<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, DC   20549

                                  FORM 10-K/A
                               (AMENDMENT NO.2)

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED,
                           EFFECTIVE OCTOBER 7, 1996]

                    For the fiscal year ended March 31, 1997

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

            For the transition period from __________ to __________
                                           
                          Commission File No. 0-21726

                     INTERNATIONAL IMAGING MATERIALS, INC.
                     -------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

         Delaware                                            13-3179629
         --------                                            ----------
(State or Other Jurisdiction)                            (I.R.S. Employer
of Incorporation or Organization                        Identification No.)

                  310 Commerce Drive, Amherst, New York 14228
                  -------------------------------------------
          (Address of Principal Executive Offices)     (Zip Code)

                                 (716) 691-6333
                                 --------------
              (Registrant's Telephone Number, Including Area Code)

       Securities registered pursuant to Section 12(b) of the Act:  None

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

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                     --------------------------------------
                                (TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days

          YES         X         NO 
              ----------------     -------------------

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

As of June 30, 1997, the aggregate market value of the registrant's Common Stock
held by non-affiliates was $119,378,561.  the closing price of the Common Stock
on June 30, 1997 as reported on the Nasdaq National Market, was $16.25.

At June 30, 1997, 8,311,486 shares of common stock of the Registrant were
outstanding.                                                               

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     NONE
<PAGE>
 
The undersigned registrant hereby amends its Annual Report on Form 10-K for the 
fiscal year ended March 31, 1997.  To the extent this amended filing is 
inconsistent with the Company's Annual Report on Form 10-K for the fiscal year 
ended March 31, 1997 (the "original filing"), the original filing is hereby 
superseded and amended.

                                    PART I

ITEM 1.  BUSINESS

THE COMPANY

       International Imaging Materials, Inc. (the "Company") is the largest
manufacturer in North America of thermal transfer ribbons for numerous diverse
applications.  These thermal transfer ribbons are used in bar code printers to
print single-color and full-color tags and labels for use in manufacturing and
factory automation systems, shipping and distribution systems, retail price tag
and variable data applications and medical applications.  Other thermal transfer
ribbons produced by the Company are used in full-color printers to print high
quality color graphics for business presentations, engineering and scientific
drawings, graphic arts prepress layouts, proofs and comps, signage and other
full color imaging applications.  The Company also manufactures MICR ribbons for
thermal transfer proof encoders used  to encode checks for processing through
the United States banking system, as well as ribbons used in plain-paper thermal
transfer facsimile machines.

       The Company has been manufacturing thermal transfer ribbons since 1984
under a license agreement with Fujicopian Co., Ltd. of Osaka, Japan, a
recognized leader in thermal transfer ribbon technology.  Under the license
agreement, the Company has the exclusive right (with certain exceptions) to
manufacture in North America color thermal transfer ribbons covered by
Fujicopian Co. Ltd.'s patents.  As a result of the Company's operating
experience and long-standing relationship with Fujicopian Co., Ltd., the Company
has been able to develop significant proprietary product and manufacturing know-
how relating to thermal transfer ribbons.

       Originally incorporated in New York in 1983, the Company was reorganized
as a Delaware corporation in 1985.

       The principal executive offices of the Company are located at 310
Commerce Drive, Amherst, New York 14228 and its telephone number is (716) 691-
6333.



PRODUCTS

       The Company's thermal transfer ribbons are an essential consumable in the
thermal transfer printing process.  In such a printing process, the image to be
printed is transferred from the printer to the receptor material (generally
paper, overhead transparency film or tag or label stock) through the application
of an electronically heated printhead to a thermal transfer ribbon which
releases ink onto the receptor.  A basic thermal transfer ribbon is comprised of
an ink coating on a film substrate.  Single-color thermal transfer ribbons,
typically used in bar code applications, are manufactured by coating the film
substrate with a wax or resin-based ink coating containing black or other
monochromatic pigments.  Color images were traditionally  printed with other
ribbons containing multiple sets of three separate panels, with each panel
containing one of the three primary subtractive colors:  yellow, magenta and
cyan.  As a variation of this principle, some recently developed high-speed
color printers use separate yellow, magenta, cyan and black ribbons, which the
Company also manufactures.  By overlaying various combinations of the
subtractive colors (e.g., cyan over yellow to create green) with different
intensities and dot placements, a process color image is created.  The film
substrate is also backcoated with various resin-based coatings which are
designed to prevent distortion of the ribbon during the printing process,
minimize static electricity and reduce abrasion of the thermal transfer
printhead.  The end-user applications for the Company's ribbons can be grouped
into three fundamental categories:  bar code, color and other.


Bar Code Ribbons

       The Company's bar code thermal transfer ribbons include a wide range of
products designed to maximize bar code thermal transfer printer performance for
specific applications.  Bar code thermal transfer ribbons are produced to
printer manufacturer (OEM) and end-user specifications based on variables such
as printer speed, electronic printhead design, heat management characteristics
and printing pressure.  The Company manufactures bar code thermal transfer
ribbons which are designed to meet these specifications and to comply with
industry bar code printing standards.
<PAGE>
 
       The installed base of bar code printers has grown as "on-demand" printing
of human and machine readable information has become more widely accepted for
its efficiency and cost effectiveness in the retail, industrial, shipping and
distribution, and medical sectors.  A major factor in this growth has been the
rise in the use of automatic identification and data collection systems in a
variety of manufacturing, business and industrial applications, the most
prevalent of which are on-demand printing systems.  On-demand bar code printing
systems permit users to print labels on-site that provide various types of
information.  For example, in the case of manufacturers, products may be labeled
to provide information such as the date of manufacture, special serial, lot or
purchase order numbers, accurate weights and measures, expiration dates and
other similar information.  Bar codes incorporating such information can be
printed on a label which is affixed to the product at the time of production,
even in high speed production line applications.  In such bar code labeling
systems, data is stored in a printed, computer-legible format (i.e., a bar code)
which can be read with scanning devices, allowing the collection of the data
contained in the bar code by a host computer.  Such data may be used by the
manufacturers, distributors and ultimate users of products who require bar code
images that provide a very low failure rate for unscannable tags or labels.

       The Company expects that future growth in sales of bar code thermal
transfer ribbons will result from an increase in the use of thermal transfer, as
opposed to other printing technologies, a decrease in the cost of installing bar
code systems, making them more affordable for end-users, and an increase in the
use of mandated bar code standards in various industrial and retail
applications.  These standards are established by industry trade organizations
for use by vendors doing business in a particular industry.  Such standards have
been adopted for use in the automotive, apparel, defense procurement, grocery,
health care, retail and retail transportation, distribution, chemical and
telecommunications industries.  Another factor driving the increased use of bar
coding is retail chain stores use of "compliance" shipping labels which are
required for acceptance of deliveries.  National retail chains such as K-Mart,
Sears, J.C. Penney and Walmart have developed bar code label formats which must
be used by vendors.  Failure by vendors to do so may result in penalties or
charge-backs.  The Company expects this trend to continue and to spread to other
industries.

       Although a number of different non-impact printing technologies may be
used for bar code printing, the Company believes that thermal transfer printing
is ideal for many bar code printing applications, particularly in harsh
environments.  Numerous retail, industrial, medical, food product, financial and
other applications require dark, well-defined lines which are important for
readily scannable bar codes as well as durable, high quality scratch and smudge
resistant printed images.  Thermal transfer printing meets these requirements
and offers the ability to print on a variety of materials with very good
reliability.


Color Ribbons

       The Company is the sole North American manufacturer of process color
thermal transfer ribbons comprised of separate panels of yellow, magenta, cyan
and black on the same ribbon.  Although color thermal transfer desktop printers
imported into North America by OEMs based outside of North America initially use
color thermal transfer ribbons produced by Fujicopian Co., Ltd., the Company's
experience has been that most such OEMs eventually purchase compatible color
thermal transfer ribbons from the Company to avoid the foreign exchange risk,
longer lead times, additional shipping and distribution expenses and tariffs
associated with imports of thermal transfer ribbons into the United States.

       The major applications for color desktop printers are business graphics
and presentations, scientific and engineering drawings, medical imaging, graphic
arts design, electronic publishing, and signage.  Graphs and charts developed
using currently available software can be either printed onto paper for
inclusion in reports, presentations and other documents, or printed onto
transparencies for use with overhead projectors. Substantial amounts of
statistical, financial and other information can be summarized in easily
readable and understandable color charts and graphs  for  business
presentations.  Engineering and scientific applications enable users to create
more easily understandable color renderings of complex designs, drawings and
images.  In the graphic arts and electronic publishing industries, color
printers are used to produce color advertising proofs, test designs for
packaging, color layouts and computer-generated artistic renderings.
<PAGE>
 
       Color thermal transfer ribbons are produced to printer OEM specifications
based on variables such as printer speed, electronic printhead design, heat
management characteristics and printing pressure.  Film substrate
characteristics and backcoat formulations may be adjusted to maximize the
suitability of the ribbon for a particular application.  Because of the highly
specialized characteristics of color thermal transfer ribbons, such ribbons are
not interchangeable among different desktop printers.  Thus, the Company
manufactures one or more different ribbons for each color printer model
manufactured by each OEM customer. The Company typically sells color thermal
transfer ribbons only to the printer manufacturer thereby giving each OEM a
proprietary ribbon to sell in the aftermarket.

The use of separate process color ribbons, and other recent advancements in
thermal transfer printers, have increased color printing speeds by a factor of
ten, compared to printers using a single ribbon composed of separate  panels of
yellow, magenta and cyan.  In addition, the Company has developed a new family
of Duracoat(TM) ribbons to address new market opportunities.  Duracoat(TM) 100
general purpose color ribbons are ideal for use in printing novelty items, such
as T-shirt transfers.  Duracoat(TM) 200 ribbons have higher durability and print
quality, and are used primarily for printing color tags and labels, and for
printing variable data on flexible packages, such as date or lot codes on snack
foods.  Duracoat(TM) 300 ribbons combine ultra-violet resistance and durability
with the ability to print on a variety of vinyl substrates, making this ribbon
ideal for use in printing outdoor signage.  The Company sells its Duracoat(TM)
color ribbons through both the aftermarket channel and directly to OEMs.


Other Products

       In addition to bar code and color thermal transfer ribbons, the Company
manufactures other types of thermal transfer ribbons, primarily MICR and plain-
paper facsimile ribbons.  MICR ribbons are used to encode checks for processing
through the United States banking system. Under the license agreement with
Fujicopian Co., Ltd., the Company has the right to manufacture MICR ribbons
protected by Fujicopian's patents and to use certain proprietary technology to
manufacture such ribbons.  Also included in other products are ribbons which are
used in plain-paper thermal transfer facsimile machines due to the reliability,
high quality and permanence of thermal transfer printing.


SALES, MARKETING AND SUPPORT

       The Company sells its thermal transfer ribbons principally to printer
OEMs which in turn sell ribbons under their own brand names to end-users, either
directly or through distributors and value-added resellers.  The Company
markets, sells and provides support for its thermal transfer ribbons in North
America through its own sales and marketing staff principally based at its
Amherst, New York headquarters.  Since thermal transfer ribbon formulations and
performance are significantly influenced by printer design, the Company's joint
product development efforts with printer OEMs have been important to the
Company's success.  By selling primarily to printer OEMs, the Company has
minimized its need for a large sales support staff.

       The Company also markets its bar code thermal transfer ribbons through a
number of alternate distribution channels in situations where the Company
believes that such marketing will not adversely affect sales of the Company's
products to printer OEM customers.  Such alternate distribution channels include
master distributors, value-added resellers and large dealers.  Value-added
resellers include bar code system integrators, bar code printer resellers,
computer supplies resellers and label converters.  Dealers include label
manufacturers, printer resellers and business forms dealers.  As the market for
bar code thermal transfer ribbons increasingly matures, end-users are expected
to purchase their ribbon requirements at lower cost through these highly-
competitive alternate distribution channels.

       In September 1995, the Company acquired the thermal transfer supplies
business from one of its OEM customers, QMS, Inc., and began selling ribbons and
other thermal transfer supplies under the QMS brand name directly to
distributors, dealers and end-users.  As a result of this acquisition, the
Company expanded its product offerings to include non-ribbon thermal transfer
supplies and created a telemarketing capability to serve small distributors,
dealers and end-user customers.
<PAGE>
 
       The Company employs a total of 49 people in its sales and marketing
organization, including executives, managers and a customer service and support
staff.  Because the Company sells its thermal transfer ribbons primarily to
large OEM customers, the Company achieves what it considers to be high sales
productivity per sales executive.


CUSTOMERS

       The Company's basic channel of distribution for its thermal transfer
ribbons is the printer manufacturer or OEM who in turn sell to thousands of
other distributors and end-users of the ribbons.  In addition, the Company sells
its bar code thermal transfer ribbons to master distributors, value-added
resellers and large dealers.  The Company also began to sell QMS thermal
transfer supplies to dealers, distributors and end-users following the
acquisition of this business during fiscal 1996.


BACKLOG

       The Company's backlog at March 31, 1997 was $4.3 million, up $114,000
from $4.2 million on March 31, 1996.


MANUFACTURING

       The Company manufactures inks from pigments, waxes, resins and solvents,
and then coats them onto large rolls of ultra-thin polyester film substrate.
These coated "jumbo rolls" are then converted into finished ribbons by slitting
and winding them onto cardboard or plastic cores before packaging and boxing.
The manufacturing process operates 24 hours each day, seven days per week
throughout the year, using four shifts of manufacturing employees.  A typical
manufacturing employee works 12 hours each day for four days, followed by four
days off, then three days on and finally three days off.  All manufacturing is
performed at the Company's facilities located in Amherst, New York.   The
manufacturing function  is supported by a plant and industrial engineering
department which has implemented a detailed preventative maintenance program for
the Company's manufacturing equipment.  The Company's quality assurance
department oversees required testing and audits both manufacturing processes and
products.  The production planning and control department utilizes a
manufacturing resource planning system to plan and control material usage and
shop schedules to satisfy customer orders.


RAW MATERIALS

       The principal raw materials required by the Company are polyester film,
pigments and coating solvents.  Key supplies are generally purchased pursuant to
contracts covering up to one year.  Multiple sources exist for all raw
materials.


RESEARCH AND PRODUCT DEVELOPMENT

       The thermal transfer ribbon industry involves sophisticated technological
and manufacturing processes.  Historically, the Company's advanced technology
had largely been provided by Fujicopian which invented, and is a leader in,
thermal transfer printing technology.  More recently, the Company significantly
strengthened its own internal research and development staff and now employs 30
people dedicated to research and development.

       The Company works closely with Fujicopian and Armor, Fujicopian's
European licensee, in the research and development of new products and
manufacturing processes.  The Company, Fujicopian and Armor conduct research and
development strategy meetings to coordinate their efforts four times each year.
During these meetings, each company presents its most recent research and
development activities before selecting those programs to 
<PAGE>
 
further develop independently. In this manner, each company is able to benefit
from three separate research and development programs. The Company believes that
this combined research and development provides the Company, Fujicopian and
Armor with greater thermal transfer ribbon technology and research and
development resources than many of their competitors.

       At times, the Company has retained selected universities to supplement
its internal research and development efforts and to provide technical expertise
with respect to a variety of research and development efforts.

       The Company's research and development expenses were $2.2 million, $3.1
million and $3.6 million during fiscal years 1995, 1996 and 1997, respectively.
In view of the ongoing technological and proprietary developments which
Fujicopian shares with the Company pursuant to the license agreement, the
Company views its royalty payments under the license agreement (which amounted
to $2.7 million during fiscal 1997) as an expense that, in part, yields an
additional form of research and development benefit.


LICENSE AND PATENTS

       The Company's license agreement with Fujicopian extends until 2008.
Under the license agreement, Fujicopian has granted to the Company an exclusive
license (with certain exceptions) to manufacture specified products in North
America, including thermal transfer ribbons and improvements to such products
developed by Fujicopian and the Company, and a non-exclusive right to sell and
distribute such products in all countries other than those in Europe and Asia,
using the technology and processes covered by the patents obtained and patent
applications made and to be made by Fujicopian relating to such products and
their manufacture.  In exchange for such rights, the Company has agreed to pay
annual royalties on sales of essentially all thermal transfer ribbons.

       The Company believes that the two most important patents which it has the
right to use under the license agreement are U.S. Patent No. 4,503,095 and U.S.
Patent No. 4,572,684, both of which expire in 2003.  Such patents relate to
certain color thermal transfer ribbons and their use.  The Company believes that
these patents have discouraged competitors from manufacturing certain color
thermal transfer ribbons in the United States.


COMPETITION

       Competition in the desktop color thermal transfer ribbon market has been
limited as a result of Fujicopian's patents and the Company's right to use these
patents under the license agreement.   As a result of the exclusivity provided
by the license agreement, the Company believes that its principal competition
for sales of color thermal transfer ribbons to printer OEMs comes from competing
technologies, such as ink jet and laser.

       In contrast, the bar code thermal transfer ribbon market is highly
competitive as a number of manufacturers compete for market share.  Unlike the
color thermal transfer ribbon market, the Company does not enjoy the benefit of
any patent protection with respect to the proprietary technology it utilizes
(other than in the manufacture of MICR ribbons).  Sony Chemical, Dai Nippon
Printing and Ricoh Electronics are all Japan-based companies that compete in
North America.  Competition from Japanese competitors has, to some extent, been
limited by the foreign exchange risk, longer lead times, additional
transportation and distribution expenses and tariffs associated with imports
into the United States.  However, certain of the Company's Japan-based
competitors have either announced their intentions or have begun to manufacture
all or part of their thermal transfer products in the United States to reduce
their manufacturing costs.  North American-based companies which compete in the
bar code thermal transfer ribbon market include Chemicraft and NCR Corporation.
<PAGE>
 
REGULATORY MATTERS

       The Company is subject to various federal, state and local environmental
laws and regulations limiting or related to the use, emission, discharge,
storage, treatment, handling and disposal of hazardous substances, particularly
the federal Water Pollution Control Act, the Clean Air Act of 1970 (as amended
in 1990), the Resource Conservation and Recovery Act (including amendments
relating to underground tanks) and the special "Superfund" program.

       The Company has made significant investments in safety and environmental
equipment, including solvent tank storage and thermal oxidizer systems, which
have reduced solvent emissions by more than 95%.  This emission amount, as
reduced, is well within the current emission control standards and permit
requirements as established by the New York Department of Environmental
Conservation and the federal Environmental Protection Agency.

       The Company is also subject to federal, state and local laws and
regulations relating to workplace safety and worker health, including those
promulgated under the Occupational Safety and Health Act ("OSHA").  The Company
believes that it currently is in compliance in all material respects with
existing OSHA laws and regulations.


EMPLOYEES

       As of March 31, 1997, the Company had 690 employees, of whom 47 were
engaged in sales, 27 in research and development, 41 in finance and
administration, 156 in manufacturing support, 363 in manufacturing operations
and 56 in various part-time and temporary capacities.

       None of the Company's employees are represented by a collective
bargaining organization and the Company considers its relationships with its
employees to be good.


CAUTIONARY STATEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

       Except for historical information, this report, the Company's quarterly
reports to the Securities and Exchange Commission on Form 10-Q and periodic
press releases, as well as other public documents and statements, contain
"forward-looking statements" within the meaning of the federal securities laws.
Forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or implied by the
statements, including, among others:

    .  Significant price reductions or improvements in competing imaging
       technologies.

    .  The rate of growth of the installed base of thermal transfer printers 
       and the timing of orders.

    .  Dependence on a small number of large OEM customers.

    .  Competitive product offerings and pricing actions.

    .  The availability and pricing of key raw materials, in particular
       polyester film and ink-making materials.

    .  Productivity improvements in manufacturing.

    .  Dependence on key members of management.

       Readers are cautioned not to place undue reliance on forward-looking
statements.  The Company undertakes no obligation to republish revised forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrences of unanticipated events.

Subsequent Event
----------------

        On July 15, 1997, the Company, PAXAR Corporation, a New York corporation
("PAXAR"), and Ribbon Manufacturing, Inc., a Delaware corporation and a wholly
owned subsidiary of PAXAR ("Merger Sub"), entered into an Agreement and Plan of
Merger (the "Merger Agreement"), upon and subject to the terms and conditions of
which Merger Sub will be merged (the "Merger") with and into the Company and the
Company will become a wholly owned subsidiary of PAXAR. In the Merger, each
issued and outstanding share of the common stock of the Company will be
converted into the right to receive between 1.2 and 1.412 shares of common stock
of PAXAR. A copy of the Merger Agreement was filed as Exhibit 2 to the Company's
Current Report on Form 8-K, dated July 29, 1997.


<PAGE>
 
ITEM 2.  PROPERTIES

       The Company's main facility is located in Amherst, New York, a suburb of
Buffalo, and contains office space, two manufacturing plants and one warehouse
totaling approximately 275,000 square feet.  The Company's principal
manufacturing equipment consists of ink-making machines, coating machines,
backcoating machines,  slitting machines and ribbon-packaging machines.  The
Company's equipment is subject to a detailed preventative maintenance program
and is believed to be in generally good working order.


ITEM 3.  LEGAL PROCEEDINGS

       The Company is not presently involved in any legal proceedings which, if
determined adversely to the Company, would have a material adverse effect on the
Company.


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

       No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
<PAGE>
 
                                    PART II



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


YEAR ENDED MARCH 31, 1996:
----------------------------
                                   Price
                              ----------------
       Quarter Ended           High      Low
----------------------------  -------  -------
July 4, 1995                  $29.250  $21.750
October 3, 1995               $27.375  $18.000
January 2, 1996               $28.500  $19.938
March 31, 1996                $26.000  $16.250
 
 
 
YEAR ENDED MARCH 31, 1997:
----------------------------
                                   Price
                              -----------------
Quarter Ended                  High      Low
----------------------------  -------  -------
July 2, 1996                  $24.000  $16.250
October 1, 1996               $24.500  $20.000
December 31, 1996             $26.000  $21.250
March 31, 1997                $24.000  $14.750

ITEM 6.  SELECTED FINANCIAL DATA

       The following selected financial data as of March 31, 1996 and 1997 and
for the years ended March 31, 1995, 1996 and 1997 have been derived from the
audited consolidated financial statements of the Company incorporated herein by
reference.  The selected financial data as of March 31, 1993, 1994 and 1995 and
for the years ended March 31, 1993 and 1994 are derived from audited financial
statements.  The data set forth below should be read in conjunction with the
consolidated financial statements and the notes thereto incorporated herein by
reference:
<TABLE>
<CAPTION>
 
                                                            March 31,
                                          ---------------------------------------------
                                           1993     1994     1995      1996      1997
                                          -------  -------  -------  --------  --------
                                            (In thousands, except per share amounts)
<S>                                       <C>      <C>      <C>      <C>       <C>
 
For the year ended:
     Revenues                             $48,438  $61,576  $85,477  $ 88,448  $106,894
     Income from continuing operations      3,067    6,100    9,970     9,903    11,296
     Net income from continuing
          operations per share               0.51     0.76     1.10      1.07      1.26
     Cash dividends                           ---      ---      ---       ---       ---
At year end:
     Total assets                          57,483   76,876   97,944   115,461   118,474
     Notes payable to banks and
          long-term debt                  $24,745  $ 7,349  $ 5,637  $ 20,225  $ 10,738
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Results of Operations
---------------------

The Company's financial emphasis in fiscal 1997 was increasing value for its 
stockholders.  The Company generated free cash of $11.8 million or $1.37 per 
share, and in conjunction with borrowings on its lines of credit, repurchased 
878,400 shares of its common stock between the fourth quarter of fiscal 1996 and
the first two months of fiscal 1998.  In addition, 375,788 shares of common 
stock were surrendered between the third quarter of fiscal 1996 and the fourth 
quarter of fiscal 1997 by officers and a director in connection with the 
exercise of stock options and warrants.  This 1,254,188 share or 14.0% decrease 
in the Company's outstanding common stock resulted in a $.07 contribution to 
earnings per share in fiscal 1997.

Revenues in fiscal 1997 were $106.9 million, an increase of 20.9% from $88.4 
million in fiscal 1996.  Revenues in fiscal 1995 were $85.5 million and included
$6.0 million of revenue, primarily jumbo rolls to Armor, Fujicopian's thermal 
transfer licensee for Europe, which did not recur in fiscal 1996.  Therefore, 
recurring revenues grew 11.3% from fiscal 1995 to fiscal 1996.

The Company sells its ribbons primarily to printer original equipment
manufacturers, which in turn sell the ribbons under their own brand names to 
end-users, either directly or through distributors and value-added resellers.
Revenues from OEM customers in fiscal 1997 were $77.6 million, comprised 72.6%
of total revenues, and increased 15.7% from $67.1 million in fiscal 1996. This
increase primarily reflects the transfer of ribbon production for a significant
color ribbon program from Fujicopian during fiscal 1996, new products introduced
to existing tag and label and fax customers in North America, and increased
sales of existing and new products outside of North America.

The Company also sells its ribbons directly to distributors and dealers where 
such sales do not adversely affect the Company's OEM customers.  Domestic 
distributor revenues in fiscal 1997 were $26.4 million, comprised 24.7% of total
revenues and increased 30.4% from $20.2 million in fiscal 1996. The addition of 
several new significant tag and label customers, new product lines introduced to
existing tag and label customers, overall tag and label aftermarket  growth, and
the continuing end-user migration towards this distributor channel from the OEM 
channel as the market for tag and label ribbons matures were primarily 
responsible for this growth.

The continued expansion of the market for tag and label printing in Central and 
South America, and the Company's marketing programs targeting these 
opportunities, were principally responsible for significant revenue growth for 
existing customers and the addition of a significant new customer in the 
international distributor channel.  Revenues for this channel were $3.0 million 
in fiscal 1997, comprised 2.8% of total revenues, and increased 149.3% from $1.2
million in fiscal 1996.

Recurring revenues for the OEM channel increased 10.1% from fiscal 1995 to 
fiscal 1996, principally due to the transfer of ribbon production for the 
significant color ribbon program from Fujicopian, new product lines introduced 
to existing tag and label customers, the addition of a significant new tag and 
label customer, and the overall growth of applications for tag and label 
printing.  Domestic distributor revenues increased 13.6% from fiscal 1995 to 
fiscal 1996.  In September 1995, the Company acquired the thermal transfer 
supplies business from one of its OEM customers, QMS Inc., and began selling 
ribbons and other thermal transfer supplies under the QMS brand name directly to
distributors, dealers and end-users.  The higher selling prices for ribbons and 
other items included in the QMS supplies business, the addition of several new 
significant tag and label customers, new product lines introduced to existing 
tag and label customers, overall tag and label aftermarket growth, and end-user 
migration towards this distributor channel from the OEM channel, all contributed
to this growth.

The Company's ribbon unit selling prices in total declined slightly in fiscal 
1997 after remaining comparable from fiscal 1995 to fiscal 1996. Selling price 
decreases to tag and label ribbon OEM and distributor customers were partially 
offset by slight increases in selling prices to color ribbon OEM customers and 
significantly higher selling prices to dealers, distributors and end-users for 
QMS thermal transfer supplies.

Gross margins were 29.1% of revenues in fiscal 1997 as compared to 29.6% in
fiscal 1995. This decline primarily resulted from the incremental operating
expenses from the new manufacturing facility opened during fiscal 1997, a change
in sales mix and lower overall selling prices, partially offset by the increased
leverage of fixed overhead costs and production efficiencies from higher sales
volumes, lower raw material purchase prices, and higher margins on the QMS
thermal transfer supplies business. The gross margin decline in fiscal 1996 from
29.8% of revenues in fiscal 1995 primarily reflects the fixed overhead costs not
absorbed by temporarily declining revenues from customers reducing their
inventory levels, partially offset by higher margins on the QMS thermal transfer
business and no management bonuses in fiscal 1996.

Total operating expenses were $13.2 million in fiscal 1997, an increase of 21.0%
from $10.9 million in fiscal 1996.  Research and development expenses increased 
$515,000 due to personnel additions to create new products for future revenue 
growth, partially offset by lower costs of samples produced in the new pilot 
manufacturing facility.  Selling expenses increased $1.1 million due to the 
hiring of additional personnel for the Company's telemarketing and direct sales 
forces and to identify opportunities for future products and increased 
advertising to maximize revenue from new products.  General and administrative 
expenses increased $638,000, primarily due to increased staffing in human 
resources, finance and management information systems to support the Company's 
growth.

Total operating expenses in fiscal 1996 increased by 14.1% from $9.6 million in
fiscal 1995. Research and development expenses increased $862,000 due to
increased staffing and sampling of new products as investments in future revenue
growth. Selling expenses increased $515,000 due to the creation of a
telemarketing capability for QMS thermal transfer supplies, and the hiring of
additional personnel to drive the Company's sales growth, partially offset by no
management bonuses in fiscal 1996.

Net interest expense was $562,000 in fiscal 1997, an increase of $527,000 from 
$35,000 in fiscal 1996.  Total interest cost incurred in fiscal 1997 was 
$900,000, of which $238,000 was capitalized as part of the cost of construction 
of and equipment for the 100,000 square-foot manufacturing facility completed 
during the first quarter, and $617,000 was charged to income.  Total interest 
cost incurred in fiscal 1996 was $748,000, including $612,000 capitalized in 
conjunction with the new facility and $136,000 charged to income.  Net interest 
income in fiscal 1995 was $143,000 before the Company's cash and short-term 
investments were used together with borrowings on lines of credit in fiscal 1996
to fund the new facility, purchase the QMS thermal transfer supplies business, 
and repurchase 315,400 shares of the Company's common stock.

Income taxes in fiscal 1997 were $6.1 million or 35.0% of income before income 
taxes.  In fiscal 1996, income taxes were $5.3 million or 35.0% of income before
income taxes.  Income taxes in fiscal 1995 were $6.1 million or 38.0% of income 
before income taxes. Benefits from changes in the New York State alternative
minimum tax calculation and the Company's foreign sales subsidiary established
at the beginning of fiscal 1996 contributed to the rate reduction. The actual
tax payments in all three years were significantly lower than the expense
reflected in the Company's statements of income since a substantial portion of
the tax provisions were deferred, primarily reflecting the temporary benefits of
accelerated depreciation of plant and equipment on the Company's tax returns.
Tax payments were also reduced by tax deductions from the exercises of non-
qualified stock options and compensatory warrants. For financial reporting
purposes, these tax benefits are recognized as increases in additional paid-in
capital, rather than as reductions of income tax expense.

Liquidity and Capital Resources
-------------------------------

The Company's financial condition remains strong, with long-term debt comprising
only 1.2% of total capitalization at March 31, 1997. Cash provided by operating
activities in fiscal 1997 of $25.6 million funded $13.8 million of capital
expenditures, leaving free cash flow of $11.8 million or $1.37 per share, which
was used to repay $9.5 million on the Company's lines of credit and long-term
debt, and repurchase 142,200 shares of the Company's common stock for $2.5
million. The Company expects to spend approximately $7 million on capital
expenditures in fiscal 1998, primarily to purchase equipment to increase
manufacturing capacity and yield production efficiencies. The Company believes
that its internally generated cash, supplemented as needed by its lines of
credit, will be sufficient to fund its working capital, capital expenditure and
debt service requirements over the next two years.

Trade receivables increased $1.6 million in fiscal 1997, with the number of days
of sales in trade receivables increasing from 48 days at March 31, 1996 to 50
days at March 31, 1997, but still within the Company's typical range of 45 to 50
days. Inventories decreased $2.0 million during fiscal 1997, as the Company
worked with its key suppliers to reduce its raw material inventories. The $2.4
million decrease in other assets principally consists of the repayment of loans
which funded personal income tax withholdings due upon the exercise of stock
options by officers. The Company also repurchased 142,200 shares of its common
stock during the fourth quarter of fiscal 1997, at an average purchase price of
$17.47 per share. The Company repurchased an additional 420,800 shares of
its common stock during the first two months of fiscal 1998 at an average
purchase price of $17.33 per share. The Company terminated its common stock 
repurchase plan in July 1997.

Cash provided by operating activities in fiscal 1996 of $9.9 million, short-term
borrowings on the Company's lines of credit of $16.3 million and $7.0 million of
cash and short-term investments at March 31, 1995 funded $17.5 million of 
capital expenditures, the purchase of the QMS thermal transfer supplies business
for $5.6 million and the repurchase of 315,400 shares of the Company's common 
stock for another $5.6 million.  Trade receivables increased $4.3 million in 
fiscal 1996, primarily due to disproportionately higher sales volume in February
and March 1996.  Inventories increased $2.3 million during fiscal 1996, as the 
Company used available manufacturing capacity to increase its finished goods 
inventories in anticipation of future revenue increases, as well as create the 
higher inventory levels required to service the growing proportion of dealer, 
distributor and end-user sales.  The $4.7 million increase in other assets 
during fiscal 1996 principally consists of the purchase price for the QMS 
thermal transfer supplies business, of which $1.5 million was subsequently 
amortized in fiscal 1997.

During fiscal 1996 and 1997, the Company loaned $3.4 million and $1.6 million to
certain officers in conjunction with the exercise of non-qualified stock 
options.  These exercises, in addition to the lapse of restrictions on 
restricted stock, generated tax deductions of $6.3 million and $5.4 million for 
the Company in fiscal 1996 and 1997, respectively.  During fiscal 1996 and 1997,
$4.2 million and $3.9 million of these loans were repaid through the surrender 
of shares of common stock to the Company.  The portions of these loans which 
funded the officers' personal income tax withholdings are included in other 
assets since it is the intention of the Company to allow repayment beyond March 
31, 1998.  The portions of these loans that funded the exercise price of the 
options are included as a reduction of stockholder's equity.  These demand notes
are secured by the stock and personal assets of the officers.

Inflation
---------

Inflationary factors have not had a significant effect on the Company's overall 
revenues or profitability during the past three years.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

       Not applicable until after June 15, 1998.


<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 

             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
 
 
                                                 Years Ended March 31,
                                              ----------------------------
                                               1995      1996      1997
                                              -------  --------  ---------
<S>                                           <C>      <C>       <C>
(In thousands, except per share amounts)
 
Revenues                                      $85,477  $88,448   $106,894
 
Cost of goods sold                             59,968   62,253     75,737
                                              -------  -------   --------
 
  Gross profit                                 25,509   26,195     31,157
                                              -------  -------   --------
 
Operating expenses:
 Research and development                       2,217    3,079      3,594
 Selling                                        3,635    4,150      5,289
 General and administrative                     3,720    3,695      4,333
                                              -------  -------   --------
 
  Total operating expenses                      9,572   10,924     13,216
                                              -------  -------   --------
 
  Operating income                             15,937   15,271     17,941
 
Interest income (expense), net                    143      (35)      (562)
                                              -------  -------   --------
 
  Income before income taxes                   16,080   15,236     17,379
 
Income taxes                                    6,110    5,333      6,083
                                              -------  -------   --------
 
  Net income                                  $ 9,970  $ 9,903   $ 11,296
                                              =======  =======   ========
 
  Net income per share of common stock          $1.10    $1.07      $1.26
                                              =======  =======   ========
 
Weighted average common shares outstanding      9,093    9,224      8,967
                                              =======  =======   ========
 
</TABLE>



          See accompanying notes to consolidated financial statements
<PAGE>
 
             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
 
                                                                               March 31,
                                                                  -----------------------------------
                                                                        1996              1997
                                                                  ----------------  -----------------
                                                                    (In thousands, except share and
ASSETS                                                                per share amounts)
-----                                                                       
                                                                          
<S>                                                               <C>               <C>
 
Current assets:
  Cash                                                                   $    570           $    444
  Trade receivables                                                        16,157             17,726
  Inventories:
     Raw materials                                                          9,397              5,789
     Work in process                                                        3,627              4,602
     Finished goods                                                         4,839              5,478
                                                                         --------           --------
       Total inventories                                                   17,863             15,869
                                                                         --------           --------
  Prepaid expenses                                                            635              1,107
  Deferred income taxes                                                     1,467              1,176
                                                                         --------           --------
       Total current assets                                                36,692             36,322
                                                                         --------           --------
Property, plant and equipment, at cost:
  Land                                                                      1,163              1,170
  Building and improvements                                                10,924             21,265
  Equipment                                                                64,362             82,702
  Construction in progress                                                 17,194                814
                                                                         --------           --------
                                                                           93,643            105,951
  Less accumulated depreciation                                            21,826             28,320
                                                                         --------           --------
     Net property, plant and equipment                                     71,817             77,631
                                                                         --------           --------
Other assets                                                                6,952              4,521
                                                                         --------           --------
                                                                         $115,461           $118,474
                                                                         ========           ========
 
  LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------
 
Current liabilities:
  Notes payable to banks                                                   16,292              8,484
  Current installments of long-term debt                                    1,674              1,143
  Trade accounts payable                                                    8,126              7,858
  Other accrued liabilities                                                 2,654              3,622
                                                                         --------           --------
     Total current liabilities                                             28,746             21,107
Long-term debt, excluding current installments                              2,259              1,111
Deferred income taxes                                                       6,336              8,388
                                                                         --------           --------
     Total liabilities                                                     37,341             30,606
                                                                         --------           --------
 
Commitments (Note 8)
 
Stockholders' equity:
  Preferred stock; $.01 par value; 5,000,000 shares
    authorized; none issued                                                   ---                ---
  Common stock; $.01 par value; 30,000,000 shares
    authorized; 8,855,301 and 8,570,310 shares issued
    as of March 31, 1996 and 1997, respectively                                89                 86
  Additional paid-in capital                                               53,037             44,514
  Unearned compensation - restricted stock awards                            (692)              (385)
  Notes receivable from exercise of stock options and warrants             (1,219)               (37)
  Retained earnings                                                        32,394             43,690
  Treasury stock, 310,400 shares, at cost                                  (5,489)               ---
                                                                         --------           --------
     Total stockholders' equity                                            78,120             87,868
                                                                         --------           --------
                                                                         $115,461           $118,474
                                                                         ========           ========
</TABLE>
          See accompanying notes to consolidated financial statements
<PAGE>
 
             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
 
                                                                          Years Ended March 31,
                                                                     -------------------------------
                                                                       1995       1996       1997
                                                                     ---------  ---------  ---------
                                                                             (in thousands)
<S>                                                                  <C>        <C>        <C>
 
Cash flows from operating activities:
  Net income                                                         $  9,970   $  9,903   $ 11,296
                                                                     --------   --------   --------
  Adjustments to reconcile net income to net cash
    provided by operating activities:
     Depreciation and amortization                                      4,520      6,251      8,216
     Deferred income taxes and other noncash expenses                   2,482      2,804      2,972
     Reduction in income taxes payable from the
      exercise of options and warrants                                  1,969      1,464      1,477
     Cash provided (used) by changes in:
       Trade receivables                                                 (675)    (4,418)    (1,560)
       Inventories                                                     (4,939)    (2,256)     1,994
       Prepaid expenses                                                  (236)       183       (472)
       Other assets                                                        (7)        50       (310)
       Trade accounts payable                                           2,956     (1,052)     1,018
       Other accrued liabilities                                        2,845     (3,041)       968
                                                                     --------   --------   --------
          Total adjustments                                             8,915        (15)    14,303
                                                                     --------   --------   --------
          Net cash provided by operating activities                    18,885      9,888     25,599
                                                                     --------   --------   --------
 
Cash flows used in investing activities:
  Capital expenditures                                                (14,235)   (17,477)   (13,777)
  Payments to acquire other assets                                        ---     (5,575)       ---
  Purchases of securities                                              (4,468)       (22)       ---
  Maturities of securities                                              1,000      3,490        ---
                                                                     --------   --------   --------
          Net cash used in investing activities                       (17,703)   (19,584)   (13,777)
                                                                     --------   --------   --------
 
Cash flows from financing activities:
  Proceeds from employee stock purchase plan                               83        102         79
  Purchase of common stock                                                ---     (5,576)    (2,484)
  Exercise of stock options and warrants:
     Proceeds                                                           1,013        409      1,576
     Notes received for related tax liabilities                        (1,996)    (2,816)    (1,632)
  Proceeds from (repayments of) notes payable to banks                    ---     16,292     (7,808)
  Repayments of long-term debt                                         (1,712)    (1,704)    (1,679)
                                                                     --------   --------   --------
          Net cash provided by (used in) financing activities          (2,612)     6,707    (11,948)
                                                                     --------   --------   --------
 
Net decrease in cash                                                   (1,430)    (2,989)      (126)
Cash at beginning of year                                               4,989      3,559        570
                                                                     --------   --------   --------
Cash at end of year                                                  $  3,559   $    570   $    444
                                                                     ========   ========   ========
 
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
     Interest, net of amount capitalized                                  218        151        663
     Income taxes                                                    $    311   $  3,044   $  2,269
                                                                     ========   ========   ========
 
Supplemental disclosure of noncash investing and
   financing activities:
  Increase (decrease) in liabilities for capital expenditures             528      1,172     (1,286)
  Notes received for exercise price of stock options and warrants       1,880        548        ---
  Common stock surrendered:
     Payment of stock option exercise price                               ---        699        778
     Repayments of notes by officers                                 $    ---   $  4,210   $  3,910
                                                                     ========   ========   ========
</TABLE>
          See accompanying notes to consolidated financial statements
<PAGE>
 

             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
 
 
                                                                        Notes
                                                                       Receivable
                                                                         From
                                                                         Exercise
                                             Additional                of Stock                             Total
                                     Common  Paid-in     Unearned       Options    Retained   Treasury   Stockholders'
                                     Stock   Capital   Compensation   & Warrants   Earnings     Stock        Equity
                                     ------  --------  -------------  -----------  ---------  ---------  --------------
                                                            (In thousands, except share amounts)
<S>                                  <C>     <C>       <C>            <C>          <C>        <C>        <C>
 
Balance at March 31, 1994               $81  $47,442        $  (830)     $   ---    $12,521    $  (104)        $59,110
 
Exercise of options and warrants:
   Shares issued, 630,566                          6          2,887                                              2,893
   Tax benefit                                 3,306                                                             3,306
   Notes received                                                         (1,880)                               (1,880)
 
Net income                                                                            9,970                      9,970
 
Restricted stock awards and other                                            271        (85)       104             290
                                                                      ----------   --------   --------   -------------
 
Balance at March 31, 1995                87   53,906           (915)      (1,880)    22,491        ---          73,689
 
Exercise of options and warrants:
  Shares issued, 319,081                  3    1,648                                                87           1,738
  Tax benefit                                  2,116                                                             2,116
  Shares surrendered, 197,345                                    (1)      (4,908)     1,209     (3,700)
  Notes received                                                            (548)                                 (548)
 
Purchase of 315,400 treasury shares                          (5,576)      (5,576)
 
Net income                                                                            9,903                      9,903
 
Restricted stock awards and other                                            275        223        498
                                                                      ----------   --------   --------
 
Balance at March 31, 1996                89   53,037           (692)      (1,219)    32,394     (5,489)         78,120
 
Exercise of options and warrants:
  Shares issued, 373,045                      (3,178)                                            5,489           2,311
  Tax benefit                                  1,800                                                             1,800
  Shares surrendered, 208,807                                    (2)      (4,686)     1,182     (3,506)
 
Purchase and retirement of 142,200 shares                                     (1)    (2,483)    (2,484)
 
Net income                                                                           11,296                     11,296
 
Restricted stock awards and other                                             24        307        331
                                                                      ----------   --------   --------
 
Balance at March 31, 1997               $86  $44,514        $  (385)     $   (37)   $43,690    $   ---         $87,868
                                        ===  =======        =======   ==========   ========   ========   =============
 
</TABLE>

          See accompanying notes to consolidated financial statements
<PAGE>
 
             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   YEARS ENDED MARCH 31, 1995, 1996 AND 1997


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   International Imaging Materials, Inc. and subsidiaries (the "Company")
manufactures and sells thermal transfer ribbons used in non-impact thermal
transfer printers.  The Company's customers are primarily printer manufacturers
and distributors in North America.

   A summary of significant accounting policies follows:

   (a) Principles of Consolidation

   The consolidated financial statements include the financial statements of
International Imaging Materials, Inc. and its two wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.

   (b) Inventories

   Inventories are stated at the lower of cost (first-in, first-out) or market.

   (c) Depreciation and Amortization

   Depreciation of plant and equipment is calculated using the straight-line
method over the estimated useful lives of the assets.  Intangibles included in
other assets are amortized over the period of expected benefit.

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

   The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
April 1, 1996.  This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed 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.  Adoption of this Statement did not have any impact on the Company's
financial position or results of operations.

   (e) Income Taxes

   Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to temporary 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 recovered or settled.  The
Company considers the scheduled reversal of deferred tax liabilities, projected
future taxable income and restriction on the use of certain State investment tax
credits in assessing the realizability of deferred tax assets.

   (f) Earnings Per Share

   Weighted average common shares outstanding include common stock equivalents
which consist of the aggregate dilutive effect of unexercised stock options,
warrants and restricted stock awards.
<PAGE>
 
             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


   (g) Stock-Based Compensation

   Stock options and other stock-based compensation awards are accounted for
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.

   (h) 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 to prepare these financial statements in
conformity with generally accepted accounting principles.  Actual results could
differ from those estimates.


(2)  INDEBTEDNESS

   The Company maintains lines of credit with two banks totaling $40,000,000
which are due on demand and bear interest at either the LIBOR rate plus .20%,
the bank's cost of funds rate plus .50%, or the prime rate, as selected by the
Company.  Advances under both lines of credit are at the sole discretion of the
banks and can be made for various periods of time not extending beyond September
30, 1997 under one of the lines of credit.  There was $16,292,000 and $8,484,000
outstanding under the facilities at 5.60% and 5.81% at March 31, 1996 and 1997,
respectively.

   A summary of long-term debt follows:

 
                                            Interest
                                            Rate at
                                           March 31,     March 31,
                                                       --------------
                                              1997      1996    1997
                                           ----------  ------  ------
                                                 (In thousands)
          Term loans, due in:
              1997                              7.75%  $  631  $   49
              1998                              7.75    2,562   1,630
              2001                              8.25      647     520
          Other                                 2.50       93      55
                                                       ------  ------
              Total long-term debt                      3,933   2,254
 
          Less current installments                     1,674   1,143
                                                       ------  ------
 
              Long-term debt, excluding
               current installments                    $2,259  $1,111
                                                       ======  ======


   The term loans, payable in monthly installments ranging from $11,000 to
$78,000, bear interest at variable rates based on the prime rate, are secured by
certain plant and equipment, require the maintenance of certain financial
ratios, limit the amount of capital expenditures and prohibit the payment of
cash dividends without the lenders' consent.

   The aggregate annual installments due on long-term debt for each of the next
five years are:  $1,143,000 in fiscal 1998, $846,000 in fiscal 1999, $127,000 in
fiscal 2000, $127,000 in fiscal 2001 and $11,000 in fiscal 2002.

   In connection with the construction of new manufacturing facilities, the
Company capitalized interest as a component of the cost of plant and equipment
as follows:

 
                                          Years Ended March 31,
                                          ---------------------
                                           1995    1996   1997
                                          ------  ------  -----
                                             (In thousands)
 
       Interest cost capitalized           $ 235   $ 612  $ 283
       Interest cost charged to income       284     136    617
                                           -----   -----  -----
         Total interest cost incurred      $ 519   $ 748  $ 900
                                           =====   =====  =====
<PAGE>
 
             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


The 2001 term loan and one of the lines of credit are with a bank that owns
warrants to purchase 50,000 shares of the Company's common stock.

   The carrying amount of the Company's long-term debt instruments approximates
the fair value of such instruments based upon management's best estimate of
interest rates that would be available to the Company for similar debt
obligations at March 31, 1997.


(3)  STOCKHOLDERS' EQUITY

   The Company has three stock plans under which non-qualified stock options and
restricted stock have been granted to employees and directors.  The plans
authorize grants of up to 3,150,000 shares.  All options were granted at the
fair market value of the Company's common stock on the grant date, vest over
five years, and expire ten years and one day after grant.  The following table
summarizes option activity under these plans:
 
                                                  Weighted Average
                                       Options     Exercise Price
                                      ----------  ----------------
 
     Outstanding at March 31, 1994    1,663,270             $ 8.09
       Granted                          290,946             $26.26
       Exercised                       (388,942)            $ 4.31
       Forfeited                         (4,000)            $18.57
                                      ---------             ------
     Outstanding at March 31, 1995    1,561,274             $12.39
       Granted                          589,610             $21.55
       Exercised                       (301,881)            $ 5.39
       Forfeited                       (241,000)            $26.51
                                      ---------             ------
     Outstanding at March 31, 1996    1,608,003             $14.95
       Granted                          315,294             $20.35
       Exercised                       (320,605)            $ 6.11
       Forfeited                       (116,750)            $23.37
                                      ---------             ------
     Outstanding at March 31, 1997    1,485,942             $17.34
                                      =========             ======
 
     Exercisable at March 31
       1995                             893,617               6.23
       1996                             708,501               8.42
       1997                             666,064             $13.70

       Included in options granted and options forfeited in the table above are
236,000 options which were repriced from a weighted average exercise price of
$26.53 per share to $17.75 per share in fiscal 1996 and 52,000 options repriced
from an exercise price of $26.50 per share to $17.75 per share in fiscal 1997.
In exchange for the repricing of these options, the recipients agreed to forego
any payments at or below the target level under the Company's incentive bonus
compensation program for fiscal 1997.

       The following table summarizes information about stock options
outstanding at March 31, 1997:

<TABLE>
<CAPTION> 

                             Options Outstanding                 Options Exercisable
                   -----------------------------------------    ------------------------

 
    Range of                Weighted Average  Weighted Average           Weighted Average
 Exercise Prices   Options   Remaining Life    Exercise Price   Options   Exercise Price
-----------------  -------  ----------------  ----------------  -------  ----------------
<S>                <C>      <C>               <C>               <C>      <C>
 
     $ 5 - $14     348,784         4.4 years            $ 6.23  290,429            $ 5.74
     $16 - $22     825,823         8.2 years            $19.44  308,334            $18.92
     $22 - $27     311,335         8.3 years            $24.17   67,301            $24.19
</TABLE>
<PAGE>
 
             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



   In addition, the Company granted directors 2,400 shares of restricted stock
at a grant-date fair value of $24.00 per share in fiscal 1996 and 2,100 shares
at a grant-date fair value of $21.69 per share in fiscal 1997.  Compensation
cost of restricted stock awards charged to earnings was $281,000 in fiscal 1996
and $274,000 in fiscal 1997.

   The Company also has an employee stock purchase plan which allows employees
to purchase up to 200,000 shares of the Company's common stock at 85% of the
fair market value of the shares at the time of purchase.  As of March 31, 1996
and 1997, 9,055 and 13,626 shares, respectively, had been issued under this
plan.

   The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock plans, and accordingly, no compensation cost has been
recognized for its stock options in the consolidated financial statements.  Had
the Company determined compensation cost for its stock options under the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and net income per share of common stock would have been
reduced to the pro forma amounts indicated below:
 
                                      Years Ended March 31,
                             ----------------------------------------
                                                 1996        1997
                                              ----------  -----------
                             (In thousands, except per share amounts)
 
     Net income              As reported          $9,903      $11,296
                             Pro forma             9,415       10,200
                                                  ======      =======
                                                   
     Net income per share    As reported            1.07         1.26
                             Pro forma            $ 1.03      $  1.17
                                                  ======      =======

   For purposes of this pro forma disclosure, the weighted average fair market
value of options granted in fiscal 1996 and fiscal 1997 of $9.42 and $9.06,
respectively, were calculated using the Black-Scholes option pricing model.  The
weighted average assumptions used in the model were:  volatility of 48.1%,
expected life of 6 years, no dividend yield, and risk-free interest rate of 6.0%
and 6.4% for fiscal 1996 and fiscal 1997, respectively.

   Pro forma net income reflects only options granted in fiscal 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the option's vesting
period and compensation cost for options granted prior to April 1, 1995 is not
considered.

   Additionally, the Company has warrants outstanding as follows:
 
                                     Years Ended March 31,
                             -------------------------------------
                                 1995           1996        1997
                             -------------  -------------  -------
 
     Warrants outstanding          119,640        102,440   50,000
                             =============  =============  =======
 
     Warrants exercisable           79,640         82,440   50,000
                             =============  =============  =======
 
     Exercise price range    $5.00 - 10.00  $5.00 - 10.00  $ 10.00
                             =============  =============  =======

   During fiscal 1996, the Company loaned $548,000 to certain officers to fund
the exercise price of stock options and $2,816,000 to pay their personal income
tax liabilities related to the exercise.  The Company also loaned $1,632,000 to
officers for their stock option related income tax liabilities in fiscal 1997.
In fiscal 1996 and 1997, $4,210,000 and $4,016,000, respectively, of such loans
were repaid through the surrender of shares of the Company's common stock and
cash.  The Company intends to allow repayment of these demand notes, which are
collateralized by all of the personal assets of the respective officers, beyond
March 31, 1998.
<PAGE>
 
             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
 
 
(4)    INCOME TAXES

   Income tax expense consists of the following:
 
                                   Years Ended March 31,
                                   ----------------------
                                    1995    1996    1997
                                   ------  ------  ------
                                       (In thousands)
 
     Current:
       Federal                     $3,411  $2,662  $3,040
       State                          527     313     333
                                   ------  ------  ------
                                    3,938   2,975   3,373
 
     Deferred - Federal             2,172   2,358   2,710
                                   ------  ------  ------
 
       Total income tax expense    $6,110  $5,333  $6,083
                                   ======  ======  ======


   Income tax expense differs from the expected amount (computed by applying the
34% statutory rate to income before income taxes) due principally to the effects
of the Company's foreign sales corporation, state income taxes and increase in
the valuation allowance for deferred tax assets.

   The tax effects of temporary differences that give rise to the deferred tax
assets and liability were as follows:
 
                                                      March 31,
                                                 --------------------
                                                   1996       1997
                                                 ---------  ---------
                                                    (In thousands)
     Deferred tax assets:
       Investment tax and other
        credit carryforwards                     $  3,384   $  4,706
       Alternative minimum tax credit
        carryforwards                               3,781      3,503
       Capitalized inventory costs                    581        493
       Other                                          672        237
                                                 --------   --------
          Total gross deferred tax asset            8,418      8,939
 
       Valuation allowance                         (2,695)    (3,648)
                                                 --------   --------
          Net deferred tax asset                    5,723      5,291
 
     Deferred tax liability - depreciation of
        plant and equipment                       (10,592)   (12,503)
                                                 --------   --------
          Net deferred tax liability             $ (4,869)  $ (7,212)
                                                 ========   ========
 

   The above net deferred tax liability is reflected in the balance sheets as
follows:


 
                                              March 31,
                                          ------------------
                                            1996      1997
                                          --------  --------
                                            (In thousands)

 
     Current deferred tax asset           $ 1,467   $ 1,176
     Noncurrent deferred tax liability     (6,336)   (8,388)
                                          -------   -------
 
       Net deferred tax liability         $(4,869)  $(7,212)
                                          =======   =======
<PAGE>
 
             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



   In fiscal 1995, 1996 and 1997, 630,566, 319,081 and 373,045 shares of common
stock, respectively, were issued through the exercise of non-qualified stock
options and compensatory warrants.  In addition, in fiscal 1996 and 1997,
restrictions lapsed on 41,900 and 10,000 shares of common stock, respectively.
The total tax benefit to the Company from these transactions, which is credited
to additional paid-in capital, rather than recognized as a reduction of income
tax expense, was $3,306,000, $2,313,000 and $1,844,000 in fiscal 1995, 1996 and
1997, respectively.  Those benefits were recognized in the balance sheets as
follows:
 
                                             Years Ended March 31,
                                             ----------------------
                                              1995    1996    1997
                                             ------  ------  ------
                                                 (In thousands)
     Reduction in:
          Income taxes payable               $1,969  $1,464  $1,477
          Deferred income taxes               1,337     849     367
                                             ------  ------  ------
 
     Credit to additional paid-in capital    $3,306  $2,313  $1,844
                                             ======  ======  ======

   At March 31, 1997, the Company's investment tax and other credits ($316,000
Federal and $6,651,000 State) expire from 2001 to 2013.  The Company also has
$3,349,000 of Federal and $233,000 of State alternative minimum tax credit
carryforwards available with no expiration date.

(5)  OTHER ASSETS

   In fiscal 1996 $5,575,000 was paid to QMS, Inc. for the rights to sell
thermal transfer supplies directly to the customers of QMS, Inc. under the QMS,
Inc. brand name.  The purchase price was allocated to the various service and
consulting arrangements, customer records and other agreements acquired in this
transaction.  Amortization of the cost of the acquired assets was $655,000 and
$1,539,000 in fiscal 1996 and 1997, respectively.


(6)  RELATIONSHIP WITH FUJICOPIAN CO., LTD.

   The Company manufactures thermal transfer ribbons pursuant to a license
agreement with Fujicopian Co., Ltd. which expires in 2008.  Royalty expenses
under the agreement totaled $2,627,000, $2,681,000 and $2,680,000 in fiscal
1995, 1996 and 1997, respectively.  The Company also purchased certain materials
from Fujicopian which totaled $4,579,000, $3,040,000 and $2,586,000 in fiscal
1995, 1996 and 1997, respectively.  The Company believes that the costs of such
purchases are competitive with alternative sources of supply.  Other accrued
expenses includes $1,184,000 and $1,020,000 payable to Fujicopian Co., Ltd. as
of March 31, 1996 and 1997, respectively.

   At March 31, 1997, Fujicopian owned 260,000 shares of the Company's common
stock.

(7)  RETIREMENT SAVINGS PLAN

   The Company has a defined contribution retirement savings plan qualified
under Section 401(k) of the Internal Revenue Code.  Pursuant to the plan,
employees make voluntary contributions which are partially matched by the
Company.  Expenses under the plan were $555,000, $639,000 and $852,000 in fiscal
1995, 1996 and 1997, respectively.


(8)  COMMITMENTS

   Rent expense under operating leases for certain buildings and equipment was
$253,000, $270,000 and $304,000 in fiscal 1995, 1996 and 1997, respectively.
Minimum annual payments due under these leases are $202,000 in fiscal 1998,
$189,000 in fiscal 1999, $191,000 in fiscal 2000 and 2001, $142,000 in fiscal
2002 and a total of $427,000 thereafter.
<PAGE>
 

             INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



(9)  SIGNIFICANT CUSTOMERS

   Sales to significant customers were:  $10,282,000, $11,859,000 and
$15,660,000 to one customer in fiscal 1995, 1996 and 1997, respectively and
$9,599,000 and $14,842,000 to another customer in fiscal 1996 and 1997,
respectively.  In addition, export sales in the aggregate were $9,576,000,
$9,753,000 and $19,452,000 in fiscal 1995, 1996 and 1997, respectively.


(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

   Selected quarterly financial data for 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
 
                                                   Year Ended March 31, 1996
                                            ----------------------------------------
                                              First     Second     Third     Fourth
                                             Quarter    Quarter   Quarter   Quarter
                                            ---------  ---------  --------  --------
                                            (In thousands, except per share amounts)
<S>                                         <C>        <C>        <C>       <C>
 
Revenues                                      $19,001    $21,223   $24,018   $24,206
Gross profit                                    5,417      6,209     7,306     7,263
Net income                                    $ 1,831    $ 2,213   $ 2,865   $ 2,994
                                              =======    =======   =======   =======
 
Net income per share of common stock          $   .20    $   .24   $   .31   $   .34
                                              =======    =======   =======   =======
<CAPTION>  
 
                                                       Year Ended March 31, 1997
                                               ----------------------------------------
                                                First    Second      Third     Fourth
                                               Quarter   Quarter    Quarter   Quarter
                                              --------   -------    -------   --------
                                               (In thousands, except per share amounts)
<S>                                         <C>        <C>        <C>       <C> 
Revenues                                      $25,003    $26,851   $27,730   $27,310
Gross profit                                    7,524      7,838     8,231     7,564
Net income                                    $ 2,831    $ 2,870   $ 3,040   $ 2,555
                                              =======    =======   =======   =======
 
Net income per share of common stock          $   .32    $   .32   $   .34   $   .29
                                              =======    =======   =======   =======
</TABLE>

(11)  ACCOUNTING PRONOUNCEMENTS

   The Company is required to adopt Statement of Financial Accounting Standards
No. 128 (Earnings per Share) in fiscal 1998.  The Company does not believe that
the adoption of this standard will have a material effect on the consolidated
financial statements.
<PAGE>
 

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
International Imaging Materials, Inc.:


   We have audited the accompanying consolidated balance sheets of International
Imaging Materials, Inc. and subsidiaries as of March 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended March 31, 1997.  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
International Imaging Materials, Inc. and subsidiaries as of March 31, 1996 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended March 31, 1997, in conformity with
generally accepted accounting principles.



     /s/ KPMG Peat Marwick LLP
-----------------------------------------
     KPMG PEAT MARWICK LLP


Buffalo, New York
April 23, 1997

       Supplementary data are not required pursuant to Item 302 of Regulation S-
K.  The Company has elected, however, to present certain quarterly information
in note 10 to its audited financial statements.

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

       None.

<PAGE>
 
                                    PART III



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

       The following sets forth certain information with respect to the
directors and executive officers of the Company.


Directors
---------

       Robert S. Anderson, age 55, has been a Director of the Company since
1983.  Since 1988, Mr. Anderson has been a Senior Vice President of Brean
Murray, Foster Securities Inc.  Mr. Anderson also devotes a portion of his time
to money management at BMI Capital, a registered investment advisor and
affiliate of Brean Murray, Foster Securities Inc.  Mr. Anderson is a member of
the board of directors of Trident International.

       Richard A. Marshall, age 46, has been a  Director of the Company since
March 1995.  Mr. Marshall joined the Company in 1992 and is currently Executive
Vice President and Chief Operating Officer.

       William P. Montague, age 50, has been a Director of the Company since
1994.  Mr. Montague is currently the President and Chief Operating Officer of
Mark IV Industries, Inc. where he has been employed since 1972.  Mr. Montague is
a certified public accountant and serves on the boards of directors of Gibraltar
Steel Corporation and Mark IV Industries, Inc.

       Dr. Albert J. Simone, age 61, has been a Director of the Company since
1994.  Dr. Simone has been President of the Rochester Institute of Technology
("RIT") since September 1992.  From 1984 to 1992, Dr. Simone was President of
the University of Hawaii System and Chancellor of the University of Hawaii at
Manoa.  Dr. Simone is a member of the Conference Board, Joint Institute for
Marine and Atmospheric Research, Pacific and Asian Affairs Counsel, Pacific
International Center for High Technology Research and the University's Research
Association.  Dr. Simone is a member of the board of directors of Marine Midland
Bank, Rochester Division.

       Alexander K. Daw, age 39, has been a Director of the Company since 1985.
Mr. Daw is the Managing Director of Research Laboratories of Australia Pty.
Ltd., an independent contract research organization founded in 1959 and devoted
to research in a number of areas, including imaging and image toning sciences.

       John W. O'Leary, age 61, joined the Company in 1984 as President and
Chief Executive Officer and a Director.  Mr. O'Leary is a member of the board of
directors of Marine Midland Bank, Rochester Division.

       Michael J. Downey, age 53, has been a Director of the Company since 1993.
Mr. Downey, a private investor, was from 1989 to 1993 Chairman of the Board and
Chief Executive Officer of Prudential Mutual Fund Management.  Mr. Downey also
served as an Executive Vice President and a member of the Operating Committee of
Prudential Securities Inc.  Mr. Downey is a member of the Boards of Directors of
the Asia Pacific Fund, Inc., The Merger Fund, The Simba Fund, Ltd, and Value
Asset Management.

       Donald D. Lennox, age 78, joined the Company in 1989 and is currently
Chairman of the Board of Directors.  Mr. Lennox serves on the boards of
directors of Gleason Corporation, and various mutual funds affiliated with The
Prudential Insurance Company of America and its wholly-owned subsidiary,
Prudential Securities Inc.

       Ronald J. Kubovcik, who was a Class I Director, resigned effective March
31, 1997.

       The Company has a classified Board of Directors consisting of two Class I
Directors (Messrs. Downey and Lennox), four Class II Directors (Messrs.
Anderson, Marshall, Montague and Simone), and two Class III Directors (Messrs.
Daw and O'Leary).  The current terms of the Class II, Class III and Class I
Directors continue until the Annual Meetings of Stockholders to be held in 1997,
1998 and 1999, respectively, and until their respective successors are elected
and qualified.  At each Annual Meeting of Stockholders, a class of Directors is
elected for a full term of three years to succeed the class of Directors whose
terms expire at such Annual Meeting.
<PAGE>
 
Executive Officers
------------------

       The Company's executive officers include John W. O'Leary, President and
Chief Executive Officer, Richard A. Marshall, Executive Vice President and Chief
Operating Officer, Vincent C. Dowell, Senior Vice President - Manufacturing,
Michael J. Drennan, Vice President - Finance, Treasurer, Secretary and Chief
Financial Officer, F. Lynn Hamb, Senior Vice President - Technical Operations
and Chief Technical Officer, David B. Lupp, Vice President - Controller,
Assistant Treasurer and Assistant Secretary, and Nick S. Mandrycky, Senior Vice
President - Sales.  Each of these executive officers was appointed by, and
serves at the pleasure of, the Board of Directors.  Information regarding John
W. O'Leary and Richard A. Marshall is included under "Directors".

       Vincent C. Dowell, age 41, joined the Company in 1992 and is currently
Senior Vice President-Manufacturing. Prior to joining the Company, Mr. Dowell
was employed at Harris Corporation in its RF Communications Group, where his
last position was Director of Manufacturing.

       Michael J. Drennan, age 42, joined the Company in 1984 and is currently
Vice President-Finance, Treasurer, Secretary and Chief Financial Officer.  Mr. 
Drennan is a certified public accountant.

       F. Lynn Hamb, age 59, joined the Company in 1995 and is currently Senior
Vice President-Technical Operations and Chief Technical Officer.  Prior to
joining the Company, Dr. Hamb was employed for 31 years by the Eastman Kodak
Company.  During that time Dr. Hamb held various research, product development
and operational positions, most recently as Vice President and Regional Business
Manager for Eastman Kodak Asia-Pacific Limited.

       David B. Lupp, age 40, joined the Company in 1989 and is currently Vice
President-Controller, Assistant Treasurer and Assistant Secretary.  Mr. Lupp is 
a certified public accountant.

       Nick S. Mandrycky, age 39, joined the Company in 1988 and is currently
Senior Vice President - Sales.

       The Merger Agreement, described in Item 1 of this Report, provides that
after the Merger the directors of Merger Sub immediately prior to the effective
time of the Merger (the "Effective Time") will be the initial directors of the
Company and the officers of the Company immediately prior to the Effective Time
will be the initial officers of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

       Under Section 16(a) of the Exchange Act, the Company's Directors,
executive officers and beneficial owners of more than 10% of the Common Stock
are required to report, among other things, their initial ownership of the
Company's equity securities and any subsequent changes in that ownership to the
Securities and Exchange Commission.

       Section 16(a) also requires that copies be furnished to the Company.
Based upon a review of such forms received, the Company is not aware of any late
filings.



ITEM 11.  EXECUTIVE COMPENSATION

Summary Compensation Table
--------------------------

       The following table sets forth certain information for the Company's past
three fiscal years ended

March 31, 1997 concerning the cash and non-cash compensation earned by or
awarded to the Chief Executive Officer of the Company and each of the other four
most highly compensated executive officers of the Company whose combined salary
and bonus exceeded $100,000.
<PAGE>
 
                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
 
                                                                                                           Long-Term
                                                                                                           ---------
                                                       Annual Compensation                            Compensation Awards
                                ------------------------------------------------------------------  ------------------------
<S>                                 <C>         <C>           <C>          <C>        <C>               <C>       <C>
                                                                                                    Securities
                                                                        All Other    Restricted     Underlying    All Other
            Name and              Fiscal                               Compensation   Stock         Options/     Compensation
       Principal Position          Year       Salary ($)    Bonus ($)    $ (1)     Awards ($)(3)    SARs (#)      ($)(2)
------------------------------   ----------  ------------  ----------   --------   ------------      -------      -------
 
John W. O'Leary                       1997       302,900         ---     94,233            ---       61,829       95,257
   President &                        1996       285,755         ---    174,842            ---      116,611       95,565
   Chief Executive Officer            1995       285,755     180,924        ---            ---       45,000      175,087
 
Richard A. Marshall                   1997       194,884         ---        ---            ---       25,000        8,092
   Executive Vice President           1996       169,680         ---        ---            ---       42,500        6,909
   & Chief Operating Officer          1995       144,000      95,064        ---            ---       25,000        7,784
 
F. Lynn Hamb                          1997       148,327         ---        ---            ---       17,000        9,059
  Senior Vice President-              1996       127,688         ---        ---            ---       62,000        1,971
  Technical Operations
  & Chief Technical Officer
 
Vincent C. Dowell                     1997       135,000         ---        ---            ---       15,000        6,827
   Senior Vice President -            1996       123,003         ---        ---            ---       32,500        7,171
   Manufacturing                      1995       105,550      54,013        ---            ---       20,000        5,645
 
Nick S. Mandrycky                     1997       126,557         ---        ---            ---       13,000        6,626
   Senior Vice President -            1996       117,918         ---        ---            ---       25,000        7,033
   Sales                              1995       113,383      53,864        ---            ---       15,000        2,270
</TABLE>
(1) For the fiscal year ended March 31, 1997, amount for Mr. O'Leary consists of
    (i) imputed interest, on non-interest bearing option exercise loans from the
    Company, in the amount of $89,186, and (ii) amount for use of a Company car
    of $5,047.  Excludes certain perquisites for Messrs. Marshall, Hamb, Dowell,
    and Mandrycky which do not exceed the lesser of $50,000 or 10% of the named
    individual's aggregate salary and bonus.

(2) For the fiscal year ended March 31, 1997, amounts consist of (i) Company
    contributions to the Company's 401(k) retirement savings plan on behalf of
    Messrs. O'Leary, Marshall, Hamb, Dowell, and Mandrycky in the amounts of
    $6,192, $6,188, $5,884, $6,125 and $6,002, respectively, (ii) life insurance
    premiums paid by the Company on behalf of such persons in the amounts of
    $47,650, $1,904, $3,175, $702 and $624, respectively and (iii) income tax
    gross-up on the life insurance premium of $41,415 for Mr. O'Leary.

(3) At March 31, 1997, Mr. O'Leary held 60,937 shares of restricted Common Stock
    with an aggregate market value of $1,127,335 (based on a market price of
    $18.50 per share).  At March 31, 1996 and 1995, Mr. O'Leary held shares of
    restricted Common Stock of 68,837 and 108,337, respectively, with aggregate
    market values of $1,273,485 and $2,004,235, respectively (based on a market
    price of $18.50 per share). The 60,937 shares held by Mr. O'Leary at March
    31, 1997 contain restrictions on disposition requiring continued employment
    which will lapse from 1997 through 2001. Mr. O'Leary is entitled to receive
    dividends with respect to such shares of restricted Common Stock.
<PAGE>
 
Options/SARs Grants in Last Fiscal Year
---------------------------------------

          The following tables set forth certain information concerning the
grant of options during the fiscal year ended March 31, 1997 to each of the
executive officers named in the Summary Compensation Table and the number of
stock options held by such executive officers at the end of such fiscal year,
the value of such stock options and the potential value of such stock options at
assumed rates of stock appreciation.

                    OPTIONS/SARS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
 
                                         Individual Grants
                          --------------------------------------------
                          Number of      Percent of Total                           Potential Realizable Value
                          Securities       Options/SARs                             At Assumed Annual Rates
                          Underlying         Granted       Exercise or              Of Stock Appreciation for
                         Options/SARs      To Employees     Base Price   Expiration  Option Term (1)
                                                                                     ---------------
   Name                  Granted (#)(2)   In Fiscal Year    ($/Share)       Date       5% ()$10% ($)
---------------------  ------------      ---------------   ----------    ----------  ---------------
<S>                    <C>               <C>        <C>     <C>          <C>         <C> 
John W. O'Leary           30,000 (3)          9.7%   22.00     8/22/06      421,323       1,062,046
                          31,829 (4)         10.3%  16.125     3/27/07      394,186         931,869
 
Richard A. Marshall       25,000 (3)          8.1%   22.00     8/22/06      351,103         885,038
 
F. Lynn Hamb              17,000 (3)          5.5%   22.00     8/22/06      238,750         601,826

Vincent C. Dowell         15,000 (3)          4.9%   22.00     8/22/06      210,662         531,023
 
Nick S. Mandrycky         13,000 (3)          4.2%   22.00     8/22/06      182,573         460,220
</TABLE> 

(1) These values have been determined based upon assumed rates of appreciation
    and are not intended to forecast the possible future appreciation, if any,
    of the price or value of the Company's Common Stock.

(2) The options entitle the holder to purchase shares of the Company's Common
    Stock at an exercise price which is equal to the fair market value per share
    on the date the stock option was granted.  Payment of the exercise price may
    be made in cash, shares of Common Stock or a combination of cash and shares.
    Named executives who pay the exercise price by exchange of Common Stock
    previously owned are issued a new stock option to purchase additional shares
    of Common Stock equal to the number of shares of Common Stock so exchanged.
    No stock option may be exercised after the expiration of ten years and one
    day from the date of grant.  In the event of a change in control of the
    Company (as defined in the 1990 Incentive Plan), the stock options become
    fully exercisable as of the date of the change in control.

(3) These options vest in five equal annual installments commencing October 1,
    1997.

(4) These options were granted under the reload provision of the 1990 Incentive
    Plan upon Mr. O'Leary's surrender of 31,829 shares of Common Stock
    previously owned to pay the exercise price on his March 26, 1997 exercise of
    102,640 stock options.
<PAGE>
 
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
--------------------------------------------------------------------------------

            AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
                            FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
 
                                                             Number of Securities              Value of Unexercised
                                                            Underlying Unexercised             In-The-Money Options/
                           Shares                          Options /SARs At FY-End (#)         SARs at FY-End ($) (1)
                          Acquired        Value     -----------------------------------------  ----------------------
        Name           On Exercise (#)  Realized($) Exercisable    Unexercisable  Exercisable      Unexercisable
---------------------  ---------------  ----------- -------------  -------------  -----------  ----------------------
<S>                    <C>              <C>         <C>            <C>            <C>          <C>
 
John W. O'Leary               102,640    1,141,870        237,994        178,546    2,175,317          123,743
                                                                                                    
Richard A. Marshall            12,500      217,188         45,900         75,600      173,100          121,650
                                                                                                    
F. Lynn Hamb                      ---          ---         27,400         51,600       15,000              ---
                                                                                                    
Vincent C. Dowell               5,000       93,750         29,500         49,000      123,000           78,000
                                                                                                    
Nick S. Mandrycky               5,000       95,000         55,005         36,000      517,568            6,750
</TABLE>
(1)  Based on a market price of $18.50 per share at March 31, 1997.


Compensation of Directors
-------------------------

          The Directors who are employees of the Company are not compensated for
serving as Directors.  For the fiscal year ended March 31, 1997, Directors who
were not employees of the Company received an annual retainer fee of $8,000, a
committee retainer fee of $1,000 for each committee on which they served, plus a
fee of $1,000 for each meeting of the Board of Directors and its committees
which they attended.

          Non-employee Directors also participate in the 1993 Outside Director
Stock Option Plan which provides for annual grants on April 1 of each year, to
each such Director, of stock options to purchase 1,000 shares of Common Stock at
the fair market value thereof.  Additionally, each non-employee Director on
October 1, 1994 received an award of 1,500 shares of Restricted Stock.  The Plan
provides for additional annual awards of 300 shares of Restricted Stock to each
non-employee Director on each October 1 thereafter.  Directors of the Company
are also reimbursed for out-of-pocket expenses.


Employment Contracts and Termination of Employment and Change in Control
------------------------------------------------------------------------
Arrangements
------------

    Effective in 1996, the Company entered into Continuity Agreements with the
executives named in the Summary Compensation Table.  Such agreements for Messrs.
O'Leary, Marshall, Hamb, Dowell, and Mandrycky provide for minimum salaries of
$302,900, $189,861, $147,000, $135,000, and $128,224 respectively, bonuses as
determined by the Compensation Committee and employee benefits pursuant to any
plans and arrangements from time to time in effect.

    Each of such Continuity Agreements provides that, in the event of
termination of employment for a reason other than cause or disability occurring
within 36 months after a change in control of the Company, as defined in the
agreement, the executive is entitled to the payment of:  (i) an amount equal to
three times his highest annualized base salary plus three times the highest
bonus paid to such executive at any time during the five years preceding
termination and (ii) employee benefits for 36 months following termination.  The
executive is also entitled to (i) and (ii) in the event he leaves within 36
months after a change in control for "good reason" including, among other
things, changes in his duties or responsibilities, relocation of the Company's
offices, or failure to continue a material compensation or benefit plan.
Payments to Messrs. O'Leary and Marshall are to be made in a lump sum upon
termination.  Payments to the other executives are to be made in equal
installments over the 36 months following termination, subject to offset for
salary, bonus or benefit payments made by a subsequent employer within such 36
month period.
<PAGE>
 
    In the event of termination without cause or in the event of termination
subsequent to the 36-month period after change in control, the executive is
entitled to receive, for a period of nine months, his base salary, benefits, any
deferred salary, bonuses or other compensation subject to the terms of the
applicable plan, and a pro rata portion of the bonus that would have been
payable for that fiscal year if maximum discretionary bonuses had been paid.

    Amounts payable upon a change in control under any of the above Continuity
Agreements, are subject to reduction by an amount necessary to avoid any "excise
tax" under Section 4999 of the Internal Revenue Code of 1986, as amended.


Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

    All of the members of the Compensation Committee are independent, non-
employee Directors of the Company and are not former officers of the Company.
Mr. Downey is Chairman and Messrs. Daw, Lennox and Montague are the other
current members of the Compensation Committee.  No executive officer of the
Company serves as a member of the board of directors or on the compensation
committee of a corporation of which any of the Company's Directors serving on
the Compensation Committee or on the Board of Directors is an executive officer.

    Mr. Lennox, the Company's Chairman of the Board and a member of the
Compensation Committee, was paid consulting fees of $80,000 by the Company
during the Company's fiscal year ended March 31, 1997.  The Company anticipates
paying consulting fees to Mr. Lennox in the future.

    Mr. Kubovcik, a former Director and member of the Compensation Committee, is
a partner in the law firm of Kubovcik & Kubovcik and a former partner in the law
firm of Adduci, Mastriani & Schaumberg, LLP, resident in their Washington DC 
office, of both of which provide legal services to the Company. 
 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth certain information as to the number of
shares of Common Stock beneficially owned, as of June 30, 1997, except as noted
in notes (1) and (3) below, by (i) each person who is known by the Company to
beneficially own more than 5% of the Common Stock, (ii) each Director and
nominee for Director of the Company, (iii) each executive officer identified in
the Summary Compensation Table and (iv) all executive officers and Directors of
the Company as a group.  A person is a beneficial owner if he or she has or
shares voting power or investment power.  At June 30, 1997, there were 8,311,486
shares of Common Stock outstanding.  Except as noted below, the address of all
stockholders identified in the table and accompanying footnotes below is in care
of the Company at its principal executive offices.
<PAGE>
 
                                                       Percentage of
                                             Number     Outstanding
                                            Of Shares   Common Stock
                                            ---------  --------------
 
FMR Corporation (1)                           689,900            8.3%
     82 Devonshire Street
     Boston, MA 02109
Frontier Capital Management (2)               507,090            6.1%
     9a Summer Street
     Boston, MA 02110
John W. O'Leary (3)                           486,513            5.8%
Thomas W. Smith & Thomas N. Tryforos (4)      444,300            5.3%
     323 Railroad Avenue
     Greenwich, CT 06830
Alexander K. Daw (5)                          403,300            4.9%
Nick S. Mandrycky (6)                          60,005              *
Richard A. Marshall (7)                        50,829              *
Robert S. Anderson (8)                         48,143              *
Donald D. Lennox (9)                           36,646              *
Vincent C. Dowell (10)                         29,500              *
F. Lynn Hamb (11)                              28,400              *
William P. Montague (12)                       12,300              *
Michael J. Downey (13)                          4,700              *
Albert J. Simone (12)                           2,300              *
All Directors and executive
  officers as a group (13 persons)          1,294,491           15.0%

  *    Represents less than 1% of the issued and outstanding Common Stock.
     
  (1)  Represents March 31, 1997 ownership as reported in FMR Corporation's
       13(f) filing. FMR Corporation had sole investment power over the 664,100
       shares and sole voting power over 96,800 of the shares of common stock of
       the Company reported in their Schedule 13G dated February 14, 1997.
  (2)  Represents March 31, 1997 ownership as reported in Frontier Capital 
       Managements 13(f) filing.
  (3)  Includes 77,320 shares issuable pursuant to options exercisable within
       60 days and 31,600 shares with restrictions on disposition requiring
       continued employment which will lapse from 1997 through 2001.
  (4)  Represents March 31, 1997 ownership as reported in Thomas W. Smith's
       13(f) filing. Thomas W. Smith and Thomas N. Tryforos have shared
       investment and voting power over 434,000 shares, based on information
       reported in Thomas W. Smith's and Thomas N. Tryforos' Schedule 13D dated
       November 6, 1996.  
  (5)  Includes 400,000 shares held by D.G. Daw Investments Pty. Ltd., with
       which Mr. Daw has shared voting and investment power, 1,500 shares held
       by Mr. Daw with restrictions on disposition which will lapse from 1997 to
       2001, and 1,200 shares issuable pursuant to options exercisable within 60
       days.
  (6)  Includes 55,005 shares issuable pursuant to options exercisable within 60
       days.
  (7)  Includes 45,900 shares issuable pursuant to options exercisable within 60
       days.
  (8)  Includes 1,500 shares with restrictions on disposition which will lapse
       from 1997 to 2001, 1,200 shares issuable pursuant to options exercisable
       within 60 days, and excludes 22,500 shares held by Mr. Anderson's spouse
       as custodian for Mr. Anderson's minor children, as to which Mr. Anderson
       disclaims beneficial ownership.
  (9)  Includes 1,500 shares with restrictions on disposition which will lapse
       from 1997 to 2001 and 1,200 shares issuable pursuant to options
       exercisable within 60 days.
  (10) Consists entirely of 29,500 shares issuable pursuant to options
       exercisable within 60 days.
  (11) Includes 27,400 shares issuable pursuant to options exercisable within 60
       days.
  (12) Includes 1,500 shares with restrictions on disposition which will lapse
       from 1997 to 2001, and 200 shares issuable pursuant to options
       exercisable within 60 days.
  (13) Includes 1,500 shares with restrictions on disposition which will lapse
       from 1997 to 2001, and 600 shares issuable pursuant to options
       exercisable within 60 days.

       On July 15, 1997, the Company, PAXAR Corporation, a New York corporation
("PAXAR"), and Ribbon Manufacturing, Inc., a Delaware corporation and a wholly
owned subsidiary of PAXAR ("Merger Sub"), entered into an Agreement and Plan of
Merger (the "Merger Agreement"), upon and subject to the terms and conditions of
which Merger Sub will be merged (the "Merger") with and into the Company and the
Company will become a wholly owned subsidiary of PAXAR. In the Merger, each
issued and outstanding share of the common stock of the Company will be
converted into the right to receive between 1.2 and 1.412 shares of common stock
of PAXAR. A copy of the Merger Agreement was filed as Exhibit 2 to the Company's
current Report on Form 8-K, dated July 29, 1997.
<PAGE>
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          Certain executive officers of the Company are indebted to the Company
under non-interest bearing demand notes and term-loans, secured by personal
assets, which were incurred to exercise stock options and in lieu of fiscal 1996
bonus, respectively.  The amount of indebtedness as of June 30, 1997 of each
Officer and Director, whose indebtedness exceeded $60,000 during the fiscal year
follows.  The maximum amount of indebtedness of each such person during the
fiscal year ended March 31, 1997 is the amount indicated in notes (1) - (6)
below.
<TABLE>
<CAPTION>
 
                                                                              Amount of
                                                                           Indebtedness ($)
            Name                        Title                              at June 30, 1997
            ----                        -----                              ---------------
<S>                              <C>                                  <C>                     
 
John W. O'Leary (1)              President and Chief                          2,148,846
                                 Executive Officer
                               
Richard A. Marshall (2)          Executive Vice                                  25,452
                                 President and Chief
                                 Operating Officer
                               
Michael J. Drennan (3)           Vice President - Finance,                       30,706
                                 Secretary, Treasurer and
                                 Chief Financial Officer
                               
Vince C. Dowell (4)              Senior Vice President -                         14,351  
                                 Manufacturing
                               
Nick S. Mandrycky (5)            Senior Vice President -                         81,570  
                                 Sales
                               
David B. Lupp (6)                Vice President - Controller,                    98,550  
                                 Assistant Secretary and Assistant Treasurer
</TABLE>                   

(1)  Maximum amount of in  debtedness during the fiscal year was $2,930,334.
(2)  Maximum amount of in  debtedness during the fiscal year was $173,803.
(3)  Maximum amount of in  debtedness during the fiscal year was $1,318,356.
(4)  Maximum amount of in  debtedness during the fiscal year was $89,339.
(5)  Maximum amount of in  debtedness during the fiscal year was $88,449.
(6)  Maximum amount of in  debtedness during the fiscal year was $103,935.
                           
          Mr. Lennox, the Company's Chairman of the Board and a member of the
Compensation Committee, was paid consulting fees of $80,000 by the Company
during the Company's fiscal year ended March 31, 1997. The Company anticipates
paying consulting fees to Mr. Lennox in the future.
                         
<PAGE>
 
                                    PART IV



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

(A)  (1)  FINANCIAL STATEMENTS - THE FOLLOWING FINANCIAL STATEMENTS, ARE 
INCLUDED IN PART II, ITEM 8 OF THIS REPORT:

                  Consolidated Statements of Income for the years ended      
                      March 31, 1995, 1996 and 1997                          
                  Consolidated Balance Sheets at March 31, 1996 and 1997     
                  Consolidated Statements of Cash Flows for the years ended  
                      March 31, 1995, 1996 and 1997                          
                  Consolidated Statements of Stockholders' Equity            
                      for the years ended March 31, 1995, 1996 and 1997      
                  Notes to Consolidated Financial Statements                 
                  Independent Auditors' Report                               
                                                                             
 
  (2) FINANCIAL STATEMENT SCHEDULES:
 

          Independent Auditors' Report on Financial Statement Schedule
          Schedule II  Valuation and qualifying accounts

     (Schedules other than those listed are omitted for the reason that they are
     not required, are not applicable or the required information is shown in
     the financial statements or notes thereto.)
     
  (3)  EXHIBITS:

Exhibits designated by an asterisk are management contracts and compensatory
plans and arrangements required to be identified by Item 14(a)(3).

 
Exhibit
Number                                 Description
-------                                -----------
 
3.1.1           Amended and Restated Certificate of Incorporation of the
                Registrant. (Incorporated by reference to Exhibit 3.1 to the
                Registration Statement of the Registrant on Form S-1
                (Registration No. 33-62290) (the "Registration Statement on Form
                S-1").)
3.1.2           Amended and Restated Certificate of Incorporation of the
                Registrant. (Incorporated by reference to Exhibit 3 of Form 10-Q
                dated February 3, 1995.) 
3.2             By-laws of the Registrant. (Incorporated by reference to Exhibit
                3.2 to the Registration Statement on Form S-1.)
4.1             Form of Certificate for Common Stock of the Registrant.
                (Incorporated by reference to Exhibit 4.1 to the Registration
                Statement on Form S-1.)
10.1.1          License Agreement, dated September 18, 1996, between Fujicopian
                Co., Ltd. and the Registrant. (Incorporated by reference to
                Exhibit 10.1 of Form 10-Q dated October 1, 1996.)
<PAGE>
 
Exhibit
Number                                 Description
-------                                -----------
              
10.2           Indemnification Agreement, dated April 11, 1988, between
               Fujicopian and the Registrant. (Incorporated by reference to
               Exhibit 10.2 to the Registration Statement on Form S-1.)
10.4.1         Cross-License Agreement, dated as of December 14, 1984, between
               International Business Machines Corporation ("IBM") and the
               Registrant. (Incorporated by reference to Exhibit 10.4.1 to the
               Registration Statement on Form S-1.)
10.4.2         Letter Agreement, dated September 3, 1987, between Fujicopian and
               the Registrant and related to Cross-License Agreement, dated as
               of July 1, 1986, between IBM and Fujicopian. (Incorporated by
               reference to Exhibit 10.4.2 to the Registration Statement on Form
               S-1.)
10.10          Memorandum of Understanding Concerning Heat-Sensitive Color
               Transfer Ribbons, dated April 1989, between Fujicopian and Dai
               Nippon Printing Co., Ltd., for the benefit, in part, of the
               Registrant (including an English translation thereof).
               (Incorporated by reference to Exhibit 10.10 to the Registration
               Statement on Form S-1.)
10.11          Letter Agreement, dated April 1, 1987, among Fujicopian, Toppan
               Printing Co., Ltd. and Toyo Ink Manufacturing Co., Ltd., for the
               benefit, in part, of the Registrant (including an English
               translation thereof). (Incorporated by reference to Exhibit 10.11
               to the Registration Statement on Form S-1.)
10.12.6        Registration Rights Agreement, dated May 6, 1988, between the
               Registrant and Norstar Bank. (Incorporated by reference to
               Exhibit 10.12.6 to the Registration Statement on Form S-1.)
10.12.7        Common Stock Subscription Warrant, dated May 6, 1988, between the
               Registrant and Norstar Bank. (Incorporated by reference to
               Exhibit 10.12.7 to the Registration Statement on Form S-1.)
10.13.1        Guarantee Agreement, dated March 30, 1989, made by the JDA to
               Norstar Bank for the benefit of and accepted by the Registrant.
               (Incorporated by reference to Exhibit 10.13.1 to the Registration
               Statement on Form S-1.)
10.13.2        Amendment, dated December 27, 1990, to Guarantee Agreement
               referenced in Exhibit 10.13.1. (Incorporated by reference to
               Exhibit 10.13.2 to the Registration Statement on Form S-1.)
10.13.3        Loan and Use Agreement, dated as of March 30, 1989, between
               Norstar Bank, the Town of Amherst Industrial Development Agency
               ("IDA") and the Registrant and agreed to by the JDA.
               (Incorporated by reference to Exhibit 10.13.3 to the Registration
               Statement on Form S-1.)
10.13.4        Mortgage, dated as of March 30, 1989, made by the Registrant and
               the IDA to Norstar Bank. (Incorporated by reference to Exhibit
               10.13.4 to the Registration Statement on Form S-1.)
10.13.5        Indemnification and Guaranty Agreement, dated as of March 30,
               1989, from the Registrant to the JDA. (Incorporated by reference
               to Exhibit 10.13.5 to the Registration Statement on Form S-1.)
<PAGE>
 
Exhibit
Number                                 Description
-------                                -----------
                
10.13.6        Subordination Agreement, dated as of March 30, 1989, by Norstar
               Bank for the benefit of the IDA, the JDA and the Registrant.
               (Incorporated by reference to Exhibit 10.13.6 to the Registration
               Statement on Form S-1.)
10.13.7        Mortgage Modification and Spreader Agreement, dated December 27,
               1990, with respect to $1,400,000 Mortgage, among the JDA, Norstar
               Bank, the IDA and the Registrant. (Incorporated by reference to
               Exhibit 10.15.8 to the Registration Statement on Form S-1.)
10.14.1        Guarantee Agreement, dated as of March 30, 1989, made by the JDA
               to Norstar Bank for the benefit of and accepted by the
               Registrant. (Incorporated by reference to Exhibit 10.14.1 to the
               Registration Statement on Form S-1.)
10.14.2        Amendment, dated December 27, 1990, to Guarantee Agreement
               referenced in Exhibit 10.14.1. (Incorporated by reference to
               Exhibit 10.14.2 to the Registration Statement on Form S-1.)
10.14.3        Security Agreement (Machinery and Equipment), dated as of March
               30, 1989, made by the Registrant for the benefit of Norstar Bank
               and accepted by the JDA. (Incorporated by reference to Exhibit
               10.14.3 to the Registration Statement on Form S-1.)
10.14.4        Indemnification and Guaranty Agreement, dated as of March 30,
               1989, made by the Registrant to the JDA. (Incorporated by
               reference to Exhibit 10.14.4 to the Registration Statement on
               Form S-1.)
10.14.5        Intercreditor Agreement, dated as of March 30, 1989, among
               Norstar Bank, The Buffalo and Erie County Regional Development
               Corporation ("RDC") and the JDA and acknowledged and accepted by
               the Registrant. (Incorporated by reference to Exhibit 10.14.5 to
               the Registration Statement on Form S-1.)
10.14.6        Letter Agreement, dated May 27, 1993 between the New York Job
               Development Authority and the Registrant assigning a loan to the
               New York Job Development Authority. (Incorporated by reference to
               Exhibit 10.14.6 of Form 10-K dated June 15, 1994.)
10.15.9        Security Agreement (Machinery and Equipment), dated December 27,
               1990, from the Registrant to Norstar Bank and agreed to and
               accepted by the JDA and related to Machinery and Equipment
               Promissory Note. (Incorporated by reference to Exhibit 10.15.9 to
               the Registration Statement on Form S-1.)
10.15.10       Guarantee Agreement, dated December 27, 1990 from the JDA to
               Norstar Bank for the benefit of and acknowledged and accepted by
               the Registrant. (Incorporated by reference to Exhibit 10.15.10 to
               the Registration Statement on Form S-1.)
10.15.11       Indemnification and Guaranty Agreement, dated as of December 27,
               1990, between the JDA and the Registrant. (Incorporated by
               reference to Exhibit 10.15.11 to the Registration Statement on
               Form S-1.)
10.15.12       Intercreditor Agreement, dated as of December 27, 1990, among
               Norstar Bank, the RDC and the JDA and acknowledged and agreed to
               by the Registrant. (Incorporated by reference to Exhibit 10.15.12
               to the Registration Statement on Form S-1.)
10.15.14       Letter Agreement, dated June 3, 1993 between the New York Job
               Development Authority and the Registrant assigning a loan to the
               New York Job Development Authority. (Incorporated by reference to
               Exhibit 10.14.6 of Form 10-K dated June 15, 1994.)
10.16          Demand Note Agreement, dated March 31, 1995, between Fleet Bank
               and the Registrant. (Incorporated by reference to Exhibit 10.16
               of Form 10-K dated June 15, 1995.
10.16.1        Amendment, dated June 17, 1996, to Demand Note Agreement
               referenced in Exhibit 10.16.
10.17.1        Assignment, dated March 26, 1992, of Security Agreement and
               Machinery and Equipment Promissory Note referenced in Exhibit
               10.15.9, and of Guarantee Agreement referenced in Exhibit
               10.15.10, from Norstar Bank to Marine Midland Bank and
               acknowledged and consented to by the JDA. (Incorporated by
               reference to Exhibit 10.17.1 to the Registration Statement on
               Form S-1.)
10.17.2        Modification and Reaffirmation Agreement, dated as of March 26,
               1992, between Marine Midland Bank, the JDA and the Registrant.
               (Incorporated by reference to Exhibit 10.17.2 to the Registration
               Statement on Form S-1.)
<PAGE>
 
Exhibit
Number                                 Description
-------                                -----------
                 
10.17.3        Letter Agreement, dated March 26, 1992, from Marine Midland Bank
               to Norstar Bank and agreed to by Norstar Bank and the JDA and
               related to Intercreditor Agreement referenced in Exhibit
               10.15.12. (Incorporated by reference to Exhibit 10.17.3 to the
               Registration Statement on Form S-1.)
10.18          Demand Note Agreement, dated March 31, 1995, between Marine
               Midland Bank and the Registrant. (Incorporated by reference to
               Exhibit 10.18 of Form 10-K dated June 15, 1995.)
10.18.1        Demand Note Agreement, dated January 2, 1997, between Marine
               Midland Bank and the Registrant. (Incorporated by reference to
               Exhibit 10.1 of Form 10-Q dated December 31, 1996.)
*10.19.1       1984 Stock Plan of the Registrant. (Incorporated by reference to
               Exhibit 10.19.1 to the Registration Statement on Fo rm S-1.)
*10.19.2       Amendment No. 1, dated October 29, 1987, to 1984 Stock Plan of
               the Registrant referenced in Exhibit 10.19.1. (Incorporated by
               reference to Exhibit 10.19.2 to the Registration Statement on
               Form S-1.)
*10.19.3       Amendment, dated July 27, 1989, to 1984 Stock Plan of the
               Registrant referenced in Exhibit 10.19.1. (Incorporated by
               reference to Exhibit 10.19.3 to the Registration Statement on
               Form S-1.)
*10.19.4       Amendment, dated May 11, 1990, to 1984 Stock Plan of the
               Registrant referenced in Exhibit 10.19.1. (Incorporated by
               reference to Exhibit 10.19.4 to the Registration Statement on
               Form S-1.)
*10.19.5       Amendment No. 2, dated July 26, 1990, to 1984 Stock Plan of the
               Registrant referenced in Exhibit 10.19.1. (Incorporated by
               reference to Exhibit 10.19.5 to the Registration Statement on
               Form S-1.)
*10.19.6       Amendment, dated October 6, 1993, to 1984 Stock Plan of the
               Registrant referenced in Exhibit 10.19.1. (Incorporated by
               reference to Exhibit 4.3 to the Registration Statement of the
               Registrant on Form S-8 (Registration No. 33-71716) (the
               "Registration Statement on Form S-8").)
*10.19.7       Amendment dated February 24, 1989, to 1984 Stock Plan of the
               Registrant referenced in Exhibit 10.19.1. (Incorporated by
               reference to Exhibit 10.20.4 to the Registration Statement on
               Form S-1.)
*10.21.1       1990 Incentive Plan of the Registrant. (Incorporated by reference
               to Exhibit 10.21 to the Registration Statement on Form S-1.)
*10.21.2       Amendment, dated October 6, 1993, to 1990 Incentive Plan of the
               Registrant referenced in Exhibit 10.21.1. (Incorporated by
               reference to Exhibit 4.4 to the Registration Statement on Form S-
               8.)
*10.21.3       Amendment dated March 17, 1995, to 1990 Incentive Plan of the
               Registrant referenced in Exhibit 10.21.1. (Incorporated by
               reference to Exhibit 10.21.3 of Form 10-K dated June 15, 1995.)
10.23          Form of Demand Note executed by persons listed in item 404(c) of
               regulations S-K who are indebted to the Company as evidence of
               such indebtedness as set forth on the schedule attached to the
               form.
10.23.1        Form of Term Note executed by persons listed in item 404(c) of
               regulation S-K who are indebted to the Company as evidence of
               such indebtedness as set forth on the schedule attached to the
               form.
*10.24.1       Executive Continuity Agreement, dated December 31, 1996, between
               John W. O'Leary and the Registrant. (Incorporated by reference to
               Exhibit 10.24.1 of Form 10-Q dated December 31, 1996.)
*10.24.3       Executive Continuity Agreement, dated December 31, 1996, between
               Richard A. Marshall and the Registrant. (Incorporated by
               reference to Exhibit 10.24.2 of Form 10-Q dated December 31,
               1996.)
*10.24.4       Executive Continuity Agreement, dated December 31, 1996, between
               Michael J. Drennan and the Registrant. (Incorporated by reference
               to Exhibit 10.24.3 of Form 10-Q dated December 31, 1996.)
*10.24.5       Executive Continuity Agreement, dated December 31, 1996, between
               Vincent C. Dowell and the Registrant. (Incorporated by reference
               to Exhibit 10.24.4 of Form 10-Q dated December 31, 1996.)
*10.24.6       Executive Continuity Agreement, dated June 23, 1994, between
               Richard W. Dean and the Registrant. (Incorporated by reference to
               Exhibit 10.24.6 of Form 10-K dated June 15, 1994.)
*10.24.7       Executive Continuity Agreement, dated December 31, 1996, between
               Nick S. Mandrycky and the Registrant. (Incorporated by reference
               to Exhibit 10.24.5 of Form 10-Q dated December 31, 1996.)
*10.24.8       Executive Continuity Agreement, dated December 31, 1996, between
               Rickey W. Wallace and the Registrant. (Incorporated by reference
               to Exhibit 10.24.6 of Form 10-Q dated December 31, 1996.)
*10.24.9       Executive Continuity Agreement, dated December 31, 1996, between
               F. Lynn Hamb and the Registrant. (Incorporated by reference to
               Exhibit 10.24.7 of Form 10-Q dated December 31, 1996.)
<PAGE>
 
Exhibit
Number                                 Description
-------                                ----------- 
  
*10.24.10      Executive Continuity Agreement, dated December 31, 1996, between
               David B. Lupp and the Registrant. (Incorporated by reference to
               Exhibit 10.24.8 of Form 10-Q dated December 31, 1996.)
*10.24.11      Executive Continuity Agreement dated December 31, 1996, between
               Susan R. Stamp and the Registrant. (Incorporated by reference to
               Exhibit 10.24.9 of Form 10-Q dated December 31, 1996.)
*10.25         Key Man Life Insurance Policy, dated December 17, 1992, issued by
               The Mutual of New York on the life of John W. O'Leary, in the
               amount of $2,000,000, with the Registrant named as beneficiary.
               (Incorporated by reference to Exhibit 10.25.2 to the Registration
               Statement on Form S-1.)
10.26.1        Lease Agreement, dated May 12, 1992, between Uniland Development
               Company and the Registrant with respect to 165 Creekside Drive,
               Tonawanda, New York. (Incorporated by reference to Exhibit
               10.26.1 to the Registration Statement on Form S-1.)
10.26.2        First Amendment, dated April 23, 1993, to Lease Agreement
               referenced in Exhibit 10.26.1. (Incorporated by reference to
               Exhibit 10.26.2 to the Registration Statement on Form S-1.)
10.27.1        Lease Agreement, dated December 29, 1992, between Uniland
               Development Company and the Registrant with respect to 70 John
               Glenn, Amherst. (Incorporated by reference to Exhibit 10.27 to
               the Registration Statement on Form S-1.)
10.27.2        First Amendment, dated September 17, 1993, to Lease Agreement
               referenced in Exhibit 10.27.1. (Incorporated by reference to
               Exhibit 10.27.2 of Form 10-K dated June 15, 1994.)
10.28          Form of Registration Rights Agreement. (Incorporated by reference
               to Exhibit 10.28 to the Registration Statement on Form S-1.)
*10.29         Form of Directors and Officers Indemnification Agreement.
               (Incorporated by reference to Exhibit 10.29 to the Registration
               Statement on Form S-1.)
10.30          1993 Employee Stock Purchase Plan. (Incorporated by reference to 
               Exhibit 4.5 to the Registration Statement on Form S-8.)
*10.31         1993 Outside Director Stock Option and Restricted Stock Plan.
               (Incorporated by reference to Exhibit 10.31 of Form 10-K dated
               June 15, 1995.)
11             Statement re Computation of Per Share Earnings.
21             Subsidiaries of the Registrant
23             Consent of KPMG Peat Marwick
27             Financial Data Schedule
 

(B)  REPORTS ON FORM 8-K:

     None
<PAGE>
 
                                  SIGNATURES

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

                              INTERNATIONAL IMAGING MATERIALS, INC.


                              By:        /s/ John W. O'Leary
                                 ----------------------------------
                                           John W. O'Leary
                                               President

                                           July 29, 1997
                                 ----------------------------------
                                               Date

     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.
<TABLE>
<CAPTION>
 
           Signature                           Title                     Date
           ---------                           -----                     ----
<S>                              <C>                                 <C>
 
  /s/ John W. O'Leary            President and Chief Executive       July 29, 1997
-------------------------------    Officer, Director  
    John W. O'Leary                (Chief Operating Officer)
    
 
/s/ Michael J. Drennan           Vice President - Finance,           July 29, 1997
-------------------------------    Treasurer, Secretary and
   Michael J. Drennan              Chief Financial Officer
     
 
 /s/ Donald D. Lennox            Chairman of the Board of Directors  July 29, 1997
-------------------------------  
   Donald D. Lennox

/s/ Robert S. Anderson           Director                            July 29, 1997
-------------------------------
  Robert S. Anderson


                                 Director                                         
------------------------------
  Alexander K. Daw


                                 Director                                                  
-----------------------------
  Michael J. Downey


/s/ Richard A. Marshall          Executive Vice President &          July 29, 1997
----------------------------       Chief Operating Officer, 
  Richard A. Marshall              Director
         

/s/ William P. Montague          Director                            July 29, 1997
----------------------------  
  William P. Montague


/s/ Albert J. Simone             Director                            July 29, 1997
----------------------------
  Albert J. Simone
</TABLE> 
<PAGE>
 
                         Independent Auditors' Report
                         ----------------------------



The Board of Directors
International Imaging Materials, Inc.:


Under date of April 23, 1997, we reported on the consolidated balance sheets of
International Imaging Materials, Inc. and subsidiaries as of March 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended March 31,
1997, as contained in the 1997 annual report to stockholders.  These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year ended March 31, 1997.
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement schedule as
listed in item 14(a)2 of this annual report on Form 10-K.  This financial
statement schedule is the responsibility of the Company's management.  Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic financial statement taken as a whole, presents fairly, in all
material respects, the information set forth therein.



                                                /s/ KPMG Peat Marwick LLP
                                           ------------------------------------
                                                  KPMG Peat Marwick LLP



Buffalo, New York
April 23, 1997



                                      S-1
<PAGE>
 
                                                                     SCHEDULE II

                     INTERNATIONAL IMAGING MATERIALS, INC.

                       VALUATION AND QUALIFYING ACCOUNTS

                                 (In Thousands)
<TABLE>
<CAPTION>
 
                                           BALANCE AT      AMOUNT    CHARGE-OFFS   BALANCE
                                           BEGINNING     CHARGED TO      AND      AT END OF
       YEAR ENDED          DESCRIPTION      OF YEAR       EXPENSES    DISPOSALS     YEAR
------------------------  -------------  --------------  ----------  -----------  ---------
<S>                       <C>            <C>             <C>         <C>          <C>
 
March 31, 1995            Allowance for
                          doubtful trade
                          receivables                18         122           19         121
 
                          Inventories valuation     226         550          199         577
                                                   ----        ----       ------       -----
                                                   $244        $672         $218      $  698
                                                   ====        ====         ====      ======
 
 
March 31, 1996            Allowance for
                          doubtful trade
                          receivables               121         169            6         284
 
                          Inventories valuation     577         226          403         400
                                                   ----        ----       ------         ---
                                                   $698        $395         $409      $  684
                                                   ====        ====         ====      ======
 
 
March 31, 1997            Allowance for
                          doubtful trade
                          receivables               284          41           50         275
 
                          Inventories valuation     400         680          255         825
                                                   ----        ----       ------         ---
                                                   $684        $721         $305      $1,100
                                                   ====        ====         ====      ======
 
</TABLE>

                                      S-2

<PAGE>
 
                               INDEX TO EXHIBITS
                               -----------------

<TABLE>
<CAPTION>
 
 
Exhibit
Number                 Description                 Location
-------  ----------------------------------------  --------
<C>      <S>                                       <C>
 
  3.1.1  Amended and Restated Certificate of
         Incorporation of the Registrant.
         (Incorporated by reference to Exhibit
         3.1 to the Registration Statement of
         the Registrant on Form S-1
         (Registration No. 33-62290) (the
         "Registration Statement on Form S-1").)
  3.1.2  Amended and Restated Certificate of
         Incorporation of the Registrant.
         (Incorporated by reference to Exhibit 3
         of Form 10-Q dated February 3, 1995.)
    3.2  By-laws of the Registrant.
         (Incorporated by reference to Exhibit
         3.2 to the Registration Statement on
         Form S-1.)
    4.1  Form of Certificate for Common Stock of
         the Registrant.  (Incorporated by
         reference to Exhibit 4.1 to the
         Registration Statement on Form S-1.)
 10.1.1  License Agreement, dated September 18,
         1996, between Fujicopian Co., Ltd. and
         the Registrant.  (Incorporated by
         reference to Exhibit 10.1 of Form 10-Q
         dated October 1, 1996.)
   10.2  Indemnification Agreement, dated April
         11, 1988, between Fujicopian and the
         Registrant.  (Incorporated by reference
         to Exhibit 10.2 to the Registration
         Statement on Form S-1.)
 10.4.1  Cross-License Agreement, dated as of
         December 14, 1984, between
         International Business Machines
         Corporation ("IBM") and the Registrant.
         (Incorporated by reference to Exhibit
         10.4.1 to the Registration Statement on
         Form S-1.)
 10.4.2  Letter Agreement, dated September 3,
         1987, between Fujicopian and the
         Registrant and related to Cross-License
         Agreement, dated as of July 1, 1986,
         between IBM and Fujicopian.
         (Incorporated by reference to Exhibit
         10.4.2 to the Registration Statement on
         Form S-1.)
  10.10  Memorandum of Understanding Concerning
         Heat-Sensitive Color Transfer Ribbons,
         dated April 1989, between Fujicopian
         and Dai Nippon Printing Co., Ltd., for
         the benefit, in part, of the Registrant
         (including an English translation
         thereof).  (Incorporated by reference
         to Exhibit 10.10 to the Registration
         Statement on Form S-1.)
  10.11  Letter Agreement, dated April 1, 1987,
         among Fujicopian, Toppan Printing Co.,
         Ltd. and Toyo Ink Manufacturing Co.,
         Ltd., for the benefit, in part, of the
         Registrant (including an English
         translation thereof).  (Incorporated by
         reference to Exhibit 10.11 to the
         Registration Statement on Form S-1.)
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
Exhibit
 Number                 Description                  Location
--------  ----------------------------------------   --------
<C>       <S>                                        <C>
 
 10.12.6  Registration Rights Agreement, dated
          May 6, 1988, between the Registrant and
          Norstar Bank.  (Incorporated by
          reference to Exhibit 10.12.6 to the
          Registration Statement on Form S-1.)
 10.12.7  Common Stock Subscription Warrant,
          dated May 6, 1988, between the
          Registrant and Norstar Bank.
          (Incorporated by reference to Exhibit
          10.12.7 to the Registration Statement
          on Form S-1.)
 10.13.1  Guarantee Agreement, dated March 30,
          1989, made by the JDA to Norstar Bank
          for the benefit of and accepted by the
          Registrant.  (Incorporated by reference
          to Exhibit 10.13.1 to the Registration
          Statement on Form S-1.)
 10.13.2  Amendment, dated December 27, 1990, to
          Guarantee Agreement referenced in
          Exhibit 10.13.1.  (Incorporated by
          reference to Exhibit 10.13.2 to the
          Registration Statement on Form S-1.)
 10.13.3  Loan and Use Agreement, dated as of
          March 30, 1989, between Norstar Bank,
          the Town of Amherst Industrial
          Development Agency ("IDA") and the
          Registrant and agreed to by the JDA.
          (Incorporated by reference to Exhibit
          10.13.3 to the Registration Statement
          on Form S-1.)
 10.13.4  Mortgage, dated as of March 30, 1989,
          made by the Registrant and the IDA to
          Norstar Bank.  (Incorporated by
          reference to Exhibit 10.13.4 to the
          Registration Statement on Form S-1.)
 10.13.5  Indemnification and Guaranty Agreement,
          dated as of March 30, 1989, from the
          Registrant to the JDA.  (Incorporated
          by reference to Exhibit 10.13.5 to the
          Registration Statement on Form S-1.)
 10.13.6  Subordination Agreement, dated as of
          March 30, 1989, by Norstar Bank for the
          benefit of the IDA, the JDA and the
          Registrant.  (Incorporated by reference
          to Exhibit 10.13.6 to the Registration
          Statement on Form S-1.)
 10.13.7  Mortgage Modification and Spreader
          Agreement, dated December 27, 1990,
          with respect to $1,400,000 Mortgage,
          among the JDA, Norstar Bank, the IDA
          and the Registrant.  (Incorporated by
          reference to Exhibit 10.15.8 to the
          Registration Statement on Form S-1.)
 10.14.1  Guarantee Agreement, dated as of March
          30, 1989, made by the JDA to Norstar
          Bank for the benefit of and accepted by
          the Registrant.  (Incorporated by
          reference to Exhibit 10.14.1 to the
          Registration Statement on Form S-1.)
 10.14.2  Amendment, dated December 27, 1990, to
          Guarantee Agreement referenced in
          Exhibit 10.14.1.  (Incorporated by
          reference to Exhibit 10.14.2 to the
          Registration Statement on Form S-1.)
 10.14.3  Security Agreement (Machinery and
          Equipment), dated as of March 30, 1989,
          made by the Registrant for the benefit
          of Norstar Bank and accepted by the
          JDA.  (Incorporated by reference to
          Exhibit 10.14.3 to the Registration
          Statement on Form S-1.)
 10.14.4  Indemnification and Guaranty Agreement,
          dated as of March 30, 1989, made by the
          Registrant to the JDA.  (Incorporated
          by reference to Exhibit 10.14.4 to the
          Registration Statement on Form S-1.)
 10.14.5  Intercreditor Agreement, dated as of
          March 30, 1989, among Norstar Bank, The
          Buffalo and Erie County Regional
          Development Corporation ("RDC") and the
          JDA and acknowledged and accepted by
          the Registrant.  (Incorporated by
          reference to Exhibit 10.14.5 to the
          Registration Statement on Form S-1.)
 10.14.6  Letter Agreement, dated May 27, 1993
          between the New York Job Development
          Authority and the Registrant assigning
          a loan to the New York Job Development
          Authority.  (Incorporated by reference
          to Exhibit 10.14.6 of Form 10-K dated
          June 15, 1994.)
 10.15.9  Security Agreement (Machinery and
          Equipment), dated December 27, 1990,
          from the Registrant to Norstar Bank and
          agreed to and accepted by the JDA and
          related to Machinery and Equipment
          Promissory Note.  (Incorporated by
          reference to Exhibit 10.15.9 to the
          Registration Statement on Form S-1.)
10.15.10  Guarantee Agreement, dated December 27,
          1990 from the JDA to Norstar Bank for
          the benefit of and acknowledged and
          accepted by the Registrant.
          (Incorporated by reference to Exhibit
          10.15.10 to the Registration Statement
          on Form S-1.)
10.15.11  Indemnification and Guaranty Agreement,
          dated as of December 27, 1990, between
          the JDA and the Registrant.
          (Incorporated by reference to Exhibit
          10.15.11 to the Registration Statement
          on
          Form S-1.)
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
Exhibit
 Number                 Description                 Location
--------  ----------------------------------------  --------
<C>       <S>                                       <C>
 
10.15.12  Intercreditor Agreement, dated as of
          December 27, 1990, among Norstar Bank,
          the RDC and the JDA and acknowledged
          and agreed to by the Registrant.
          (Incorporated by reference to Exhibit
          10.15.12 to the Registration Statement
          on Form S-1.)
10.15.14  Letter Agreement, dated June 3, 1993
          between the New York Job Development
          Authority and the Registrant assigning
          a loan to the New York Job Development
          Authority.  (Incorporated by reference
          to Exhibit 10.14.6 of Form 10-K dated
          June 15, 1994.)
   10.16  Demand Note Agreement, dated March 31,
          1995, between Fleet Bank and the
          Registrant.  (Incorporated by reference
          to Exhibit 10.16 of Form 10-K dated
          June 15, 1995.)
 10.16.1  Amendment, dated June 17, 1996 to
          Demand Note Agreement referenced in
          Exhibit 10.16.
 10.17.1  Assignment, dated March 26, 1992, of
          Security Agreement and Machinery and
          Equipment Promissory Note referenced in
          Exhibit 10.15.9, and of Guarantee
          Agreement referenced in Exhibit
          10.15.10, from Norstar Bank to Marine
          Midland Bank and acknowledged and
          consented to by the JDA.  (Incorporated
          by reference to Exhibit 10.17.1 to the
          Registration Statement on Form S-1.)
 10.17.2  Modification and Reaffirmation
          Agreement, dated as of March 26, 1992,
          between Marine Midland Bank, the JDA
          and the Registrant.  (Incorporated by
          reference to Exhibit 10.17.2 to the
          Registration Statement on Form S-1.)
 10.17.3  Letter Agreement, dated March 26, 1992,
          from Marine Midland Bank to Norstar
          Bank and agreed to by Norstar Bank and
          the JDA and related to Intercreditor
          Agreement referenced in Exhibit
          10.15.12.  (Incorporated by reference
          to Exhibit 10.17.3 to the Registration
          Statement on Form S-1.)
   10.18  Demand Note Agreement, dated March 31,
          1995, between Marine Midland Bank and
          the Registrant.  (Incorporated by
          reference to Exhibit 10.18 of Form 10-K
          dated June 15, 1995.)
 10.18.1  Demand Note Agreement, dated January 2,
          1997, between Marine Midland Bank and
          the Registrant.  (Incorporated by
          reference to Exhibit 10.1 of Form 10-Q
          dated December 31, 1996.)
 10.19.1  1984 Stock Plan of the Registrant.
          (Incorporated by reference to Exhibit
          10.19.1 to the Registration Statement
          on Form S-1.)
 10.19.2  Amendment No. 1, dated October 29,
          1987, to 1984 Stock Plan of the
          Registrant referenced in Exhibit
          10.19.1.  (Incorporated by reference to
          Exhibit 10.19.2 to the Registration
          Statement on Form S-1.)
 10.19.3  Amendment, dated July 27, 1989, to 1984
          Stock Plan of the Registrant referenced
          in Exhibit 10.19.1.  (Incorporated by
          reference to Exhibit 10.19.3 to the
          Registration Statement on Form S-1.)
 10.19.4  Amendment, dated May 11, 1990, to 1984
          Stock Plan of the Registrant referenced
          in Exhibit 10.19.1.  (Incorporated by
          reference to Exhibit 10.19.4 to the
          Registration Statement on Form S-1.)
 10.19.5  Amendment No. 2, dated July 26, 1990,
          to 1984 Stock Plan of the Registrant
          referenced in Exhibit 10.19.1.
          (Incorporated by reference to Exhibit
          10.19.5 to the Registration Statement
          on Form S-1.)
 10.19.6  Amendment, dated October 6, 1993, to
          1984 Stock Plan of the Registrant
          referenced in Exhibit 10.19.1.
          (Incorporated by reference to Exhibit
          4.3 to the Registration Statement of
          the Registrant on Form S-8
          (Registration No. 33-71716) (the
          "Registration Statement on Form S-8").)
 10.19.7  Amendment dated February 24, 1989, to
          1984 Stock Plan of the Registrant
          referenced in Exhibit 10.19.1.
          (Incorporated by reference to Exhibit
          10.20.4 to the Registration Statement
          on Form S-1.)
 10.21.1  1990 Incentive Plan of the Registrant.
          (Incorporated by reference to Exhibit
          10.21 to the Registration Statement on
          Form S-1.)
 10.21.2  Amendment, dated October 6, 1993, to
          1990 Incentive Plan of the Registrant
          referenced in Exhibit 10.21.1.
          (Incorporated by reference to Exhibit
          4.4 to the Registration Statement on
          Form S-8.)
 10.21.3  Amendment dated March 17, 1995, to 1990
          Incentive Plan of the Registrant
          referenced in Exhibit 10.21.1.
          (Incorporated by reference to Exhibit
          10.21.3 of Form 10-K dated June 15,
          1995.)
   10.23  Form of Demand Note executed by persons
          listed in item 404(c) of regulation S-K
          who are indebted to the Company as
          evidence of such indebtedness as set
          forth on the schedule to the form.
 10.23.1  Form of Term Note executed by persons
          listed in item 404(c) of regulation S-K
          who are indebted to the Company as
          evidence of such indebtedness as set
          forth on the schedule attached to the
          form.
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
Exhibit
 Number                         Description                                             Location
--------  ---------------------------------------------------------------------         --------
<C>       <S>                                                                           <C>
 
 10.24.1  Executive Continuity Agreement, dated December 31, 1996, between John
          W. O'Leary and the Registrant.  (Incorporated by reference to Exhibit
          10.24.1 of Form 10-Q dated December 31, 1996.)
 10.24.3  Executive Continuity Agreement, dated December 31, 1996, between
          Richard A. Marshall and the Registrant.  (Incorporated by reference
          to Exhibit 10.24.2 of Form 10-Q dated December 31, 1996.)
 10.24.4  Executive Continuity Agreement, dated December 31, 1996, between
          Michael J. Drennan and the Registrant.  (Incorporated by reference to
          Exhibit 10.24.3 of Form 10-Q dated December 31, 1996.)
 10.24.5  Executive Continuity Agreement, dated December 31, 1996, between
          Vincent C. Dowell and the Registrant.  (Incorporated by reference to
          Exhibit 10.24.4 of Form 10-Q dated December 31, 1996.)
 10.24.6  Executive Continuity Agreement, dated June 23, 1994, between Richard
          W. Dean and the Registrant.  (Incorporated by reference to Exhibit
          10.24.6 of Form 10-K dated June 15, 1994.)
 10.24.7  Executive Continuity Agreement, dated December 31, 1996, between Nick
          S. Mandrycky and the Registrant.  (Incorporated by reference to
          Exhibit 10.24.5 of Form 10-Q dated December 31, 1996.)
 10.24.8  Executive Continuity Agreement, dated December 31, 1996, between
          Rickey W. Wallace and the Registrant.  (Incorporated by reference to
          Exhibit 10.24.6 of Form 10-Q dated December 31, 1996.)
 10.24.9  Executive Continuity Agreement, dated December 31, 1996, between F.
          Lynn Hamb and the Registrant.  (Incorporated by reference to Exhibit
          10.24.7 of Form 10-Q dated December 31, 1996.)
10.24.10  Executive Continuity Agreement dated December 31, 1996, between David
          B. Lupp and the Registrant.  (Incorporated by reference to Exhibit
          10.24.8 of Form 10-Q dated December 31, 1996.)
10.24.11  Executive Continuity Agreement dated December 31, 1996, between Susan
          R. Stamp and the Registrant.  (Incorporated by reference to Exhibit
          10.24.9 of Form 10-Q dated December 31, 1996.)
   10.25  Key Man Life Insurance Policy, dated December 17, 1992, issued by The
          Mutual of New York on the life of John W. O'Leary, in the amount of
          $2,000,000, with the Registrant named as beneficiary.  (Incorporated
          by reference to Exhibit 10.25.2 to the Registration Statement on Form
          S-1.)
 10.26.1  Lease Agreement, dated May 12, 1992, between Uniland Development
          Company and the Registrant with respect to 165 Creekside Drive,
          Tonawanda, New York.  (Incorporated by reference to Exhibit 10.26.1
          to the Registration Statement on Form S-1.)
 10.26.2  First Amendment, dated April 23, 1993, to Lease Agreement referenced
          in Exhibit 10.26.1.  (Incorporated by reference to Exhibit 10.26.2 to
          the Registration Statement on Form S-1.)
 10.27.1  Lease Agreement, dated December 29, 1992, between Uniland Development
          Company and the Registrant with respect to 70 John Glenn, Amherst.
          (Incorporated by reference to Exhibit 10.27 to the Registration
          Statement on Form S-1.)
 10.27.2  First Amendment, dated September 17, 1993, to Lease Agreement
          referenced in Exhibit 10.27.1.  (Incorporated by reference to Exhibit
          10.27.2 of Form 10-K dated June 15, 1994.)
   10.28  Form of Registration Rights Agreement.  (Incorporated by reference to
          Exhibit 10.28 to the Registration Statement on Form S-1.)
   10.29  Form of Directors and Officers Indemnification Agreement.
          (Incorporated by reference to Exhibit 10.29 to the Registration
          Statement on Form S-1.)
   10.30  1993 Employee Stock Purchase Plan. (Incorporated by reference to 
          Exhibit 4.5 to the Registration Statement on Form S-8.)
   10.31  1993 Outside Director Stock Option and Restricted Stock Plan.
          (Incorporated by reference to Exhibit 10.31 of Form 10-K dated June
          15, 1995.)
      11  Statement re Computation of Per Share Earnings.
      21  Subsidiaries of the Registrant
      23  Consent of KPMG Peat Marwick
      27  Financial Data Schedule
 
</TABLE>