UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                    FORM 10-K


              |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 1997

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

                             SECURITIES ACT OF 1934

                         Commission file number 0-19835

                                DAY RUNNER, INC.
             (Exact name of registrant as specified in its charter)
                               Delaware 95-3624280
                (State or other jurisdiction of (I.R.S. Employer
              incorporation or organization) Identification Number)

                  15295 Alton Parkway, Irvine, California 92618
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (714) 680-3500
               Securities registered pursuant to Section 12(b) of
                 the Act: None Securities registered pursuant to
                            Section 12(g) of the Act:

                         Common Stock, $0.001 par value
                                (Title of class)

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

                                 YES |X| NO |_|

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


         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant, based upon the closing price of the Common Stock on September
16, 1997 as reported on The Nasdaq Stock Market, was approximately $207,000,000.

         The number of shares  outstanding of the  registrant's  Common Stock on
September 16, 1997 was 5,598,084.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's definitive Proxy Statement to be delivered
to  stockholders  in connection  with their Annual Meeting of Stockholders to be
held on November 25, 1997 are  incorporated  by reference  into Part III of this
Annual Report.



<PAGE>
                                     PART I
ITEM 1.      BUSINESS

THE COMPANY

     Day Runner", Inc. ("Day Runner") is the leading developer, manufacturer and
marketer of  paper-based  organizers  for the retail  market.  We also  develop,
manufacture and market related  organizing  products.  Day Runner's products are
carried by more than 20,000 retail stores across the U.S.

         We market  our  products  to  customers  through  our own sales  force,
through manufacturers' representatives and, in certain markets outside the U.S.,
through  independent  distributors.  Our major  customers in each of our primary
domestic  channels  include:  office products  superstores  Office Depot,  Inc.,
OfficeMax,  Inc. and Staples,  Inc.; office products national wholesalers United
Stationers  Supply  Co.  and  S.P.  Richards  Company;  office  products  dealer
McWhorter  Stationers Company,  Inc.; and mass market retailers Wal-Mart,  Kmart
and PriceCostco. Sales to the office products and mass market channels accounted
for approximately 47% and 42%, respectively, of fiscal 1997 sales.

         Our organizers and planners are  loose-leaf and  spiral-bound  time and
information  management  systems  that range from simple to  sophisticated.  For
example,  our  flagship  Day  Runner  System  organizers  include  not  only the
traditional  planner  components  of  appointment  calendar,   telephone/address
section  and  note  pad but  also  interrelated  pages  for  managing  time  and
information,  tracking  expenses,  establishing  goals  and  planning  projects.
Segmenting  the market  for  organizers  and  planners  is a key  element of our
strategy.  We aim our product lines at market segments  ranging from students to
women shopping in the mass market to business and professional  people and offer
many of our  organizers  and  planners  in a  choice  of  sizes,  styles,  cover
materials and colors.  Suggested  retail prices for our  organizers and planners
range from $5 to $150.  Organizers and planners  accounted for approximately 58%
of our fiscal 1997 sales.

         Most of our  organizers  and planners are  refillable.  Refills,  which
include calendars and accessories,  accounted for approximately 34% of our sales
in fiscal 1997.  Suggested retail prices for refills,  which include  calendars,
other pages and accessories, range from $0.75 to $40.

         Our  related  organizing  products  include   telephone/address  books,
traditional  spiral dated goods,  products for students from  elementary  school
through college,  personal  information  management  (PIM) software  intended to
complement our paper-based  organizers and our new Home Manager  on-refrigerator
organizer. This category accounted for approximately 8% of fiscal 1997 sales.

         With the  exception  of our  software  product and the  calculators  we
include in certain of our products and sell as  accessories,  all of our current
products have been developed  internally.  We manufacture and assemble a portion
of our products at our Fullerton, California facility and our Mexican subsidiary
and also use foreign and domestic  contractors to supply both product components
and finished goods.



<PAGE>



BUSINESS STRATEGY

         Day Runner  sells  broad-based  personal  organizing  products  through
retail  distribution  channels.  Our  strategy  is to  leverage  our brand  name
awareness and distribution  strength to maximize sales of our existing products,
extend those product lines and introduce new product lines.  Key elements of our
strategy include:

              o   Segmenting the market for organizers and planners.
              o   Entering related organizing product categories.
              o   Building sales through major customers.
              o   Marketing to increase sales.
              o   Expanding foreign sales.
              o   Providing excellent customer service.

         SEGMENTING THE MARKET FOR  ORGANIZERS AND PLANNERS.  In order to expand
and segment our market, we offer our organizers and planners in a broad range of
systems,  sizes,  styles and cover  materials  and at  suggested  retail  prices
ranging from $5 to $150. As a result,  our products  appeal to a large  consumer
market  comprised  of users with  differing  needs,  tastes and  budgets and are
appropriate  for sale through a broad range of  retailers.  Versatile Day Runner
System  organizers  and planners are suitable for use by adults in virtually all
walks of life.  Specific target markets addressed by other Day Runner organizers
and planners include business and professional people, cost-conscious consumers,
young women  shopping in the mass market and  students  from  elementary  school
through college, among others.

         ENTERING RELATED  ORGANIZING  PRODUCT  CATEGORIES.  Day Runner believes
that related  personal  organizing  products offer us an opportunity to leverage
our brand  name and  distribution  and build  upon our  heritage  in the area of
personal organization. Our strategy is to:

              o   Redefine existing product  categories as value-added and offer
                  a superior price/value relationship to the consumer.
              o   Create new categories of personal organizing products.
              o   Gain initial distribution through our existing customers.
              o   Produce sales results we can build upon.


<PAGE>



     BUILDING SALES THROUGH MAJOR  CUSTOMERS.  To reach consumers with differing
needs and varying retail shopping habits, we distribute our products in the U.S.
through multiple channels, including:

              o   Office products superstores, wholesalers and dealers.
              o   Mass market retailers,  including discount  department stores,
                  wholesale clubs,  drug chains,  chain groceries and other mass
                  market retailers.
              o   A wide variety of other customers, including book, department,
                  gift, leather and luggage, stationery and other specialty
                  stores and the U.S. Government.

         Day Runner's products are carried by more than 20,000 retail outlets in
the U.S.,  including  the  leaders in our key office  products  and mass  market
channels of  distribution.  Our strategy is to grow our sales  through our major
customers by increasing our everyday shelf space where  appropriate,  continuing
to expand our product selection,  serving the back-to-school market and creating
other seasonal, promotional and product opportunities.

         MARKETING  TO INCREASE  SALES.  We market our  products to customers to
inform them of the benefits of selling Day Runner's products and to consumers to
further  build brand name  awareness  and to maximize  the  productivity  of the
retail shelf space our products occupy.

         EXPANDING  FOREIGN SALES. We are working to build our sales outside the
United States by focusing on key markets and offering  products  with  features,
aesthetics and price points appropriate for those markets.  We offer some of our
products in French,  German and Spanish  versions.  We are  currently  launching
product lines designed especially for Europe and for Asia.

         PROVIDING   EXCELLENT  CUSTOMER  SERVICE.   Day  Runner  believes  that
excellent customer service can provide us with additional competitive advantage.
We  serve   customers   from  both  our  Fullerton   plant  and  our  Nashville,
Tennessee-area  distribution  center and ship directly to the individual  retail
locations  of a number of our  large  customers.  We  conduct  business  via EDI
(Electronic Data Interchange) with virtually all our key customers and recognize
the    importance    of   continuing    to   implement    applicable    customer
service/distribution technology.

INDUSTRY OVERVIEW

         ORGANIZER  INDUSTRY.  Day Runner has been  instrumental in creating and
defining  paper-based  "organizers" as a product  category in the United States.
Although time management  products that included some  "organizer"  features had
been on the market for some time, the product category,  as such, did not emerge
until the 1980s.  We believe that the  introduction  of the Day Runner System in
1982 helped define the product  category and,  ultimately,  led to the growth of
the organizer industry. By the late 1980s,  organizers had become accepted tools
for  improving  individual  and group  productivity.  (Because the  distinctions
between  organizers  and planners have become  blurred,  except where  otherwise
specified,  we are using the terms "organizer" and "planner"  interchangeably in
this report.)

         Today,  awareness  of the  organizer  product  category is  widespread;
organizers are broadly accepted as substitutes for traditional  dated goods; and
the usefulness of time management techniques is well recognized.  Organizers are
sold through a wide variety of channels, including: office products superstores,
wholesalers and dealers; mass market retailers; book, department,  gift, leather
and  luggage,  stationery  and other  specialty  stores;  and are sold direct to
organizations, the U.S. Government and individuals.

         Day Runner believes the current  principal  competitive  factors in the
paper-based  retail  organizer  industry  are  distribution  breadth,  depth and
strength;  brand  name  recognition;  size and  loyalty  of user  base;  product
function, design, perceived quality and value; marketing capability;  breadth of
product  lines;  financial  resources;  customer  service;  product  development
capability; manufacturing/sourcing expertise; and price.

         MARKET  POTENTIAL.  Day Runner  believes  that the growth in demand for
organizers  and other  personal  organizing  products  in the  United  States is
attributable  to a number  of  economic  and  cultural  trends,  including:  the
increased  percentage of women in the work force and the resulting prevalence of
two-income  families;  the continuing  trend toward  corporate  downsizing;  the
growth of the small business sector; the rising percentage of business done away
from the office; the greater emphasis on productivity;  and the ongoing shift to
a service economy.  Many of these trends contribute to widespread  concerns with
saving and better using time and increasing personal productivity.

         Day Runner's products address these concerns.  We target both potential
first-time   organizer  users  and  existing  users  who  may  need  refills  or
replacements for their organizers.  In addition,  we believe that expansion into
related,  non-organizer/planner  products  that provide other ways for people to
become better  organized offers Day Runner an opportunity to reach consumers who
are not ready for an  organizer or planner and to market  additional  Day Runner
branded products to consumers who already use a Day Runner organizer or planner.
Our goal is to offer one or more products that appeal to and meet the organizing
needs of virtually  every American  consumer,  no matter what that  individual's
income, occupation or age.

         INDUSTRIES  MARKETING  SIMILAR OR  SUBSTITUTE  PRODUCTS.  Day  Runner's
products  have  features,  functions or  components  in common with  products in
several  other  industries.  Our market  overlaps  to a limited  extent  that of
companies  marketing:   calendars,   appointment  books,  agendas  and  diaries;
dry-erase  boards;   bulletin  boards;   small  leather  goods,   which  include
briefcases,  folios,  business  card cases,  etc.;  and  training  products  and
services  designed to improve group and individual  productivity  and to upgrade
management skills. In addition,  both PIM software and electronic organizers are
designed to fill many of the same needs  addressed  by  paper-based  organizers,
although  virtually all PIM software products provide for paper-based output and
a number of such  products  allow users to print out pages in sizes that fit the
Company's organizers.

PRODUCTS

         Day  Runner's  products  are  designed  to help  people  become  better
organized.  We aim our products at various  segments of a  broad-based  consumer
audience. Our goal is to provide "something for everyone" and to offer consumers
in each target  segment the  perception of broad choice and good value for their
money. Our products include:

         o  Multiple lines of paper-based organizers and planners.
         o  Refills, which include calendars and accessories.
         o  Related organizing products.

         ORGANIZERS  AND PLANNERS.  Our organizers and planners are available in
varying systems,  sizes, styles, cover materials and colors and at a broad range
of price points.  These loose-leaf and spiral-bound  portable "books" help users
keep "Everything in One Place(TM)." For example,  in addition to the traditional
planner components of appointment calendar,  telephone/address  section and note
pad, Day Runner System  organizers  include,  among other  things,  interrelated
pages for managing time and information,  tracking expenses,  establishing goals
and planning projects.

         REFILLS.   The  great   majority  of  our   organizers,   planners  and
telephone/address  books are refillable.  Users may customize  their  loose-leaf
organizers  and  planners by  choosing  from a variety of  additional  pages and
accessories,  ranging  from Mileage  Record,  Strategy and Things To Do pages to
Currency/Checkbook    Insert,    Diskette    Holders   and   a   solar   powered
Calculator/Ruler.

         RELATED ORGANIZING  PRODUCTS.  Our related organizing  products include
telephone/address  books,  traditional spiral dated goods, products for students
from elementary school through college,  PIM software designed to complement our
paper-based organizers and our new Home Manager on-refrigerator organizer.

         The following table sets forth, for the periods indicated,  approximate
Day Runner sales by product category and as a percentage of total sales.
<TABLE>
<CAPTION>

                                   Fiscal                 Fiscal              Fiscal
          Products                  1997                   1996                1995
          --------           ------------------     ----------------       ---------------
(Unaudited; dollars in thousands)
<S>                          <C>         <C>      <C>         <C>          <C>       <C>
Organizers and planners ...   $ 73,858   58.0%     $ 77,293    61.8%       $ 84,473   69.4%
Refills ...................     43,264   34.0        43,473    34.7          35,240   28.9
Related organizing products     10,254    8.0         4,360     3.5           2,088    1.7
                                         -----     --------   ------       --------  ------
      Total ...............   $127,376  100.0%     $125,126   100.0%       $121,801  100.0%
                              ========   =====     ========   ======       ========  ======
</TABLE>


             Covers  for  Day  Runner's  organizers,  planners  and  paper-based
related organizing products are made of leathers,  vinyls and a variety of other
natural  and  man-made   materials.   In  addition  to  holding   loose-leaf  or
spiral-bound pages, the covers of most of our organizers and loose-leaf planners
are also designed to hold note pads and many have additional  features,  such as
places to store pens, business and credit cards,  calculators,  loose papers and
spare keys.


<PAGE>



             The  following  table sets forth basic price and other  information
concerning our domestic product lines.
                                                                Current
                                                               Suggested
                Current Products                             Retail Price(s)
                --------------------                        ---------------

Organizers and planners: .....................................   $5-150
       Day Runner
       DILBERT(TM)
       FactCentre(TM)
       THE FAR SIDE(R)
       4-1-1 Student  Planners(TM)
       Looney Tunes(TM)
       Mickey Unlimited(C)
       Perennials(TM)
       PRO Business System(R)

Refills (which include calendars, other pages and accessories)   $0.75-40

Related organizing products:
        Assignment books: ....................................   $6-9.50
            4-1-1
            Mickey Unlimited
        Executive accessories ................................   $4-50
        Telephone/address books: .............................   $6-24
            Day Runner
            DILBERT
            FactCentre
            Looney Tunes
            Perennials
            Traditional spiral telephone/address books
        Traditional spiral dated goods .......................   $4.30-35.75
        Software:
            Day Runner Planner for Windows(R) ................   $75
        Other:
            DILBERT Pocket Calendar ..........................   $6-7
            Home Manager(TM) .................................   $33.50-40
            Mickey Unlimited Sticker Books ...................   $6.50-10.50
            Mickey Unlimited Sticker Diaries .................   $10-13.50

Day Runner and PRO Business System are registered trademarks,  and Entrepreneur,
Everything in One Place,  FactCentre,  4-1-1,  Home Manager and  Perennials  are
trademarks,  of Day Runner,  Inc.  DILBERT(C)  is a trademark of United  Feature
Syndicate,  Inc. (C)Disney.  THE FAR SIDE is a registered trademark of FarWorks,
Inc.  LOONEY TUNES  characters,  names and all related indicia are trademarks of
Warner Bros.  Post-it(R) is a registered trademark of 3M. VELCRO is a registered
trademark of VELCRO,  USA, Inc.  Windows is a registered  trademark of Microsoft
Corporation.



<PAGE>



PRODUCT DEVELOPMENT

             Day Runner's product development programs emphasize (i) identifying
unmet consumer needs and developing organizers,  planners and related organizing
products to meet those needs;  (ii) extending our existing product lines through
additional  sizes,  styles and materials;  and (iii) augmenting the selection of
refills and accessories available for our product lines.

             In  addition,  we  monitor  our  existing  products  for  continued
viability, needed enhancements, improvements in quality and potential reductions
in cost.  With the  exception of our  software  product and the  calculators  we
include in certain of our products and sell as  accessories,  all of our current
products  have been  developed  internally,  and products  developed  internally
accounted for substantially all of Day Runner's fiscal 1997 sales.

         Since the  introduction  of the first Day Runner  System  organizer  in
1982, we have transformed this single product into a broad line, which currently
includes three sizes and seventeen  styles,  each of which is available in up to
six  different  cover  materials.  The  Entrepreneur  Edition  of the Day Runner
System,  for example,  has 8 1/2" x 11" pages and is available in three  styles:
"notebook" with a snap closure;  "notebook"  with a VELCRO(R) flap closure;  and
"attache" with a full-zippered closure and slide up handles.

         In 1991,  as part of our  strategy of offering  products  aimed at more
cost-conscious  consumers, we introduced the FactCentre line, which now includes
organizers, planners and telephone/address books.

         In 1993, we introduced the first products in our PRO line. PRO Business
System  organizers are aimed at people seeking a  sophisticated  but easy-to-use
organizing  system that is designed  specifically  for business and professional
use.

         In short fiscal 1994, we began shipping 4-1-1 Student Planners,  a line
aimed at middle school,  high school and college students and marketed primarily
for sale during the back-to-school consumer buying season.

         In fiscal 1995, we added  telephone/address books to our Day Runner and
FactCentre  lines and launched  Perennials,  a line of organizers,  planners and
telephone/address  books aimed  primarily at young women shopping in mass market
outlets.

         In fiscal 1996,  we launched  our first  licensed  products:  a line of
planners and telephone/address books featuring Warner Bros. Looney Tunes cartoon
characters  and a line of "sticker  books" and "sticker  diaries"  developed and
marketed  under the Mickey  Unlimited  brand of Disney  Enterprises.  The Mickey
Unlimited  Sticker  Books and  Diaries  incorporate  colorful  stickers  to make
planning and diary-keeping fun.

         In  fiscal  1996,  we also  introduced  a line of  spiral  dated  goods
designed for consumers who prefer traditional planning tools.

         In fiscal 1997, we  introduced  THE FAR SIDE  organizers  featuring the
classic  cartoons  created  by Gary  Larson,  a line of  executive  accessories,
including travel document holders,  business card cases, business card files and
pad  holders,  and the Home  Manager,  a unique  product  that  builds  upon the
American  family's  habit  of using  the  refrigerator  door as a  communication
center.  The Home Manager  combines a dry-erase  board,  bulletin board strip or
storage pocket, Post-it(R) notes in holder and dated monthly calendar and mounts
on a refrigerator via heavy-duty magnetic backing or on a wall with hooks.

         Early in fiscal 1998, we began  shipping a line of DILBERT  organizers,
refills, telephone/address books and pocket calendars.

             Developed  under our  direction,  Day Runner  Planner  for  Windows
software complements Day Runner's paper-based system. Our computer paper refills
allow users of Day Runner  Planner  for  Windows and a number of other  software
programs to print their  computerized  information  on paper that looks like Day
Runner  System  or PRO  Business  System  pages  and carry it with them in their
organizers. Day Runner plans to introduce a version of this product designed for
Windows 95 during fiscal 1998.

SALES AND DISTRIBUTION

         We market  our  products  to  customers  through  our own sales  force,
through manufacturers' representatives and, in certain markets outside the U.S.,
through  independent  distributors.  Our primary  channels of  distribution  are
office products and the mass market.

         Day  Runner's  products are carried by more than 20,000  retail  stores
across the U.S.  Our sales  policies  encourage  smaller  customers  to purchase
through wholesalers.  In fiscal 1997, we shipped directly to approximately 9,050
retail locations,  to distribution  centers serving  approximately  9,650 retail
locations and to approximately 200 wholesalers, each of which serves a number of
dealers.

         During  fiscal  1997,  Day Runner sold  products to  approximately  700
different  customers,  compared with approximately 730 in fiscal 1996. Our major
customers in each of our primary  domestic  channels  include:  office  products
superstores  Office  Depot,  Inc.,  OfficeMax,  Inc. and Staples,  Inc.;  office
products  national  wholesalers  United  Stationers Supply Co. and S.P. Richards
Company;  office products dealer McWhorter  Stationers  Company,  Inc.; and mass
market retailers Wal-Mart, Kmart and PriceCostco.  The only customers accounting
for 10% or more of the Company's  fiscal 1997 sales were Wal-Mart  Stores,  Inc.
and  its  affiliates,   including  SAM'S  Clubs;  Office  Depot,  Inc.  and  its
affiliates;  OfficeMax,  Inc.  and its  affiliates;  and  Staples,  Inc. and its
affiliates.  These customers  accounted for approximately 25%, 15%, 14% and 11%,
respectively,  of fiscal 1997 sales.  Including their  affiliates,  the top five
customers of the Company  accounted  for an aggregate  of  approximately  73% of
fiscal 1997 sales.


<PAGE>




             The  following  table  sets  forth,  for  the  periods   indicated,
approximate  Day Runner sales by  distribution  channel and as a  percentage  of
total sales.
<TABLE>
<CAPTION>


                                   Fiscal                 Fiscal                    Fiscal
    Distribution Channel            1997                   1996                      1995
    --------------------     ------------------     -------------------      ---------------------
(Unaudited; dollars in thousands)
<S>                         <C>         <C>        <C>         <C>          <C>            <C>

Office products channel.     $ 59,416    46.7%      $ 62,381     49.8%        $ 56,717       46.6%
Mass market.............       53,785    42.2         46,804     37.4           50,699       41.6
Foreign customers.......        5,583     4.4          6,346      5.1            4,170        3.4
Other channels..........        8,592     6.7          9,595      7.7           10,215        8.4
                             --------   -----       --------    -----         --------      -----
      Total.............     $127,376   100.0%      $125,126    100.0%        $121,801      100.0%
                             ========   =====       ========    =====         ========      =====
</TABLE>

     OFFICE PRODUCTS CHANNEL.  Since 1987, Day Runner products have been broadly
distributed through the office products channel.

          OFFICE PRODUCTS  SUPERSTORES.  Since their  emergence in 1986,  office
     products  superstores  offering  discount prices in a warehouse  atmosphere
     have become a major factor in office  products  distribution.  Our products
     are carried by all the leading  superstores,  including Office Depot, Inc.,
     OfficeMax, Inc. and Staples, Inc.

          OFFICE  PRODUCTS  WHOLESALERS.   Day  Runner  products  are  currently
     distributed by local and regional office  products  wholesalers and by both
     national  wholesalers,  S.P.  Richards Company and United Stationers Supply
     Co., which reach office products consumers through dealers nationwide.

          OFFICE PRODUCTS  DEALERS.  Our products are also  distributed  through
     traditional office products dealers,  which buy directly from manufacturers
     and indirectly through wholesalers. These customers include both storefront
     dealers and contract  stationers  (also known as  commercial  dealers) that
     specialize  in  selling to larger  businesses  through  catalogs  and their
     direct sales forces.

          MASS MARKET. Discount chains addressing the mass market have become an
     increasingly  important  factor in the  distribution  of a wide  variety of
     consumer goods.  Day Runner  products are  distributed  through a number of
     mass market retailers,  including:  Kmart,  Target and Wal-Mart;  the major
     wholesale  clubs,  PriceCostco  and SAM'S Clubs;  a number of discount drug
     chains; and a variety of other mass market resellers.

          FOREIGN  CUSTOMERS.  Day Runner products are marketed  internationally
     through Day Runner Hong Kong Limited, Day Runner International  Limited and
     Ultima  Distribution,  Inc. (the Company's  wholly owned Hong Kong,  United
     Kingdom and Canadian  subsidiaries),  independent foreign  distributors and
     its own sales  force.  The United  Kingdom and key markets on the  European
     continent  are served by Day Runner  International;  Asian and  Pacific Rim
     markets  are served by Day Runner  Hong Kong  Limited;  Canada is served by
     Ultima;  and Mexico is served by Day Runner's  U.S.-based sales force.

          OTHER CHANNELS.  The Company also  distributes its products  through a
     number of additional channels,  including book,  department,  gift, leather
     and luggage and  stationery  stores and other  specialty  retailers.  Since
     March 1989, Day Runner has held a General Services  Administration  ("GSA")
     contract,  which extends through February 2000 and which allows the Company
     to market  certain  of its  products  to the  executive  branch of the U.S.
     Government.

MARKETING

             We market our products to  consumers  to increase  awareness of the
Day Runner brand names and of specific products,  to communicate the benefits of
our products and to create and  reinforce an image that our products  enable the
user to manage time and personal  resources  more  effectively.  We position Day
Runner to our distribution channels as the leader in the retail organizer market
and the logical source for organizers,  planners and related organizing products
at a wide  range of  price  points  and  appropriate  for a wide  range of broad
consumer markets.

             ADVERTISING.  Day  Runner  participates  with  customers  in  co-op
advertising and advertises from time to time in certain  wholesale flyers and in
trade  publications.  In  addition,  from  time to  time,  we  conduct  consumer
advertising  campaigns.  Media used in such  campaigns  have included  cable and
broadcast television, business and lifestyle magazines and national and regional
newspapers.

             PROMOTIONAL  PROGRAMS.  Day Runner offers special  promotional  and
incentive  programs as part of our  introduction  of new  products  and to build
sales at  specific  times of the year;  conducts  promotions  designed  to build
awareness,  expand  distribution  and increase sales of specific  products;  and
conducts sales incentive  programs for wholesalers,  dealers and  manufacturers'
representatives.

             SALES  SUPPORT.  We  support  our sales  force  and  manufacturers'
representatives   with  a  variety  of  sales  tools,   including  catalogs  and
presentation  materials.  We support our dealers  with  point-of-sale  materials
developed  based upon  research and intended to build brand name  awareness  and
increase  sales.  Day Runner  displays are designed to be easy for  consumers to
shop and for store  personnel  to refill.  Our  packaging  is  designed  to help
consumers choose the right product and make the decision to buy.

             TRADE   SHOWS.   Day  Runner   exhibits   or  is   represented   by
manufacturers'  representatives in a number of national and regional trade shows
aimed at office products, mass market and other customers.

             MARKET  RESEARCH.  We regularly  conduct  market  research and test
product  concepts  and  prototypes  through  the use of focus  groups  and other
consumer research. In addition, we maintain a database containing information on
users who have mailed in the Welcome Cards included in many of our products.

             USER  SUPPORT.  We  estimate  that we have  sold  approximately  32
million  organizers and planners  since our inception.  To encourage our current
users to continue to purchase and recommend our products and their  refills,  we
provide a toll-free  consumer  hotline that  consumers  may call for referral to
conveniently   located  dealers  or  dealers  that  carry  specific  refills  or
accessories,  for customer  service,  to contribute  suggestions and to purchase
products  directly from Day Runner. We make such sales primarily as a service to
our users and charge  consumers  full  suggested  retail price plus handling and
shipping.

             Although  Day  Runner  products  require no  special  training,  we
provide a free user's  guide in each of our two most  sophisticated  organizers.
Each Day Runner System and PRO Business  System  organizer  includes an "Owner's
Manual." Each of these booklets includes  illustrations showing effective use of
the system and of  specific  pages as well as tips on time  management,  project
management and organization.

MANUFACTURING

             Day  Runner's  manufacturing  strategy  combines  limited  internal
manufacturing,  consisting  of  heat-sealing  binders,  sewing  binders  and the
assembly of finished products,  with the domestic and foreign  subcontracting of
product  components and finished goods. Our policy is to develop and maintain at
least two sources for key raw  materials,  product  components  and the finished
products we subcontract. Although we rely on foreign subcontractors for adequate
capacity,  we have the ability to act as our own second or third  source for the
manufacture of our loose-leaf  binders and for the final assembly of many of our
products.  This provides a degree of  protection  against  vendor  problems and,
under certain conditions, allows us to respond to higher than anticipated demand
and improve turn-around time.

     INTERNAL  MANUFACTURING.  We  manufacture  a  portion  of our  binders  and
assemble  a  portion  of our  finished  products  in our  Fullerton,  California
facility  and  at  Day  Runner  de  Mexico,  S.A.  de  C.V.,  our  wholly  owned
manufacturing subsidiary located in Tijuana.

     PURCHASED  COMPONENTS.  In addition to vinyl and leather raw materials,  we
purchase from  suppliers  certain major product  components,  including  printed
pages,  loose-leaf  rings,  pens,  software  disks  containing our PIM software,
electronic components and certain accessories.  With few exceptions, these items
are  manufactured  by a variety of outside  contractors  and are available  both
domestically and overseas.

     SUBCONTRACTED  FINISHED  GOODS. We subcontract the manufacture and assembly
of a portion of our finished products, including the great majority of our lower
priced organizers,  planners and related products.  Day Runner Hong Kong Limited
acts as our liaison with our Asian suppliers.
Competition

    The paper-based organizer industry is becoming increasingly competitive and
is subject to rapid change.  Day Runner  competes  directly with other companies
marketing paper-based organizers and related organizing products to consumers
through retail channels. We also compete for the same target market with  
companies marketing organizers and/or organizers coupled with time management
training via direct sales to individuals and to  organizations.  Our competitors
also  include  companies  marketing   substitutes  for  paper-based organizer
and planner products, such as electronic organizers,  PIM software and
traditional   dated  goods.   Certain  of  our  competitors  have  greater  name
recognition  and/or financial,  product  development,  technical,  manufacturing
and/or marketing resources than Day Runner.

             Day Runner believes the current  principal  competitive  factors in
the paper-based  retail organizer industry are distribution  breadth,  depth and
strength;  brand  name  recognition;  size and  loyalty  of user  base;  product
function, design, perceived quality and value; marketing capability;  breadth of
product  lines;  financial  resources;  customer  service;  product  development
capability;  manufacturing/sourcing  expertise;  and price.  We believe that the
principal  competitive factors in the related product categories we have entered
to date are similar to those in the paper-based  organizer industry.  Although a
number of our competitors have greater  financial  resources than Day Runner, we
believe that we compete well against our direct competition on each of the other
principal competitive factors and against certain of our direct competition with
respect to our financial strength.

             Day  Runner  believes  that we have a  number  of  advantages  over
certain of our competitors.  Our products occupy  significant shelf space in the
office products and mass market channels.  Our leadership position in the retail
market,  brand name  recognition,  broad  product  lines,  marketing  expertise,
manufacturing/sourcing  skill, large user base and the appeal of our products to
consumers  have been  competitive  advantages  for us in these  channels  and in
certain other channels. There can be no assurance, however, that we will be able
to maintain or continue to benefit from our  competitive  advantages or that the
competitive environment will not change to our detriment.

EMPLOYEES

     At September 16, 1997, Day Runner had 1,146 full-time employees,  including
61 in sales; 31 in marketing; 112 in executive,  finance and administration;  29
in product  development;  and 913 in manufacturing  operations and distribution.
None of our employees is represented by a labor union,  and we have  experienced
no labor-related work stoppages.

PATENTS, COPYRIGHTS AND TRADEMARKS

     Day Runner  relies upon,  among other things,  a combination  of copyright,
patent  and  trademark  laws to protect  our  rights to  certain  aspects of our
products. There can be no assurance, however, that the steps taken by Day Runner
to protect our proprietary  rights will be adequate to prevent  imitation of our
products or independent development by others of similar products.

     Day Runner holds seven United States patents and four foreign patents.  The
Company also has several United States and foreign patents pending.  The patents
we hold are related to improvements  in the structure of and devices  associated
with our loose-leaf binders,  and we do not believe that any of these patents is
material to our  business.  We have also been  issued  United  States  copyright
registrations  covering  the text and the  compilation  and  editing  of data in
certain of our  material  products.  Day Runner holds  United  States  trademark
registrations  for "Day  Runner,"  "MEMO-RY,"  "PRO Business  System,"  "Running
Mate," and the Day Runner logo and we have  obtained  certain  state and foreign
registrations for certain of our trademarks.




<PAGE>



ITEM 2.      PROPERTIES.

             Day  Runner's  principal   operating  facility  is  located  in  an
approximately  221,000-square  foot  building in  Fullerton,  California,  under
leases expiring in 2001. The leases include multiple, successive renewal options
that, if exercised in full,  would extend the lease terms to expire in 2011. The
Company's  corporate  headquarters  occupy  approximately  21,300-square feet in
Irvine,  California  under a lease that  expires in August 2001.  The  Company's
LaVergne,    Tennessee   distribution   facility   occupies   an   approximately
101,200-square  foot facility under a lease expiring in 2005. The lease includes
multiple,  successive  renewal options that, if exercised in full,  would extend
the lease terms to expire in 2011. The Company's  Mexican  subsidiary is located
in approximately  46,900 square feet, of which  22,450-square  feet are occupied
under a  month-to-month  lease and the remaining  24,450 are occupied  under two
leases  expiring in 1998; the Company's  United Kingdom  subsidiary  occupies an
approximately 2,400-square foot facility under a lease expiring in January 2002;
the Company's Hong Kong subsidiary  occupies an approximately  1,200-square foot
facility  under a  lease  expiring  in June  1998;  and the  Company's  Canadian
subsidiary,   which  was  acquired  in  July  1997,  occupies  an  approximately
15,000-square  foot facility  under a lease  expiring in June 2000.  The Company
believes  it has  sufficient  space in its  facilities  or will be able to lease
additional  space on  acceptable  terms to meet its  needs  for the  foreseeable
future.

Item 3.      LEGAL PROCEEDINGS.

             Inapplicable.


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

             Inapplicable.
                                     PART II

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

              Day Runner's Common Stock is traded over-the-counter on The Nasdaq
Stock  Market  under the symbol  "DAYR."  The table below shows the high and low
closing sales prices for the Common Stock as reported on The Nasdaq Stock Market
for the fiscal  years ended June 30, 1997 and 1996.  As of  September  16, 1997,
there were 183  recordholders of the Company's Common Stock based on information
provided by the Company's transfer agent.

                                    Fiscal Year              Fiscal Year
                                      1997                     1996
                                ----------------        -----------------
             Quarter             High      Low           High        Low

             First               $30      $25-1/2         $20       $16-3/8
             Second               31       18-3/4         34-1/2     19-1/4
             Third                26       17-7/8         33-1/2     23-5/8
             Fourth               33-1/2   25-1/8         31-1/4     24-3/4

       The Company has never paid cash  dividends.  It is the present  policy of
the  Company to retain  earnings to finance  the growth and  development  of its
business, and therefore the Company does not anticipate paying cash dividends on
its Common Stock in the foreseeable  future.  Certain financial covenants in the
Company's bank line of credit  agreement  restrict the Company's  ability to pay
cash dividends in excess of $200,000.

Item 6.      SELECTED FINANCIAL DATA.

         The selected  consolidated  income  statement  data for the fiscal year
ended June 30, 1997,  1996 and 1995 and the  consolidated  balance sheet data at
June 30, 1997 and 1996 are derived from,  and are qualified in their entirety by
reference to, the Company's audited consolidated  financial statements and notes
thereto  included  elsewhere  in this Annual  Report  that have been  audited by
Deloitte & Touche LLP, independent auditors, as indicated in their report, which
is also included  elsewhere in this Annual  Report.  Information  for the twelve
months  ended June 30, 1994 is  unaudited,  and in the opinion of the  Company's
management,  the accounting  principles used to prepare the unaudited  financial
information  are  consistent  with those used to prepare the  audited  financial
statements. The selected consolidated income statement data for the short fiscal
year ended June 30, 1994 and the years ended  December 31, 1993 and 1992 and the
consolidated  balance sheet data at June 30, 1995 and 1994 and December 31, 1993
are derived from audited  consolidated  financial statements of the Company that
are not included  herein.  Effective  January 1, 1994,  the Company  changed its
fiscal year end from December 31 to June 30. The six-month period ended June 30,
1994 is therefore referred to as "short fiscal year 1994."



<PAGE>


<TABLE>
<CAPTION>

Consolidated Income Statement Data:

(In thousands, except per share data)

                                                                           Twelve Months        Short           Years Ended
                                    Fiscal     Fiscal         Fiscal           Ended         Fiscal Year        December 31,
                                    1997        1996           1995        June 30, 1994(1)     1994           1993      1992
                                    ----        ----           ----        ----------------     ----           ----      ----
<S>                               <C>        <C>            <C>            <C>              <C>              <C>        <C>   
Sales...........................   $127,376  $125,126        $121,801       $ 97,027         $ 43,160         $81,892   $71,241
Cost of goods sold..............    60,452     59,920          62,175         50,405           22,981          41,699    35,512
                                   -------     ------        --------       --------         --------         -------   --------
Gross profit....................    66,924     65,206          59,626         46,622           20,179          40,193    35,729
                                   -------     ------        --------       --------         --------         -------   --------
Operating expenses:
   Selling, marketing and
    distribution................    31,673     29,878          32,154         25,180           12,156          21,786    20,125
   General and administrative...    14,451     16,376          13,792         11,400            5,686           9,479     7,826
   Costs incurred in pursuing
      acquisitions                              1,451
   Total operating expenses.....    47,575     46,254          45,946         36,580           17,842          31,265    27,951
                                   -------     ------        --------       --------         --------         -------   -------
Income from operations..........    19,349     18,952          13,680         10,042            2,337           8,928     7,778
Net interest (income) expense...    (1,301)      (706)           (161)           (88)             (91)                      229
                                   -------     ------        --------       --------         ---------        -------    -------
Income before provision for
   income taxes, extraordinary
   item and cumulative effect of
   accounting change............    20,650     19,658          13,841         10,130            2,428           8,928     7,549
Provision for income taxes......     8,102      7,840           5,863          4,196            1,061           3,638     3,096
                                   -------     ------        --------       --------         --------         -------     -------
Income before extraordinary item
   and cumulative effect of
   accounting change............    12,548     11,818           7,978          5,934            1,367           5,290     4,453
Extraordinary item litigation
    settlement - net............                                                 718              718
Cumulative effect of change in
   accounting for income taxes..                                                                                  350
                                   -------     -------       --------       --------          --------         -------     -------
Net income......................   $12,548     $11,818       $  7,978       $  6,652          $  2,085         $ 5,640     $ 4,453
                                   =======     =======       ========       ========          ========         =======     =======
Earnings per common and common
   equivalent share:
   Income before extraordinary
    item and cumulative effect of
    accounting change............  $ 1.90     $  1.79       $   1.25       $    0.96         $    0.22         $  0.87    $   0.77
    Extraordinary item...........                                               0.12              0.11
   Cumulative effect of change in
    accounting for income taxes..                                                                                 0.06
                                   -------     -------       --------       ---------         ---------         -------    --------
Net earnings per share...........  $  1.90     $  1.79       $  1.25        $   1.08          $   0.33         $  0.93     %  0.77
                                   =======     =======       ========       =========         =========         =======    ========
Weighted average number of
   common and common
   equivalent shares.............    6,591       6,602         6,374           6,185             6,308           6,065        5,799
                                   =======     =======       ========       ========          ========          =======    ========

(1) Information  for the twelve months ended June 30, 1994 is provided on an unaudited  basis for comparison  purposes
only.
</TABLE>

Consolidated Balance Sheet Data:
   (In thousands)

                                      June 30,                   December 31,
                       --------------------------------------   ------------
                          1997      1996     1995      1994        1993
                       ---------  -------  --------   -------   ------------
Working capital .....   $50,710   $51,653   $38,260   $30,581    $28,190
Total assets ........    78,880    77,931    63,650    50,769     49,103
Short-term debt .....       475       152       200       224
Long-term liabilities        52        12       141       223
Stockholders' equity     59,484    59,498    44,787    35,786     32,712




<PAGE>



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

         The following  discussion  should be read in  conjunction  with, and is
qualified in its entirety by, the  Consolidated  Financial  Statements and Notes
thereto  included  elsewhere  in this  Annual  Report.  Historical  results  and
percentage   relationships  among  any  amounts  included  in  the  Consolidated
Financial  Statements  are not  necessarily  indicative  of trends in  operating
results for any future period.

OVERVIEW

         Since  the  Company's  introduction  of the  first  Day  Runner  System
organizer in 1982, the Company's revenues have been generated by sales primarily
of organizers  and planners and  secondarily  of refills.  Sales  increases have
resulted from higher sales of existing  products,  new products and product line
extensions.  The Company focuses the great majority of its product  development,
sales and marketing efforts on the office products and the mass market channels.
The office products channel and the mass market channel  accounted for 46.7% and
42.2%, respectively, of fiscal 1997 sales.

Results of Operations

         The  following  tables  set  forth,  for  the  periods  indicated,  the
percentages  that  selected  income  statement  items  bear  to  sales  and  the
percentage change in the dollar amounts of such items.
<TABLE>
<CAPTION>

                                                                 Percentage of Sales

                                                               Years Ended June 30,
                                                      1997              1996         1995
                                                    ---------        --------      --------
<S>                                                <C>               <C>            <C>
Sales........................................        100.0%           100.0%          100.0%
Cost of goods sold...........................         47.5             47.9            51.0
                                                     -----            -----           -----
Gross profit.................................         52.5             52.1            49.0
                                                     -----            -----           -----
Operating expenses:
   Selling, marketing and distribution.......         24.9             23.9            26.4
   General and administrative................         11.3             13.1            11.3
   Costs incurred in pursuing acquisitions...          1.1
                                                     -----
    Total operating expenses.................         37.3             37.0            37.7
                                                     -----            -----           -----
Income from operations.......................         15.2             15.1            11.3
Net interest income..........................          1.0              0.6             0.1
                                                     -----            -----           -----
Income before provision for income taxes.....         16.2             15.7            11.4
Provision for income taxes...................          6.3              6.3             4.8
                                                     -----            -----           -----
Net income...................................          9.9%             9.4 %           6.6%
                                                     =====            =====           =====


</TABLE>


<PAGE>

<TABLE>
<CAPTION>



                                                                   Percentage Change
                                                       Fiscal 1996                Fiscal 1995
                                                           to                         to
                                                       Fiscal 1997                Fiscal 1996
                                                  --------------------      -------------------
<S>                                                     <C>                           <C>
Sales.............................................         1.8%                         2.7%
Cost of goods sold................................         0.9                         (3.6)
Gross profit......................................         2.6                          9.4
Operating expenses:
   Selling, marketing and distribution............         6.0                          7.1
   General and administrative.....................       (11.8)                        18.7
   Costs incurred in pursuing acquisitions........         NM
    Total operating expenses......................         2.9                         (0.7)
Income from operations............................         2.1                         38.5
Net interest income...............................        84.3                        338.5
Income before provision for income taxes..........         5.0                         42.0
Provision for income taxes........................         3.3                         33.7
Net income........................................         6.2                         48.1

</TABLE>

FISCAL YEAR ENDED JUNE 30, 1997 COMPARED WITH  FISCAL YEAR ENDED JUNE 30, 1996

         SALES.  Sales consist of revenues  from gross product  shipments net of
allowances for returns,  rebates and credits. In fiscal 1997, sales increased by
$2,250,000,  or 1.8%, compared with fiscal 1996 primarily because of higher unit
sales of related organizing products. Product sales were primarily to the office
products channel and secondarily to mass market customers.  Sales to mass market
customers  grew by  $6,981,000,  or  14.9%,  primarily  due to  higher  sales to
Wal-Mart. Sales to the office products channel decreased by $2,965,000, or 4.8%.
Sales to  foreign  customers  declined  by  $763,000,  or  12.0%,  and  sales to
miscellaneous customers grouped together as "other," decreased by $1,003,000, or
10.5%. Sales of related organizing products increased by $5,894,000,  or 135.2%.
Sales of organizers and planners  decreased  during the year by  $3,435,000,  or
4.4%, and sales of refills decreased by $209,000, or 0.5%.

         GROSS PROFIT.  Gross profit is sales less cost of goods sold,  which is
comprised of materials,  labor and manufacturing  overhead.  Gross profit may be
affected by, among other  things,  product mix,  production  levels,  changes in
vendor and customer  prices and discounts,  sales volume and growth rate,  sales
returns,  purchasing  and  manufacturing   efficiencies,   tariffs,  duties  and
inventory carrying costs. Primarily because of improved purchasing efficiencies,
gross  profit as a percentage  of sales  increased to 52.5% for fiscal 1997 from
52.1% for fiscal 1996.

         OPERATING  EXPENSES.  Total operating expenses increased by $1,321,000,
or 2.9%, for fiscal 1997 compared with fiscal 1996 and increased as a percentage
of sales from 37.0% to 37.3%  primarily  because of $1,451,000 of costs incurred
in pursuing two significant  acquisitions  that did not come to fruition.  These
costs included legal and accounting  fees and  miscellaneous  expenses.  Without
such costs,  operating  expenses for fiscal 1997 compared with fiscal 1996 would
have declined by $130,000 and would have decreased as a percentage of sales from
37.0% to 36.2%. Selling,  marketing and distribution expenses as a percentage of
sales  increased  from 23.9% to 24.9%  primarily  because of  increased  display
costs.  General and  administrative  expenses as a percentage of sales decreased
from 13.1% to 11.3% primarily because of lower personnel costs.

         NET INTEREST INCOME.  Primarily  because of the Company's higher levels
of cash available for short-term investment during the year, net interest income
in fiscal 1997 compared with fiscal 1996  increased by $595,000 and by 0.4% as a
percentage of sales.

         INCOME TAXES.  Primarily as a result of the improved  financial results
of the Company's Hong Kong  subsidiary,  the Company's fiscal 1997 effective tax
rate was 39.2%,  compared with 39.9% for fiscal 1996.  Prior to fiscal 1996, the
operating  losses  incurred  by the  Company's  United  Kingdom  and  Hong  Kong
subsidiaries,  which  were  formed in 1993 and 1994,  respectively,  and the tax
treatment  required for these losses had increased  the Company's  effective tax
rate above what it otherwise would have been.

         NET  INCOME.  Compared  with  fiscal  1996,  net income for fiscal 1997
increased  by  $730,000,  or 6.2%.  Without the costs of pursuing  acquisitions,
fiscal  1997 net income  would have grown  $1,619,000  or 13.7%,  compared  with
fiscal 1996.

         During fiscal 1997,  the Company  repurchased  513,100 shares of Common
Stock of the 600,000 shares authorized for repurchase in February 1997 under the
Company's  stock  repurchase  program  (see  Note  9 to  Consolidated  Financial
Statements).  The effect of such  repurchases  is to reduce the number of shares
that would otherwise be used to calculate earnings per share for the 1997 fiscal
year and subsequent fiscal years.

         In August 1997, the Company's  Board of Directors  increased the number
of shares  authorized  for  repurchase  under its stock  repurchase  program  by
100,000  shares,  bringing  to  186,900  the  number  of  shares  remaining  for
repurchase  under such  program.  Separately,  in August 1997,  the Company also
repurchased an aggregate of 347,794  shares from certain  officers and directors
of the Company.  The effect of the repurchases  from such officers and directors
and any future  repurchases  effected under the stock repurchase program will be
to reduce  the  number of  shares  that  would  otherwise  be used to  calculate
earnings per share for the 1998 fiscal year and subsequent fiscal years.

FISCAL YEAR ENDED JUNE 30, 1996 COMPARED WITH  FISCAL YEAR ENDED JUNE 30, 1995

         Sales. In fiscal 1996, sales increased by $3,325,000, or 2.7%, compared
with fiscal 1995 primarily  because of higher average  selling prices of refills
and secondarily  because of increased unit sales of refills.  Product sales were
primarily  to the  office  products  channel  and  secondarily  to  mass  market
customers.  Sales to the office products  channel grew by $5,664,000,  or 10.0%.
Sales to mass market customers decreased by $3,895,000,  or 7.7%,  primarily due
to lower sales to Wal-Mart.  Sales to foreign  customers grew by $2,176,000,  or
52.2%,  and  sales to  miscellaneous  customers  grouped  together  as  "other,"
decreased by $620,000,  or 6.1%. Sales of refills grew by $8,233,000,  or 23.4%;
sales of related  organizing  products  increased by $2,272,000,  or 108.8%; and
sales of organizers and planners  decreased  during the year by  $7,180,000,  or
8.5%.

         GROSS PROFIT.  Gross profit as a percentage of sales increased to 52.1%
for fiscal  1996 from  49.0% for  fiscal  1995  primarily  because of  increased
purchasing and manufacturing efficiencies.

         OPERATING EXPENSES.  Total operating expenses increased by $308,000, or
0.7%,  for fiscal 1996 compared with fiscal 1995,  but decreased as a percentage
of sales from 37.7% to 37.0%. Selling,  marketing and distribution expenses as a
percentage of sales  decreased  from 26.4% to 23.9%  primarily  because of lower
advertising and promotion expenses and secondarily because of lower commissions.
General and  administrative  expenses as a percentage  of sales  increased  from
11.3% to 13.1% primarily because of higher personnel costs.

         NET INTEREST INCOME.  Primarily  because of the Company's higher levels
of cash available for short-term investment during the year, net interest income
in fiscal 1996 compared with fiscal 1995  increased by $545,000 and by 0.4% as a
percentage of sales.

         INCOME TAXES.  Primarily as a result of the improved  financial results
of the Company's Hong Kong  subsidiary,  the Company's fiscal 1996 effective tax
rate was 39.9%, compared with 42.4% for fiscal 1995.

          NET  INCOME.  Compared  with fiscal  1995,  net income for fiscal 1996
increased by $3,840,000, or 48.1%.

QUARTERLY RESULTS

         The   following   tables  set  forth   selected   unaudited   quarterly
consolidated  financial data and the percentages  such items represent of sales.
The quarterly  consolidated financial data reflect, in the opinion of Management
of  the  Company,   all  adjustments   (which  include  only  normal   recurring
adjustments)  necessary  to present  fairly the results of  operations  for such
periods.  Results of any one or more quarters are not necessarily  indicative of
annual results or continuing trends.


<TABLE>

                                                                              Quarters Ended
                                                                              --------------

                                             June 30,                March 31,           December 31,         September 30,
                                               1997                    1997                  1996                  1996
                                               ----                    ----                  ----                  ----
<S>                                    <C>         <C>         <C>        <C>         <C>        <C>       <C>         <C>
                                                       (In thousands, except per share amounts)
Sales...............................    $  37,793   100.0%     $  21,020   100.0%     $  35,014   100.0%    $  33,549   100.0%
Gross profit........................       19,803    52.4         11,024    52.4         18,512    52.9        17,585    52.4
Total operating expenses............       13,613    36.0         11,272    53.6         11,308    32.3        11,382    33.9
Income (loss) from operations.......        6,190    16.4           (248)   (1.2)         7,204    20.6         6,203    18.5
Net interest income.................          443     1.1            345     1.7            303     0.9           210     0.6
Income before provision for
   income taxes.....................        6,633    17.5             97     0.5          7,507    21.5         6,413    19.1
Net income..........................    $   4,138    10.9      $      58     0.3      $   4,504    12.9     $   3,848    11.5
Earnings per common and
   common equivalent share..........    $   0.65               $    0.01              $    0.67              $   0.57
Weighted average number of
   common and common equivalent
   shares...........................       6,334                   6,532                  6,678                 6,710


</TABLE>

<PAGE>

<TABLE>
<CAPTION>



                                                                              Quarters Ended
                                                                              --------------

                                             June 30,                March 31,           December 31,         September 30,
                                               1996                    1996                  1995                  1995
                                               ----                    ----                  ----                  ----
<S>                                    <C>         <C>         <C>         <C>         <C>       <C>         <C>        <C>
                                                               (In thousands, except per share amounts)
Sales...............................    $  34,156   100.0%     $  18,106   100.0%     $  40,058   100.0%    $  32,806   100.0%
Gross profit........................       18,279    53.5          9,506    52.5         20,764    51.8        16,657    50.8
Total operating expenses............       14,028    41.1          8,485    46.9         12,549    31.3        11,192    34.1
Income from operations..............        4,251    12.5          1,021     5.6          8,215    20.5         5,465    16.7
Net interest income.................          296     0.8            252     1.4            104     0.3            54     0.1
Income before provision for
   income taxes.....................        4,547    13.3          1,273     7.0          8,319    20.8         5,519    16.8
Net income..........................    $   2,978     8.7      $     745     4.1      $   4,922    12.3     $   3,173     9.7
Earnings per common and
   common equivalent share..........    $   0.45               $     0.11             $    0.75             $    0.49
Weighted average number of
   common and common equivalent
   shares...........................        6,686                   6,657                 6,584                6,445

</TABLE>

SEASONAL FLUCTUATIONS

         The Company  has  historically  experienced  and expects to continue to
experience  significant  seasonal  fluctuations in its sales and other financial
results that it believes  have  resulted and will  continue to result  primarily
from its  customers'  and users'  buying  patterns.  These buying  patterns have
typically  adversely  affected  orders for the  Company's  products in the third
quarter of each fiscal year.

         Although it is  difficult to predict the future  seasonality  of sales,
the Company  believes that future  seasonality  should be influenced at least in
part  by  customer  and  user  buying  patterns   similar  to  those  that  have
historically affected the Company. Quarterly financial results are also affected
by new product  introductions  and line extensions,  the timing of large orders,
changes  in  product  sales  or  customer  mix,  vendor  and  customer  pricing,
production levels,  supply and manufacturing  delays, large customers' inventory
management and general industry and economic conditions.  The seasonality of the
Company's  financial results and the  unpredictability  of the factors affecting
such  seasonality  make the  Company's  quarterly and yearly  financial  results
difficult to predict and subject to significant fluctuation.

LIQUIDITY AND CAPITAL RESOURCES

         During  fiscal  1997,  the Company  financed its  operating  cash needs
primarily  from  internally   generated  funds.  The  Company's  cash  and  cash
equivalents at June 30, 1997 decreased to $15,550,000  from  $19,765,000 at June
30,  1996.  In  fiscal  1997,  net cash of  $13,148,000  provided  by  operating
activities  offset net cash of $4,967,000 and $12,419,000  used in investing and
financing  activities,  respectively.  Of the $13,148,000 net amount provided by
the  Company's  operating  activities,  $12,548,000  was provided by net income,
$3,869,000  was provided by  depreciation  and  amortization  and $1,930,000 was
provided by a decrease in income taxes receivable,  which amounts were partially
offset by an increase of $3,294,000 and  $1,220,000 in inventories  and accounts
receivable,  respectively.  Of the  $4,967,000  net amount used in the Company's
investing  activities,  $4,972,000 was used to acquire  primarily  machinery and
equipment and secondarily  computer  equipment and software.  Of the $12,419,000
net amount used in the Company's financing  activities,  $13,541,000 was used to
repurchase 513,100 shares of Common Stock.

         In August 1997,  the Board of Directors  increased the number of shares
of common stock that the Company is authorized to repurchase  under its existing
stock  repurchase  program  by  100,000  shares,  with funds to pay for any such
repurchases to come from Day Runner's available cash resources.  As of September
24, 1997, 186,900 shares remained for repurchase under this program.

     In August 1997, the Company used approximately $11,600,000 of its available
cash  resources to  repurchase  347,794  shares from certain of its officers and
directors.

         Accounts  receivable  (net) at June 30, 1997 increased by $862,000,  or
4.0%,  from the amount at June 30, 1996 primarily due to the growth in sales and
secondarily  due to a change in the payment terms extended to a large  customer.
Primarily because of this change in payment terms, the average collection period
of accounts  receivable  at June 30, 1997  increased  to 47 days from 43 days at
June 30, 1996.

         Inventories  increased by $3,366,000,  or 16.8%, from the June 30, 1996
amount primarily because of a planned inventory build-up done in preparation for
the Company's end of calendar year selling period.

         At June 30,  1997,  Day  Runner  had  $452,000  outstanding  under  its
$5,000,000  bank line of  credit  and had also used the line of credit to secure
outstanding  letters of credit of  approximately  $1,000,000,  which reduced the
availability  under the line of credit to  approximately  $3,548,000.  Effective
September 1, 1997, the Company  increased its line of credit from  $5,000,000 to
$15,000,000.  Borrowings  under the line of credit  bear  interest at either the
bank's prime rate or LIBOR plus 1.75%,  at the Company's  election,  and are due
and  payable  on  November  1,  1997.  (see  Note  3 to  Consolidated  Financial
Statements.) The Company is currently negotiating its line of credit and expects
that it  will be able to  renew  it for  one  year on  terms  generally  no less
favorable than those of its current credit line.

         The Company has not incurred  significant  losses or gains from foreign
currency exchange rate fluctuations.  The continuing  expansion of the Company's
international  operations could, however,  result in larger gains or losses as a
result of fluctuations in foreign currency exchange rates as those  subsidiaries
conduct business in whole or in part in foreign currencies.

         The Company believes that cash flow from operations, vendor credit, its
existing  working  capital  and its bank line of credit  will be  sufficient  to
satisfy the Company's  anticipated  cash  requirements  at least through  fiscal
1998.  Nonetheless,  the  Company  may seek  additional  sources  of  capital as
necessary or appropriate  to finance  acquisitions  or to otherwise  finance the
Company's  growth or  operations;  however,  there can be no assurance that such
funds if needed will be available on favorable terms, if at all.



<PAGE>




FORWARD LOOKING STATEMENTS

         With the exception of the actual reported  financial  results and other
historical  information,  the statements made in the Management's Discussion and
Analysis of Financial  Condition and Results of Operations and elsewhere in this
annual   report  are  forward   looking   statements   that  involve  risks  and
uncertainties   that  could  affect  actual  future  results.   Such  risks  and
uncertainties  include,  but are not limited to:  timing and size of orders from
large customers, timing and size of orders for new products,  competition, large
customers' inventory management,  general economic conditions, the health of the
retail  environment,  supply constraints,  supplier  performance and other risks
indicated in the Company's filings with the Securities and Exchange Commission.

EFFECTS OF INFLATION

         The Company  believes that  inflation has not had a material  effect on
its operations.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

             Inapplicable

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

             See the  Consolidated  Financial  Statements of the Company and its
subsidiaries included herein and listed in Item 14(a) of this Annual Report.

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

             Inapplicable.
                                    PART III

Item 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The  information  required by this Item is incorporated by reference to
the sections of the Company's  definitive Proxy Statement for the Annual Meeting
of  Stockholders  to be  held  on  November  25,  1997,  entitled  "Election  of
Directors" and "Executive Officers," to be filed with the Commission.

Item 11.     EXECUTIVE COMPENSATION.

         The  information  required by this Item is incorporated by reference to
the sections of the Company's  definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on November 25, 1997, entitled "Election of Directors
-- Compensation of Directors,"  "Executive  Compensation and Other Information,"
"Compensation  Committee  Report on  Executive  Compensation"  and  "Performance
Graph," to be filed with the Commission.

Item 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT.

         The  information  required by this Item is incorporated by reference to
the section of the Company's  definitive  Proxy Statement for the Annual Meeting
of  Stockholders  to be  held on  November  25,  1997,  entitled  "Common  Stock
Ownership  of  Principal  Stockholders  and  Management,"  to be filed  with the
Commission.

Item 13.     CERTAIN TRANSACTIONS.

         The  information  required by this Item is incorporated by reference to
the sections of the Company's  definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on November 25, 1997, entitled "Election of Directors
--   Compensation   of  Directors"  and  "Certain   Relationships   and  Related
Transactions," to be filed with the Commission.



                                     PART IV

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

(a)          The following documents are filed as part of this Report:

1.       Consolidated Financial Statements                         Page

         Independent Auditors' Report ...........................   F-1

         Consolidated Balance Sheets at June 30, 1997 and
         1996                                                       F-2

         Consolidated Statements of Income for Each of the Three
         Years in the Period Ended June 30, 1997 ................   F-3

         Consolidated Statements of Stockholders' Equity for Each
         of the Three Years in the Period Ended June 30, 1997 ...   F-4

         Consolidated Statements of Cash Flows for Each of the
         Three Years in the Period Ended June 30, 1997 ..........   F-5

         Notes to Consolidated Financial Statements .............   F-6

2.       Financial Statement Schedules

         Independent Auditors' Report ...........................   S-1

         Schedule II -- Valuation and Qualifying Accounts           S-2

         Schedules which are not listed above have been omitted because they are
not applicable or the  information  required to be set forth therein is included
in the Consolidated Financial Statements or notes thereto.

3.       List of Exhibits

         3.1      Certificate of Incorporation of the Registrant, as amended(1)

         3.2      Bylaws of the Registrant(2)

         10.1     Amended and Restated 1986 Stock Option Plan,  including  forms
                  of Stock Option Agreements and Stock Purchase Agreement(3) and
                  Amendment  Nos. 1(4),  2(5),  3(5) and 4(6) thereto dated July
                  17, 1992,  February  28, 1993,  May 10, 1993 and May 12, 1994,
                  respectively(7)

         10.2     1995 Stock Option  Plan,  including  forms of Stock Option
                  Agreements(8)and Amendment No. 1 (9) thereto dated October 21,
                  1996(7)

         10.3     Employee Stock Purchase Plan(3) and Amendment No. 1 thereto
                  dated July 17, 1992(4)(7)

         10.4     Day Runner 401(k) Plan and Trust Agreement(3)  effective as of
                  January  1,  1991 and  Amendment  Nos.  1(10),  2(1) and 3(11)
                  thereto effective January 1, 1992, January 1, 1991 and January
                  1, 1991, respectively(7)

         10.5     1997 Officer Bonus Plan(7)

         10.6     Officer Severance Plan effective as of February 28,  1993,
                  including form of Employment  Separation Agreement(7)(10)

         10.7     Credit   Agreement  dated  as  of  May  1,  1993  between  the
                  Registrant  and  Wells  Fargo  Bank,   National   Association,
                  including  Line of Credit  Note(5),  Assumption and Consent to
                  Merger  Agreement  dated  as  of  June  30,  1993(13),   First
                  Amendment  to  Credit  Agreement  dated  as  of  December  15,
                  1993(13), Second Amendment to Credit Agreement dated as of May
                  1, 1994, including Line of Credit Note(14), Third Amendment to
                  Credit  Agreement dated as of October 1, 1994,  including Line
                  of Credit Note(15), Fourth Amendment to Credit Agreement dated
                  as of  October  2, 1995,  including  Revolving  Line of Credit
                  Note(16) , Fifth  Amendment  to Credit  Agreement  dated as of
                  November 1, 1996, including Revolving Line of Credit Note (17)
                  and Sixth Amendment to Credit  Agreement dated as of September
                  1, 1997, including Revolving Line of Credit Note

         10.8     Triple Net Lease,  as amended,  effective as of March 22, 1991
                  between Catellus Development Corporation and the Registrant(3)
                  and as amended by Lease Amendment dated June 29, 1992(10)

         10.9     Triple Net Lease dated July 28, 1992 between Catellus
                  Development Corporation and the Registrant(10)

         10.10    Koll Business Center Lease dated  September 7,  1994 between
                  the Registrant and Koll Alton Plaza and Aetna Life Insurance
                  Co.(1)

         10.11    Standard  Commercial Lease Agreement dated as of July 31,1996
                  between System Realty Nine, Inc. and the Registrant(18)

         10.12    Form of Warrant to purchase shares of the Registrant's  Common
                  Stock  issued  to  certain   directors  and  officers  of  the
                  Registrant(3) and Schedule of Warrants(7)

         10.13    Form of Warrant dated August 19, 1997 to purchase shares of
                  the Registrant's Common Stock issued to certain officers of
                  the Company and Schedule of Warrants(7)

         10.14    Consulting Agreement effective April 22, 1997 between the
                  Registrant and Alan R. Rachlin(7)(19)

         11.1     Statement of Computation of Earnings Per Share

         21.1     Subsidiaries of the Registrant(14)

         23.1     Consent of Deloitte & Touche LLP

         27.1     Financial Data Schedule

(b)      Reports on Form 8-K

         No  reports  on Form 8-K  were  filed  or  required  to be filed by the
         Registrant  during the fourth quarter of the fiscal year ended June 30,
         1997.

(c)      Exhibits

         See the list of Exhibits  under Item  14(a)3 of this  Annual  Report on
Form 10-K.

(d)      Financial Statement Schedules

         See the list of  Schedules  under Item 14(a)2 of this Annual  Report on
Form 10-K.

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

(1)      Incorporated by reference to the Registrant's Transition Report on Form
         10-K (File No.  0-19835)  filed with the  Commission  on September  27,
         1994.
(2)      Incorporated  by reference to the  Registrant's  Current Report on Form
         8-K (File No. 0-19835) filed with the Commission on August 5, 1993.
(3)      Incorporated by reference to the Registrant's Registration Statement on
         Form S-1  (Registration  No.  33-45391)  filed with the  Commission  on
         January 30, 1992.
(4)      Incorporated by reference to the Registrant's Registration Statement on
         Form S-8  (Registration  No.  33-53422)  filed with the  Commission  on
         October 15, 1992.
(5)      Incorporated by reference to the Registrant's  Quarterly Report on Form
         10-Q (Registration No. 0-19835) filed with the Commission on August 16,
         1993.
(6)      Incorporated by reference to the Registrant's Registration Statement on
         Form S-8  (Registration  No.  33-84036)  filed with the  Commission  on
         September 15, 1994.
(7)      Constitutes a management  contract or compensatory  plan or arrangement
         required  to be  filed as an  exhibit  pursuant  to Item  14(c) of this
         Annual Report on Form 10-K.
(8)      Incorporated by reference to the Registrant's Registration Statement on
         Form S-8  (Registration  No.  33-80819)  filed with the  Commission  on
         December 22, 1995.
(9)      Incorporated by reference to the Registrant's Registration Statement on
         Form S-8  (Registration  No.  333-20247)  filed with the  Commission on
         January 23, 1997.
(10)     Incorporated  by reference to the  Registrant's  Annual  Report on Form
         10-K (File No. 0-19835) filed with the Commission on March 31, 1993.
(11)     Incorporated  by reference to the  Registrant's  Annual  Report on Form
         10-K (File No.  0-19835)  filed with the  Commission  on September  27,
         1995.
(12)     Incorporated by reference to the Registrant's  Quarterly Report on Form
         10-Q (File No. 0-19835) filed with the Commission on February 13, 1996.
(13)     Incorporated  by reference to the  Registrant's  Annual  Report on Form
         10-K (File No. 0-19835) filed with the Commission on March 30, 1994.
(14)     Incorporated by reference to the Registrant's  Quarterly Report on Form
         10-Q (File No. 0-19835) filed with the Commission on May 16, 1994.
(15)     Incorporated by reference to the Registrant's  Quarterly Report on Form
         10-Q (File No. 0-19835) filed with the Commission on November 14, 1994.
(16)     Incorporated by reference to the Registrant's  Quarterly Report on Form
         10-Q (File No. 0-19835) filed with the Commission on November 13, 1995.
(17)     Incorporated by reference to the Registrant's  Quarterly Report on Form
         10-Q (File No. 0-19835) filed with the Commission on November 13, 1996.
(18)     Incorporated  by reference to the  Registrant's  Annual  Report on Form
         10-K (File No.  0-19835)  filed with the  Commission  on September  27,
         1996.
(19)     Incorporated by reference to the Registrant's  Quarterly Report on Form
         10-Q (File No. 0-19835) filed with the Commission on May 15, 1997.



<PAGE>




                                    SIGNATURE

                  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,  in the
City of Irvine, California.

                                          DAY RUNNER, INC.


                                    By:    /s/ Mark A. Vidovich
                                          -------------------------------
                                          Chairman of the Board, Director
                                            and Chief Executive Officer

Dated:   September 29, 1997

                  Pursuant to the  requirements  of the  Securities 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>
           <S>                                        <C>                               <C>    

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

            /s/ Mark A. Vidovich
           ------------------------                    Chairman of the Board,                 September 29, 1997
           Mark A. Vidovich                            Director and Chief
                                                       Executive Officer
                                                       (Principal Executive Officer)

            /s/ James E. Freeman, Jr.
           -------------------------                   President, Chief Operating             September 29, 1997
           James E. Freeman, Jr.                       Officer and Director

            /s/ Dennis K. Marquardt
           --------------------------                  Executive Vice President,              September 29, 1997
           Dennis K. Marquardt                         Finance & Administration and
                                                       Chief Financial Officer
                                                      (Principal Financial Officer
                                                       and Accounting Officer)
            /s/ James P. Higgins
           --------------------------                  Director                               September 29, 1997
           James P. Higgins

            /s/ Jill Tate Higgins
           --------------------------                  Director                               September 29, 1997
           Jill Tate Higgins
           
            /s/ Charles Miller
           --------------------------                  Director                               September 29, 1997
           Charles Miller

            /s/ Alan R. Rachlin
           -------------------------                   Director                               September 29, 1997
           Alan R. Rachlin

            /s/ Boyd I. Willat
           ------------------------                    Director                               September 29, 1997
           Boyd I. Willat

            /s/ Felice Willat
           ------------------------                    Director                               September 29, 1997
           Felice Willat


</TABLE>

<PAGE>




                          INDEPENDENT AUDITORS' REPORT


Day Runner, Inc.:

We have audited the accompanying consolidated balance sheets of Day Runner, Inc.
and  subsidiaries  (the "Company") as of June 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1997. These financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these 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 audits 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,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of Day Runner,  Inc. and subsidiaries
as of June 30, 1997 and 1996 and the results of their  operations and their cash
flows  for  each of the  three  years  in the  period  ended  June  30,  1997 in
conformity with generally accepted accounting principles.



DELOITTE & TOUCHE LLP

/s/ DELOITTE & TOUCHE LLP

Long Beach, California
August 15, 1997














                                       F-1


<PAGE>
<TABLE>
<CAPTION>



                        DAY RUNNER, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                             (Dollars in thousands)


                                     ASSETS
                                                                                                June 30,
                                                                                          1997             1996
                                                                                       ---------         ------
<S>                                                                                   <C>               <C>    
Current assets:
    Cash and cash equivalents (Note 1).............................................    $ 15,550          $19,765
    Accounts receivable (less allowance for doubtful accounts and
       sales returns and other allowances of $8,664 and $7,374 at
       June 30, 1997 and 1996, respectively) (Notes 1 & 3).........................      22,303           21,441
    Inventories (Notes 1 & 3)......................................................      23,406           20,040
    Prepaid expenses and other current assets (Note 10)............................       2,409            1,710
    Income taxes receivable (Notes 1, 5 & 6).......................................                        1,930
    Deferred income taxes (Notes 1 & 5)............................................       6,386            5,200
                                                                                       --------          -------
       Total current assets........................................................      70,054           70,086
                                                                                       --------          -------
Property and equipment - At cost (Notes 1 & 4)
    Machinery and equipment........................................................      10,316            6,942
    Data processing equipment and software.........................................       5,863            4,707
    Leasehold improvements.........................................................       1,838            1,514
    Vehicles.......................................................................         214              202
                                                                                       --------          -------
Total  ............................................................................    18,231            13,365
    Accumulated depreciation and amortization......................................      (9,543)          (5,864)
                                                                                       --------          -------
    Property and equipment - net...................................................       8,688            7,501
                                                                                       --------          -------
Other assets (Note 10).............................................................         138              344
                                                                                       --------          -------
Total assets.......................................................................    $ 78,880          $77,931
                                                                                       ========          =======

                                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Line of credit (Note 3)........................................................    $    452
    Accounts payable (Note 1)......................................................       8,320          $ 8,063
    Accrued expenses (Note 2)......................................................       9,500           10,370
    Income taxes payable (Notes 1, 5 & 6)..........................................       1,049
    Current portion of capital lease obligations (Notes 1 & 4).....................          23
                                                                                       --------
       Total current liabilities...................................................      19,344           18,433
                                                                                       --------          -------
Long-term liabilities:
    Capital lease obligations (Notes 1 and 4)......................................          52
                                                                                       --------
Commitments and contingencies (Notes 4 & 11)
Stockholders' equity (Notes 6, 7 & 8):
    Preferred stock (1,000,000 shares authorized; $0.001 par value, no shares
       issued or outstanding)
    Common stock  (14,000,000  shares  authorized;  $0.001 par value;  6,364,429
       shares issued and 5,851,329 outstanding at June 30, 1997;
       6,304,771 issued and outstanding at June 30, 1996)..........................           6                6
    Additional paid-in capital.....................................................      23,759           22,869
    Retained earnings..............................................................      49,168           36,620
    Cumulative translation adjustment (Note 1).....................................          92                3
    Treasury stock (513,100 shares, at cost)(Note 9)...............................     (13,541)
                                                                                       --------
       Total stockholders' equity..................................................      59,484           59,498
                                                                                       --------          -------
Total liabilities and stockholders' equity.........................................    $ 78,880          $77,931
                                                                                       ========          =======
                     See accompanying notes to consolidated
                             financial statements.

</TABLE>
                                       F-2


<PAGE>

<TABLE>
<CAPTION>


                                           DAY RUNNER, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF INCOME

                                        (In thousands, except per share amounts)


                                                                        Years Ended June 30,
                                                                1997            1996            1995
                                                              ---------     ----------        ---------
<S>                                                          <C>            <C>              <C>   

Sales (Note 1)..............................................  $ 127,376      $ 125,126        $ 121,801
Cost of goods sold..........................................     60,452         59,920           62,175
                                                              ---------      ---------        ---------
Gross profit................................................     66,924         65,206           59,626
                                                              ---------      ---------        ---------
Operating expenses (Notes 4, 10 & 11):......................
    Selling, marketing and distribution.....................     31,673         29,878           32,154
    General and administrative..............................     14,451         16,376           13,792
    Costs incurred in pursuing acquisitions.................      1,451
                                                              ---------
       Total operating expenses.............................     47,575         46,254           45,946
                                                              ---------      ---------        ---------
Income from operations......................................     19,349         18,952           13,680
                                                              ---------      ---------        ---------
Interest (income) expense:
    Interest income.........................................     (1,431)          (823)            (428)
    Interest expense........................................        130            117              267
                                                              ---------      ---------        ---------
       Net interest income..................................     (1,301)          (706)            (161)
                                                              ---------      ---------        ---------
Income before provision for income taxes....................     20,650         19,658           13,841
Provision for income taxes (Notes 1 & 5)....................      8,102          7,840            5,863
                                                              ---------      ---------        ---------
Net income..................................................  $  12,548      $  11,818        $   7,978
                                                              =========      =========        =========

Earnings per common and common equivalent share
     (Note 1)...............................................  $   1.90       $    1.79        $   1.25
                                                              ========       =========        ========
Weighted average number of common and common
    equivalent shares.......................................      6,591          6,602            6,374
                                                              =========      =========        =========


                See accompanying notes to consolidated financial
                                  statements.




</TABLE>



                                                            F-3

<PAGE>

<TABLE>
<CAPTION>



                        DAY RUNNER, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                             (Dollars in thousands)


                                       Number                          Additional   Cumulative
                                      of Shares        Common           Paid-In      Retained   Translation    Treasury
                                     Outstanding        Stock           Capital      Earnings   Adjustment       Stock        Total
                                     -----------   --------------    -------------   --------   ----------   ------------    ------
<S>                                <C>              <C>               <C>            <C>          <C>         <C>           <C>
Balance at July 1, 1994..........   6,032,317        $      6          $  18,964      $ 16,824    $   (8)                   $35,786
Exercise of warrants (Note 8)....      31,500                                126                                                126
Exercise of options (Notes 6 & 7)                      61,980                568                                                568
Tax benefit of options (Note 6)..                                            284                                                284
Cumulative translation adjustment
  (Note 1).....................                                                                       45                         45
Net income.......................                                                        7,978                                7,978
                                    ---------        --------          ---------      --------    ------     ----------      -------
Balance at June 30, 1995.........   6,125,797               6             19,942        24,802        37                     44,787
Exercise of options (Notes 6 & 7)     178,974                              1,475                                              1,475
Tax benefit of options (Note 6)..                                          1,452                                              1,452
Cumulative translation adjustment
    (Note 1).....................                                                                    (34)                       (34)
Net income.......................                                                       11,818                               11,818
                                    ---------        --------          ---------      --------    ------     ----------     -------
Balance at June 30, 1996.........   6,304,771               6             22,869        36,620         3                     59,498
Exercise of warrants (Note 8)....       5,500                                 22                                                 22
Exercise of options (Notes 6 & 7)      54,158                                661                                                661
Tax benefit of options (Note 6)..                                            157                                                157
Compensation cost associated with
    warrant grant (Note 8).......                                             50                                                 50
Cumulative translation adjustment
    (Note 1).....................                                                                     89                         89
Treasury stock (Note 9)..........    (513,100)                                                                  (13,541)    (13,541)
Net income.......................                                                       12,548                               12,548
                                    ---------        --------          ---------      --------    ------       --------     -------
Balance at June 30, 1997.........   5,851,329        $      6          $  23,759      $ 49,168    $   92      ($ 13,541)    $59,484
                                    =========        ========          =========      ========    ======      =========     =======

                     See accompanying notes to consolidated
                             financial statements.











                                       F-4
</TABLE>


<PAGE>
<TABLE>
<CAPTION>



                        DAY RUNNER, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                                                        Years Ended June 30,
                                                                1997           1996           1995
                                                              ---------     ----------      -----------
<S>                                                          <C>             <C>            <C>  
Cash flows from operating activities:
    Net income..............................................  $  12,548      $ 11,818        $ 7,978
    Adjustments to reconcile net income to net cash
    provided by(used in) operating activities:
      Depreciation and amortization.........................      3,869         2,548           1,259
      Provision for losses on accounts receivable...........        381           810             452
Write-off of barter credits (Note 10).......................        200           520             210
      Utilization of barter credits.........................                                       56
Compensation expense related to issuance of warrants........         50
      Deferred income tax provision.........................     (1,186)          (26)         (2,690)
Changes in operating assets and liabilities:
        Accounts receivable.................................     (1,220)       (2,884)         (2,475)
Inventories  ...............................................     (3,294)        6,543          (8,182)
Prepaid expenses and other current assets...................       (689)          (87)            224
Income taxes receivable.....................................      1,930        (1,930)
        Accounts payable....................................        225        (1,028)           (101)
Accrued expenses............................................       (872)        3,606           3,209
Income taxes payable........................................      1,206        (1,247)          1,308
                                                               --------      --------         -------
        Net cash provided by operating activities...........     13,148        18,643           1,248
                                                               --------      --------         -------
Cash flows from investing activities:
    Acquisition of property and equipment...................     (4,972)       (4,393)         (2,592)
Other assets ...............................................          5            (8)           (146)
    Sale of marketable securities...........................                                    3,843
                                                               --------      --------         -------
    Net cash (used in) provided by investing activities.....     (4,967)       (4,401)          1,105
                                                               --------      --------         -------

Cash flows from financing activities:
    Net borrowings under line of credit.....................        452
    Payment of long-term debt...............................                     (141)           (154)
    Payment of capital lease obligations....................        (13)          (23)            (23)
    Exercise of warrants....................................         22                           126
Exercise of options.........................................        661         1,475             568
    Repurchase of common stock..............................    (13,541)
                                                               --------      --------         -------
    Net cash (used in) provided by financing activities.....    (12,419)        1,311             517
                                                               --------      --------         -------

Effect of exchange rate changes on cash and
     cash equivalents.......................................         23           (57)            (73)
                                                               --------      --------         -------
Net (decrease) increase in cash and cash equivalents........     (4,215)       15,496           2,797
Cash and cash equivalents at beginning of year..............     19,765         4,269           1,472
                                                               --------      --------         -------

Cash and cash equivalents at end of year....................   $ 15,550      $ 19,765         $ 4,269
                                                               ========      ========         =======

                See accompanying notes to consolidated financial
                                  statements.

                                       F-5
</TABLE>

<PAGE>




                        DAY RUNNER, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Day  Runner,   Inc.  and  subsidiaries   (the  "Company")   design  and
manufacture personal organizer systems, refills and related products,  marketing
them domestically and  internationally.  A substantial  portion of the Company's
sales is to office  products  superstores,  wholesalers  and dealers and to mass
market retailers throughout the United States.
The Company grants credit to substantially all of its customers.

     CONSOLIDATION.  The consolidated  financial statements include the accounts
of  Day  Runner,  Inc.  and  its  wholly  owned  subsidiaries.  All  significant
intercompany balances and transactions have been eliminated in consolidation.

         FOREIGN CURRENCY  TRANSLATION.  Assets and liabilities of the Company's
foreign  subsidiaries  are  translated  into U.S.  dollars at the exchange  rate
prevailing at the balance sheet date and, where appropriate, at historical rates
of exchange.  Income and expense accounts are translated at the weighted average
rate in effect  during  the  year.  The  aggregate  effect  of  translating  the
financial  statements  of the  foreign  subsidiaries  is  included as a separate
component of  stockholders'  equity.  Foreign  exchange  gains (losses) were not
significant during the years ended June 30, 1997, 1996 and 1995.

     CASH  EQUIVALENTS.  The Company  considers  all highly  liquid  investments
purchased with a maturity of three months or less to be cash equivalents.

     INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined  on  the  first-in,  first-out  basis.  Inventories  consist  of  the
following (in thousands):

                                   June 30,
                                1997       1996
                               -------   --------
       Raw materials ........  $10,204   $ 8,212
       Work in process ......      426       327
       Finished goods .......   12,776    11,501
                               -------   -------
         Total ..............  $23,406   $20,040
                               =======   =======

     SALES. Revenue is recognized upon shipment of product to the customer, with
appropriate allowances for estimated returns, rebates and other allowances.

         SIGNIFICANT  CUSTOMERS.  In 1997, sales to four customers accounted for
25%, 15%, 14% and 11% of the Company's  sales. In 1996 and 1995,  sales to three
customers accounted for 17%, 15% and 12% and 25%, 14% and 12%, respectively,  of
the Company's sales.

         DEPRECIATION AND  AMORTIZATION.  Depreciation of property and equipment
is provided for over the estimated useful lives of the respective assets,  using
the straight-line method. Estimated useful lives range from three to five years.
Leasehold  improvements  are amortized using the  straight-line  method over the
lesser of the estimated useful life of the asset or the life of the lease.










                                       F-6


<PAGE>



         INCOME TAXES.  The Company uses the liability  method of accounting for
income taxes. Under the liability method, deferred taxes are determined based on
temporary  differences  between the financial  reporting and income tax bases of
assets and  liabilities  at the balance sheet date  multiplied by the applicable
tax rates.

         FAIR  VALUE  OF  FINANCIAL   INSTRUMENTS.   The   Company's   financial
instruments consist primarily of cash, accounts receivable and payable, and debt
instruments.  The book  values of  financial  instruments,  other  than the debt
instruments,  are  representative  of their fair values due to their  short-term
maturity.  The book values of the Company's debt  instruments  are considered to
approximate  its fair value  because the interest rate of these  instruments  is
based on current rates offered to the Company.

         EARNINGS PER SHARE.  Earnings per share  information  is computed using
the weighted  average number of shares of common stock  outstanding and dilutive
common  equivalent  shares from stock  options and  warrants  using the treasury
stock  method.  Fully diluted  amounts for each period do not differ  materially
from the amounts presented.

         USE OF  ESTIMATES  IN THE  PREPARATION  OF  FINANCIAL  STATEMENTS.  The
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses for the reporting  period.  Actual
results could differ from those estimates.

         NEW ACCOUNTING  STANDARDS.  In February 1997, the Financial  Accounting
Standards  Board  issued  Statement of Financial  Accounting  Standards  No. 128
("SFAS No.  128"),  Earnings per Share,  which will be effective for the Company
beginning  with the  interim  period  ending  December  31,  1997.  SFAS No. 128
replaces the  presentation of primary  earnings per share with a presentation of
basic earnings per share based upon the weighted average number of common shares
for the period. It also requires dual presentation of basic and diluted earnings
per share of companies with complex capital  structures.  Had earnings per share
been  determined  consistent  with SFAS No. 128, basic and diluted  earnings per
share would have been:
<TABLE>
<CAPTION>

                                                         Years Ended June 30,
                          1997                                  1996                                 1995
           ------------------------------------    --------------------------------   --------------------------------
               Weighted                                Weighted                          Weighted
            Average Shares       Earnings Per       Average Shares    Earnings Per     Average Shares    Earnings Per
             (in thousands)          Share          (in thousands)        Share        (in thousands)        Share
             --------------          -----          --------------        -----        --------------        -----
<S>            <C>                  <C>                <C>               <C>             <C>               <C>
Basic           6,216                $2.02              6,234             $1.90           6,088             $1.31
Diluted         6,591                $1.90              6,602             $1.79           6,374             $1.25

</TABLE>

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No.  130  ("SFAS  No.  130"),   Reporting  for
Comprehensive  Income, and No. 131 ("SFAS No. 131"),  Disclosures about Segments
of an Enterprise  and Related  Information.  These  statements are effective for
financial  statements  issued for periods beginning after December 15, 1997. The
Company is evaluating what, if any, additional  disclosures may be required upon
implementation of SFAS Nos. 130 and 131.

     RECLASSIFICATIONS.   Certain   reclassifications  were  made  to  the  1996
financial statements to conform to the current year presentation.












                                       F-7


<PAGE>



2.       ACCRUED EXPENSES

        Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                        June 30,
                                                                   1997             1996
                                                                ---------        -------
                    <S>                                        <C>              <C>   
                   
                     Accrued sales and promotion costs........  $   5,223        $  4,027
                     Accrued payroll and related costs........      2,128           3,923
                     Other....................................      2,149           2,420
                                                                ---------        --------
                             Total............................  $   9,500        $ 10,370
                                                                =========        ========
</TABLE>

3.       BANK BORROWINGS

         The  Company  has a credit  agreement  with a bank,  the terms of which
provide  for  borrowings  under  a  line  of  credit  of up to an  aggregate  of
$5,000,000  through November 1, 1997. Under the line of credit,  the Company may
either borrow funds,  open commercial  letters of credit or open standby letters
of credit up to $5,000,000. However, in no event may the aggregate of borrowings
and  letters  of credit  exceed  $5,000,000.  Commercial  letters  of credit and
standby  letters  of credit  may be issued for a term not to exceed 180 days and
may not expire subsequent to February 1, 1998 and May 1, 1998, respectively.  At
June 30, 1997, the Company had $452,000 outstanding under its line of credit and
had  used the  line of  credit  to  secure  outstanding  letters  of  credit  of
approximately  $1,000,000,  which  reduced  the  availability  under the line of
credit to  approximately  $3,548,000.  Effective  September 1, 1997, the Company
increased its line of credit from $5,000,000 to $15,000,000.

         Borrowings are collateralized by accounts  receivable,  inventories and
certain other assets.  Borrowings  under the line of credit bear interest either
at the bank's  prime rate (8.5% at June 30,  1997) or at LIBOR  (5.6875% at June
30, 1997) plus 1.75%, at the Company's  election.  The credit agreement requires
the Company to maintain total debt to tangible net worth of not more than 1.5 to
1 and to  maintain  certain  specified  operating  ratios.  The  agreement  also
requires that the Company obtain the bank's approval to declare or pay dividends
in excess of $200,000.

4.       LEASES

         The Company has four  noncancelable  operating leases for its principal
operating facilities and its corporate  headquarters.  The leases expire through
2005. The leases include  renewal  options that, if exercised,  would extend the
lease terms through 2011, and the leases provide for increases in future minimum
annual rental  payments based on defined  increases in the Consumer Price Index,
subject to certain minimum  increases.  The Company also has entered into leases
for  certain  production,   warehouse,   computer  and  office  equipment  under
noncancelable operating leases that expire through September 2004.

         The Company also leases certain vehicles under agreements that meet the
criteria for  classification  as capital  leases.  Future minimum lease payments
under these capital  leases,  and the future  minimum lease  payments  under the
operating leases at June 30, 1997, are summarized as follows (in thousands):
<TABLE>
<CAPTION>

                                                                    Capital         Operating
       Year                                                         Leases           Leases
       ----                                                       ---------       ---------
       <S>                                                       <C>               <C>
       1998....................................................   $      23         $  2,939
       1999....................................................          23            2,497
       2000....................................................          15            2,015
       2001....................................................           5            1,891
       2002....................................................           5              814
       Thereafter..............................................           4              896
                                                                  ---------         --------
       Total minimum lease payments............................          75         $ 11,052
                                                                                    ========
       Less current portion of capital lease obligations.......          23
                                                                  ---------
       Portion of capital lease obligation due after one year..   $      52
                                                                  =========

</TABLE>

                                                          F-8



<PAGE>




     Included in property and equipment at June 30, 1997 are capitalized  leased
vehicles with a cost of $88,000 and accumulated amortization of $43,000.

     Rent expense was $3,841,000,  $3,927,000 and $3,128,000 for the years ended
June 30, 1997, 1996 and 1995, respectively.

5.      INCOME TAXES

         The income tax provision consists of the following (in thousands):

<TABLE>
<CAPTION>


                                                            Years Ended June 30,
                                                     1997         1996          1995
                                                   ----------   ---------   --------
       <S>                                       <C>           <C>          <C>
        Current:
          Federal...............................   $  7,076     $  6,051     $  6,998
          State.................................      1,825        1,473        1,400
          Foreign...............................        387          342          155
                                                   --------     --------     --------
        Total current...........................      9,288        7,866        8,553
                                                   --------     --------     --------
        Deferred provision (benefit):...........
          Federal...............................       (961)         (37)      (2,363)
          State.................................       (225)          11         (327)
                                                   --------     --------     --------
        Total deferred..........................     (1,186)         (26)      (2,690)
                                                   --------     --------     --------
        Total income tax provision..............   $  8,102     $  7,840     $  5,863
                                                   ========     ========     ========
</TABLE>

         Differences  between  the total  income  tax  provision  and the amount
computed by applying  the  statutory  federal  income tax rate to income  before
income taxes are as follows (in thousands):
<TABLE>
<CAPTION>



                                                            Years Ended June 30,
                                                     1997         1996        1995
                                                   ----------   ---------   --------
       <S>                                        <C>          <C>         <C>   
        Computed tax expense using the
          statutory federal income tax rate.....    $  7,228    $  6,880    $   4,946
        Increase (decrease) in taxes arising from:
          State taxes, net of federal benefit...       1,000         980          698
          Foreign subsidiary operating losses...          46          35          281
          Other.................................        (172)        (55)         (62)
                                                    --------    --------    ---------
          Total.................................    $  8,102    $  7,840    $   5,863
                                                    ========    ========    =========

        Effective income tax rate...............          39%        40%           42%
                                                    =========   =========   ==========

</TABLE>







                                                          F-9


<PAGE>


<TABLE>
<CAPTION>



           Total deferred tax assets and deferred tax liabilities consist of the
        following at June 30, 1997 and 1996 (in thousands):

                                                                                       June 30,
                                                                        1997             1996
                                                                   -------------    --------------

         <S>                                                          <C>               <C>

          Allowance for sales returns............................      $2,490             $  2,072
          Inventory obsolescence reserve.........................       1,394                1,479
          Allowance for doubtful accounts........................       1,147                1,005
          State taxes............................................         615                  523
          Other deferred tax assets..............................       1,491                  706
                                                                       ------             --------
          Total deferred tax assets..............................       7,137                5,785
          Less deferred tax liabilities..........................         751                  585
                                                                       ------             --------
          Total..................................................      $6,386             $  5,200
                                                                       ======             ========
</TABLE>

6.       STOCK OPTION PLANS

         Under the Company's  1995 Stock Option Plan (the "Plan"),  an aggregate
of 500,000  shares of common stock is reserved  for  issuance to key  employees,
including officers and directors, and consultants of the Company. Both incentive
stock options and  nonstatutory  stock options are authorized for issuance under
the Plan. The terms of the options are determined at the time of grant. Pursuant
to the Plan,  the per share option  price of stock  options may not be less than
the fair market  value of a share of common  stock at the date of grant,  and no
options may be granted after December 2005. The  outstanding  options  typically
become  exercisable  over a period of five years from the date of  issuance  and
have terms of up to ten years.

         The Company also  authorized the issuance of up to 1,725,000  shares of
the  Company's  common  stock under its Amended and  Restated  1986 Stock Option
Plan. Such options  typically become  exercisable  ratably over a period of five
years from the date of issuance  and have terms of six to ten years.  As of June
30,  1997,  options  covering  890,325  shares have been  exercised  and options
covering  826,550  shares  remain  outstanding.  No  additional  options will be
granted under this plan.

         During the years ended June 30, 1997, 1996 and 1995,  certain  officers
and employees  exercised options to purchase an additional  37,150,  164,025 and
45,750 shares,  respectively,  of the Company's common stock for an aggregate of
$381,000, $1,214,000 and $362,000, respectively (see Note 7).

         In connection with the exercise of  nonstatutory  stock options and the
sale of shares  purchased  pursuant  to  incentive  stock  options,  the Company
realized a reduction  in its current tax  liability  during the years ended June
30,  1997,  1996 and 1995.  This  reduction  totaled  $157,000,  $1,452,000  and
$284,000, respectively, and was credited to additional paid-in capital.











                                      F-10


<PAGE>
<TABLE>
<CAPTION>





         A summary of stock option activity is as follows:

                                                               Number of
                                                                Options                 Per Share
                                                                -------                 ---------

                 <S>                                            <C>                <C>      
                 Outstanding, July 1, 1994.............          797,475           $ 2.26 - $18.625
                    Granted............................          148,000             16.75 - 19.50
                    Exercised..........................          (45,750)             2.26 - 12.50
                    Cancelled..........................          (33,000)             2.26 - 18.625
                                                               ---------
                 Outstanding, June 30, 1995............          866,725              2.26 - 19.50
                    Granted............................          168,375                16.75
                    Exercised..........................         (164,025)             2.26 - 19.50
                    Cancelled..........................           (5,000)            12.50 - 19.50
                                                               ---------
                 Outstanding, June 30, 1996............          866,075              8.75 - 19.50
                    Granted............................          232,500                   26.00
                    Exercised..........................          (37,150)              8.75 - 26.00
                    Cancelled..........................          (15,625)                  26.00
                                                               ---------
                 Outstanding, June 30, 1997............        1,045,800               10.25 - 26.00
                                                               =========
</TABLE>

         At June 30, 1997,  options to purchase 551,157 shares at prices ranging
from $10.25 to $26.00 were exercisable.

         The Company  applies  Accounting  Principles  Board  Opinion No. 25 and
related  Interpretations in accounting for its stock option plans.  Accordingly,
no  compensation  cost  has  been  recognized  for  stock  option  awards.   Had
compensation  cost for the Company's stock option plans been determined based on
the fair value at the grant dates for awards under those plans  consistent  with
the method of  Statement of Financial  Accounting  Standards  No. 123 ("SFAS No.
123"),  Accounting  for Stock Based  Compensation,  the Company's net income and
earnings per common and common  equivalent shares would have been reduced to the
pro forma amounts indicated below:

                                                        Years Ended June 30,
                                                         1997          1996
                                                       --------      -------
Net income:
            As reported .........................      $12,548      $11,818
            Pro forma ...........................      $11,094      $11,294

Earnings per common and common equivalent shares:
            As reported .........................      $  1.90      $  1.79
            Pro forma ...........................      $  1.68      $  1.71

         The fair value of the options  granted  under the plans during 1997 and
1996 was estimated on the date of grant using the  Black-Scholes  option-pricing
model  with the  following  weighted  average  assumptions  for  1997 and  1996,
respectively:  no dividend  yield,  volatility  of 53.28% and 56.26%,  risk-free
interest rates of 5.41% to 6.95% and 5.69% to 6.40%,  and expected  option lives
of 1.4 to 4 years for both  periods.  Pro  forma  compensation  cost of  options
granted under the Employee Stock Purchase Plan is measured based on the discount
from market value.

         On August 19,  1997,  the Company  issued  options to key  employees to
purchase  257,500 shares of the Company's  common stock at $33.75 per share. The
options vest over a period of five years and expire in 2007.







                                      F-11


<PAGE>



7.       EMPLOYEE STOCK PURCHASE PLAN

         During 1992, the Company  adopted an Employee Stock Purchase Plan under
which 100,000 shares of common stock were  authorized for issuance to employees.
Under the plan,  eligible  employees may purchase,  through  payroll  deductions
withheld  during an  offering  period,  an amount of common  stock not to exceed
approximately 5% of the employee's annual  compensation.  The purchase price per
share is the lower of 85% of the fair market value of a share of common stock on
the first day of the offering period or on the last day of the offering  period.
There are two offering periods during each year. During the years ended June 30,
1997,  1996 and 1995,  employees  purchased an  aggregate of 17,008,  14,949 and
16,230   shares  of  common  stock  for  $280,000,   $261,000   and,   $206,000,
respectively,  under this plan.  These amounts are included in the amounts shown
for  exercise  of  options  on  the  accompanying   consolidated  statements  of
stockholders' equity (see Note 6).

8.       WARRANTS

         During  the years  ended  June 30,  1997,  1996 and 1995,  the Board of
Directors  approved the issuance of warrants to purchase an aggregate of 200,000
shares of the  Company's  common  stock.  Such  warrants  were  issued at prices
ranging from $19.00 to $25.625 per share,  vest over periods up to 48 months and
expire at various times through April 2007.

         During 1997 and 1995, certain directors  exercised warrants to purchase
5,500 and 31,500  shares,  respectively,  of the  Company's  common stock for an
aggregate of $22,000 and  $126,000,  respectively.  No warrants  were  exercised
during the year ended June 30, 1996.

         Included in the issuance of warrants to purchase  200,000 shares of the
Company's common stock is a warrant to purchase 25,000 shares that was issued to
a director under the terms of a consulting  agreement  during fiscal 1997.  Such
issuance was accounted for under SFAS No. 123,  which  resulted in the recording
of $50,000 in compensation cost.
<TABLE>
<CAPTION>

         A summary of warrant activity is as follows:

                                                                Number of
                                                                 Warrants                Per Share
                                                                 --------              -------------
                 <S>                                           <C>                   <C>    
                 Outstanding, July 1, 1994.............            220,000            $4.00 - $12.50
                    Granted............................             25,000                 19.00
                    Exercised..........................            (31,500)                4.00
                                                               -----------
                 Outstanding, June 30, 1995............            213,500             4.00 - 19.00
                    Granted............................             25,000                 19.00
                                                               -----------
                 Outstanding, June 30, 1996............            238,500              4.00 - 19.00
        Granted     ...................................            150,000           23.5625 - 25.625
                    Exercised..........................             (5,500)                4.00
                                                               -----------
                 Outstanding, June 30, 1997............            383,000             4.00 - 25.625
                                                               ===========
</TABLE>

         At June 30, 1997, warrants to purchase 244,456 shares at prices ranging
from $4.00 to $25.625 were exercisable.

         On August 19, 1997,  the Company  issued  warrants to key  employees to
purchase  95,000 shares of the Company's  common stock at $33.75 per share.  The
warrants vest immediately and expire in 2007.

9.       TREASURY STOCK

         In 1997, the Board of Directors  authorized a stock repurchase  program
under which the Company may repurchase up to 600,000 shares of its common stock.
Such stock may be used to meet the Company's  common stock  requirements for its
stock benefit plans.  During fiscal 1997, the Company repurchased 513,100 shares
at an average per share cost of $26.39.





                                      F-12


<PAGE>



         On August 27, 1997,  the Board of Directors  authorized the purchase of
up to 360,000  shares of the Company's  common stock from officers and directors
and  increased  the  number  of  shares  of common  stock  that the  Company  is
authorized to repurchase under its existing stock repurchase  program by 100,000
shares. In addition,  on that date, the Company  repurchased 347,794 shares from
certain officers and directors at a cost of $33.25 per share.

10.      OTHER TRANSACTIONS

         During  1995 and 1993,  the  Company  entered  into  barter  agreements
whereby it delivered $132,000 and $1,098,000,  respectively, of its inventory in
exchange  for future  advertising  credits and other items.  The credits,  which
expire in October 1998,  are valued at the lower of the Company's cost or market
value of the inventory  transferred.  The Company has recorded barter credits of
$36,000 in prepaid  expenses and other current assets at June 30, 1997 and 1996.
At  June  30,  1997  and  1996,  other  assets  include  $79,000  and  $279,000,
respectively,  of such credits. Under the terms of the agreement, the Company is
required to pay cash equal to a negotiated  amount of the bartered  advertising,
or other items, and use the barter credits to pay the balance. These credits are
charged to expense as they are used.  During the years  ended June 30,  1997 and
1996, no amounts were charged to expense for barter credits used.

         The Company assesses the recoverability of barter credits periodically.
Factors considered in evaluating the recoverability  include  management's plans
with respect to advertising and other  expenditures for which barter credits can
be  used.  Any  impairment   losses  are  charged  to  operations  as  they  are
determinable.  During the year ended June 30, 1997,  1996 and 1995,  the Company
charged $200,000,  $520,000 and $210,000,  respectively,  to operations for such
impairment losses.

11.     PROFIT-SHARING AND BONUS PLANS

         In January 1991, the Company  established a 401(k)  profit-sharing plan
in which eligible employees may contribute up to 15% of their eligible earnings.
The  Company  may  contribute  to the  plan at the  discretion  of the  Board of
Directors,  subject to applicable regulations. In the years ended June 30, 1997,
1996 and 1995,  the Board  elected to  contribute  an amount equal to 25% of the
first 6% of eligible earnings.  Participants vest in the Company's contributions
at a rate of 20%  after  two  years  of plan  participation  and 20%  each  year
thereafter until fully vested.

     During the years ended June 30, 1997, 1996 and 1995, the Company's matching
contributions were $133,000, $128,000 and, $120,000, respectively.

         The  Company has an  executive  bonus plan and  incentive  compensation
arrangements  for key  employees  based  on an  earnings  formula.  Compensation
expense  recorded under these plans was $1,120,000 and $550,000 during the years
ended June 30, 1996 and 1995, respectively. No amounts were recorded under these
plans during the year ended June 30, 1997.

12.      STATEMENTS OF CASH FLOWS
     Capital lease  obligations  totaling $88,000 were incurred in 1997 when the
Company entered into leases to acquire certain vehicles.

         In  a  barter  transaction  entered  in  1995,  the  Company  exchanged
$132,000,  respectively, of inventory for an equal amount of barter credits (see
Note 10).

         The Company  realized a reduction in its current tax  liability  during
1997,  1996  and  1995 in the  amount  of  $157,000,  $1,452,000  and  $284,000,
respectively. Such amounts were credited to additional paid-in capital (see Note
6).

                                                 Years Ended June 30,
                                            1997       1996         1995
                                         ---------   ---------    ---------
Supplemental disclosure of cash flow
  information (in thousands) -
 Cash paid during the period for:
     Interest ......................      $  130     $   24       $   80
     Income taxes ..................      $6,026     $9,988       $6,610

                                      F-13


<PAGE>




                          INDEPENDENT AUDITORS' REPORT

Day Runner, Inc.:

We have audited the consolidated  financial  statements of Day Runner,  Inc. and
its  subsidiaries  as of June 30, 1997 and 1996, and for each of the three years
in the period  ended June 30,  1997,  and have issued our report  thereon  dated
August 15, 1997; such report is included elsewhere in this Form 10-K. Our audits
also included the consolidated  financial statement schedule of Day Runner, Inc.
and  its  subsidiaries,  listed  in Item  14(a)2.  This  consolidated  financial
statement  schedule  is the  responsibility  of the  Company's  management.  Our
responsibility  is to express an opinion  based on our audits.  In our  opinion,
such consolidated  financial statement schedule,  when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

/s/ DELOITTE & TOUCHE LLP

Long Beach, California
August 15, 1997






























                                                            S-1


<PAGE>


<TABLE>
<CAPTION>

                                             DAY RUNNER, INC. AND SUBSIDIARIES

                                    SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                                 (Dollars in thousands)



                                                Balance at                                                Balance at
                                                 June 30,             Charged to                           June 30,
Classification                                     1996               Operations         Deductions          1997
--------------                               ----------------         ----------         ----------       ---------
<S>                                             <C>                    <C>              <C>               <C>                 
Allowance for doubtful accounts............      $2,358                 $    381          $    57          $ 2,682
Allowance for sales returns................       5,016                   13,883           12,917            5,982
Reserve for obsolete inventory.............       3,473                    1,267            1,481            3,259

                                                Balance at                                                Balance at
                                                 June 30,             Charged to                           June 30,
Classification                                     1995               Operations         Deductions          1996
--------------                               ----------------         ----------         ----------       ----------

Allowance for doubtful accounts............      $1,671                  $   810          $   123           $ 2,358
Allowance for sales returns................       5,461                    8,221            8,666             5,016
Reserve for obsolete inventory.............       3,214                    2,754            2,495             3,473


                                                Balance at                                                Balance at
                                                 June 30,             Charged to                           June 30,
Classification                                     1994               Operations         Deductions          1995
--------------                               ----------------         ----------         ----------       ----------

Allowance for doubtful accounts............      $1,368                 $    452         $    149           $ 1,671
Allowance for sales returns................       2,883                   10,451            7,873             5,461
Reserve for obsolete inventory.............       1,800                    3,508            2,094             3,214


                                                Balance at                                                Balance at
                                               December 31,           Charged to                           June 30,
Classification                                     1993               Operations         Deductions          1994
--------------                               ----------------         ----------         ----------       ----------

Allowance for doubtful accounts............      $1,362                 $    124         $    118           $ 1,368
Allowance for sales returns................       3,092                    3,839            4,048             2,883
Reserve for obsolete inventory.............       1,529                      924              653             1,800

</TABLE>














                                                          S-2



<PAGE>





                                                    EXHIBIT INDEX


Exhibit
Number                     Description
----------                 -------------

    10.6                   1997 Officer Bonus Plan

    10.8                   Sixth Amendment to Credit Agreement dated as of
                           September 1, 1997 between the Registrant and Wells
                           Fargo Bank, National Association, including revolving
                           Line of Credit Note

    10.12                  Schedule of Warrants

    10.13                  Form of Warrant dated  August 19, 1997  to  purchase
                           shares  of  the  Registrant's  Common  Stock  issued
                           to certain  officers of the Company and  Schedule of
                           Warrants

    11.1                   Statement of Computation of  Earnings Per Share

    23.1                   Consent of  Deloitte & Touche LLP

    27.1                   Financial Data Schedule