<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          DECEMBER 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 February 5,
     1998:

                       Class                                    Outstanding
                       -----                                    -----------
       Class A common stock $.01 par value                      21,775,302


                                      1

<PAGE>

                             NU-KOTE HOLDING, INC.

                             INDEX TO CONSOLIDATED
                             FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                  PAGE
                                                                                  ----
<S>                                                                               <C>
PART I - FINANCIAL INFORMATION

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

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

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

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

       Notes to Consolidated Financial Statements                                  7

       Management's Discussion and Analysis of Financial
             Condition and Results of Operations                                  16

PART II - OTHER INFORMATION

       Other Information                                                          23

       Signature Page                                                             25
</TABLE>

                                       2

<PAGE>

                      NU-KOTE HOLDING, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  December 26,   March 31,
                                                                     1997          1997
                                                                 ------------   ----------
<S>                                                                <C>          <C>
                             ASSETS

Current assets:
    Cash and cash equivalents                                      $  11,683    $  12,275
    Accounts receivable, net                                          55,357       71,024
    Receivables from related party                                     3,249        3,694
    Inventories, net                                                  87,238       93,770
    Prepaid expenses                                                   8,982       10,452
    Deferred income taxes                                                180        1,573
                                                                   ---------    ---------

           Total current assets                                      166,689      192,788

Property, plant, and equipment, net                                   70,120       75,683
Other assets and deferred charges                                      7,281        4,386
Assets held for sale                                                   2,959        4,482
Intangibles, net                                                      15,480       19,698
                                                                   ---------    ---------

             Total assets                                          $ 262,529    $ 297,037
                                                                   ---------    ---------
                                                                   ---------    ---------

              LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Bank loans, current maturities of long-term debt and
     long-term debt  subject to acceleration                       $ 144,558    $   1,135
    Accounts payable                                                  38,331       51,035
    Compensation related liabilities                                   4,734        6,500
    Other accrued liabilities                                         44,181       37,726
                                                                   ---------    ---------

           Total current liabilities                                 231,804       96,396

Long-term debt, net of current maturities and portion subject    
  to acceleration                                                                 134,677
Other liabilities                                                      8,912        9,995
Deferred income taxes                                                  6,307        6,541
                                                                   ---------    ---------

           Total liabilities                                         247,023      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; 21,775,302 shares 
      outstanding                                                        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                                              (68,130)     (36,610)
    Foreign currency translation adjustments                          (8,971)      (5,564)
    Treasury stock, at cost, 550,000 shares                             (226)        (226)
                                                                   ---------    ---------

           Total shareholders' equity                                 15,506       49,428
                                                                   ---------    ---------

             Total liabilities and shareholders' equity            $ 262,529    $ 297,037
                                                                   ---------    ---------
                                                                   ---------    ---------
</TABLE>


 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 DECEMBER 26, 1997
                             AND DECEMBER 27, 1996
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                 (UNAUDITED)

<TABLE>
<CAPTION>
                                                   December 26,     December 27,
                                                       1997             1996
                                                  -------------    -------------
<S>                                               <C>              <C>
Net sales                                         $     70,755     $     82,923
Cost of sales                                           61,140           67,568
                                                  -------------    -------------

           Gross margin                                  9,615           15,355

Selling, general and administrative expenses            14,158           15,387
Research and development expenses                        1,505            2,517
Provision for loss on sale of division                   4,061
Restructuring expense                                      488            2,031
                                                  -------------    -------------

           Operating loss                              (10,597)          (4,580)

Interest expense                                         3,513            1,990
Other expense items, net                                    85              158
                                                  -------------    -------------

Loss before income taxes                               (14,195)          (6,728)
Provision (benefit) for income taxes                       785           (2,699)
                                                  -------------    -------------

           Net loss                                    (14,980)          (4,029)

Retained earnings (accumulated deficit) -            
  Beginning of period                                  (53,150)          12,505
                                                  -------------    -------------

Retained earnings (accumulated deficit) - End   
  of period                                       $    (68,130)    $      8,476
                                                  -------------    -------------
                                                  -------------    -------------


Net loss per share of common stock (basic and         
  diluted)                                               (0.69)    $      (0.19)
                                                  -------------    -------------
                                                  -------------    -------------


Weighted average shares outstanding                 21,775,302       21,775,302
                                                  -------------    -------------
                                                  -------------    -------------
</TABLE>


   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 NINE MONTH PERIODS ENDED DECEMBER 26, 1997
                             AND DECEMBER 27, 1996
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                 (UNAUDITED)

<TABLE>
<CAPTION>
                                                               December 26,    December 27,
                                                                  1997           1996
                                                               -------------  -------------
<S>                                                            <C>             <C>
Net sales                                                      $    223,170    $    256,621
Cost of sales                                                       185,224         195,331
                                                               -------------  -------------

           Gross margin                                              37,946          61,290

Selling, general and administrative expenses                         42,932          48,413
Research and development expenses                                     5,123           7,648
Provision for loss on sale of division                                4,061
Restructuring expense                                                 3,305           7,811
                                                               -------------  -------------

           Operating loss                                           (17,475)         (2,582)

Interest expense                                                     10,090           6,014
Other (income) expense items, net                                       278            (935)
                                                               -------------  -------------

Loss before income taxes and extraordinary item                     (27,843)         (7,661)
Provision (benefit) for income taxes                                  1,127          (3,095)
                                                               -------------  -------------

Loss before extraordinary item                                      (28,970)         (4,566)

Extraordinary item arising from early
  extinguishment of debt                                             (2,550)
                                                               -------------  -------------

           Net loss                                                 (31,520)         (4,566)

Retained earnings (accumulated deficit) -                     
  Beginning of period                                               (36,610)         13,042
                                                               -------------  -------------

Retained earnings (accumulated deficit) - End                
  of period                                                    $    (68,130)   $      8,476
                                                               -------------  -------------
                                                               -------------  -------------

Net loss per share of common stock (basic and diluted):
           Loss before extraordinary item                      $      (1.33)   $      (0.21)
           Extraordinary item                                         (0.12)
                                                               -------------  -------------
           Net loss                                            $      (1.45)   $      (0.21)
                                                               -------------  -------------
                                                               -------------  -------------


Weighted average shares outstanding                              21,775,302      21,764,239
                                                               -------------  -------------
                                                               -------------  -------------
</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 NINE MONTH PERIODS ENDED DECEMBER 26, 1997
                           AND DECEMBER 27, 1996
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                          (Unaudited)
                                                 ------------------------------
                                                  December 26,     December 27,
                                                      1997             1996
                                                 -------------    -------------
<S>                                              <C>              <C>
Cash flows from operating activities:
    Net loss                                     $    (31,520)    $     (4,566)
    Adjustments to reconcile net income to
        net cash provided by (used in) 
        operating activities:
      Extraordinary loss from early                     
        extinguishment of debt                          2,550
      Provision for loss on sale of division            4,061
      Exchange gains                                     (204)          (1,066)
      Depreciation and amortization                    10,459            9,849
      Deferred income taxes                             1,159              (82)
      Tax benefit from exercise of stock                                
        options                                                             75
      Other                                            (3,547)          (5,187)
    Changes in working capital:
      Accounts receivable                              14,288           24,293
      Inventories                                       4,638            6,594
      Prepaid expenses                                  1,470           (3,528)
      Accounts payable                                (10,300)          (4,725)
      Compensation related liabilities                 (1,766)          (7,242)
      Other accrued liabilities                        10,197           (6,429)
      Cash paid for restructuring                      (3,742)          (8,572)
                                                 -------------    -------------

           Net cash used in operating                  
               activities                              (2,257)            (586)
                                                 -------------    -------------

Cash flows from investing activities:
    Purchase of property, plant and equipment          (4,381)          (8,065)
    Sale of property, plant and equipment               2,699              715
                                                 -------------    -------------

           Net cash used in investing                 
               activities                              (1,682)          (7,350)
                                                 -------------    -------------

Cash flows from financing activities:
    Borrowings on long-term debt and other          
        loans                                          21,463          100,139
    Payments on long-term debt and other loans        (13,290)         (91,632)
    Payments of financing costs                        (2,559)
    Exercise of stock options                                              338
                                                 -------------    -------------

           Net cash provided by financing         
               activities                               5,614            8,845
                                                 -------------    -------------

Effect of exchange rate changes on cash                (2,267)          (2,782)
                                                 -------------    -------------

Net decrease in cash                                     (592)          (1,873)

Cash and cash equivalents at beginning of         
    period                                             12,275            6,540
                                                 -------------    -------------

Cash and cash equivalents at end of period       $     11,683     $      4,667
                                                 -------------    -------------
                                                 -------------    -------------

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

  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
                                  (UNAUDITED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1.      THE COMPANY

        Nu-kote Holding, Inc. ("Nu-kote") and its wholly-owned subsidiaries 
        are referred to collectively as the "Company". The Company is an 
        independent manufacturer and distributor of impact and non-impact 
        imaging supplies for office and home printing devices, including 
        the manufacture and distribution 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 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 December 26, 1997 and the 
        related consolidated statements of operations and retained earnings 
        (accumulated deficit) for the three and nine month periods and 
        consolidated statements of cash flows for the nine month periods 
        ended December 26, 1997 and December 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 all financial disclosures and details 
        included in the Company's annual financial statements and notes.
        
2.      NET LOSS PER SHARE OF COMMON STOCK
       
        Effective with its financial statements for the period ended 
        December 26, 1997, the Company adopted Statement of Financial 
        Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which 
        establishes standards for computing and presenting earnings per 
        share. Basic and 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 $5,404 and $3,741 at December 26, 1997 and March 31, 
        1997, respectively.

4.      INVENTORIES

        Inventories consist of the following:

<TABLE>
<CAPTION>
                                                            December 26,    March 31,
                                                                1997           1997
                                                            -------------  ------------
           <S>                                              <C>            <C>
           Raw materials                                    $     37,645   $    36,847
           Work-in-process                                        13,496        12,354
           Finished goods                                         36,097        44,569
                                                            -------------  ------------

                 Total                                      $     87,238   $    93,770
                                                            -------------  ------------
                                                            -------------  ------------
</TABLE>

        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 December 26, 1997. The amounts at March 31, 
        1997 are based upon the audited balance sheet at that date.
        
        Effective December, 1997, the Company engaged the management 
        consulting firm of Glass and Associates, Inc. ("Glass") to provide 
        interim management services and to assist the Company to the extent 
        possible in finding solutions to its current operating issues. 
        Accordingly, Glass will be evaluating methods of optimizing the 
        utilization of inventory to generate cash for the operation of 
        the business. This may include the sale of inventory outside of
        the ordinary course of business. The Company has not completed 
        its assessment of its options with respect to its inventory. 
        Accordingly, no additional provision for any write-downs that 
        may result has been recorded as of December 26, 1997.

                                       8

<PAGE>

5.      PROPERTY, PLANT AND EQUIPMENT

        Property, plant and equipment is stated at cost and consists of the
        following components:

<TABLE>
<CAPTION>
                                                            December 26,    March 31,
                                                                1997           1997
                                                            -------------  ------------
           <S>                                              <C>            <C>
           Land                                             $      4,477   $     4,477
           Buildings and improvements                             19,417        19,417
           Machinery and equipment                                82,280        80,490
                                                            -------------  ------------

                                                                 106,174       104,384
           Less accumulated depreciation                         (36,054)      (28,701)
                                                            -------------  ------------

                 Total                                      $     70,120   $    75,683
                                                            -------------  ------------
                                                            -------------  ------------
</TABLE>

        Depreciation expense amounted to $2,855 and $2,486 for the three month
        periods and $8,284 and $7,656 for the nine month periods ended December
        26, 1997 and December 27, 1996, respectively.

6.      INTANGIBLE ASSETS

        Intangible assets consist of amounts allocated as a result of purchases
        of existing businesses and are summarized as follows:

<TABLE>
<CAPTION>
                                                 Amortization   December 26,    March 31,
                                                    Period          1997           1997
                                                 -------------  -------------  -------------
           <S>                                     <C>          <C>            <C>
           Goodwill                                20 years     $      6,176   $      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
                                                                -------------  -------------
                                                                      22,353         26,057
           Less accumulated amortization                              (6,873)        (6,359)
                                                                -------------  -------------

           Total                                                $     15,480   $     19,698
                                                                -------------  -------------
                                                                -------------  -------------
</TABLE>

        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.

        As described in Note 12, the Company sold the components division of
        Future Graphics, Inc. As a result, the unamortized goodwill associated
        with the original acquisition of Future Graphics, Inc. amounting to
        $2,826 was written off.

                                       9

<PAGE>

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 $338 and $603 at
        December 26, 1997 and March 31, 1997, respectively. The line bears
        interest at the prevailing Colombian interest rate plus 2 percentage
        points. Average interest rates at December 26, 1997 and March 31, 1997
        were 17.0% and 17.5%, respectively.

8.      LONG-TERM DEBT

        As of and for the quarter ended December 26, 1997, the Company was 
        in violation of certain financial covenants related to the 
        Company's credit agreement dated July 31, 1997. Effective December 
        31, 1997, the Company and its lenders entered into an amendment and 
        waiver to the aforementioned credit agreement. The amendment and 
        waiver provided, among other things, the following:


        - Waived for the period from December 31, 1997 through April 2, 1998 
          violations of certain financial covenants as of and for the quarter 
          ended December 26, 1997 and violations of certain financial 
          covenants for January and February 1998;
        
        - Deferred the mandatory principal reduction of $2,500 due on January 
          2, 1998 to April 1, 1998;
        
        - Restricted the Company from making intercompany loans and 
          investments in certain subsidiaries; and
        
        - Required the Company to use all proceeds from the sale of assets as 
          a permanent reduction of the revolving credit commitment under the 
          credit agreement.

        As the amendment and waiver provided for the waiver of financial 
        covenant violations only through April 2, 1998 and there is no 
        certainty the lenders will grant future waivers, the portion of the 
        debt that would be long-term pursuant to the terms of the credit 
        agreement has been classified as a current liability and is 
        reported as long-term debt subject to acceleration.
        
        Long-term debt of the Company consists of the following:

<TABLE>
<CAPTION>
                                                             December 26,    March 31,
                                                                 1997           1997
                                                             -------------  ------------
           <S>                                               <C>            <C>
           Revolving lines of credit                         $    143,333   $   133,917
           Other items                                                887         1,292
                                                             -------------  ------------

                                                                  144,220       135,209
           Less current portion                                  (10,000)         (532)
           Less portion subject to acceleration                 (134,220)
                                                             -------------  ------------

           Long-term debt, net of current portion            $     -        $   134,677
                                                             -------------  ------------
                                                             -------------  ------------
</TABLE>

                                      10

<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 nine month periods ended December 26, 
        1997, respectively. For the nine months ended and quarter ended 
        December 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, for the three and nine month periods ended December 
        26, 1997, a provision has been made in the amount of $785 and 
        $1,127, respectively, for income taxes in certain foreign 
        jurisdictions.

10.     CONTINGENCIES

        On January 23, 1998 a class action suit was filed by a shareholder 
        against Nu-kote Holding, Inc., its current directors, certain of 
        its current officers and certain former officers and directors in 
        the United States District Court for the Northern District of 
        Texas, Dallas Division, cause number 3-98CV0161-T. The Complaint 
        alleges that the Company and the specified individuals violated the 
        Securities Exchange Act of 1934 by knowingly making false and 
        misleading statements about the Company's business and issued false 
        and misleading financial statements between July 28, 1995 and May 
        29, 1997. The plaintiff is seeking compensatory damages, including 
        rescission where applicable, pre-judgment interest, post-judgment 
        interest, attorney's fees, expert witness fees and other costs, and 
        extraordinary, equitable, and/or injunctive relief. The Company 
        denies the plaintiff's allegations and intends to vigorously defend 
        the suit.
        
        In 1994 and 1995 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 Pelikan Produktions A.G. 
        ("PPAG") as a defendant. 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. 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 

                                      11

<PAGE>

        and duties in April, 1997. Mr. Kerrane is seeking damages of $8 
        million 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 
        substantially covered by insurance or are without merit. However, 
        one or more of these matters could have a material effect on the 
        Company's financial position or future quarterly or annual results 
        of operations or cash flows when resolved.
        
        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 indemnifications 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.

                                       12

<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 nine month periods ended 
        December 26, 1997 are as follows:

<TABLE>
<CAPTION>
                                  Amount                                 Amount
             Description of      Accrued at     Amount                  Accrued at
             Restructuring      Beginning of  Paid in      Additional   End of
                Expense           Period       Period       Provision    Period
        ----------------------  ------------ ------------  ---------- -------------
        <S>                     <C>          <C>           <C>         <C>
        Three Months Ended
            December 26,
            1997:
           Severance            $     1,153  $       506   $       134 $       781
           Lease                        430                                    430
               cancellations
           Facility
               maintenance
               and other                233          354           354         233
                                ------------ ------------  ------------ -----------

                                $     1,816  $       860   $       488 $     1,444
                                ------------ ------------  ------------ -----------
                                ------------ ------------  ------------ -----------
</TABLE>


<TABLE>
<CAPTION>
                                  Amount                                 Amount
             Description of     Accrued at     Amount                  Accrued at
             Restructuring      Beginning of  Paid in      Additional   End of
                Expense           Period       Period       Provision    Period
        ---------------------   ------------ ------------  ---------- -------------
        <S>                     <C>          <C>           <C>         <C>
        Nine Months Ended
            December 26,
            1997:
           Severance            $     1,204  $     1,961   $     1,538 $       781
           Lease                        430                                    430
               cancellations
           Facility
               maintenance
               and other                247        1,781   $     1,767         233
                                ------------ ------------  ------------ -----------

                                $     1,881  $     3,742   $     3,305 $     1,444
                                ------------ ------------  ------------ -----------
                                ------------ ------------  ------------ -----------
</TABLE>

        The Company anticipates that as a result of declining sales, 
        additional restructuring measures will be necessary to the extent 
        cash is available for funding such expenses.
        
        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 Deeside, Wales and merger of its 
        operations with the Pelikan Hardcopy Division's operations is 
        Scotland; consolidation of certain toner manufacturing

                                     13

<PAGE>

        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 substantially completed the merger 
        activities in fiscal 1997.

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

<TABLE>
<CAPTION>
                                  Amount                                 Amount
             Description of     Accrued at     Amount                  Accrued at
             Restructuring     Beginning of  Paid in      Additional   End of
                Expense          Period       Period       Provision    Period
        ---------------------   ------------ ------------  ---------- -------------
        <S>                     <C>          <C>           <C>         <C>
        Three Months  Ended
            December 27,
            1996:
           Severance            $     2,693  $       938   $           $    1,755
           Lease                        385          184                      201
               cancellations
           Facility
               maintenance
               and other                209           15                      194
                                ------------ ------------  ------------ ----------

                                $     3,287  $     1,137   $           $    2,150
                                ------------ ------------  ------------ ----------
                                ------------ ------------  ------------ ----------
</TABLE>

<TABLE>
<CAPTION>
                                  Amount                                 Amount
             Description of      Accrued at     Amount                  Accrued at
             Restructuring      Beginning of  Paid in      Additional   End of
                Expense           Period       Period       Provision    Period
        ----------------------  ------------ ------------  ---------- -------------
        <S>                     <C>          <C>           <C>         <C>
        Nine Months  Ended
            December 27,
            1996:
           Severance            $        71  $     1,009   $     2,693 $    1,755
           Lease                        425          224                      201
               cancellations
           Facility
               maintenance
               and other                384          190                      194
                                ------------ ------------  ------------ ----------

                                $       880  $     1,423   $     2,693 $    2,150
                                ------------ ------------  ------------ ----------
                                ------------ ------------  ------------ ----------
</TABLE>

12.     SALE OF DIVISION

        The Company sold the assets of the components division of Future 
        Graphics, Inc. on December 31, 1997, for approximately $3,700 in a 
        combination of cash and assumed liabilities. This division was sold 
        as part of the Company's continuing effort to exit non-core 
        businesses. The sale of the components division resulted in a loss 
        of $4,061, which includes the write off of $2,826 of related 
        unamortized goodwill. As the conditions giving rise to this loss 
        existed at December 26, 1997, the loss was recognized in the 
        December 26, 1997 financial statements.

                                      14

<PAGE>

13.     NEW ACCOUNTING STANDARDS

        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's financial statements. The 
        standards are effective for financial statements for fiscal years 
        beginning after December 15, 1997.

                                      15

<PAGE>

             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                             AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

        QUARTER ENDED DECEMBER 26, 1997 COMPARED TO QUARTER ENDED 
        DECEMBER 27, 1996

        Net sales for the quarter ended December 26, 1997 were $70.8 
        million, a decline of $12.1 million (14.6%) over the quarter ended 
        December 27, 1996. For the quarter ended December 26, 1997, sales 
        by North American entities were $33.6 million, a decline of $9.5 
        million or 22.0%, as compared to sales in the previous year period. 
        Sales by European entities declined $2.6 million, or 6.5%, as 
        compared to the previous year period and were $37.2 million. 
        Approximately $3.4 million, or 35.8% of the decline in sales by 
        North American entities, was due to the decline in sales of ink jet 
        products. Impact sales declined $2.7 million, or 28.4% of the 
        decline in sales by North American entities, and were $15.3 
        million. The remaining decline of $3.4 million, or 35.8% of the 
        decline in sales by North American entities was primarily due to a 
        decline in toner and related component sales. 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 
        $1.1 million and a decline in sales of non-impact products of $0.9 
        million over the previous year period.

        Worldwide sales of non-impact supplies amounted to $41.6 million 
        and accounted for approximately 58.8% of total sales for the 
        quarter ended December 26, 1997, compared to 58.0% of total sales 
        in the quarter ended December 27, 1996.
        
        In North America, sales of non-impact supplies amounted to $18.3 
        million in the quarter ended December 26, 1997, down $6.8 million 
        or 27.1%, as compared to the previous year period, and represented 
        54.5% of total North American sales. Sales of non-impact supplies 
        in Europe were $23.1 million in the quarter ended December 26, 1997 
        and remained flat as compared to the previous year period.
        
        Cost of sales were $61.1 million (86.3% of net sales) for the 
        quarter ended December 26, 1997, compared to $67.6 million (81.5% 
        of net sales) in the previous year period. In North America cost of 
        sales included manufacturing volume variances amounting to $0.7 
        million for the quarter ended December 26, 1997. The remaining 
        worldwide percentage increase in cost of sales is due to the mix of 
        products and customers for the quarter ended December 26, 1997. In 
        addition, gross margin was adversely impacted during the quarter by
        $2.0 million (2.8% of net sales), associated with increased customer
        allowances, principally in North America.

                                       16

<PAGE>


        For the quarter ended December 26, 1997, research and development 
        expenses amounted to $1.5 million, (2.1% of net sales), as compared 
        to $2.5 million (3.0% of net sales ) in the previous year period. 
        Approximately $0.4 million of the decline occurred in North America 
        and the remaining $0.6 million of the decline occurred in Europe 
        where the Company has implemented an expense reduction program to 
        maintain research and development expenses at approximately 2.0% of 
        net sales.

        Selling, general and administrative expenses were $14.2 million in 
        the quarter ended December 26, 1997 as compared to $15.4 million in 
        the previous year period. The $1.2 million reduction in these 
        expenses resulted from the Company's implementation of worldwide 
        expense reduction programs. 
        
        Restructuring expenses amounted to $0.5 million in the current 
        period. 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 $3.5 million, 
        compared to $2.0 million for the previous year period. The increase 
        is the result of higher outstanding borrowings and higher interest 
        rates.
        
        For the quarter ended December 26, 1997, the Company recognized a 
        tax valuation allowance of approximately $6.0 million against 
        certain deferred tax assets pursuant to Statement of Financial 
        Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 
        109"). 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 a tax benefit of $2.7 million in the previous year period.
        
        For the quarter ended December 26, 1997, the Company recognized a 
        net loss of $15.0 million compared to a net loss of $4.0 million in 
        the previous year period. The increase in net loss is directly 
        attributable to: (1) the $12.1 million decrease in sales and the 
        4.8% increase in cost of goods sold as a percentage of sales; (2) higher
        interest expense of $1.5 million and income tax benefit reduction of 
        $3.5 million; and (3) a $4.1 million loss on the sale of a division of 
        the Company. The increase in net loss was offset by $1.2 million 
        reduction in selling, general and administrative expenses, a $1.0 
        million reduction in research and development costs and a $1.5 million 
        decrease in restructuring costs.

                                       17

<PAGE>

    NINE MONTHS ENDED DECEMBER 26, 1997 COMPARED TO NINE MONTHS ENDED 
    DECEMBER 27, 1996


        Net sales for the nine months ended December 26, 1997 were $223.2 
        million, a decline of $33.4 million (13.0%) over the nine months 
        ended December 27, 1996. For the nine months ended December 26, 
        1997, sales by North American entities were $115.1 million, a 
        decline of $14.4 million or 11.1%, as compared to sales in the 
        previous year period. Sales by European entities declined $19.0 
        million, or 15.3%, as compared to the previous year period and were 
        $108.1 million. Laser cartridge sales in North America were up $3.2 
        million, or 28.8%, primarily due to product category growth in the 
        marketplace compared to the previous year period. Sales of ink jet 
        products in North America declined $7.5 million or 34.9% 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 were down $3.7 million as the 
        ribbon market continues to decline. Toner and component sales in 
        North America were down $6.4 million, or 15.2%, as compared to the 
        previous year period. Approximately $2.1 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 $14.1 million and a decline 
        in sales of non-impact products of $2.8 million over the previous 
        year period. The Company believes that the worldwide sales of impact 
        products will continue to decline as the market shifts to non-impact 
        supplies.
        
        Worldwide sales of non-impact supplies accounted for approximately 
        59.7% of total sales for the nine months ended December 26, 1997, 
        compared to 57.0% of total sales in the nine months ended December 
        27, 1996. Sales of non-impact products as a percentage of worldwide 
        sales increased largely because sales of impact products declined 
        by $19.3 million (17.6%), which exceeded the overall decline in 
        worldwide non-impact sales of $14.1 million or 9.6%.
        
        In North America, sales of non-impact supplies amounted to $64.1 
        million in the nine months ended December 26, 1997, down $10.7 
        million or 14.3% as compared to the previous year period, and 
        represented 55.7% of total North American sales. Sales of 
        non-impact supplies in Europe were $69.1 million in the nine months 
        ended December 26, 1997 as compared to $72.5 million in the 
        previous year period. The decline in sales of non-impact products 
        in Europe was principally due to exchange rate fluctuations.
        
        Cost of sales were $185.2 million (83.0% of net sales) for the nine 
        months ended December 26, 1997, compared to $195.3 million (76.1% 
        of net sales) in the previous year period. Included in cost of 
        sales for the nine months ended December 26, 1997 were $3.7 million 
        (1.7% of net sales) of expenses resulting from the transition of 
        impact product production from the Company's German facility to the 
        Company's facilities in Scotland, Mexico and China. In addition, 
        gross margin was adversely impacted during the nine month period by 
        $4.8 million (2.2% of net sales), associated with increased 
        customer allowances, principally in North America.

                                      18

<PAGE>

        For the nine months ended December 26, 1997, research and 
        development expenses amounted to $5.1 million, (2.3% of net sales), 
        as compared to $7.7 million (3.0% of net sales ) in the previous 
        year period. Approximately $2.2 million, or 84.6%, 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 2.0% of net sales.
        
        Selling, general and administrative expenses were $42.9 million for 
        the nine months ended December 26, 1997 as compared to $48.4 
        million in the previous year period. The reduction in these 
        expenses resulted primarily from the Company's implementation of 
        worldwide expense reduction programs.
        
        Restructuring expenses amounted to $3.3 million in the current 
        period. 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 period was $10.1 million, 
        compared to $6.0 million for the previous year period. The increase 
        is the result of higher outstanding borrowings and higher interest 
        rates.
        
        For the nine months ended December 26, 1997, the Company recognized 
        a tax valuation allowance of approximately $12.5 against certain 
        deferred tax assets pursuant to Statement of Financial Accounting 
        Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). 
        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 a tax benefit of $3.1 million in the previous year period.
        
        For the nine months ended December 26, 1997, the Company recognized 
        a net loss of $31.5 million compared to a net loss of $4.6 million 
        in the previous year period. The increase in net loss is directly 
        attributable to: (1) a $33.4 million decrease in sales and a 6.9% 
        increase in cost of goods sold as a percentage of sales; (2) the 
        recognition of an extraordinary charge resulting from the early 
        extinguishment of debt of $2.6 million; (3) higher interest expense 
        of $4.1 million and income tax benefit reduction of $4.2 million; and 
        (4) a $4.1 million loss on the sale of a division of the Company. The 
        increase in net loss was offset by a $5.5 million reduction in selling, 
        general and administrative costs, $2.6 million reduction in research and
        development costs and $4.5 million decline in restructuring costs.

                                       19

<PAGE>

    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 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 and 
        $1.1 million in exchange gains in the nine months ended December 
        26, 1997 and December 27, 1996, respectively.

    LIQUIDITY AND CASH FLOW

        The Company's cash requirements are related to funding working 
        capital for operations, capital expenditures and payment of 
        interest and principal on indebtedness. For the nine months ended 
        December 26, 1997, $2.3 million in cash was used for operations, 
        primarily to fund reductions of accounts payable and restructuring 
        expenses. Capital expenditures, primarily related to computer 
        systems and manufacturing equipment were $4.4 million. As indicated 
        above, interest expense for the nine months ended December 26, 1997 
        was $10.1 million.
        
        The Company's sources of liquidity and capital include cash 
        provided by operating activities, borrowing under the Company's 
        credit facility and open account trade terms from vendors. For 
        seven of the last nine fiscal quarters, the Company has experienced 
        declining revenues and this has negatively impacted the cash 
        generated from operations. Additionally, during the nine months 
        ended December 26, 1997, $10.3 million in cash was used to reduce 
        accounts payable. As of February 2, 1998, borrowings outstanding 
        under the Company's credit facilities amounted to $143.1 million, 
        up $9.2 million from March 31, 1997. As of February 2, 1998 the 
        Company had approximately $.4 million available for future 
        borrowings under the credit facilities. Cash on hand as of February 
        2, 1998 amounted to approximately $5.8 million.
        
        Management does not believe that the Company has adequate sources 
        of working capital to provide the Company with sufficient cash to 
        meet its near term obligations. In December, 1997, the Company 
        engaged Glass and Associates, Inc., management consultants, to 
        provide interim management services and to assist the Company to 
        the extent possible in finding solutions to its current operating 
        issues. In addition, the Company has engaged BT Alex Brown 
        Incorporated to assist it in evaluating its strategic options which 
        may include the sale of all or part of the Company's business. The 
        Company will also continue to focus on managing net working 
        capital. However, there can be no assurance that any of these 
        strategies will provide the Company with adequate working capital 
        and sufficient cash flow to meet its near term obligations and 
        avoid a default under its credit agreement.
        
        The Company's credit facilities contain a number of financial ratio 
        covenants. The Company's credit facilities have been amended to 
        defer a mandatory principal reduction of $2.5 million due on 
        January 2, 1998 to April 1, 1998. In addition, compliance with 

                                      20

<PAGE>

        certain financial covenants was waived through April 2, 1998. Under 
        the terms of the waiver, the company is restricted, among other 
        things, from making further investments, including intercompany 
        loans and advances, to certain subsidiaries. Additionally, the 
        amendment requires the Company to use proceeds from the sale of 
        assets as a permanent reduction of the Revolving Credit 
        Commitments. Scheduled principal reductions over the next year are 
        $5 million on April 1, 1998, $2.5 million on July 1, 1998 and $2.5 
        million on October 1, 1998. The Company has classified the debt as 
        short term as it continues to negotiate refinancing alternatives 
        with its lending group.  

        It is unlikely that the Company will be able to make the $5.0 million 
        principal payment due on April 1, 1998.  The waiver of compliance
        with the financial ratio covenants of the Company's credit agreement 
        will expire on April 2, 1998. The Company will attempt to obtain 
        additional waivers from its lenders, but there can be no assurance 
        that any waivers can be obtained, at which point the Company will 
        be in default under its credit agreement. 

    NEW ACCOUNTING STANDARDS

        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's financial statements. The 
        standards are effective for financial statements for fiscal years 
        beginning after December 15, 1997.
        
    YEAR 2000 COMPUTER ISSUES

        The Company is in various stages of addressing the year 2000 issue 
        and has not fully completed its assessment. However, certain of the 
        Company's information systems are not currently in compliance with 
        the modifications necessary for the year 2000. The Company intends 
        to make the necessary system changes to continue to sustain the 
        information needs of the business, but there can be no assurance 
        that the Company will have adequate resources to fund such system 
        changes.

    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 

                                     21

<PAGE>

        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, 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.

                                     22

<PAGE>

                          PART II - OTHER INFORMATION


ITEM 1 - LEGAL PROCEEDINGS

        On January 23, 1998 a class action suit was filed against Nu-kote 
        Holding, Inc., its current directors, certain of its current 
        officers and certain former officers and directors in the United 
        States District Court for the Northern District of Texas, Dallas 
        Division, cause number 3-98CV0161-T. The Complaint alleges that the 
        Company and the specified individuals violated the Securities 
        Exchange Act of 1934 by knowingly making false and misleading 
        statements about the Company's business and issued false and 
        misleading financial statements between July 28, 1995 and May 29, 
        1997. The plaintiff is seeking compensatory damages, including 
        rescission where applicable, pre-judgment interest, post-judgment 
        interest, attorney's fees, expert witness fees and other costs, and 
        extraordinary, equitable, and/or injunctive relief. The Company 
        denies the plaintiff's allegations and intends to vigorously defend 
        the suit.
        
        On December 10, 1997 the lawsuit styled INTERNATIONAL COMMUNICATION 
        MATERIALS, INC. V. RICOH COMPANY, LTD and Ricoh Corporation, civil 
        action 95-0767 in the United States District Court for the Western 
        District of Pennsylvania was settled.  In connection with the 
        settlement, International Communication Materials, Inc. stopped 
        selling certain Ricoh compatible cartridges.  The case has been 
        dismissed.
        
        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 nine 
        month periods ended December 26, 1997 and December 27, 1996 
        included elsewhere in this report.
        
ITEM 2  INAPPLICABLE


ITEM 3  DEFAULTS UPON SENIOR SECURITIES

        The Company and its lenders entered into a Second Amended and 
        Restated Credit Agreement and Waiver as of December 31, 1997 (the 
        "Amended Credit Agreement"). The Amended Credit Agreement deferred 
        until April 1, 1998 the principal payment which would otherwise 
        have been due on January 2, 1998. In addition, the Company's 
        lending group waived compliance with certain financial covenants 
        through April 2, 1998. Amended Credit Agreement requires the 
        Company to use all proceeds from the sale of assets as a permanent 
        reduction of its revolving credit commitments and requires 
        principal reductions of $5.0 million on April 1, 1998, $2.5 million 
        on July 1, 1998 and $2.5 million on October 1, 1998. In the absence 
        of this latest amendment and waiver, the Company would have been in 
        default under its credit agreement.

ITEMS 4 - 5  INAPPLICABLE

                                      23

<PAGE>

PART II - OTHER INFORMATION (CONTINUED):


ITEM 6 -        EXHIBITS AND REPORTS ON FORM 8-K

                (a) Exhibits.

                    Exhibit 10.6  - Second Amendment to Second
                                    Amended and Restated Credit
                                    Agreement and Waiver

                    Exhibit         10.7 Management consulting agreement
                                    - Glass and Associates, Inc.

                    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 December 27, 1997.


                                      24

<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      February 9, 1998                 /s/  Shaun K. Donnellan
          ----------------------------      ----------------------------------
                                                 Shaun K. Donnellan
                                                 Chief Executive Officer







      Date     February 9, 1998                  /s/  Steven J. DiPasquale
          ----------------------------      ----------------------------------
                                                 Steven J. DiPasquale
                                                 Chief Financial Officer

                                       25