<PAGE> 
                                       
                                   FORM 10-Q 
                                       
                       SECURITIES AND EXCHANGE COMMISSION 

                            Washington, DC  20549 
                                       
           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                          SECURITIES EXCHANGE ACT OF 1934 

For quarterly period ended     SEPTEMBER 26, 1997 
--------------------------------------------------------------------------------

Commission file number              0-20287 
--------------------------------------------------------------------------------
                                       
                             NU-KOTE HOLDING, INC. 
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter) 

          DELAWARE                                               16-1296153 
--------------------------------------------------------------------------------
(State or other jurisdiction of                               (I.R.S. Employer 
incorporation or organization)                               Identification No.)

17950 PRESTON ROAD, SUITE 690, DALLAS, TEXAS                       75252 
--------------------------------------------------------------------------------
(Address of principal executive offices)                         (Zip Code) 
                                       
                               (972) 250-2785 
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code) 


Indicate by check mark whether the registrant has (1) 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 
        ---       ---

Number of shares of common stock of registrant outstanding at November 5, 
1997: 
                       Class                                Outstanding 
                       -----                                -----------
         Class A common stock $.01 par value                21,775,302 



                                       1
<PAGE>
                                       
                              NU-KOTE HOLDING, INC. 

                             INDEX TO CONSOLIDATED 
                              FINANCIAL STATEMENTS 

                                                                            PAGE
                                                                            ----
PART I - FINANCIAL INFORMATION 

      Consolidated Balance Sheets as of 
        September 26, 1997 and March 31, 1997                                 3

      Consolidated Statements of Operations and Retained 
        Earnings (Accumulated Deficit) for the Three Month Periods 
        Ended September 26, 1997 and September 27, 1996                       4

      Consolidated Statements of Operations and Retained 
        Earnings (Accumulated Deficit) for the Six Month Periods 
        Ended September 26, 1997 and September 27, 1996                       5

     Consolidated Statements of Cash Flows for the Six 
        Month Periods Ended September 26, 1997
        and September 27, 1996                                                6

     Notes to Consolidated Financial Statements                               7

     Management's Discussion and Analysis of Financial 
        Condition and Results of Operations                                  15


PART II - OTHER INFORMATION 

     Other Information                                                       21

     Signature Page                                                          23



                                       2
 
<PAGE>
 
                 NU-KOTE HOLDING, INC. AND SUBSIDIARIES 
                       CONSOLIDATED BALANCE SHEETS 
              (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 
                              (UNAUDITED) 
 
 
                                              September 26,      March 31, 
                                                  1997             1997 
                                              -------------      ---------

                                      ASSETS 
 
Current assets: 
   Cash and cash equivalents                    $  5,346         $ 12,275 
   Accounts receivable, net                       66,964           71,024 
   Receivables from related party                  3,030            3,694 
   Inventories, net                               92,878           93,770 
   Prepaid expenses                                8,327           10,452 
   Deferred income taxes                           3,048            1,573 
                                                --------         --------
            Total current assets                 179,593          192,788 
 
Property, plant, and equipment, net               72,332           75,683 
Other assets and deferred charges                  7,631            4,386 
Assets held for sale                               4,482            4,482 
Intangibles, net                                  18,744           19,698 
                                                --------         --------
            Total assets                        $282,782         $297,037 
                                                --------         --------
                       LIABILITIES AND SHAREHOLDERS' EQUITY 
 
Current liabilities: 
   Bank loans and current portion of 
    long-term debt                              $    857         $  1,135 
   Accounts payable                               41,968           51,035 
   Compensation related liabilities                5,936            6,500 
   Other accrued liabilities                      45,644           37,726 
                                                --------         --------
            Total current liabilities             94,405           96,396 
 
Long-term debt, net of current maturities        138,395          134,677 
Other liabilities                                 11,206            9,995 
Deferred income taxes                              6,592            6,541 
                                                --------         --------
            Total liabilities                    250,598          247,609 
                                                --------         --------
Shareholders' equity: 
   Preferred stock, $.01 par value, 
    10,000,000 shares authorized; none issued 
   Class A common stock, $.01 par value, 
    40,000,000 shares authorized; 22,325,302 
    shares issued                                    223              223 
   Class B common stock, $.01 par value, 
    15,000,000 shares authorized; none issued 
   Additional paid-in capital                     92,610           91,605 
   Accumulated deficit                           (53,150)         (36,610) 
   Foreign currency translation adjustment        (7,273)          (5,564) 
   Treasury stock, at cost, 550,000 shares          (226)            (226) 
                                                --------         --------
            Total shareholders' equity            32,184           49,428 
                                                --------         --------
              Total liabilities and 
               shareholders' equity             $282,782         $297,037 
                                                --------         --------
                                                --------         --------

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

                                     3
<PAGE>
                                       
                    NU-KOTE HOLDING, INC. AND SUBSIDIARIES 
                     CONSOLIDATED STATEMENTS OF OPERATIONS 
                  AND RETAINED EARNINGS (ACCUMULATED DEFICIT) 
            FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 26, 1997 
                            AND SEPTEMBER 27, 1996 
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 
                                 (UNAUDITED) 

                                             September 26,   September 27,
                                                 1997            1996 
                                             -------------   -------------
                                           
Net sales                                   $    72,688     $    86,241
                                           
Cost of sales                                    60,140          65,533
                                            -----------     -----------
          Gross margin                           12,548          20,708 
Selling, general and administrative              
 expenses                                        14,084          15,656 
Research and development expenses                 1,830           2,571 
Restructuring expense                             1,194           4,635 
                                            -----------     -----------
          Operating loss                         (4,560)         (2,154)
Interest expense                                  3,612           2,156 
Other income items, net                            (496)           (382)
                                            -----------     -----------
Loss before income taxes and               
 extraordinary item                              (7,676)         (3,928)
Provision (benefit) for income taxes                342          (1,596)
                                            -----------     -----------
Loss before extraordinary item                   (8,018)         (2,332)
Extraordinary loss arising from            
 early extinguishment of indebtedness             2,550
                                            -----------     -----------
          Net loss                              (10,568)         (2,332)
                                            -----------     -----------
Retained earnings (accumulated              
  deficit) - Beginning of period                (42,582)         14,837 
                                            -----------     ----------- 
Retained earnings (accumulated              
 deficit) - End of period                   $   (53,150)    $    12,505 
                                            -----------     ----------- 
                                            -----------     ----------- 
Net loss per share of common stock:        
          Loss before extraordinary         
           item                             $      (.37)    $      (.11)
          Extraordinary loss                       (.12)  
                                            -----------     -----------
          Net loss                          $      (.49)    $      (.11)  
                                            -----------     -----------
                                            -----------     -----------
                                           
Weighted average shares outstanding        
                                             21,775,302      21,775,302
                                            -----------     -----------
                                            -----------     -----------

                 The accompanying notes are an integral part
                  of the consolidated financial statements.
                                       
                                       4
<PAGE>
                                       
                     NU-KOTE HOLDING, INC. AND SUBSIDIARIES 
                     CONSOLIDATED STATEMENTS OF OPERATIONS 
                   AND RETAINED EARNINGS (ACCUMULATED DEFICIT) 
               FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 26, 1997 
                            AND SEPTEMBER 27, 1996 
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 
                                  (UNAUDITED) 


<TABLE>
                                              September 26,   September 27, 
                                                  1997            1996 
                                              ------------    ------------
<S>                                           <C>             <C>
Net sales                                      $  152,415      $  173,698 
Cost of sales                                     124,084         127,763 
                                               ----------      ----------
     Gross margin                                  28,331          45,935 

Selling, general and administrative expenses       28,774          33,026 
Research and development expenses                   3,618           5,131 
Restructuring expense                               2,817           5,780 
                                               ----------      ----------
     Operating income (loss)                       (6,878)          1,998 

Interest expense                                    6,577           4,024 
Other (income) expense items, net                     193          (1,093) 
                                               ----------      ----------
Loss before income taxes and 
  extraordinary item                              (13,648)           (933) 
Provision (benefit) for income taxes                 (342)           (396) 
                                               ----------      ----------
Loss before extraordinary item                    (13,990)           (537) 

Extraordinary loss arising from 
  early extinguishment of indebtedness              2,550  
                                               ----------      ----------
     Net loss                                     (16,540)           (537)
                                               ----------      ----------
Retained earnings (accumulated deficit) - 
  Beginning of period                             (36,610)        (13,042) 
                                               ----------      ----------
Retained earnings (accumulated deficit) -       
  End of period                                $  (53,150)     $  (12,505) 
                                               ----------      ----------
                                               ----------      ----------
Net loss per share of common stock: 
     Loss before extraordinary item            $     (.64)     $     (.02)  
     Extraordinary loss                              (.12)  
                                               ----------      ----------
     Net loss                                  $     (.76)     $     (.02)  
                                               ----------      ----------
                                               ----------      ----------
Weighted average shares outstanding            21,775,302      21,759,921 
                                               ----------      ----------
                                               ----------      ----------
</TABLE>


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



                                       5
<PAGE>

                    NU-KOTE HOLDING, INC. AND SUBSIDIARIES 
                    CONSOLIDATED STATEMENTS OF CASH FLOWS 
            FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 26, 1997 AND
                               SEPTEMBER 27, 1996 
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                               (Unaudited)
                                     --------------------------------
                                     September 26,      September 27,
                                         1997               1996     
                                     -------------      -------------
Cash flows from operating activities:
  Net loss                           $ (16,540)        $  (537)
  Adjustments to reconcile net 
    income to net cash provided by 
     (used in) operating activities:
    Extraordinary loss from early        
     extinguishment of debt              2,550
    Exchange (gains) losses                203          (1,066)
    Depreciation and amortization        7,009           6,671 
    Deferred income taxes               (1,369)           (537)
    Tax benefit from exercise of                            
      stock options                                         75 
    Other                                  (56)         (1,762)
  Changes in working capital: 
    Accounts receivable                  4,724           9,043 
    Inventories                            892          (1,936)
    Prepaid expenses                     2,125          (3,262)
    Accounts payable                    (9,173)         (6,531)
    Compensation related liabilities      (564)           (331)
    Other accrued liabilities            9,261           2,908 
    Cash paid for restructuring         (2,882)         (3,373)
                                     ---------      ----------
        Net cash used in operating 
          activities                    (3,820)           (638)
                                     ---------      ----------
Cash flows from investing activities:
  Purchase of property, plant and 
    equipment                           (2,817)         (6,145)
  Sale of property, plant and               
    equipment                               50             556 
                                     ---------      ----------
         Net cash used in investing 
           activities                   (2,767)         (5,589)
                                     ---------      ----------
Cash flows from financing activities:
  Borrowings on long-term debt and      
   other loans                          15,463          50,651 
  Payments on long-term debt and       
   other loans                         (11,483)        (43,863)
  Payments of financing costs           (2,559)
  Exercise of stock options                                337 
                                     ---------      ----------
         Net cash provided by             
          financing activities           1,421           7,125 
                                     ---------      ----------
Effect of exchange rate changes 
 on cash                                (1,763)         (2,182)
                                     ---------      ----------
Net decrease in cash                    (6,929)         (1,284)
Cash and cash equivalents at             
  beginning of period                   12,275           6,540 
                                     ---------      ----------
Cash and cash equivalents at end        
  of period                            $ 5,346         $ 5,256 
                                     ---------      ----------
                                     ---------      ----------
Excluded from the consolidated 
 statements of cash flows 
 was the effect of non-cash 
 financing activities related 
 to the issuance of stock 
 warrants                              $ 1,005
                                     ---------
                                     ---------

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

                                       6
<PAGE>

                   NU-KOTE HOLDING, INC. AND SUBSIDIARIES 
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 
                                 (UNAUDITED)  
 
1.  THE COMPANY 
 
    Nu-kote Holding, Inc. ("Nu-kote") and its wholly-owned subsidiaries are 
    referred to collectively as the "Company".  The Company is one of the 
    leading independent manufacturers and distributors of impact and 
    non-impact imaging supplies for office and home printing devices, 
    including the manufacture and distribution of a full line of typewriter 
    and printer ribbons, thermal fax ribbons, cartridges and toners for 
    laser printers, facsimile machines and copiers, cartridges and ink for 
    ink jet printers, specialty papers, calculator ink rolls, and carbon 
    paper. 
 
    The Company sells products primarily in the United States and Europe, 
    directly to wholesale and retail markets, and also to original equipment 
    manufacturers and distributors for resale under their brand names or 
    private labels. The Company distributes through virtually all major 
    office supply marketing channels, including wholesale distributors, 
    office products dealers, direct mail catalogs, office supply "super 
    stores", warehouse clubs, information processing specialists, value 
    added resellers, and mass market retailers. 
     
    The consolidated balance sheet as of September 26, 1997 and the related 
    consolidated statements of operations and retained earnings 
    (accumulated deficit) for the three and six month periods and 
    consolidated statements of cash flows for the six month periods ended 
    September 26, 1997 and September 27, 1996 are unaudited.  However, in 
    the opinion of management, all adjustments (consisting only of normal 
    recurring accruals) necessary for a fair presentation of such financial 
    statements have been included.  Interim results are not necessarily 
    indicative of results for a full year. 

    The financial statements and notes are presented as permitted by Form 
    10-Q, and do not contain certain information included in the Company's 
    annual financial statements and notes.  
 
2.  NET LOSS PER SHARE OF COMMON STOCK 
 
    Net loss per share of common stock for the three and six month periods 
    ended September 26, 1997 and September 27, 1996 is based on the weighted 
    average number of common shares outstanding during the period and the 
    effect of considering common stock equivalents (stock options and 
    warrants) under the treasury stock method. Primary and fully diluted net 
    loss per share of common stock are the same and, therefore, are not 
    shown separately. 
    
                                         7
<PAGE>

3.  ACCOUNTS RECEIVABLE 
 
    Accounts receivable are reflected net of allowances for doubtful 
    accounts of $4,153 and $3,741 at September 26, 1997 and March 31, 1997, 
    respectively. 
 
4.  INVENTORIES 
 
    Inventories consist of the following: 
 
 
 
                                                         
                                           September 26,  March 31, 
                                               1997         1997 
                                           -------------  ---------

        Raw materials                         $39,162      $36,847 
        Work-in-process                        14,149       12,354 
        Finished goods                         39,567       44,569 
                                              -------      -------
              Total                           $92,878      $93,770 
                                              -------      -------
                                              -------      -------
 
    Since physical inventories taken during the year do not necessarily 
    coincide with the end of a quarter, management has estimated the 
    composition of inventories with respect to raw materials, 
    work-in-process and finished goods. It is management's opinion that  
    this estimate represents a reasonable approximation of the inventory 
    levels at September 26, 1997.  The amounts at March 31, 1997 are based 
    upon the audited balance sheet at that date. 
 
5.  PROPERTY, PLANT AND EQUIPMENT 
 
    Property, plant and equipment is stated at cost and consists of the 
    following components: 
                                                           
                                            September 26,  March 31,
                                                1997         1997 
                                            -------------  ---------
        Land                                  $  4,477     $  4,477 
        Buildings and improvements              19,417       19,417 
        Machinery and equipment                 82,156       80,490 
                                              --------     --------
                                               106,050      104,384 
        Less accumulated depreciation          (33,718)     (28,701) 
                                              --------     --------
              Total                           $ 72,332     $ 75,683 
                                              --------     --------
                                              --------     --------

    Depreciation expense amounted to $2,584 and $2,859 for the three month 
    periods and $5,429 and $5,170 for the six month periods ended September 26,
    1997 and September 27, 1996, respectively. 

                                           8
<PAGE>

6.  INTANGIBLE ASSETS 
 
    Intangible assets consist of amounts allocated as a result of purchases 
    of existing businesses and are summarized as follows: 
     
                                                   
                                       Amortization  September 26,  March 31,
                                          Period         1997         1997 
                                       ------------  -------------  ---------
         Goodwill                        20 years      $ 9,880       $ 9,880 
         Covenants-not-to-compete       3-5 years        5,636         5,636 
         Trademark                       40 years        9,269         9,269 
         Technology license               8 years        1,272         1,272 
                                                       -------       -------
                                                        26,057        26,057 
         Less accumulated amortization                  (7,313)       (6,359)
                                                       -------       -------
         Total                                         $18,744       $19,698 
                                                       -------       -------
                                                       -------       -------
 
    Covenant-not-to-compete agreements have been recorded at their net 
    present value using estimated discount rates of 7% and 16%.  The 
    trademark has been recorded at its estimated value based upon royalty 
    rates charged for its use, discounted at an estimated rate of return of 
    35%. The technology license has been recorded at its estimated fair 
    value based on forecasted discounted cash flows using a 16% discount 
    rate. 
 
7.  LINE OF CREDIT 
 
    The Company has a line of credit in Colombia in the amount of $1,450. 
    Borrowings against the line of credit amounted to $454 and $603 at 
    September 26, 1997 and March 31, 1997, respectively.  The line bears 
    interest at the prevailing Colombia interest rate plus 2 percentage 
    points.  Average interest rates at September 26, 1997 and March 31, 1997 
    were 16.7% and 17.5%, respectively. 
 
8.  LONG-TERM DEBT 
 
    Long-term debt of the Company consists of the following: 
                                                           
                                           September 26,  March 31, 
                                               1997         1997 
                                           -------------  ---------

        Revolving lines of credit            $137,635     $133,917 
        Other items                             1,163        1,292 
                                             --------     --------
                                              138,798      135,209 
        Less current portion                     (403)       (532) 
                                             --------     --------
        Long-term debt, net of current
         portion                             $138,395     $134,677 
                                             --------     --------
                                             --------     --------

                                      9
<PAGE>

9.   INCOME TAXES 
 
Following are the approximate effective blended tax rates for significant 
jurisdictions: 
 
            North America          40 % 
            Switzerland            22 % 
            Germany                64 % 
            United Kingdom         33 % 
 
The above resulted in a worldwide effective blended tax rate of 41% and 42% 
for the three and six month periods ended September 27, 1996, respectively.  
For the six months ended and quarter ended September 26, 1997, no tax benefit 
has been provided with respect to any jurisdiction as it is currently not 
considered more likely than not that resulting  deferred tax assets will be  
realized. Additionally, a provision has been made in the amount of $342 for 
income taxes in certain foreign jurisdictions. 

10.  CONTINGENCIES 
 
Three original equipment manufacturers filed lawsuits against Nu-kote 
International, Inc. ("NII") alleging that certain NII ink jet replacement 
cartridges, refill inks and packaging infringe their trademarks, trade dress 
and patents and alleging, among other things, unfair competition and 
misleading representations.  The plaintiffs are seeking injunctive relief, 
monetary damages, court costs and attorney's fees. The complaint in one of 
the cases has been amended to name Nu-kote and Pelikan Produktions A.G. as 
defendants.  All of the lawsuits are in the discovery stage, and in 
management's opinion the potential losses related to these cases are not 
reasonably estimable.  All of the cases are being vigorously contested, and 
in each case the Company or NII has asserted affirmative defenses and 
counterclaims and has requested damages and affirmative injunctive relief.  
In one of these cases NII's Motion for Summary Judgment of the 
unenforceability of four of the plaintiff's utility patents was granted 
although a Motion for reconsideration with respect to the ruling is pending 
before the court that granted the motion.  

On May 9, 1997 Daniel M. Kerrane, a former officer and director of the 
Company, filed suit against the Company in Texas State District Court. He 
alleges that his Supplemental Employment Agreement with the Company entitled 
him to terminate his employment and receive a lump sum severance payment 
because the Company "substantially reduced" his authorities, powers and 
duties in April, 1997.  Mr. Kerrane is seeking damages of $8,000 and 
injunctive relief.  The Company is vigorously defending this lawsuit. 

In addition, the Company is involved in various routine legal matters. 

In the opinion of management, all matters discussed above are covered by 
insurance or are without merit or the disposition is not anticipated to have 
a material effect on the Company's financial position; however, one or more 
of these matters could have a material effect on future quarterly or annual 
results of operations or cash flow when resolved. 

                                      10
<PAGE>

In connection with Nu-kote's acquisition of the Office Supplies Division and 
the International Business Forms Division of Unisys Corporation ("Unisys"), 
Unisys agreed to retain all liabilities resulting from or arising out of any 
environmental conditions existing on or before January 16, 1987 at the 
Company's Rochester, Macedon and Bardstown facilities and, additionally, to 
indemnify the Company for such.  State environmental agencies have alleged 
that environmental contamination exists at all three sites.  To date Unisys 
has handled all remediation efforts related to these properties. In 
connection with Nu-kote's acquisition of the worldwide hardcopy supplies 
business of Pelikan, Pelikan agreed to indemnify Nu-kote for certain 
pre-closing environmental liabilities.  The Company has found environmental 
contamination at former Pelikan facilities in Derry, Pennsylvania and 
Franklin, Tennessee, and has asserted a claim for indemnification. As a 
result of the indemnification's from Unisys and Pelikan, in the opinion of 
management, the ultimate cost to resolve these environmental matters will not 
have a material adverse effect on the Company's financial position, results 
of future operations or liquidity. 

This note contains various "forward looking statements" within the meaning of 
Section 27A of the Securities Act of 1933 and Section 21E of the Securities 
and Exchange Act of 1934, which represent the Company's expectations or 
beliefs concerning the possible outcome of the various litigation matters 
described herein and estimates of the Company's liabilities associated with 
identified environmental matters.  The Company cautions that the actual 
outcome of the various litigation matters could be affected by a number of 
factors beyond its control, including, without limitation, judicial 
interpretations of applicable laws, rules and regulations, the uncertainties 
and risks inherent in any litigation, particularly a jury trial, the nature 
and extent of any counter claims, and the scope of insurance coverage, and 
that the final resolution of such matters could differ materially from the 
Company's current evaluation of such matters.  The Company further cautions 
that the statements regarding identified environmental matters are qualified 
by important factors that could cause the Company's actual liabilities to 
differ materially from those in the forward looking statements, including, 
without limitation, the following: (i) the actual nature and extent of 
contamination, if any; (ii) the remedial action selected; (iii) the actual 
cleanup level required; (iv) changes in regulatory requirements; (v) the 
ability of other responsible parties, if any, to pay their respective shares; 
and (vi) any insurance recoveries. 

                                      11
<PAGE>

11. RESTRUCTURING EXPENSE 

Restructuring activities commenced during fiscal 1997 (the "1997 
Restructuring") related primarily to the consolidation of impact product 
production into Scotland, Mexico and China; centralization of distribution 
primarily into Franklin, Tennessee and Duren, Germany; and the closure of one 
toner facility, and consolidation of toner manufacturing into Connellsville, 
Pennsylvania and Egg, Switzerland. 

Activity related to accrued restructuring costs for the 1997 Restructuring 
during the three and six month periods ended September 26, 1997 are as 
follows: 

                               Amount                            Amount 
                             Accrued at   Amount                Accrued at
   Description of           Beginning of  Paid in   Additional    End of
 Restructuring Expense         Period     Period    Provision     Period
 ---------------------      ------------  -------   ----------  ----------

Three Months Ended         
 September 26, 1997:        
   Severance                  $ 1,426    $   737      $   464    $ 1,153
   Lease cancellations            430                                430
   Facility maintenance              
    and other                     233        730          730        233
                              -------    -------      -------    -------
                              $ 2,089    $ 1,467      $ 1,194    $ 1,816
                              -------    -------      -------    -------
                              -------    -------      -------    -------


                               Amount                            Amount 
                             Accrued at   Amount                Accrued at
   Description of           Beginning of  Paid in   Additional    End of
 Restructuring Expense         Period     Period    Provision     Period
 ---------------------      ------------  -------   ----------  ----------
 
Six Months Ended 
 September 26, 1997: 
   Severance                  $ 1,204    $ 1,455     $ 1,404     $ 1,153
   Lease cancellations            430                                430
   Facility maintenance               
    and other                     247      1,427     $ 1,413         233
                              -------    -------     -------     -------
                              $ 1,881    $ 2,882     $ 2,817     $ 1,816
                              -------    -------     -------     -------
                              -------    -------     -------     -------

The Company estimates that an additional $2,200 of restructuring expenses will
be recognized in the remainder of fiscal 1998. Most of this amount relates to
expected severance and relocation costs related to continuing consolidation
efforts. Management currently anticipates completion in fiscal 1998. 

During fiscal 1996, the Company substantially completed the merger of its
operations with those of the Pelikan Hardcopy Division, which was acquired in
February 1995.  That plan included, among other things, the closure of the
Company's manufacturing, distribution and administration facility in Bardstown,
Kentucky and merger of its operations into the Pelikan Hardcopy Division's
facility in Franklin, Tennessee; the termination of contract manufacturing and
other contracts; closure of the Company's manufacturing facility in 

                                      12
<PAGE>

Deeside, Wales and merger of its operations with the Pelikan Hardcopy 
Division's operations is Scotland; consolidation of certain toner 
manufacturing operations of ICMI's Connellsville, Pennsylvania  facility and 
the Pelikan Hardcopy Division's Derry, Pennsylvania facility;  and 
consolidation of sales and administrative organizations of the two companies. 
The Company completed the merger activities in fiscal 1997. 

Activity related to accrued restructuring costs for the Pelikan merger during 
the three and six month periods ended September 27, 1996 are as follows: 

                               Amount                             Amount 
                             Accrued at   Amount                Accrued at
   Description of           Beginning of  Paid in   Additional    End of
 Restructuring Expense         Period     Period    Provision     Period
 ---------------------      ------------  -------   ----------  ----------

Three Months Ended 
 September 27, 1996: 
   Severance                   $   0      $         $ 2,693    $ 2,693 
   Lease cancellations           425         40                    385 
   Facility maintenance 
    and other                    287         78                    209 
                                -----     -----     -------    -------
                               $ 712      $ 118     $ 2,693    $ 3,287 
                               -----      -----     -------    -------
                               -----      -----     -------    -------


                               Amount                             Amount 
                             Accrued at   Amount                Accrued at
   Description of           Beginning of  Paid in   Additional    End of
 Restructuring Expense         Period     Period    Provision     Period
 ---------------------      ------------  -------   ----------  ----------

Six Months Ended 
 September 27, 1996: 
   Severance                  $  71        $  71    $ 2,693    $ 2,693 
   Lease cancellations          425           40                   385 
   Facility maintenance                                     
    and other                   384          175                   209 
                              -----        -----    -------    -------
                              $ 880        $ 286    $ 2,693    $ 3,287
                              -----        -----    -------    -------
                              -----        -----    -------    -------

                                       13
<PAGE>

12.  NEW ACCOUNTING STANDARDS 
 
     During March 1997, the Financial Accounting Standards Board issued 
     Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
     per Share", which establishes standards for computing and presenting 
     earnings per share.  The disclosure requirements of SFAS No. 128 will be 
     effective for the Company's financial statements in periods after 
     December 15, 1997. The Company's analysis of this new standard indicates 
     that the standard will not have a material impact on the Company's 
     calculation of fully diluted earnings per share. 
      
     During March 1997, the Financial Accounting Standards Board issued 
     Statement of Financial Accounting Standards No. 129, "Disclosure of 
     Information about Capital Structure", which establishes standards for 
     disclosing information about an entity's capital structure. The 
     disclosure requirements of SFAS No. 129 will be effective for the 
     Company's financial statements in periods ending after December 15, 
     1997. 
      
     During June 1997, the Financial Accounting Standards Board issued 
     Statement of Financial Accounting Standards No. 130, "Reporting 
     Comprehensive Income" and Statement of Financial Accounting Standards 
     No. 131, "Disclosure About Segments of an Enterprise and Related 
     Information".  Preliminary analysis of these new standards by the 
     Company indicates that the standards will not have a material impact on 
     the Company. the standards are effective for financial statements for 
     fiscal years beginning after December 15, 1997. 
      
                                        14
<PAGE>

             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                             AND RESULTS OF OPERATIONS 
 
RESULTS OF OPERATIONS 
 
  QUARTER ENDED SEPTEMBER 26, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 27, 1996
 
     Net sales for the quarter ended September 26, 1997 were $72.7 million, a
     decline of $13.6 million (15.7%) over the quarter ended September 27, 1996.
     For the quarter ended September 26, 1997, sales by North American entities
     were $39.4 million, a decline of $5.3 million or 11.9%, as compared to
     sales in the previous year period.  Sales by European entities declined
     $8.4 million, or 20.6%, as compared to the previous year period and were
     $32.4 million.  Nearly all of the decline in sales by North American
     entities was due to the $4.4 million, or 49.4%, decline in sales of ink jet
     products which resulted from an across the board decline in sales of ink
     jet products combined with the fact that current quarter sales are sales of
     units with a lower average sell price versus sales in the previous year
     period. Approximately $0.6 million of the decline in sales in Europe was
     due to exchange rate fluctuations. The balance of the decline in sales in
     Europe was due largely to the continuing decline in sales of impact
     products of $7.5 million and a slight across the board decline in sales of
     non-impact products, principally in the German market place, of $0.3
     million over the previous year period. 
 
     Worldwide sales of non-impact supplies accounted for approximately 61% of
     total sales for the quarter ended September 26, 1997, compared to 57% of
     total sales in the quarter ended September 27, 1996. Sales of non-impact
     products as a percentage of worldwide sales increased largely because sales
     of impact products declined by $9.0 million (24.3%). 
 
     In North America, sales of non-impact supplies amounted to $21.5 million in
     the quarter ended September 26, 1997, down $4.1 million or 16% as compared
     to the previous year period, and represented 55% of total North American
     sales.  As previously noted, all of this decline was attributed to a
     decline in sales of ink jet products. Sales of non-impact supplies in
     Europe were $23.1 million in the quarter ended September 26, 1997 as
     compared to $23.6 million in the previous year period.   
 
     Cost of sales were $60.1 million (82.7% of net sales) for the quarter ended
     September 26, 1997, compared to $65.5 million (76.0% of net sales) in the
     previous year period.  Included in cost of sales for the quarter ended
     September 26, 1997 were $1.7 million (2.4% of net sales) of expenses
     incurred because the Company had not completed the transition of impact
     product production from the Company's German facility to the Company's
     facilities in Scotland, Mexico or China.  In addition, gross margin was
     adversely impacted during the quarter by $1.0 million (1.4% of net sales),
     associated with increased customer allowances and customer rebates in both
     North America and Europe. 

                                        15
<PAGE>

     For the quarter ended September 26, 1997, research and development expenses
     amounted to $1.8 million, (2.5% of net sales), as compared to $2.6 million
     (3.0% of net sales) in the previous year period. All of the decline in
     this expense category occurred in Europe where the Company has implemented
     an expense reduction program to maintain research and development expenses
     at approximately 2% of net sales.  
 
     Selling, general and administrative expenses were $14.1 million in the
     quarter ended September 26, 1997 as compared to $15.6 million in the
     previous year period. All of the reduction in these expenses resulted from
     the Company's implementation of worldwide expense reduction programs. 
       
     Restructuring expenses amounted to $1.2 million in the current period and
     were in line with previous projections. These expenses related primarily
     to: (1) consolidating impact product production into Scotland, Mexico
     and China; (2) centralizing distribution primarily into Franklin, Tennessee
     and Duren, Germany; and (3) closing one toner facility and consolidating 
     toner manufacturing into Connellsville, Pennsylvania and Egg, Switzerland.
 
     Interest expense for the current fiscal quarter was $3.6 million, compared
     to $2.2 million for the previous year period. The increase is the result
     of higher outstanding borrowings and higher interest rates.  
         
     For the quarter ended September 26, 1997, the Company increased its tax
     valuation allowance by approximately $4.1 million for certain deferred tax
     assets generated during the quarter. Under the provisions of SFAS 109, the
     Company will recognize an income tax benefit when the deferred tax assets
     are actually realized or at such time as it is determined that realization
     of the deferred tax assets is more likely than not. The Company reported
     tax benefit of $1.6 million in the previous year period. 
 
     For the quarter ended September 26, 1997, the Company recognized a net loss
     of $10.6 million compared to a net loss of $2.3 million in the previous
     year period. The increase in net loss is directly attributable to: (1) the
     recognition  of an  extraordinary charge  resulting from  the early
     extinguishment of debt of $2.6 million; (2) the decrease in sales and the
     increased cost of goods sold as a percentage of sales; and (3) the
     restructuring charges, higher interest expense and income tax valuation
     allowances discussed above. 
 
 
SIX MONTHS ENDED SEPTEMBER 26, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 27,
1996 
 
     Net sales for the six months ended September 26, 1997 were $152.4 million,
     a decline of $21.3 million (12.3%) over the six months ended September 27,
     1996. For the six months ended September 26, 1997, sales by North American
     entities were $81.4 million, a decline of $5.0 million or 5.8%, as compared
     to sales in the previous year period.  Sales by European entities declined
     $16.5 million, or 19.3%, as compared to the previous year period and were
     $69.2 million.  Sales of ink jet products in North America declined $4.1

                                           16
<PAGE>

     million or 28.7% as a result of an across the board decline in sales of ink
     jet products combined with the fact that current period sales were sales of
     units with a lower average sell price versus sales in the previous year
     period.  Sales of impact products, toners and laser cartridges and
     components in North America were down slightly as compared to the previous
     year period.  Approximately $1.5 million of the decline in sales in Europe
     was due to exchange rate fluctuations. The balance of the decline in sales
     in Europe was due largely to the continuing decline in sales of impact
     products of $12.4 million and a slight across the board decline in sales of
     non-impact products, principally in the German market place, of $2.6
     million over the previous year period. 
 
     Worldwide sales of non-impact supplies accounted for approximately 60% of
     total sales for the six months ended September 26, 1997, compared to 57% of
     total sales in the six months ended September 27, 1996.  Sales of non-
     impact products as a percentage of worldwide sales increased largely
     because sales of impact products declined by $14.0 million (18.7%). 

     In North America, sales of non-impact supplies amounted to $45.6 million in
     the six months ended September 26,  1997, down $4.1 million or 8.2% as
     compared to the previous year period, and represented 56% of total North
     American sales. Sales of non-impact supplies in Europe were $46.1 million
     in the six months ended September 26, 1997 as compared to $49.4 million in
     the previous year period.  All of the decline in sales of non-impact
     products in Europe was due to exchange rate fluctuations.   
 
     Cost of sales were $124.1 million (81.4% of net sales) for the six months
     ended September 26, 1997, compared to $127.8 million (73.6% of net sales)
     in the previous year period. Included in cost of sales for the six months
     ended September 26, 1997 were $3.2 million (2.1% of net sales) of expenses 
     incurred because the Company had not completed the transition of impact
     product production from the Company's German facility to the Company's
     facilities in Scotland, Mexico or China.  In addition, gross margin was
     adversely impacted during the current period by $2.8 million (1.8% of net
     sales), associated with increased customer allowances, rebates and outbound
     freight, principally in North America.
 
     For the six months ended September 26, 1997, research and development
     expenses amounted to $3.6 million, (2.4% of net sales), as compared to $5.1
     million (3.0% of net sales) in the previous year period.  All of the
     decline in this expense category occurred in Europe where the Company has
     implemented an  expense reduction program to  maintain research and
     development expenses at approximately 2% of net sales. 
 
     Selling, general and administrative expenses were $28.8 million in the six
     months ended September 26, 1997 as compared to $33.0 million in the
     previous year period. All of the reduction in these expenses resulted from
     the Company's implementation of worldwide expense reduction programs. 
       
     Restructuring expenses amounted to $2.8 million in the current period and
     were in line with previous projections. These expenses related primarily
     to: (1) consolidating impact 

                                           17
<PAGE>

     product production into Scotland, Mexico and China; (2) centralizing 
     distribution primarily into Franklin, Tennessee and Duren, Germany; and 
     (3) closing one toner facility and consolidating toner manufacturing 
     into Connellsville, Pennsylvania and Egg, Switzerland.    
 
     Interest expense for the current fiscal period was $6.6 million, compared
     to $4.0 million for the previous year period. The increase is the result
     of higher outstanding borrowings and higher interest rates.  
        
     For the six months ended September 26, 1997, the Company increased its tax
     valuation allowance by approximately $6.5 million for certain deferred tax
     assets generated during the period. Under the provisions of  SFAS 109, the
     Company will recognize an income tax benefit when the deferred tax assets
     are actually realized or at such time as it is determined that realization
     of the deferred tax assets is more likely than not. The Company reported
     tax benefit of $0.4 million in the previous year period. 
 
     For the six months ended September 26, 1997, the Company recognized a net
     loss of $16.5 million compared to a net loss of $0.5 million in the
     previous year period.  The increase in net loss is directly attributable
     to: (1) the recognition of an extraordinary charge resulting from the early
     extinguishment of debt of $2.6 million; (2) the decrease in sales and the
     increased cost of goods sold as a percentage of sales; and (3) the
     restructuring charges, higher interest expense and income tax valuation
     allowances discussed above.
 
 
EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT 
 
     Because the Company conducts business in many countries, fluctuations in
     foreign currency exchange rates affect the Company's financial position and
     results of operations.  It is the Company's policy to monitor currency
     exposures and enter into hedging arrangements to manage the Company's
     exposure to currency fluctuations. As a result, the Company reported $0.2
     million in exchange losses and $1.1 million in exchange gains in the six
     months ended September 26, 1997 and September 27, 1996, respectively.  
 
 
LIQUIDITY AND CASH FLOW 
 
     For the six months ended September 26, 1997, the Company used $3.8 million
     in cash for operations, primarily to  fund reductions of accounts payable
     and restructuring expenses plus $6.0 for interest payments and $2.8 million
     for capital expenditures.  As of November 4, 1997, borrowings outstanding
     under the Company's credit facilities amounted to $141.6 million, up $7.7 
     million from March 31, 1997.  As of November 4, 1997, the Company had
     approximately $2.0 million available for future borrowings under the credit
     facilities. 
 
     The Company's sources of liquidity and capital include cash provided by
     operating activities and borrowings under the Company's credit facility.
     The Company has 

                                         18
<PAGE>

     experienced declining revenues and this has negatively impacted the cash 
     from operations. As a result, management believes that the Company may 
     not have adequate sources of cash to meet its near term obligations.  
     The Company has engaged BT Alex Brown Incorporated to evaluate its 
     strategic alternatives;  to assist the Company in evaluating potential 
     divestitures, candidates for business combinations; and to assist the 
     Company in raising new equity capital.  Additionally, the Company is 
     continuing its efforts to sell non-essential assets and reduce 
     inventories. There can be no assurance that any of these options will 
     provide the Company with adequate cash to meet its near term 
     obligations. 
 
NEW ACCOUNTING STANDARDS 
 
     During March 1997, the  Financial Accounting Standards Board issued
     Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
     Share", which establishes standards for computing and presenting earnings
     per share. The disclosure requirements of SFAS No. 128 will be effective
     for the Company's financial statements in periods after December 15, 1997.

     The Company's analysis of this new standard indicates that the standard
     will not have a material impact on the Company's calculation of fully
     diluted earnings per share. 
 
     During March 1997, the Financial Accounting Standards Board issued 
     Statement of Financial Accounting Standards No. 129, "Disclosure of 
     Information about Capital Structure", which establishes standards for 
     disclosing information about an entity's capital structure. The 
     disclosure requirements of SFAS No. 129 will be effective for the 
     Company's financial statements in periods ending after December 15, 
     1997. 
      
     During June 1997, the Financial Accounting Standards Board issued 
     Statement of Financial Accounting Standards No. 130, "Reporting 
     Comprehensive Income" and Statement of Financial Accounting Standards 
     No. 131, "Disclosure About Segments of an Enterprise and Related 
     Information".  Preliminary analysis of these new standards by the 
     Company indicates that the standards will not have a material impact on 
     the Company. the standards are effective for financial statements for 
     fiscal years beginning after December 15, 1997. 
      
      
CAUTIONARY STATEMENT 
 
     The foregoing "Management's Discussion and Analysis of Financial 
     Condition and Results of Operations" section contains various "forward 
     looking statements" within the meaning of Section 27A of the Securities 
     Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, 
     which represent the Company's expectations or beliefs concerning, among 
     other things, future operating results and various components thereof 
     and the adequacy of future operations to provide sufficient liquidity. 
     The Company cautions that such matters necessarily involve significant 
     risks and uncertainties that could cause actual operating results and 
     liquidity needs to differ materially from such statements, including, 
     
                                         19
<PAGE>

     without limitation, general economic conditions, product demand and 
     industry capacity, competitive products and pricing, manufacturing 
     efficiencies, new product development, availability of raw materials and 
     critical manufacturing equipment, new plant startups and the regulatory 
     and trade environment. 
     
                                    20

<PAGE>

                              PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS 

              See Item 3 - Legal Proceedings in the registrant's Annual Report 
              on Form 10-K for the fiscal year ended March 31, 1997 and Note 10 
              of Notes to Consolidated Financial Statements for the three and 
              six month periods ended September 26, 1997 and September 27, 1996 
              included elsewhere in this report.

ITEMS 2 - 3   INAPPLICABLE

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

              (a)  The registrant's annual meeting of shareholders was held 
                    on September 25, 1997 (the "Annual Meeting").

              (b)  See item (c) below.

              (c)  The following matters were considered at the Annual 
                   Meeting and approved by the votes indicated:

                   (i)  Each of the following nominees was elected to the 
                        Board of Directors of the registrant:

                                                   Votes For    Votes Withheld
                                                   ---------    --------------
                        Donald A. Bolke           13,903,560         98,705
                        David F. Brigante         11,372,760      2,629,505
                        Brian D. Finn             13,907,460         94,805
                        Patrick E. Howard         13,909,360         92,905
                        John P. Rochon            13,909,560         92,705

                   (ii) The appointment of Coopers & Lybrand L.L.P. as the 
                        registrant's independent auditors for the fiscal year
                        ending March 31, 1998 was ratified at the Annual 
                        Meeting by a vote of 11,427,377shares "For", 
                        47,525 shares "Against" and 2,527,363 shares "Abstain".

              (d)  Inapplicable.

ITEM 5-       INAPPLICABLE


                                             21
<PAGE>

PART II - OTHER INFORMATION (CONTINUED)

ITEM 6-       EXHIBITS AND REPORTS ON FORM 8-K

              (a)  Exhibits.

                   Exhibit 11.1 - Statement regarding computation of per 
                                  share earnings.

                   Exhibit 27   - Financial Data Schedule

              (b)  Reports on Form 8-K.

                   The registrant filed no reports on Form 8-K during the 
                   quarterly period ended September 26, 1997.

                                          22
<PAGE>


                                       SIGNATURES 
 
   Pursuant to the requirements 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. 
 
 
 
 
     Date      November 7, 1997             /s/   Patrick E. Howard 
          ---------------------------       ----------------------------
                                            Patrick E. Howard 
                                            Chief Executive Officer 
 
 
 
     Date     November 7, 1997              /s/   Anthony G. Schmeck
          ---------------------------       ----------------------------
                                            Anthony G. Schmeck 
                                            Senior Vice President, Finance
                                            Corporate Controller and Secretary


                                        23