SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                              --------------------

                                    FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 [FEE REQUIRED]

                   For the Fiscal Year Ended December 31, 1997

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

              For the Transition Period From _________ to _________

                         Commission File Number 0-23077
                                               --------

                                 IMAGEMAX, INC.
              -----------------------------------------------------
             (Exact name of Registrant as specified in its charter)

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           Pennsylvania                                  23-2865585
  -------------------------------                    ------------------
  (State or other jurisdiction of                     (I.R.S. employer
   incorporation or organization)                    identification no.)

  1100 E. Hector Street, Suite 396
      Conshohocken, Pennsylvania                             19428
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(Address of principal executive offices)                  (Zip Code)

       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 $25,201,179 as of March 23, 1998.

     On March 23, 1998 the Registrant had outstanding 5,552,755 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 1998 Annual Meeting of Shareholders are incorporated
by reference into Part III of this Annual Report on Form 10-K.


<PAGE>






                                TABLE OF CONTENTS

Item                                                                        Page
----                                                                        ----

PART I   .....................................................................1
         ITEM 1.     BUSINESS.................................................1
         ITEM 2.     PROPERTIES..............................................16
         ITEM 3.     LEGAL PROCEEDINGS.......................................17
         ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....17
         ITEM 4(a).  EXECUTIVE OFFICERS OF THE REGISTRANT....................17

PART II  ....................................................................19
         ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND
                     RELATED SHAREHOLDER MATTERS.............................19
         ITEM 6.     SELECTED CONSOLIDATED FINANCIAL DATA....................22
         ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                     FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..........23
         ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............29
         ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE..................29

PART III ....................................................................29
         ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT..........29
         ITEM 11.    EXECUTIVE COMPENSATION..................................29
         ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                     AND MANAGEMENT..........................................30
         ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........30

PART IV  ....................................................................30
         ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                     REPORTS ON FORM 8-K.....................................30


<PAGE>




                                     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"). 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 include the activities of the
Founding Companies. The Founding Companies consist of: Utz Medical Enterprises,
Inc., the parent of American Micro-Med Corporation ("AMMCORP"); CodaLex
Microfilming Corporation ("CMC"), Imaging Information Industries, Inc. ("I(3)"
and, collectively with CMC, "CodaLex"); Laser Graphics Systems and Services,
Inc. ("Laser Graphics" and, collectively with CodaLex, the "CodaLex Group");
DataLink Corporation ("DataLink"); DocuTech, Inc. ("DTI") and DocuTech Data
Systems, Inc. ("DDS") (collectively, "DocuTech"); Image & Information Solutions
("I(2) Solutions"); Image Memory Systems, Inc. ("IMS"); International Data
Services of New York, Inc. ("IDS"); Oregon Micro-Imaging, Inc. ("OMI"); Semco
Industries, Inc. ("Spaulding"); Total Information Management Corporation
("TIMCO"); and TPS Micrographics, Inc. ("TPS").

         Certain information regarding each of the Founding Companies is
summarized below:

         AMMCORP (Chesterton, Indiana, near Chicago) is a provider of microfilm,
scanning and record storage and retrieval services primarily to health care
providers in the Chicago metropolitan area, northern Indiana, southern Michigan
and western Ohio. As a medical records specialist, AMMCORP offers 24-hour,
365-day physically staffed retrieval.

         The Codalex Group is comprised of three micrographic and digital
imaging service businesses under common control, CMC (Cayce, South Carolina near
Columbia), Laser Graphics (Cleveland, Tennessee, near Chattanooga) and I(3)
(Marietta, Georgia, near Atlanta). The CodaLex Group primarily serves the health
care and financial services markets in the southeastern U.S. and is a Kodak
imaging equipment broker-dealer in all three locations. I(3) was started in 1995
to focus on digital imaging and is a Canon dealer.

         Datalink (Tempe, Arizona) was formed in 1984 as a
computer-output-to-microfiche ("COM") specialist serving the Phoenix
metropolitan area. DataLink also offers micrographic and digital imaging
services and systems.

         DocuTech (Lincoln, Nebraska) includes the businesses of DTI, a
micrographic and digital imaging service business, and DDS, a provider of
open-architecture document scanning software products. DTI primarily serves the
health care and financial services markets in Nebraska. DDS markets its
DocuROM(TM), FileTRAX(TM), ScanTRAX(TM) and other scanning and digital image
management software nationally to both end-users and other document management
businesses, including six of the Founding Companies. DDS has more than 70 other
document management businesses acting as value-added resellers of its software
products. DTI is a Canon dealer in Nebraska.

         I(2) Solutions (Monroe, Louisiana) is a provider of micrographic,
digital imaging, digital data storage and graphic design services primarily to
hospitals, state and local government agencies, engineering and general
commercial clients from its Monroe facilities. I(2) Solutions also operates a
retail store at its Monroe location,

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which produces litigation exhibits and architectural and engineering prints and
sells engineering, drafting and related supplies. I(2) Solutions is a Kodak
dealer in Louisiana, Texas and Mississippi, a Minolta dealer in Louisiana, Texas
and Arkansas and an OCE dealer in Louisiana and Texas and provides service and
repair support to its equipment customers.

         IMS (Dayton, Ohio) provides micrographic and digital imaging services
specializing in large-format documents (primarily engineering drawings) to a
national client base of manufacturing businesses. IMS is a Photomatrix dealer.

         IDS (Millwood, New York, near New York City) is a provider of offshore
data entry services supporting forms processing as well as the indexing of both
microfilmed and digitally-imaged records. IDS also performs litigation support.
IDS serves end-users and document management companies nationally.

         OMI (Eugene, Oregon) provides micrographics and digital imaging
products and services primarily to health care providers, financial institutions
and government agencies in Oregon and Washington from its Eugene facility and a
branch office in Portland, Oregon. OMI is a certified dealer of Canon
micrographic and digital imaging equipment in Oregon, and provides service and
repair support to its equipment customers.

         Spaulding (Stoughton, Massachusetts, near Boston) provides both
small-format and large-format document filming and digital imaging services and
equipment sales and related maintenance service to a variety of commercial,
non-profit and government clients in the New England region. Spaulding has a
branch office in Worcester, Massachusetts. Spaulding is a Minolta dealer for
micrographics and hybrid micrographic systems equipment in Maine, Massachusetts,
New Hampshire and Vermont, a Xerox dealer for large-format scanners, plotters,
and digital imaging equipment in New England and eastern New York and a Fujitsu
scanning equipment systems dealer throughout the Northeast. Spaulding also acts
as a nationwide value added reseller of specialized software and hardware for
Adobe Systems Incorporated, Computervision Corporation, CDP Communications,
Inc., Cadnet Corporation and Westbrook Technologies, Inc.

         TIMCO (Emeryville, California, near San Francisco) provides
micrographics, digital imaging and record storage and retrieval services
primarily to financial services and government clients in northern California.
TIMCO maintains a branch office in Sacramento, California.

         TPS (Forest, Virginia, near Lynchburg) provides micrographic and
digital imaging services to general commercial, health care, financial
institutions and government entities in Virginia. TPS also sells and services
Canon micrographic and digital imaging equipment. TPS maintains a branch office
in Richmond, Virginia.

         Prior to the Offering, ImageMax did not conduct any material
operations. The Company operates in 13 states, employs nearly 1,000 people and
provides services and products to over 5,000 clients from 18 locations. The
Company intends to continue to selectively acquire document management companies
in order to increase geographic coverage and market share, expand service and
product capabilities and generate economies of scale in regional and national
markets.

         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 increasing document
management options. As a result, the Company believes the most successful
service providers will be those that can offer a complete spectrum of document
management services

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and products encompassing solution design and expertise in the management of
digital, film and paper media. Accordingly, the Company initially 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. The Company's services include document management consulting and systems
integration, media conversion (consisting of electronic imaging and
micrographics), data indexing and offshore data entry, information storage and
retrieval, and document management system maintenance. The Company's products
include proprietary, open-architecture digital imaging and indexing software, as
well as document management systems and supplies.

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, personal computers and computer networking)
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, 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 the document management service industry is highly
fragmented. 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 less than $10 million. The Company believes
that many of the small businesses with which it competes are candidates for
consolidation because they 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. In
addition, increasing consolidation within two of the largest document-intensive
industries, financial services and health care, has provided an additional
impetus for document management companies to consolidate in order to grow with
their clients. 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.
As a result, the Company believes that many owners of competing service
providers will be receptive to being acquired by a document management company
with a national presence, a solutions orientation and an integration strategy in
order to remain competitive and as a means of providing the owners of such firms
with liquidity.

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Business Strategy

         The Company's goal is to become a leading national, single-source
provider of integrated document management solutions. The Company is
implementing its business strategy by focusing on the following key elements:

Become a Leading Single-Source Provider. The Company intends to become an
industry leading single-source provider of integrated document management
solutions. Building upon the expertise of the Founding Companies in a variety of
digital, film and paper-based document management services and products, the
Company is seeking to further develop consultative relationships with clients to
assess their document management needs and to recommend and provide
cost-effective combinations of services and products. In many cases the Company
will customize packages of services and products for specific vertical markets
such as health care, financial services and engineering. As it broadens its
geographic network, the Company will expand national account coverage to service
clients who wish to work with a single vendor.

Capitalize on Business Integration. The Company is focused on achieving internal
revenue and margin growth by efficiently integrating the operations of the
Founding Companies and will seek additional growth by effectively integrating
future acquisitions. Strategic, operational and financial planning will be
directed by executive management in order to articulate clear and common
objectives, implement strategy and measure performance. Key marketing activities
are, and will continue to be, conducted under the corporate name in order to
build a national brand. The centralization of administration and acquisition
support, and the integration of internal financial, administrative, information
and communications systems, are intended to enable business unit management to
devote increased resources to business generation and client service.

Increase Sales and Marketing Efforts. The Company has hired and will continue to
hire additional salespersons to expand a national account sales force at the
corporate level. Training of current and new salespersons emphasizes digital
imaging applications, and the Company intends to institute a uniform sales
compensation plan. The Company is focused on leveraging existing client
relationships by cross-selling additional services and products and by
coordinating and making available throughout the Company vertical market
expertise already developed within the organization. In addition, the Company is
seeking to extend throughout its operations the marketing programs used by
certain of the Founding Companies, utilizing direct marketing, telemarketing,
seminar selling and internet marketing programs.

Make Selective Acquisitions. An important element of the Company's growth
strategy is to make selected acquisitions to consolidate its position as a
provider of complete document management solutions. The Company has acquired two
document management companies subsequent to December 31, 1997 and will continue
its aggressive acquisition program in order to increase geographic coverage and
market share, expand service and product capabilities, obtain key human
resources and technical expertise, and generate critical mass and economies of
scale nationally and in regional markets.

         The Company believes that it is a preferred acquiror of other companies
in the highly-fragmented document management industry as a result of the
Company's technical capabilities, the industry reputation of the Founding
Companies' management personnel, its solutions orientation and integration
strategy, the benefits expected to flow from the Company's integration strategy,
and the Company's financial capabilities and visibility as a public company.
Moreover, the Company believes that the relationships developed through its
licensing of software products and provision of offshore data entry services to
over 100 independent document management service providers yield a valuable
source of potential future acquisitions for the Company.

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         Based on its acquisition activities and contacts since its inception in
November 1996, the Company believes it is well positioned to continue its
acquisition program, under the direction of Andrew R. Bacas, its Senior Vice
President - Corporate Development and Bruce M. Gillis, its Chief Executive
Officer. As consideration for future acquisitions, the Company intends to use
various combinations of Common Stock, cash, debt or other securities, and to
emphasize Common Stock when continuing management is a key factor in the
acquisition decision. The Company plans to register in the near future an
additional 2,000,000 shares of its Common Stock with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") for use in future acquisitions.

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 in certain geographic locations include:

Media Conversion Services

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 typically
stored on optical media or to microfilm. 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 images are 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, indexing of film for
computer-aided retrieval systems and 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 cheaper 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

Digital Storage and Retrieval. Digital storage of documents enables customers to
retrieve large volumes of documents immediately, which would not be possible
using conventional filing systems. Digital storage on CD-ROM, optical disk,
magnetic disk or tape also allows for the rapid distribution of archival
information to multiple destinations and removes the logistical burden and cost
of storing paper documents. These storage systems may

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reside in one or more locations, either within a client's organization or at a
Company-maintained data warehouse. Users may access images via a client-server
network, a modem or an intra/internet. Because digitally-stored documents can be
indexed according to several criteria, a client can use simple but exacting
computer search techniques to rapidly access individual documents or groups of
documents. The Company currently provides a variety of services and proprietary
software products that support clients' digital storage and retrieval needs.

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 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.

         The Company believes that client demand in the areas of document
management solution integration, data warehousing and facilities management is
growing rapidly, and the Company intends to expand its current capabilities in
these areas.

Products

         The Company develops proprietary, open-architecture software products
which support electronic imaging and indexing services. In addition, the Company
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 DocuROM, was initially
developed for use by document management companies in their digital conversion
operations. Other Company products, such as ScanTRAX and FileTRAX, were
developed for marketing to end-users. 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 developed and markets a high-end scanning and
viewing software package for the aperture card market. 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.

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 of the
Founding Companies provide extensive field maintenance and repair services for
the equipment they sell. The Company shares the technical hardware expertise of
the Founding Companies across the Company's operations. The Company expects that
it will achieve certain purchasing efficiencies with equipment manufacturers and
that it will be an attractive dealer to equipment manufacturers seeking to
achieve broad geographic coverage with a single company. The Company also
provides its clients a wide range of micrographic film products, digital media
and other graphic supplies.

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Clients and Key Markets

         The Company had a broad base of over 5,000 clients in the last year,
none of which accounted for more than 5% of pro forma combined revenues for
either the year ended December 31, 1996 or the year ended December 31, 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.

         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: include the retail and transportation markets,
government entities and litigation support.

<TABLE>
<CAPTION>

                                              Representative Clients
                                              ----------------------

Health Care                   Financial Services               Engineering                  Other Vertical Markets
-----------                   ------------------               -----------                  ----------------------

<S>                           <C>                              <C>                          <C>
Abbott Laboratories           CIT Group                        The Boeing Company           Avis Rent a Car, Inc.
Novartis AG                   First Union National Bank        General Electric Company     DHL International Ltd.
University of Nebraska        Nordstrom Credit, Inc.           General Motors Corporation   Waste Management, Inc.
 Medical Center                                                Honeywell, Inc.              State of California
Virginia Department of                                                                      State of Louisiana
  Health                                                                                    State of Mississippi
</TABLE>

         The Company believes that it will enjoy 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

         Historically, the Company's sales efforts have been implemented
separately by each Founding Company. Sales efforts are conducted by the
Company's 65-person sales force supplemented by the sales activities of the
Founding Companies' senior management. The Company plans to hire additional
local territory salespersons and develop a national sales and marketing function
as part of its national sales effort. The Company seeks to attract customers
away from smaller industry providers through its ability to offer a broader
range of solutions and products for clients' document management needs. The
Company will also leverage existing client relationships by cross-selling its
services, products and expertise throughout each client's organization.

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         The Founding Companies have succeeded in expanding their 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 believes
that its proactive, solution-based approach can be broadly effective with
potential clients and will enable the Company to increase its market position.
In contrast to other market participants who traditionally have been reactive in
their approach to selling, the Company's strategy is to pursue unvended accounts
actively in addition to competing for existing outsourced business. Methods such
as seminar selling, telemarketing and internet marketing are utilized by the
Company.

         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
single-market, 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 presently larger than the Company, and have greater
financial and other resources and operate in broader geographic areas than the
Company. Due to consolidation in the document management services industry,
there is significant competition in acquiring such businesses, and the prices
for attractive acquisition candidates may be bid up to higher levels,
particularly in cases where competitors with greater financial and other
resources than the Company compete for the same acquisition targets.
Additionally, other potential competitors may choose to enter the Company's
areas of operation in the future. Moreover, because the Company intends to enter
new geographic areas, the Company expects to encounter significant competition
from established competitors in each of such new areas. 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

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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, there can be no
assurances that environmental liabilities will not have a material adverse
effect on the business, financial condition or results of operations of the
Company.

Employees

         As of December 31, 1997, the Company had approximately 950 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.

RISK FACTORS

         This Annual Report contains certain forward-looking statements that
involve substantial risks and uncertainties. When used in this Annual Report,
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 discussed below.

Absence of Combined Operating History; Risks of Integration; Management of
Growth

         ImageMax was founded in November 1996 and conducted no material
operations prior to the consummation of the Offering and the simultaneous
acquisition of the Founding Companies. Prior to their acquisition, the Founding
Companies operated as separate independent entities. The Company has begun to
develop a centralized reporting system, but has relied largely on the existing
reporting systems of the Founding Companies. The success of the Company will
depend, in part, on the Company's ability to continue to integrate the
operations of the Founding Companies and any additionally acquired companies,
including developing programs and processes that will promote cooperation and
the sharing of opportunities and resources among the Founding Companies and any
additionally acquired companies. The Company's executive management group has
been assembled only recently and has no previous experience in the document
management services industry. There can be no assurance that the executive
management group will effectively be able to oversee the combined entity and
implement the Company's operating or growth strategies. Further, to the extent
that the Company is able to continue to implement its acquisition strategy, the
resulting growth of the Company will place significant demands on executive and
senior management and on the Company's internal systems and controls. There can

                                        9


<PAGE>



be no assurance that the newly assembled management group will be able to
effectively manage the Company through a period of significant growth. In
addition, no assurance can be given 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.

         A number of the Founding Companies offer different services, utilize
different capabilities and technologies and target different geographic markets
and industries. These differences increase the risk inherent in successfully
completing such integration. Further, there can be no assurance that the
Company's strategy to become a national, single-source provider for integrated
document management solutions will be successful, or that the Company's target
industries will accept the Company as a provider of such services. In addition,
there can be no assurance that the operating results of the Company will match
or exceed the combined individual operating results achieved by the Founding
Companies or additionally acquired companies prior to their acquisition.

Risks of Acquisitions

         The Company intends to aggressively pursue the acquisition of
additional document management services businesses in new geographic regions and
in the regions where the Company currently operates as part of its growth
strategy. Due to consolidation in the document management services industry,
there is significant competition in acquiring such businesses, and the prices
for attractive acquisition candidates may be bid up to higher levels,
particularly in cases where competitors with greater financial and other
resources than the Company compete for the same acquisition targets. The success
of any completed acquisition, including the acquisition of the Founding
Companies, will depend in large measure on the Company's ability to effectively
integrate the operations, management and information systems of the acquired
business. The process of integrating acquired businesses often involves
unforeseen liabilities, risk exposure and difficulties and may require a
disproportionate amount of the Company's financial and other resources.
Acquisitions may involve a number of additional risks, such as adverse
short-term effects on the Company's reported operating results, diversion of
management's attention, the ability of the Company to retain key personnel and
clients, unanticipated problems or legal liabilities, and amortization of
acquired intangible assets, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be successful in identifying or
consummating favorable acquisition opportunities or in integrating future
acquisitions, or that acquired businesses will achieve sales and profitability
that justify the Company's investment therein. Further, to the extent that the
agreements relating to acquisitions by the Company provide for indemnification
of the Company with respect to contingent and other liabilities of the acquired
entity, such indemnification obligations may be, and are in the case of the
acquisitions of the Founding Companies, for a limited duration and subject to
negotiated limitations. If any claims or liabilities of the Company relating to
the Founding Companies or future acquisitions are determined to not be subject
to any indemnification obligations, or if the amount of such claims or
liabilities exceed such limitations or the ability of the sellers of the
acquired entities to satisfy their indemnification obligations, the Company's
business, financial condition and results of operations could be materially and
adversely effected.

Need for Additional Financing to Implement Acquisition Strategy

         The Company intends to finance future acquisitions by using cash from
operations, by issuing shares of Common Stock, debt or other securities and
through borrowings under the Company's then-existing credit facilities. In March
1998, the Company entered into a five-year revolving credit facility (the
"Credit Facility") with a national bank to assist in the funding of future
acquisitions and operating activities. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The Company believes that its
cash

                                       10


<PAGE>



position, its cash flow from operations, the 2,000,000 shares of Common Stock to
be registered pursuant to a shelf registration statement, any debt or other
securities it may issue and its Credit Facility will be sufficient to fund
acquisition activity for at least the next 12 months. However, no assurance can
be given that such financing sources will be adequate to fund such acquisition
activity, or that the Company will not need additional debt or equity financing
to successfully implement its acquisition strategy. There can be no assurance
that the Company will be able to obtain such financing, if and when it is
needed, or that, if available, such 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 implement its
acquisition strategy.

         The Company may substantially increase its level of indebtedness in the
future to finance its acquisition program. The degree to which the Company is
financially leveraged following such borrowings and the terms of the Company's
indebtedness could have important consequences to shareholders, including that
(i) 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 may be impaired, (ii) a substantial
portion of the Company's cash flow from operations may have to be dedicated to
the payment of the principal of and interest on its indebtedness, (iii) certain
of the Company's borrowings may be at variable rates of interest, which will
expose the Company to the risk of increased interest rates, (iv) the Credit
Facility contains certain financial and restrictive covenants which could limit
the ability of the Company to effect future debt or equity financings and may
otherwise restrict corporate activities, and (v) the Company may be more highly
leveraged than many of its competitors, which may place the Company at a
competitive disadvantage.

Significant Intangible Assets

         As of December 31, 1997, $33.0 million, or 68.4%, of the Company's
total assets represented intangible assets arising from the acquisition of the
Founding Companies, of which $32.2 million was goodwill which is being amortized
using an estimated life of principally 30 years and $0.8 million is acquired
developed technology which is being amortized over a period of seven years.
Goodwill is an intangible asset that represents the difference between the total
purchase price of the acquisition of the Founding Companies and the amount of
such purchase price allocated to the fair value of the net assets acquired.
Goodwill and other intangibles are amortized over a period of time, with the
amount amortized in a particular period constituting a non-cash expense that
reduces the Company's net income in that period. A reduction in net income
resulting from the amortization of goodwill and other intangibles may have an
adverse impact upon the market price of the Company's Common Stock. In addition,
in the event of a sale or liquidation of the Company or its assets or a change
in events or circumstances of the related businesses, there can be no assurance
that the value of such intangible assets would be recovered. In addition, there
can be no assurance these intangible assets will be fully realizable over their
amortization period.

Importance of Development of New Services and Maintenance of Technological
Capabilities

         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 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 Company's
current services and products are non-proprietary in nature and there can be no
assurance that the Company will be able

                                       11


<PAGE>



to obtain the rights to use any such technologies, that it will be able to
effectively implement such technologies on a cost-effective basis or that such
technologies will not ultimately render obsolete the Company's role as a third
party provider of document management services and products.

Competition

         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 is the in-house document
handling capability of businesses within the Company's target markets, the
so-called "unvended" part of the market. There can be no assurance that these
businesses will outsource more of their document management needs or that other
businesses will not bring in-house services that they currently outsource. In
addition, certain of the Company's competitors are larger businesses, many of
which have greater financial and other resources than the Company. Certain of
these competitors operate in broader geographic areas than the Company, and
others may choose to enter the Company's areas of operation in the future. In
addition, there may be no assurance that other companies with greater resources
than the Company will not enter the document management services industry in the
future. Further, the Company intends to enter new geographic areas and expects
to encounter significant competition from established competitors in each of
such 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.

Reliance on Management and Personnel

         The Company's operations and future prospects are dependent on the
performance of its executive management team, including Bruce M. Gillis, S.
David Model, James D. Brown, Andrew R. Bacas and Richard D. Moseley. The Company
will also be dependent on senior management of the Founding Companies and on the
senior management of subsequently acquired businesses. If any of these people
are 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 there can be no assurance that such rate will not be substantially
increased in the future. In addition, California and other states have increased
or may increase their minimum wage above the federal minimum. Increases in the
minimum wage may cause the Company to increase wages to remain competitive.
Accordingly, the Company's business, financial condition and results of
operations may be adversely affected.

Potential Liability for Breach of Confidentiality

         A substantial portion of the Company's business involves the handling
of documents containing confidential and other sensitive information. There can
be no assurance that unauthorized disclosures of such information will not
result in liability to the Company. It is possible that such liabilities could
have a material adverse effect on the Company's business, financial condition
and results of operations.

                                       12


<PAGE>



Dependence on Certain Markets

         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 such clients for the services offered by the Company. Any
such reduction in demand may have a material adverse effect on the business,
financial condition and results of operations of the Company.

Environmental Risks Related to Certain Operations of the Company

         Certain of the Company's operations utilize chemical products which are
regulated under federal, state and local laws as hazardous substances, and
produce wastes which 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 facilities that would be likely to have a
material adverse effect on the business, financial condition or results of
operations of the Company. However, there can be no assurances that
environmental liabilities will not have a material adverse effect on the
business, financial condition and results of operations of the Company.

Effect of Potential Fluctuations in Quarterly Results of Operations

         The Company's results of operations are subject to variations in any
given year, and from quarter to quarter. Factors that may cause material
fluctuations in quarterly results of operations include the timing and structure
of acquisitions, the timing and magnitude of costs related to such acquisitions,
the gain or loss of significant clients, increases or reductions in the scope of
services performed for significant clients, the timing or completion of
significant projects, the relative mix of higher and lower margin projects,
changes in pricing strategies, capital expenditures and other costs relating to
the expansion of operations, the hiring or loss of personnel, and other factors
that may be outside of the Company's control. In addition, because the
anticipated financial benefits of the combination of the Founding Companies may
not be generated immediately, the Company's initial 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 its Common Stock. Given the possibility
of such 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.

Casualty; Risk of Business Interruptions

         Certain types of casualty losses that may be experienced by the Company
may not be fully insurable on a cost-effective basis. In the future, should
uninsured losses or damages occur, the Company could lose both its investment in
and anticipated profits from the affected property and may continue to be
obligated on any leasehold obligations, mortgage indebtedness or other
obligations related to such property. Any significant damage to the Company's
facilities or other event that causes significant interruptions in the Company's
operations may not be covered by insurance and could have a material adverse
effect on the Company's business, financial condition or results of operations.

Public Sector Market and Contracting Risks

         Though a modest portion of the Company's present business involves
public sector contracts, the Company anticipates a growing portion of its
business coming from local, state and federal government agencies.

                                       13


<PAGE>



Public sector contracts are subject to detailed regulatory requirements and
public policies, as well as to funding priorities. Contracts with public sector
customers may be conditioned upon the continuing availability of public funds,
which in turn depends upon lengthy and complex budgetary procedures, and may be
subject to certain pricing constraints. Moreover, public sector contracts may
generally be terminated for a variety of factors, including when it is in the
best interests of the respective government. There can be no assurance that
these factors or others unique to contracts with governmental entities will not
have a material adverse effect on the Company's future business, financial
condition and results of operations.

Substantial Influence of Management and Existing Shareholders

         As of March 23, 1998, the former shareholders of the Founding Companies
and the directors and other executive officers of the Company, and entities
affiliated with them, beneficially own approximately 37.0% 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.

Possible Volatility of Stock Price

         The market price for the Common Stock of the Company may be highly
volatile. Prices for its Common Stock will be determined by the marketplace and
may be influenced by many factors, including the depth and liquidity of the
trading market, investor perception of the Company and general economic and
market conditions and trends. In addition, factors such as the Company's
financial results, quarterly variations in the Company's financial results,
changes in earnings estimates by analysts, reported earnings that vary from such
estimates, press releases by the Company or others, and developments affecting
the Company or its industry generally may have a significant impact on the
market price of its Common Stock. 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.

Potential Effect of Shares Eligible for Future Sale on Price of Common Stock

         Sales, or the possibility of sales, of substantial amounts of its
Common Stock in the public market by the Company's existing shareholders could
adversely affect the market price of the Company's Common Stock. As of March 23,
1998, there were an aggregate of 5,552,755 shares of the Company's Common Stock
outstanding. Of these, 3,100,000 shares that were sold in the Offering are
freely tradeable without restriction or further registration under the
Securities Act, unless such shares were purchased by "affiliates" of the Company
as that term is defined in Rule 144 under the Securities Act.

         Simultaneously with the closing of the Offering, the Company issued, in
the aggregate, 1,283,177 shares of Common Stock as a portion of the
consideration for the acquisition of the Founding Companies. Such shares and the
1,154,259 shares of Common Stock purchased by certain shareholders prior to the
Offering are "restricted securities" as that term is defined in Rule 144 under
the Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. As a result of the contractual
restrictions described below and certain exemptions under the Securities Act,
the Restricted Shares will be eligible for sale in the public market as follows:
(i) 765,769 shares will be eligible for sale upon expiration of the lock-up
agreements after 180 days from December 4, 1997; (ii) 388,490 shares will
become eligible for sale at various times between six months and one year from
December 4, 1997; and (iii) 1,283,177 shares will be eligible for sale pursuant
to the provisions of Rule 144 on December 4,

                                       14


<PAGE>



         1998. Additionally, 367,500 shares of Common Stock may be acquired upon
the exercise of outstanding stock options granted upon completion of the
Offering to certain directors and officers of the Company which vest over a
period of three years. Subsequent to December 31, 1997, the Company issued
15,319 restricted shares of Common Stock as partial consideration in connection
with the acquisition of two document management companies. Such shares will be
eligible for sale in the public market pursuant to the provisions of Rule 144
one year after their respective issuances.


         The Company has reserved for future issuances an additional 232,500
shares of Common Stock under its 1997 Incentive Plan and 250,000 shares for
future issuances under its Employee Stock Purchase Plan. The Company has
registered the shares issuable upon exercise of options granted under such plans
and such shares are eligible for resale in the public market. Further, the
Company intends to register 2,000,000 shares of Common Stock on a shelf
registration to be utilized as consideration for future acquisitions, if any.
Upon issuance, such shares generally will be eligible for resale in the public
market. The Company, the Company's directors and officers, and certain
shareholders of the Company have agreed not to offer, sell or otherwise dispose
of any shares of Common Stock or any securities exercisable for or convertible
into Common Stock for a period of 180 days from December 4, 1997 without the
prior written consent of William Blair & Company, L.L.C., a managing underwriter
of the Offering, except for the sale by the Company of shares of Common Stock in
acquisition transactions (so long as the persons receiving such Common Stock
agree to be similarly restricted for the remainder of the 180 day lock-up
period). The shareholders of Founding Companies who received shares of Common
Stock as consideration for the acquisitions of the Founding Companies have
agreed not to offer, sell or otherwise dispose of such shares until December 9,
1998, except for transfers to immediate family members who agree to be bound by
such restrictions. Notwithstanding the preceding, shareholders of the Founding
Companies who received shares of Common Stock pursuant to the acquisitions and
all shareholders of ImageMax prior to the offering have been granted certain
"piggyback" registration rights permitting them to include their shares in
certain future registration statements filed by the Company.

Possible Anti-Takeover Effect of Certain Articles, Bylaw and Statutory
Provisions

         Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles") and Amended and Restated Bylaws (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 "Preferred Stock"). The Board of Directors of the Company will have the
power to determine the price and terms under which any such Preferred Stock may
be issued and to fix the terms thereof. 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 Business Corporation Law of 1988, as amended (the "BCL"), 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 such stock, which may be disadvantageous to the Company's shareholders
who may otherwise desire to participate in such transaction and receive a
premium for their shares.

                                       15


<PAGE>



         The BCL contains a number of statutory "anti-takeover" provisions
applicable to the Company. One such BCL provision prohibits, subject to certain
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 (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 BCL
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 BCL expressly
provides that directors do not violate their fiduciary duties solely by relying
on poison pills or the anti-takeover provisions of the BCL.

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.

ITEM 2.  PROPERTIES

         The Company's headquarters offices are in Conshohocken, Pennsylvania
occupying 2,955 square feet which it maintains under a lease expiring in
February 1999. In addition, as of December 31, 1997, the Company conducted
operations through one owned and 22 other leased facilities in 13 states
containing, in the aggregate, approximately 341,000 square feet. The Company's
principal facilities are summarized in the following table:

                 APPROXIMATE
LOCATION        SQUARE FOOTAGE             PRINCIPAL USE(S)
--------        --------------             ----------------
Tempe, AZ             8,800     Document management operations, offices
Emeryville, CA       24,000     Document management operations, offices
Emeryville, CA       16,000     Warehouse
Sacramento, CA        6,000     Document management operations
Marietta, GA          3,200     Document management operations, offices
Chesterton, IN*      41,000     Offices, document management operations
Chesterton, IN       11,000     Warehouse
Monroe, LA           65,000     Retail, document management operations, offices
Shreveport, LA        4,000     Offices
Stoughton, MA        47,000     Document management operations, offices
Worcester, MA         4,800     Document management operations, offices
Lincoln, NE           4,300     Document management operations, offices
Lincoln, NE           6,900     Warehouse, offices
Millwood, NY          1,000     Offices
Dayton, OH           12,500     Document management operations, offices
Eugene, OR           11,400     Document management operations, offices
Eugene, OR            2,300     Warehouse
Portland, OR         13,500     Document management operations, offices
Portland, OR          2,200     Document management operations, offices


                                       16


<PAGE>




Cayce, SC            20,000      Document management operations, offices
Cleveland, TN        12,000      Document management operations, offices
Forest, VA           21,500      Document management operations, offices
Richmond, VA          1,300      Offices

* 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.

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 REGISTRANT

         The Company's executive officers and their respective ages and
positions are as follows:

   NAME                 AGE                     POSITION
   ----                 ---                     --------

Bruce M. Gillis......   41    Chief Executive Officer and Chairman of the Board
                              of Directors
S. David Model.......   40    President and Chief Operating Officer
Andrew R. Bacas......   39    Senior Vice President - Corporate Development,
                              Secretary and Director
James D. Brown.......   40    Senior Vice President - Finance, Chief Financial
                              Officer and Treasurer
Richard D. Moseley*..   36    Chief Information Officer

* Employment effective as of April 1998.

Bruce M. Gillis is a founder of the Company and has been the Company's Chief
Executive Officer and Chairman of the Board of Directors since its inception.
From September 1996 through the present, Mr. Gillis has been President of GBL
Capital Corporation, an investment concern founded by Mr. Gillis, Andrew R.
Bacas and a third party to develop the concept that ultimately became ImageMax.
ImageMax had a management agreement with GBL Capital Corporation until the
Offering, however, Mr. Gillis ceased day-to-day activity with GBL Capital
Corporation when he became a full-time employee of ImageMax in August 1997. From
December 1994 until the present, Mr. Gillis has been President of Villanova
Investment Corp., a personal S Corporation vehicle from which he performed
strategy and investment management consulting prior to the formation of GBL
Capital Corporation. From 1989 to 1994, Mr. Gillis served as a Senior Vice
President of Cedar Point Partners LP, an equity investment firm engaged in
management buyouts. During that period, he was actively involved in the
management of Liebhardt Mills, Inc., a national bedding manufacturer, of which
he was Vice President-Finance. Mr. Gillis has served as a director of Liebhardt
Mills, Inc. since 1989. From 1980 to 1983 and 1985 to 1988, Mr. Gillis served as
a consultant with McKinsey & Co., Inc., a global strategy consulting firm. Mr.
Gillis has an undergraduate degree in Economics from Yale University and an MBA
from Stanford University.

                                       17


<PAGE>



S. David Model has been the Company's President and Chief Operating Officer
since he joined the Company in August 1997. From 1987 to August 1997, Mr. Model
was employed by Teleflex Incorporated, a diversified manufacturer of automotive,
marine, industrial, aerospace and medical products, and has held several
management positions in various subsidiaries of Teleflex Incorporated's
Aerospace Group, from Sales and Engineering Manager of the Airfoil Management
Division to Executive Vice President, Airfoil Technologies International, LLC.
Mr. Model has an undergraduate degree in Engineering from Yale University and an
MBA from the Wharton School of the University of Pennsylvania.

Andrew R. Bacas is a founder of the Company and has been a director since its
inception. Mr. Bacas joined GBL Capital Corporation in May 1997 and began
serving as the Company's Senior Vice President - Corporate Development since
August 1997. 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.

Richard D. Moseley will assume the role of Chief Information Officer in April
1998. Mr. Moseley has served as the Chief Information Officer for Liebhardt
Mills, Inc. where he developed significant expertise in enterprise-wise systems
and electronic commerce. Mr. Moseley earned a MBA from Stanford University and
an undergraduate degree from Brown University.

Founding Company Management. Other significant employees of the Company are as
follows:

       Gary D. Blackwelder, age 41, served as President of I(2) Solutions from
       1989 until its acquisition by the Company.

       Mark Creglow, age 39, co-founded DDS in 1994 and served as its Vice
       President from its inception until its acquisition by the Company. Prior
       to founding DDS, Mr. Creglow was Regional Sales Manager for Distribution
       Management Systems, Inc.

       David L. Crowder, age 41, joined TPS in 1978, and served as its President
       from 1990 until its acquisition by the Company.


                                       18


<PAGE>



       Carmen DiMatteo, age 62, joined Spaulding in 1960 and served as its
       President from 1996 until its acquisition by the Company.

       Jeffry P. Kalmon, age 48, joined TIMCO in 1984 as a sales representative
       and served as its President from 1996 until its acquisition by the
       Company.

       Rex Lamb, age 39, founded DTI in 1991 and served as its President from
       inception until its acquisition by the Company. Mr. Lamb co-founded
       DDS in 1994 and served as its President since inception until its
       acquisition by the Company. Mr. Lamb has an undergraduate degree in
       Education from the University of Nebraska. Mr. Lamb a director of the
       Company.

       Ovidio Pugnale, age 63, joined IMS's predecessor originally in 1980 as
       its General Manager and became IMS's President in 1986. Prior to joining
       IMS, Mr. Pugnale served 26 years as an officer in the United States Air
       Force.

       Ellen Rothschild-Taube, age 40, co-founded IDS in 1989 and served as its
       Vice President from its inception until its acquisition by the Company.

       John E. Semasko, age 52, acquired OMI in 1975 and served as its
       President from its inception until its acquisition by the Company. Mr.
       Semasko has an undergraduate degree in Forestry from Rutgers
       University. Mr. Semasko is a director of the Company.

       Mary Jane Semasko, age 50, served as Vice President of OMI from its
       inception in 1975 until its acquisition by the Company.

       Mitchell J. Taube, age 40, co-founded IDS in 1989 and served as IDS's
       President from its inception until its acquisition by the Company. Mr.
       Taube currently serves on the AIIM Service Company Executive
       Committee.

       David C. Utz, Jr., age 41, has served as a member of the Board of
       Directors of the Company since its inception. Mr. Utz served as Chairman
       of the Board and Chief Executive Officer of AMMCORP from August 1988
       until its acquisition by the Company. Mr. Utz previously worked in
       administrative and financial capacities for Fairview Health System, a
       multi-hospital holding company, located in Minneapolis, Minnesota. Mr.
       Utz has an undergraduate degree in Business Administration from the
       University of Minnesota.

       David C. Yezbak, age 31, served as President of CodaLex, Laser Graphics
       and I(3) from 1995 until their acquisition by the Company. Previously, he
       served as Vice President of CodaLex from 1992 to 1995.

                                     PART II

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

      The Company's Common Stock trades on the Nasdaq National Market under the
symbol "IMAG." Shares of the Company's Common Stock were first traded publicly
on December 4, 1997 in connection with the Offering at a price to the public of
$12.00 per share. The following table sets forth, for the periods indicated, the
high and low closing prices per share of the Common Stock, as reported on the
Nasdaq National Market, since the Offering in December 1997.

                                       19


<PAGE>




                                     High                  Low
                                    ------                -----
1997 Fourth Quarter (from          $ 12 1/16              $ 10
December 4, 1997)

1998 First Quarter (through        $ 11 3/8               $  7 1/4
March 23, 1998)

      On March 23, 1998, the closing bid price for a share of Common Stock as
reported by the Nasdaq National Market was $7 1/4 and the number of holders of
record of the Company's Common Stock was 55. 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 the Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." 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.

      On November 26, 1997, the Company effected a 0.846154 for 1 reverse stock
split. All references to shares and per share amounts with respect to the Common
Stock contained in this Annual Report have been retroactively restated to
reflect the reverse stock split.

      In April 1997, the Company sold 105,000 shares of convertible Preferred
Stock (which converted into 88,847 shares of Common Stock upon completion of the
Offering) to certain of its founding shareholders and two additional accredited
investors for an aggregate consideration of $105,000.

      In June 1997, the Company sold 97,308 shares of Common Stock to certain of
its officers for an aggregate consideration of $230,000.

      On September 11, 1997, the Company sold 63,462 shares of Common Stock to
an accredited investor for an aggregate consideration of $300,000 and 269,125
shares of convertible Preferred Stock (which converted into 227,719 shares of
Common Stock upon completion of the Offering) to 17 accredited investors for an
aggregate consideration of $1,077,000.

      Upon closing of the acquisitions of the Founding Companies, the Company
issued an aggregate of 1,283,177 shares of Common Stock for an aggregate
purchase price of $13.1 million (based on a discount of 15% from the Offering
price of $12.00 per share) as partial consideration for the Founding Companies.

      The foregoing described issuances of securities in 1997 did not involve
underwriters and were 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.

      The Company provides the following information regarding the Offering:

      The Offering of 3,100,000 shares of Common Stock was effected pursuant to
a registration statement on Form S-1 (No. 333-35567) declared effective by the
Commission on December 3, 1997. The Offering commenced on December 4, 1997 and
terminated after all securities were sold. The managing underwriters were
William Blair & Company, L.L.C. and Janney Montgomery Scott Inc. The Company
sold all 3,100,000 shares that were registered. There were no selling security
holders.

                                       20


<PAGE>



      The gross proceeds of the Offering were $37.2 million. The Company
estimates that expenses incurred in connection with the issuance and
distribution of the securities registered amounted to $6.7 million, comprised of
$2.6 million for underwriting discounts and commissions and $4.1 million for
other expenses. The Company did not pay any finders' fees or expenses to or for
underwriters in connection with the Offering. Other than the portion of
underwriting discounts and commissions paid to one of the managing underwriters,
which presently beneficially owns in excess of 10% of the Common Stock, none of
the above-mentioned expenses represented direct or indirect payments to (i)
directors or officers of the Company or their associates, (ii) persons owning
ten percent (10%) or more of any class of equity security of the Company, or
(iii) affiliates of the Company. After deduction of expenses, the net proceeds
to the Company totaled $30.5 million.

      As described in the Company's registration statement, simultaneously with
the consummation of the Offering, the Company acquired the Founding Companies.
In addition to the issuance of Common Stock as described above, the net proceeds
of the Offering, supplemented by cash on hand and operating income through
December 31, 1997, was used to fund the acquisitions of the Founding Companies,
including: (i) $27.1 million cash portion of the purchase price for the Founding
Companies; (ii) $3.3 million of indebtedness net of cash acquired assumed from
the Founding Companies and repaid by the Company; and (iii) $0.5 million to pay
transaction fees associated with such acquisitions. The Company did not use any
of such proceeds for the construction of plant, building and facilities, the
purchase and installation of machinery and equipment or the purchase of real
estate.

      Of the cash portion of the purchase price of the acquisitions of the
Founding Companies, approximately $9.7 million represents the purchase price
paid for certain Founding Companies which are affiliated with persons who are
officers, directors or 5% shareholders of the Company. Of the indebtedness
repaid, approximately $2.6 million was an obligation of a Founding Company whose
shareholder is a director of the Company and approximately $77,000 was comprised
of obligations of two Founding Companies, certain shareholders of which were
elected as directors of the Company after the Offering.

      Other than as set forth above, none of the above-mentioned uses of
proceeds represented direct or indirect payments to (i) directors or officers of
the Company or their associates, (ii) persons owning ten percent (10%) or more
of any class of equity security of the Company or (iii) affiliates of the
Company.

      The amount of proceeds used to fund the acquisitions of the Founding
Companies was $2.2 million greater than was estimated in the Company's
prospectus used for the Offering. As disclosed in the prospectus, the use of
proceeds reflected in the prospectus was based upon the Founding Companies'
September 30, 1997 pro forma balance sheets, while the actual purchase price was
in part determined by the net book value of assets, working capital and debt
balances of the Founding Companies as of the date of their acquisition.

                                       21


<PAGE>



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.

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>

                                                                                           From inception
                                                                      Year Ended         (November 12, 1996)
                                                                   December 31, 1997     to December 31, 1996
                                                                   -----------------     --------------------
                                                                     (in thousands, except per share data)

Revenues:

<S>                                                                       <C>                    <C>
      Services                                                            $ 2,344                $  --
      Products                                                                767                   --
                                                                          -------                -------
                                                                            3,111                   --
                                                                          -------                -------
Cost of Revenues:

      Services                                                              1,603                   --
      Products                                                                524                   --
      Depreciation                                                             94                   --
                                                                          -------                -------
                                                                            2,221                   --
                                                                          -------                -------

               Gross Profit                                                   890

Selling, General and Administrative Expenses                                2,074                     23
Special Compensation Charge                                                 2,235                   --
Acquired in-process Research and Development Charge                         4,000                   --
Amortization of Intangibles                                                   112                   --
                                                                          -------                -------

               Operating Loss                                              (7,531)                   (23)

Interest Expense, Net                                                           8                   --
                                                                          -------                -------

Net Loss                                                                  $(7,539)               $   (23)
                                                                          =======                =======
Basic and Diluted Loss per Share                                          $ (8.13)               $ (0.04)
                                                                          =======                =======
Weighted Average Number of Common Shares Outstanding                          928                    550
                                                                          =======                =======


BALANCE SHEET DATA:                                                                December 31,
                                                                                  (in thousands)
                                                                          ------------------------------
                                                                            1997                  1996
                                                                          -------                -------
<S>                                                                       <C>                    <C>
   Cash and Cash Equivalents.....................................         $ 1,310                $    62
   Working Capital ..............................................           2,994                     57
   Total Assets..................................................          48,228                     62
   Long-term Debt, less Current Portion..........................             342                     --
   Shareholders' Equity..........................................          40,018                     57

</TABLE>



                                                        22


<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. Except
for the historical information contained herein, this and other sections of this
Annual Report contain certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Annual Report, 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.

        Prior to their acquisitions, the Founding Companies have been managed
throughout the periods presented as independent private companies, and their
results of operations reflect different tax structures (S corporations and C
corporations) which have influenced, among other things, their historical levels
of owners' compensation. Certain former owners and key employees of the Founding
Companies have agreed to certain reductions in their historical compensation
subsequent to the Offering.

        The Company has begun and will continue to integrate the Founding
Companies and their operations and administrative functions over a period of
time. This integration process may present opportunities to reduce costs through
the elimination of duplicative functions and through economies of scale, but
will also necessitate additional costs and expenditures for corporate management
and administration (including costs related to the hiring of additional
management personnel), corporate expenses related to being a public company,
systems integration and facilities expansion. These costs and possible
cost-savings may make comparison of historical operating results not comparable
to, or indicative of, future performance.

        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, general and
administrative ("SG&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.

         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, one of
the

                                       23


<PAGE>



companies must be designated as the accounting acquiror. In the Offering,
ImageMax was identified as the accounting acquiror. Accordingly, the sum of
$32.2 million, net of amortization, is reflected as goodwill and developed
technology on the Company's balance sheet. Goodwill will be amortized as a
non-cash charge to the income statement principally over a 30-year period and
developed technology of $0.8 million will be amortized over a seven-year period.
The annual pro forma impact of this amortization expense is $1.2 million, of
which $0.8 million is non-deductible for tax purposes. Accordingly, the Company
will have an effective tax rate higher than the statutory rate. Prior to the
issuance of SAB 97, goodwill and related amortization expense were not required
to be recorded for most business combinations similar to the acquisitions of the
Founding Companies.

Historical Results of Operations

Year ended December 31, 1997

        The results of operations for the year ended December 31, 1997 include
the revenues, cost of revenues and SG&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, General and Administrative Expenses. SG&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
the acquisition of DDS, 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 of DDS.

From Inception to December 31, 1996

        Selling, General and Administrative Expenses. SG&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.

                                       24


<PAGE>



Supplemental Pro Forma, as Adjusted results of Operations for the year ended
December 31, 1997 compared to the Supplemental Pro Forma, as Adjusted results of
Operations for the year ended December 31, 1996.

        For purposes of discussion, the following table presents supplementary
pro forma, as adjusted results of operations as if the acquisitions of the
Founding Companies and the Offering occurred on January 1, 1996. Such 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
                                                                for the Year Ended December 31,
                                                     -----------------------------------------------------
                                                                         (in thousands)
                                                               1997                         1996
                                                     ----------------------         ----------------------
<S>                                                  <C>              <C>          <C>              <C>
Revenues:

   Services .......................................  $ 35,898          73.4%        $ 31,553          72.9%
   Products .......................................    13,032          26.6           11,703          27.1
                                                     --------         -----         --------         -----
                                                       48,930         100.0           43,256         100.0
                                                     --------         -----         --------         -----
Cost of Revenues:(1)

   Services .......................................    22,914          46.8           20,267          46.9
   Products .......................................     8,695          17.8            8,968          20.7
   Depreciation ...................................     1,317           2.7            1,408           3.3
                                                     --------         -----         --------         -----

                                                       32,926          67.3           30,643          70.8
                                                     --------         -----         --------         -----

            Gross Profit ..........................    16,004          32.7           12,613          29.2

Selling, General and Administrative Expenses (2) ..    11,367          23.2           11,198          25.9
Executive Compensation (3) ........................       610           1.2              610           1.4
Special Compensation Charge (4) ...................     2,235           4.6               --            --
Founding Companies' Transaction Costs (5) .........       742           1.5               --            --
Amortization of Intangibles (6) ...................     1,195           2.4            1,195           2.8
                                                     --------         -----         --------         -----

            Operating Loss ........................      (145)         (0.3)            (390)         (0.9)

Interest Expense (7) ..............................        70           0.1               70           0.2
Interest Income ...................................       (94)         (0.2)             (98)         (0.2)
                                                     --------         -----         --------         -----

            Loss Before Income Taxes ..............      (121)         (0.2)%           (362)         (0.8)%

Income Tax Provision (8) ..........................     1,139           2.3              169           0.4
                                                     --------         -----         --------         -----

Net Loss ..........................................  $ (1,260)         (2.6)%       $   (531)         (1.2)%
                                                     ========         =====         ========         =====

</TABLE>
---------------

(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. SG&A
         expenses include compensation costs associated with positions
         eliminated or which will be eliminated in connection with the
         acquisitions of the Founding Companies, including the retirement of
         four senior Founding Companies' executives and other identified
         head-count reductions totaling $650,000 for each of the years ended
         December 31, 1997 and 1996, respectively.

(3)      Represents compensation of $610,000 annually based upon employment
         agreements with the Company's executive management.

(4)      Represents a non-recurring, non-cash special compensation charge. See
         Note 10 to the Consolidated Financial Statements.

(5)      Reflects non-recurring transaction costs incurred by the Founding
         Companies in connection with their acquisitions.

(6)      Represents amortization on the $32.2 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. See Note 3 to the Consolidated Financial Statements.

(7)      Pro forma, as adjusted, operating results include adjustments
         to reflect 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.

                                       25
<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: (1) $0.7 million resulting from unit volume increases in digital imaging
software sales to other document management companies and end-users; and (2)
$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.


                                       26


<PAGE>



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.

Selling, General and Administrative Expenses, 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 SG&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 SG&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 SG&A expenses, SG&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, SG&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%. In each year, the effective
tax rate exceeds the statutory rate as a result of non-deductible items,
primarily amortization of intangible assets. The impact of non-deductible
amortization on the Company's effective tax rate will tend to diminish as income
before income taxes increases. Prior to their acquisitions, the Founding
Companies were operated as separate entities for tax purposes in each year.

                                       27


<PAGE>



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, 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.

         In March 1998, the Company entered into the Credit Facility which
provides a revolving line of credit of $30 million. Under the terms of the
Credit Facility, the Company may borrow up to $25 million to finance future
acquisitions and up to $5 million for working capital purposes. Outstanding
working capital advances of up to $2 million may be made in the form of standby
letters of credit for an applicable fee. The Credit Facility is secured by
substantially all of the assets of the Company. Borrowings under the Credit
Facility bear interest at prime, LIBOR plus a margin ranging from 1.5% to 2.5%
based upon the ratio of debt to cash flow, or the Federal Funds rate plus 0.5%,
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 matures on March 31, 2003, unless
previously terminated, and is subject to certain financial covenants, including
certain restrictions on the payment of dividends, 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. The Company's available borrowing capacity under the
Credit Facility is contingent upon the Company meeting certain financial ratios
and other criteria.

         The Company's primary capital requirements relate to the implementation
of its acquisition program and, to a lesser extent, working capital and capital
expenditures. The Company intends to fund these capital requirements primarily
through operating cash flows, borrowings under the Credit Facility, and the
issuance of Common Stock, debt and other securities to sellers of acquired
companies. In addition, the Company intends to file a shelf registration
statement for 2,000,000 shares of Common Stock for issuance to sellers of
acquired companies in connection with future acquisitions. The amount of equity
capital available will depend in part on the willingness of sellers to accept
Common Stock as partial consideration. Should the Company decide to accelerate
its acquisition program, it may also seek additional financing through a public
or private sale of equity securities.

         The Company plans to invest in equipment and technology to meet the
needs of its expanding operations and to improve its operating efficiency. The
Company estimates that, during fiscal year 1998, it will make approximately $1.1
million of capital expenditures related to the Founding Companies, in addition
to its working capital needs. The Company also anticipates investing in
acquisitions which would entail further capital expenditures and working capital
requirements. The Company believes that the capital resources described above
will be sufficient to meet its liquidity requirement for its operations and
acquisition program for at least the next 12 months.

                                       28


<PAGE>



         The Company is assessing both the internal readiness of its computer
systems and the compliance of its software products sold to customers with
respect to the year 2000 issue. The Company expects to implement successfully
any systems and programming changes necessary to address any year 2000 issues,
and does not believe that the cost of such actions will have a material effect
on the Company's results of operations or financial condition. There can be no
assurance, however, that there will not be a delay in, or increased costs
associated with, the implementation of any such changes.

Recent Development

         Subsequent to December 31, 1997, the Company completed two acquisitions
accounted for under the purchase method of accounting. In January 1998, the
Company acquired the business of Integrated Information Services ("IIS") of
Carmel, Indiana. IIS provides a full range of document management products and
services with an emphasis on digital document conversion, technical consulting,
document management consulting and document management software. Its clients
include national law firms and Fortune 500 companies. In February 1998, the
Company acquired the business of Document Management Group and ImageTec, Inc.
("DMG/I") of Saginaw, Michigan. DMG/I provides a full range of document
management services with an emphasis on digital imaging and micrographic
conversion, indexing, and archiving. Its clients include health care
institutions, title companies, manufacturing businesses and financial
institutions. These acquisitions were funded through borrowings of $1.5 million
and the issuance of 15,319 shares of Common Stock. The aggregate purchase price
approximated $1.7 million, with the excess of purchase price over net assets
acquired being assigned to goodwill.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required by this item is set forth on pages F-1 through
F-21 hereto and is incorporated by reference herein.

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

         None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         The information contained under the caption "Election of Class I
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.

                                       29


<PAGE>



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.

                                     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-21 of
this Annual Report.

    3.   Exhibits

                                   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).

                                       30


<PAGE>




          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).

         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).

          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.

                                       31


<PAGE>




          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.

         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]

                                       32


<PAGE>




        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 Financial
                Enterprises 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.

         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).

+ Management contract or compensatory plan or arrangement.

                                       33


<PAGE>



(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-21



                                      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, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the year ended December 31, 1997 and the period from inception
(November 12, 1996) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 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, 1997 and 1996, and the
results of their operations and their cash flows for the year ended December 31,
1997 and the period from inception (November 12, 1996) to December 31, 1996, in
conformity with generally accepted accounting principles.

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 of
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.

Philadelphia, Pa.,
  March 2, 1998 (except for the
  matter discussed in Note 7,
  as to which the date is
  March 30, 1998)


                                      F-2
<PAGE>


                         IMAGEMAX, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                      (in thousands - except share amounts)

<TABLE>
<CAPTION>
                                                                                              December 31
                                                                                      --------------------------
                                     ASSETS                                             1997              1996
                                                                                      --------          --------
CURRENT ASSETS:
<S>                                                                                   <C>               <C>
   Cash and cash equivalents                                                          $  1,310          $     62
   Accounts receivable, net of allowance for
     doubtful accounts of $375                                                           6,922              --
   Inventories                                                                           1,997              --
   Prepaid expenses and other                                                              367              --
   Deferred income taxes                                                                   160              --
                                                                                      --------          --------

                  Total current assets                                                  10,756                62

PROPERTY, PLANT AND EQUIPMENT, net                                                       4,381              --

INTANGIBLES, primarily goodwill, net                                                    32,996              --

OTHER ASSETS                                                                                95              --
                                                                                      --------          --------

                                                                                      $ 48,228          $     62
                                                                                      ========          ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

   Short-term debt and current portion of long-term debt                              $    251          $   --
   Accounts payable                                                                      2,846              --
   Accrued expenses                                                                      3,248                 5
   Deferred revenue                                                                      1,333              --
   Income taxes payable                                                                     84              --
                                                                                      --------          --------

                  Total current liabilities                                              7,762                 5
                                                                                      --------          --------

DEFERRED INCOME TAXES                                                                       59              --
                                                                                      --------          --------

LONG-TERM DEBT                                                                             342              --
                                                                                      --------          --------

OTHER LONG-TERM LIABILITIES                                                                 47              --
                                                                                      --------          --------
COMMITMENTS AND CONTINGENCIES (Note 12)

SHAREHOLDERS' EQUITY:

   Preferred stock, no par value, 10,000,000 shares authorized, none issued at
     December 31, 1997 and 126,924 shares
     issued and outstanding at December 31, 1996                                          --                  73
   Common stock, no par value, 40,000,000 shares authorized, 5,537,436 and
     550,000 shares issued and outstanding at December 31, 1997 and 1996                47,580                 7
   Accumulated deficit                                                                  (7,562)              (23)
                                                                                      --------          --------
                  Total shareholders' equity                                            40,018                57
                                                                                      --------          --------
                                                                                      $ 48,228          $     62
                                                                                      ========          ========
</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
                                                                     (November 12,
                                                      Year Ended       1996) to
                                                      December 31,    December 31,
                                                          1997           1996
                                                       ---------     ------------
<S>                                                    <C>           <C>
REVENUES:

   Services                                            $   2,344      $    --
   Products                                                  767           --
                                                       ---------      ---------

                                                           3,111           --
                                                       ---------      ---------
COST OF REVENUES:

   Services                                                1,603           --
   Products                                                  524           --
   Depreciation                                               94           --
                                                       ---------      ---------

                                                           2,221           --
                                                       ---------      ---------
                  Gross profit                               890           --

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES               2,074             23

SPECIAL COMPENSATION CHARGE                                2,235           --

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE        4,000           --

AMORTIZATION OF INTANGIBLES                                  112           --
                                                       ---------      ---------
                  Operating loss                          (7,531)           (23)

INTEREST EXPENSE, net                                          8           --
                                                       ---------      ---------

NET LOSS                                               $  (7,539)     $     (23)
                                                       =========      =========


BASIC AND DILUTED LOSS PER SHARE                       $   (8.13)     $   (0.04)
                                                       =========      =========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING     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
                                                           =========    =========    =========   =========   =========    =========
</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
                                                                                             (November 12,
                                                                            Year Ended         1996) to
                                                                           December 31,       December 31,
                                                                               1997                1996
                                                                           -----------       --------------
<S>                                                                         <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                 $ (7,539)           $    (23)
   Adjustments to reconcile net loss to
     net cash provided by (used in) operating activities-

       Depreciation and amortization                                             206                --
       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--

         Accounts receivable                                                      42                --
         Inventories                                                             (91)               --
         Prepaid expenses and other                                              (55)               --
         Accounts payable                                                        277                --
         Accrued expenses                                                      1,046                   5
         Deferred revenue                                                         65                --
                                                                            --------            --------

                  Net cash provided by (used in)
                    operating activities                                         186                 (18)
                                                                            --------            --------

CASH FLOWS FROM INVESTING ACTIVITIES:

   Purchases of  businesses acquired, net of cash acquired                   (26,696)               --
   Purchases of property and equipment                                           (90)               --
                                                                            --------            --------

                  Net cash used in investing activities                      (26,786)               --
                                                                            --------            --------

CASH FLOWS FROM FINANCING ACTIVITIES:

   Proceeds from sales of Common and Preferred stocks                         32,177                  80
   Principal payments on debt and capital lease obligations                   (4,329)               --
                                                                            --------            --------

                  Net cash provided by financing activities                   27,848                  80
                                                                            --------            --------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                      1,248                  62

CASH AND CASH EQUIVALENTS, BEGINNING
   OF PERIOD                                                                      62                --
                                                                            --------            --------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                    $  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

                                DECEMBER 31, 1997

1.     BACKGROUND:

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 discussed
in Note 3. These businesses had been operating independently. Given the nature
of ImageMax, it is and will be subject to many risks, including but not limited
to, (i) an absence of combined operating history, (ii) the potential inability
to manage growth, (iii) risks generally associated with acquisitions including
implementation, (iv) possible fluctuations in quarterly results, (v) reliance on
certain markets, and (vi) reliance on key personnel.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
ImageMax and its subsidiaries (the "Company"), (see Note 3). 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.

Reverse Stock Split

The Company effected a 0.846154 for 1 reverse stock split on November 26, 1997.
All references in the accompanying financial statements to the number of shares
and per-share amounts have been retroactively restated to reflect the reverse
stock split.


                                      F-7

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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
10% of revenues for any year 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.

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, 1997 and 1996, cash
equivalents primarily consisted of funds in a money market account.

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.


                                      F-8
<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Intangibles

Intangibles consist of goodwill and developed technology (see Note 3). 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 presented, 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 upon
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.

Supplemental Cash Flow Information

The Company paid cash for interest for the year December 31, 1997 of $5,000.
There were no cash payments made for interest for the period from inception
(November 12, 1996) to December 31, 1996. There were no cash payments made for
income taxes in the periods presented.



                                      F-9

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The following table displays the net non-cash assets that were acquired during
1997, as a result of the businesses acquired described in Note 3:

                                                                 Year Ended
                                                                December 31,
                                                                    1997
                                                                ------------

          Fair value of assets acquired                        $  51,806,000
          Liabilities assumed                                    (10,972,000)
          Fair value of Common stock issued                      (13,088,000)
          Cash acquired                                           (1,050,000)
                                                               -------------

                            Net cash paid                      $  26,696,000
                                                               =============

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 for each period by the weighted average number
of shares of Common stock and Common stock equivalents outstanding during each
period. For both 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.

New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." This statement requires companies to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS No. 130 is effective for
financial statements issued for fiscal years beginning after December 15, 1997.
Management believes that SFAS No. 130 will not have a material effect on the
Company's financial statements.


                                      F-10
<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management is currently
evaluating the need to make additional disclosures under SFAS No. 131. However,
this statement will not have any impact on the Company's reported consolidated
financial position or results of operations.

3.     INITIAL PUBLIC OFFERING AND ACQUISITIONS:

On December 4, 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 of $6,735,000.

Concurrent with the Offering, ImageMax began material operations with the
acquisition of 14 document management services companies: (1) by merger: Utz
Medical Enterprises, Inc., the parent of American Micro-Med Corporation
(Chesterton, IN); Codalex Microfilming Corporation (Cayce, SC); Laser Graphics
(Cleveland, TN); DocuTech Data Systems (Lincoln, NE); I2 Solutions (Monroe, LA);
International Data Services (Millwood, NY); and Oregon Micro-Imaging, Inc.,
(Eugene, OR); (2) by net asset acquisition: Imaging Information Industries,
Inc., (Marietta, GA); DocuTech, Inc. (Lincoln, NE); Datalink Corporation (Tempe,
AZ); Spauling, Inc., a wholly owned subsidiary of Semco Industries, Inc.,
(Stoughton, MA); and Total Information Management Corporation (Emeryville, CA);
and (3) by stock acquisition: Image Memory Systems (Dayton, OH); and TPS
Micrographics, Inc., (Forest, VA - together, the "Founding Companies" and
"Subsidiaries"). These acquisitions (the "Acquisitions") were accounted for
using the purchase method of accounting.

ImageMax has 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 Acquisitions. Acquired in-process research and development
reflects the value of DocuTech Data Systems ("DDS") development projects
underway at the time of the acquisition. In connection with the DDS transaction,
all identifiable assets acquired, including intangible assets, were assigned a
portion of the cost of the acquired company based upon an independent valuation.


                                      F-11
<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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, 1997 and 1996 as though the Acquisitions had
occurred as of January 1, 1996:

                                                    Year Ended December 31
                                                -------------------------------
                                                    1997               1996
                                                ------------       ------------

Total revenues                                  $ 48,930,000       $ 43,256,000
Operating loss                                  $   (145,000)      $   (390,000)
Net loss                                        $ (1,823,000)      $ (1,148,000)
Basic and diluted loss per share                $      (0.33)      $      (0.21)

The pro forma results have been prepared for comparative purposes only and are
not necessarily indicative of the actual results of operations had the
Acquisitions taken place as of January 1, 1996, or the results that may occur in
the future. The pro forma results do not give effect to the Offering and exclude
any reductions in historical interest expense. 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 Acquisitions.

Subsequent to December 31, 1997 through March 2, 1998, the Company completed two
acquisitions for an aggregate purchase price of $1,660,000. These acquisitions
were financed primarily through borrowings under a demand note payable by a
bank. The demand note payable was subsequently refinanced through the Company's
credit facility (see Note 7). The purchase agreements contain purchase price
adjustments contingent upon net assets acquired and other criteria that could
affect the ultimate net purchase price paid for the entity. The acquisitions
will be accounted for under the purchase method of accounting. The excess
purchase price over the underlying fair value of the assets and liabilities
acquired will be allocated to goodwill.

4.     PROPERTY, PLANT AND EQUIPMENT:

                                                 Estimated
                                                Useful Lives  December 31,
                                                  (Years)         1997
                                                ------------  ------------

Building and improvements                          8-40        $1,223,000
Machinery and equipment                             3-5         2,368,000
Furniture and office equipment                        5           533,000
Transportation equipment                              5           351,000
                                                               ----------
                                                                4,475,000
Less-  Accumulated depreciation and
  amortization                                                    (94,000)
                                                               ----------
                                                               $4,381,000
                                                               ==========


                                      F-12
<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

As of December 31, 1997, the Company had $264,000 in equipment, net of
accumulated amortization, financed under capital leases. See Note 5 regarding
long-lived assets impairment evaluation.

5.     INTANGIBLE ASSETS:

                                                             December 31,
                                                                 1997
                                                             ------------
Goodwill                                                     $ 32,288,000
Developed technology                                              820,000
                                                             ------------
                                                               33,108,000

Less-  Accumulated amortization                                  (112,000)
                                                             ------------
                                                             $ 32,996,000
                                                             ============

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
intangible 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. As of December 31, 1997, the Company believes that no revisions
of the remaining useful lives or write-downs of intangible assets are required.

6.    ACCRUED EXPENSES:

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

Compensation and benefits                          $  957,000         $     --
Professional fees                                     956,000               --
Other                                               1,335,000              5,000
                                                   ----------         ----------

                                                   $3,248,000         $    5,000
                                                   ==========         ==========


                                      F-13
<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


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. Under the terms of the Credit Facility, the Company may borrow up to
$25 million to finance future acquisitions and up to $5 million for working
capital purposes. Outstanding working capital advances of up to $2 million may
be made in the form of standby letters of credit for an applicable fee. The
Credit Facility is secured by substantially all of the assets of the Company.
Borrowings under the facility bear interest at prime, LIBOR plus an applicable
margin, or the Federal Funds rate 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 matures on March 31, 2003, and 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.
The Company's available borrowing capacity under the Credit Facility is
contingent upon the Company meeting certain financial ratios and other criteria.

8. LONG-TERM DEBT:

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

Obligations under capital leases                             $ 346,000
Notes payable                                                  247,000
                                                             ---------
                                                               593,000

Less- Current portion                                         (251,000)
                                                             ---------
                                                             $ 342,000
                                                             =========

In connection with the Acquisitions (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. The remaining capital lease obligations and notes payable are
being repaid in various monthly installments through 2002. 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 is 14.4% as of December 31
,1997. Interest rates on the notes payable outstanding balances range from 7.8%
to 27.4% and the weighted average interest rate on these balances is 9.7% as of
December 31, 1997.

                                      F-14
<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


As of December 31, 1997, future scheduled principal payments on the Company's
notes payable and capital lease obligations are as follows:

                 1998                                             $251,000
                 1999                                              204,000
                 2000                                              106,000
                 2001                                               24,000
                 2002                                                8,000
                                                                  --------

                                                                  $593,000
                                                                  ========

9.    INCOME TAXES:

At December 31, 1997, the Company had net operating loss carryforwards for
income tax purposes of approximately $675,000. 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 in-process research and development charges.

The components of income taxes are as follows:

                                                            Year Ended
                                                           December 31,
                                                               1997
                                                           -----------

         Current:
           Federal                                          $      --
           State                                                   --
                                                            ---------
                                                                   --
                                                            ---------
         Deferred:
           Federal                                           (424,000)
           State                                             (130,000)
                                                            ---------
                                                             (554,000)
                                                            ---------
         Valuation allowance                                  554,000
                                                            ---------
                                                            $      --
                                                            =========


                                      F-15
<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:

                                                                    Year Ended
                                                                   December 31,
                                                                       1997
                                                                   ------------

         Income tax rate                                             (34.0)%
         State income taxes, net of federal tax benefit               (5.8)%
         Nondeductible special compensation and
             acquired in-process research and
             development charge                                       32.0%
         Non-deductible goodwill amortization                          0.5%
         Valuation reserve                                             7.3%
                                                                     -----
                                                                        --%
                                                                     =====

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,
                                                                    1997
                                                                ------------

        Gross deferred tax assets:

            Accruals and reserves not currently deductible       $   446
            Net operating loss carryforwards                         268
            Valuation allowance                                     (554)
                                                                 -------

                                                                 $   160
                                                                 =======

        Gross deferred tax liabilities, primarily depreciation   $    59
                                                                 =======

At December 31, 1997, a valuation allowance was established for the 1997 tax
benefit based upon the realizability of the associated deferred tax asset 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 to David C. Utz, Jr., a
director of ImageMax, for $75,000. Each share of Series A Preferred Stock is
convertible into one share of Common stock.


                                      F-16
<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

In April 1997, ImageMax sold 88,847 shares of Series A Preferred Stock to
certain of its founders and two additional accredited investors for $105,000.

In June 1997, ImageMax sold 97,308 shares of Common stock to certain of its
founders and its President and Chief Operating Officer and Senior
Vice-President-Finance, Chief Financial Officer, and Treasurer 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 $1,077,000 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
Acquisitions (see Note 3). In connection with the Offering, 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).

 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.
Upon completion of the Offering, non-qualified options to purchase an aggregate
of 367,500 shares of Common stock at the Offering price of $12 per share were
granted to the Company's four executive officers and four outside directors. In
accordance with APB Opinion No. 25, no compensation expense was recorded for
these options. These grants will vest in equal installments over three years.
The options expire 10 years after the date of grant.

                                      F-17
<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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 with the following assumptions used for the grants in 1997:

       Risk free interest rate                                           6%
       Expected lives of the options                                7 years
       Expected dividend yields                                         N/A
       Expected volatility                                              40%

The fair value of each option granted during 1997 is $6.35, as determined under
the provisions of SFAS No. 123. 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:

       Net loss, as reported                                $ 7,539,000
       Pro forma net loss                                   $ 7,588,000
       Basic and diluted loss per share,
           as reported                                      $      8.13
       Pro forma basic and diluted loss per share           $      8.18

Employee Stock Purchase Plan

The Company has adopted an Employee Stock Purchase Plan (the "Purchase Plan")
that will allow all full-time employees of the Company, other than 5%
shareholders, temporary employees, and employees having less than six months
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 price of
such shares will be equal to 90% of the lower of the value of the share on the
first and last days of the quarterly period. Such shares may either be issued by
the Company from its authorized and unissued Common stock or purchased by the
Company on the open market. 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-18
<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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 year ended
December 31, 1997 was $119,000. There was 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, 1997 are as
follows:

        1998                                   $1,504,000
        1999                                    1,225,000
        2000                                    1,080,000
        2001                                      952,000
        2002                                      778,000
        2003 and thereafter                     1,173,000
                                               ----------
                                               $6,712,000
                                               ==========

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
$64,000 for the year ended December 31, 1997.

Employment and Consulting Agreements

The Company has entered into employment agreements with its Chief Executive
Officer, President and Chief Operating Officer, Senior Vice President - Finance,
Chief Financial Officer and Treasurer, and Senior Vice President - Corporate
Development, that provide for a minimum annual compensation. In addition, the
Company entered into employment or consulting agreements with several management
members of the Founding Companies that provide for minimum annual compensation.
Future minimum compensation commitments under these agreements are as follows:

        1998                                              $ 1,983,000
        1999                                                1,895,000
        2000                                                1,820,000
        2001                                                  325,000
        2002                                                  325,000
                                                          -----------
                                                          $ 6,348,000
                                                          ===========
                                      F-19

<PAGE>

                        IMAGEMAX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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, 1997 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 are also shareholders of the
Company. Two GBL shareholders are officers of the Company. GBL was engaged to
manage the daily business operations of the Company. The Company 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 the Company began to be paid directly by the
Company. GBL services were ceased at the 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 as general
and administrative expense upon the consummation of the Offering.


                                      F-20


<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
         -----------            ------------       ----------       ------------      ----------     -----------

Allowance for doubtful
   accounts:

<S>                            <C>               <C>             <C>                  <C>            <C>
       1997                    $       --        $       --      $          375       $       --     $       375
       1996                            --                --                 --                --             --

</TABLE>


                                      F-21

<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 30, 1998                       By: /s/ Bruce M. Gillis
                                                --------------------------------
                                                Bruce M. Gillis
                                                Chief Executive Officer and
                                                Chairman of the Board of
                                                Directors

         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.

Signatures                  Title                           Date
----------                  -----                           ----

/s/ Bruce M. Gillis         Chief Executive Officer         March 30, 1998
----------------------      and Chairman of the Board
Bruce M. Gillis             of Directors (Principal
                            Executive Officer)


/s/ James D. Brown          Senior Vice President-Finance,  March 30, 1998
---------------------       Chief Financial Officer and
James D. Brown              Treasurer (Principal Financial
                            and Accounting Officer)

/s/ Andrew R. Bacas         Director                        March 30, 1998
---------------------
Andrew R. Bacas

/s/ David C. Utz, Jr.       Director                        March 30, 1998
---------------------
David C. Utz, Jr.

/s/ Rex Lamb                Director                        March 30, 1998
---------------------
Rex Lamb

/s/ John E. Semasko         Director                        March 30, 1998
---------------------
John E. Semasko

/s/ Lennox K. Black         Director                        March 30, 1998
---------------------
Lennox K. Black



<PAGE>



/s/ David C. Carney         Director                        March 30, 1998
---------------------
David C. Carney

/s/ Lewis E. Hatch, Jr.     Director                        March 30, 1998
---------------------
Lewis E. Hatch, Jr.

/s/ Steven N. Kaplan        Director                        March 30, 1998
---------------------
Steven N. Kaplan




<PAGE>

                                  EXHIBIT INDEX

Exhibit No.
-----------

   10.8           Employment Agreement between the Company and John E. Semasko
                  dated as of September 9, 1997.

   10.9           Employment Agreement between the Company and Rex Lamb dated
                  as of September 9, 1997.

   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.

   21             Subsidiaries.

   23.1           Consent of Independent Public Accountants.