of year .........................       $     10  $    10 $     10
================================================================================

   Supplemental disclosures of cash flow
       information:
   Interest paid .............................       $  1,639  $   937 $    799
   Income taxes paid .........................       $  1,894  $    53 $    786
================================================================================
   Non-cash transactions:
   Amortization of compensation from
      restricted  stock ......................       $     54 $     1 $      35
   Issuance of notes receivable - common stock              -     (99)      (28)
   Acquisition liabilities assumed ...........       $      - $ 1,630 $       -
================================================================================
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

<PAGE>

Notes to
Consolidated
Financial
Statements

1 Description of Business

Plasti-Line,  Inc.  (the  Company) is a publicly  held company  whose  principal
business is the marketing, production, and installation of interior and exterior
sign and point-of-purchase marketing products for retailers and manufacturers.

2 Summary of Significant Accounting Policies

Principles of Consolidation
The consolidated  financial  statements include the accounts of the Co mpany and
its  wholly-owned  subsidiaries,   American  Sign  &  Marketing  Services,  Inc.
(American Sign) and Plasti-Line  Columbia,  Inc.  (Columbia),  formerly known as
Carter-Miot,  Inc. All significant  intercompany  accounts and transactions have
been eliminated.

Fiscal Year
The Company's  fiscal year consists of four quarters of thirteen weeks ending on
the last Sunday of the quarter.  Each quarter's first two months consist of four
weeks with the last month of the quarter consisting of five weeks.

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

Property and Equipment
Property and equipment are stated at cost, less  accumulated  depreciation.  The
provision for depreciation has been calculated using the  straight-line  method.
The following represent the useful lives over which the assets are depreciated:

Buildings and improvements                                  15 - 40 years
Machinery and equipment                                       3 - 7 years

Major  renewals  and   improvements   are   capitalized,   while   replacements,
maintenance,  and  repairs  which  do not  improve  or  extend  the  life of the
respective assets are expensed  currently.  When depreciable  assets are sold or
retired,  the cost and related  accumulated  depreciation  are removed  from the
accounts, and any gain or loss is included in the earnings for the period.

Income Taxes
Deferred tax assets and  liabilities  have been recorded to reflect the expected
future tax  consequences  of events  that have been  included  in the  financial
statements or tax returns based on the difference  between the financial and tax
bases of assets and  liabilities  using enacted tax rates in effect for the year
in which the differences are expected to reverse.

Revenue Recognition
The Company recognizes revenue and cost upon completion of sign installation. If
the Company is not installing the signage, revenue is recognized upon shipment.

Per Share Data
Net income  (loss) per common share is computed by dividing net income (loss) by
the weighted  average  number of common  shares and dilutive  common  equivalent
shares.

<PAGE>

2  Summary of Significant Accounting Policies - continued

outstanding   during  each  period.  For  purposes  of  computing  common  stock
equivalent shares  outstanding,  shares relating to options have been calculated
using the  treasury  stock  method for the  portion of each period for which the
options were  outstanding and using the fair value of the Company's common stock
for each of the respective periods. The weighted average number of common shares
and dilutive common equivalent shares outstanding were 3,812,000, 3,714,000, and
3,695,000  for  December  29,1996,  December  31,  1995,  and  January  1, 1995,
respectively.

Preferred Stock
The  Company's  authorized  preferred  stock may be issued  from time to time in
series  having  such  designated  preferences  and  rights,  qualifications  and
limitations as the Board of Directors may determine.

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.
Unless  indicated   otherwise,   the  book  value  of  the  Company's  financial
instruments approximates fair value.

3 Acquisition

On November  2, 1995 the Company  purchased,  through its  Columbia  subsidiary,
certain operating assets of a corporation  located in Columbia,  South Carolina.
The  total  purchase  price  was  approximately  $4,550,000  in cash,  including
estimated  professional fees and other  acquisition-related  costs. In addition,
the Company has paid certain obligations totaling approximately $1,630,000. This
transaction has been accounted for using the purchase method of accounting,  and
accordingly,   the  purchase   price  has  been   allocated  to  the  separately
identifiable assets of Columbia, principally accounts receivable, inventory, and
machinery and equipment.  The  consideration  paid exceeded the underlying  fair
values of the  separately  identifiable  assets  of  Columbia  by  approximately
$1,521,000.  This amount has been reflected in the accompanying balance sheet as
goodwill and is being amortized using the straight-line method over 15 years.

Pro forma  unaudited  results  of  operations  for 1995 and 1994  assuming  that
Columbia had been  acquired at the  beginning of the  respective  periods are as
follows:

<TABLE>
<CAPTION>
In thousands of dollars except per share data

                                                             1995     1994
--------------------------------------------------------------------------------
                             <S>                         <C>      <C>
                             Revenues .................. $117,225 $ 97,616
================================================================================
                             Net income (loss) ......... $  1,427 $ (4,009)
================================================================================
                             Net income (loss) per share $    .39 $  (1.08)
================================================================================
</TABLE>

The pro forma financial information is presented for informational purposes only
and is not  necessarily  indicative  of the  operating  results  that would have
occurred had the  acquisition  been  consummated as of the above dates,  nor are
they necessarily indicative of future operating results.

<PAGE>

4  Goodwill
Goodwill,  as of December 29, 1996,  is composed of  $1,521,000  relating to the
1995 purchase of Columbia, net of accumulated amortization of $118,000.

Prior to 1995 goodwill  represented  the excess of  acquisition  costs over fair
market value of net assets acquired in the purchase of American Sign in 1986. In
1994, the Company determined that projected results would not support the future
amortization  of American  Sign's  remaining  goodwill  balance of $4.0 million.
Accordingly,  the Company wrote off the  unamortized  balance of goodwill in the
fourth quarter of 1994.

5  Provision for Restructuring Costs

The 1994 operating  results include a pre-tax charge for  restructuring  of $2.4
million.  This charge primarily consisted of a $1.7 million charge for inventory
and related costs  associated  with a fast food restaurant  drive-through  order
verification  product ("Horizon") at the Company's American Sign subsidiary.  In
addition  to the Horizon  provision,  the  restructuring  charge  included  $367
thousand  for a loss on  abandonment  of certain  equipment in  Knoxville,  $167
thousand  for  severance  and   outplacement   costs  related  to  the  business
re-engineering  project, and $162 thousand for costs relating to disposal of the
Centerville facility (Note 12).

6  Supplemental Consolidated Financial Statement Data
<TABLE>
<CAPTION>

                                                              Dec. 29, Dec. 31,
(in thousands of dollars)                                       1996     1995
--------------------------------------------------------------------------------
Accounts receivable, net consists of:
<S>                                                           <C>      <C>
Accounts receivable ..........................................$ 23,144 $ 27,769
Less:  allowances for doubtful accounts ......................    (274)    (719)
--------------------------------------------------------------------------------
Total accounts receivable, net ...............................$ 22,870 $ 27,050
================================================================================

Inventories consist of:
Raw  materials ...............................................$  6,314 $  7,330
Work-in-process ..............................................   4,397    4,289
Finished goods ...............................................  20,006   22,008
--------------------------------------------------------------------------------
Total inventory (FIFO) .......................................  30,717   33,627
--------------------------------------------------------------------------------
LIFO reserve .................................................  (3,386)  (2,063)
--------------------------------------------------------------------------------
Total inventory (LIFO) .......................................$ 27,331 $ 31,564
================================================================================

Property and equipment consists of:
Land .........................................................$  1,177 $  1,177
Buildings and improvements ...................................  12,690   12,492
Machinery and equipment ......................................  18,448   17,138
--------------------------------------------------------------------------------
Total property and equipment, gross ..........................  32,315   30,807
Less:  accumulated depreciation .............................. (19,055) (16,953)
--------------------------------------------------------------------------------
Total property and equipment, net ........................... $ 13,260 $ 13,854
================================================================================
</TABLE>

<PAGE>

7  Long-Term Debt

Long-term debt consists of the following:                     Dec. 29, Dec. 31,
(in thousands of dollars)                                         1996     1995
--------------------------------------------------------------------------------
Knox County Industrial Revenue Bonds
$2.15 million bearing interest at a variable rate
(4.15% at December 29, 1996, and 5.05% at December 31, 1995)
and the balance at a fixed rate of 7.65%.  Interest is
payable quarterly and $680 thousand of principal payable
annually with $2.63 million payable on November 1, 1999,
collateralized by Knoxville, Tennessee real and fixed assets. $  3,990 $  4,670

Revolving Credit Facility:
Up to the amount of $19  million expiring on  June 30, 1998
The line bears interest at a variable rate (8.413% at December
29, 1996, and 7.935% at December 31, 1995), collateralized by
accounts receivable and inventory ............................   8,391   16,000

Term Note:
Up to the amount of $5 million.  The line bears interest at a
variable rate (7.935% at December 31, 1995), collateralized by
accounts receivable and inventory.  Expired February 29, 1996        -    3,978

Industrial Revenue Bonds of American Sign:
Interest payable quarterly, at a variable rate (7.4% at
December 29, 1996, and 7.9% at December 31, 1995).  Principal
of $16.25 thousand payable quarterly through December 1, 2005,
collateralized by Florence, Kentucky real property ...........     584      650

Less current maturities ......................................    (745)  (1,723)
--------------------------------------------------------------------------------
Total long-term debt .........................................$ 12,220 $ 23,575
================================================================================

The Revolving Credit Facility contains various covenants  including  restricting
other borrowings, the payment of dividends, the sales of certain assets, and the
Company's  ability to acquire other  businesses  without  written  consent.  The
covenants also require the Company to maintain liability to net worth,  interest
coverage, and cash flow ratios, as well as a minimum net worth.

<PAGE>


Maturities  of long-term  debt in each of the next five years are as follows (in
thousands of dollars):

                        1997       $       745
                        1998             9,136
                        1999             2,695
                        2000                65
                        2001                65
                      Thereafter           259
                                   $    12,965

The  following  is a schedule  of future  minimum  rental  payments  for certain
manufacturing  and data processing  equipment which are required under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year (in thousands of dollars):

                        1997       $       371
                        1998               371
                        1999               213
                        2000                73
                        2001                 6

                                   $     1,034

Operating lease rental expense was $1,088,000,  $828,000, and $658,000 for 1996,
1995, and 1994, respectively.

8 Income Taxes

Components of income tax provisions (benefit) are as follows:
<TABLE>
<CAPTION>

                                              Dec. 29, Dec. 31 Jan. 1,
    (in thousands of dollars) ................... 1996    1995    1995
--------------------------------------------------------------------------------
    Current tax provisions:
       <S>                                    <C>       <C>      <C>
       Federal ...............................$  1,011  $  608   $ 136
       State ....................................  158      68      34
--------------------------------------------------------------------------------
                                                 1,169     676     170

    Deferred income taxes related to:
       Depreciation .............................   73     161     (54)
       Recognition of bad debts .................   (3)    (48)    (34)
       Horizon write-off ........................  270     369    (640)
       Financial reserves .......................  212     (86)   (129)
       Maintenance revenue recognition ..........  (12)     (1)     31
       Pension liability ........................   28    (238)      -
       Other items ..............................   44     (28)    132
--------------------------------------------------------------------------------
       Total .................................$  1,781  $  805   $(524)
================================================================================
</TABLE>

<PAGE>

8 Income Taxes - continued

The primary  components  of the  deferred  tax assets and  (liabilities)  are as
follows:
<TABLE>

(in thousands of dollars)
                                                      Dec. 29, Dec. 31,
                                                          1996     1995
--------------------------------------------------------------------------------
 Current:
 <S>                                                   <C>      <C>
 Inventory valuation ..................................$   389  $   479
 Workers' compensation
   and other financial reserves .......................    149      232
 Vacation reserve .....................................    196      238
 Deferred sales .......................................     94      126
 Plant close reserve ..................................     64       64
 Environmental reserve ................................      -       36
 Horizon write-off ....................................      -      271
 Other financial reserves .............................    463      420
 Pension asset (liability) ............................    (18)      10
--------------------------------------------------------------------------------
 Total current ........................................  1,337  $ 1,876
================================================================================
 Long-term:
 Property and equipment .............................  $(1,236) $(1,123)
================================================================================
</TABLE>

The differences  between the U.S.  federal  statutory tax rate and the Company's
effective tax rate are as follows.
<TABLE>
<CAPTION>

                                                     Dec. 29,  Dec. 31,   Jan.1,
     (in thousands of dollars) ......................    1996      1995     1995
--------------------------------------------------------------------------------
     <S>                                                 <C>       <C>   <C>
     Marginal federal tax rate ......................    34.0%     34.0% (34.0)%
     State income taxes net of federal ..............     3.4       2.7    (.6)
     Non-deductible expenses of
        acquired companies ..........................       -         -   26.7
     Other ..........................................    (1.3)      (.1)  (1.9)
--------------------------------------------------------------------------------
     Effective rate .................................    36.1%     36.6%  (9.8)%
================================================================================
</TABLE>

<PAGE>

9 Stock Option Plans

The Company has a Stock Incentive Program  consisting of a Key Employee Plan and
a Director Plan under which  options to purchase up to 550,000  shares of common
stock may be granted.  Under the terms of the Key Employee Plan, the Company may
grant options to certain employees of the Company.  The option price is equal to
the  published  bid price of the  stock on the date of the  grant.  The  options
become exercisable  ratably over four years beginning one year after the date of
the grant and expire in five to ten years.  Also  included  in the Key  Employee
Plan are shares awarded to certain key managers. These shares are restricted for
ten years from the date of the grant unless  earned  earlier.  The shares can be
earned in years three to ten if certain  earnings per share measures are met. In
addition,  15,000  restricted  shares of stock were  purchased  by  certain  key
managers in 1995.  These  shares,  purchased at $6.60 per share,  vest two years
from the date of purchase. The Company has accepted notes from these individuals
in payment for this stock with interest paid monthly and principal paid annually
for ten years. The notes receivable for these shares are shown as a reduction of
Stockholders' Equity.  Compensation expense of $54,000,  $1,000, and $35,000 was
recognized for restricted  shares awarded and purchased in 1996,  1995, and 1994
respectively.


Under the  Director  Plan,  the  Company has  granted  non-qualified  options to
purchase  shares to members of its Board of Directors.  These options are priced
from $5.00 to $11.00 per share,  vest as soon as the director has  completed two
years of service, and expire ten years from the date of grant.

Activity and price information  regarding the Stock Incentive Program during the
last three fiscal years is as follows:
<TABLE>
<CAPTION>
                                             Shares    Price Per Share
--------------------------------------------------------------------------------
<S>                                         <C>           <C>
Outstanding as of January 2, 1994           160,300       4.50-12.00
   Granted                                   39,000       5.25- 8.00
   Exercised                                 (4,900)      4.50- 5.00
   Canceled                                 (16,350)      4.50-12.00
--------------------------------------------------------------------------------
Outstanding as of January 1, 1995           178,050       4.75-12.00
   Granted                                  107,500       6.50- 8.38
   Exercised                                (11,250)      5.00- 5.75
   Canceled                                 (57,300)      5.00-12.00
--------------------------------------------------------------------------------
Outstanding as of December 31, 1995         217,000       4.75-12.00
   Granted                                   52,000       8.25-12.00
   Exercised                                 (6,000)      5.00- 8.00
   Canceled                                 (25,500)      5.25-12.00
--------------------------------------------------------------------------------
Outstanding as of December 29, 1996         237,500       4.75-12.00
================================================================================
</TABLE>

In  addition,  on January 1,  1995,  the  Company  implemented  the 1995  Equity
Compensation Plan for Non-Employee Directors. Under this plan, 150,000 shares of
common stock are available for issue.  In 1996,  directors of the Company earned
awards of 5,621  shares of common  stock which  represented  50% of the value of
their director fees for the year.

10 Statement 123, "Accounting for Stock-Based Compensation"

Plasti-Line, Inc. has elected to continue follow ing Accounting Principles Board
Opinion No. 25,  "Accounting  for Stock Issued to Employees (APB 25) and related
Interpretations  in  accounting  for  its  1991  Stock  Incentive  Program  (Key
Employees  and  Directors)  rather than the  alternative  fair value  accounting
provided   for  under  FASB   Statement   123,   "Accounting   for   Stock-Based
Compensation."  Under APB 25, because the exercise price of the Company's  stock
options  equals  the  market  price of the  underlying  stock on the date of the
grant,  no  compensation  expense is  recognized in the  accompanying  financial
statements. Pro-forma information regarding net income and earnings per share is
required  by  Statement  123,  and has been  determined  as if the  Company  had
accounted for its stock  options under the fair value method of that  Statement.
The Company has determined that the difference  between  historical  results and
such pro forma information is inconsequential.

<PAGE>

11 Employee Benefit Plans

The Company maintains a profit sharing plan for salaried employees.  The Company
is required to contribute  at least three percent of current  period net income.
Total  contributions were $100 thousand in 1996, $45 thousand in 1995, and $0 in
1994.  Additionally,  the Company  maintains  a savings  plan  available  to all
salaried employees.  Each participant may elect to defer up to twelve percent of
their annual compensation. The Company makes an annual contribution equal to one
quarter of the participants'  contributions up to a maximum Company contribution
equal to six percent of the participant's compensation.  The total contributions
were $108 thousand in 1996,  $83 thousand in 1995, and $59 thousand in 1994. The
Company also has a  non-contributory  defined  benefit  pension plan that covers
substantially all hourly employees at the Knoxville location. Benefits are based
on a fixed  amount for each year of service.  In December of 1995,  the Board of
Directors  approved  an  amendment  to the  pension  plan which  resulted in the
freezing of all future  benefits  under the plan as of December 31,  1995.  As a
result,  the  Company  recognized  a  curtailment  loss of $483  thousand  which
included  $467  thousand of  unrecognized  prior service cost and a $16 thousand
unrecognized  transitional liability. The weighted average discount rate used in
determining the actuarial present value of the projected benefit  obligation was
7.5% as of December  29,  1996,  and 7.0% at December  31,  1995.  The  expected
long-term  rate of return on assets was 7.5% at  December  29,  1996 and 7.0% at
December 31, 1995. Net pension cost included the following components:
<TABLE>
<CAPTION>

                                          Dec. 29,    Dec. 31,     Jan. 1,
(in thousands of dollars)                     1996        1995        1995
--------------------------------------------------------------------------------
<S>                                      <C>         <C>        <C>
Service cost                             $       -   $      87  $       91
Interest cost                                  274         262         251
Actual return on plan assets                  (604)     (1,042)          3
Net amortization and deferral                  257         837        (189)
--------------------------------------------------------------------------------
Net pension cost                         $     (73)  $     144  $      156
================================================================================
</TABLE>

<PAGE>

11 Employee Benefit Plans - continued

The  following  table sets forth the  pension  plan's  funded  status and amount
recognized in the Company's balance sheet.
<TABLE>
<CAPTION>
                                           Dec. 29,    Dec. 31,
(in thousands of dollars)                      1996        1995
--------------------------------------------------------------------------------
Actuarial present value of
 benefit obligations:
   <S>                                     <C>         <C>
   Vested                                  $  3,745    $  3,792
   Non-vested                                   158         221
--------------------------------------------------------------------------------
Accumulated and projected                     3,903       4,013

Plan assets at fair value, primarily
 listed stocks and bonds                      5,029       4,593
--------------------------------------------------------------------------------
Plan assets above accumulated
 benefit obligation                           1,126         580
Unrecognized net gain from past experience
 different from that assumed and effects of
 changes in assumptions                      (1,079)       (607)
--------------------------------------------------------------------------------
Total pension  asset (liability)           $     47    $    (27)
================================================================================
</TABLE>

On  January  1, 1996,  the  Company  provided  hourly  workers at the  Knoxville
location with a defined  contribution  plan,  the  Knoxville  Union 401(k) Plan.
Under this plan the Company contributes 10 cents an hour for each hour worked up
to a maximum of 2,080 hours per year.  The Company  contributed  $90,000 to this
plan in 1996.

12 Contingencies and Other Liabilities

The  Company has become  subject to various  lawsuits,  claims,  and other legal
matters in the course of conducting  business.  The Company,  based in part upon
opinions of counsel,  believes the outcome of such lawsuits,  claims,  and other
legal  matters  will  not  have  a  material  impact  on  the  Company's  future
consolidated financial position, results of operations, and cash flows.

The  Company  is  contingently  liable for a  $700,000  letter of credit  issued
pursuant to certain debt obligations.  The Company also has irrevocable  letters
of credit in the amount of $1,566,000  pursuant to the Company's  self-insurance
with regard to  workmens'  compensation.  There are no  outstanding  balances on
these letters of credit.

Sales to one automotive  customer were 22%, 19%, and 16% of the Company's  sales
in 1996, 1995, and 1994, respectively. Sales to a fast food customer were 11% of
sales in 1996. Sales to a bank customer were 11% of sales in 1995.

Financial instruments which potentially subject the Company to concentrations of
credit risk consist  principally of trade receivables.  Concentrations of credit
risk with  respect to trade  receivables  are limited due to the large number of
customers  comprising the Company's base and their dispersion across a number of
different  industries,  principally  automotive,  petroleum,  banking,  and fast
foods.

At December 31, 1995, a long-term  contract with a customer  that  accounted for
11% of the Company's  1996 sales  expired.  The Company has since been awarded a
new,  long-term  contract with this customer,  which extends  through January 1,
2004.

In order to alleviate  excess  manufacturing  capacity,  the Company  closed its
Centerville,  Tennessee,  manufacturing  facility in 1992. The December 29, 1996
and  December 31, 1995 balance  sheets  include an accrual of $392  thousand and
$405 thousand,  respectively, which reflects the remaining disposal costs of the
Centerville facility.

<PAGE>

Report of Independent Accountants

To the Stockholders and Board of Directors of Plasti-Line, Inc.

We have audited the  accompanying  consolidated  balance sheets of  Plasti-Line,
Inc. and  Subsidiaries  as of December  29, 1996 and December 31, 1995,  and the
related consolidated statements of operations,  changes in stockholders' equity,
and cash flows for each of the three  years in the  period  ended  December  29,
1996.  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,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of Plasti-Line,  Inc.
and  Subsidiaries  as of  December  29,  1996  and  December  31,  1995  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended  December 29, 1996 in conformity  with generally
accepted accounting principles.

Coopers & Lybrand  L.L.P.
Knoxville, Tennessee
February  18, 1997

<PAGE>

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

Results of Operations
Fiscal Year 1996 Compared to Fiscal Year 1995

Revenue:
Total revenue  increased  $27.4 million  (26.4%),  from $103.8 million to $131.2
million,  due to higher sales volumes across all business  including a full year
of Plasti-Line Columbia, Inc. (Columbia) sales in 1996 as compared to two months
in 1995.  Contributing to the increased  volume were higher sales at Plasti-Line
East, the Company's Knoxville and Florence locations ($13.5 million),  primarily
with  automotive  and  fast  food  customers,  as well  as  sales  increases  at
Plasti-Line West ($2.3 million),  Design  Performance Group ($2.1 million),  and
Columbia ($9.5  million).  Sales decreased in the fourth quarter of 1996 by $3.8
million  as  compared  to the same  period in 1995.  Fourth  quarter  1995 sales
included  $11.3  million for a major sign re-image that was completed for one of
Plasti-Line East's bank customers.

Costs and Expenses:
Income before taxes and interest was $6.5 million as compared to $3.2 million in
1995.  The  improvement  in income was due to an increase in gross  profit ($4.8
million)  from higher sales.  Gross profit as a percent to sales was  relatively
flat at 17.5% and 17.6% in 1996 and 1995, respectively. Partially offsetting the
higher  gross  profit was an increase in selling,  general,  and  administrative
costs  ($1.7  million)  caused  primarily  by the  increased  volumes.  Selling,
general,  and  administrative  expenses as a percentage  of sales  improved from
15.0% in 1995 to 12.8% in 1996,  partially  due to both the  benefits of reduced
costs  and  improved  efficiency  as a  result  of the  business  re-engineering
completed in 1995, as well as increased  sales volumes.  Selling,  general,  and
administrative costs in 1995 also included $1.5 million in costs associated with
the  Company's  business  re-engineering  initiative  which was completed in the
fourth quarter of 1995. Interest expense of $1.6 million increased $553 thousand
from the prior year. Higher working capital related to increased volumes, caused
the increase.

Income Taxes:
The Company's  effective tax rate for 1996 was only slightly  lower than 1995 at
36.1% of pre-tax income as compared to 36.6% in 1995.

Other:  The  Company's  current  supply  contract  with General  Motors  expired
December 31, 1995. The Company has since been awarded a new,  long-term contract
with this customer, which extends through January 1, 2004.

Fiscal Year 1995 Compared to Fiscal Year 1994

Revenue:
Net sales  increased  $25.9  million  (33.6%) due to higher  volumes  across the
business.  Contributing to the increased  volume were higher sales to automotive
($5.8 million) and bank customers ($7.1 million) at Plasti-Line East, as well as
sales increases at Plasti-Line  West ($4.7 million),  Design  Performance  Group
($2.9  million),  and our newest  subsidiary,  Columbia  ($1.1  million).  Sales
increased in the fourth quarter of 1995 by $14.3 million  (59.7%) as compared to
the same period in 1994 due to an increase  in volume at all  locations.  Fourth
quarter  sales  included  $11.3  million  for a major  sign  re-image  that  was
completed for one of Plasti-Line East's bank customers.

Costs and Expenses:
Income before taxes and interest was $3.2 million as compared to $1.8 million in
1994  (excluding  the goodwill  write-off and the  provision  for  restructuring
charges). The improvement in income was due to an

<PAGE>

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations - continued

increase in gross profit ($3.6 million) from higher sales.  Partially offsetting
the higher gross profit was an increase in selling,  general and  administrative
costs  ($1.6  million)  which was  related to the  increased  volumes.  Selling,
general,   and   administrative   costs  in  each  of  1995  and  1994  included
approximately  $1.5  million in costs  associated  with the  Company's  business
re-engineering initiative which was completed during the fourth quarter of 1995.
Also partially  offsetting the favorable impact of the gross profit  improvement
was a one-time  charge of $483 thousand  related to the curtailment of a defined
benefit  pension plan.  This plan, for the benefit of the union employees of the
Knoxville facility,  was frozen on December 31, 1995. Future retirement benefits
for  this  employee  group  will  be  earned  in  a  newly  established  defined
contribution plan. The impact of this curtailment was a one-time non-cash charge
for  unrecognized  prior service costs that  otherwise  would have been expensed
over future years.

Interest expense of $1,040 thousand increased $328 thousand from the prior year.
Higher average  interest rates as well as increased  borrowings,  related to the
purchase of assets for the Columbia subsidiary as well as higher working capital
related to fourth quarter volumes, were responsible for the increase.

Income Taxes:
The  Company's  effective  tax  rate for 1995 was  36.6% of  pre-tax  income  as
compared  to -9.8% in 1994.  The  1994  rate was  primarily  due to the net loss
combined  with an  increase  in  non-deductible  expenses  associated  with  the
goodwill write-off.

Liquidity and Capital Resources

Liquidity:
The  Company  has  met  its  capital  requirements  with  funds  generated  from
operations and from the Company's $19 million Revolving Credit Facility (line of
credit).

 Funds of $13.7  million  were  provided  by  operating  activities  during 1996
primarily as a result of decreases in net receivables and  inventories,  as well
as increased  deferred  liabilities.  The increased  funds provided by operating
activities  were used to pay down the term note and line of  credit  from  $20.0
million in 1995 to $8.4  million in 1996.  The Company  had  working  capital of
$25.8  million in 1996 as compared to $33.1  million in 1995.  The reduction was
primarily  the  result  of  reduced   receivables  and  inventories.   Investing
activities relating to capital expenditures used $1.5 million in 1996. Financing
activities  used $12.2  million,  primarily to reduce the line of credit  ($11.6
million).   The  Company's  future  capital  expenditures  will  relate  to  the
acquisition  of new machinery and equipment and furniture and fixtures  designed
to increase productivity and efficiency. The Company believes the cash generated
from  operations  and funds  available  under the  existing  line of credit  are
sufficient for all planned operating and capital requirements.

Seasonality

The Company's sales exhibit limited  seasonality with sales in the first quarter
generally  being the lowest and fourth quarter sales the highest.  First quarter
sales tend to be relatively lower because of weather constraints which slow down
customer's  construction  schedules and their pattern of sign  purchases.  Sales
have  normally   accelerated  in  the  second,   third,   and  fourth   quarters
corresponding with accelerating construction schedules.


<PAGE>


Summary of Quarterly Results of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>

Year ended December 29, 1996:

                          First     Second       Third      Fourth        Year
--------------------------------------------------------------------------------
<S>                     <C>        <C>         <C>         <C>        <C>
Net sales               $30,142    $32,310     $33,960     $34,464    $130,876
Gross profit              4,983      5,337       6,163       6,437      22,920
Net income                  458        677       1,038         975       3,148
Net income
  per share                 .12        .18         .27         .26         .83

Price range of common stock as reported by Nasdaq:
  High                    8.750      9.000      10.000      14.500      14.500
  Low                     6.750      8.000       7.500       9.000       6.750




 Year ended December 31, 1995:

                          First      Second       Third      Fourth        Year
--------------------------------------------------------------------------------
Net sales               $20,056     $22,512     $22,402     $38,277    $103,247
Gross profit              3,370       4,154       3,842       6,767      18,133
Net income                   27         120         110       1,140       1,397
Net income
  per share                 .01         .03         .03         .30         .38

Price range of common stock as reported by Nasdaq:
  High                   10.875       8.750       7.750       6.250      10.875
  Low                     7.750       7.250       5.250       4.750       4.750
</TABLE>

<PAGE>


Common Stock Information and Dividend Policy

Plasti-Line,  Inc. Common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the Symbol:  SIGN. As of February 24, 1997, there were
160 holders of record of Plasti-Line,  Inc. Common stock.  The Company has never
paid cash  dividends.  The Board of  Directors  plans to continue  this  policy,
retaining  future  earnings to support  growth and  expansion  of the  Company's
business.

Board of Directors

Howard L. Clark, Jr.
Vice-Chairman
Lehman Brothers, Inc.

James G. Hanes, III
Investor

James A. Haslam, III
Chief Executive Officer
Chief Operating Officer
Pilot Oil Corporation

Donald F. Johnstone
President
Chief Executive Officer
Whittle Communications, L.P.

James R. Martin
Chairman
Chief Executive Officer
Plasti-Line, Inc.

J. Hoyle Rymer
President
JHR Company

James F. Smith, Jr.
Chairman of the
Executive Committee
First American Corporation

H. Mitchell Watson, Jr.
President
Sigma Group of America

Executive Officers

James R. Martin
Chairman
Chief Executive Officer

John D. Burke
Executive Vice-President
Chief Marketing Officer

Mark J. Deuschle
Vice-President - Finance
Chief Financial Officer
Treasurer/Secretary

F. Joseph Brang
Vice-President - Operations

Kathryn Coleman Wood
Vice-President - Human Resources

Independent Accountants
Coopers & Lybrand, L.L.P.
800 S. Gay Street, Suite 1600
Knoxville, Tennessee 37929

Stock Transfer Agent

Wachovia Bank & Trust Company
P.O. Box 3001
Winston-Salem, North Carolina 27102

Form 10-K

Additional  information  regarding  Plasti-line,  Inc., including copies of Form
10-K reports to the Securities and Exchange Commission,  may be obtained without
charge by written request to:

Mark J. Deuschle
Plasti-Line, Inc.
P.O. Box 59043
Knoxville, Tennessee 37950-9043

Annual Meeting
11:00 a.m.  Eastern  Standard  Time,  Tuesday,  April 8, 1997,  at the corporate
offices of Plasti-Line, Inc.

<PAGE>

                    Building for a New Retailing Era

                             (Company Logo)

Plasti-Line, Inc.
(Shipping address)
623 E. Emory Road
Powell, Tennessee 37849
(423) 938-1511

Plasti-Line Columbia, Inc.
1829 Shop Road
Columbia, South Carolina 29201
1  771-4005

American Sign & Marketing Services, Inc.
7430 Industrial Road
Florence, Kentucky 41042-0247
(606) 371-2880

Design Performance Group
1895 Airport Exchange Blvd.
Erlanger, Kentucky 41018
(606) 282-9223

Plasti-Line West
13489 Slover Avenue
Fontana, California 92337
(909) 823-1239




<PAGE>







Plasti-Line, Inc.
P.O. Box 59043
Knoxville, Tennessee 37950-9043
1-800-444-7446 Toll-free
1  947-8444 Facsimile

                            (Various Logos)

<PAGE>