UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ---------------
                                    Form 10-K
                                   (Mark One)


[ X ]     Annual  report  pursuant to Section 13 or 15(d) of the  Securities
          Exchange Act of 1934 For the fiscal year ended  December 31, 1999

                                      or

[   ]    Transition  report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the transition period from _____ to _____

                         Commission file number 0-22696

                               DISC GRAPHICS, INC.
             (Exact Name of Registrant as specified in its charter)

          Delaware                                          13-3678012
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

10 Gilpin Avenue, Hauppauge, New York                                      11788
(Address of Principal Executive Offices)                              (Zip Code)

Registrant's telephone number, including area code:               (631) 234-1400

Securities registered pursuant to Section 12(b) of the Act:

Title of Class                         Name of each exchange on which registered
--------------                         -----------------------------------------
    None                                        None

Securities registered pursuant to Section 12(g) of the Act:

                  Common Stock, $.01 par value

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.
         Yes [ x ]   No [   ]

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K [ ]

         At March  1,  2000,  the  aggregate  market  value  of the  voting  and
non-voting stock held by non-affiliates  of Registrant was  approximately  $11.2
million,  based on the  closing  price of the Common  Stock on the Nasdaq  Stock
Market on that date.

          At March 1, 2000, the Registrant had outstanding  5,518,352  shares of
Common Stock, $.01 par value per share.

         Documents  incorporated by reference:  The Registrant's Proxy Statement
for its 2000 Annual Meeting of  Stockholders  is  incorporated by reference into
Part III (Items 10, 11, 12, and 13) of this Form 10-K.


<PAGE>

                                     PART I

ITEM 1.           Business

General

         Disc Graphics,  Inc. ("Disc Graphics" or the "Company"),  headquartered
in Hauppauge,  New York, is a diversified  manufacturer and printer of specialty
paperboard packaging focused on the home video, music,  entertainment  software,
cosmetics,   pharmaceutical,  and  other  consumer  markets.  Products  include:
pre-recorded  video sleeves,  compact disc ("CD") and audio cassette  packaging;
folding cartons for entertainment software, food, pharmaceuticals and cosmetics;
posters,  pressure sensitive labels and general commercial  printing.  Customers
include leading software,  CD-ROM and video distributors;  vitamin, cosmetic and
fragrance companies;  major book publishers; and many Fortune 500 companies. The
Company  operates in one business  segment:  the  manufacturing  and printing of
specialty paperboard packaging.

         The  Company's  primary  business  strategies  are: (1) to increase the
Company's share of print and packaging sales within its primary markets;  (2) to
acquire other  strategically-located  specialty packaging and printing companies
that serve  geographic  markets and industries near existing and potentially new
customers, and to position the Company to offer service and cost advantages over
its competitors;  and (3) to develop innovative packaging designs and techniques
for new and existing markets.  The Company is actively involved in investigating
additional  printing and packaging  related  business  opportunities,  which may
include  acquisitions,  joint  ventures  or other  business  relationships.  The
Company  recently  announced the signing of a letter of understanding to acquire
Industrial  Publishing,  Inc. d/b/a Koke Printing ("IP/Koke"),  a Eugene, Oregon
based commercial printer with approximately $12 million of revenue. Consummation
of the  acquisition is subject to the Company's  completion of due diligence and
the  negotiation  of a definitive  acquisition  agreement.  The Company is not a
party to any definitive agreement with respect to any other such transaction. In
addition,  there  can be no  assurance  that the  Company  will  consummate  any
potential  acquisition,  or if  completed,  that  any such  transaction  will be
profitable  for the  Company,  or that the Company  will be able to increase its
market share in accordance with its stated business strategies.

         Historically,  the  Company  has  grown  primarily  by  developing  new
customers, increasing orders from existing customers, and by capitalizing on its
superior service and response  capabilities and through  acquisitions.  In 1996,
the Company  acquired the assets and certain  liabilities of Pointille,  Inc., a
California based packaging printer; in 1997, the Company acquired the assets and
certain  liabilities of Benham Press, Inc., an Indiana based commercial printing
company (the "Benham Acquisition"); and in 1999, the Company acquired the assets
and certain liabilities of Contemporary Color Graphics, Inc. ("CCG"), a New York
based commercial printing company (the "CCG Acquisition"). The Company has since
integrated  each of their  manufacturing  capabilities  and sales and  marketing
programs into Disc Graphics' operations.  Since 1995, the Company has operated a
facility  in  Rockaway,  New  Jersey,  which  provides a  majority  of the label
production for Disc Graphics.

         The Company's principal  executive offices and principal  manufacturing
operations  are located at 10 Gilpin  Avenue,  Hauppauge,  New York  11788.  Its
telephone number is (631) 234-1400.

Background

         The Company was formed as the result of a reverse merger of RCL Capital
Corp ("RCL") into a printing  company  formerly known as Disc Graphics,  Inc., a
New York corporation ("Old Disc").  RCL was incorporated in August 1992 to serve
as a vehicle to effect a business  combination  with an operating  business.  On
November 18, 1993, RCL completed a public offering of units ("Units"), each Unit
consisting of one share of the RCL's Common Stock and two  redeemable  warrants.
Net  proceeds of the public  offering  after the  payment of certain  additional
expenses yielded approximately $6,400,000, which was put into escrow pending the
acquisition of an operating business.

          On October 30, 1995, Old Disc merged with and into RCL.  Following the
merger, RCL changed its name

                                       -2-

<PAGE>



to Disc  Graphics,  Inc.  Net  proceeds of the merger  after the payment for the
redemption of  approximately  185,000 shares of Common Stock at $5.15 per share,
in accordance with the terms of the original RCL offering,  yielded  proceeds to
the Company of approximately  $5,000,000.  These proceeds were used primarily to
reduce certain indebtedness of the Company and for working capital purposes.

         The merger was treated for accounting and financial  reporting purposes
as a reverse merger of RCL into Old Disc. Accordingly,  the Company's results of
operations  prior to October 30,  1995 are those of Old Disc.  In  addition,  in
connection  with the merger,  Disc Graphics,  Inc.  adopted a December 31 fiscal
year.

Packaging/Printing Industry

         The Company  derived  significant  revenue in 1999 from the manufacture
and sale of  paperboard  folding  cartons.  An industry  trade  publication  has
estimated  that in 1999 there were  approximately  295  companies  operating 469
folding carton manufacturing plants in the United States, and the total revenues
from the sale of folding cartons was approximately $5.0 billion, reflecting a 2%
decline from 1998 levels. The overall folding carton market has seen significant
competition from resin based  alternative  packaging and growth in corrugated as
an  alternative  to  paperboard  packaging.  The Company is currently  exploring
opportunities in the corrugated  packaging  market.  Industry  consolidation has
resulted in a decline in the number of carton plants and the number of operating
companies.

         Folding carton  manufacturers  are divided into three main  categories:
integrated  manufacturers (those owned by or affiliated with a paperboard mill),
non-integrated   or  independent   manufacturers,   and  in-plant  or  "captive"
manufacturers  which are owned directly by the end user.  The Company  generally
competes primarily with independent manufacturers.

         The Company  focuses on those  markets  that use the folding  carton as
part of a product's marketing. The promotional function of the carton may employ
multiple  colors,  coatings,  several  printing  techniques,  stamping and other
graphic design considerations.  The Company has concentrated in markets, such as
the home video, software, cosmetics, music and pharmaceutical packaging markets,
which utilize those techniques to a significant  extent. The Company has devoted
substantial  resources toward developing the specialized  processes  required in
such markets.

         The Company's  business also includes  commercial  printing and labels.
Industry trade sources have  estimated  that the total United States  commercial
printing  market  in  1999  was  approximately  $78  billion.  The  industry  is
fragmented with many small printing  companies  serving  regional  markets.  For
example,  within  the New York City  Metropolitan  area,  there  are over  3,200
printing establishments with an average of 16 employees.

         Based on 1998  revenues,  the  Company  was  ranked  117 in the top 500
printing  companies in the United States by an industry  trade  publication,  as
compared to 128 in 1997.  Comparable rankings for 1999 were not available at the
date of this report.

Packaging Products

         One of the Company's  largest markets for folding cartons are the video
and  entertainment  software  markets.  For the home video  market,  the Company
manufactures  bottom-load video sleeves,  multi-packs and other specialty items.
In  addition  to  printing  for major  studios,  the  Company  has  historically
concentrated on the catalogue and special  interest video and software  markets.
The Company's  catalogue customers typically have licensed or purchased products
from major movie production studios.  As in prior years,  special interest video
continues to be a growing product line. Packaging for these videos is often sold
to   independent   distributors   and  videotape   duplicators.   Through  these
distributors  and  duplicators,  the Company  has  produced  packaging  for many
Fortune 500 companies.

         Sales of software packaging continue to contribute to a growing portion
of the  Company's  revenues.  The  Company  produces  packaging  for some of the
largest entertainment software and software application  companies.  The Company
believes that its national network of production facilities and its capabilities
in producing high value-


                                      -3-

<PAGE>

added packaging are strategic advantages in competing in this market.

         The  Company  manufactures  CD  packaging,  including  tray  cards  and
booklets,  pre-recorded cassette packaging, such as insert or "J" cards, as well
as audio book  packaging  and other  printed  materials  for the music and audio
industries.  The Company's music industry customers often require that packaging
be produced  quickly,  often  within  days of placing an order.  The Company has
assembled a combination of skilled workers,  advanced equipment,  and production
systems to meet these  requirements.  The  Company  has long  standing  customer
relationships  with many of the major record  companies in the United States and
also  manufactures  packaging  for  major  duplicators  in  the  United  States.
Additionally,  the  Company  manufactures  packaging  for special  interest  and
secondary  music and audio markets.  The other major component of this market is
audio book packaging.  The Company  believes that it has a significant  share of
this  market.  The  Company's  principal  customers  include  two of the largest
publishers in this market. The Company also manufactures packaging for self-help
and specialty cassettes, which are a growing portion of this market.

          In the consumer products market, the Company  manufactures cartons and
packaging for fragrances,  skin lotions, pet products,  food and other specialty
packaging for these markets. Given the high-value added nature of the packaging,
these markets are a prime focus for the Company.  Recently,  the Company founded
Cosmetic Sampling Technologies, Inc. ("CST"), a wholly owned subsidiary. CST has
received a patent on TRYALS(TM),  its unique lipstick  sampler.  TRYALS(TM) is a
unit dose,  self-applicator,  for sampling lipstick.  Management is committed to
the development of this and other innovative packaging to penetrate the cosmetic
market.

         The  Company  produces  folding  cartons for  over-the-counter  ("OTC")
pharmaceuticals,  vitamins  and  nutritional  supplements.  A large  part of the
Company's revenue for OTC-style cartons is for "private label" products. Vibrant
designs are emphasized in the  packaging,  which requires the use of multi-color
graphics  to  convey  product  identity  and brand  recognition.  Sales of these
cartons are made directly to several major vitamin and drug manufacturers.

         In the  commercial  printing  market,  the  Company  prints  brochures,
posters, sell sheets and other promotional material.

         The Company prints labels on pressure  sensitive  stock that is die cut
to  a   customer's   specifications.   The   primary   markets  for  labels  are
pharmaceuticals,  vitamins,  video packages,  pet products and specialty  items.
Many video and  folding  carton  orders  include an order for the  corresponding
labels.

Marketing and Sales

         The Company's  revenues are derived from several  markets.  The largest
market as a percentage  of total 1999 net sales was the video and  entertainment
software market, which accounted for approximately 38%; followed by the consumer
product packaging market,  which accounted for approximately  23%; and the music
and audio  packaging  and  commercial  printing  markets,  which  accounted  for
approximately  15% and 13%,  respectively.  These markets  correspond to product
lines within the business segment in which the Company operates.

         The Company's sales and marketing  efforts are conducted through direct
solicitation by its executive  officers and internal sales people. The Company's
package  engineering  staff  assists  customers  with  new  package  design  and
development.  Because the Company has a short  turnaround time, it has a backlog
of orders, with most produced and delivered in one to four weeks.


                                       -4-

<PAGE>

Seasonality

         Historically,  the Company's revenues have been moderately seasonal. In
the  last  two  quarters  of  1999  and  1998,   the  Company's   revenues  were
approximately  56% and 54%,  respectively,  of annual sales. This seasonality is
primarily the result of certain  markets,  such as the music and audio packaging
markets, the video and entertainment software packaging markets and the consumer
product  packaging  market,  which require that products be produced and shipped
between  August and  October of each year for sale  during the  holiday  season.
These three markets accounted for approximately 76% and 74%, respectively of the
Company's  total  net  sales in each of 1999 and  1998,  causing  the  Company's
revenues to be greater in the last six months of each  calendar year than in the
first six months.

Competition

         The  Company  competes  with  a  small  number  of  printed  paperboard
packaging  companies within each of its markets.  These industries  require high
quality  packaging  with rapid  turnaround  time and  competitive  pricing.  The
Company  believes  that its ability to perform all aspects of the  manufacturing
process  in-house  is an  important  factor in  maintaining  and  improving  its
competitive position.

         While the Company believes its present competitive  position is strong,
there can be no assurance  that this will not change.  Several of the  Company's
competitors  in each market have  financial  resources that are greater than the
Company's.  In  addition,  because the Company  supplies  packaging  to consumer
industries,  it  is  also  subject  to  the  competitive  forces  affecting  its
customers.

Employees

         As of February 17, 2000, the Company had  approximately  559 employees.
Of  these  employees,  338 are  located  in the  Company's  Hauppauge,  New York
facility, with 270 serving in manufacturing capacities and 68 serving in selling
and administrative capacities. The Company's Burbank, California facility has 92
employees, with 75 serving in manufacturing capacities and 17 serving in selling
and administrative capacities.  Disc Graphics' Rockaway, New Jersey facility has
26 employees,  with 24 serving in  manufacturing  capacities  and two serving in
selling and  administrative  capacities.  The  Company's  Indianapolis,  Indiana
facility has 57 employees,  with 48 serving in  manufacturing  capacities  and 9
serving in selling and administrative  capacities.  Disc Graphics' Edgewood, New
York facility has 46 employees,  with 35 serving in manufacturing capacities and
11  serving  in  selling  and  administrative  capacities.  A  majority  of  the
manufacturing  employees  located  in  the  Burbank,   California  facility  are
represented by a labor union. The Company  believes that its employee  relations
are good.

Materials

         The Company uses a variety of raw materials. The most significant types
of raw materials  utilized are paperboard,  paper,  label paper,  ink,  coating,
films and plates. These materials are purchased from a variety of suppliers, and
the Company has several alternate sources for each. The Company has historically
been successful in obtaining adequate materials to satisfy all sales orders, and
does not anticipate any significant  difficulties in obtaining  supplies of such
materials in the future. There can be no assurances,  however,  that the Company
will not encounter  difficulty in obtaining supplies of such material to fulfill
future requirements.

Equipment

         The Company owns or leases  certain  manufacturing,  computer and other
equipment  used in the  manufacture  of its products and for its  administrative
support.  As a specialty  printing company,  the Company's  continued growth and
competitiveness requires a continuous investment in capital equipment.


                                       -5-

<PAGE>

Forward Looking Statements

         This Form 10-K contains  predictions,  projections and other statements
about the future that are intended to be "forward-looking statements" within the
meaning  of  the  Private  Securities   Litigation  Reform  Act  of  1995.  Such
forward-looking statements involve known and unknown risks,  uncertainties,  and
other  important  factors that could cause the actual  results,  performance  or
achievements  of the Company,  or industry  results,  to differ  materially from
those expressed or implied by such statements.  Such risks,  uncertainties,  and
other important factors include,  among others: the Company's ability to fulfill
its stated business strategies; the Company's ability to identify and consummate
future acquisitions and other strategic business opportunities, and to integrate
any such  businesses  into the Company's  operations;  the Company's  ability to
identify and develop  additional product  innovations;  the Company's ability to
sustain  current growth rates in net sales of certain  products;  the effects of
recent  equipment  purchases  and leases for  additional  space on the Company's
operations;  the Company's ability to continue to improve  efficiencies  through
the  purchase  or  lease  of  equipment;   the  effects  of  the  Company's  ISO
certification  efforts;  the amounts required for capital expenditures in future
periods; the availability and cost of materials;  potential effects of Year 2000
problems  on  the  Company's  business;  and  continuing  industry-wide  pricing
pressures and other industry conditions.  Such forward-looking  statements speak
only as of the date of this Report,  and the Company disclaims any obligation or
undertaking to update such statements.  Each forward-looking  statement that the
Company believes is material is accompanied by one or more cautionary statements
identifying  important  factors  that  could  cause  actual  results  to  differ
materially from those described in the forward-looking statement. The cautionary
statements  are set forth  following  the  forward-looking  statement,  in other
sections of this Form 10-K,  and/or in the Company's  other documents filed with
the  Securities  and  Exchange  Commission,  whether or not such  documents  are
incorporated  herein by  reference.  In  assessing  forward-looking  statements,
readers are urged to read carefully all such cautionary statements.

Regulation

         Disc Graphics,  Inc.'s activities are subject to various environmental,
health and  employee  safety  laws.  The Company has  expended  resources,  both
financial and managerial,  to comply with applicable  environmental,  health and
worker safety laws in its operations and at its facilities and anticipates  that
it will continue to do so in the future.  Compliance with environmental laws has
not  historically had a material effect on the Company's  capital  expenditures,
earnings or competitive position,  and the Company does not anticipate that such
compliance  will have a material  effect on the  Company.  Although  the Company
believes that it is generally in compliance  with all applicable  environmental,
health and worker safety laws,  there can be no assurance that additional  costs
for compliance will not be incurred in the future or that such costs will not be
material.


                                       -6-

<PAGE>

Executive Officers of the Registrant

          Donald  Sinkin  (51  years  of age) has been  Chairman  of the  Board,
President,  Chief Executive  Officer and the largest  shareholder of the Company
since 1986.  Mr. Sinkin joined Disc Graphics as Pre-Press  Supervisor and became
Plant Manager in 1982.  Prior to joining Disc Graphics,  Mr. Sinkin helped found
and manage  Rutgers  Packaging,  a division of Queens Group,  Inc.  d/b/a Queens
Litho.

         Stephen Frey (46 years of age) is a Director,  Senior Vice President of
Operations,  Secretary and a major  shareholder of the Company.  Mr. Frey joined
Disc Graphics in the Pre-Press  Department  in 1978,  became  Supervisor of that
department in 1983, and  established  the Production and Planning  Department in
1985.  Mr. Frey was elected Vice  President and Secretary in 1988 and a Director
in 1990. He served as Chief Operating  Officer from 1991 to 1995 and was elected
Senior Vice President of Operations in 1998. Prior to joining Disc Graphics, Mr.
Frey held various management positions with Kordet Color Corporation and Terrace
Litho.

         John Rebecchi (44 years of age) is a Director, Senior Vice President of
Sales & Marketing,  and a major shareholder of the Company.  Mr. Rebecchi joined
Disc Graphics' predecessor in the Accounting Department and, upon Disc Graphics'
formation  in 1983,  he served as  Controller.  After a brief  absence  from the
Company,  Mr.  Rebecchi  re-joined  Disc  Graphics in 1988 and was elected  Vice
President  and  Treasurer  in 1988 and a  Director  in 1990.  He served as Chief
Financial  Officer from 1991 through 1995 and was elected  Senior Vice President
of Sales & Marketing in 1998.

         Margaret  M.  Krumholz  (40 years of age) is Senior Vice  President  of
Finance and Chief  Financial  Officer of the Company.  Ms.  Krumholz joined Disc
Graphics in 1994 and served as Controller  until 1996 when she was elected Chief
Financial  Officer.  She was elected  Senior Vice President of Finance in August
1998.  Prior to joining Disc Graphics,  Ms. Krumholz held various  financial and
accounting  positions,  including  Corporate  Finance  Manager for General Foods
Baking    Company,    and   received   her   C.P.A.    while    employed    with
PricewaterhouseCoopers.

         Frank A. Bress (52 years of age) is Vice  President  for Legal  Affairs
and Human Resource Policy and General  Counsel of the Company.  Mr. Bress joined
Disc Graphics in January 1998 as General Counsel, and was elected Vice President
for Legal Affairs in August 1998 and Vice President for Human Resource Policy in
October  1998.  Prior to joining  Disc  Graphics,  Mr. Bress served as principal
outside counsel to the Company from 1988 through 1997 while a partner in various
law firms.  Mr. Bress was an Associate  Professor of Law at New York  University
School of Law from 1974 to 1986,  and a Professor of Law and  Associate  Dean at
Pace University School of Law from 1986 to 1988.



                                       -7-

<PAGE>


ITEM 2.           Properties

         As of December 31, 1999,  the Company's  principal  properties  were as
follows:

                                                             Approximate Square
Location                   Activities Conducted              Footage of Facility

Hauppauge, NY              Executive offices
                           and manufacturing (1)                    55,000
Hauppauge, NY              Warehouse (2)                            40,000
Burbank, CA                Manufacturing (3)                        30,000
Indianapolis, IN           Manufacturing (4)                        27,000
Edgewood, NY               Manufacturing (5)                        22,000
Rockaway, NJ               Manufacturing (6)                         8,400
New York, NY               Sales (7)                                 2,400

          (1) The lease for this facility  terminates on December 31, 2007.  The
          facility  is owned by  certain  principals  of the  Company  through a
          limited  partnership,  and the Company  believes  that the lease terms
          were and are at least as favorable to the Company as terms which could
          have been obtained from unaffiliated  third parties for similar office
          and manufacturing space.

          (2) On January 1, 2000,  the  Company  entered  into a lease  expiring
          August 31, 2001 to sublet to a third party approximately
          36,000 square feet of the 40,000  square feet at the facility  located
          in Hauppauge,  New York. The 4,000 remaining  square feet will be used
          for office space.

          (3) This lease is scheduled to terminate on May 18, 2001.

          (4) The Company owns this facility, subject to a mortgage.

          (5) This lease is scheduled to terminate on July 14, 2003.

          (6) This lease is scheduled to terminate on June 30, 2007.

          (7) On January 1, 1999, the Company  entered into a new lease expiring
          December 30, 2009 for this facility.

          On January 1, 2000, the Company entered into a lease expiring  January
          31, 2008 for an 87,000 square foot facility located in Hauppauge,  New
          York.  This facility will be used for  manufacturing  and office space
          and will be in  addition  to the  55,000  square  feet at the  current
          facility located in Hauppauge, New York.

ITEM 3.           Legal Proceedings

         As of December 31,  1999,  there were no lawsuits  pending  against the
Company.


                                       -8-


ITEM 4.           Submission of Matters to a Vote of Security Holders

         During the fourth  quarter of the year ended  December 31, 1999,  there
were no matters  submitted to a vote of the Company's  security  holders through
the solicitation of proxies or otherwise.


                                       -9-

<PAGE>

                                     PART II

ITEM 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
Matters

Price Range of Common Stock

         The  Company's  Common  Stock,  par value $.01 per share  (the  "Common
Stock")  trades on the Nasdaq  SmallCap  Market under the symbol DSGR. The table
set forth below  contains the range of the high and low bid prices on the Nasdaq
SmallCap Market for the quarters noted.

          The Company's Class A Redeemable  Common Stock Purchase  Warrants (the
"Class A Warrants")  were  authorized for trading on the Nasdaq  SmallCap Market
under the symbol  DSGRW.  On November 9, 1999 these Class A Warrants  expired by
their  terms.  The table set forth below  contains the range of the high and low
bid prices on the Nasdaq SmallCap Market for the quarters noted.

                              Common Stock                  Class A Warrants
                            High          Low               High          Low
Quarter Ended

March 31, 1998            $ 4.750      $ 4.125            $ .688         $ .563
June 30, 1998               4.625        3.625              .625           .375
September 30, 1998          5.125        3.688              .688           .375
December 31, 1998           5.188        4.000             1.000           .438
March 31, 1999              5.563        4.250              .844           .375
June 30, 1999               5.000        3.750              .938           .125
September 30, 1999          5.313        3.625              .313           .031
December 31, 1999 (a)       3.750        2.313              .031           .000

         On February 1, 2000,  the closing bid price for the Common Stock on the
Nasdaq Small Cap Market was $3.250.

          (a)       On November 9, 1999, the Company's Class A Redeemable Common
                    Stock purchase warrants expired by their term.

Holders of Common Stock

         As  of  February  10,  2000,  there  were  45  holders  of  record  and
approximately 800 beneficial owners of the Common Stock.

Dividends

         The Company has not paid any cash  dividends  on its Common Stock since
its  inception.  The payment of dividends in the future will be contingent  upon
the Company's revenues and earnings,  capital requirements and general financial
condition  and any other  factors  deemed  relevant  by the  Company's  Board of
Directors.  The Company  presently intends to retain all earnings for use in the
Company's  business  operations  and to  further  the  growth  of the  Company's
business.  Accordingly,  the Company's  Board of Directors  does not  anticipate
declaring any dividends in the foreseeable future.



                                       -10-

<PAGE>



ITEM 6.           Selected Financial Data

         The following  table sets forth  selected data  regarding the Company's
operating results and financial position. The data should be read in conjunction
with the  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" and the Company's  consolidated  financial statements and
notes (including without limitation Note 18) thereto, all of which are contained
in this Annual Report on Form 10-K.


                             SUMMARY FINANCIAL DATA
                    (In thousands, except per share amounts)


                             Year Ended December 31,
                             -----------------------
                                1999       1998      1997     1996       1995
                                ----       ----      ----     ----       ----
Income statement data:
Net sales                     $67,988    $58,882   $48,445  $42,575   $36,149
Gross profit                   17,290     15,799    12,693   10,911     7,481
Operating expenses             12,360     10,550     8,483    7,612     5,733
Operating income                4,930      5,249     4,210    3,299     1,748
Net income                      2,507      2,864     2,159    1,454       501
Net income per common share
         Basic                    .45        .52       .40      .29       .18
         Diluted                  .45        .52       .40      .29       .18

Weighted average number
 of shares outstanding
         Basic                  5,518      5,474     5,387    5,091     2,714
         Diluted                5,540      5,492     5,397    5,098     2,714



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

                            1999         1998        1997      1996      1995
                            ----         ----        ----      ----      ----
Balance sheet data:
Total assets              $ 42,508    $ 28,372   $ 26,747   $ 22,046  $ 18,604
Long term liabilities       15,493       6,737      8,494      5,598     7,243
Stockholders' equity        16,447      13,940     11,112      8,964     7,427


ITEM      7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations

General

         The following is a discussion of the consolidated  financial  condition
and  results of  operations  of the  Company  for the  periods  indicated.  This
discussion  should  be read  in  conjunction  with  the  Company's  consolidated
financial  statements  and the notes  thereto  included in this  Annual  Report.
Results  for the  periods  reported  herein are not  necessarily  indicative  of
results that may be expected in future periods.


                                      -11-

<PAGE>

Benham Acquisition

         On October 24,  1997,  the Company  acquired  substantially  all of the
assets and certain  liabilities of Benham Press, Inc., an Indiana based printing
company  ("Benham").  The purchase  price  consisted of $87,043 in cash,  10,499
shares of the Company's  common stock and the assumption of certain  liabilities
associated with outstanding borrowing under a line of credit agreement and notes
payable  totaling   approximately   $2,637,000.   The  Company  liquidated  such
liabilities with additional  borrowings under the Company's line of credit.  The
Company recorded the value of the 10,499 shares of common stock at the estimated
fair value at the date of acquisition. The Benham Acquisition was recorded using
the  purchase  method of  accounting  and  accordingly,  the results of Benham's
operations  are included in the Company's  results of operation from the date of
the Benham Acquisition.

Contemporary Color Graphics Acquisition

         On July 1, 1999, the Company acquired  substantially  all of the assets
and certain liabilities of Contemporary Color Graphics, Inc. ("CCG"), a New York
based  commercial  printer.  The purchase price consisted of $3,500,000 in cash,
and a promissory  note in the amount of $1,000,000,  a supplemental  note in the
amount of  $1,000,000,  convertible  debentures  in the amount of  $600,000  and
assumed debt of  approximately  $1,200,000,  subject to adjustment.  The Company
paid the cash portion of the purchase price from borrowings  under its revolving
credit facility. Principal payments will commence on August 1, 2000 with respect
to the promissory note and debentures, and on August 1, 2003 with respect to the
supplemental note. The former  shareholders of CCG have the option of converting
the debentures  into shares of the Company's  common stock,  valued at $5.50 per
share,  at least  30 days  before  any  principal  or  interest  payment  on the
debentures.  The CCG  Acquisition was accounted for using the purchase method of
accounting and accordingly,  the results of CCG's operations are included in the
Company's results from the date of the CCG Acquisition.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Net Sales

         Net sales  for the year  ended  December  31,  1999 were  approximately
$67,988,000 compared to approximately  $58,882,000 for the same period the prior
year,  representing an increase of  approximately  $9,106,000 or 15.5%.  The CCG
Acquisition accounted for approximately $2,803,000 of the increase in sales. The
overall increase,  excluding the effect of the CCG Acquisition, was most evident
in video and  entertainment  software  packaging  (approximately  $4,857,000  or
23.1%),  music and  audio  packaging  (approximately  $1,393,000  or 15.3%)  and
consumer  product  packaging  (approximately  $1,920,000  or 14.0%)  between the
comparison  periods.  Within  the video  and  entertainment  software  category,
entertainment software, specifically computer games, continues to be the primary
driver in sales growth.  Music/audio  packaging sales also increased as a result
of increased  unit volume  within this  category,  which  enabled the Company to
offset pricing pressures in the music and audio packaging industry.

Gross Profit

         The Company  recognized  gross profit of  approximately  $17,290,000 (a
25.4%  profit  margin)  for the year ended  December  31,  1999,  as compared to
approximately   $15,799,000   (a  26.8%  profit  margin)  for  the  prior  year,
representing  an increase of  approximately  $1,491,000,  or 9.4%. The increased
dollar amount is primarily  due to the increase in net sales between  comparison
periods,  as discussed  above.  The decrease of 1.4  percentage  points in gross
profit margin is due to increased costs in 1999 associated with downward pricing
pressures,  the Company's  decision to invest  significantly in the expansion of
its capacity, the integration of the CCG Acquisition,  and its implementation of
ISO 9001 procedures.  See "Selling, General and Administrative Expenses," below.
As  discussed  below under  "Liquidity  and Capital  Resources"  the Company has
purchased new equipment and entered into a lease for  additional  space in order
to expand its capacity. The installation of such new equipment and the expansion
of its Hauppauge  facility,  by entering into additional leases,  continued into
the first  quarter  of  fiscal  2000 and will most  likely  continue  to have an
adverse  impact on earnings.  The  Company's  integration  of this new equipment
should enhance its

                                      -12-

<PAGE>

operating  efficiencies  and improve its ability to compete in new markets,  but
there can be no assurance  that the Company will be able to achieve these goals.
See "Liquidity and Capital Resources".

Selling, General and Administrative Expenses

         Selling,  general and  administrative  ("SG&A")  expenses  for the year
ended  December  31, 1999 were  approximately  $12,360,000  (18.2% of net sales)
compared to approximately  $10,550,000  (17.9% of net sales) for the prior year,
an increase of  approximately  $1,810,000.  The increase in the dollar amount of
SG&A is  primarily  due to normal  operating  expenses and the  amortization  of
goodwill,  in each case associated  with the CCG  Acquisition.  In addition,  on
April 29, 1999,  Disc Graphics  retained a consulting firm to assist the Company
in  becoming  ISO  certified.  The  Company  expects  to  receive  its ISO  9001
certification  during fiscal 2000.  Disc Graphics has experienced and expects to
continue to experience  consulting and operating  expenses  associated with this
project throughout fiscal 2000, which may impact future operating results.  Disc
Graphics  believes that this investment will ultimately  transform the processes
of the organization to improve product quality,  increase production volume, and
shorten the manufacturing  time cycle. The Company believes that this commitment
to improve customer  satisfaction should enhance its competitive edge in current
and new markets,  but there can be no assurance  of this.  The  remainder of the
increase is due to normal inflationary  increases,  and revenue related expenses
such as freight  to  customers  and  commissions.  See  "Liquidity  and  Capital
Resources".

Interest Expense

         Net  interest  expense  for  the  year  ended  December  31,  1999  was
approximately  $747,000  compared to approximately  $634,000 for the prior year.
Interest expense includes interest payable under the Company's  revolving credit
facility, its capital lease obligations on equipment and its note,  supplemental
note and debenture issued in connection with the CCG  Acquisition.  The increase
in net  interest  expense is due to  increased  borrowings  under the  Company's
revolving credit facility and the note,  supplemental note and debenture related
to the CCG Acquisition.

Income Taxes

         The  provision  for income  taxes for the year ended  December 31, 1999
decreased from the 1998 level  primarily due to the decrease in pretax income of
approximately $583,000 between comparison periods, with no significant change in
the effective tax rate.

Net Income

         Net income  for the year  ended  December  31,  1999 was  approximately
$2,507,000,  compared to approximately $2,864,000 for the prior year, a decrease
of approximately  $358,000, or 12.5%. Downward pricing pressures,  the Company's
decision  to  invest  significantly  in  the  expansion  of  its  capacity,  the
integration  of  the  CCG  acquisition,  and  its  implementation  of  ISO  9001
procedures all contributed to the decrease in net income.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Net Sales

         Net sales  for the year  ended  December  31,  1998 were  approximately
$58,882,000 compared to approximately  $48,445,000 for the same period the prior
year,  representing an increase of approximately  $10,437,000 or 22%. The Benham
acquisition accounted for approximately $3,507,000 of the increase in sales. The
overall increase was most evident in video and entertainment  software packaging
markets (approximately  $6,138,000 or 41%) and music and audio packaging markets
(approximately  $396,000 or 5%) between the  comparison  periods.  The  consumer
product  packaging  market has  increased  approximately  $1,448,000 or 12%. The
Company has continued to focus on high end  specialty  packaging and has focused
less on the lower margin, less value added product categories, resulting in

                                      -13-

<PAGE>

a decline in sales levels in those categories.

Gross Profit

         Gross  profit for the year ended  December  31, 1998 was  approximately
$15,799,000 (a 26.8% profit  margin)  compared to  approximately  $12,693,000 (a
26.2%  profit  margin)  for  the  prior  year,   representing   an  increase  of
approximately  $3,106,000 or 24%.  Improvements  in profit margin continue to be
increasingly  more  challenging in an  environment  of downward price  pressure.
Improving  manufacturing  efficiencies  through improved processes,  competitive
purchasing  practices,  and capital investment has enabled the Company to remain
competitive and improve profitability.

Selling, General and Administrative Expenses

         Selling,  general and  administrative  ("SG&A")  expenses  for the year
ended  December  31, 1998 were  approximately  $10,550,000  (17.9% of net sales)
compared to approximately $8,483,000 (17.5% of net sales) for the prior year, an
increase of approximately  $2,067,000, or 24.4%. This increase was due primarily
to revenue  related  expenses  (such as freight to customers  and  commissions),
costs associated with the Indiana facility, and investment in sales and customer
service personnel to focus on custom-designed packaging.

Interest Expense

         Interest expense for the year ended December 31, 1998 was approximately
$634,000,  compared to  approximately  $612,000  for the prior year.  The slight
increase in interest expense was primarily  related to increased  investments in
equipment  through  capital  leases,  offset by  interest  earned  on  overnight
investments.

Income Taxes

         The  provision  for income  taxes for the year ended  December 31, 1998
increased  primarily  due to the  increase  in pretax  income  of  approximately
$1,168,000.

Net Income

         Net income for the year ended December 31, 1998 was $2,864,000 compared
to $2,159,000  for the prior year, an increase of $705,000 or 33%. This increase
was a result of an increase in net sales, gross margin improvement,  and gain on
the sale of certain equipment ($150,000), offset slightly by increased SG&A. The
Company's strategy of growing revenue both internally and through  acquisitions,
coupled with cost  reduction  projects and  investments,  has resulted in strong
earnings growth in 1998 compared to 1997.

Liquidity and Capital Resources

         The primary  source of cash for the  Company's  business  has been cash
flow from operations and availability  under the Company's $10 million revolving
credit  facility.  Cash as of  December  31,  1999 was  approximately  $143,000,
compared to  approximately  $43,000 as of December 31, 1998.  Net cash  provided
from  operations  for  the  year  ended  December  31,  1999  was  approximately
$4,533,000 compared to approximately $3,691,000, for the year ended December 31,
1998. The improvement in cash flows from operations is primarily attributable to
management's  increased  focus on overall  cash  management.  As of December 31,
1999,  the  Company  had  working  capital  of  approximately  $9,123,000,   and
approximately $2,250,000 was available to the Company under its revolving credit
facility.

         At December 31, 1999,  the Company was not in  compliance  with certain
financial  covenants of the Credit Agreement  covering its $10 million revolving
credit facility. On February 25, 2000, the Company renegotiated

                                      -14-

<PAGE>

certain  provisions of the Credit  Agreement.  The amended  Agreement allows for
borrowings up to  $15,000,000.  The amended Credit  Agreement  contains  revised
covenants which require Disc Graphics to satisfy certain  performance  criteria,
net worth  levels  and debt  service  ratios.  The  amendment  also  waived  the
Company's  non-compliance with the original covenants. At December 31, 1999, and
at the date of this  report,  the  Company  was in  compliance  with the revised
covenants.

         On July 1, 1999, the Company completed the acquisition of substantially
all of the assets and certain  liabilities of CCG. The Company paid $3.5 million
of the purchase price in cash, and paid the balance by issuing a promissory note
in the  amount  of $1.0  million,  a  supplemental  note in the  amount  of $1.0
million, a convertible  debenture in the amount of $0.6 million and assumed debt
of approximately $1.2 million, subject to adjustment.  The Company paid the cash
portion of the purchase  price and  serviced  the assumed  debt from  borrowings
under its revolving credit facility.  Principal payments will commence on August
1, 2000 with respect to the promissory note and debenture, and on August 1, 2003
with respect to the supplemental  note. The former  shareholders of CCG have the
option of converting  the debenture  into shares of the Company's  common stock,
valued at $5.50 per share,  at least 30 days  before any  principal  or interest
payment on the  debenture.  As a result of the CCG  Acquisition,  the  Company's
total   indebtedness   and  future  debt  service   obligations  have  increased
significantly  from prior levels. The Company intends to fund these debt service
obligations  from  operating cash flow in future  periods,  and believes that it
will have sufficient funds to do so. There can be no assurance, however that the
Company will be able to integrate  CCG's  business  successfully  or realize any
benefit  from the CCG  Acquisition,  or that  earnings  attributable  to the CCG
Acquisition  will be sufficient to offset the related costs  associated with the
Company's debt service obligations.

         During the year ended December 31, 1999,  the Company  incurred a total
of  approximately  $2.6 million of capital  improvements  in connection with the
purchase,  preparation,  and  installation of a new 56-inch high speed diecutter
and 56-inch  seven color  press.  The Company is  obligated  to make  additional
installment payments and expects to incur additional  installation costs related
to this equipment, which in the aggregate will result in additional expenditures
of  approximately  $5 million.  The Company is  currently in  negotiations  with
certain  lenders to  refinance  substantially  all of the $2.6  million in costs
incurred  to date and  expects  to  complete  these  negotiations  by the second
quarter of fiscal 2000.  Further,  the Company  anticipates that it will finance
approximately $8 to $9 million, which is inclusive of the aforementioned 56-inch
equipment,  as well as additional  manufacturing equipment by the second quarter
of fiscal 2000. The installation of the diecutter,  press, and future additional
equipment is intended  primarily to increase  capacity and further improve plant
efficiencies.  However,  there can be no assurance that the Company will be able
to enter into financing  agreements for such  equipment on  satisfactory  terms,
that the installation of such equipment will result in improved efficiencies, or
that the Company's  future results of operations will be improved as a result of
any such plans.

         In 1998, the Company traded in a printing  press,  which was previously
financed by an equipment note through GE Capital Public Finance ("GECPF"), for a
new press. In connection with the transaction,  the Company entered into a seven
year capital lease  arrangement with the Suffolk County  Industrial  Development
Association  ("SCIDA"),  pursuant  to which the SCIDA:  (a) issued a  $2,003,657
industrial development bond to finance its purchase of the press; (b) leased the
press to the Company;  and (c) assigned its rights in the lease to GECPF,  which
purchased  the  bond.  The  lease  contained  certain  provisions  limiting  the
Company's  capital  expenditures  in Suffolk  County and certain debt  covenants
consistent with those contained in the Company's Credit  Agreement.  On February
29, 2000, the Company  refinanced this lease with GECPF by entering into a seven
year promissory note arrangement  that does not contain the same provisions,  or
debt covenants, as the SCIDA lease.


                                      -15-

<PAGE>

Inflation and Seasonality

         The Company has experienced certain inflationary  increases in variable
and fixed  costs.  The Company has  continued to manage the impact of these cost
increases by obtaining  certain volume discounts  through the purchase of larger
quantities  of raw  material and  improving  manufacturing  efficiencies,  while
providing the same high quality product at competitive prices.

         Historically,  a portion of the Company's  business has been moderately
seasonal.  The  requirements of the home video,  music and cosmetic  markets for
products to be delivered for the holiday season  generally causes an increase in
sales from August through October. See "Item 1. Business-Seasonality," above.

New Accounting Pronouncement

         The Financial  Accounting Standards Board issued Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative  Instruments and Hedging
Activities"  (SFAS No.  133) as  amended  by SFAS 137,  which is  effective  for
quarters of fiscal years  beginning  after June 15, 2000.  SFAS No. 133 provides
guidance  for  accounting  for all  derivative  instruments,  including  certain
derivative instruments embedded in other contracts,  and for hedging activities.
The management of the Company does not believe that the  implementation  of SFAS
No.  133 will have a material  impact on its  financial  position  or results of
operations.

Year 2000 Date Conversion

         The Company  experienced no  difficulties  as a result of the Year 2000
rollover,  but it will  continue to monitor  the  situation,  particularly  with
respect to the ability of its systems to recognize the date February 29, 2000.

         Prior to  December  31,  1999,  the  Company  completed  the process of
identifying, assessing and developing contingency plans to address problems that
might have arisen as a result of the  inability of the Company's  computers,  or
those  of  its  material  vendors  and  customers,  to  properly  recognize  and
manipulate dates in the Year 2000 ("Y2K").  The Company's  evaluation of the Y2K
problem  included the  assessment of its computer  systems and its equipment and
other systems that are controlled or monitored by computers or embedded computer
chips,  and the ability of its critical  vendors and  customers to ensure timely
delivery of goods and services and payment of invoices,  respectively.  In March
1997, the Company installed a  fully-integrated  Y2K compliant  computer system.
Tests during 1998 and 1999  confirmed that all mission  critical  modules of its
computer  system were Y2K  compliant.  The Company  also tested each desktop and
portable  computer and each piece of equipment  containing an embedded  computer
chip, and confirmed  empirically that each computer and its associated  software
and each piece of equipment  would function  properly with dates  occurring both
before and after 2000.

         In 1998, the Company  established a Y2K Compliance  Committee to assess
the impact of the Y2K problem on the  Company's  business  and to ensure its Y2K
compliance.  The Committee is co-chaired by the Vice President for Legal Affairs
and the Management  Information Systems Manager, and consists of representatives
from all major  departments  and all facilities  within the Company.  Management
committed all resources,  both financial and personnel,  reasonably necessary to
achieve Y2K compliance  and/or  implementation  of contingency  plans for events
outside its control. The Company does not believe that the costs it has incurred
to date or currently expects to incur in future periods are or will be material,
in the  aggregate,  primarily  because  these  costs were or will be incurred in
connection with projects begun before,  and/or  budgeted  without regard to, the
Company's Y2K compliance efforts.

         Although the Company  believes it is fully Y2K compliant,  there can be
no assurance that the Company has successfully  identified all systems,  vendors
or  customers  which are not Y2K  compliant,  that the Company  will not have to
increase significantly its expenditures relating to any such non-compliance,  or
that  its  business  will  not be  materially  adversely  affected  by any  such
non-compliance.

                                      -16-


<PAGE>
ITEM 7A.          Quantitative and Qualitative Disclosures About Market Risk

         The Company  finances the purchase of  production  equipment  and other
capital  expenditures  through long- term debt and/or capital leases. The stated
or implicit  interest rates on such  obligations  are generally  fixed. In those
instances  where rates are  variable,  the Company will  generally  fix the rate
through an interest rate swap agreement. The majority of the Company's long term
debt is its  revolving  line of credit,  which is exposed to changes in interest
rates.  The Company  believes  that  changes in  interest  rates will not have a
material effect on operations.

         The Company does not have any sales,  purchases,  assets or liabilities
denominated in currencies other than the U.S. dollar, and as such is not subject
to foreign currency exchange rate risk.



                                      -17-



ITEM 8.           Financial Statements and Supplementary Data

                                                                            Page

Independent Auditors' Report.................................................F-1
Consolidated Balance Sheets as of December 31, 1999
         and 1998............................................................F-2
Consolidated Statements of Income for the years ended
         December 31, 1999, 1998, and 1997...................................F-3
Consolidated Statements of Stockholders' Equity for
         the years ended December 31, 1999, 1998, and 1997...................F-4
Consolidated Statements of Cash Flows for the years ended
         December 31, 1999, 1998 and 1997....................................F-5
Notes to Consolidated Financial Statements...................................F-6

Schedule II:
Valuation and Qualifying Accounts for the years ended
         December 31, 1999, 1998 and 1997...................................F-23




                                      -18-

<PAGE>














                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                        Consolidated Financial Statements

                           December 31, 1999 and 1998

                   (With Independent Auditors' Report Thereon)








<PAGE>
                          Independent Auditors' Report


The Board of Directors
      and Stockholders
Disc Graphics, Inc.:


We have audited the accompanying  consolidated  balance sheets of Disc Graphics,
Inc.  and  subsidiaries  as of  December  31,  1999 and  1998,  and the  related
statements of income,  stockholders' equity and cash flows for each of the years
in the three-year  period ended December 31, 1999. In connection with our audits
of the  consolidated  financial  statements,  we have also audited the financial
statement  schedule  as listed in the  accompanying  index.  These  consolidated
financial  statements and financial statement schedule are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
consolidated  financial statements and financial statement schedule based on our
audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Disc Graphics,  Inc.
and  subsidiaries  as of December  31,  1999 and 1998,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December  31,  1999 in  conformity  with  generally  accepted  accounting
principles.  Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.



                                        /s/ KPMG LLP
                                        ------------
                                        KPMG LLP

Melville, New York
February 2, 2000, except for
Notes 8(a) and 9, which are as of February 29, 2000








                                      -F1-


<PAGE>
                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                           December 31, 1999 and 1998

<TABLE>

                                                                                     1999                    1998
                                                                                     ----                    ----
                            Assets

Current assets:
<S>                                                                           <C>                          <C>
      Cash                                                                    $    142,531                 43,313
      Accounts receivable, net of allowance for doubtful accounts
           of $1,418,000 and $1,332,000, respectively                           13,579,201             12,721,102
      Inventories                                                                4,428,374              2,379,627
      Prepaid expenses and other current assets                                    448,364                271,462
      Deferred income taxes                                                      1,092,000                963,000
                                                                                ----------                -------
                       Total current assets                                     19,690,470             16,378,504

Plant and equipment, net                                                        14,574,393              9,997,743
Goodwill, net of amortization of $499,000 and $222,000, respectively             6,247,588              1,265,210
Covenants not to compete, net of amortization of $144,000 and $24,000,
     respectively                                                                  956,236                 76,237
Security deposits and other assets                                               1,039,119                653,847
                                                                                ----------                -------
                       Total assets                                          $  42,507,806             28,371,541
                                                                             =============             ==========

          Liabilities and Stockholders' Equity
          ------------------------------------

Current liabilities:
      Current maturities of long term debt                                    $    564,425                236,561
      Current maturities of capitalized lease obligations payable                1,287,753              1,433,328
      Accounts payable and accrued expenses                                      8,125,209              5,208,478
      Income taxes payable                                                         590,104                815,952
                                                                                  --------                -------
                       Total current liabilities                                10,567,491              7,694,319

Long term debt, less current maturities                                         11,309,675              1,468,950
Capitalized lease obligations payable, less current maturities                   2,604,586              3,944,868
Deferred income taxes                                                            1,579,000              1,323,000
                                                                                ----------              ---------
                       Total liabilities                                        26,060,752             14,431,137

Stockholders' equity:
      Preferred stock:
           $.01 par value; authorized 5,000 shares; no shares issued
               and outstanding                                                    - - - -                 - - - -
      Common stock:
           $.01 par value; authorized 20,000,000 shares; issued
               5,548,761 shares                                                     55,488                 55,488
      Additional paid in capital                                                 5,009,671              5,009,671
      Retained earnings                                                         11,413,501              8,906,581
                                                                                -----------             ---------
Less:                                                                           16,478,660             13,971,740
      Treasury stock, at cost, 30,409 and 30,349 shares at
          December 31, 1999 and December 31, 1998, respectively                    (31,606)               (31,336)
                                                                                -----------               --------
                       Total stockholders' equity                               16,447,054             13,940,404
                                                                                -----------            ----------
                       Total liabilities and stockholders' equity            $  42,507,806             28,371,541
                                                                             =============             ==========



                                    See accompanying notes to Consolidated Financial Statements.

                                                                F-2

</TABLE>
<PAGE>

  <TABLE>
                                                       DISC GRAPHICS, INC.
                                                          AND SUBSIDIARIES

                                                  Consolidated Statements of Income

                                            Years ended December 31, 1999, 1998, and 1997



                                                                  1999                    1998                    1997
                                                                  ----                    ----                    ----
<S>                                                          <C>                          <C>                     <C>
Net sales                                                    $    67,987,941              58,881,533              48,444,890
Cost of sales                                                     50,697,468              43,082,081              35,751,899
                                                                  -----------             -----------             ----------
             Gross profit                                         17,290,473              15,799,452              12,692,991

Operating Expenses:
        Selling and shipping                                       6,804,982               6,018,562               4,426,729
        General and administrative                                 5,555,369               4,531,620               4,056,293
                                                                   ----------              ----------              ---------
             Operating income                                      4,930,122               5,249,270               4,209,969

Interest expense, net                                                747,202                 633,512                 612,181
Gain on disposal of equipment                                          ----                  149,669                   ----
                                                                    ---------                -------

Income before provision for income taxes                           4,182,920               4,765,427               3,597,788

Provision for income taxes                                         1,676,000               1,901,000               1,439,000
                                                                   ----------              ----------              ---------
        Net income                                           $     2,506,920               2,864,427               2,158,788
                                                                   ==========              ==========              =========
        Net income per share:
             Basic                                           $          0.45                    0.52                    0.40
                                                                       =====                    ====                    ====
             Diluted                                         $          0.45                    0.52                    0.40
                                                                       =====                    ====                    ====

        Weighted average number of shares outstanding

             Basic                                                 5,518,361               5,474,444               5,387,240

             Diluted                                               5,540,265               5,492,050               5,397,130



                                    See accompanying notes to Consolidated Financial Statements.

                                                                F-3

</TABLE>
<PAGE>

<TABLE>
                                                         DISC GRAPHICS, INC.
                                                          AND SUBSIDIARIES

                                           Consolidated Statements of Stockholders' Equity

                                            Years ended December 31, 1999, 1998, and 1997




                                Preferred stock         Common Stock             Additional
                                ---------------         ------------             paid in      Retained       Treasury
                             Shares     Amount      Shares          Amount       capital      earnings        Stock       Total
                             ------     ------      ------          ------       -------      --------        -----       -----

<S>                          <C>       <C>          <C>           <C>           <C>           <C>           <C>           <C>
Balance, December 31, 1996     ----    $   ----     5,378,518     $   53,786    5,051,555     3,883,366     (24,661)      8,964,046

Shares issued in connection
with an acquisition            ----        ----        10,499            105       37,395          ----        ----          37,500

Shares issued in connection
with warrant exchange offer    ----        ----        51,239            512      (44,016)         ----        ----         (43,504)

Purchase of treasury stock      ----       ----          ----           ----          ----         ----      (5,154)         (5,154)

Net income                      ----       ----          ----           ----          ----    2,158,788         ---       2,158,788
                            ---------  --------- --------------   ----------- ------------- -------------  -----------   -----------

Balance, December 31, 1997      ----       ----     5,440,256         54,403    5,044,934     6,042,154     (29,815)     11,111,676

Shares issued in connection
    warrants exchanged          ----       ----       108,505          1,085       (1,085)         ----        ----          ----

Purchase of treasury stock      ----       ----          ----           ----          ----         ----      (1,521)         (1,521)

Purchase of warrants            ----       ----          ----           ----      (34,178)         ----        ----         (34,178)

Net income                      ----       ----          ----           ----          ----    2,864,427        ----       2,864,427
                            ---------  --------- --------------   ----------- ------------- -------------  ----------- -------------

Balance, December 31, 1998      ----       ----      5,548,761        55,488    5,009,671     8,906,581     (31,336)     13,940,404

Purchase of treasury stock      ----       ----          ----           ----          ----         ----        (270)           (270)

Net income                      ----       ----          ----           ----          ----    2,506,920       ----        2,506,920
                            ---------  --------- --------------   ----------- ------------- -------------  ----------- -------------

Balance, December 31, 1999      ----   $   ----      5,548,761    $   55,488    5,009,671    11,413,501     (31,606)     16,447,054
                            =========  =========     =========        ======    =========    ==========     =======      ==========



                                    See accompanying notes to Consolidated Financial Statements.

                                                                F-4
</TABLE>
<PAGE>
<TABLE>

                                                         DISC GRAPHICS, INC.
                                                          AND SUBSIDIARIES

                                                Consolidated Statement of Cash Flows

                                            Years ended December 31, 1999, 1998, and 1997


                                                                   1999                   1998                   1997
                                                                   ----                   ----                   ----

Cash flows from operating activities:
<S>                                                             <C>                       <C>                    <C>
     Net income                                                 $  2,506,920              2,864,427              2,158,788
     Adjustments  to  reconcile  net income
          to net cash  provided  by  operating activities:
           Depreciation and amortization                           2,477,667              2,216,705              2,124,596
           Deferred income tax                                       127,000                161,000                 89,000
           Provision for doubtful accounts                           422,721                402,470                526,548
           Gain on disposal of equipment                                ----               (149,669)                  ----
           Changes in assets and liabilities, net of the
           effect of business acquired:
                 Accounts receivable                                (210,400)            (1,425,208)            (2,515,895)
                 Inventory                                        (1,857,906)              (472,933)               322,582
                 Prepaid expenses and other current assets           (46,677)                57,458                269,381
                 Accounts payable and accrued expenses             1,641,772                201,406               (731,561)
                 Income taxes payable                               (225,848)               306,025               (444,161)
                 Security deposits and other assets                 (302,272)              (470,413)                54,768
                                                                   ----------             ----------             ----------
                 Net cash provided by operating activities         4,532,977              3,691,268              1,854,046
                                                                   ----------             ----------             ----------

Cash flows from investing activities:
     Capital expenditures                                         (5,722,182)            (1,025,613)            (2,419,829)
     Purchase of net assets of business acquired                  (3,581,806)                18,211               (206,497)
     Proceeds from sale of equipment                                    ----                166,900                 55,200
                                                               --------------         --------------         --------------

                 Net cash used in investing activities            (9,303,988)              (840,502)            (2,571,126)
                                                                  ----------               --------             ----------

Cash flows from financing activities:
     Proceeds (repayments) of long-term debt                       6,356,356             (1,714,160)              (953,608)
     Principal proceeds from notes receivable                           ----                 40,406                 43,261
     Proceeds from capital lease obligations                            ----                745,549              2,524,917
     Principal payments of capital lease obligations              (1,485,857)            (1,875,302)              (847,938)
     Purchase of warrants                                               ----                (34,178)                  ----
     Purchase of treasury stock                                         (270)                (1,521)                (5,154)
                                                               --------------         --------------         --------------
     Expenses incurred in relation to the exchange offer                ----                   ----                (43,504)
                                                               --------------         --------------         --------------

     Net cash provided by (used in) financing activities           4,870,229             (2,839,206)                717,974
                                                               --------------         --------------         --------------

Net increase in cash                                                  99,218                 11,560                    894

Cash at beginning of year                                             43,313                 31,753                 30,859
                                                               --------------         --------------         --------------
Cash at end of year                                            $     142,531                 43,313                 31,753
                                                               ==============         ==============         ==============





                                    See accompanying notes to Consolidated Financial Statements.

                                                                F-5
</TABLE>
<PAGE>



                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


(1)      Summary of Significant Accounting Policies
         ------------------------------------------

          (a)   Description of Business
               -----------------------

          Disc Graphics,  Inc. and subsidiaries (the "Company")  operates in one
          business segment:  printing and manufacturing of paperboard packaging.
          The Company's customers include music, home video,  pharmaceutical and
          general consumer products  companies.  The Company's business has been
          moderately  seasonal.  This seasonality is primarily the result of the
          music and home  video  products  which  are sold  between  August  and
          October for the holiday season.

          (b)  Principles of Consolidation
               ---------------------------

          The consolidated financial statements include the financial statements
          of the  Company and its  wholly-owned  subsidiaries.  All  significant
          inter-company  balances  and  transactions  have  been  eliminated  in
          consolidation.

          (c)  Revenue Recognition
               -------------------

          Revenues are recognized when merchandise is shipped.

          (d)  Cash Equivalents
               ----------------

          For purposes of the  statements of cash flows,  the Company  considers
          all highly liquid debt instruments purchased with an original maturity
          of three  months or less to be cash  equivalents.  There  were no cash
          equivalents in 1997, 1998 and 1999.

          (e)  Inventories
               -----------

          Inventories  are  stated  at the  lower  of  cost or  market.  Cost is
          determined using the first-in, first-out (FIFO) method.

          (f)  Property, Plant and Equipment
               -----------------------------

          Plant  and   equipment   are  recorded  at  cost.   Depreciation   and
          amortization are charged to operations using the straight-line  method
          over the following estimated useful lives:

                    Building                            30 years
                    Machinery and equipment             3 to 11 years
                    Furniture and fixtures              3 to 7 years
                    Automobiles and trucks              3 to 5 years
                    Leasehold improvements              2 to 10 years



                                      -F6-


<PAGE>


                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998

          Capitalized  values of assets  under  leases  are  amortized  over the
          lesser of the term of the lease or the  estimated  life of the  asset,
          depending upon the provisions of the lease.

          (g)   Goodwill
               --------

          Goodwill,  which  represents  the excess of  purchase  price over fair
          value of net assets  acquired,  is amortized on a straight-line  basis
          over a period of 15 years. The Company assesses the  recoverability of
          this intangible  asset by determining  whether the amortization of the
          goodwill  balance over its  remaining  life can be  recovered  through
          undiscounted  future  operating cash flows of the acquired  operation.
          The  amount of  goodwill  impairment,  if any,  is  measured  based on
          projected discounted future operating cash flows using a discount rate
          reflecting the Company's  average cost of funds. The assessment of the
          recoverability  of  goodwill  will be  impacted  if  estimated  future
          operating cash flows are not achieved.

          (h)  Income Taxes
               ------------

          Income taxes are accounted  for under the asset and liability  method.
          Deferred tax assets and  liabilities are recognized for the future tax
          consequences   attributable  to  differences   between  the  financial
          statement  carrying  amounts of existing  assets and  liabilities  and
          their  respective tax bases.  Deferred tax assets and  liabilities are
          measured  using enacted tax rates  expected to apply to taxable income
          in the years in which those  temporary  differences are expected to be
          realized or settled. The effect on deferred tax assets and liabilities
          of a change in tax rates is  recognized  in income in the period  that
          includes the enactment date.

          (i)  Net Income Per Share
               --------------------

          Basic earnings per share are computed by dividing income  available to
          common stockholders (which, for the Company, equals its net income) by
          the weighted  average number of common shares  outstanding  during the
          period. Diluted earnings per share reflect the potential dilution that
          would  occur if all  securities  exercisable  or  exchangeable  for or
          convertible into shares of common stock that were  outstanding  during
          the  period,   such  as  stock  options,   warrants  and   convertible
          debentures,  were  exercised or converted into shares of common stock.
          The  computation of weighted  average shares  outstanding  used in the
          calculation  of diluted  earnings per share does not include shares of
          common stock that would be issuable upon the exercise of the Company's
          outstanding  Class A Warrants  or the  conversion  of the  convertible
          debenture,  because  the  exercise  price  of  such  warrants  and the
          conversion  rate of such  debentures  exceeded the market price of the
          Company's common stock during the relevant periods.




                                      -F7-

<PAGE>


                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998


          (j)  Stock Option Plan
               -----------------

          The Company  records  compensation  expense for employee stock options
          only if the current market price of the  underlying  stock exceeds the
          exercise  price on the date of the grant.  The Company has elected not
          to implement the fair value based accounting method for employee stock
          options,  but has elected to disclose  the pro forma net  earnings and
          pro forma  earnings per share for employee  stock option  grants as if
          such  method had been used to  account  for  stock-based  compensation
          cost.

          (k)  Impairment  of Long  Lived  Assets  and Long  Lived  Assets to Be
               Disposed Of
               -----------------------------------------------------------------

          The  Company  reviews  long-lived  assets  and  certain   identifiable
          intangibles for impairment whenever events or changes in circumstances
          indicate that the carrying  amount of an asset may not be recoverable.
          Recoverability  of  assets  to be  held  and  used  is  measured  by a
          comparison of the carrying amount of an asset to future net cash flows
          expected to be generated by the asset.  If such assets are  considered
          to be impaired,  the  impairment  to be  recognized is measured by the
          amount by which the  carrying  amount of the  assets  exceed  the fair
          value of the  assets.  Assets to be  disposed  of are  reported at the
          lower of the carrying amount or fair value less costs to sell.

          (l)  Comprehensive Income
               --------------------

          Effective  January 1, 1998, the Company adopted Statement of Financial
          Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income",
          which   established   standards  for  the  reporting  and  display  of
          comprehensive  income and its components  with the same  prominence as
          other items in annual consolidated  financial statements.  The Company
          has no elements of other  comprehensive  income other than net income;
          therefore, comprehensive income equals reported net income.

          (m)  Use of Estimates
               ----------------

          Management  of  the  Company  has  made  a  number  of  estimates  and
          assumptions  relating to the reporting of assets and  liabilities  and
          the disclosure of contingent assets and liabilities at the date of the
          financial statements and the reported amounts of revenues and expenses
          during the reporting  period to prepare these financial  statements in
          conformity  with  generally  accepted  accounting  principles.  Actual
          results could differ from those estimates.

          (n)  Reclassifications
               -----------------

          Reclassifications  have been made to the prior years'  presentation to
          conform with the current year's presentation.





                                      -F8-


<PAGE>


                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998


(2)      Acquisitions

     (a) Contemporary Color Graphics, Inc.
         ---------------------------------

          On July 1, 1999, the Company acquired  substantially all of the assets
          and certain  liabilities of Contemporary  Color Graphics,  Inc., a New
          York  based  commercial  printer  ("CCG")  for  $3,500,000  in cash at
          closing, a promissory note in the amount of $1,000,000, a supplemental
          note in the amount of $1,000,000, convertible debentures in the amount
          of $600,000 and assumed debt of approximately  $1,200,000,  subject to
          adjustment.  See Note 8 for further  information  regarding the notes,
          debentures and debt assumed.  The Company paid the cash portion of the
          purchase price from borrowings  under its revolving  credit  facility.
          The  acquisition  was  accounted  for  using  the  purchase  method of
          accounting  and  in  accordance  with  generally  accepted  accounting
          principles.

          Purchase price (including transaction
              costs of $82,000, excluding
              assumed liabilities)                                  $ 6,182,000

          Net assets of business acquired, at cost      37,200
              Fair value adjustment of
              plant and equipment                     (114,500)
                                                      ---------
                                                                        (77,300)
                                                                        -------
                                                                      6,259,300
          Allocated to:
              Covenant not to compete                                 1,000,000
                                                                       ---------
              Excess of cost over fair value
                        of business acquired                       $  5,259,300
                                                                      =========















                                      -F9-

<PAGE>


                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998


          The  following  unaudited  pro forma  results  have been  prepared for
          comparative  purposes only and include certain adjustments such as (i)
          additional  amortization  expense due to  goodwill  (15 years) and the
          covenant not to compete (5 years)  resulting from the CCG  acquisition
          and (ii)  increased  interest  expense due to cash borrowed  under the
          Company's  financing  agreement for the payment of the purchase price,
          the repayment of CCG's notes payable and the note,  supplemental  note
          and convertible  debenture issued by the Company.  These unaudited pro
          forma  results  are  not  necessarily  indicative  of the  results  of
          operations  which  actually  would have resulted had the purchase been
          effected on January 1, 1998,  nor of future  results of  operations of
          the consolidated entities.

                                                 1999                    1998
                                                 ----                    ----
                                        (In thousands, except per share amounts)

          Net sales                         $  71,606                  66,350
          Net income                            2,307                   2,874
          Net income per share:
               Basic                              .42                     .52
               Diluted                            .42                     .52

     (b)  Benham
          ------

          On October 24, 1997,  the Company  acquired  substantially  all of the
          assets and certain liabilities of Benham Press, Inc., an Indiana based
          printing company  ("Benham"),  for approximately  $87,000 in cash, the
          issuance  of  10,499  shares  of the  Company's  common  stock and the
          assumption  of  certain   liabilities   associated  with   outstanding
          borrowing under a line of credit  agreement and notes payable totaling
          approximately $2,637,000. The Company liquidated such liabilities with
          additional  borrowings under the Company's line of credit. The Company
          recorded  the  value  of the  10,499  shares  of  common  stock at the
          estimated  fair  value  of  $37,500  at the date of  acquisition.  The
          results of operations of Benham have been included in the accompanying
          financial statements from the date of acquisition. The acquisition was
          accounted for using the purchase method of accounting.














                                      -F10-

<PAGE>

                              DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998


          The allocation of the purchase price of Benham was as follows:

               Purchase price:
                Cash                                                $    87,043
                Common stock                                             37,500
                Transaction costs                                       101,242
                                                                      ---------
                                                                        225,785

               Net deficit of business acquired (fair value of
                tangible assets and liabilities acquired
                approximated carrying value)                           (247,752)
                                                                       ---------
                                                                        473,537
               Allocated to:
                Covenant not to compete                                 100,000
                                                                       ---------
                Excess of cost over fair value of business
                  acquired                                          $   373,537
                                                                      =========

         The  effect  of  Benham's  operations  to  the  consolidated  financial
         statements  for the year ended  December  31, 1997 was not material and
         therefore pro forma financial information is not presented.

     (3) Supplemental Cash Flow Information
         -----------------------------------

         The following is supplemental  information relating to the consolidated
statements of cash flows:

                                      1999              1998             1997
                                      ----              ----             ----
     Cash paid during the year for:
      Interest                      $ 737,073         664,586          581,162

      Income taxes                $ 1,774,848       1,448,500        1,986,692


(4)      Covenants Not to Compete
         ------------------------

         In 1999, the Company  obtained  non-compete  agreements from the former
         owners  in  connection   with  the  CCG   acquisition. The  non-compete
         agreements were valued at $1,000,000.  The  non-compete  agreements are
         being  amortized over their term of five years using the  straight-line
         method.  Amortization  of these  covenants  not to compete  amounted to
         $100,000 for the year ended December 31, 1999.

         In 1997,  the Company  obtained a  non-compete  agreement in connection
         with the acquisition of Benham. The non-compete agreement was valued at
         $100,000. The non-compete agreement is being amortized over its term of
         five years using the straight-line method. Amortization of the covenant
         not to compete  amounted to  $20,000,  $20,000 and $3,760 for the years
         ended December 31, 1999, 1998 and 1997, respectively.



                                      -F11

<PAGE>
                              DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998




(5)  Inventories
     -----------

     Inventories consist of the following:

                                               1999                1998
                                               ----                ----

         Raw materials                    $ 3,477,610           1,577,349
         Work-in-process                      700,981             659,552
         Finished goods                       249,783             142,726
                                           ------------        ----------

                                          $ 4,428,374           2,379,627
                                            =========           =========

(6)  Property,  Plant and Equipment
     ---------  -------------------

     Property, plant and equipment consist of the following:

                                               1999                1998
                                               ----                ----

         Land and building                $    550,000             550,000
         Machinery and equipment            21,249,849          15,145,272
         Furniture and fixtures              1,731,718           1,290,616
         Leasehold improvements              1,472,713           1,390,758
         Automobiles and trucks                222,328             217,565
                                          ------------        ------------
                                            25,226,608          18,594,211


         Less accumulated depreciation
               and amortization             10,652,215           8,596,468
                                            ------------         -----------

                                          $ 14,574,393           9,997,743
                                           ===========          ===========

         Depreciation and amortization expense of property, plant, and equipment
         amounted to  $2,076,563,  $2,078,554 and $2,020,999 for the years ended
         December 31, 1999, 1998, and 1997, respectively.











                                      -F12-



<PAGE>

                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998



(7)  Accounts Payable and Accrued Liabilities
     ----------------------------------------

     Accrued  liabilities  at  December  31,  1999  and  1998  consisted  of the
     following:

                                                         1999            1998
                                                         ----            ----

     Accounts payable and accrued accounts payable    $ 4,275,144      2,373,626
     Accrued payroll and other employee benefits        2,582,444      1,610,996
     Accrued vacation                                     396,688        438,342
     Accrued commissions                                  643,773        549,049
     Accrued other                                        227,160        236,465
                                                       ----------      ---------

                                                      $ 8,125,209      5,208,478
                                                       ==========      =========

(8)  Long Term Debt
     --------------

     Long Term Debt is summarized as follows:
                                                          1999            1998
                                                          ----            ----

       Revolving line of credit (a)                  $  7,750,000        870,000
       Promissory note (b)                              1,000,000           ----
       Supplemental note (c)                            1,041,650           ----
       Convertible debenture (d)                          600,000           ----
       Secured equipment financing notes (e)              883,500           ----
       Mortgage payable (f)                               545,625        613,125
       Various secured equipment financing
                notes (g)                                  53,325        177,273
       6.36% Promissory note (h)                            ----          45,113
                                                      ------------       -------
                                                       11,874,100      1,705,511
       Less current maturities                            564,425        236,561
                                                    -------------       --------

                                                     $ 11,309,675      1,468,950
                                                       ==========    ===========











                                      -F13-


<PAGE>
                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998



     (a)  In February, 1997, the Company entered into a financing agreement with
          Key Bank,  N.A., now known as the Dime Savings Bank of New York,  FSB,
          as amended on December 1, 1998 (the  "Credit  Agreement").  The Credit
          Agreement  provides  the  Company  with  the  option  to  convert  the
          outstanding  balance at  February  21, 2001 to a fixed term loan to be
          repaid over four years.  The  revolving  credit  portion of the Credit
          Agreement provides financing (as defined),  not to exceed $10,000,000.
          The Credit  Agreement  bears interest at the lower of LIBOR plus 1.00%
          to 1.50%,  based on the debt coverage  ratio, or the bank's base rate.
          At December 31, 1999 the base rate was 8.50%.  The Credit Agreement is
          secured by substantially  all of the Company's  unsecured  assets.  In
          addition,  the Credit Agreement contains various covenants,  including
          the maintenance of certain  financial ratios,  including  consolidated
          net worth, working capital, debt service, and funded debt to EBITDA.

          At December 31, 1999,  the Company was not in compliance  with certain
          covenants of the Credit  Agreement.  On February 25, 2000, the Company
          renegotiated  certain provisions of the Credit Agreement.  The amended
          Credit Agreement allows for borrowing up to $15,000,000,  and contains
          revised  covenants  which  require  the  Company  to  satisfy  certain
          performance  criteria,  net worth levels and debt service ratios.  The
          amendment  also waived the Company's  noncompliance  with the original
          covenants.  At December 31, 1999,  the Company was in compliance  with
          the revised covenants.

     (b)  In  connection  with the  acquisition  of CCG,  the  Company  issued a
          $1,000,000  promissory note.  Principal on the promissory note must be
          paid in three  annual  installments  commencing  on  August  1,  2000.
          Interest  at a rate of 8.33% per annum on the note is paid  quarterly.
          The  principal  amounts of this note and the  debentures  referred  to
          below are subject to downward  adjustment if CCG does not meet certain
          minimum revenue  levels.  In the event such levels are not met and the
          principal amounts are reduced, goodwill will be adjusted accordingly.

     (c)  In  connection  with the  acquisition  of CCG,  the  Company  issued a
          $1,000,000  supplemental note. Principal on the supplemental note must
          be paid in two  annual  installments  commencing  on August  1,  2003.
          Interest at a rate of 8.33% per annum on the note must be paid on each
          principal  payment date.  Interest accrued on the supplemental note as
          of December 31, 1999 is $41,650.

     (d)  In  connection  with the  acquisition  of CCG,  the  Company  issued a
          $600,000 convertible debenture. The convertible debenture must be paid
          in three annual installments commencing on August 1, 2000. Interest at
          a rate of 8.33% per annum on the note is paid  quarterly.  The  former
          shareholders  of CCG have the right to  convert  the  debentures  into
          shares of the Company's common stock, not less than 30 days before any
          principal  or interest  payment  date at a rate of one share for every
          $5.50 of principal or interest.


                                      -F14-

<PAGE>

                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998

     (e)  Secured equipment financing note payable to a bank, payable in monthly
          installments  ranging  from  $9,700 in 1999 to $14,700  in 2006,  plus
          interest.  Interest is variable,  calculated at a rate of 1.75% points
          below the bank's  current index rate,  which was 8.50% at December 31,
          1999. The current  interest rate for this note as of December 31, 1999
          was 6.75%.

     (f)  In connection  with the  acquisition of Benham,  the Company secured a
          mortgage with a lending  institution in the amount of $675,000 for the
          building  and land  acquired.  The mortgage is payable over ten years,
          commencing March 1, 1998, at a fixed rate of 8.125%.  This mortgage is
          secured by a first lien on the premises and an assignment of rents and
          leases on the premises.

     (g)  Various  secured  equipment  financing  notes,  which are  payable  in
          various monthly  installment  amounts aggregating $12,000 and $12,400,
          respectively,  including  interest at 8.2%  maturing from October 1999
          through September 2000 secured by equipment with an aggregate net book
          value of approximately $390,000 at December 31, 1999.

     (h)  In connection  with an  acquisition,  the Company  issued a promissory
          note  in  the  amount  of  $330,000  (principal  and  interest).   The
          promissory note was fully repaid in 1999.

          The aggregate  maturities of long-term debt outstanding as of December
          31 for each of the five years  subsequent to 1999,  including  amounts
          outstanding  under the Credit Agreement,  are as follows:  $564,425 in
          2000;  $839,500  in  2001;  $2,388,022  in 2002;  $2,548,260  in 2003;
          $2,772,335 in 2004; $2,761,558 thereafter.

(9)  Leases
     ------

          The Company is  obligated  under  several  capital  leases for certain
          machinery and  equipment  that expire at various dates during the next
          six years.  At December  31, 1999 and 1998,  the gross amount of plant
          and  equipment and related  accumulated  amortization  recorded  under
          capital leases were as follows:

                                                 1999                     1998
                                                 ----                     ----

          Machinery and equipment            $ 7,921,301               7,921,301
          Less accumulated amortization        2,824,867               2,051,589
                                              ----------              ----------
                                             $ 5,096,434               5,869,712
                                               =========               =========

         The Company  occupies its  premises  pursuant to a lease with a related
         party expiring  December 31, 2007, with a five year renewal option (see
         note 13). The lease provides for annual  rentals,  as defined,  payable
         monthly, as well as payments for a share of maintenance, insurance, and
         real  estate  taxes.  The  Company  is  also  obligated  under  various
         non-cancelable equipment leases.

         Rent expense under  operating  leases for the years ended  December 31,
         1999,  1998  and  1997  was  $1,178,058,  $1,162,154,  and  $1,034,416,
         respectively.

                                      -F15-



<PAGE>
                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998


         Future  minimum lease payments under  non-cancelable  operating  leases
         (with  initial  remaining  lease  terms in  excess of one year) and the
         present value of future  minimum  capital lease payments as of December
         31, 1999 are:
                                                Capital                Operating
                                                Leases                  Leases
          Year ending December 31:
                 2000                      $  1,542,991              $  910,586
                 2001                         1,122,786                 605,657
                 2002                           781,570                 474,776
                 2003                           350,100                 391,461
                 2004                           350,100                 349,797
                 2005 and thereafter            262,575                 696,000
                                             ----------               ----------
           Total minimum lease payments       4,410,122               3,428,277

           Less amount representing
            interest (at rates ranging
            from 5.9% to 10.5%)                 517,783
                                             -----------

           Net principal portion              3,892,339
           Less portion due within one year   1,287,753
                                             ----------

            Long-term portion               $ 2,604,586
                                             ==========

          Liabilities under certain capital leases are personally  guaranteed by
          the President and two Vice-Presidents of the Company.

          In 1998, the Company traded in a printing press,  which was previously
          financed  by an  equipment  note  through  GE Capital  Public  Finance
          ("GECPF"),  for a new  press.  The  carrying  value of the old  press,
          approximately  $1,489,000,  approximated the related  obligation,  and
          accordingly  no gain or loss was  recognized.  In connection  with the
          transaction,  the  Company  entered  into a seven year  capital  lease
          arrangement with the Suffolk County Industrial Development Association
          ("SCIDA") and GECPF.  The lease contains certain  provisions  limiting
          the Company's capital  expenditures in Suffolk County and certain debt
          covenants  consistent with those contained in the Company's  revolving
          credit  agreement with Key Bank, NA. The initial carrying value of the
          new press  and the net  present  value of the  related  capital  lease
          obligation  was   $2,003,657.   On  February  29,  2000,  the  Company
          refinanced  the  lease  with  GECPF  by  entering  into a  seven  year
          promissory  note  arrangement  that does not contain the same  capital
          expenditure provisions, or debt covenants, as the SCIDA lease.

          In  1998,  the  Company  also  converted  three of its  capital  lease
          obligations  with  variable  rates to fixed rates  through an interest
          rate swap agreement with an affiliate of the lessor. The present value
          of these three leases as of December 31, 1999, was $1,466,885.


                                      -F16-


<PAGE>


                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998


(10)     Stockholders' Equity
         --------------------

         (a)      Stock Options
                  -------------

                  Pursuant to the  Company's  1995  Incentive  Stock Option Plan
                  (the "Plan"),  an aggregate of 500,000 shares of the Company's
                  Common Stock are  reserved  for issuance  upon the exercise of
                  options granted pursuant to the Plan. Officers, key employees,
                  directors and certain  consultants and advisors to the Company
                  are eligible to  participate  in the Plan.  The Plan may issue
                  incentive  stock  options  and  nonqualified   stock  options.
                  Options are  granted at the market  price on the date of grant
                  and expire in five or ten years.  The  duration  of any option
                  granted under this Plan must be fixed by the  Incentive  Stock
                  Option  Committee in its sole  discretion and no option may be
                  exercised  until at least six months  after the date of grant.
                  At December 31, 1999,  there were  195,476  additional  shares
                  available for grant under the Plan.

         Changes in options outstanding are as follows:


                                                                Weighted-average
                                               Shares             exercise price

         Outstanding December 31, 1996        123,500                  $ 3.51
         Granted                               52,000                    4.66
                                             --------

         Outstanding December 31, 1997        175,500                    3.85
         Granted                              110,145                    4.06
                                              -------

         Outstanding December 31, 1998        285,645                    3.93
         Granted                               18,879                    4.50
                                             --------

         Outstanding December 31, 1999        304,524                    3.97
                                              =======

         Exercisable at December 31, 1999     190,645                  $ 3.91
                                              =======                   =====

The weighted  average  remaining life of options  outstanding as of December 31,
1999, was 6.42 years.








                                      -F17-

<PAGE>


                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998

     The  assumptions  used in  determining  the weighted  average fair value of
     options granted are as follows:

                                                  1999         1998        1997
                                                  ----         ----        ----

     Weighted average fair value                $ 3.06         2.91         2.61
     Divided yield                               ----          ----         ----
     Risk free interest rate                     4.70%        5.73%        5.99%
     Stock volatility                              56%          59%          63%
     Expected option life                        10.00         9.77         5.19

     The Company  applies APB  Opinion  No. 25 in  accounting  for its Plan and,
     accordingly, no compensation cost has been recognized for its stock options
     in the financial statements.  Had the Company determined  compensation cost
     based on the fair value at the grant date for its stock  options under SFAS
     No. 123, the  Company's net income would have been reduced to the pro forma
     amounts indicated below:

                                      1999             1998              1997
                                      ----             ----              ----
        Net income:
           As reported            $ 2,506,920      2,864,427           2,158,788
           Pro forma              $ 2,395,469      2,744,554           2,116,869

        Net income per share:
           As reported: basic
               and diluted               $.45            .52                 .40
           Pro forma: basic
               and diluted               $.43            .50                 .39

         (b)      Warrants
                  --------

                  The Company  issued  1,242,105  Class A Warrants in connection
                  with its predecessor's initial public offering ("IPO").  These
                  warrants  expired on  November  9,  1999.  The  warrants  were
                  separable and tradable and each warrant entitled the holder to
                  purchase one share of the Company's  Common Stock at $5.50 per
                  share. The warrants were redeemable,  at the Company's option,
                  at a price of $.05 per warrant  provided the closing bid price
                  per share  equaled or exceeded  $9.50 for the 20 trading  days
                  within a period of 30  consecutive  trading  days prior to the
                  notice of redemption.

                  In 1997,  the Company made an exchange offer to holders of the
                  warrants.  Under the terms of the offer,  each warrant  holder
                  was  entitled to one share of the  Company's  Common Stock for
                  approximately every 8.5 warrants exchanged. The exchange offer
                  expired in August 1997.  During the exchange  period,  435,595
                  warrants were exchanged for 51,239 shares of Common Stock.  In
                  1998,  third  parties  exchanged  922,300 Class A Warrants for
                  108,505 shares of Common Stock, at a ratio similar to the 1997
                  exchange  offer.  During 1998,  100,000  Class A Warrants were
                  repurchased for $34,178.



                                      -F18-

<PAGE>


                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998





                  In connection with its predecessor's IPO, warrants to purchase
                  135,000 units were issued to the  underwriter  ("Underwriters'
                  Warrants").  The Underwriters'  Warrants were exercisable at a
                  price of $9.00 per unit,  with  each  unit  consisting  of one
                  share of the  Company's  Common Stock and two Class A Warrants
                  ("Units").  The Underwriter's  Warrants expired on November 9,
                  1999.

                  In connection with the Company's  merger with its predecessor,
                  warrants to  purchase  1,000,000  shares of Common  Stock were
                  issued at exercise prices ranging from $7.00 to $10.00.  These
                  warrants expire on November 9, 2002.

(11)     Notes Receivable-Stockholders
         -----------------------------

         In December  1991,  two Vice  Presidents  of the Company were  advanced
         $536,360  each in  exchange  for notes  receivable.  These  notes  were
         unsecured  and  provided  for  interest at 9%. The balance of the notes
         from the two Vice Presidents was repaid during 1997.

(12)     Income Taxes
         ------------

         The  provision  for  (benefit  of)  income  taxes for the  years  ended
         December 31, 1999, 1998 and 1997 consists of the following:




                                        1999              1998             1997
                                        ----              ----             ----
         Current
           Federal                   $ 1,268,000      1,484,000       1,204,000
           State                         281,000        256,000         324,000
                                      ----------     ----------      ----------

                                       1,549,000      1,740,000       1,528,000

         Deferred:
           Federal                        82,000        200,000         (79,000)
           State                          45,000        (39,000)        (10,000)
                                     -----------    ------------      ----------

                                         127,000        161,000         (89,000)
                                      ----------    -----------       ----------

                                     $ 1,676,000      1,901,000       1,439,000
                                       =========     ==========       =========

         The provision  for income taxes for the years ended  December 31, 1999,
         1998,  and 1997  differed  from the amounts  computed  by applying  the
         Federal income tax rate of 34% primarily as a result of state and local
         income taxes, net of Federal income tax benefits.





                                      -F19-


<PAGE>


                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998


The tax effects of temporary differences that give rise to a significant portion
of the net deferred tax liability at December 31, 1999 and 1998 are as follows:

                                                           1999          1998
                                                           ----          ----
     Deferred tax assets:
          Inventory valuation                         $   45,000         44,000
          Allowance for doubtful accounts                470,000        387,000
          Uniform cost capitalization for inventory       67,000         40,000
          Accrued vacation                               133,000        143,000
          Accrued salaries and commissions                57,000         68,000
          Sales return allowance                          48,000         30,000
          Investment tax credit carryforwards            613,000        457,000
                                                       ----------    ----------
              Total deferred tax assets                1,433,000      1,169,000

              Less valuation allowance                  (341,000)      (206,000)
                                                       ---------       ---------
              Net deferred tax assets                  1,092,000        963,000

     Deferred tax liability:
              Accelerated depreciation
                    for tax purposes                  (1,579,000)    (1,323,000)
                                                      -----------    -----------

                    Net deferred tax liability     $    (487,000)      (360,000)
                                                     ============    ===========


         The valuation allowance for deferred tax assets as of December 31, 1999
         and 1998 was $341,000 and $206,000, respectively. The net change in the
         total valuation  allowance for the years ended December 31, 1999 was an
         increase of $135,000.  In assessing the  realizability  of deferred tax
         assets,  management  considers  whether it is more likely than not that
         some  portion or all of the  deferred  tax assets will not be realized.
         The ultimate  realization  of deferred tax assets is dependent upon the
         generation of future  taxable  income during the periods in which those
         temporary  differences  become  deductible.  Management  considers  the
         scheduled  reversal  of  deferred  tax  liabilities,  projected  future
         taxable income, and tax planning  strategies in making this assessment.
         Based upon the level of historical  taxable income and  projections for
         future  taxable  income over the periods  which the deferred tax assets
         are deductible, management believes that it is more likely than not the
         Company will realize the benefits of these deductible differences,  net
         of the existing valuation allowances at December 31, 1999.

         At  December  31,  1999,  the  Company  has  available  New York  State
         investment tax credit carryforwards  aggregating approximately $908,000
         expiring through 2014.






                                      -F20-

<PAGE>


                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998

(13)     Related Party Transactions
         --------------------------

         The Company leases one of its operating facilities from an entity which
         is  owned  by  several  officers,  directors  and  stockholders  of the
         Company.  The lease is for a fifteen  year  term  expiring  in 2007 and
         requires  minimum annual rental  payments of $348,000.  Rentals paid to
         the entity were $348,000 in each of the years ended  December 31, 1999,
         1998 and 1997, and a security  deposit of $115,000 paid on the lease is
         included in security deposits and other assets at December 31, 1999.

(14)     Commitments and Contingencies
         -----------------------------

         In 1992, the Company entered into consulting agreements, as amended, to
         provide three of its  shareholders a minimum  annual  consulting fee of
         $37,333  through  August 31, 2001.  The  aggregate  expense under these
         agreements  was $111,999 in each of the years ended  December 31, 1999,
         1998 and 1997.

(15)     Benefit Plans
         -------------

         The Company  maintains an Employee  401(k)  Savings Plan. The plan is a
         defined  contribution  plan which is administered  by the Company.  All
         employees  are eligible for  voluntary  participation  upon  completing
         three  consecutive  months of service.  The plan provides for growth in
         savings  through  contributions  and  income  from  investments.  It is
         subject to the provisions of the Employee  Retirement  Income  Security
         Act of 1974  (ERISA),  as  amended.  Plan  participants  are allowed to
         contribute a specified  percentage  of their base  salary.  The Company
         matches  the  participants'  contributions  up  to a  maximum  of 2% of
         compensation.  The costs  related  to the plan  approximated  $224,000,
         $116,000,  and $124,000 for the years ended December 31, 1999, 1998 and
         1997, respectively.

(16)     Fair Value of Financial Instruments
         -----------------------------------

         The fair  value of a  financial  instrument  is the amount at which the
         instrument could be exchanged in a current  transaction between willing
         parties. The carrying values of all financial instruments classified as
         current assets or current  liabilities  are deemed to approximate  fair
         value  because  of the  short  maturity  of these  investments.  In the
         opinion of  management,  the fair values of long-term  debt and capital
         leases are not materially different from their carrying values based on
         the related interest rates compared to rates currently available to the
         Company.

(17)     Business and Credit Concentrations
         ----------------------------------

         Most of the Company's  customers are located in the United  States.  No
         one customer  accounted  for more than 10% of the  Company's  sales for
         1999,  1998,  and 1997.  At December 31, 1999 and 1998,  two  customers
         (aggregating  19%) and four customers  (aggregating 35%) each accounted
         for more than 5% of the net accounts receivable balance, respectively.



                                      -F21-


<PAGE>


                               DISC GRAPHICS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                           December 31, 1999 and 1998

         The  Company  generally  grants  credit  based  upon  analysis  of  the
         customer's  financial  position and previously  established  buying and
         selling patterns.

(18)     Unaudited Quarterly Financial Information

         The following is a summary of unaudited quarterly operating results for
         fiscal 1999 and 1998 (in thousands, except per share amounts):


                                                     1999
                                                     ----

                                     First    Second       Third       Fourth
                                   Quarter    Quarter     Quarter      Quarter
                                   -------    -------     -------      -------

          Net sales              $  14,895    14,708       18,972       19,413
          Gross profit               3,424     4,091        4,903        4,872
          Net income                   301       700          748          758
          Net income per share:
              Basic and diluted        .05       .13          .14          .14
                                       ===       ===          ===          ===

                                                      1998
                                                      ----

                                   First      Second       Third        Fourth
                                  Quarter     Quarter     Quarter       Quarter
                                  -------     -------     -------       -------

           Net sales             $ 12,612     14,306       15,674       16,290
           Gross profit             2,897      3,840        4,448        4,614
           Net income                 118        632          951        1,163


           Net income per share:
               Basic and diluted      .02        .12          .17          .21
                                      ===        ===          ===          ===

     Net income per share  calculations  for each of the  quarters  are based on
     weighted  average numbers of share  outstanding in each period.  Therefore,
     the sum of the  quarters  in a year does not  necessarily  equal the year's
     earnings per share.





                                      -F22-
<PAGE>
<TABLE>

                                                         DISC GRAPHICS, INC.

                                           SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS





               Col. A                                 Col. B           Col. C          Col. D         Col. E         Col. F

                                                   Balance at        Charged to                                       Balance at
                                                    Beginning         Cost and                                          End of
                Classification                      of Period          Expense       Deduction(1)      Other          Period
-----------------------------------------------  ---------------  ----------------- ----------------  ------------  ---------------

For the year ended December 31, 1997:
<S>                                              <C>                <C>            <C>                <C>            <C>
        Allowance for doubtful accounts          $  844,000         $527,000       $(229,000)         $20,000(2)     $1,162,000

For the year ended December 31, 1998:
        Allowance for doubtful accounts          $1,162,000         $403,000       $(233,000)                        $1,332,000

For the year ended December 31, 1999:
        Allowance for doubtful accounts          $1,332,000         $423,000       $(337,000)                        $1,418,000


</TABLE>











(1)       Deductions  relate to uncollectible  accounts charged off to valuation
          accounts,  net of  recoveries.

(2)       Allowance for doubtful accounts of acquired business.

                                      -F23-


<PAGE>

ITEM      9. Changes in and  Disagreements  With  Accountants  on Accounting and
          Financial Disclosure

           Not applicable.





                                      -19-



                                    PART III

         In accordance  with General  Instruction  G(3) to Form 10-K,  except as
indicated in the following sentence, the information called for by Items 10, 11,
12 and 13 is  incorporated  by reference to the  Registrant's  definitive  Proxy
Statement pursuant to Regulation 14A for the Registrant's 2000 Annual Meeting of
Stockholders.  As  permitted  by  General  Instruction  G(3)  to Form  10-K  and
Instruction 3 to Item 401(b) of  Regulation  S-K, the  information  on executive
officers called for by Item 10 is included in Part I of this Annual Report.


                                     PART IV

ITEM 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)               Documents filed with this Report:

          (1)       Financial  Statements.  (See Item 8 above.)  Disc  Graphics,
                    Inc. Consolidated Financial Statements for each of the three
                    years in the three-year period ended December 31, 1999.

          (2)       Financial Statement Schedules.  (See Item 8 above.) Schedule
                    II - Valuation and Qualifying Accounts

          (3)       Exhibits:  See  Exhibit  Index  included  elsewhere  in this
                    Report.

                    (b)       Reports  on Form 8-K.  No reports on Form 8-K were
                              filed by the Company  during the fourth quarter of
                              1999.

                    (c)       Exhibits.  See Exhibit Index included elsewhere in
                              this Report.

                    (d)       Financial  Statement  Schedules.  See  Items 8 and
                              14(a)(2) above.


                                      -20-

<PAGE>

                                  EXHIBIT INDEX
Exhibit           Description

   2                Agreement and Plan of Merger dated as of May 8, 1995 between
                    the  Registrant  and Old Disc  (filed as Exhibit  2.1 to the
                    Form  S-4  Registration  Statement,  Amendment  No.  1 dated
                    August 31, 1995 [File No. 33-94068]*).

   2.1              Asset  Purchase  Agreement  dated as of July 1, 1999, by and
                    among the  Registrant,  Contemporary  Color  Graphics,  Inc.
                    ("CCG") and the  shareholders of CCG named therein (filed as
                    Exhibit 2.1 to the Registrant's  Form 8-K dated July 1, 1999
                    and incorporated herein by reference).

   2.2              Promissory  Note dated July 1, 1999,  made by the Registrant
                    to CCG in  the  principal  sum of  $1.0  million  (filed  as
                    Exhibit 2.2 to the Registrant's  Form 8-K dated July 1, 1999
                    and incorporated herein by reference).

   2.3              Supplemental Note dated July 1, 1999, made by the Registrant
                    to CCG in  the  principal  sum of  $1.0  million  (filed  as
                    Exhibit 2.3 to the Registrant's  Form 8-K dated July 1, 1999
                    and incorporated herein by reference).

   2.4              Security Agreement dated July 1, 1999 between the Registrant
                    and CCG (filed as Exhibit 2.4 to the  Registrant's  Form 8-K
                    dated July 1, 1999 and incorporated herein by reference).

   2.5              Agreement of Amendment  dated July 1, 1999,  between KeyBank
                    National  Association  and the Registrant  (filed as Exhibit
                    2.5 to the  Registrant's  Form 8-K  dated  July 1,  1999 and
                    incorporated herein by reference).

   3.1              Restated  Certificate  of  Incorporation  of the  Registrant
                    (filed  as  Exhibit  4.a to the  Current  Report on Form 8-K
                    dated  October  27, 1995,  as  amended  by  the  Form  8-K/A
                    Amendment No. 1 thereto*).

   3.2              Amended and  Restated  By-Laws of the  Registrant  (filed as
                    Exhibit 3.2 to Form 8-A, filed June 21, 1996*).

   4.1              Redeemable  Warrant  Agreement  between the  Registrant  and
                    American Stock  Transfer & Trust Company,  as warrant agent,
                    including the form of Certificates  representing the Class A
                    Warrants (filed as Exhibit 4.3 to the Form S-1  Registration
                    Statement,  declared  effective  November  9, 1993 [File No.
                    33-62980]*).

   4.2              Form of Merger Warrants, with Schedule indicating particular
                    terms of each of 60  individual  warrants  (filed as Exhibit
                    4.f to the  Current  Report  on Form 8-K dated  October  27,
                    1995,  as  amended  by  the  Form  8-K/A   Amendment  No.  1
                    thereto*).

   4.3              1995  Incentive  Stock  Option Plan (filed as Exhibit 4.5 to
                    the Form S-4 Registration  Statement,  Amendment No. 1 dated
                    August 31, 1995 [File No. 33-94068]*).

   4.4              Agreement  dated as of  October  27,  1995  between  certain
                    stockholders  of the Registrant and certain  stockholders of
                    Old Disc,  a New York  corporation  (filed as Exhibit 4.h to
                    the Current  Report on Form 8-K dated  October 27, 1995,  as
                    amended by the Form 8-K/A Amendment No. 1 thereto*).

   4.5              Form of certificate evidencing shares of Common Stock (filed
                    as an Exhibit  to the  Registration  Statement  on Form S-1,
                    File No. 33-62980 declared effective on November 9, 1993*).

   4.6              Option to  purchase  50,000  shares in favor of  Jeffrey  J.
                    Bowe,  dated  October  24,  1997 (filed as an Exhibit to the
                    Registrant's  Form 10-K for the fiscal  year ended  December
                    31, 1997*).

                                      -21-

<PAGE>



   4.7              Convertible  Debenture  due  July  1,  2002,  issued  by the
                    Registrant to CCG on July 1, 1999,  in the principal  amount
                    of $600,000 (filed as Exhibit 4.1 to the  Registrant's  Form
                    8-K  dated   July  1,  1999  and   incorporated   herein  by
                    reference).

    9.1             Voting and  Registration  Rights Agreement dated October 30,
                    1995 among the  Registrant  and its  shareholders  listed in
                    Exhibit  1  thereto  (filed as  Exhibit  4.b to the  Current
                    Report on Form 8-K dated October 27, 1995, as amended by the
                    Form 8-K/A Amendment No.1 thereto*).

    10.1            Security  Agreement  dated  February  26,  1997  between the
                    Registrant  and  KeyBank  National   Association  (filed  as
                    Exhibit 10.a to  Registrant's  Form 10-K for the fiscal year
                    ended December 31, 1996*).

    10.2            Asset  Purchase  Agreement  dated as of May 17, 1996, by and
                    among  Registrant,  Pointille,  Inc. and the shareholders of
                    Pointille  (filed as Exhibit 2 to the Current Report on Form
                    8-K dated May 18, 1996*).


   10.3             Form  of  Indemnification  Agreement  between  RCL  and  the
                    directors  and  officers  of  the  Registrant  (filed  as an
                    Exhibit to the Registration  Statement on Form S-1, File No.
                    33-62980, declared effective on November 9, 1993*).

   10.4             Management  Agreement  between RCL and RCL Capital Partners,
                    Inc.,  formerly RCL Management Corp.,  dated October 1, 1992
                    (filed as an Exhibit to the  Registration  Statement on Form
                    S-1, File No.  33-62980,  declared  effective on November 9,
                    1993*).

   10.5             Agreement  of Lease,  dated as of December  1, 1992  between
                    Registrant  and  Horizon  Equity  Partners,  LP (filed as an
                    Exhibit to the Registration  Statement on Form S-4, File No.
                    33-94068 declared effective on October 30, 1995*).

   10.6             Agreement of Lease,  dated as of September  15, 1993 between
                    Registrant  and Everis Realty Corp.  (filed as an Exhibit to
                    the  Registration  Statement on Form S-4, File No.  33-94068
                    declared effective on October 30, 1995*).

   10.7             Agreement  of Lease,  dated as of June 14, 1995 between Disc
                    Graphics  Label Group,  Inc. and Kertzner  Associates,  Ltd.
                    (filed as an Exhibit to the  Registration  Statement on Form
                    S-4, File No.  33-94068,  declared  effective on October 30,
                    1995*).

   10.8             Form of Employment  Agreement,  dated June 28, 1995, between
                    Registrant  and  Donald  Sinkin  (filed as an Exhibit to the
                    Registration  Statement  on  Form  S-4,  File  No.  33-94068
                    declared effective on October 30, 1995*).

   10.9             Form of Employment  Agreement,  dated June 28, 1995, between
                    Registrant and John A. Rebecchi  (filed as an Exhibit to the
                    Registration  Statement  on  Form  S-4,  File  No.  33-94068
                    declared effective on October 30, 1995*).

   10.10            Form of Employment  Agreement,  dated June 28, 1995, between
                    Registrant  and  Stephen  Frey  (filed  as  Exhibit  to  the
                    Registration  Statement  on  Form  S-4,  File  No.  33-94068
                    declared effective October 30, 1995*).


                                      -22-

<PAGE>



   10.11            Asset  Purchase  Agreement  between  Registrant  and  Benham
                    Press,  Inc.  dated as of  September  19,  1997 (filed as an
                    Exhibit to the  Registrant's  Form 10-K for the fiscal  year
                    ended December 31, 1997*).

   10.12            Employment  Agreement between Registrant and Jeffrey J. Bowe
                    dated as of  October  24,  1997  (filed as an Exhibit to the
                    Registrant's  Form 10-K for the fiscal  year ended  December
                    31, 1997*).

   10.13            $675,000 Mortgage and Security  Agreement between Registrant
                    and  KeyBank  National  Association  dated  January 16, 1998
                    (filed as Exhibit 10.m to the Registrant's Form 10-K for the
                    fiscal year ended December 31, 1997*).

   10.14            Amended and Restated Credit Agreement dated December 1, 1998
                    between  the  Registrant  and KeyBank  National  Association
                    (filed as Exhibit 10.n to the Registrant's Form 10-K for the
                    fiscal year ended December 31, 1998*).

   10.15            Borrower's Confirmation of Security Agreement dated December
                    1,  1998  between  the  Registrant   and  KeyBank   National
                    Association  (filed as Exhibit 10.o to the Registrant's Form
                    10-K for the fiscal year ended December 31, 1998*).

   10.16            Assignment  and  Assumption,  dated as of January 1, 2000 by
                    and among Allied Digital Technologies Corp.,  Registrant and
                    Lee Halpern and Larry Halpern.**

   10.17            Second  Amendment to Commercial  Lease,  dated  February 16,
                    2000  between  Registrant  and the  William S. Pine and Lisa
                    Pine Trust u/d/t January 21, 1982.**

   10.18            Lease Extension and Expansion Agreement,  dated February 17,
                    2000 between Registrant and Kerzner Associates Limited.**

   10.19            Sublease, dated as of January 1, 2000 between Registrant and
                    Banco Union, New York Agency.**

   10.20            Amendment   No.  2  to  the  Amended  and  Restated   Credit
                    Agreement,  dated  December 1, 1998,  between the Registrant
                    and The Dime  Savings  Bank of New York,  FSB f/k/a  KeyBank
                    National Association.**

   10.21            Borrower's Confirmation of Security Agreement dated February
                    25, 2000,  between the  Registrant and The Dime Savings Bank
                    of New York, FSB, f/k/a KeyBank National Association.**

   21.1             Subsidiaries of the Company.**

   23               Consent of Independent Accountants.**

   25.1             Power of Attorney  (included in the  signature  page of this
                    Report).**

   27               Financial Data Schedule.**



  *Document  previously filed and incorporated  herein by reference.
  **Document filed herewith.

                                      -23-

<PAGE>



                        Signatures and Power of Attorney

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.


                                       DISC GRAPHICS, INC



March 6, 2000                          By: /s/ Donald Sinkin
                                       ---------------------
                                       Donald Sinkin, Chairman of
                                       the Board, Chief Executive
                                       Officer and President
                                       (Principal Executive Officer)


     KNOW ALL  PERSONS  BY THESE  PRESENTS,  that each  person  whose  signature
appears below does hereby  constitute  and appoint  Donald  Sinkin,  Margaret M.
Krumholz and Frank A. Bress,  or any of them, with full power to act, his or her
attorney-in-fact,  with the power of substitution  for him or her in any and all
capacities,  to sign any or all amendments to this report,  and to file the same
with the Securities  and Exchange  Commission,  hereby  ratifying and confirming
that each of said  attorneys-in-fact,  or his or her substitute or  substitutes,
may do or cause to be done by virtue hereof.



                                      -24-

<PAGE>

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated:


Signature                    Title                                  Date
---------                    -----                                  ----



/s/ Donald Sinkin
-----------------
Donald Sinkin                Chairman of the Board, Chief         March 3, 2000
                             Executive Officer and President
                             (Principal Executive Officer)

/s/ Stephen Frey
----------------
Stephen Frey                 Senior or Vice President of          March 3, 2000
                             Operations, Secretary and Director
                             (Principal Operating Officer)

/s/ Margaret Krumholz
---------------------
Margaret Krumholz            Chief Financial Officer and Senior   March 3, 2000
                             Vice President of Finance
                             (Financial Officer and Principal
                             Accounting Officer)

/s/ John Rebecci
----------------
John Rebecchi                Senior Vice President of Sales and   March 3, 2000
                             Marketing and Director


/s/ Frank A. Bress
------------------
Frank A. Bress               Vice President for Legal Affairs     March 3, 2000
                             and General Counsel


/s/ Daniel Levinson
-------------------
Daniel Levinson              Director                             March 6, 2000


/s/ Seymour W. Zises
--------------------
Seymour W. Zises             Director                             March 6, 2000



/s/ Mark L. Friedman
--------------------
Mark L. Friedman             Director                             March 6, 2000




                                      -25-