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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
  [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
       ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
  [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934 [NO FEE REQUIRED], FOR THE TRANSITION PERIOD FROM
       _________ TO _________
 
                         COMMISSION FILE NUMBER 0-23077
 
                                 IMAGEMAX, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)
 
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                        PENNSYLVANIA                              23-2865585
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      (State or other jurisdiction of incorporation or         (I.R.S. Employer
                       organization)                          Identification No.)
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1100 E. HECTOR STREET, SUITE 396, CONSHOHOCKEN, PENNSYLVANIA         19428
------------------------------------------------------------       ----------
          (Address of principal executive offices)                 (Zip Code)
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       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 832-2111
 
          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 per share)
                                (Title of class)
 
     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]
 
     The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $6,888,699 as of March 29, 1999. On March 29, 1999 the
Registrant had outstanding 6,574,676 shares of Common Stock, no par value.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the Registrant's definitive proxy statement (the "Definitive
Proxy Statement") to be filed with the Securities and Exchange Commission
relative to the Company's 1999 Annual Meeting of Shareholders are incorporated
by reference into Part III of this Annual Report on Form 10-K.
 
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<PAGE>

                               TABLE OF CONTENTS
 
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ITEM                                                                                             PAGE
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PART I.........................................................................................    1
                        Item 1.     Business...................................................    1
                        Item 2.     Properties.................................................   14
                        Item 3.     Legal Proceedings..........................................   15
                        Item 4.     Submission of Matters to a Vote of Security Holders........   15
                        Item 4(a).  Executive Officers of the Registrant.......................   15
 
PART II........................................................................................   17
                        Item 5.     Market for Registrant's Common Equity and Related
                                    Shareholder
                                    Matters....................................................   17
                        Item 6.     Selected Consolidated Financial Data.......................   18
                        Item 7.     Management's Discussion and Analysis of Financial Condition
                                    and
                                    Results of Operations......................................   19
                        Item 8.     Financial Statements and Supplementary Data................   29
                        Item 9.     Changes in and Disagreements with Accountants on Accounting
                                    and Financial Disclosure...................................   29
 
PART III.......................................................................................   30
                        Item 10.    Directors and Executive Officers of Registrant.............   30
                        Item 11.    Executive Compensation.....................................   30
                        Item 12.    Security Ownership of Certain Beneficial Owners and           30
                                    Management.................................................
                        Item 13.    Certain Relationships and Related Transactions.............   30
 
PART IV........................................................................................   31
                        Item 14.    Exhibits, Financial Statement Schedules and Reports on Form   31
                                    8-K........................................................
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                                     PART I
 
ITEM 1.  BUSINESS
 
     ImageMax, Inc. was founded in November 1996 to become a leading national,
single-source provider of integrated document management solutions. On December
4, 1997, ImageMax completed its initial public offering (the "Offering") of
3,100,000 shares of Common Stock, no par value per share (the "Common Stock"),
which generated net proceeds to ImageMax of approximately $30.5 million.
Concurrently with the Offering, the Company began material operations with the
acquisition of 14 document management service companies (the "Founding
Companies"). During the first eight months of 1998, the Company acquired an
additional 13 document management service companies (the "Acquired Businesses").
In December 1998 and January 1999, the Company sold operations in three
locations. Unless otherwise indicated, all references to "ImageMax" shall mean
ImageMax, Inc. prior to the acquisitions of the Founding Companies and all
references to the "Company" and its business refer to operations subsequent to
the Offering.
 
     Prior to the Offering, ImageMax did not conduct any material operations. As
of March 9, 1999, the Company operated 17 business units in 14 states, employed
approximately 1,200 people and provided services and products to over 5,000
clients from 22 locations. The Company's services include micrographic and
electronic (digital) media conversion, data entry and indexing, document storage
and system integration. The Company also sells and supports document management
equipment and proprietary as well as third party open architecture digital
imaging and indexing software.
 
     The Company's strategy is to work with clients to develop the best solution
to their document management needs, including solutions involving both
outsourced and in-house document capture, conversion, storage and retrieval. The
majority of current document management industry revenue is derived from the
management of film and paper media. However, advances in digital and other
technologies continue to provide organizations with increasingly attractive
document management options. As a result, the Company believes the most
successful service providers are those that can offer a complete spectrum of
document management services and products encompassing solution design and
expertise in the management of digital, film and paper media. Accordingly, the
Company has targeted a broad variety of services and products, as well as
technical and vertical market expertise, in order to create a platform from
which it can become a leading national, single-source option for clients with
intensive document management needs.
 
MARKET AND INDUSTRY OVERVIEW
 
     Document management businesses provide services and products to capture,
convert, index, store and retrieve documents, whether such documents exist on
paper, microfilm or digital media. Based on information made publicly available
by the Association for Information and Image Management International ("AIIM"),
the Company believes the U.S. market for document management services and
products exceeded $6.5 billion in 1996. The Company believes that this market
has been growing at an annual rate of approximately 11% since 1994. The Company
believes that there is a large unvended component of the service market not
contained in the AIIM data because most document management services for large
organizations are still performed in-house.
 
     The Company believes that the continued growth of the document management
industry is driven by such principal factors as: (a) improvement of digital
technology (i.e., CD-ROM, computer networking and image-enabled software
applications) which has dramatically reduced the cost of imaging, storing,
indexing and retrieving documents while improving users' ability to manage
documents more efficiently; (b) greater focus by many organizations, especially
those in document-intensive industries such as health care, financial service
and engineering, on document management processes and systems as part of a wider
effort to manage their information more efficiently in order to improve
productivity, competitiveness and client service; (c) organizations' need to
manage the ever increasing volume of information facilitated by
document-generating technologies such as facsimile,
 
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high-speed printing, the Internet and computer networking; and (d) increased
outsourcing of document management services which allows organizations to focus
on core competencies and revenue generating activities, reduce fixed costs, and
gain access to new technologies without the risk and expense of near-term
obsolescence.
 
     The Company believes it is one of the larger document service providers in
a highly fragmented industry. The Company believes there are over 2,000
companies serving the document management needs of industry and government, with
a majority of these companies generating annual revenues of less than $10
million. The Company believes that many of the small businesses with which it
competes presently lack the capital for expansion, cannot keep abreast of
rapidly changing technologies, are unable to effectively manage large complex
projects, have not developed marketing and sales programs, do not have the
volume buying power needed to negotiate favorable supply contracts, and are
unable to meet the needs of large, geographically dispersed customers. The
continuing migration from paper and film to digital media has broken down many
geographic barriers to the provision of document management services and has
increased client demands for nationally integrated operations. The Company
believes that its geographic reach and broad capabilities will provide an
increasing competitive advantage.
 
BUSINESS STRATEGY
 
     The Company's goal is to become a leading national, single source provider
of integrated document management solutions. To this end, the Company acquired
27 document management service companies from December 1997 to August 1998. In
September 1998, the Company shifted its primary focus from its acquisition
program to consolidate, integrate and build the management of the acquired
network of formerly independent business units. This process has the following
key elements:
 
     Consolidate operations in selected markets.  The Company will continue to
consolidate offices and functions in certain geographic markets to gain
economies of scale, coordinate sales and marketing efforts and streamline
reporting and controls. This will result in reducing redundant physical
locations and consolidating production and administrative functions among a
cluster of locations. The Company has completed or is currently consolidating
operations in California, Texas, Massachusetts and the Midwest.
 
     Build an effective management structure.  In September 1998, the Company
organized its business units into five groups along geographic/vertical market
lines and placed the focus of day-to-day management control in the hands of five
general managers from these business units. The group leaders have substantially
improved the coordination of technical skills, production capabilities and sales
activities between business units to better fulfill customer requirements. This
structure has enabled the Company to reduce spending and staffing at its
corporate headquarters.
 
     Reduce the number of underperforming business units.  In December 1998 and
January 1999, the Company sold three facilities in the Southeast, located in
Charlotte, NC, Cayce, SC and Cleveland, TN. The Company will sell or restructure
other underperforming operations that can not be improved quickly.
 
     Enhance capabilities.  While streamlining operations, the Company is
continuing to enhance its sales, marketing and technical capabilities. Upon
their acquisition, all business units adopt the ImageMax brand name. In meeting
client needs, the Company shares technical and production resources across
business units. The Company will continue to improve the skill base of its sales
force through such tools as an on line application database, specific vertical
market training programs and a hiring program emphasizing digital imaging. In
addition, the Company is extending across its operations marketing programs used
successfully by certain business units such as telemarketing, seminar selling
and internet marketing programs. Finally, the Company is partnering with
providers of document management software and certain related business services
in cross-marketing agreements. These programs enable the Company to be a
single-source provider of integrated document management solutions across its
network of business units.
 
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     Form strategic partnerships.  The Company is forming strategic partnerships
with providers of related business services as well as providers of document
management software and image processing hardware. For example, ImageMax
software is bundled with complementary document management software and with
certain scanning equipment. In March 1999, the Company announced a co-marketing
agreement with a unit of Kinko's, Inc. that provides document production
services. Also in March 1999, the Company signed a letter of intent to form a
strategic partnership with Pierce Leahy Corp. ("Pierce Leahy"), an international
data storage and management services company, which would entail a cross-selling
arrangement and a substantial investment by Pierce Leahy in the Company, among
other features. However, although the companies are seeking to complete the
agreement by April 30, 1999, there can be no assurance as to when such agreement
will be completed or whether such agreement will be completed at all. The terms
of this letter of intent are discussed more fully in Item 7 of this Annual
Report on Form 10-K.
 
SERVICES AND PRODUCTS
 
Services
 
     The Company offers a broad range of document management services across a
variety of media types and formats. This broad range of services, together with
the Company's technical capabilities and experience in selected vertical
markets, enables the Company to tailor document management solutions for its
clients based on their specific needs. The document management services that are
currently provided by the Company include:
 
     MEDIA CONVERSION SERVICES
 
     Media conversion is labor intensive and, particularly in the case of
digital imaging, requires increasingly sophisticated equipment and systems to
accomplish efficiently. By maintaining a large skilled labor pool, sufficient
production capacity and technical capability, the Company can provide a
responsive and cost effective outsource alternative to its customers.
 
     Digital Imaging.  The Company's digital imaging services involve the
conversion of paper or microfilm documents into digital format through the use
of optical scanners and the conversion of computer output to digital images.
Once converted, digital images can be returned for client use on a CD-ROM or
optical disk or stored by the Company in a data warehouse for subsequent
retrieval and distribution. The Company believes that digital image is becoming
the preferred format of storage for many organizations due to benefits such as
high speed retrieval, multiple indexing capabilities and the ability to support
and distribute digital, film or paper output to multiple locations.
 
     Micrographics.  The Company performs micrographic services, including the
conversion of paper documents into microfilm images, the indexing of film for
computer-aided retrieval systems and computer output to microfilm ("COM").
Micrographic media are selected as an alternative to paper or digital media for
one or more of the following reasons: (i) film archives are more accessible,
longer-lived and less expensive to store than paper; (ii) film is eye-readable
and not subject to technological obsolescence; (iii) converting paper to film is
currently more cost-effective than scanning paper for most documents where ease
of accessibility is not needed; and (iv) there is a large base of organizations
with existing film archives and reader-printer equipment.
 
     Data Entry and Indexing.  The creation of index files for the rapid
retrieval of images is a critical part of most value-added document management
solutions. The Company provides specialized indexing services to a variety of
clients for both film and digital-format documents. These labor-intensive
services are often contracted for outside the U.S. as a means to utilize
qualified personnel at generally lower cost than is available domestically.
 
     STORAGE AND RETRIEVAL SERVICES
 
     Film and Paper Storage and Retrieval.  The Company manages the archiving of
client documents, including processing (i.e., indexing and formatting), storage,
retrieval, delivery and return
 
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<PAGE>

to storage of documents within a rapid time frame. Typical archival documents
include medical and legal case files, business records and financial transaction
documents. Service fees generally include billing for storage space, plus
activity charges for retrieval, delivery and return to storage, and ultimately
for document destruction. The Company currently maintains three storage
facilities in the Chicago area, the San Francisco Bay area, and in Monroe,
Louisiana.
 
Products
 
     The Company develops proprietary, open-architecture software products which
support electronic imaging and indexing services. In addition, the Company sells
and supports third-party software and offers a wide range of digital imaging,
scanning and viewing hardware, micrographic reader-printers, micrographic film
and supplies and other equipment.
 
     SOFTWARE
 
     The Company develops, markets and supports a suite of proprietary
open-architecture software products that support and enhance the scanning,
indexing and retrieval of digital images for its own use and for sale to other
document management companies and end-users. Versions of these software products
can be run on Microsoft Windows-equipped networks or personal computers, and
simplify the process of scanning, indexing and retrieving electronic images of
documents. One of the Company's products, called ScanTRAX, was initially
developed for use by document management companies in their digital conversion
operations. Other Company products, such as FileTRAX, were developed for
marketing to end-users. The Company has also developed and markets a high-end
scanning and viewing software package for the aperture card market called
ImageMaxES. This product is utilized by both service companies and end-users to
convert and index micrographic images of large format documents (in the form of
35 millimeter aperture cards) into digital images.
 
     In addition to its proprietary software, the Company also sells and
supports third party document management software such as OTG, On-Base, ALOS and
FileMagic. These software products are marketed by the Company through a network
of more than 70 other document management companies acting as value-added
resellers and also directly through the Company's own sales force to end-users
including, in some cases, other document management companies. The Company has
also established partnering relationships with software and equipment providers
which enable the Company's software to be packaged and sold with their product
offerings.
 
     HARDWARE AND OTHER EQUIPMENT
 
     The Company maintains broker or dealer relationships with a number of
document management equipment suppliers, including Bell & Howell, Canon, Kodak,
Minolta, Photomatrix, 3M and Xerox. These relationships allow the Company to
provide clients with the latest micrographic and digital image viewing, printing
and conversion equipment. Several business units provide extensive field
maintenance and repair services for the equipment they sell. Various business
units have specialized technical hardware and systems integration expertise
which is shared across the Company's operations. The Company also provides to
its clients a wide range of micrographic film products, digital media and other
graphic supplies. The Company has achieved certain purchasing efficiencies with
equipment and film suppliers and believes that it is an attractive dealer to
equipment manufacturers seeking to achieve broad geographic coverage with a
single company.
 
CLIENTS AND KEY MARKETS
 
     The Company had a broad base of over 5,000 clients in the last year. No
single client accounted for more than 5% of pro forma combined revenues for
either the year ended December 31, 1998 or 1997. The Company's customers are not
concentrated in any specific geographic area, but are concentrated primarily in
the health care, financial services, and engineering industries, as well as
certain other vertical markets.
 
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     The major markets for document management services providers are
transaction-intensive industries in which the core business processes involve
documents or industries for which there are legal or regulatory considerations
requiring the processing and storage of documents in a controlled manner. While
maintaining its diversified client base, the Company intends to increase its
expertise in certain core vertical markets. An overview of the Company's major
target markets follows:
 
     The Health Care Market:  consists of health care providers, health care
insurers and pharmaceutical companies.
 
     The Financial Services Market:  consists of commercial banks, mortgage
banking companies, insurance companies, brokerage companies and credit card and
loan processing companies.
 
     The Engineering Market:  consists of manufacturers, architectural and
engineering consultants, utilities and telecommunications companies.
 
     Other Vertical Markets:  litigation support, retail and transportation
markets, and government entities.
 
     The Company believes that it has a national reputation as a leading service
provider for the engineering market, which utilizes large-format drawings and
aperture cards. In addition, the Company provides document management services
for a variety of non-industry-specific functions including accounts receivable
and payable processing, shipping, human resources and management information
systems reporting.
 
SALES AND MARKETING
 
     Most sales efforts are conducted at the business unit level by the
Company's 62-person sales force. Efforts of the sales force are typically
supplemented by the sales activities of the business unit manager. This sale
force has succeeded in expanding its client base by pro-actively selling the
benefits of outsourcing document management functions to clients which, at the
time, were in-house operators. The Company has also leveraged existing client
relationships by cross-selling its services, products and expertise throughout
each client's organization. The Company believes that this strategy of pursuing
unvended accounts actively, in addition to competing for existing outsourced
business, will enable it to increase its market position. Methods such as
seminar selling, telemarketing and internet marketing also are employed by the
Company.
 
     The Company is also obtaining larger and more complex digital conversion
and system sales by combining the capacity and technical capabilities of
multiple business units. For example, the Company has successfully pursued
projects which require offshore data entry and digital media conversion
capabilities. This activity has been fostered by cross-company meetings and
training, improved communications, in part fostered by the Company's intranet,
coordination among the group leaders and, more generally, an increased
familiarity among the business unit managers. The Company seeks to attract
customers away from smaller industry providers through its ability to offer a
broader range of solutions and products for companies' document management
needs.
 
     The Company believes that its ability to attract and retain additional
clients will depend on its ability to offer the broad range of services and
products necessary to satisfy such clients' document management needs and
maintain a high level of customer satisfaction.
 
COMPETITION
 
     The document management services industry is competitive. A significant
source of competition is the in-house document management capability of the
Company's target client base. Additionally, the Company competes with local or
regional, independent document management companies. The Company's larger
competitors include Dataplex Corp. (a subsidiary of Affiliated Computer
Services, Inc.), F.Y.I. Incorporated, IKON Office Solutions and Lason, Inc. Many
of these competitors are larger than the Company, have greater financial and
other resources and operate in broader geographic areas than the Company.
Additionally, other potential competitors may choose to enter the Company's
areas
 
                                       5

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of operation in the future. As a result of this competitive environment, the
Company may lose clients or have difficulty in acquiring new clients and its
revenues and margins may be adversely affected.
 
     The Company believes that the principal competitive factors in document
management services include the breadth, accuracy, speed, reliability and
security of service, technical expertise, industry specific knowledge and price.
The Company competes primarily on the basis of the breadth and quality of
service, technical expertise and industry specific knowledge, and believes that
it competes favorably with respect to these factors.
 
INTELLECTUAL PROPERTY
 
     The Company regards certain of its software products, information and
know-how as proprietary and relies primarily on a combination of trademarks,
copyrights, trade secrets and confidentiality agreements to protect its
proprietary rights. The Company's business is not materially dependent on any
patents and it does not believe that any of its other proprietary rights are of
any material value. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to obtain and use information that the
Company regards as proprietary, and policing unauthorized use of the Company's
proprietary information may be difficult. Litigation may be necessary for the
Company to protect its proprietary information and could result in substantial
cost to, and diversion of efforts by, the Company.
 
     The Company does not believe that any of its proprietary rights infringe
the proprietary rights of third parties. Any infringement claims, whether with
or without merit, can be time consuming and expensive to defend or may require
the Company to enter into royalty or licensing agreements or cease the allegedly
infringing activities. The failure to obtain such royalty agreements, if
required, and the Company's involvement in such litigation could have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
ENVIRONMENTAL MATTERS
 
     The Company is subject to federal, state and local laws, regulations and
ordinances that: (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for hazardous substances and solid and liquid wastes; and
(ii) impose liability for the costs of cleaning up, and certain damages
resulting from, sites of past spills, disposal or other releases of solid and
liquid wastes.
 
     The Company is not currently aware of any environmental conditions relating
to present or past waste generation at or from these facilities that would be
likely to have a material adverse effect on the business, financial condition or
results of operations of the Company. However, the Company can not be certain
that environmental liabilities will not have a material adverse effect on its
business, financial condition or results of operations.
 
EMPLOYEES
 
     As of December 31, 1998, the Company had approximately 1,200 employees,
approximately 160 of whom were employed primarily in management and
administration. None of the Company's employees are subject to a collective
bargaining agreement, and the Company considers its relations with its employees
to be good.
 
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                                  RISK FACTORS
 
     You should carefully consider the following risks and uncertainties when
reading this Annual Report on Form 10-K. If any of the events described below
actually occur, the Company's business, financial condition or results of
operations could be materially adversely affected. Additional risks that the
Company does not yet know of or that the Company currently thinks are immaterial
may also impair the Company's business operations.
 
     The Company has made forward-looking statements in this Annual Report on
Form 10-K including information concerning the possible or assumed future of its
operations and those proceeded by, followed by, or that include the words
"anticipates," "believes," "estimates," "expects" or similar expressions. You
should understand that the risk factors described below, in addition to those
risks and uncertainties discussed elsewhere in this document, could affect the
Company's future results and could cause those results to differ materially from
those expressed in the Company's forward-looking statements.
 
THE COMPANY HAS EXPERIENCED OPERATING LOSSES AND MAY NOT BE ABLE TO CONTINUE AS
A GOING CONCERN
 
     The Company has incurred significant operating losses since the Offering
and has an accumulated deficit of $16.0 million as of December 31, 1998. For the
year ended December 31, 1998, the Company incurred a net loss of $8.4 million.
This loss includes restructuring costs (primarily severance payments related to
headcount reductions at its corporate office and a business unit and facility
costs associated with business unit consolidations) of $1.4 million and losses
on sales of underperforming business units of $5.0 million.
 
     In March 1998 the Company entered into a five-year revolving credit
facility with a national bank (the "Credit Facility") to assist in the funding
of operating activities and future acquisitions. The Credit Facility was last
amended by the parties on November 16, 1998. As of December 31, 1998, there were
no funds available under the Credit Facility and the Company was in default of
several of its financial and other covenants. These events of default limit the
Company's working capital availability, impose additional interest on borrowed
funds, and permit the lenders to accelerate full repayment of all outstanding
principal and interest amounts. As a result, the Company's indebtedness of $20.1
million under the Credit Facility has been classified as short-term debt. The
Company is in ongoing discussions with its lenders and other parties concerning
a restructuring of its financing.
 
     As of December 31, 1998, the Company had a working capital deficiency of
$17.2 million. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
 
     On March 29, 1999, the Company entered into a forbearance agreement with
the banks that are parties to its Credit Facility (the "Forbearance Agreement").
Pursuant to the Forbearance Agreement, the banks have agreed to forbear from
exercising their rights and remedies with respect to all existing defaults under
the Credit Facility until the earlier of June 30, 1999 or the occurrence of a
default under the Forbearance Agreement or an additional default under the
Credit Facility.
 
     Under the terms of the Forbearance Agreement, the current interest rate on
the outstanding obligations under the Credit Facility increase by two percent
(2%) per annum. In addition, the Company is required to maintain a daily cash
balance in its accounts of at least $300,000 and the Company may not make
capital expenditures in excess of $50,000 without the prior consent of its
banks. The Company is also required to enter into definitive agreements in
connection with the Pierce Leahy strategic partnership no later than April 30,
1999. The Company incurred a fee of $100,000 under the Forbearance Agreement,
$50,000 of which was paid upon the execution of the Forbearance Agreement and
the other $50,000 to be paid upon its termination.
 
     The Company's independent public accountants, Arthur Andersen LLP, have
stated in their audit report included in this Annual Report on Form 10-K that
the events of default under the Credit Facility raise substantial doubt about
the Company's ability to continue as a going concern. See page F-2. If the
Company is not able to favorably restructure its financing or if it continues to
incur significant
 
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operating losses, the Company may not be able to sustain its operations and
continue as a going concern.
 
THE COMMON STOCK HAS BEEN DELISTED FROM THE NASDAQ NATIONAL MARKET
 
     On January 28, 1999, the Nasdaq Stock Market, Inc. ("Nasdaq") notified the
Company that the Common Stock was delisted from the Nasdaq National Market,
effective with the close of business, January 28, 1999, because of the Company's
inability to remain in compliance with certain maintenance standards required
for continued listing on the Nasdaq National Market. Presently, and since that
date, the Common Stock has been eligible to trade on the OTC Bulletin Board. The
delisting of the Common Stock from the Nasdaq National Market may substantially
reduce the liquidity of, and market for, such Common Stock.
 
THE COMPANY'S OFFICERS AND DIRECTORS AND SEVERAL EXISTING SHAREHOLDERS TOGETHER
HAVE SUBSTANTIAL CONTROL OVER THE COMPANY
 
     As of March 29, 1999, the former shareholders of the Founding Companies and
Acquired Businesses and the other directors and executive officers of the
Company, and entities affiliated with them, beneficially own approximately 36.6%
of the outstanding shares of Common Stock of the Company and are likely to
continue to exercise substantial control over the Company's affairs. These
shareholders acting together would likely be able to elect a sufficient number
of directors to control the Board of Directors of the Company and to approve or
disapprove most matters submitted to a vote of shareholders.
 
     In addition, on March 12, 1999, the Company and Pierce Leahy signed a
letter of intent to form a strategic partnership. Under the strategic
partnership arrangement, Pierce Leahy will purchase 3,144,000 shares of a new
series of ImageMax preferred stock, each share of which is convertible into one
share of Common Stock. Pierce Leahy will also receive two warrants that may be
exercised over the next four and five years, respectively, to purchase from the
Company 1,719,000 shares and 1,861,000 additional shares of preferred stock at
$4.00 and $5.00 per share, respectively. Pierce Leahy will have the right to
elect a majority of the Company's board of directors, subject to certain
conditions. If the strategic partnership is consummated, Pierce Leahy would
control the Company's board of directors. Further, if Pierce Leahy were to
convert its preferred stock into, and exercises its warrants to purchase, Common
Stock, it may have enough voting power to approve or disapprove most matters
submitted to a vote of shareholders.
 
SIGNIFICANT AMOUNTS OF ACQUIRED GOODWILL REDUCE THE COMPANY'S NET INCOME
 
     As of December 31, 1998, $46.6 million, or 67.0%, of the Company's total
assets represented intangible assets arising from its acquisitions, of which
$45.9 million was goodwill and $0.7 million was acquired developed technology.
The Company amortizes goodwill over a period of 30 years and acquired developed
technology over a period of seven years. Goodwill is an intangible asset that
represents the difference between the total purchase price of these acquisitions
and the amount of this purchase price allocated to the fair value of the net
assets acquired. The amortization in a particular period represents a non-cash
expense that reduces the Company's net income in that period. In addition, as
was the case when the Company sold three locations in December 1998 and January
1999, if the Company sells or liquidates its assets, the Company cannot be sure
that the value of these intangible assets would be recovered. In addition, the
Company cannot be certain that it will be able to fully realize these intangible
assets over their amortization periods.
 
CHANGES IN TECHNOLOGY COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS
 
     The announcement or introduction of competing services or products
incorporating new technologies or the emergence of new technical standards could
render some or all of the Company's services or products unmarketable. The
Company believes that its future success depends on its ability to enhance its
current services or products and develop new services or products that address
the increasingly sophisticated needs of its clients. The failure of the Company
to develop and introduce enhancements and new services in a timely and
cost-effective manner in response to changing
 
                                       8

<PAGE>

technologies or client requirements could have a material adverse effect on the
Company's business, financial condition or results of operations. Further, many
of the current services and products offered by the Company use technologies
that are non-proprietary in nature. The Company cannot be certain that it will
be able to obtain the rights to use any newly developed technologies, that it
will be able to effectively implement these technologies on a cost-effective
basis or that these technologies will not ultimately render obsolete the
Company's role as a third party provider of document management services and
products.
 
THE COMPANY OPERATES IN A HIGHLY COMPETITIVE INDUSTRY
 
     The Company operates in a competitive environment. The document management
services industry is highly fragmented and has relatively low barriers to entry.
A significant source of competition results from the in-house document handling
capability of businesses within the Company's target markets, referred to as the
"unvended" part of the market. These businesses may not increasingly outsource
their document management requirements and other businesses may develop
capabilities to keep in-house many of the document management services they
currently outsource. Many of the Company's competitors are larger than the
Company, have greater financial and other resources than the Company and operate
in broader geographic areas than the Company. Other companies may choose to
enter the document management services industry in the future. Further, if the
Company enters new geographic areas, it will likely encounter significant
competition from established competitors in each of these new areas. As a result
of this competitive environment, the Company may lose clients or have difficulty
in acquiring new clients, and its business, financial condition and results of
operations may be adversely affected.
 
THE COMPANY MUST BE ABLE TO ATTRACT AND RETAIN KEY MANAGEMENT AND OTHER
PERSONNEL
 
     The Company's operations depend on the performance of:
 
          o its executive management team; and
 
          o the senior management of its business units.
 
     In September 1998 and November 1998, the Company's Chief Executive Officer
and Chief Operating Officer resigned from their employment with the Company, and
since September 1998, the Company has been operating under an Acting Chief
Executive Officer. In addition, if any of the executive management team or
senior management of the business units is unable or unwilling to continue in
their present roles, or if the Company is unable to attract and retain other
skilled employees, the Company's business, financial condition and results of
operations could be materially and adversely affected.
 
     The Company's future success and plans for growth also depend on its
ability to attract, train and retain personnel in all areas of its business.
There is strong competition for qualified personnel in the document management
services industry and in many of the geographic markets in which the Company
competes. As of September 1, 1997, the federal minimum wage increased to $5.15
an hour and this rate may increase in the future. In addition, California and
other states have increased or may increase their minimum wage above the federal
minimum. If the Company increases wages to remain competitive, its business,
financial condition and results of operations may be materially adversely
affected.
 
THE COMPANY DEPENDS ON SELECTED MARKETS FOR ITS REVENUES
 
     The Company derives its revenues primarily from its target markets,
including the health care, financial services and engineering industries.
Fundamental changes in the business practices of any of these markets, whether
due to regulatory, technological or other developments, could cause a material
reduction in demand by these clients for the services offered by the Company.
Any such reduction in demand may have a material adverse effect on the Company's
business, financial condition and results of operations.
 
                                       9

<PAGE>

THE COMPANY'S QUARTERLY RESULTS OF OPERATIONS MAY FLUCTUATE
 
     The Company's results of operations may fluctuate in any given year, and
from quarter to quarter. Factors that may cause material fluctuations in
quarterly results of operations include:
 
          o the gain or loss of significant clients;
 
          o increases or reductions in the scope of services performed for
            significant clients;
 
          o the timing or completion of significant projects;
 
          o the relative mix of higher and lower margin projects;
 
          o changes in pricing strategies, capital expenditures and other costs
            relating to the expansion of operations;
 
          o the hiring or loss of personnel;
 
          o other factors that may be outside of the Company's control;
 
          o the timing and structure of acquisitions; and
 
          o the timing and magnitude of costs related to acquisitions.
 
     In addition, because the anticipated financial benefits of the combination
of the Founding Companies and the Acquired Businesses may not be generated
immediately, the Company's early results as a combined company may reflect
corporate overhead that exceeds the realized benefits. As a result of the
foregoing and other factors, the Company may experience material fluctuations in
its results of operations on a quarterly basis, which may contribute to
volatility in the price of the Common Stock. Given the possibility of these
fluctuations, the Company believes that quarterly comparisons of the results of
its operations during any fiscal year may not be meaningful and that results for
any one fiscal quarter may not be indicative of future performance.
 
THE COMPANY'S BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF IT IS UNABLE TO
INTEGRATE THE BUSINESSES IT ACQUIRES OR EFFECTIVELY MANAGE ITS GROWTH.
 
     The Company acquired the Acquired Businesses in 1998. The Company may not
achieve the anticipated benefits from its acquisitions unless the operations,
internal systems and controls of the Acquired Businesses are successfully
combined with those of the Company in a timely manner. In addition, the Company
cannot be certain that the operating results of the Company will match or exceed
the combined individual operating results achieved by the Founding Companies,
Acquired Businesses or additionally acquired companies prior to their
acquisition. A number of the Founding Companies and Acquired Businesses offer
different services, utilize different capabilities and technologies and target
different geographic markets and industries. These differences increase the risk
inherent in successfully completing their integration. In addition, the Company
cannot be certain that the Company's current systems will be adequate for its
future needs, that the Company will be successful in implementing new systems or
that the cost of any such new systems will not be material. Any difficulties
encountered in the integration process could have an adverse impact on the
Company's business, financial condition and results of operations.
 
     The integration of the Founding Companies and the Acquired Businesses and
any future acquisitions requires substantial attention from the Company's
management. The Company's rapid expansion during 1998 also has placed
significant demands on its executive and senior management and other resources.
With the addition of the Acquired Businesses, the Company's employees increased
from approximately 950 at December 31, 1997 to approximately 1,200 at December
31, 1998. In addition, the Company's executive and senior management has limited
experience managing a business of the Company's size or managing a public
company. If the Company is unable to manage its growth effectively, the
Company's business, financial condition and results of operations may be
materially and adversely affected.
 
                                       10

<PAGE>

THE COMPANY WILL NEED ADDITIONAL FINANCING FOR FUTURE ACQUISITIONS
 
     To the extent that the Company is able to acquire document management
services businesses, it will finance the acquisitions by:
 
          o using cash from operations;
 
          o issuing shares of Common Stock, debt or other securities; and
 
          o borrowing under the Company's then-existing credit facilities.
 
     In March 1998, the Company entered into the Credit Facility to assist in
the funding of future acquisitions and operating activities. As of December 31,
1998, there were no available funds under the Credit Facility. The Company will
need additional debt or equity financing in order to make any future
acquisitions. The Company cannot be sure that it will be able to obtain such
financing, if and when it is needed, or that, if available, this financing will
be available on terms the Company deems acceptable. If the Company does not have
sufficient cash resources or availability under its then-existing credit
facilities, or if the Common Stock does not maintain sufficient value or
potential acquisition candidates are unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company will be unable
to successfully acquire additional document management services companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
     The Company may substantially increase its level of indebtedness to finance
future acquisitions. The degree to which the Company is financially leveraged
following these borrowings and the terms of the Company's indebtedness could
have adverse effects on the Company's business, operations and financial
condition, including:
 
          o impairing the Company's ability to obtain additional financing in
            the future for working capital and general corporate purposes, to
            make acquisitions, fund capital expenditures and pay dividends;
 
          o causing the Company to dedicate a substantial portion of its cash
            flow from operations to the payment of the principal of, and
            interest on, its indebtedness;
 
          o exposing the Company to variable rate interest risks;
 
          o limiting the ability of the Company to effect future debt or equity
            financings and otherwise restricting corporate activities; and
 
          o placing the Company at a competitive disadvantage to those
            competitors who are not as highly financially leveraged.
 
THE COMPANY MAY INCUR LIABILITY FOR BREACH OF CONFIDENTIALITY
 
     A substantial portion of the Company's business involves the handling of
documents containing confidential and other sensitive information. The Company's
unauthorized disclosures of this type of information could result in liability
to the Company and could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
RISKS RELATED TO ENVIRONMENTAL CONDITIONS
 
     For part of its operations the Company uses chemical products that are
regulated under federal, state and local laws as hazardous substances and which
produce wastes that also are regulated under these laws. The Company is not
currently aware of any environmental conditions relating to present or past
waste generation at or from these operations that would be likely to have a
material adverse effect on its business, financial condition or results of
operations. However, any environmental liabilities incurred by the Company under
these laws could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
                                       11

<PAGE>

PUBLIC SECTOR MARKET AND CONTRACTING RISKS
 
     Though a modest portion of the Company's present business involves public
sector contracts, the Company anticipates growth in the portion of its business
coming from contracts with local, state and federal government agencies.
Business with governmental agencies may be easily terminated or lost because
public sector contracts generally:
 
          o are subject to detailed regulatory requirements;
 
          o are subject to public policies and funding priorities;
 
          o may be conditioned upon the continuing availability of public funds,
 
          o are subject to certain pricing constraints; and
 
          o may be terminated for a variety of factors, including when it is in
            the best interests of the particular governmental agency.
 
     Loss or termination of significant public sector contracts due to these
factors or others unique to contracts with governmental entities may have a
material adverse effect on the Company's future business, financial condition
and results of operations.
 
THE PRICE OF THE COMMON STOCK IS SUBJECT TO SIGNIFICANT VOLATILITY
 
     The market price for the Common Stock has been highly volatile. This
volatility may adversely affect the price of the Common Stock in the future.
Prices for the Common Stock will be determined by the marketplace and may be
influenced by many factors, including;
 
          o the depth and liquidity of the trading market;
 
          o investor perception of the Company;
 
          o general economic and market conditions and trends;
 
          o the Company's financial results;
 
          o quarterly variations in the Company's financial results;
 
          o changes in earnings estimates by analysts and reported earnings that
            vary from such estimates;
 
          o press releases by the Company or others; and
 
          o developments affecting the Company or its industry.
 
     The stock market has, on occasion, experienced extreme price and volume
fluctuations which have often been unrelated to the operating performance of the
affected companies.
 
PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS AND
PENNSYLVANIA LAW COULD DETER TAKEOVER ATTEMPTS
 
     Some provisions of the Company's amended and restated articles of
incorporation (referred to as the "articles") and amended and restated bylaws
(referred to as the "bylaws") could delay or frustrate the removal of incumbent
directors, discourage potential acquisition proposals and proxy contests and
delay, defer or prevent a change in control of the Company, even if such events
could be beneficial, in the short term, to the interests of the shareholders.
For example, the articles allow the Company to issue preferred stock with rights
senior to those of the Common Stock without shareholder action and provide that
the Company's shareholders may call a special meeting of shareholders only upon
a request of shareholders owning at least 50% of the Company's capital stock.
The bylaws provide for the Board of Directors of the Company to be divided into
three classes of directors serving three-year staggered terms and that directors
may be removed only for cause.
 
     The articles authorize the issuance of up to 40,000,000 shares of Common
Stock and 10,000,000 shares of preferred stock, no par value per share. The
Board of Directors of the Company has the power to determine the price and terms
under which preferred stock may be issued and to fix the terms. The ability of
the Board of Directors of the Company to issue one or more series of Preferred
Stock without shareholder approval, as well as certain applicable statutory
provisions under the Pennsylvania
 
                                       12

<PAGE>

Business Corporation Law of 1988, as amended, could deter or delay unsolicited
changes in control of the Company by discouraging open market purchases of the
Common Stock or a non-negotiated tender or exchange offer for Common Stock,
which may be disadvantageous to the Company's shareholders who may otherwise
desire to participate in this type of transaction and receive a premium for
their shares.
 
     The Pennsylvania Business Corporation Law contains a number of statutory
"anti-takeover" provisions applicable to the Company. One such provision
prohibits, subject to exceptions, a "business combination" with a shareholder or
group of shareholders (and certain affiliates and associates of such
shareholders) beneficially owning more than 20% of the voting power of a public
corporation (referred to as an "interested shareholder") for a five-year period
following the date on which the holder became an interested shareholder. This
provision may discourage open market purchases of a corporation's stock or a
non-negotiated tender or exchange offer for such stock and, accordingly, may be
considered disadvantageous by a shareholder who would desire to participate in
any such transaction. The Pennsylvania Business Corporation Law also provides
that directors may, in discharging their duties, consider the interests of a
number of different constituencies, including shareholders, employees,
suppliers, customers, creditors and the community in which it is located.
Directors are not required to consider the interests of shareholders to a
greater degree than other constituencies' interests. The Pennsylvania Business
Corporation Law expressly provides that directors do not violate their fiduciary
duties solely by relying on poison pills or the anti-takeover provisions of the
Pennsylvania Business Corporation Law.
 
     In addition, under the terms of the letter of intent between the Company
and Pierce Leahy to form a strategic partnership, Pierce Leahy would be able to
control the Company's board of directors and have the right to convert the
securities acquired in the arrangement into a significant amount of Common
Stock. If the strategic partnership with Pierce Leahy is consummated, Pierce
Leahy may be able to delay or frustrate potential acquisition proposals or
changes in control of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Recent Developments."
 
ABSENCE OF DIVIDENDS
 
     The Company has never declared or paid cash dividends on its Common Stock
and currently intends to retain all available funds for use in the operation and
expansion of its business. The Company does not anticipate that any cash
dividends on the Common Stock will be declared or paid in the foreseeable
future.
 
                                       13

<PAGE>

ITEM 2.  PROPERTIES
 
     The Company's headquarters offices are in Conshohocken, Pennsylvania
occupying 2,955 square feet maintained under a lease expiring in February 2000.
In addition, as of December 31, 1998, the Company conducted operations through
one owned and 28 other leased facilities in 14 states containing, in the
aggregate, approximately 394,000 square feet. The Company's principal facilities
are summarized in the following table:
 
<TABLE>
<CAPTION>
                          APPROXIMATE
LOCATION                 SQUARE FOOTAGE                 PRINCIPAL USE(S)
--------                 --------------                 ----------------
<S>                      <C>              <C>
Tempe, AZ                     8,800       Document management operations, offices
Hayward, CA                  15,600       Document management operations, offices
Emeryville, CA               24,000       Warehouse
Sacramento, CA                6,000       Document management operations
Chesterton, IN*              41,000       Offices, document management operations
Chesterton, IN               11,000       Warehouse
Indianapolis, IN              8,000       Offices, document management operations
                                          Retail, document management operations,
Monroe, LA                   65,000       offices
Bossier City, LA              4,000       Offices
Stoughton, MA                47,000       Document management operations, offices
Saginaw, MI                  20,000       Document management operations, offices
Minnetonka, MN                7,000       Document management operations, offices
Lincoln, NE                   4,300       Document management operations, offices
Lincoln, NE                   6,900       Warehouse, offices
Millwood, NY                  1,000       Offices
Syracuse, NY                  1,200       Warehouse
Syracuse, NY                  9,000       Document management operations, offices
Dayton, OH                   12,500       Document management operations, offices
Eugene, OR                   11,400       Document management operations, offices
Eugene, OR                    1,500       Warehouse
Eugene, OR                    2,300       Document management operations, offices
Portland, OR                 13,500       Document management operations, offices
Philadelphia, PA              2,000       Document management operations, offices
Dallas, TX                   15,000       Document management operations, offices
Ft Worth, TX                  8,000       Document management operations, offices
Houston, TX                  20,000       Document management operations, offices
Houston, TX                   5,000       Document management operations, offices
Forest, VA                   21,500       Document management operations, offices
Richmond, VA                  1,300       Offices
</TABLE>
 
------------------
* Owned facility
 
     The Company believes that its properties are generally well maintained, in
good condition and adequate for its present needs, and that suitable additional
or replacement space will be available when needed. The Company owns or leases
under both operating and capital leases substantial computer, scanning and
imaging equipment which it believes to be adequate for its current needs.
 
                                       14

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS
 
     The Company is from time to time a party to litigation arising in the
ordinary course of its business. The Company is not subject to any pending
material litigation.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
ITEM 4(A)  EXECUTIVE OFFICERS OF THE COMPANY
 
     The Company's executive officers and their respective ages and positions
are as follows:
 
NAME                      AGE                     POSITION
----                      ---                     --------
Andrew R. Bacas........   40    Acting Chief Executive Officer and Director
James D. Brown.........   41    Senior Vice President -- Finance, Chief
                                Financial Officer, Assistant Secretary and
                                Treasurer
 
     ANDREW R. BACAS has been serving as the Company's Acting Chief Executive
Officer since September 1998. He is also a founder of the Company and has been a
director since its inception. Mr. Bacas joined GBL Capital Corporation in May
1997 and served as the Company's Senior Vice President -- Corporate Development
from August 1997 to September 1998, when he became Acting Chief Executive
Officer of the Company. From 1992 to May 1997, Mr. Bacas was an associate and
later a Vice President -- Corporate Finance of Simmons & Company International,
an investment bank to the international oil service and equipment industry. From
1991 to 1992, Mr. Bacas was a financial analyst for the Upstream Business Unit
at Exxon Company, USA. From 1984 to 1991, Mr. Bacas was a Naval Flight Officer
in the United States Navy. Mr. Bacas has an undergraduate degree in Engineering
from Yale University and an MBA from the Wharton School of the University of
Pennsylvania.
 
     JAMES D. BROWN has been the Chief Financial Officer of the Company since he
joined the Company in August 1997. From March 1996 to August 1997, Mr. Brown was
the Chief Financial Officer of LMR Holdings, Inc., a textile component
manufacturer. In 1995, Mr. Brown was a consultant specializing in accounting
controls and financing. From 1990 to 1994, Mr. Brown was a controller and Chief
Financial Officer of various operating companies of Joseph Littlejohn & Levy, a
merchant bank. Mr. Brown has an undergraduate degree in Economics from Hamilton
College and a Masters degree in Accounting from New York University. Mr. Brown
is a certified public accountant.
 
     GROUP AND BUSINESS UNIT MANAGEMENT.  Other significant management employees
of the Company are as follows:
 
          Gary D. Blackwelder, age 42, served as President of I(2) Solutions,
     one of the Founding Companies, from 1989 until its acquisition by the
     Company. Mr. Blackwelder has managed the Company's Monroe, LA business unit
     since December 1997. Mr. Blackwelder is the Group Leader for the Monroe,
     LA, Houston, TX and Dallas, TX business units.
 
          Blair Hayes, age 36, served as Vice President of Advanced Image
     Management, Inc. from 1988 until its acquisition by the Company in 1998.
     Mr. Hayes is a Group Leader for the Forest, VA, Chesterton, IN and Saginaw,
     MI business units.
 
          Rex Lamb, age 40, has managed the Company's Lincoln, Nebraska business
     unit and has served as a director of the Company since December 1997. Mr.
     Lamb founded DocuTech, Inc., a document management services company, in
     1991 and served as its President from inception until its acquisition by
     the Company in December 1997. Mr. Lamb co-founded DocuTech Data Systems,
     Inc., a provider of open-architecture document-scanning software products,
     in 1994 and served as its President since inception until its acquisition
     by the Company in December 1997. Mr. Lamb has an undergraduate degree in
     Education from the University of Nebraska. Mr. Lamb is the Group Leader for
     the Lincoln, NE, Syracuse, NY and Minnetnka, MN business units.
 
                                       15

<PAGE>

          John E. Semasko, age 53, a director of the Company since December
     1997. Mr. Semasko acquired Oregon Mico-Imaging, Inc., a document management
     services company, in 1975 and served as its President from its inception
     until its acquisition by the Company in December 1997. Mr. Semasko has an
     undergraduate degree in Forestry from Rutgers University. Mr. Semasko is
     the Group Leader for the Eugene, OR, Hayward, CA and Tempe, AZ business
     units.
 
          Mitchell J. Taube, age 42, has managed the Company's Millwood, New
     York business unit since December 1997 and has served as a director of the
     Company since June 1998. Mr. Taube is a director of Briarcliff Manor
     Education Foundation and currently serves on the Service Company Executive
     Committee of the Association for Information and Image Management
     International. Mr. Taube has an undergraduate degree and an MBA from
     Hofstra University. Mr. Taube is the Group Leader for the Millwood, NY,
     Dayton, OH, Philadelphia, PA and Indianapolis, IN business units.
 
                                       16

<PAGE>

                                    PART II
 
ITEM 5.  MARKET FOR COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
     The Company's Common Stock formerly traded on the Nasdaq National Market
under the symbol "IMAG" and presently trades on the OTC Bulletin Board under the
same symbol. Shares of the Company's Common Stock were first traded publicly on
December 4, 1997. The following table sets forth, for the periods indicated, the
high and low bid prices per share of the Common Stock, as reported on the Nasdaq
National Market or the OTC Bulletin Board, as applicable, since the Offering in
December 1997.
 
                                                       HIGH           LOW
                                                       ----           ---
1997 Fourth Quarter
  (from December 4, 1997)..........................   $12 1/4        $9 7/8
1998 First Quarter.................................   $11 5/8        $5 5/8
1998 Second Quarter................................   $8 1/2         $5
1998 Third Quarter.................................   $6             $2
1998 Fourth Quarter................................   $2 11/16       $ 11/16
1999 First Quarter
  (through March 29, 1999).........................   $1 5/8         $ 9/16
 
     On March 29, 1999, the closing bid price for a share of Common Stock as
reported by the OTC Bulletin Board was $1.31 and the number of holders of record
of the Common Stock was 87. The over-the-counter market quotations reflect
inter-dealer prices, without retail markup, markdown or commission and may not
necessarily represent actual transactions.
 
     On January 28, 1999, Nasdaq notified the Company that the Common Stock was
delisted from the Nasdaq National Market, effective with the close of business,
January 28, 1999, due to the Company's inability to remain in compliance with
certain maintenance standards required for continued listing on the Nasdaq
National Market. Presently, and since that date, the Common Stock has been
eligible to trade on the OTC Bulletin Board. The OTC Bulletin Board is operated
by the National Association of Securities Dealers as a forum for electronic
trading and quotation.
 
     The Company has not paid any dividends since its inception and currently
intends to retain all earnings for use in its business. In addition, the Company
is subject to certain restrictions with respect to the payment of dividends on
its Common Stock, pursuant to the provisions contained in its credit facility.
The declaration and payment of dividends in the future will be determined by the
Company's Board of Directors in light of conditions then existing, including the
Company's earnings, financial condition, capital requirements and other factors.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
 
     During the fourth quarter of 1998, the Company issued 115,836 shares of
Common Stock as partial earnout consideration for a prior acquisition of an
Acquired Business. The issuance of such securities did not involve underwriters
and was exempt from registration under the Securities Act by virtue of the
exemption provided by Section 4(2) thereof for transactions not involving any
public offering.
 
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
 
     The selected historical consolidated financial data presented below have
been derived from the Company's consolidated financial statements for each of
the periods indicated. The data set forth below is qualified by reference to and
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements included as Items 7 and 8 in this Annual Report on Form 10-K.
 
                                       17

<PAGE>

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
                                                         YEAR ENDED           FROM INCEPTION
                                                        DECEMBER 31,        (NOVEMBER 12, 1996)
                                                    ---------------------           TO
                                                     1998          1997      DECEMBER 31, 1996
                                                    -------       -------   -------------------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>           <C>       <C>
Revenues:
     Services....................................   $49,387       $ 2,344         $   --
     Products....................................    15,189           767             --
                                                    -------       -------         ------
                                                     64,576         3,111             --
                                                    -------       -------         ------
Cost of revenues:
     Services....................................    33,252         1,603             --
     Products....................................    10,587           524             --
     Depreciation................................     1,565            94             --
                                                    -------       -------         ------
                                                     45,404         2,221             --
                                                    -------       -------         ------
           Gross profit..........................    19,172           890             --
 
Selling and administrative expenses..............    17,606         2,074             23
Amortization of intangibles......................     1,482           112             --
Restructuring costs..............................     1,387            --             --
Loss on sale of business units...................     4,995            --             --
Special compensation charge......................        --         2,235             --
Acquired in-process research and development
  charge.........................................        --         4,000             --
                                                    -------       -------         ------
           Operating loss........................    (6,298)       (7,531)           (23)
 
Interest expense.................................     2,133             8             --
                                                    -------       -------         ------
Net loss.........................................   $(8,431)      $(7,539)        $  (23)
                                                    =======       =======         ======
Basic and diluted net loss per share.............   $ (1.40)      $ (8.13)        $(0.04)
                                                    =======       =======         ======
Basic and diluted weighted average number of
  shares outstanding.............................     6,034           928            550
                                                    =======       =======         ======
 
BALANCE SHEET DATA:
 
<CAPTION>
                                                                   DECEMBER 31,
                                                    -------------------------------------------
                                                     1998          1997            1996
                                                    -------       -------   -------------------
                                                                  (IN THOUSANDS)
<S>                                                 <C>           <C>       <C>
     Cash and cash equivalents...................   $   736       $ 1,310         $   62
     Working capital (deficiency)................   (17,228)        2,994             57
     Intangible assets...........................    46,607        32,996             --
     Total assets................................    69,574        48,228             62
     Total debt..................................    20,496           593             --
     Shareholders' equity........................    36,652        40,018             57
</TABLE>
 
                                       18

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
     The following discussion should be read in conjunction with the Company's
financial statements and related notes thereto and the "Selected Consolidated
Financial Data" set forth in Item 6 of this Annual Report on Form 10-K. Except
for the historical information contained herein, this and other sections of this
Annual Report on Form 10-K contain certain forward-looking statements that
involve substantial risks and uncertainties. When used in this Annual Report on
Form 10-K, the words "anticipate," "believe," "estimate," "expect", and similar
expressions, as they relate to the Company or its management, are intended to
identify such forward-looking statements. The Company's actual results,
performance, or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. Factors that could cause or
contribute to such differences include those set forth in "Business -- Risk
Factors."
 
INTRODUCTION
 
     ImageMax was founded in November 1996 to become a leading, national
single-source provider of integrated document management solutions. See
"Business." The Company's revenues are derived from a broad range of media
conversion, storage and retrieval services, the sale of proprietary, open-
architecture software products which support digital imaging and indexing
services and the sale and service of a variety of document management equipment.
 
     In connection with the Offering, the Company acquired 14 document
management service companies (the "Founding Companies"). Since the Offering
through December 31, 1998, the Company has acquired the Acquired Businesses. In
December 1998 and January 1999, the Company sold facilities in Charlotte, NC,
Cayce, SC, and Cleveland, TN (the "Southeast Group").
 
     The Company's revenues consist of service revenues, which are generally
recognized as the related services are rendered, and product revenues which are
recognized when the products are shipped to clients. Service revenues are
primarily derived from media conversion, storage and retrieval, imaging and
indexing of documents, and the service of imaging and micrographic equipment
sold. Product revenues are derived from equipment sales and software sales and
support. Cost of revenues consists principally of the costs of products sold and
wages and related benefits, supplies, facilities and equipment expenses
associated with providing the Company's services. Selling and administrative
("S&A") expenses include salaries and related benefits associated with the
Company's executive and senior management, marketing and selling activities
(principally salaries and related costs), and financial and other administrative
expenses.
 
        The Company has incurred significant operating losses since inception,
and as of December 31, 1998 had an accumulated deficit of $16.0 million. In
addition, as more fully described under "Liquidity and Capital Resources," the
Company is in default of its credit facility with its banks under which it has
borrowed $20.1 million, which raises substantial doubt about the ability of the
Company to continue as a going concern. See "Business -- Risk Factors" and
report of independent public accountants included in this Annual Report on Form
10-K.
 
HISTORICAL RESULTS OF OPERATIONS
 
Year Ended December 31, 1998
 
     The results of operations for the year ended December 31, 1998 include the
revenues, cost of revenues and S&A expenses of the Founding Companies for the
entire year, and for Acquired Businesses from the dates of their acquisitions.
See results of historical operations for the year ended December 31, 1998
compared to supplemental pro forma, as adjusted, results of operations for the
year ended December 31, 1997 for a discussion of historical 1998 operating
results.
 
                                       19

<PAGE>

Year ended December 31, 1997
 
     The results of operations for the year ended December 31, 1997 include the
revenues, cost of revenues and S&A expenses for the Founding Companies only from
December 9, 1997, the date of their acquisitions.
 
     Revenues and Cost of Revenues.  Revenues and cost of revenues for the year
ended December 31, 1997 consisted entirely of the operating results of the
Founding Companies from December 9, 1997. Prior to the acquisitions of the
Founding Companies, the Company generated no operating revenues.
 
     Selling and Administrative Expenses.  S&A expenses amounted to $2.1 million
for the year ended December 31, 1997. These expenses consisted primarily of
Founding Companies' administrative expenses and of management fees paid to GBL
Capital Corporation, including $0.5 million pursuant to a management agreement.
 
     Special Compensation Charge.  In 1997, the Company sold a total of 259,135
shares of Common Stock to officers and directors of ImageMax and to certain
management personnel of the Founding Companies, at prices of $1.18, $2.36 and
$4.73 per share. As a result, the Company recorded a non-recurring, non-cash
compensation charge of approximately $2.2 million, representing the difference
between the amount paid for the shares and the deemed value for accounting
purposes (based on the Offering price of $12.00 per share).
 
     Acquired In-process Research and Development Charge.  In connection with
one of the Founding Companies, the Company incurred a one-time charge of $4.0
million for acquired in-process research and development relating to the value
of certain software development projects underway as of the acquisition.
 
From Inception to December 31, 1996
 
     Selling and Administrative Expenses.  S&A expenses amounted to $23,000 in
the period from inception of ImageMax (November 12, 1996) to December 31, 1996.
These expenses consist primarily of management fees paid to GBL Capital
Corporation and administrative expenses.
 
HISTORICAL RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND
SUPPLEMENTAL PRO FORMA, AS ADJUSTED, RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996.
 
     Prior to their acquisitions, the Founding Companies were managed throughout
1996 and 1997 as independent private companies, and their results of operations
reflect different tax structures (S corporations and C corporations) which
influenced, among other things, their historical levels of owners' compensation.
Certain former owners and key employees of the Founding Companies agreed to
certain reductions in their historical compensation subsequent to the Offering.
 
     In July 1996, the Commission issued Staff Accounting Bulletin No. 97 ("SAB
97") relating to business combinations immediately prior to an initial public
offering. SAB 97 requires that these combinations be accounted for using the
purchase method of acquisition accounting. Under the purchase method of
accounting, one of the companies must be designated as the accounting acquiror.
In the Offering, ImageMax was identified as the accounting acquiror.
Accordingly, $33.1 million of goodwill relating to the Founding Companies has
been amortized as a non-cash charge to the statement of operations principally
over a 30-year period and developed technology of $0.8 million has been
amortized over a seven-year period. The annual pro forma impact of this
amortization expense in 1997 and 1996 was $1.2 million, of which $0.8 million is
non-deductible for tax purposes. This factor will tend to cause the effective
tax rate to be higher than the statutory rate.
 
                                       20

<PAGE>

     For purposes of discussion, the following table presents supplementary pro
forma, as adjusted, results of operations for the years ended December 31, 1997
and 1996 as if the acquisitions of the Founding Companies and the Offering
occurred on January 1, 1996. The supplemental pro forma, as adjusted, results do
not reflect the acquisition of the Acquired Businesses. The supplemental pro
forma, as adjusted, results are not necessarily indicative of the results the
Company would have obtained had these events actually then occurred or of the
Company's future results. Management believes the following presentation is
informative in analyzing the business.
 
<TABLE>
<CAPTION>
                                                               SUPPLEMENTAL PRO FORMA, AS ADJUSTED,
                                  HISTORICAL RESULTS FOR          FOR THE YEAR ENDED DECEMBER 31,
                                      THE YEAR ENDED          ---------------------------------------
                                    DECEMBER 31, 1998                1997                  1996
                                  ----------------------      ------------------      ---------------
                                                            (IN THOUSANDS)
<S>                               <C>           <C>           <C>         <C>         <C>      <C>
Revenues:
     Services..................  $49,387         76.5%       $35,898      73.4%      $31,553   72.9%
     Products..................   15,189         23.5         13,032      26.6        11,703   27.1
                                 -------        -----        -------     -----       -------  -----
                                  64,576        100.0         48,930     100.0        43,256  100.0
                                 -------        -----        -------     -----       -------  -----
Cost of revenues:(1)
     Services..................   33,252         51.5         22,914      46.8        20,267   46.9
     Products..................   10,587         16.4          8,695      17.8         8,968   20.7
     Depreciation..............    1,565          2.4          1,317       2.7         1,408    3.3
                                 -------        -----        -------     -----       -------  -----
                                  45,404         70.3         32,926      67.3        30,643   70.8
                                 -------        -----        -------     -----       -------  -----
           Gross profit........   19,172         29.7         16,004      32.7        12,613   29.2
Selling and administrative
  expenses(2)(3)(4)............   17,606         27.3         12,719      26.0        11,808   27.3
Amortization of
  intangibles(6)...............    1,482          2.3          1,195       2.4         1,195    2.8
Restructuring costs............    1,387          2.2             --        --            --     --
Loss on sale of business
  units........................    4,995          7.7             --        --            --     --
Special compensation
  charge(5)....................       --           --          2,235       4.6            --     --
                                 -------        -----        -------     -----       -------  -----
           Operating loss......   (6,298)        (9.7)          (145)     (0.3)         (390)  (0.9)
Interest expense(7)............    2,133          3.4             70       0.1            70    0.2
Interest income................       --           --            (94)     (0.2)          (98)  (0.2)
                                 -------        -----        -------     -----       -------  -----
           Loss before income
             taxes.............   (8,431)       (13.1)          (121)     (0.2)         (362)  (0.8)
Income tax provision(8)........       --           --          1,139       2.3           169    0.4
                                 -------        -----        -------     -----       -------  -----
Net loss.......................  $(8,431)       (13.1)%      $(1,260)     (2.6)%     $  (531)  (1.2)%
                                 =======        =====        =======     =====       =======  =====
</TABLE>
 
     UNLESS OTHERWISE INDICATED, THE FOLLOWING FOOTNOTES APPLY ONLY TO THE
SUPPLEMENTAL PRO FORMA, AS ADJUSTED, OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996.
 
------------------
 
(1) Includes a pro forma adjustment to increase cost of revenues to reflect the
    Company's new operating leases on facilities at certain Founding Companies.
 
(2) Reflects a pro forma reduction in compensation to the former owners of the
    Founding Companies to which they have agreed prospectively.
 
(3) Includes compensation of $610,000 annually based upon employment agreements
    with the Company's executive management.
 
(4) For 1997, includes non-recurring transaction costs of $742,000 incurred by
    the Founding Companies in connection with their acquisitions.
 
                                       21

<PAGE>

(5) For 1997, includes a non-recurring, non-cash special compensation charge.
    See Note 10 to the Consolidated Financial Statements.
 
(6) Includes amortization on the $33.1 million of goodwill recorded as a result
    of the acquisitions of the Founding Companies over an estimated life of
    principally 30 years and amortization of acquired developed technology of
    $0.8 million over an estimated life of seven years. Excludes a charge of
    $4.0 million for acquired in-process research and development.
 
(7) Reflects adjustment for the elimination of interest expense resulting from
    the repayment of debt paid from the net proceeds of the Offering.
 
(8) Reflects an estimated corporate income tax rate of 39.3% before considering
    the non-deductibility of approximately $0.8 million of annual amortization
    of intangible assets and the $2.2 million special compensation charge in
    1997.
 
RESULTS OF HISTORICAL OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
COMPARED TO SUPPLEMENTAL PRO FORMA, AS ADJUSTED,
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
 
Revenues
 
     Total Revenues.  Revenues increased $15.6 million, or 31.9%, from $48.9
million in 1997 to $64.6 million in 1998. Service revenues increased 37.6% and
comprised 73.4% of total revenues in 1997 as compared to 76.5% in 1998. In 1998,
product revenues increased 16.6% and comprised 26.6% of total revenues in 1997
as compared to 23.5% in 1998. In 1998, the Southeast Group, which was sold in
December 1998 and January 1999, had total revenues of $6.5 million, comprised of
$3.7 million (57.3%) of service revenues and $2.8 million (42.7%) of product
revenues.
 
     The increase in total revenues was comprised of decrease of $0.6 million
attributable to the Founding Companies and an increase of $16.2 million
attributable to the Acquired Businesses, which are not included in the year
ended December 31, 1997. The Founding Companies' decrease was primarily due to:
(1) a decrease in volume at the Massachusetts, Indiana, and South Carolina
business units; (2) an offsetting increase in off-shore data entry sales volume;
and (3) an offsetting increase in digital imaging sales volume.
 
     Service Revenues.  Service revenues increased $13.5 million, or 37.6%, from
$35.9 million in 1997 to $49.4 million in 1998. This increase was comprised of
an increase of $0.1 million attributable to the Founding Companies and an
increase of $13.4 million attributable to the Acquired Businesses, which are not
included in the year ended December 31, 1997. The Founding Companies' increase
was primarily due to: (1) a decrease in volume at the Massachusetts, Indiana,
and South Carolina business units; (2) an offsetting increase in off-shore data
entry sales volume; and (3) an offsetting increase at the Virginia business unit
attributable to several large digital conversion projects.
 
     Product Revenues.  Product revenues increased $2.2 million, or 16.6%, from
$13.0 million in 1997 to $15.2 million in 1998. This increase was comprised of a
decrease of $0.6 million attributable to the Founding Companies and an increase
of $2.8 attributable to the Acquired Businesses, which are not included in the
year ended December 31, 1997. The Founding Companies' decrease was primarily due
to a decrease in volume at the Massachusetts, South Carolina, and Virginia
business units and an offsetting increase in digital imaging sales volume.
 
Cost of Revenues
 
     Cost of Services.  Cost of services increased $10.3 million, or 45.1%, from
$22.9 million in 1997 to $33.3 million in 1998. As a percentage of service
revenues, cost of services amounted to 63.8% in 1997 as compared to 67.3% in
1998. In 1998, cost of services as a percentage of service revenues attributable
to the Founding Companies and Acquired Businesses amounted to 67.8% and 66.0%,
respectively. The increase in cost of services as a percentage of service
revenues of 3.5% was primarily due to an increase attributable to production
inefficiencies (such as high labor costs and rework) at the
 
                                       22

<PAGE>

Massachusetts, South Carolina, and Virginia business units and an offsetting
decrease in service costs at most other locations, particularly in the
California and New York business units, due to a combination of improved media
conversion efficiency and larger off-shore data entry sales volumes.
 
     Cost of Products.  Cost of products decreased $1.9 million, or 21.8%, from
$8.7 million in 1997 to $10.6 million in 1998. As a percentage of product
revenues, cost of products amounted to 66.7% in 1997 as compared to 69.7% in
1998. In 1998, cost of products as a percentage of product revenues attributable
to the Founding Companies and Acquired Businesses amounted to 68.1% and 76.9%,
respectively. The increase in cost of products as a percentage of product
revenues of 3.0% was primarily due to an increase attributable to unfavorable
product mix at the Massachusetts, South Carolina, and Virginia business units
and an increase attributable to costs associated with the development of
software.
 
     Depreciation.  Depreciation increased $0.2 million, or 18.9%, from $1.3
million in 1997 to $1.5 million in 1998, due primarily to depreciation of
machinery and other capital equipment of the Acquired Businesses.
 
Gross Profit
 
     As a result of higher service and product revenues as described above,
gross profit increased $3.2 million, or 19.8%, from $16.0 million in 1997 to
$19.2 million in 1998. In 1998, the Founding Companies experienced a decrease of
$1.7 million and a decline in gross profit percentage of 3.0% as compared to the
year ended December 3, 1997. In 1998, Acquired Businesses contributed $4.9
million of gross profit at a gross profit percentage of 30.1% and the former
Southeast Group had gross profit of $0.9 million and a gross profit percentage
of 13.9%.
 
     The Founding Companies' gross profit percentage decline was primarily due
to: (1) higher service costs in the Massachusetts, South Carolina and Virginia
business units, primarily due to production inefficiencies (such as high labor
costs and rework); (2) an increase attributable to costs associated with the
development of software; and (3) an offsetting decrease in service costs at most
other locations, particularly in the California and New York business units, due
to a combination of improved media conversion efficiency and larger off-shore
data entry sales volumes.
 
Selling and Administrative Expenses (Including Executive Compensation and
Founding Companies' Transaction Costs)
 
     For the year ended December 31, 1998, S&A expenses increased by $4.9
million, or 38.4%, as compared to the year ended December 31, 1997. This
increase is comprised of: $3.2 million in corporate expenses; $3.8 million
attributable to the Acquired Businesses; an offsetting decrease of $1.4 million
attributable to the Founding Companies; and an offsetting decrease of $0.7
million related to non-recurring transaction costs incurred by the Founding
Companies for the year ended December 31, 1997 in connection with their
acquisitions.
 
     The increase in corporate expenses is primarily due to: (1) the staffing of
the Company's headquarters function; (2) the integration of technology; (3)
sales development costs; (4) increased travel and marketing expenses; and (5)
the costs associated with being a public company. In September 1998, the Company
began implementing a cost reduction plan that included headcount reductions at
the corporate office that will provide annual cost savings of approximately $0.8
million. Because the corporate office was formed at the end of 1997, pro forma
results for 1997 exclude the majority of corporate overhead expenses.
 
     In 1997, the Founding Companies' incurred approximately $0.7 million of
transaction costs in connection with their acquisition by the Company, which
primarily consisted of outside accounting and legal fees. The Company also
incurred additional S&A expenses of $0.6 million for its corporate function in
1997, excluding executive management compensation. Corporate S&A expenses
included $0.3 million of Company formation costs (primarily audit and other
public company expenses) triggered by the Offering in December 1997. Excluding
Founding Companies' transaction' costs and
 
                                       23

<PAGE>

corporate S&A expenses, S&A expenses and executive compensation amounted to
$10.7 million in 1997.
 
Amortization of Intangible Assets
 
     Amortization of $1.2 million in 1997 consists of the estimated amortization
of intangible assets (principally goodwill) related to the acquisitions of the
Founding Companies, as though they had taken place on January 1, 1996.
Amortization of $1.5 million in 1998 includes amortization of intangible assets
(principally goodwill) of the Founding Companies and amortization of goodwill
associated with the Acquired Businesses.
 
Restructuring Costs and Loss on Sale of Business Units
 
     For the year ended December 31, 1998, the Company recorded a restructuring
charge of $1.4 million, primarily for severance payments related to headcount
reductions at the corporate office and a business unit and facility costs
associated with business unit consolidations. In addition, the Company incurred
a loss of $5.0 million, related to the sales in December 1998 and January 1999
of facilities in Charlotte, NC, Cayce, SC and Cleveland, TN and represents the
difference between the net proceeds from the transactions and the net asset
value of these locations, including $4.2 million of goodwill.
 
Operating Loss
 
     Operating loss increased by $6.3 million, from an operating loss of
$145,000 in 1997 to an operating loss of $6.3 million in 1998. In 1998, the
former Southeast Group incurred an operating loss of $0.7 million, or 10.2%, on
total revenues of $6.5 million. Excluding restructuring costs and loss on sale
of business units, operating income amounted to $84,000 in 1998.
 
Interest Income (Expense)
 
     Interest income, net of interest expense, was $24,000 in 1997 as compared
to interest expense of $2.1 million in 1998. The increase in interest expense is
attributable to borrowings under the Credit Facility and the amortization and
write-off of the related debt financing costs.
 
Income Tax Provision
 
     Due to the Company's loss position, no income tax provision was recognized
in 1998. In 1997, the pro forma income tax provision amounted to $1.1 million.
See "Supplemental Pro Forma, as adjusted, Results of Operations for the Year
Ended December 31, 1997 Compared to the Year Ended December 31, 1996" for
further discussion of the 1997 pro forma income tax provision.
 
Net Loss
 
     Net loss amounted to $1.3 million in 1997 as compared to $8.4 million in
1998. Excluding restructuring costs and loss on sale of business units in 1998
and the special compensation charge in 1997, net loss amounted to $2.0 million
in 1998 and net income amounted to $1.0 million in 1997. The decrease in net
income of $3.0 million was primarily attributable to: (1) interest expense
attributable to borrowings under the Credit Facility used to finance the
Acquired Businesses, including the amortization of $0.9 million in related
financing costs, and for general corporate purposes; (2) an increase in S&A
expenses; (3) an increase in amortization attributable to the Acquired
Businesses; (4) an offsetting increase in gross profit; and (5) an offsetting
increase attributable to no income tax benefit.
 
                                       24

<PAGE>

SUPPLEMENTAL PRO FORMA, AS ADJUSTED, RESULTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
 
Revenues
 
     Total Revenues.  Revenues increased $5.7 million, or 13.1%, from
approximately $43.3 million in 1996 to $48.9 million in 1997. Service revenues
increased 13.8% and comprised 72.9% of total revenues in 1996 as compared to
73.4% in 1997. Product revenues increased 11.4% and comprised 27.1% of total
revenues in 1996 as compared to 26.6% in 1997.
 
     Service Revenues.  Service revenues increased $4.3 million, or 13.8%, from
$31.6 million in 1996 to $35.9 million in 1997. This increase was primarily due
to: (1) $1.1 million resulting from increased utilization of excess media
conversion capacity at production facilities in the South Carolina and Arizona
business units; (2) $1.0 million resulting from the addition of several major
recurring media conversion accounts in the Virginia business unit; (3) $1.4
million resulting from sales force additions and several major projects at the
Company's off-shore data entry business unit; and (4) $0.4 million resulting
from a variety of projects in the Ohio business unit reflecting the development
of an in-house sales function established during 1996.
 
     Product Revenues.  Product revenues increased $1.3 million, or 11.4%, from
$11.7 million in 1996 to $13.0 million in 1997. This increase was primarily due
to $0.7 million resulting from unit volume increases in digital imaging software
sales to other document management companies and end-users and $0.6 million
resulting from unit volume increases in hardware sales (principally equipment)
in the Oregon and Louisiana business units.
 
Cost of Revenues
 
     Cost of Services.  Cost of services increased $2.6 million, or 13.1%, from
$20.3 million in 1996 to $22.9 million in 1997. As a percentage of service
revenues, cost of services amounted to 64.2% in 1996 as compared to 63.8% in
1997. The decrease in cost of services as a percentage of service revenues of
0.4% was primarily due to: (1) a decrease resulting from economies of scale and
improved conversion methods in the Ohio business unit; (2) a decrease resulting
from an increase in off-shore data entry revenue with principally fixed project
management costs; (3) a decrease resulting from a change in the sales mix to
higher margin digital imaging services in the Arizona business unit; (4) an
offsetting increase resulting from incrementally higher service costs on larger
revenue volumes in the Virginia business unit; and (5) an offsetting increase
resulting from a shift in service mix in the Massachusetts business unit.
 
     Cost of Products.  Cost of products decreased $0.3 million, or 3.0%, from
$9.0 million in 1996 to $8.7 million in 1997. As a percentage of product
revenues, cost of products amounted to 76.6% in 1996 as compared to 66.7% in
1997. The decrease in cost of products as a percentage of product revenues was
primarily due to: (1) a decrease resulting from higher product sales in the
Massachusetts and Oregon business units; (2) a shift in mix within software
sales, and to the low incremental cost of additional software sales spread over
an increased revenue base; and (3) an offsetting increase resulting from lower
product sales in the Arizona and Ohio business units.
 
     Depreciation.  Depreciation decreased $0.1 million, or 6.5%, from $1.4
million in 1996 to $1.3 million in 1997.
 
Gross Profit
 
     As a result of the higher service and product revenues and a decline in
associated costs of services and products as described above, gross profit
increased $3.4 million, or 26.9%, from $12.6 million in 1996 to $16.0 million in
1997.
 
                                       25

<PAGE>

Selling and Administrative Expenses (Including Executive Compensation and
Founding Companies' Transaction Costs)
 
     In 1997, the Founding Companies incurred approximately $0.7 million of
transaction costs in connection with their acquisition by the Company, which
primarily consisted of outside accounting and legal fees. The Company also
incurred additional S&A expenses of $0.6 million for its corporate function in
1997, excluding executive management compensation, as compared to no material
expenses in 1996. Corporate S&A expenses included $0.3 million of Company
formation costs (primarily audit and other public company expenses) triggered by
the Offering in December 1997. Excluding Founding Company transaction costs and
corporate S&A expenses, S&A expenses and executive compensation amounted to
$10.7 million in 1997, a decline of $0.5 million from 1996. This decline is
primarily attributable to $0.2 million in non-recurring severance costs incurred
in 1996 and payroll and other cost reduction measures incurred by business unit
management to improve profitability. In 1996 and 1997, S&A expenses included
$650,000, for each year, of compensation costs associated with positions that
have been eliminated in connection with the acquisitions of the Founding
Companies.
 
Amortization of Intangible Assets
 
     Amortization of $1.2 million in 1996 and 1997 consists primarily of the
estimated amortization of intangible assets (principally goodwill) related to
the acquisitions of the Founding Companies, as though they had taken place on
January 1, 1996.
 
Operating Loss
 
     Operating loss was decreased by $245,000, from an operating loss of
$390,000, or 0.9% of total revenues, in 1996 to an operating loss of $145,000,
or 0.3% of total revenues, in 1997. Excluding the $2.2 million special
compensation charge, operating income amounted to $2.1 million, or 4.3% of the
total revenues, in 1997, an increase of $2.5 million as compared to 1996.
 
Interest Income (Expense)
 
     Interest income, net of interest expense, was $28,000 in 1996 and $24,000
in 1997.
 
Income Tax Provision
 
     The income tax provision increased $1.0 million in 1997 from $169,000 in
1996 to $1.1 million in 1997. Excluding the $2.2 million special compensation
charge, the effective tax rate for 1997 was 53.8%. Prior to their acquisitions,
the Founding Companies were operated as separate entities for tax purposes in
each year.
 
Net Loss
 
     Net loss amounted to $0.5 million in 1996 as compared to $1.3 million in
1997. Excluding the $2.2 million special compensation charge, net income
amounted to $1.0 million in 1997, an increase of $1.5 million as compared to
1996.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At December 31, 1998, the Company had cash and cash equivalents of $0.7
million and a working capital deficiency of $17.2 million. The working capital
deficiency was largely a result of the classification of borrowings under the
Credit Facility as a current liability. In 1998, cash used in operating
activities was $0.2 million; cash used in investing activities was $19.2
million; and cash provided by financing activities was $18.8 million. To
continue its operations through the next 12 months, the Company will need
additional financing from sources other than funds received through operations.
 
                                       26

<PAGE>

     At December 31, 1997, the Company had cash and cash equivalents of $1.3
million and working capital of $3.0 million. Pursuant to the Offering, the
Company raised net proceeds of $30.5 million, substantially all of which was
used to fund the acquisitions of the Founding Companies, including the
retirement of Founding Companies' debt of $3.3 million (net of cash acquired).
In 1996, cash used in operating activities was $18,000. In 1997, cash provided
by operating activities was $186,000. From inception through the effective date
of the Offering (December 3, 1997), ImageMax had cash provided from financing
activities of $1.7 million raised from private equity financings.
 
     On March 30, 1998, the Company entered into a credit facility with a bank
(the "Credit Facility"), providing a revolving line of credit of $30 million in
borrowings. This agreement was substantially amended in November 1998. Under the
original terms of the Credit Facility, the Company could borrow up to $25
million to finance future acquisitions and up to $5 million for working capital
purposes. Prior to the amendment, borrowings under the facility bore interest at
LIBOR or prime plus an applicable margin at the option of the Company. In
addition to interest and other customary fees, the Company is obligated to remit
a fee ranging from 0.2% to 0.375% per year on unused commitments. The Credit
Facility is secured by substantially all of the assets of the Company. The
Credit Facility is subject to certain financial covenants which pertain to
criteria such as minimum levels of cash flow, ratio of debt to cash flow, and
ratio of fixed charges to cash flow. Borrowing under the Credit Facility is
contingent upon the Company meeting certain financial ratios and other criteria.
 
     The amendment to the Credit Facility dated November 16, 1998 amended
certain financial covenants for future periods, reduced the amount available
under the Credit Facility to the amount ($20.1 million) outstanding on November
6, 1998, changed the maturity date to December 1, 1999 from December 31, 2002,
required a $5.0 million principal repayment or commitments therefor by December
31, 1998, required all borrowings to bear a rate of prime plus an applicable
margin and changed other provisions.
 
     As of December 31, 1998, the Company was in default of certain financial
and other covenants under the amended Credit Facility, including the requirement
for a $5.0 million principal repayment or commitments therefor. As a result, the
Company's indebtedness under the Credit Facility has been classified as
short-term debt. The Company is in ongoing discussions with its lenders and
other parties concerning a restructuring of its financing.
 
     In connection with the Credit Facility, the Company incurred $904,000 of
lending and other customary fees, of which $100,000 is accrued for at December
31, 1998. These costs were initially capitalized and were amortized to interest
expense over the original term of the Credit Facility. At December 31, 1998, the
remaining unamortized costs of $0.8 million were written off and included in
interest expense.
 
     On March 29, 1999, the Company entered into a forbearance agreement with
the banks that are parties to its Credit Facility (the "Forbearance Agreement").
Pursuant to the Forbearance Agreement, the banks have agreed to forbear from
exercising their rights and remedies with respect to all existing defaults under
the Credit Facility until the earlier of June 30, 1999 or the occurrence of a
default under the Forbearance Agreement or an additional default under the
Credit Facility.
 
     Under the terms of the Forbearance Agreement, the current interest rate on
the outstanding obligations under the Credit Facility increases by two percent
(2%) per annum. In addition, the Company is required to maintain a daily cash
balance in its accounts of at least $300,000 and the Company may not make
capital expenditures in excess of $50,000 without the prior consent of its
banks. The Company is also required to enter into definitive agreements in
connection with the Pierce Leahy strategic partnership no later than April 30,
1999. The Company incurred a fee of $100,000 under the Forbearance Agreement,
$50,000 of which was paid upon the execution of the Forbearance Agreement and
the other $50,000 to be paid upon its termination.

     Management is currently negotiating a new credit facility with its lenders
and other parties and has entered into a letter of intent for the sale of $7.9
million of preferred stock (see "Recent Developments"). Management believes that
the proceeds to be received from the preferred stock investment will allow the
Company to refinance amounts due under the Credit Facility. However, there can
be no assurance that the contemplated preferred stock investment will be
consummated or the Credit Facility will be refinanced.

     The Company has halted its acquisition program, but continues to
selectively invest in equipment and technology to meet the needs of its
operations and to improve its operating efficiency.
 
                                       27

<PAGE>

YEAR 2000 COMPLIANCE
 
     At midnight on December 31, 1999, computer systems that use two digits to
represent the year are at risk of malfunction or failure. Many systems will
continue to run, but may interpret any date in the year '00 to be prior to any
date in the year '99, posing potential date comparison problems, or may fail to
recognize that the Year 2000, unlike 1900, is a leap year. Businesses and
systems that use a four-digit format to report and process dates later than
December 31, 1999 are often denoted as "Year 2000 compliant". While many systems
have no date comparison functions and operate in a date-independent mode, they
may have a date function.
 
     If full system operation and correct display of dates subsequent to January
1, 2000 are possible, these systems may be denoted as "Year 2000 operationally
ready". Many systems and subsystems using two-digit dates will operate smoothly
until the end of their technological or economic life without regard to the
actual date. These systems are unaffected by whether it is 2000 or 1900, make no
"real-time" date comparisons and have no date display features. At the other
extreme are systems which will cease functioning or malfunction when an
unacceptable date is perceived (which in some cases could be during 1999). The
categories in which the Company faces potential exposure are as follows:
 
     o Business Applications -- Includes proprietary software, all client/server
       and desktop hardware and software used in routine business operations
       including order processing, system design and documentation, procurement,
       and production.
 
     o Infrastructure/Embedded Systems -- Includes building facilities,
       production equipment and systems, control systems and instrumentation.
 
     o Telecommunications -- Includes voice, video and data switching systems
       and network components.
 
     o Business Relationships -- Includes proprietary software products licensed
       to clients and the supply chain for the Company's products and service
       providers including banks, insurance companies, payroll and pension plan
       administrators, legal, accounting and consulting firms as well as public
       utilities, telecommunications providers, transportation and overnight
       delivery companies and local government services.
 
     The Company recognizes that the Year 2000 problem is a serious,
enterprise-wide issue. The Company has formed a management team, with active
participation by representatives throughout the company, to address Year 2000
issues. Within each business unit, designated personnel are working to identify
potential Year 2000 issues in the Company's internal operations as well as the
products that it provides to its customers. In addition, the Company is
communicating with its suppliers to determine the extent to which the systems of
the suppliers are equipped to handle Year 2000 issues. Management believes that
appropriate personnel and resources have been assigned to this effort. Continued
diligence by the members of the Company's Year 2000 team and appropriate
monitoring by and support from senior management are intended to further enhance
the Company's efforts to ensure that its business will not be negatively
impacted by any Year 2000 issues in any material adverse respect.
 
     The Company has completed Year 2000 compliance testing on certain of its
proprietary software products licensed to clients in accordance with standards
promulgated by the British Standards Institute ("BSI"). These standards address
that: (i) no value for current date will cause any interruption in operation;
(ii) date-based functionality must behave consistently for dates prior to,
during, and after year 2000; (iii) in all interfaces and data storage, the
century in any date must be specified either explicitly or by unambiguous
algorithms or inferencing rules; and (iv) year 2000 must be recognized as a leap
year. Certain software products licensed to clients have been found to comply
with these standards. Certain other proprietary software products licensed to
clients have not met the BSI Standards, in that such products operate on a
third-party platform that has been disclosed as not Year 2000 compliant. The
Company has developed and is continuing to develop upgraded versions of its
non-compliant products that will be made available to all clients. The Company
is currently testing upgraded versions, as they are developed, according to the
BSI Standards.
 
                                       28

<PAGE>

     An inventory of exposures of the Company's internal systems is currently in
process and operational steps necessary to deal with each exposure are being
developed. The Company believes it is on schedule to complete its remediation
efforts by September 30, 1999. The Company plans to modify or replace its
affected internal systems in a manner that will minimize any detrimental effects
on operations. The Company has not undertaken any contingency planning at this
time.
 
     The Company believes that the cost of developing an inventory of potential
internal Year 2000 issues, the analysis of that inventory, and remediation of
any issues found to cause potential operational problems will not exceed
$100,000. While the Company presently believes that the ultimate outcome of any
such modifications or replacements will not have a material effect on the
Company's current financial position, liquidity or results of operations,
information developed as a result of the Company's continuing inventory and
analysis of issues may result in increased cost estimates and such costs could
have a material effect on results of operations.
 
     In addition to working to make its own internal systems Year 2000 ready,
the Company has and will continue to survey its key suppliers to determine the
extent to which the systems of such suppliers are Year 2000 compliant and the
extent to which the Company could be affected by the failure of such third
parties to be Year 2000 compliant. The Company cannot presently estimate the
impact of the failure of such third parties to be Year 2000 compliant.
 
RECENT DEVELOPMENTS
 
     On March 12, 1999, the Company and Pierce Leahy signed a letter of intent
to form a strategic partnership. Under the terms of the proposed strategic
partnership arrangement, Pierce Leahy will purchase 3,144,000 shares of a new
series of ImageMax preferred stock at $2.50 per share (for an aggregate purchase
price of $7.9 million). Each share of preferred stock is convertible into one
share of common stock and carries no dividend or liquidation preference. Pierce
Leahy will also receive two warrants that may be exercised over the next four
and five years to purchase from the Company 1,719,000 shares and 1,861,000
additional shares of preferred stock at $4.00 and $5.00 per share, respectively.
Pierce Leahy will have the right to elect a majority of the Company's Board of
Directors, subject to certain conditions. In the event that the Company
contemplates entering into any transaction involving a merger, consolidation,
other business combination or similar transaction, or the sale, disposal or
exchange of all or a substantial portion of the assets or capital stock of the
Company, Pierce Leahy will have a right of first refusal to enter into
substantially the same transaction; such right will last for so long as Pierce
Leahy has the right to designate any of the Company's Board of Directors.
 
     The companies anticipate that the ability to cross-sell the Company's
digital imaging, micrographics and data entry services and Pierce Leahy's data
storage and management services will benefit both companies. In addition, the
companies anticipate cost savings by combining physical locations in certain
geographic areas, sharing document management expertise and transportation
systems, and utilizing Pierce Leahy's significant information services assets to
increase the efficiency of the Company's operations. Pierce Leahy will provide
certain management and administrative services to the Company.
 
     The consummation of the strategic partnership is subject to due diligence,
the negotiation of a definitive purchase agreement, regulatory approval,
approval of the Board of Directors of both companies and consents of lenders of
both companies and other customary conditions. Although the companies are
seeking to complete the agreement by April 30, 1999, there can be no assurance
as to when such agreement will be completed or whether such agreement will be
completed at all. The Company has agreed to reimburse Pierce Leahy for its
expenses in connection with the proposed transaction if a definitive agreement
is not executed under certain circumstances.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The information required by this item is set forth on pages F-1 through
F-20 hereto and is incorporated by reference herein.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
     None.
 
                                       29
<PAGE>

                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
 
     The information contained under the caption "Election of Class II
Directors" and the information contained under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive proxy
statement is incorporated herein by reference.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     The information contained under the caption "Executive Compensation" in the
Company's definitive proxy statement is incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information contained under the caption "Stock Ownership of Principal
Shareholders and Management" in the Company's definitive proxy statement is
incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information contained under the caption "Certain Relationships and
Related Transactions" in the Company's definitive proxy statement is
incorporated herein by reference.
 
                                       30

<PAGE>

                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) 1.  Financial Statements
 
     See Index to the Consolidated Financial Statements which begin on page F-1
of this Annual Report.
 
         2.  Financial Statement Schedules
 
     See Schedule II -- Valuation and Qualifying Accounts on page F-20 of this
Annual Report.
 
         3.  Exhibits
 

       EXHIBIT
         NO.                            DESCRIPTION
       -------                          -----------

 2.1*           Agreement and Plan of Reorganization dated September 9,
                1997, by and among the Company, DocuTech Data Systems, Inc.,
                and Rex Lamb and Mark Creglow (including escrow agreement).
 
 2.2*           Asset Purchase Agreement dated September 9, 1997 by and
                among the Company, Rex Lamb and Vicki Lamb (including escrow
                agreement).
 
 2.3*           Agreement and Plan of Reorganization dated September 9,
                1997, by and among the Company, Utz Medical Enterprises,
                Inc., and David C. Utz, Jr. (including escrow agreement).
 
 2.4*           Agreement and Plan of Reorganization dated September 9, 1997
                by and among Jane Semasko and John Semasko, Oregon
                Micro-Imaging, Inc. and the Company (including escrow
                agreement).
 
 2.5*           Asset Purchase Agreement dated September 9, 1997 by and
                among Spaulding Company, Inc., Semco Industries, Inc., and
                the Company (including escrow agreement).
 
 2.6*           Asset Purchase Agreement dated September 9, 1997 by and
                among Total Information Management Corporation and the
                Company (including escrow agreement).
 
 2.7*           Stock Purchase Agreement dated September 9, 1997 by and
                among Ovidio Pugnale, Image Memory Systems, Inc. and the
                Company (including escrow agreement).
 
 2.8*           Agreement and Plan of Reorganization dated September 9,
                1997, by and among the Company, International Data Services
                of New York, Inc., and Mitchell J. Taube and Ellen F.
                Rothschild-Taube (including escrow agreement).
 
 2.9*           Stock Purchase Agreement dated September 9, 1997 by and
                among David Crowder, TPS Micrographics, Inc. and the Company
                (including escrow agreement).
 
 2.10*          Agreement and Plan of Reorganization dated September 11,
                1997 by and among the Company, Image and Information
                Solutions, Inc. and Gary Blackwelder (including escrow
                agreement).
 
 2.11*          Agreement and Plan of Reorganization dated September 9, 1997
                by and among Madeline Solomon, David C. Yezbak, CodaLex
                Microfilming Corporation and the Company (including escrow
                agreement).
 
 2.12*          Asset Purchase Agreement dated September 9, 1997 by and
                among Imaging Information Industries, Inc., Gerald P.
                Gorman, Theodore J. Solomon, Jr., Charles P. Yezbak, III,
                David C. Yezbak and the Company (including escrow
                agreement).
 
                                       31

<PAGE>

       EXHIBIT
         NO.                            DESCRIPTION
       -------                          -----------

 2.13*          Agreement and Plan of Reorganization dated September 9, 1997
                by and among Gerald P. Gorman, Theodore J. Solomon, Theodore
                J. Solomon, Jr., Charles P. Yezbak, III, David C. Yezbak,
                Laser Graphics Systems & Services, Inc. and the Company
                (including escrow agreement).
 
 2.14*          Asset Purchase Agreement dated September 9, 1997 by and
                among DataLink Corporation, Judith E. DeMott, Geri E.
                Davidson and the Company (including escrow agreement).
 
 2.15           Asset Purchase Agreement, dated January 23, 1998, by and
                among Integrated Information Services, L.L.C., Pettibone,
                L.L.C and Heisley Holding, L.L.C. and ImageMax, Inc.
                (incorporated by reference to Exhibit 2.1 of the Company's
                8-K filed on February 3, 1998).
 
 2.16           Asset Purchase Agreement, dated February 9, 1998, by and
                among Document Management Group Inc., Theron Robinson and
                ImageMax, Inc. (incorporated by reference to Exhibit 2.1 of
                the Company's 8-K filed on February 24, 1998).
 
 2.17           Asset Purchase Agreement, dated February 9, 1998, by and
                among Image-Tec, Inc., Theron Robinson and Robert Robinson
                and ImageMax, Inc. (incorporated by reference to Exhibit 2.2
                of the Company's 8-K filed on February 24, 1998).
 
 3.1*           Amended and Restated Articles of Incorporation of the
                Company.
 
 3.2*           Amended and Restated Bylaws of the Company.
 
 4.1*           Specimen Stock Certificate.
 
 4.2*           Shareholders Agreement between the Company and certain of
                its shareholders dated November 19, 1996.
 
 4.3*           Amendment No. 1 to Shareholders Agreement dated November 19,
                1996.
 
 4.4*           Form of Joinder to Shareholders Agreement executed by Bruce
                M. Gillis, Sands Point Partners I, Wilblairco Associates,
                Osage Venture Partners, Steven N. Kaplan, Brian K. Bergeron,
                James M. Liebhardt, G. Stuart Livingston, III, Richard D.
                Moseley, David C. Utz, Jr., Bruce M. Gillis, Custodian for
                Claire Solomon Gillis, Bruce M. Gillis, Custodian for
                Katherine Tessa Solomon Gillis, S. David Model, Andrew R.
                Bacas, David C. Yezbak, Theodore J. Solomon, Walter F.
                Gilbert, Carmen DiMatteo, Patrick M. D'Agostino, David L.
                Crowder, James D. Brown and Mary M. Brown, JTWROS, Mitchell
                S. Taube and Ellen F. Rothschild-Taube, JTWROS, John Semasko
                and Jane Semasko, JTWROS, Wolfe F. Model and Renate H.
                Model.
 
10.1*+          1997 Incentive Plan.
 
10.2*+          1997 Employee Stock Purchase Plan.
 
10.3*+          Management Agreement between GBL Capital Corporation and the
                Company dated November 27, 1996.
 
10.4*+          Employment Agreement between the Company and Bruce M. Gillis
                dated as of August 1, 1997.
 
10.5*+          Employment Agreement between the Company and James D. Brown
                dated as of August 18, 1997.
 
10.6*+          Employment Agreement between the Company and S. David Model
                dated as of August 18, 1997.
 
10.7*+          Employment Agreement between the Company and Andrew R. Bacas
                dated as of August 1, 1997.
 
10.8+**         Employment Agreement between the Company and John E. Semasko
                dated as of September 9, 1997.
 
                                       32

<PAGE>

       EXHIBIT
         NO.                            DESCRIPTION
       -------                          -----------

10.9+**         Employment Agreement between the Company and Rex Lamb dated
                as of September 9, 1997.
 
10.10*          Lease Agreement dated March 26, 1996 by and between Marlyn
                D. Schwarz and Rex Lamb d/b/a DocuTech.
 
10.11*          Lease Agreement dated February 24, 1992 by and between
                Marlyn Schwarz d/b/a Old Cheney Plaza and Rex Lamb d/b/a
                DocuTech.
 
10.12*          Lease Agreement dated September 1, 1994 by and between
                Jonstar Realty Corporation and Spaulding Company, Inc.
                (renewed May 27, 1997).
 
10.13           [Intentionally left blank]
 
10.14*          Lease dated September 1, 1995 by and between Robert S. Greer
                and Elvera A. Greer and American Micro-Med Corporation.
 
10.15*          Lease dated February 8, 1994 and Lease Rider dated as of
                February 1, 1994 by and between Oporto Development Corp. and
                International Data Services of New York, Inc.
 
10.16*          Amendment of Lease dated June 6, 1996 between East Cobb Land
                Development and Investment Co., L.P. and Imaging Information
                Industries/David Yezbak, extended by letter dated July 16,
                1997.
 
10.17           [Intentionally left blank]
 
10.18*          Lease dated January 10, 1996 by and between
                FinancialEnterprises III and TPS Imaging Solutions, Inc.
 
10.19*          Lease Agreement dated March 31, 1995 by and between
                Technical Publications Service, Inc. and TPS Micrographics,
                Inc.
 
10.20*          Standard Industrial Commercial MultiTenant Lease-Gross dated
                June 20, 1994 by and between Northgate Assembly of God,
                North Sacramento, d/b/a Arena Christian Center and Total
                Information Management Corporation.
 
10.21*          Lease dated January 26, 1981 and Extension of Lease dated
                October, 1992 by and between Trader Vic's Food Products and
                Total Information Management Corporation.
 
10.22*          Standard Industrial Lease dated September 24, 1991 by and
                between Charles F. Coss, Viola B. Coss, Tracey C. Quinn,
                John Coss, Peter B. Coss, Elizabeth Coss, Tracey C. Quinn as
                Trustee for Geoffrey C. Quinn and Elizabeth Coss, as Trustee
                for Caitlin N. Shay and Total Information Management
                Corporation extended by letter dated October 18, 1996 from
                James Bunker to Peter Coss.
 
10.23*          Lease dated January 1, 1993 between CSX Transportation, Inc.
                and American Micro-Med Corporation.
 
10.24*          Lease and Service Agreement dated September 4, 1997 and two
                Addendums dated October 15, 1997 between American Executive
                Centers, Inc. and the Company.
 
10.25**         Credit Agreement by and among the Company and Subsidiaries
                and CoreStates Bank, N.A., for itself and as Agent, and any
                other Banks becoming Party, dated as of March 30, 1998.
 
10.26           Amendment No. 1 to Credit Agreement by and among the Company
                and Subsidiaries and First Union National Bank (successor by
                merger to CoreStates Bank, N.A.), for itself and as Agent,
                and any other Banks becoming Party, dated as of March 30,
                1998 (incorporated by reference to Exhibit 10.25 of the
                Company's Form 10-K filed March 31, 1998, File No. 0-23077).
 
10.27           Amendment No. 2 to Credit Agreement by and among the Company
                and Subsidiaries and First Union National Bank (successor by
                merger to CoreStates Bank, N.A.), for itself and as Agent,
                and any other Banks becoming Party, dated as of November 16,
                1998).
 
                                       33

<PAGE>

       EXHIBIT
         NO.                            DESCRIPTION
       -------                          -----------

10.28           Master Demand Note, dated January 20, 1998, payable to First
                Union National Bank (successor by merger to CoreStates Bank,
                N.A.) (incorporated by reference to Exhibit 10.1 of the
                Company's Form 8-K filed on February 3, 1998).
 
10.29           Security Agreement, dated January 20, 1998, between First
                Union National Bank (successor by merger to CoreStates Bank,
                N.A.) and the Company (incorporated by reference to Exhibit
                10.2 of the Company's Form 8-K filed on February 3, 1998).
 
10.30           Forbearance Agreement dated March 29, 1999 by and among the
                Company, First Union National Bank (successor by merger to
                CoreStates Bank, N.A. ) and Commerce Bank, N.A.
 
10.31+          Amendment No. 1 dated as of October 1, 1998 to Employment
                Agreement between the Company and James D. Brown dated as of
                August 18, 1997.
 
10.32+          Separation Agreement by and between Bruce M. Gillis and the
                Company dated September 18, 1998.
 
10.33+          Separation Agreement by and between Richard D. Moseley and
                the Company dated September 30, 1998.
 
10.34+          Separation Agreement by and between David Model and the
                Company dated November 9, 1998.
 
21              Subsidiaries.
 
23.1            Consent of Independent Public Accountants.
 
27              Financial Data Schedule (in electronic format only).
 
------------------
* Incorporated by reference to the designated exhibit of the Company's
  Registration Statement on Form S-1 filed on September 12, 1997, as amended
  (file number 333-35567).

**Incorporated by reference to the designated exhibit of the Company's Annual
  Report on Form 10-K filed on March 30, 1998 (file number 0-23077).
 
+ Management contract or compensatory plan or arrangement.
 
     (b)  Reports on Form 8-K.
 
     None.
 
                                       34

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND

                          FINANCIAL STATEMENT SCHEDULE
 

                                                              PAGE
                                                              ----

Report of Independent Public Accountants....................   F-2
 
Consolidated Balance Sheets.................................   F-3
 
Consolidated Statements of Operations.......................   F-4
 
Consolidated Statements of Shareholders' Equity.............   F-5
 
Consolidated Statements of Cash Flows.......................   F-6
 
Notes to Consolidated Financial Statements..................   F-7
 
Financial Statement Schedule:
 
     II.  Valuation and Qualifying Accounts.................   F-20

 
                                      F-1

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To ImageMax, Inc.:
 
We have audited the accompanying consolidated balance sheets of ImageMax, Inc.
(a Pennsylvania Corporation) and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the years then ended and the period from inception (November 12,
1996) to December 31, 1996. These financial statements and schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and schedule
based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
ImageMax, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended and
the period from inception (November 12, 1996) to December 31, 1996, in
conformity with generally accepted accounting principles.
 
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is in default of certain
financial and other covenants under its credit facility, which raises
substantial doubt about the ability of the Company to continue as a going
concern. Management's plans in regard to this matter are also described in Note
1. The accompanying financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be unable
to continue as a going concern.
 
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements and Financial Statement Schedule is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
 
                                          ARTHUR ANDERSEN LLP
 
Philadelphia, Pa.,
  March 16, 1999
 
                                      F-2

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS - EXCEPT SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                               -----------------
                                                                1998      1997
                                                                ----      ----
<S>                                                            <C>       <C>
                           ASSETS
Current assets:
     Cash and cash equivalents..............................   $   736   $ 1,310
     Accounts receivable, net of allowance for doubtful
       accounts of $600 and $375, as of December 31, 1998
       and 1997, respectively...............................    11,801     6,922
     Inventories............................................     2,185     1,997
     Prepaid expenses and other.............................       609       527
                                                               -------   -------
           Total current assets.............................    15,331    10,756
Property, plant and equipment, net..........................     7,036     4,381
Intangibles, primarily goodwill, net........................    46,607    32,996
Other assets................................................       600        95
                                                               -------   -------
                                                               $69,574   $48,228
                                                               -------   -------
                                                               -------   -------
 
            LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Short-term debt and current portion of long-term
       debt.................................................   $20,239   $   251
     Accounts payable.......................................     4,472     2,846
     Accrued expenses.......................................     5,248     3,332
     Deferred revenue.......................................     2,600     1,333
                                                               -------   -------
           Total current liabilities........................    32,559     7,762
                                                               -------   -------
Long-term debt..............................................       257       342
                                                               -------   -------
Other long-term liabilities.................................       106       106
                                                               -------   -------
Commitments and contingencies (Note 12)
Shareholders' equity:
     Preferred stock, no par value, 10,000,000 shares
       authorized, none issued..............................        --        --
     Common stock, no par value, 40,000,000 shares
       authorized, 6,479,739 and 5,537,436 shares issued and
       outstanding at December 31, 1998 and 1997,
       respectively.........................................    52,645    47,580
     Accumulated deficit....................................   (15,993)   (7,562)
                                                               -------   -------
           Total shareholders' equity.......................    36,652    40,018
                                                               -------   -------
                                                               $69,574   $48,228
                                                               -------   -------
                                                               -------   -------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-3

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              (IN THOUSANDS - EXCEPT SHARE AND PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                             FROM INCEPTION
                                                          YEAR ENDED         (NOVEMBER 12,
                                                          DECEMBER 31           1996) TO
                                                     ---------------------    DECEMBER 31,
                                                        1998        1997          1996
                                                     ----------   --------   --------------
<S>                                                  <C>          <C>        <C>
Revenues:
 
     Services.....................................   $   49,387   $  2,344      $     --
 
     Products.....................................       15,189        767            --
                                                     ----------   --------      --------
 
                                                         64,576      3,111            --
                                                     ----------   --------      --------
 
Cost of revenues:
 
     Services.....................................       33,252      1,603            --
 
     Products.....................................       10,587        524            --
 
     Depreciation.................................        1,565         94            --
                                                     ----------   --------      --------
 
                                                         45,404      2,221            --
                                                     ----------   --------      --------
 
           Gross profit...........................       19,172        890            --
 
Selling and administrative expenses...............       17,606      2,074            23
 
Amortization of intangibles.......................        1,482        112            --
 
Restructing costs.................................        1,387         --            --
 
Loss on sale of business units....................        4,995         --            --
 
Special compensation charge.......................           --      2,235            --
 
Acquired in-process research and development
  charge..........................................           --      4,000            --
                                                     ----------   --------      --------
 
           Operating loss.........................       (6,298)    (7,531)          (23)
 
Interest expense..................................        2,133          8            --
                                                     ----------   --------      --------
 
Net loss..........................................   $   (8,431)  $ (7,539)     $    (23)
                                                     ----------   --------      --------
                                                     ----------   --------      --------
 
Basic and diluted net loss per share..............   $    (1.40)  $  (8.13)     $  (0.04)
                                                     ----------   --------      --------
                                                     ----------   --------      --------
 
Basic and diluted weighted average number of
  shares outstanding..............................    6,034,130    927,565       550,000
                                                     ----------   --------      --------
                                                     ----------   --------      --------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-4

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                     (IN THOUSANDS - EXCEPT SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                          PREFERRED STOCK        COMMON STOCK
                                         ------------------   -------------------   ACCUMULATED
                                          SHARES    AMOUNT     SHARES     AMOUNT      DEFICIT      TOTAL
                                         --------   -------   ---------   -------   -----------   -------
<S>                                      <C>        <C>       <C>         <C>       <C>           <C>
BALANCE, NOVEMBER 12, 1996
  (date of inception).................         --   $    --          --   $    --    $     --     $    --
  Sales of Preferred and Common
     stock............................    126,924        73     550,000         7          --          80
  Net loss............................         --        --          --        --         (23)        (23)
                                         --------   -------   ---------   -------    --------     -------
 
BALANCE, DECEMBER 31, 1996............    126,924        73     550,000         7         (23)         57
 
  Sales of Preferred and Common
     stock............................    316,565     2,479     160,770     1,468          --       3,947
  Sale of Common stock in initial
     public offering, net of offering
     costs............................         --        --   3,100,000    30,465          --      30,465
  Issuance of Common stock for
     acquisitions.....................         --        --   1,283,177    13,088          --      13,088
  Conversion of Preferred stock to
     Common stock.....................   (443,489)   (2,552)    443,489     2,552          --          --
  Net loss............................         --        --          --        --      (7,539)     (7,539)
                                         --------   -------   ---------   -------    --------     -------
 
BALANCE, DECEMBER 31, 1997............         --   $    --   5,537,436   $47,580    $ (7,562)    $40,018
  Issuance of Common stock for
     acquisitions.....................         --        --     930,484     5,037          --       5,037
  Sale of Common stock................         --        --      11,819        28          --          28
  Net loss............................         --        --          --        --      (8,431)     (8,431)
                                         --------   -------   ---------   -------    --------     -------
 
BALANCE, DECEMBER 31, 1998............         --   $    --   6,479,739   $52,645    $(15,993)    $36,652
                                         --------   -------   ---------   -------    --------     -------
                                         --------   -------   ---------   -------    --------     -------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-5

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                             FROM INCEPTION
                                                            YEAR ENDED        (NOVEMBER 12,
                                                           DECEMBER 31,         1996) TO
                                                         -----------------    DECEMBER 31,
                                                          1998      1997          1996
                                                         -------   -------   ---------------
<S>                                                      <C>       <C>       <C>
Cash Flows from Operating Activities:
  Net loss............................................   $(8,431)  $(7,539)       $(23)
     Adjustments to reconcile net loss to net cash
        provided by (used in) operating activities-
        Depreciation and amortization of
           intangibles................................     3,047       206          --
        Loss on sale of business units................     4,995        --          --
        Amortization of deferred financing costs......       904        --          --
        Special compensation charge...................        --     2,235          --
        Acquired in-process research and development
           charge.....................................        --     4,000          --
        Changes in operating assets and liabilities,
           net of effect from acquisitions and
           divestiture-
           Accounts receivable, net...................    (1,852)       42          --
           Inventories................................      (104)      (91)         --
           Prepaid expenses and other.................        46       (55)         --
           Other assets...............................      (390)       --          --
           Accounts payable...........................       556       277          --
           Accrued expenses...........................       159     1,046           5
           Deferred revenue...........................       876        65          --
                                                         -------   -------        ----
             Net cash provided by (used in) operating
                activities............................      (194)      186         (18)
                                                         -------   -------        ----
Cash Flows from Investing Activities:
     Purchases of businesses, net of cash acquired....   (16,483)  (26,696)         --
     Purchases of property and equipment..............    (3,040)      (90)         --
     Proceeds from business unit sold.................       350        --          --
                                                         -------   -------        ----
             Net cash used in investing activities....   (19,173)  (26,786)         --
                                                         -------   -------        ----
Cash Flows from Financing Activities:
     Net borrowings under line of credit..............    20,100        --          --
     Payment of deferred financing costs..............      (803)       --          --
     Principal payments on debt and capital lease
        obligations...................................      (532)   (4,329)         --
     Proceeds from sales of Common and Preferred
        stocks........................................        28    32,177          80
                                                         -------   -------        ----
             Net cash provided by financing
                activities............................    18,793    27,848          80
                                                         -------   -------        ----
Net Increase (Decrease) in Cash and Cash
  Equivalents.........................................      (574)    1,248          62
Cash and Cash Equivalents, Beginning of Period........     1,310        62          --
                                                         -------   -------        ----
Cash and Cash Equivalents, End of Period..............   $   736   $ 1,310        $ 62
                                                         -------   -------        ----
                                                         -------   -------        ----
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-6

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. BACKGROUND AND LIQUIDITY:
 
     ImageMax, Inc. ("ImageMax") was incorporated in Pennsylvania on November
12, 1996. ImageMax was formed to become a leading national, single-source
provider of integrated document management solutions. ImageMax had conducted no
operations prior to acquiring certain businesses on December 9, 1997 and
completed a number of additional acquisitions in the first eight months of 1998,
as discussed in Note 3. Prior to their acquisition, these businesses had been
operating independently. Given the nature of ImageMax, it is subject to many
risks, including but not limited to, (i) the ability to obtain adequate
financing to fund operations and potential future acquisitions, (ii) a limited
combined operating history, (iii) the potential inability to manage growth, (iv)
risks generally associated with integrating acquisitions including
implementation, (v) possible fluctuations in quarterly results, (vi) reliance on
certain markets, and (vii) reliance on key personnel.
 
     The accompanying consolidated financial statements have been prepared in
conformity with principles of accounting applicable to a going concern. These
principles contemplate the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred
significant operating losses since inception, and as of December 31, 1998 had an
accumulated deficit of $16.0 million. In addition, as more fully described in
Note 7, ImageMax is in default of its credit facility with its banks under which
it has borrowed $20.1 million, which raises substantial doubt about the ability
of ImageMax to continue as a going concern. Management is currently negotiating
a new credit facility with other lenders and has entered into a letter of intent
for the sale of $7.9 million of preferred stock (see Note 16). Management
believes that the proceeds to be received from the preferred stock investment
will allow the Company to refinance amounts due under the credit facility. There
can be no assurance that the contemplated preferred stock investment will be
consummated or the credit facility will be refinanced. See report of independent
public accountants.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
PRINCIPLES OF CONSOLIDATION
 
     The accompanying consolidated financial statements include the accounts of
ImageMax and its subsidiaries (the "Company"). All material intercompany
balances and transactions have been eliminated in consolidation.
 
USE OF 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.
 
REVENUE RECOGNITION
 
     Service and product revenues are recognized when the services are rendered
or products are shipped to customers. Deferred revenue represents payments for
services that are billed in advance of performance. No single customer exceeded
5% of revenues for any period presented.
 
     Software revenue includes software licensing fees, consulting,
implementation, training and maintenance. Depending on contract terms and
conditions, software license fees are recognized upon delivery of the product if
no significant vendor obligations remain and collection of the resulting
receivable is deemed probable. The Company's software licensing agreements
provide for customer support (typically 90 days) as an accommodation to
purchasers of its products. The portion of the license fee associated with
customer support is unbundled from the license fee and is recognized ratably
over the warranty period as maintenance revenue.
 
                                      F-7

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

     Consulting, implementation and training revenues are recognized as the
services are performed. Maintenance revenues are recognized ratably over the
terms of the maintenance agreements.
 
CASH AND CASH EQUIVALENTS
 
     The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value. At December 31, 1998 and 1997, cash
equivalents primarily consisted of funds in money market accounts.
 
INVENTORIES
 
     Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories primarily represent microfiche viewing and imaging
equipment, service parts and related supplies.
 
PROPERTY, PLANT AND EQUIPMENT
 
     Property, plant and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets (see Notes 4 and 5). Leasehold improvements are amortized over the lesser
of their useful life or the term of the lease.
 
     Upon sale or other disposition of assets, the cost and related accumulated
depreciation and amortization are removed from the respective accounts, and the
resulting gain or loss, if any, is included in operating results.
 
INTANGIBLES
 
     Intangibles consist of goodwill and developed technology (see Note 5).
Goodwill, representing the excess of cost over the fair value of the net
tangible and identifiable intangible assets of acquired businesses (see Note 3),
is stated at cost and is amortized over the estimated life of principally 30
years. Developed technology represents costs paid for certain software
technology and is being amortized over 7 years (see Note 5).
 
SOFTWARE DEVELOPMENT COSTS
 
     The Company capitalizes certain costs incurred to internally develop
software which is licensed to customers. Capitalization of such software
development costs begins upon the establishment of technological feasibility
(typically determined to be upon completion of a working model) and concludes
when the product is available for general release. For the periods represented,
such costs were immaterial. Costs incurred prior to the establishment of the
technological feasibility are charged to product development expense as
incurred.
 
INCOME TAXES
 
     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income tax assets and liabilities are determined
based on differences between the financial reporting and income tax basis of
assets and liabilities measured using enacted income tax rates and laws that are
expected to be in effect when the differences reverse.
 
ACCOUNTING FOR STOCK-BASED COMPENSATION
 
     The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock options.
The Company follows the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," which permits pro forma disclosure of net loss and
loss per share using a fair value based method of accounting for employee stock
option plans in the accompanying notes to the financial statements.
 
                                      F-8

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

SUPPLEMENTAL CASH FLOW INFORMATION
 
     The Company paid cash for interest of $1,043,000 and $5,000 for the years
ended December 31, 1998 and 1997, respectively. There were no cash payments made
for interest for the period from inception (November 12, 1996) to December 31,
1996. The Company paid cash for income taxes of $175,000 for the year ended
December 31, 1998. There were no cash payments made for income taxes for the
year ended December 31, 1997 and the period from inception to December 31, 1996.
 
     The following table displays the supplemental cash flow information for the
years ended December 31, 1998 and 1997 of the net non-cash assets acquired
relating to acquired businesses described in Note 3:
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED
                                                               DECEMBER 31
                                                      ------------------------------
                                                          1998              1997
                                                      ------------      ------------
<S>                                                   <C>               <C>
Fair value of assets acquired...................      $ 24,873,000      $ 51,806,000
Liabilities assumed.............................        (3,224,000)      (10,972,000)
Fair value of Common stock issued...............        (5,037,000)      (13,088,000)
Cash acquired...................................          (129,000)       (1,050,000)
                                                      ------------      ------------
     Total consideration........................      $ 16,483,000      $ 26,696,000
                                                      ------------      ------------
                                                      ------------      ------------
</TABLE>
 
LOSS PER SHARE
 
     The Company has presented loss per share pursuant to SFAS No. 128,
"Earnings Per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Basic earnings per share ("Basic EPS") is computed
by dividing the net loss for each period by the weighted average number of
shares of Common stock outstanding for each period. Diluted earnings per share
("Diluted EPS") is computed by dividing net income (loss) for each period by the
weighted average number of shares of Common stock and Common stock equivalents
outstanding during each period. For all periods presented, Common stock
equivalents are not included, as their effect is antidilutive and, as such,
Basic EPS and Diluted EPS are the same.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     Cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses are reflected in the financial statements at fair value due to
their short-term nature. The carrying amount of long-term debt and capital lease
obligations approximates fair value on the balance sheet dates.
 
COMPREHENSIVE INCOME
 
     The Company has reviewed SFAS No. 130, "Reporting Comprehensive Income,"
and has determined that for the years ended December 31, 1998 and 1997, no items
meeting the definition of comprehensive income as specified in SFAS No. 130
existed in the consolidated financial statements. As such, no disclosure is
necessary to comply with SFAS No. 130.
 
SEGMENT REPORTING
 
     The Company has reviewed SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," and has determined that no further
disclosure is necessary to comply with SFAS No. 131 since the Company does not
operate in different segments.
 
                                      F-9

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

RECLASSIFICATIONS
 
     Certain reclassifications have been made to the prior year's financial
statements to conform with the current year presentation.
 
3. INITIAL PUBLIC OFFERING AND ACQUISITIONS:
 
     On December 9, 1997, ImageMax sold 3,100,000 shares of its Common stock in
an initial public offering (the "Offering") at $12 per share which raised net
proceeds to ImageMax of $30,465,000 net of Offering costs.
 
     Concurrent with the Offering, ImageMax began material operations with the
acquisition of 14 document management services companies (the "Founding
Companies"). These acquisitions were accounted for using the purchase method of
accounting.
 
     For the acquisition of the Founding Companies, ImageMax had been identified
as the accounting acquiror for financial statement presentation purposes. The
total purchase price of the Founding Companies was $40.7 million, which
consisted of: (i) $27.1 million in cash paid to the sellers; (ii) 1,283,177
shares of Common stock issued to the sellers; and (iii) transaction costs of
$0.5 million. For purposes of computing the purchase price for accounting
purposes, the value of the Common stock issued to the sellers was determined
using an estimated fair value of $10.20 per share (or $13.1 million), which
represents a discount of 15% from the Offering price of $12.00, due to a
one-year restriction on the sale and transferability of the shares issued. Of
the total purchase price of $40.7 million, $4.0 million was allocated to
acquired in-process research and development and was charged to expense upon the
consummation of the acquisition of the Founding Companies. Acquired in-process
research and development reflects the value of development projects underway at
the time of the acquisition at one of the Founding Companies. In connection with
this transaction, all identifiable assets acquired, including intangible assets,
were assigned a portion of the cost of the acquired company based upon an
independent valuation.
 
     During the first eight months of 1998, the Company acquired 13 additional
document management services companies (the "Acquired Businesses"). These
acquisitions also were accounted for using the purchase method of accounting.
The total purchase price of the Acquired Businesses was $21.5 million, which
consisted of: (i) $16.6 million in cash paid to sellers; (ii) 930,484 shares of
Common stock issued to sellers; and (iii) transaction costs of $0.7 million. For
purposes of computing the purchase price for accounting purposes, the value of
the Common stock issued to the sellers of $5.0 million was based on the market
price of the Common stock at the time of the transaction, less a discount of
15%, due to a one-year restriction on the sale and transferability of the shares
issued.
 
     The following unaudited pro forma information shows the results of the
Company's operations in accordance with APB Opinion No. 16, "Business
Combinations," for the years ended December 31, 1998 and 1997 as though the
acquisitions of the Founding Companies and the Acquired Businesses had occurred
as of January 1, 1997. These results exclude certain business units which were
sold in December 1998 and January 1999 (see Note 15):
 
<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31
                                                      ----------------------------
                                                         1998             1997
                                                      -----------      -----------
<S>                                                   <C>              <C>
Total revenues..................................      $64,759,000      $63,340,000
Operating income (loss).........................      $  (124,000)     $   536,000
Net loss........................................      $(2,755,000)     $  (998,000)
Basic and diluted net loss per share............      $     (0.44)     $     (0.16)
</TABLE>
 
                                      F-10

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
3. INITIAL PUBLIC OFFERING AND ACQUISITIONS: -- (CONTINUED)

     The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
acquisition of the Founding Companies and the Acquired Businesses taken place as
of January 1, 1997, or the results that may occur in the future. The pro forma
results for the year ended December 31, 1998, do not reflect the $5.0 million
loss on the sale of business units. The pro forma results do not give effect to
the Offering and exclude any reductions in historical interest expense for the
year ended December 31, 1997. In addition, the pro forma results exclude the
$4.0 million acquired in-process research and development charge and the $0.5
million management fee paid to GBL Capital (see Note 13). Furthermore, the pro
forma results do not give effect to all cost savings or incremental costs which
may occur as a result of the integration and consolidation of the Founding
Companies and the Acquired Businesses.
 
4. PROPERTY, PLANT AND EQUIPMENT:
 
<TABLE>
<CAPTION>
                                              ESTIMATED           DECEMBER 31
                                             USEFUL LIVES   -----------------------
                                               (YEARS)         1998         1997
                                             ------------   ----------   ----------
<S>                                          <C>            <C>          <C>
Building and improvements.................       8-40       $1,410,000   $1,223,000
Machinery and equipment...................        3-5        6,114,000    2,368,000
Furniture and office equipment............          5          564,000      533,000
Transportation equipment..................          5          489,000      351,000
                                                            ----------   ----------
                                                             8,577,000    4,475,000
Less- Accumulated depreciation and
  amortization............................                  (1,541,000)     (94,000)
                                                            ----------   ----------
                                                            $7,036,000   $4,381,000
                                                            ----------   ----------
                                                            ----------   ----------
</TABLE>
 
     As of December 31, 1998 and 1997, the Company had $200,000 and $264,000 in
equipment, net of accumulated amortization, financed under capital leases,
respectively. See Note 5 regarding long-lived assets impairment evaluation.
 
5. INTANGIBLE ASSETS:
 
<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                       ----------------------------
                                                          1998             1997
                                                       -----------      -----------
<S>                                                    <C>              <C>
Goodwill.........................................      $47,269,000      $32,288,000
Developed technology.............................          820,000          820,000
                                                       -----------      -----------
                                                        48,089,000       33,108,000
Less- Accumulated amortization...................       (1,482,000)        (112,000)
                                                       -----------      -----------
                                                       $46,607,000      $32,996,000
                                                       -----------      -----------
                                                       -----------      -----------
</TABLE>
 
     Goodwill is amortized over principally 30 years and developed technology is
amortized over 7 years. The Company continually evaluates whether events or
circumstances have occurred that indicate that the remaining useful lives of the
intangibles assets should be revised or that the remaining balance of such
assets may not be recoverable. When the Company concludes it is necessary to
evaluate its long-lived assets, including intangibles, for impairment, the
Company will use an estimate of the related undiscounted cash flow as the basis
to determine whether impairment has occurred. If such a determination indicates
an impairment loss has occurred, the Company will utilize the valuation method
which measures fair value based on the best information available under the
circumstances.
 
     In 1998, the Company wrote off $1,644,000 of goodwill related to a business
unit sold in December 1998 and $2,585,000 related to two business units sold in
January 1999 due to the impairment of the recoverability of the related goodwill
based on the proceeds to be received (see Note 15).
 
                                      F-11

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
5. INTANGIBLE ASSETS: -- (CONTINUED)

     As of December 31, 1998, the Company believes that no revisions of the
remaining useful lives or write-downs of intangible assets are required;
however, the Company's continuing review of underperforming business units may
lead to write-downs in the future.
 
6. ACCRUED EXPENSES:
 
<TABLE>
<CAPTION>
                                                               DECEMBER 31
                                                        --------------------------
                                                           1998            1997
                                                        ----------      ----------
<S>                                                     <C>             <C>
Compensation and benefits.........................      $1,096,000      $  957,000
Professional fees.................................         361,000         956,000
Restructuring costs (Note 14).....................       1,145,000              --
Other.............................................       2,646,000       1,419,000
                                                        ----------      ----------
                                                        $5,248,000      $3,332,000
                                                        ----------      ----------
                                                        ----------      ----------
</TABLE>
 
7. LINE OF CREDIT:
 
     On March 30, 1998, the Company entered into a credit facility with a bank
(the "Credit Facility") providing a revolving line of credit of $30 million in
borrowings. This agreement was substantially amended in November 1998. Under the
original terms of the Credit Facility, the Company could borrow up to $25
million to finance future acquisitions and up to $5 million for working capital
purposes. Prior to amendment, borrowings under the facility bore interest at
LIBOR or prime plus an applicable margin at the option of the Company. In
addition to interest and other customary fees, the Company is obligated to remit
a fee ranging from 0.2% to 0.375% per year on unused commitments. The Credit
Facility is secured by substantially all of the assets of the Company. The
Credit Facility is subject to certain financial covenants which pertain to
criteria such as minimum levels of cash flow, ratio of debt to cash flow, and
ratio of fixed charges to cash flow. Borrowing under the Credit Facility is
contingent upon the Company meeting certain financial ratios and other criteria.
 
     An amendment to the Credit Facility dated November 16, 1998 amended certain
financial covenants for future periods, reduced the amount available under the
Credit Facility to the amount ($20.1 million) outstanding on November 6, 1998,
changed the maturity date to December 1, 1999 from December 31, 2002, required a
$5.0 million principal repayment or commitments therefor by December 31, 1998,
required all borrowings to bear a rate of prime plus an applicable margin and
changed other provisions.
 
     As of December 31, 1998, the Company was in default of certain financial
and other covenants under the amended Credit Facility, including cash flow
ratios and the requirement for a $5.0 million principal repayment or commitments
therefor. Accordingly, all of the Company's indebtedness under the Credit
Facility is classified as short-term debt. The Company is in ongoing discussions
with its lenders and other parties concerning a restructuring of its financing
(see Note 1).
 
     In connection with the Credit Facility, the Company incurred $904,000 of
lending and other customary fees of which $100,000 are accrued for at December
31, 1998. These costs were initially capitalized and amortized to interest
expense over the original term of the Credit Facility. At December 31, 1998, the
remaining unamortized costs of $803,000 were written off and included in
interest expense.
 
                                      F-12

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
8. LONG-TERM DEBT:
 
                                                       DECEMBER 31,
                                                   -------------------
                                                     1998       1997
                                                   --------   --------
Obligations under capital leases................   $242,000   $346,000
Notes payable...................................    154,000    247,000
                                                   --------   --------
                                                    396,000    593,000
Less- Current portion...........................   (139,000)  (251,000)
                                                   --------   --------
                                                   $257,000   $342,000
                                                   --------   --------
                                                   --------   --------
 
     In connection with the acquisition of the Founding Companies (see Note 3),
the Company assumed approximately $4.9 million of notes payable, capital lease
obligations and other indebtedness. Of this amount, $4.3 million was repaid with
the net proceeds of the Offering. Debt assumed in connection with the
acquisition of the Acquired Businesses was not significant. Interest rates on
the outstanding obligations under capital leases range from 7.0% to 19.2% and
the weighted average interest rate on these obligations approximates 15.0% as of
December 31, 1998. Interest rates on the notes payable outstanding balances
range from 7.8% to 27.4% and the weighted average interest rate on these
balances approximates 10.0% as of December 31, 1998.
 
     As of December 31, 1998, future scheduled principal payments on the
Company's notes payable and capital lease obligations are as follows:
 
1999..............................................  $139,000
2000..............................................   120,000
2001..............................................    82,000
2002..............................................    50,000
2003..............................................     5,000
                                                    --------
                                                    $396,000
                                                    ========
 
9. INCOME TAXES:
 
     At December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $3.6 million. The net operating
loss carryforward differs from the accumulated deficit principally due to
differences in the recognition of certain expenses for financial and income tax
reporting purposes, as well as, the nondeductibility of the special compensation
and acquired research and development charges, loss on the sale of business
units and goodwill amortization.
 
                                      F-13

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9. INCOME TAXES: -- (CONTINUED)

     The components of income taxes are as follows:
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED
                                                             DECEMBER 31
                                                      -------------------------
                                                         1998            1997
                                                      ----------       --------
<S>                                                   <C>              <C>
Current:
  Federal...........................................  $       --       $     --
  State.............................................          --             --
                                                      ----------       --------
                                                              --             --
                                                      ----------       --------
 
Deferred:
  Federal...........................................  (1,455,000)      (424,000)
  State.............................................    (398,000)      (130,000)
                                                      ----------       --------
                                                      (1,853,000)      (554,000)
                                                      ----------       --------
Valuation allowance.................................   1,853,000        554,000
                                                      ----------       --------
                                                      $       --             --
                                                      ----------       --------
</TABLE>
 
     The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED
                                                             DECEMBER 31
                                                      -------------------------
                                                         1998            1997
                                                      ----------       --------
<S>                                                   <C>              <C>
Income tax rate.....................................       (34.0)%        (34.0)%
State income taxes, net of federal tax benefit......        (5.6)          (5.8)
Nondeductible special compensation and acquired
  in-process research and development charge........          --           32.0
Nondeductible loss on sale of business units........        12.0             --
Other nondeductible items...........................         1.8             --
Nondeductible goodwill amortization.................         3.8            0.5
Valuation reserve...................................        22.0            7.3
                                                      ----------       --------
                                                              --%            --%
                                                      ==========       ========
</TABLE>
 
The tax effect of temporary differences as established in accordance with SFAS
No. 109 that give rise to deferred taxes are as follows:
 
                                                             DECEMBER 31
                                                      -------------------------
                                                         1998            1997
                                                      ----------       --------
Gross deferred tax assets:
  Accruals and reserves not currently deductible....  $1,217,000       $446,000
  Net operating loss carryforwards..................   1,605,000        268,000
  Other.............................................     420,000             --
  Valuation allowance...............................  (2,407,000)      (554,000)
                                                      ----------       --------
                                                      $  835,000       $160,000
                                                      ==========       ========
Gross deferred tax liabilities:
  Depreciation......................................  $  356,000       $ 59,000
  Goodwill amortization.............................     378,000             --
                                                      ----------       --------
                                                      $  734,000       $ 59,000
                                                      ==========       ========
 
                                      F-14

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9. INCOME TAXES: -- (CONTINUED)

     At December 31, 1998, a valuation allowance was established for the
Company's tax benefit based upon the uncertainty of the realizability of the
associated deferred tax asset given the Company's losses to date under the
guidelines set forth in SFAS No. 109.
 
10. SHAREHOLDERS' EQUITY:
 
     In November 1996, ImageMax issued 423,077 shares of Common stock to its
founding shareholders for $5,000. In November 1996, ImageMax sold 126,924 shares
of Series A Convertible Preferred Stock ("Series A Preferred Stock") and 126,923
shares of Common stock to certain of its founders and a director of ImageMax,
for $75,000. Each share of Series A Preferred Stock is convertible into one
share of Common stock.
 
     In April 1997, ImageMax sold 88,847 shares of Series A Preferred Stock to
certain of its founders and two additional accredited investors for $100,000.
 
     In June 1997, ImageMax sold 97,308 shares of Common stock to certain of its
founders and two of its executive officers for $230,000. The related stock
subscription receivables were paid in full in July 1997.
 
     In September 1997, ImageMax sold 227,719 shares of Series A Preferred Stock
and 63,462 shares of Common stock for total consideration for $1,082,000 and
$300,000, respectively, to certain of its founders and other accredited
investors.
 
     In December 1997, ImageMax sold 3,100,000 shares of Common stock in the
Offering and issued 1,283,177 shares of Common stock in partial consideration
for the acquisition of the Founding Companies (see Note 3). In connection with
the Offering, all of the Series A Preferred Stock outstanding as of the date of
the Offering was converted into 443,489 shares Common stock.
 
     In 1997, ImageMax sold a total of 259,135 shares of Common stock (including
shares of Common stock to be issued upon conversion of the Preferred stock) at
prices of $1.18, $2.36 and $4.73 per share to officers, directors and certain
management of the Founding Companies. As a result, ImageMax recorded a
non-recurring non-cash compensation charge of $2,235,000, representing the
difference between the amount paid for the shares and the deemed value for
accounting purposes of $12.00 per share (the Offering price).
 
     During 1998, the Company issued 930,484 shares of Common stock in partial
consideration for the acquisition of the Acquired Businesses (see Note 3).
 
11. BENEFIT PLANS:
 
STOCK OPTION PLAN
 
     The Company's 1997 Incentive Plan (the "Incentive Plan") provides for the
award of up to 600,000 shares of its Common stock to its employees, directors
and other individuals who perform services for the Company. The Incentive Plan
provides for granting of various stock based awards, including incentive and
non-qualified stock options, restricted stock and performance shares and units.
 
                                      F-15

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
11. BENEFIT PLANS: -- (CONTINUED)

Options granted under the Incentive Plan are granted at fair market value at the
date of grant, generally vest in equal installments over three years, and expire
10 years after the date of grant.
 
<TABLE>
<CAPTION>
                                                              OPTIONS OUTSTANDING
                                                     --------------------------------------
                                         AVAILABLE                  PRICE        AGGREGATE
                                         FOR GRANT    SHARES      PER SHARE        PRICE
                                         ---------   ---------   ------------   -----------
<S>                                      <C>         <C>         <C>            <C>
Balance, December 31, 1996.............         --          --   $    --        $        --
  Authorized...........................    600,000          --        --                 --
  Granted..............................   (367,500)    367,500      12.00         4,410,000
                                         ---------   ---------                  -----------
Balance, December 31, 1997.............    232,500     367,500      12.00         4,410,000
  Granted..............................   (359,000)    359,000   2.19 - 12.00     1,419,375
  Cancelled............................    247,500    (247,500)     12.00        (2,970,000)
                                         ---------   ---------                  -----------
Balance, December 31, 1998.............    121,000     479,000   2.19 - 12.00   $ 2,859,375
                                         =========   =========                  ===========
</TABLE>
 
     As of December 31, 1998, options to purchase 40,000 shares were exercisable
at $12.00 per share with an aggregate exercise price of $480,000.
 
     For purposes of the SFAS No. 123 disclosure requirements, the fair value of
each option grant is estimated on the date of the grant using the Black-Scholes
option pricing model using the following assumptions: weighted average risk free
interest rate of 4.4% and 6.0%, in 1998 and 1997, respectively, an expected life
of 5 and 7 years in 1998 and 1997, respectively, expected dividend yield of
zero, and an expected volatility of 40%.
 
     The weighted average fair value of options granted during 1998 and 1997 is
estimated at $1.12 and $6.35, respectively. The Company's net loss would have
been increased and the following pro forma results would have been reported had
compensation cost been recorded for the fair value of the options granted:
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED
                                                             DECEMBER 31
                                                    -----------------------------
                                                       1998              1997
                                                    -----------       -----------
<S>                                                 <C>               <C>
Net loss, as reported.............................  $(8,431,000)      $(7,539,000)
Pro forma net loss................................  $(8,829,000)      $(7,588,000)
Basic and diluted loss per share, as reported.....  $     (1.40)      $     (8.13)
Pro forma basic and diluted loss per share........  $     (1.46)      $     (8.18)
</TABLE>
 
EMPLOYEE STOCK PURCHASE PLAN
 
     The Company provides for an Employee Stock Purchase Plan (the "Purchase
Plan") that allows all full-time employees of the Company, other than 5%
shareholders, temporary employees, and employees having less than six months of
service with the Company, to purchase shares of the Company's Common stock at a
discount from the prevailing market price at the time of purchase. The purchase
price of such shares is equal to 90% of the lower of the fair value of the share
on the first and last days of the quarterly period. Such shares are issued by
the Company from its authorized and unissued Common stock. A maximum of 250,000
shares of the Company's Common stock will be available for purchase under the
plan. The Purchase Plan will be administered by the Board of Directors, which
may delegate responsibility to a committee of the Board. The Board of Directors
may amend or terminate the Purchase Plan at their discretion. The Purchase Plan
is intended to comply with the requirements of Section 423 of the Internal
Revenue Code.
 
                                      F-16

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
11. BENEFIT PLANS: -- (CONTINUED)

     For the year ended December 31, 1998, employees purchased 30,566 shares
under the Purchase Plan of which 11,819 shares were issued in 1998.
 
12. COMMITMENTS AND CONTINGENCIES:
 
OPERATING LEASES
 
     The Company leases operating facilities, office equipment and vehicles
under non-cancelable leases. Rent expense under operating leases for the years
ended December 31, 1998 and 1997 was $2,706,000 and $119,000, respectively. The
Company incurred no rent expense for the period from inception (November 12,
1996) to December 31, 1996. Future minimum lease payments under noncancelable
operating leases as of December 31, 1998 are as follows:
 
1999............................................  $1,858,000
2000............................................   1,463,000
2001............................................   1,181,000
2002............................................     858,000
2003............................................     366,000
2004 and thereafter.............................   1,121,000
                                                  ----------
                                                  $6,847,000
                                                  ==========
 
     The Company leases operating facilities at prices which, in the opinion of
management, approximate market rates from entities which are owned by certain
shareholders and directors of the Company. Rent expense on these leases was
$582,000 and $64,000 for the years ended December 31, 1998 and 1997,
respectively.
 
EMPLOYMENT AND CONSULTING AGREEMENTS
 
     The Company has entered into employment agreements with its Acting Chief
Executive Officer, Chief Financial Officer and Corporate Controller, that
provide for minimum annual compensation. In addition, the Company entered into
employment or consulting agreements with several management members of the
businesses acquired by the Company that provide for minimum annual compensation.
Future minimum compensation commitments under these agreements as of December
31, 1998 are as follows:
 
1999............................................  $2,262,000
2000............................................   2,195,000
2001............................................     458,000
2002............................................     125,000
2003............................................     125,000
                                                  ----------
                                                  $5,165,000
                                                  ==========
 
SEPARATION AGREEMENTS
 
     During 1998, the Company and three of its former executive officers entered
into separation agreements upon termination of their employment with the
Company. The separation agreements provided $781,000 of compensation and
benefits, which has been charged to the statement of operations for the year
ended December 31, 1998 as restructuring costs (see Note 14).
 
                                      F-17

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
12. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)

     In connection with the separation agreements and existing employment and
consulting agreements, should a change of control, as defined, occur within
certain specified periods, these agreements provide, among other things, that
the Company make payments of up to $1,253,000. The periods specified expire at
various dates through December 31, 2000. Should a change of control occur beyond
this date, the Company is not obligated to make any payments under these
agreements.
 
OTHER MATTERS
 
     The Company is party to various claims arising in the ordinary course of
business. Although the ultimate outcome of these matters is presently not
determinable, management, after consultation with legal counsel, does not
believe that the resolution of these matters will have a material adverse effect
on the Company's consolidated financial position or results of operations.
 
     The Company occasionally enters into agreements with its suppliers in the
normal course of business that require the Company to purchase minimum amounts
of inventory in future years in order to obtain favorable pricing. These
commitments at December 31, 1998 are not considered material.
 
13. RELATED-PARTY MANAGEMENT CONTRACT:
 
     In November 1996, the Company entered into a management contract with GBL
Capital Corp. ("GBL"), an entity whose shareholders were also shareholders of
ImageMax. One GBL shareholder is the former Chief Executive Officer and another
is the current Chief Executive Officer of the Company. GBL was engaged to manage
the daily business operations of ImageMax. ImageMax paid GBL $5,000 upon
entering into the agreement and was required to pay monthly fees ranging from
$10,000 to $25,000. The monthly fee payments were terminated on July 31, 1997
when the two officers of ImageMax began to be paid directly by ImageMax. GBL
services were ceased at that date. Upon the closing of the Offering, the Company
paid GBL a fee of $500,000 in accordance with the terms of the management
contract. Such fees were, in effect, compensation to the officers of the
Company. The $500,000 was charged to the statement of operations for the year
ended December 31, 1997 as general and administrative expense upon the
consummation of the Offering.
 
14. RESTRUCTURING COSTS:
 
     For the year ended December 31, 1998, the Company recorded restructuring
costs of $1,387,000, primarily for severance payments related to headcount
reductions at the corporate office and a business unit and facility costs
associated with business unit consolidations.
 
15. LOSS ON SALE OF BUSINESS UNITS:
 
     For the year ended December 31, 1998, the Company recorded a loss on sale
of business units of $4,995,000, related to the sales in December 1998 and
January 1999 of facilities in Charlotte, NC, Cayce, SC and Cleveland, TN. The
loss represents the difference between the net proceeds from the transactions
and the net asset value of these locations, including $4,229,000 of goodwill
(see Note 5). For the year ended December 31, 1998, these business units
accounted for $6,496,000 and $660,000 of the Company's consolidated revenues and
operating loss, respectively.
 
16. RECENT DEVELOPMENT:
 
     On March 12, 1999, the Company and Pierce Leahy Corp. ("Pierce Leahy"), an
international data storage and management services company, signed a letter of
intent to form a strategic partnership. Under terms of the proposed agreement,
Pierce Leahy will purchase 3,144,000 shares of a
 
                                      F-18

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
16. RECENT DEVELOPMENT: -- (CONTINUED)

new series of the Company's preferred stock at $2.50 per share (for an aggregate
purchase price of $7.9 million). Each share of preferred stock is convertible
into one share of Common stock and carries no dividend or liquidation
preference. Pierce Leahy will also receive two warrants that may be exercised
over the next four and five years to purchase an additional 1,719,000 and
1,861,000 shares of preferred stock at $4.00 and $5.00 per share, respectively.
Pierce Leahy will have the right to elect a majority of the Company's Board of
Directors, subject to certain conditions. Certain transactions between the
companies would require approval by a two-thirds majority of the Board or a
majority of Board members not designated by Pierce Leahy. In the event that the
Company contemplates entering into any transaction involving a merger,
consolidation, other business combination or similar transaction, or the sale,
disposal or exchange of all or a substantial portion of the assets or capital
stock of the Company, Pierce Leahy will have a right of first refusal to enter
into substantially the same transaction; such right will last for so long as
Pierce Leahy has the right to designate any of the Company's Board of Directors.
 
     The consummation of the strategic partnership is subject to due diligence,
the negotiation of a definitive purchase agreement, regulatory approval,
approval of the Board of Directors of both companies and consents of lenders of
both companies and other customary conditions. Although the companies are
seeking to complete the agreement by April 30, 1999, there can be no assurance
as to when such agreement will be completed or whether such agreement will be
completed at all. The Company has agreed not to initiate or solicit alternative
transactions before April 15, 1999. The Company has agreed to reimburse Pierce
Leahy for its expenses in connection with the proposed transaction if a
definitive agreement is not executed under certain circumstances.
 
                                      F-19

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                      BALANCE,
                                    BEGINNING OF   CHARGED TO    RESERVE OF                  BALANCE,
           DESCRIPTION                  YEAR        EXPENSE     ACQUISITIONS   DEDUCTIONS   END OF YEAR
           -----------              ------------   ----------   ------------   ----------   -----------
<S>                                 <C>            <C>          <C>            <C>          <C>
Allowance for doubtful accounts:
  1998...........................     $375,000      $185,000      $150,000     $(110,000)    $600,000
  1997...........................     $     --            --       375,000            --     $375,000
</TABLE>
 
<TABLE>
<CAPTION>
                                             BALANCE,
                                           BEGINNING OF   CHARGED TO                 BALANCE,
              DESCRIPTION                      YEAR        EXPENSE     DEDUCTIONS   END OF YEAR
              -----------                  ------------   ----------   ----------   -----------
<S>                                        <C>            <C>          <C>          <C>
Restructuring accruals:
  1998..................................        $--       $1,387,000   $(242,000)   $1,145,000
</TABLE>
 
                                      F-20

<PAGE>

                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                          IMAGEMAX, INC.
 
Dated: March 31, 1999                     By: /s/ ANDREW R. BACAS
                                              ------------------------------
                                          Andrew R. Bacas
                                          Acting Chief Executive Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.
 
<TABLE>
<CAPTION>
           SIGNATURES                           TITLE                        DATE       
           ----------                           -----                        ----
<S>                                <C>                                 <C>
/S/ ANDREW R. BACAS                Acting Chief Executive Officer        March 31, 1999
-----------------------------      (Principal Executive Officer)       
Andrew R. Bacas                                                        
                                                                       
/s/ JAMES D. BROWN                 Senior Vice President-Finance,        March 31, 1999
-----------------------------      Chief Financial Officer, Assistant  
James D. Brown                     Secretary and Assistant Treasurer   
                                   (Principal Financial and            
                                   Accounting Officer)                 
                                                                       
/s/ LEWIS E. HATCH, JR.            Chairman of the Board of              March 31, 1999
-----------------------------      Directors                           
Lewis E. Hatch, Jr.                                                    
                                                                       
/s/ LENNOX K. BLACK                Director                              March 31, 1999
-----------------------------                                          
Lennox K. Black                                                        
                                                                       
/s/ DAVID C. CARNEY                Director                              March 31, 1999
-----------------------------                                          
David C. Carney                                                        
                                                                       
/s/ BRUCE M. GILLIS                Director                              March 31, 1999
-----------------------------                                          
Bruce M. Gillis                                                        
                                                                       
/s/ STEVEN N. KAPLAN               Director                              March 31, 1999
-----------------------------                                          
Steven N. Kaplan                                                       
                                                                       
/s/ REX LAMB                       Director                              March 31, 1999
-----------------------------                                          
Rex Lamb                                                               
                                                                       
/s/ JOHN E. SEMASKO                Director                              March 31, 1999
-----------------------------                                          
John E. Semasko                                                        
                                                                       
/s/ MITCHELL J. TAUBE              Director                              March 31, 1999
-----------------------------                                          
Mitchell J. Taube                                                    
</TABLE>