<PAGE>

                                   FORM 10-K
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                _______________

             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1997
                        Commission File Number 0-22475
                             ____________________

                                DIRECTCOM, INC.
            (Exact name of registrant as specified in its charter)


     Delaware                                             22-2942013
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

  3 Garret Mountain Plaza, Suite 202A                         07424
     West Paterson, New Jersey                              (Zip Code)
(Address of principal executive offices)

      Registrant's telephone number, including area code: (973) 523-2500

          Securities Registered Pursuant To Section 12(b) of The Act:

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

          Securities Registered Pursuant To Section 12(g) of The Act:

      Title of each class             Name of each exchange on which registered
------------------------------        -----------------------------------------
Common stock, .00001 par value                     Over the counter

                   ________________________________________


     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.  [ ]

     The aggregate market value of the 2,221,983 shares of voting stock held by
non-affiliates of the Registrant as of February 27, 1998 (based on the aggregate
market value of the stock computed by reference to the price at which the stock
was most recently sold in an arm's-length transaction) was $1,177,651.

                                       1
<PAGE>

     The number of shares of Common Stock of the Registrant outstanding as of
February 27, 1998 was 3,101,983.


                                       2
<PAGE>

                                     PART I


ITEM 1. BUSINESS.

General
-------

     DirectCom, Inc. ("DirectCom" or the "Company"), established in 1989, is a
full service direct marketing company.  DirectCom provides turnkey database
marketing products and services to direct marketers.  These services include
data warehouse development and management, data mining, direct mail creative
development, campaign management, and direct mail production.  DirectCom assists
its customers in devising marketing strategies that focus on relationship
marketing, and developing marketing programs to improve customer acquisition,
retention, and activation.

     DirectCom is headquartered in West Paterson, New Jersey, where it builds
and maintains client data warehouses and manages direct marketing programs.
DirectCom has a Wilmington, Delaware office where it provides creative services
in which graphic artists and copywriters prepare direct mail packages to achieve
a client's marketing objectives.  Once a prospective mail piece has been chosen
by a client, DirectCom can print the promotional material at its subsidiary,
Color Graphics, Inc., located in Moorestown, New Jersey.

Business Strategy
-----------------

     DirectCom is implementing the following strategy:  (1) the expansion of its
existing customer base through targeted business development in selected
industries; (2) growth through strategic acquisitions; (3) cross selling of
services to existing customers; and (4) introduction of new products and
services.

     In accordance with its acquisition strategy, DirectCom successfully
completed the acquisition in October 1996 of Color Graphics, Inc., a company
engaged in printing promotional material for direct mail distribution.
DirectCom's acquisition of Color Graphics was intended to achieve a vertically
integrated company to provide database marketing products and services to direct
marketers.

DirectCom Products and Services
-------------------------------

     DirectCom provides customized services for a specific component of a
client's advertising or marketing program, such as database analysis, data
processing, direct mail creative design, list strategy, production of the
printed insert or envelope product, and packaging and mailing. Alternatively,
DirectCom can provide a turnkey service whereby it assumes responsibility for
the entire project, from marketing planning, design and production of the direct
mail marketing materials, and the actual mailing of the finished printed
products.


                                       3
<PAGE>

     Database Services

     DirectCom database services include strategic consulting, data warehouse
development, data mining, list processing and data enhancement.  In a typical
engagement, a client supplies DirectCom with customer data from its operational
systems. These files can include current and historical customer information
such as name and address, demographic data, purchase transactions and payment
history. DirectCom supplements the client's file through the use of outside
computer services (i.e., credit bureaus and list companies) and enhances the
client's database with additional variables such as age, income factors and
geographic location.  DirectCom develops detailed statistics that measure a
customer's current actual profit contribution, as well as a customer's future
profit potential. From this additional information a client learns about its
customers, their behavior and their relative value.  DirectCom provides data
mining services whereby it develops predictive models to forecast various
customer behaviors. DirectCom appends the resulting model scores to each
customer record in the client's database. Based upon these scores, clients are
better able to focus their marketing efforts to sell new and different products
to their existing customers.

     List Processing Services

     List processing includes the preparation and generation of comprehensive
name and address lists which are used for direct marketing promotions.
DirectCom assists its clients in developing the criteria for selecting names
from the client's database to solicit for specific marketing campaigns.
DirectCom customizes a list processing solution by utilizing a variety of
commercial and proprietary software products, such as Address Conversion and
Reformat, Address Standardization and Merge/Purge.

     Creative and Production Services

     DirectCom engages in creative services and production services through
Direct Line Productions, a division of DirectCom located in its Wilmington,
Delaware office, and Color Graphics, respectively.  DirectCom provides its
client with agency creative services associated with the design and development
of direct marketing promotion materials. DirectCom also provides production
management services whereby it supervises and oversees the entire creative and
direct mail production process on behalf of its clients. These services include
campaign planning, vendor selection and coordination, production quality
assurance and program results analysis.

     Production services enable DirectCom to be a one-stop direct marketing
firm.  Once a prospective mail piece has been chosen by a client, DirectCom
either prints the promotional material at Color Graphics' facilities or bids the
print work and production of the direct mail to its affiliate, North American
Communications, Inc., or to a third party capable of completing the project in a
timely fashion.  Color Graphics has six major multi-color web presses, with gas
and UV drying capability, that can print up to 12 colors.  Color Graphics also
has bindery capabilities, including letter folding, foil embossing and card and
label affixing.

Markets and Marketing
---------------------

     DirectCom's market for its services is nationwide and is not confined to
any specific sector or type of business.  Currently, management has focused its
marketing efforts primarily on financial institutions and insurance companies.
Two customers  Capital One and Citibank  each accounted for more than 10% of
DirectCom's sales revenues in 1997.  The loss of either of these financial
institutions could have a material adverse effect on DirectCom.  In addition,
DirectCom's customers include, among others, American Express Company, AT&T,
MBNA America Bank National Association and MCI Communications Corp.  DirectCom
markets its services primarily through referrals, client recommendations, print
advertising, industry trade shows and conferences.

     Management believes that the comprehensive, integrated character of its
services and its expertise in information-based marketing techniques offer
clients a unique and highly effective approach


                                       4
<PAGE>

to direct mail advertising and marketing. DirectCom is able to analyze data
provided by clients to develop effective marketing campaigns, produce the
marketing material analyze the results of the programs to further refine and
improve the effectiveness of future marketing efforts. Management believes that
its customized services provide its clients with products best suited to each
client's needs.

     DirectCom's marketing strategy is to increase the awareness of its existing
customers of the broad range of DirectCom's services, emphasizing DirectCom's
comprehensive, integrated capabilities.  In this way, DirectCom plans to focus
on increasing its share of the business of existing customers.

Competition
-----------

     The direct mail advertising and marketing market is highly competitive and
fragmented.  According to data published by Ward's Business Directory of U.S.
                                            ---------------------------------
Private and Public Companies, there were 68 direct mail advertising and
----------------------------
marketing service companies which had 1997 annual sales in excess of $5,000,000.
Because the direct mail advertising and marketing service industry is price
sensitive, DirectCom believes that its business will remain susceptible to price
competition for the foreseeable future. To date, Color Graphics competes
primarily on the basis of its high quality and large volume capabilities and to
a much lesser extent on the basis of price. The largest competitors of DirectCom
include such major national publicly trade companies as Axciom Corporation,
Harte-Hanks Communications, Fair Isaac & Company, May & Speh, Metromail
Corporation, Big Flower Holdings and World Color Press.

Employees
---------

     DirectCom employed a total of 108 people as of December 31, 1997, comprised
of 32 people in its database analysis and creative business and 76 people in its
Color Graphics subsidiary.

Environmental Matters
---------------------

     DirectCom believes that it is substantially in compliance with all
regulations concerning the discharge of materials into the environment, and such
regulations have not had a material effect on the capital expenditures or
operations for DirectCom.

Raw Materials
-------------

     The principal raw materials used by Color Graphics are paper and ink.
Paper is purchased directly from major paper producers, including Union Camp,
and indirectly from paper merchants, including Resource Net International and
Clifford Paper.  Color Graphics purchases most of its ink from larger suppliers
of ink, including Flint Ink and Sun Chemical Corporation.  Raw materials
inventory is maintained on a just-in-time basis.

Forward-Looking Statements
--------------------------

     This report contains forward-looking statements based upon management's
current plans and expectations, related to, among other matters, the proposed
business activities of DirectCom and estimate of amounts that are not yet
determinable.  Such statements involve risks and uncertainties which may cause
actual future activities and results of operations to be materially different
from that suggested in this report, including among others, the loss of one or
more significant customers and risks associated with industry consolidation,
acquisitions and competition.

ITEM 2. PROPERTIES.

     Since March 1997, DirectCom has been headquartered at 3 Garret Mountain
Plaza, West Paterson, New Jersey  07424.  DirectCom leases approximately 10,000
square feet under a lease which commenced March 1, 1997 and expires May 1, 2002
with an option to renew for a five year term.


                                       5
<PAGE>

     Color Graphics leases its facility at 101 Commerce Drive, Moorestown, New
Jersey  08057.  The facility occupies 64,700 square feet.  Color Graphics
purchased a 66,100 square foot building on approximately four acres of land in
Mount Laurel, New Jersey on December 23, 1997.  DirectCom intends to move from
its existing facility in Moorestown, New Jersey upon expiration of its lease on
June 30, 1998 or as soon thereafter as possible.   DirectCom also leases its
office in Wilmington, Delaware that consists of 800 square feet.  That lease
expires August 31, 1999.

ITEM 3.  LEGAL PROCEEDINGS.

     There is no material litigation or other legal proceeding pending against
DirectCom.

     Color Graphics has been notified by the Equal Employment Opportunity
Commission ("EEOC") of a charge of discrimination under Title VII of the Civil
Rights Act of 1964 by an individual employed as a press helper alleging
discrimination in payment and promotion.  The complainant seeks an unspecified
amount of compensatory damages.  The case is pending before the New Jersey
Department of Law and Public Safety, Division of Civil Rights (Docket No.
EC22RB-30973).  DirectCom intends to vigorously contest these allegations.

     Color Graphics also has been named by Mutual Pharmaceutical Company, Inc.
("Mutual") in a  letter dated November 17, 1995 as a potentially responsible
party in a Notice of Intent to File a Lawsuit for claims under environmental
laws.  Mutual also stated its intention to proceed against other former tenants
of 1120-1170 Orthodox Street, Philadelphia, Pennsylvania.  Among the intended
defendants listed by Mutual were Action Arms, Limited and Orthodox Associates
which owned and operated the Geigy Chemical/Action Arms Parcel of the site from
approximately 1978 through 1993 and who owned and operated the Reading Railroad
Parcel of the Site from approximately 1987 through 1993.  Also included as
potential defendants were Ciba-Geigy Corp.  Color Graphics' involvement arose as
a result of its purchase of PennScan Forms, Inc. which had occupied the building
located on the two acre site from 1975 through 1979.  This matter has not
reached the stage where significant liability has been assessed against
DirectCom.  No further actions have been taken by Mutual since its letter dated
November 17, 1995.  DirectCom has evaluated the matter and believes that it will
not give rise to a material charge to earnings or a material amount of capital
expenditures.  This assessment is notwithstanding the ability of DirectCom to
recover on existing insurance policies or from other parties which DirectCom
believes will be held as joint and several obligors under any such liabilities.
However, future developments could alter these conclusions.  Management does not
believe, however, that there is a likelihood of a material adverse affect on the
financial condition of Color Graphics or DirectCom in these circumstances.

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

     No matters were submitted to a vote of security holders of DirectCom
through the solicitation of proxies or otherwise during the fourth quarter of
1997.

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

     DirectCom's common stock (the "Common Stock") is not regularly traded and
there is no established public trading market for these securities.

     As of December 31, 1997, there were 594 shareholders of DirectCom's Common
Stock.

     DirectCom has not issued any dividends to its shareholders since its
inception.  There are no material restrictions that could limit or restrict
management from declaring any such dividends in the future.  At the current
time, management has no intention to declare any dividends in the forthcoming
fiscal year.


                                       6
<PAGE>

Item 6. Selected Financial Data:

The following data insofar as it relates to the years ended December 31, 1997,
1996, 1995, 1994 and 1993, has been derived from the financial statements,
including the balance sheets as of December 31, 1997 and December 31, 1996, and
the related statements of operations and cash flows for the each of the three
years in the period ended December 31, 1997, and notes thereto appearing
elsewhere herein. For a more detailed discussion of the respective periods of
the Company's revenues, expenses, assets and liabilities see Management's
Discussion and Analysis- (a) Results of Operations and (b) Liquidity and Capital
Resources.

<TABLE>
<CAPTION>
Year Ended December 31,

                                                     1997          1996           1995            1994          1993
<S>                                              <C>           <C>            <C>           <C>             <C>
Statement of Operations Data
  Net revenue                                    $25,426,297   $11,208,688    $ 4,665,599      $2,700,281   $ 2,577,448
  Costs and expenses                              22,505,303     9,396,275      4,502,677       2,328,425     2,206,288
  Provision for income taxes                       1,308,400       743,140         60,340         158,375        99,455
                                                 -----------   -----------    -----------   -------------   -----------
  Income from continuing operations                1,612,594     1,069,273        102,582         213,481       271,705
  Income (loss) from discontinued operations                                                      (18,131)       47,575
  Minority interest in net income of subsidiary     (230,484)      (56,064)             -               -             -
                                                 -----------   -----------    -----------   -------------   -----------

 Net income                                      $ 1,382,110   $ 1,013,209    $   102,582      $  195,350   $   319,280
                                                 ===========   ===========    ===========   =============   ===========


Basic earnings per share                               $0.45         $0.34          $0.08           $0.15         $0.24
Diluted earnings per share                             $o.44         $0.33          $0.07           $0.14         $0.23

Balance Sheet Data
  Total assets - Continuing operations           $14,299,768   $10,233,808    $ 2,422,410      $  997,060   $ 1,104,079
  Total assets - Discontinued operations                   -             -              -         126,102       459,131
  Total assets                                    14,299,768    10,233,808      2,422,410       1,123,162     1,563,210
  Total liabilities - Continuing operations       11,309,404     8,775,554      2,177,365         867,670     1,416,649
  Total liabilities - Discontinued operations              -             -              -         113,029       194,448
  Total liabilities                               11,309,404     8,775,554      2,177,365         980,699     1,611,097
  Shareholders' equity (deficit)                 $ 2,990,364   $ 1,458,254    $   245,045      $  142,463   $   (47,887)
</TABLE>

----------
Previously reported amounts have been restated to segregate the results of
discontinued operations from continuing operations.

                                       7
<PAGE>

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

PERIODS ENDED DECEMBER 31, 1997, DECEMBER 31, 1996 AND DECEMBER 31, 1995

GENERAL

DirectCom has focused its growth strategy on acquiring complementary
database and direct mail marketing companies. The Company intends to build a
vertically integrated company that provides turnkey database marketing products
and services to direct marketers. These services will include database
management and data warehousing, predictive modeling, marketing strategy
consulting, agency creative, production management, direct mail production and
fulfillment. In October 1996, the Company entered the printing business with the
purchase of 82% of the stock of Color Graphics ("Color Graphics").

Due to this acquisition the results of operations for 1997 and 1996 are not
comparable to prior years. See Note 3 of Notes to Consolidated Financial
Statements for additional information concerning this acquisition.

(A)  RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                            Year Ended December 31,

                                                                     1997
                                                            -----------------------

                                           Database                   Printing                    Total
                                    -----------------------  --------------------------  -----------------------
<S>                                 <C>                      <C>                         <C>
                  Revenues                      $10,584,057                 $14,842,240              $25,426,297
                  Gross profit                  $ 3,145,540                 $ 7,100,211              $10,245,751
                  Operating income              $   616,791                 $ 2,304,203              $ 2,920,994

                                                                     1996
                                                            -----------------------

                  Revenues                      $ 7,867,656                 $ 3,341,031              $11,208,688
                  Gross profit                  $ 2,725,947                 $ 1,421,112              $ 4,147,059
                  Operating income              $ 1,256,448                 $   555,966              $ 1,812,413

                                                                     1995
                                                            -----------------------

                  Revenues                      $ 4,665,599                 $         -              $ 4,665,599
                  Gross profit                  $ 1,433,870                 $         -              $ 1,433,870
                  Operating income              $   162,922                 $         -              $   162,922
</TABLE>

Consolidated net revenues of $25,426,297 in 1997 represent an increase of
$14,217,609 over 1996. Operating income of $2,920,994 represents an increase of
$1,108,581 over 1996. The increase in the net revenues and operating income of
the Company resulted from the acquisition of Color Graphics on October 1, 1996
and the continued revenue growth of the database segment.

                                       8
<PAGE>

Revenues
--------

Revenues in 1995 and 1996 were derived primarily from the Company's database
operations. Revenues increased significantly with the acquisition of Color
Graphics on October 1, 1996.

Net revenues increased $14,217,609 from $11,208,688 in 1996 to $25,426,297 in
1997 and increased $6,543,089 in 1996 from $4,665,599 in 1995 to $11,208,688 in
1996. The net revenue increase during 1997 was primarily attributable to the
acquisition of Color Graphics which generated  59% of consolidated net
revenues for 1997, as compared to 30% of the consolidated net revenues for 1996.
The 1997 growth in revenue resulted from expanded direct mail printing
services to customers in the credit card and lettershop industries, including
Capital One, Citibank and Communications Concept, Inc.

The increased database and advertising revenue during 1997 resulted from
increased sales to existing customers, including Capital One, Bank of New York
(Delaware) and Fleet Corporation, in addition to sales to several new clients
including Daytimers, Inc. and Bank United. The increase in revenue during 1996
resulted from increased sales to existing customers including First USA, Bank of
New York (Delaware) and Fleet Corporation, in addition to sales to several new
clients including Beneficial Bank and CoreStates. Customers in the banking
industry accounted for 95%, 97% and 90% of the Company's database revenues in
1997, 1996 and 1995.

Cost of Revenue
---------------

The Company's cost of revenue, as a percentage of net revenues was 59.7%, 63%
and 69.2% in 1997, 1996 and 1995, respectively. The year to year comparative
decrease resulted from an increase in the database cost of revenue and offset in
part by a decrease in the printing cost of revenue.

The cost of revenue for database in 1997, in comparison to database revenues,
increased 5% from 1996 and decreased 4% in 1996 as compared to 1995. The current
period increase is a result of costs associated with salary expenses due to
additional staffing requirements to maintain increased production demands. The
prior period decrease resulted primarily from the development of internal
resources to fulfill production requirements.

The Color Graphics acquisition, cost of revenue as a percentage of sales
provided an overall decrease of 5.3% for the current period and a 11.8% decrease
for the prior period comparison.

Selling, General and Administrative Expenses
--------------------------------------------

Selling, general and administrative expenses increased $1,506,048 in 1997 and
increased $691,900 in 1996. The increase in 1997 expenses resulted primarily
from: a) the acquisition of Color Graphics, contributing 58% of the current
increase; b) increased database expenses related to computer equipment upgrades
and supplies; and c) increased lease expense associated with the relocation, in
March, of the database corporate office and the costs incurred for the move. The
increase in 1996 expenses resulted primarily from: a) increase in database
expenses and supplies related to computer equipment upgrades; b) costs
associated with promotion, travel and entertainment to secure new customers; c)
commission expenses relating to growth of the advertising and marketing
services; and d) the acquisition of Color Graphics, Inc. accounted for 43.1% of
the increase in selling general and administrative expenses for the 1996 period.

                                       9
<PAGE>

Interest Expense
----------------

Interest expense increased $253,189 in 1997 and increased $124,572 in 1996 as
compared to the prior period. A significant portion of the increase in 1997 and
1996 resulted from the acquisition of Color Graphics. The 1997 increase resulted
from Color Graphics equipment loans and revolving line of credit. The increase
in 1996 resulted primarily from: a) $1,000,000 loan acquired from a related
party to purchase Color Graphics and b) Color Graphics borrowings on both their
revolving line of credit and equipment loans. The increase for the current and
prior periods is not necessarily driven by the interest rate, but changes due to
increased debt levels.

Depreciation and Amortization
-----------------------------

Depreciation and amortization expenses relates to the depreciation of capital
assets. The Company's policy is to amortize goodwill over a fifteen year period.
Depreciation and amortization expense increased $700,874 in 1997, $247,226 in
1996 and $23,967 in 1995 as compared to prior periods. The 1997 increase relates
to the acquisition of Color Graphics, accounting for approximately 80% of
the increase. The 1996 increase resulted primarily from the purchase of computer
equipment and software necessary to fulfill the demand by database customers and
to support additional staffing. The acquisition of Color Graphics for
approximately 60% of the increase for 1996.

Provision for Income Taxes
--------------------------

Provision for income taxes increased $565,260 in 1997 and $682,830 in 1996. The
increase in 1997 and 1996 was due to the increase in taxable income. A
reconciliation of the provision for income taxes is included in Note 15 of Notes
to Consolidated Financial Statements.

Inflation
---------

Inflation and price increases do not materially affect the Company's gross
profit margin as contract prices are adjusted at the same time increases are
implemented by outside vendors.


                                      10
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
<TABLE>
<CAPTION>
                                                          1997                 1996                1995
                                                   -------------------  -------------------  -----------------

<S>   <C>                                          <C>                  <C>                  <C>
      Working capital (deficit)                             $4,077,593           $2,705,915          $(62,302)
      Cash                                                   2,837,427            1,080,630           520,865
      Cash-restricted                                        1,400,000
      Cash provided by operating activities                  4,653,661            1,341,056           394,318
      Cash used in investing activities                      3,180,265              345,346           133,600
      Cash provided by (used in) financing activities          283,401             (435,945)          (15,591)
</TABLE>

Working capital increased in both 1997 and 1996 over the corresponding prior
year periods due primarily to increased cash flow from operations which resulted
in higher cash levels.

The increase in cash flows from operations in 1997 and 1996 resulted primarily
from improved profitability and strong cash collections.

The increased cash used in investing activities in both 1997 and 1996 resulted
primarily from higher capital expenditures. The current period increase resulted
primarily from increased capital expenditures relating to the printing segment,
Color Graphics, Inc. acquired in October of 1996. In December 1997, the Company
purchased a 66,100 square foot building and approximately 4 acres of land, for
$1,800,000, in New Jersey to relocate the Color Graphics, Inc. operation. The
acquisition was financed through a bond issue in the amount of $3,200,000 (Note
10). Color Graphics, Inc. current period expenditures for furniture and
equipment account for approximately 69% of the current furniture and equipment
expenditures. The Company expects to continue to invest in capital assets to
support its growth.

The cash provided by financing activities resulted from the Company securing
$3,200,000 in funding, in December 1997, financed through a bond issue from New
Jersey Economic Development Authority and administered by CoreStates Bank, N.A.
(Note 10). The Company utilized $1,800,000, of these funds, to purchase a
building and land, the balance, $1,400,000, is classified as restricted cash
and will be utilized to pay for improvements to the building and relocation of
the equipment. Additionally in the current period the Company reduced a portion
of their long term debt obligation through repayment of a related party note, in
addition to repayment of their lines of credit. In 1996, the Company borrowed
$1,000,000 from a related party to partially finance the acquisition of Color
Graphics, Inc. In addition the Company received $500,000 from the sale of a
convertible debenture in 1996. The Company used these proceeds and cash flow
from operations to reduce a significant portion of short term debt acquired from
Color Graphics, Inc. In addition, the Company purchased 160,000 shares of its
common stock held by two current officers for $300,000.

At December 31, 1997, the Company had outstanding debt of $6,652,882 primarily
in the form of notes payable.

At December 31, 1997 the amount available under the Company's lines of credit
was approximately $3,500,000.

The Company anticipates that current cash balances as well as anticipated cash
flows from operations will provide sufficient funds to meet its working capital
and capital expenditure needs at least through December 31, 1998. However, if
the pace or size of the Company's acquisition or capital expenditure activities
increase, then additional debt or financing may be necessary.



                                      11
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.



                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and
Shareholders of DirectCom, Inc.


We have audited the consolidated financial statements and the financial
statement schedule of  DirectCom, Inc., and subsidiary as of and for the year
ended December 31, 1997, listed in Item 14(a) of this Form 10-K. These financial
statements and the financial statement schedule are the responsibility of the
Company's management.  Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of DirectCom, Inc.
and Subsidiary as of December 31, 1997,  and the consolidated results of their
operations and their cash flows for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.  In addition, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.


March 31, 1998
McLean, Virginia

                                    Coopers & Lybrand L.L.P.


                                      12
<PAGE>

                               Thompson Dugan, PC


                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



March 20 , 1997



To the Board of Directors and
Shareholders of DirectCom, Inc.


We have audited the accompanying consolidated balance sheets of DirectCom, Inc.,
formerly North American Integrated Marketing, Inc., and subsidiary as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the two years in the
period ended December 31, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and the
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on the financial statements and schedule based on our
audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
DirectCom, Inc. and subsidiary as of December 31, 1996 and 1995,  and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.  Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.


                                      13
<PAGE>


                                DIRECTCOM, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                    ASSETS
                                                                                       DECEMBER 31,
                                                                                    1997           1996
                                                                                -----------    -----------
<S>                                                                             <C>            <C>
CURRENT ASSETS
   Cash                                                                         $ 2,837,427    $ 1,080,630
   Cash - restricted                                                              1,400,000
   Accounts receivable, less allowance for
    doubtful accounts of $121,171 in 1997 and $53,093 in 1996                     2,200,749      4,236,638
   Inventories                                                                      450,837        466,117
   Prepaid and other current assets                                                 903,232        422,259
                                                                                -----------    -----------
      Total current assets                                                        7,792,245      6,205,644
PROPERTY, PLANT AND EQUIPMENT, Net                                                6,002,779      3,849,063
OTHER ASSETS                                                                        504,744        179,101
                                                                                -----------    -----------

TOTAL ASSETS                                                                    $14,299,768    $10,233,808
                                                                                ===========    ===========

                     LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Lines of credit                                                              $         -    $   466,593
   Current maturities of long-term debt                                             437,430        210,175
   Current maturities of long-term debt - related party                                   -         65,000
   Accounts payable                                                                 351,931        764,913
   Accounts payable - related company                                             2,315,860        371,315
   Income taxes payable                                                              82,847        703,482
   Accrued expenses and other current liabilities                                   526,584        818,776
   Deferred revenue                                                                       -         99,475
                                                                                -----------    -----------
      Total current liabilities                                                   3,714,652      3,499,729
LONG-TERM DEBT                                                                    6,215,452      2,952,713
LONG-TERM DEBT - RELATED COMPANY                                                          -        925,000
DEFERRED INCOME TAXES                                                               577,000        542,200
OTHER LONG-TERM LIABILITIES                                                               -        284,096
MINORITY INTEREST                                                                   802,300        571,816
                                                                                -----------    -----------
      TOTAL LIABILITIES                                                          11,309,404      8,775,554
SHAREHOLDERS' EQUITY
  Preferred stock $.00001 par value - authorized 10,000,000 shares;
    issued and outstanding: none                                                          -              -
  Common stock $.00001 par value - authorized 60,000,000 shares;
    issued: 3,421,983 shares in 1997 and 3,341,983 in 1996 of which
    320,000 shares are held as treasury stock.                                          34             33
   Paid-in capital                                                                  650,181        500,182
   Retained earnings                                                              2,645,149      1,263,039
                                                                                -----------    -----------
                                                                                  3,295,364      1,763,254
   Less  treasury stock, at cost                                                   (305,000)      (305,000)
                                                                                -----------    -----------
      TOTAL SHAREHOLDERS' EQUITY                                                  2,990,364      1,458,254
                                                                                -----------    -----------


TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                      $14,299,768    $10,233,808
                                                                                ===========    ===========
</TABLE>

                See notes to consolidated financial statements

                                      14
<PAGE>



                                DIRECTCOM, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                      1997           1996           1995
                                                   -----------    -----------    -----------
<S>                                                <C>            <C>            <C>
REVENUES
 Database                                          $10,584,057    $ 7,867,656    $ 4,665,599
 Printing - related company                          1,473,523        672,800              -
 Printing                                           13,368,717      2,668,232              -
                                                   -----------    -----------    -----------
     Total revenues                                 25,426,297     11,208,688      4,665,599

COST OF REVENUE
 Database - related company                          4,799,400      4,070,042      1,974,938
 Database - other                                    2,639,117      1,071,667      1,256,791
 Printing                                            7,742,029      1,919,920              -
                                                   -----------    -----------    -----------
     Total cost of revenue                          15,180,546      7,061,629      3,231,729

 Selling, general and
   administrative expense                            3,385,587      1,879,539      1,187,639
 Administrative fee - related party (Note 8)         1,780,000              -              -
 Interest expense                                      380,696        127,507          2,935
 Depreciation and amortization                       1,028,474        327,600         80,374
 Buyout of stock option (Note 3)                       750,000              -              -
                                                   -----------    -----------    -----------
     Total costs and expenses                       22,505,303      9,396,275      4,502,677
                                                   -----------    -----------    -----------
Income from operations before income taxes
 and minority interest                               2,920,994      1,812,413        162,922
Provision for income taxes                           1,308,400        743,140         60,340
                                                   -----------    -----------    -----------
Income from continuing operations before             1,612,594      1,069,273        102,582
 minority interest
Minority interest in income of subsidiary              230,484         56,064              -
                                                   -----------    -----------    -----------

Net income                                         $ 1,382,110    $ 1,013,209    $   102,582
                                                   ===========    ===========    ===========

BASIC EARNINGS PER SHARE                                 $0.45          $0.34          $0.08
                                                   ===========    ===========    ===========

DILUTED EARNINGS PER SHARE                               $0.44          $0.33          $0.07
                                                   ===========    ===========    ===========
</TABLE>

                See notes to consolidated financial statements.

                                      15
<PAGE>


                                DIRECTCOM, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                           COMMON STOCK
                                                          --------------
                                                                                          RETAINED
                                                        NUMBER                PAID - IN   EARNINGS       TREASURY
                                                       OF SHARES     AMOUNT    CAPITAL    (DEFICIT)        STOCK         TOTAL
                                                      -----------   -------  ---------- -------------   -----------   -----------
<S>                                                   <C>           <C>      <C>        <C>             <C>           <C>
Balance at December 31, 1994 as previously reported    16,040,073   $   160  $       55    $  147,248   $    (5,000)   $  142,463

One - for - twelve reverse common stock split          14,703,092      (147)        147             -             -             -
                                                      -----------   -------  ---------- -------------   -----------   -----------

Balance at December 31, 1994 as adjusted                1,336,981        13         202       147,248        (5,000)      142,463

Net income                                                      -         -           -       102,582             -       102,582
                                                      -----------   -------  ---------- -------------   -----------   -----------

Balance at December 31, 1995                            1,336,981        13         202       249,830        (5,000)      245,045

Purchase of treasury stock, at cost                                                                        (300,000)     (300,000)

Common stock issued in exchange for
 convertible debenture                                  2,005,002        20     499,980             -             -       500,000

Net income                                                      -         -           -     1,013,209             -     1,013,209
                                                      -----------   -------  ---------- -------------   -----------   -----------

Balance at December 31, 1996                            3,341,983        33     500,182     1,263,039      (305,000)    1,458,254

Issuance of common stock                                   80,000         1     149,999             -             -       150,000

Net income                                                      -         -           -     1,382,110             -     1,382,110
                                                      -----------   -------  ---------- -------------   -----------   -----------

Balance at December 31, 1997                            3,421,983   $    34  $  650,181    $2,645,149   $  (305,000)   $2,990,364
                                                      ===========   =======  ========== =============   ===========   ===========
</TABLE>

                See notes to consolidated financial statements

                                      16
<PAGE>


                                DIRECTCOM, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                                                       1997           1996           1995
                                                                    -----------    -----------    -----------
<S>                                                                 <C>            <C>            <C>
Cash flows from operating activities:
   Net income                                                       $ 1,382,110    $ 1,013,209    $   102,582
   Adjustments to reconcile net income
     to net cash provided by operating activities:
     Depreciation and amortization                                    1,028,474        327,600         80,374
     Bad debt expense                                                   107,906         24,000         21,000
     Buyout of stock option                                             500,000              -              -
     Minority interest                                                  230,484         56,064              -
     Deferred taxes                                                      73,800          2,760              -
     (Gain) loss on asset disposition                                    (1,925)             -          5,599
     (Increase) decrease in: (excluding effects of acquisition)
       Accounts receivable, net                                       1,927,983        527,341      (1,112,285)
       Inventory                                                         15,280         67,471
       Prepaid and other current assets                                (519,973)        23,824         (28,238)
       Other non current assets                                        (325,643)         6,434
     Increase (decrease) in: (excluding effects of aquisition)
       Accounts payable                                                (412,982)       267,855         (11,434)
       Accounts payable - related company                             1,944,545     (1,521,890)      1,353,751
       Income taxes payable                                            (620,635)       664,979           2,371
       Accrued expenses and other current liabilities                  (292,192)       (90,528)         12,298
       Long term liabilities                                           (284,096)       (84,238)
       Deferred  revenue                                                (99,475)        56,175         (31,700)
                                                                    -----------    -----------    ------------

         Net Cash provided by operating activities                    4,653,661      1,341,056         394,318

Cash flows from investing activities:
     Business acquisition, net of cash acquired                               -        (91,470)             -
     Purchase of furniture and equipment                             (1,417,265)      (253,876)       (148,219)
     Purchase of building and land                                   (1,800,000)
     Proceeds from the sale of equipment                                 37,000              -           1,546
     Cash provided by (used in) investing
       activities - discontinued operations                                   -              -          13,073
                                                                    -----------    -----------    ------------

         Net Cash used in investing activities                       (3,180,265)      (345,346)       (133,600)
                                                                    -----------    -----------     -----------

Cash flows from financing activities:
     Repayments of notes payable                                       (466,593)    (1,562,930)              -
     Repayments of long-term debt                                      (210,006)       (73,015)        (15,591)
     Cash - restricted                                               (1,400,000)
     Proceeds from issuance of long-term debt  -
       related company                                                        -      1,000,000               -
     Repayments of long-term debt - related company                    (990,000)             -               -
     Sale of common stock                                               150,000
     Purchase of treasury stock                                               -       (300,000)              -
     Sale of debenture                                                        -        500,000               -
     Proceeds from issuance of long-term debt                         3,200,000              -               -
                                                                    -----------    -----------     -----------

         Net cash provided by (used in) financing activities            283,401       (435,945)       (15,591)
                                                                    -----------    ------------    -----------

Net increase in cash                                                  1,756,797        559,765        245,127

Cash at beginning of year                                             1,080,630        520,865        275,738
                                                                    -----------    -----------    -----------

         Cash at end of year                                        $ 2,837,427    $ 1,080,630    $   520,865
                                                                    ===========    ===========    ===========
</TABLE>

                See notes to consolidated financial statements.

                                      17
<PAGE>

                                DIRECTCOM, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

DirectCom, Inc. (the "Company"), is a Delaware corporation. On September 5, 1997
the Company, previously called North American Integrated Marketing, Inc.,
changed its name to DirectCom, Inc. The Company is a direct mail response
agency specializing in database and advertising and marketing services and
maintains offices in West Paterson, New Jersey and Wilmington, Delaware. In
October 1996, the Company entered the printing business with the acquisition of
82% of the stock of Color Graphics which is located in Morristown, New
Jersey.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies of the Company is presented to
assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its 82% owned subsidiary, Color Graphics. All intercompany transactions
and balances between companies have been eliminated.

USE OF ESTIMATES

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 during the reporting period.
Actual results could differ from those estimates.

INVENTORIES

Paper inventory is stated at last in, first out (LIFO) cost. The LIFO value is
not materially different from the current cost of such inventory. All other
inventory is stated at the lower of cost (first in, first out) or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recorded at cost. Depreciation is computed
using the straight line and accelerated methods based on estimated useful lives
of the assets which range from five to twenty years. Leasehold improvements are
amortized over the estimated useful lives or lease terms, as appropriate.


                                      18
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)


ASSET IMPAIRMENT

At each balance sheet date, management evaluates the recoverability of
identifiable tangible and intangible assets using certain financial indicators,
such as historical and future ability to generate income from operations. The
Company's policy is to record an impairment loss against the net unamortized
cost of the asset in the period when it is determined that the carrying amount
of the asset may not be recoverable. This determination is based on an
evaluation of such factors as the occurrence of a significant event, a
significant change in environment in which the business operates, or if the
expected future net cash flows (undiscounted without interest) would be less
than the carrying amount of the asset.

CONCENTRATION OF CREDIT RISK

The Company's market for its products and services is nationwide and is not
confined to any specific sector or type of business although a substantial
portion of the Company's revenue is generated from the banking and credit card
industries. In the normal course of business, the Company provides credit to
customers under standard terms without collateral.


FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of current assets and current liabilities approximate fair
value because of their short term nature. Based on the borrowing rates currently
available to the Company for loans similar in terms and average maturities, the
stated value of long term debt approximated fair value at December 31, 1997.


REVENUE RECOGNITION

The Company provides database services by preparing marketing reports and direct
marketing mailing lists and printing services providing printed material for
direct mail packages.  Services are provided on a project-by-project basis under
periodic service arrangements that extend up to one year.  Revenue and related
costs are recognized on a project-by-project basis in the period in which the
services are provided.

Deferred revenues and deferred costs arise when invoices are rendered or costs
incurred prior to performing services.  Deferred costs exclude salaries, which
are expended as incurred.

ADVERTISING COSTS

The Company expenses all advertising costs as incurred. Advertising costs
included in selling, general and administrative expenses for the years ended
December 31, 1997, 1996 and 1995 were $62,240, $75,857 and $42,591,
respectively.


                                      19
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)


INCOME TAXES

Deferred income taxes are provided under the asset and liability method. The
Company recognizes deferred tax liabilities and assets for the expected future
income tax consequences of events that have been recognized in the Company's
financial statements. Under this method, deferred tax assets and liabilities are
determined based on temporary differences between the financial statement
carrying amounts and the tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the temporary differences are expected to
reverse. Income tax expense consists of the Company's current liability for
federal and state taxes and the change in the Company's deferred income tax
asset and liabilities.

STOCK BASED COMPENSATION

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" encourages, but does not require companies to record compensation
plans at fair value. The Company has chosen to continue to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No, 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.

EARNINGS PER SHARE

Effective December 31, 1997 the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which requires the
presentation of basic earnings per share and diluted earnings per share. Basic
earnings per share is based on the weighted average number of outstanding common
shares for the period. Diluted earnings per share adjusts the weighted average
for the potential dilution that could occur if the stock options, warrants or
other convertible securities were exercised or converted into common stock.
Differences between historical quarterly earnings per share amounts, reported on
primary earnings per share basis, and amounts now reported as basic, are not
material.

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued Statements of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," and Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in June 1997, which are both effective for
the year ending December 31, 1998. SFAS No. 130 establishes standards for
reporting comprehensive income in a full set of general purpose financial
statements either in the income statement or in a separate statement. SFAS No.
131 establishes standards for reporting information about operating segments,
including related disclosures and products and services, geographic areas and
major customers. These standards are not expected to have a material impact on
the financial position or results of operations of the Company.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year
presentation.


                                      20
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


NOTE 3 - ACQUISITIONS

Effective October 1, 1996, pursuant to a Stock Purchase Agreement dated
September 30, 1996, the Company acquired 82% of the outstanding common stock of
Color Graphics for a total consideration of $1,909,283. The consideration
consisted of $1,000,000 in cash paid by the Company, $286,000 in cash paid by
Color Graphics the assumption of liabilities totaling $250,000 and the
transfer of a life insurance policy valued at $210,806 by Color Graphics.
In addition, Color Graphics assigned an accounts receivable of $464,000
which Color Graphics had previously written off. The Company has assigned
a value of $162,477 to this receivable for purchase accounting. The Company
obtained the $1,000,000 from North American Communications, Inc. (NAC), a
related party (see Note 8). In addition, the Company granted to a consultant an
option to acquire 10 percent of the Color Graphics stock at an exercise
price of $1,058.82 per share or $30,000 in the aggregate through September 30,
2001 for his role in consummating the acquisition. The acquisition was accounted
for as a purchase and the excess of the $2,309,730 fair value of the net assets
acquired over the total consideration was allocated to "Property, Plant and
Equipment" in the accompanying consolidated balance sheet and is being
amortized over a fifteen year period on a straight line basis.

The pro forma results listed below are unaudited and reflect purchase price
accounting adjustments assuming the acquisition occurred at January 1, 1996. The
pro forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the entire period presented.
In addition, they are not intended to be a projection of future results and do
not reflect any efficiencies that might be achieved from the combined operation.

<TABLE>
<CAPTION>
                                             1996
                                          -----------
<S>                                       <C>
            Revenue                       $27,275,722
            Net income                        924,627
            Basic earnings per share      $      0.28
</TABLE>


During 1997, the Company paid $750,000 to the consultant to buy out his option
to purchase 10% of the Color Graphics stock. This payment was recorded as
an operating expense in the Statement of Operations.

NOTE 4 - INVENTORIES

Inventories consist of the following:
<TABLE>
<CAPTION>
                                                            December 31,
                                                       1997             1996
                                                  ---------------  ---------------
    <S>                                           <C>              <C>
      Paper                                              $293,373         $321,623
      Other raw materials                                  93,823           81,628
      Work-in-process                                      63,641           62,866
                                                         --------         --------
                                                         $450,837         $466,117
                                                         ========         ========
</TABLE>

                                      21
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


NOTE 5 - PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets consist of the following:

<TABLE>
<CAPTION>
                                                         December 31,
                                                     1997          1996
                                                  -----------  ------------
<S>                                               <C>          <C>
      Deferred income taxes                          $133,000      $172,000
      Due from others - income taxes                        -       161,680
      Refundable state taxes                           13,876        66,388
      Prepaid income taxes                            676,591             -
      Other current assets                             79,765        22,191
                                                     --------      --------
                                                     $903,232      $422,259
                                                     ========      ========
</TABLE>


NOTE 6 - PROPERTY PLANT AND EQUIPMENT

Property plant and equipment consists of the following:

<TABLE>
<CAPTION>
                                                        December 31,
                                                     1997         1996
                                                  ------------  -----------
<S>                                               <C>           <C>
      Machinery and equipment                     $ 3,949,949   $3,561,995
      Building and land                             1,800,000
      Office furniture and equipment                   98,618      105,742
      Transportation equipment                         88,528      135,737
      Computer equipment and software                 830,983      432,185
      Leasehold improvements                           88,319       61,703
      Construction in progress                        608,500       63,496
                                                  -----------   ----------
                                                    7,464,897    4,360,858
      Accumulated depreciation and amortization    (1,462,118)    (511,795)
                                                  -----------   ----------

                                                  $ 6,002,779   $3,849,063
                                                  ===========   ==========
</TABLE>


                                      22
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTE 7 - OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
                                                           December 31,
                                                      1997          1996
                                                  -----------  -----------
<S>                                               <C>          <C>
      Cash surrender value of life insurance         $111,153     $ 93,207
      Deposits                                         37,942       85,894
      Debt issuance cost                              303,178            -
      Other                                            52,471            -
                                                     --------     --------
                                                     $504,744     $179,101
                                                     ========     ========
</TABLE>


NOTE 8 - RELATED-PARTY TRANSACTIONS

Certain of the Company's major shareholders also exercise control over North
American Communications, Inc. (NAC), an affiliated company. The Company's
related party revenue is generated through printed materials for direct mail
packages. The Company's related party expenses result from the production,
printing and mailing of direct mail packages in addition to salary and
insurance expenses.

ACCOUNTS RECEIVABLE

Accounts receivable include amounts due from NAC as follows:

<TABLE>
<CAPTION>
                                                             December 31,
                                                        1997             1996
                                                  ----------------  ---------------
<S>                                               <C>               <C>
      NAC                                         $              -  $       569,386
                                                  ================  ===============
</TABLE>

ACCOUNTS PAYABLE - RELATED COMPANY

The accounts payable - related company at December 31, 1997 and 1996 represents
amounts due to NAC for printing and mailing services.

NOTE PAYABLE - RELATED COMPANY

During 1996, the Company borrowed $1,000,000 from NAC to partially finance the
acquisition of Color Graphics. The uncollateralized  loan was represented
by a promissory note bearing interest at 8%, and payable in monthly installments
of $5,000 plus interest with payment in full due September 30, 2006. The
outstanding loan amount at December 31, 1996 was $990,000. This note was repaid
in 1997, with cash generated from operations. Interest expense related to this
note was $46,499 and $26,665 for the years ended December 31, 1997 and 1996,
respectively.

No borrowings were outstanding with NAC at December 31, 1997.


                                      23
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


NOTE 8 - RELATED-PARTY TRANSACTIONS (Continued)

OTHER EXPENSES

Salary Expense

Certain NAC employees perform services for the Company.  Salary expense was
recorded by the Company based on an estimate of the related NAC employees' time
devoted to performing services for the Company. For the years ended December 31,
1997, 1996, and 1995, the expense recorded for these services was approximately
$79,967, $51,000 and $102,973,  respectively. As of December 31, 1997 the amount
payable for these services is $17,625.

Insurance Expense

Insurance coverage is provided to the Company and NAC under one policy.
Insurance expense attributable to the Company was based on sales, number of
employees or specific identification of insured property.  Insurance expense for
the years ended December 31, 1997, 1996 and 1995 was $102,742, $9,910 and
$12,917, respectively. As of December 31, 1997 the amount payable for the
provided coverage is $48,744.

Employment Contract

The Company has entered into an employment contract with an officer of the
Company for a five year term ending September 30, 2001. Under the terms of the
agreement the officer will receive an annual base salary of $325,000 and fringe
benefits, including a company automobile, health  and disability insurance. In
addition, the officer has the right to require the Company to purchase his
common stock of Color Graphics at a price equal to its fair market value
as determined by an independent appraisal, exercisable at any time after the
earlier of October 1, 2001 or his termination of employment for whatever reason.
The Company has a similar right to purchase the stock on the same terms. In the
event of the officer's death, the first $1,000,000 of the purchase price of
common stock will be paid from the officer's life insurance policy paid for by
the Company. Administrative Fee

On December 15, 1997 the Company entered into a management agreement with a
related party. The agreement provides for administrative and management support
services.  As a result an administrative fee of $1,780,000 was recorded in
December 1997.


                                      24
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTE 9 - LINES OF CREDIT

At December 31, 1997 and 1996 the Company had available a revolving line of
credit in the maximum aggregate principal amount of $1,000,000 and with interest
payable monthly, which expires on June 30, 1998, at the lender's basic rate plus
1 percent (9.50 percent at December 31, 1997). Borrowings are used to provide
working capital to fund inventory purchases and for payment of certain other
costs approved by the lender incidental to the loan. The borrowings under the
line of credit are collateralized by the Company's receivables, equipment and
fixtures. The repayment of the loan is guaranteed by NAC, an affiliated company.
In addition, a subordination agreement was executed by NAC and the shareholders
of the Company.

There were no borrowings outstanding under the lines of credit at December 31,
1997 and 1996, respectively.

At December 31, 1997 the Company's subsidiary had a short-term revolving line of
credit with United States National Bank, which expires on June 30, 1998, in the
maximum aggregate principal amount of $2,500,000 and with interest payable
monthly at the lender's rate plus 1% (9.50 percent at December 31, 1997). The
agreement permits borrowing on a percentage of qualified accounts receivable and
inventory as defined in the agreement. The borrowings under the line of credit
are collateralized by the subsidiary's accounts receivable and equipment and
guaranteed by the Company and NAC, an affiliated company. This debt is cross
collateralized with the term financing described in Note 11.

Borrowings outstanding under the line of credit were $-0- and $466,593 at
December 31, 1997 and 1996, respectively.


                                      25
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTE 10 - LONG-TERM DEBT

Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                              December 31,
                                                                       1997                 1996
                                                                -------------------  -------------------
<S>                                                             <C>                  <C>
   Note payable to United States National Bank in monthly
   installments, including interest at 9.73%, for the first 5
   years. The note payments will then be reset for the next five
   years based on interest rates as specified in the agreement
   (see Note 9 for collateral guarantees).                               $2,952,882           $3,155,713

   Note payable to CoresStates Bank, N.A. with interest at
   bank's prime rate (9.5% at December 31, 1997) plus 2%                  3,200,000

   Promissory note A payable to a consultant with interest at
   8% due on April 10, 1998.                                                250,000                    -

   Promissory note B payable to a consultant with interest at
   8% due on April 10, 1999.                                                250,000                    -

   Installment note payable to a bank with interest at 11.66%,
   collateralized by a motor vehicle and payable in monthly
   installments of $726, due through May 1997.                                    -                3,675

   Installment note payable to bank with interest at 8.25%,
   collateralized by a motor vehicle and payable in monthly
   installments of $780, due through May 1997                                     -                3,500
                                                                         ----------           ----------
                                                                          6,652,882            3,162,888
                    Less: Current maturities                                437,430              210,175
                                                                         ----------           ----------
                                                                         $6,215,452           $2,952,713
                                                                         ==========           ==========
</TABLE>

At December 31, 1997 the scheduled principal payments on the debt are as
follows:
<TABLE>
<S>                         <C>                <C>
                                         1998           $  437,430
                                         1999              494,909
                                         2000              269,476
                                         2001              298,012
                                         2002              328,778
                            Thereafter                   1,624,277
                                                        ----------
                                                        $3,452,882
                                                        ==========
</TABLE>

On December 24, 1997, the Company entered into a loan agreement with the New
Jersey Economic Development Authority for $3,200,000.  This loan was assigned to
CoreStates Bank, N.A. as trustee, and the proceeds from the long term debt
arrangement will be used to finance the Company's purchase of a building and
related land.  The loan accrues interest at the bank's prime rate (9.5% as of
December 31, 1997) plus 2% and has a maturity date of December 1, 2017.
Principal repayments will commence upon completion of the build out of the
facility.  As of December 31, 1997 the Company has recorded $1,800,000 in
property, plant and equipment related to the original acquisition of the land
and building and $1,400,000 as cash - restricted.  The loan balance of
$3,200,000 is included in the long term debt.

                                      26
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


NOTE 11 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

<TABLE>
<CAPTION>
                                                            December 31,
                                                       1997              1996
                                                  ---------------  ----------------

<S>                                               <C>              <C>
      Accrued payroll                                    $160,186          $ 95,588
      Accrued vacation                                    130,708           128,186
      Accrued rent                                         45,645           171,780
      Customer deposits                                         -           117,909
      Liability related to acquisition                          -           250,000
      Accrued healthcare                                   60,000                 -
      Accrued expenses - other                            130,045            55,313
                                                         --------          --------
                                                         $526,584          $818,776
                                                         ========          ========
</TABLE>

NOTE 12 - LEASES

The Company leases its plant and office facilities under noncancelable operating
leases which expire on various dates through May 1, 2002. In some cases the
lease requires the Company to pay for insurance, operating expenses and a
portion of the real estate taxes. The Company's Color Graphics facility
lease expires in April 1998. The Company has negotiated the acquisition of
property, for the relocation of Color Graphics facility, and will continue
the current leasing arrangements on an extended lease agreement through June
1998. The future minimum lease payments at December 31, 1997 under the
agreements and other operating leases are as follows:
<TABLE>
<S>                           <C>                <C>
                                           1998                     $275,611
                                           1999                      167,531
                                           2000                      161,452
                                           2001                      166,120
                                           2002                       70,028
                                                                    --------
                                                                    $840,742
                                                                    ========

</TABLE>

Rent expense was $597,648, $191,593 and $68,439 for the years ended December 31,
1997,   1996 and 1995, respectively.

NOTE 13 - EMPLOYEE BENEFITS

The Company and its subsidiary have two voluntary retirement plans that cover
all eligible employees. Effective January 1, 1997 both plans provide for annual
matching contributions by the Company at the discretion of the Company's board
of directors. Contribution's to the plans totaled $35,070 for the year ended
December 31, 1997. The Company did not make a contribution for the years ended
December 31, 1996 and 1995.

                                      27
<PAGE>

                                DIRECTCOM, INC.


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


NOTE 14 - SHAREHOLDERS' EQUITY

Common Stock

In April, 1997, the stockholders approved a proposal to adopt certain amendments
to the Company's Certificate of Incorporation to (1) effect a 1 for 12 reverse
stock split of the Company's common stock and (2) to change the total number of
shares the Company is authorized to issue to 70,000,000 shares, consisting of
60,000,000 of common stock, having a par value of $.00001 per share and
10,000,000 shares of preferred stock, having a par value of $.00001 per share.
All references in the accompanying financial statements to the number of common
shares and per-share amounts for all years prior to 1997 have been restated to
reflect the reverse stock split.

On May 17, 1996, the Company entered into a Convertible Debenture Purchase
Agreement with First Commercial and Finance Corp., Establishment, a Lichtenstein
corporation ("Purchaser"). The Company agreed to issue and sell a non-interest
bearing convertible debenture (the "Debenture") in the amount of $500,000 due
May 17, 1998.

Pursuant to the Agreement the Purchaser converted the entire principal amount of
the Debenture into 2,005,002 shares of common stock of the Company on September
25, 1996. Such conversion extinguished any cash payments due under the
Debenture.

Stock Option Plan

In March 1996, the Company adopted the Stock Option Plan ("Plan") which provided
for the issuance of non-qualified stock options and incentive stock options as
well as stock appreciation rights (in connection with options) to eligible
employees, an officer, consultants and advisors of the Company. Under the terms
of this plan, options to purchase 833,333 shares of Common Stock were reserved
for issuance and are generally are granted at not less than fair market value.
They become exercisable as established by the Board of Directors or the
Compensation Committee, and generally expire ten years from the date of grant.
As of December 31, 1996, options to purchase 340,000 shares of Common Stock at
$.48 per share were outstanding of which 308,333 shares were vested.

The fair value of the options granted was estimated using a valuation model with
the following assumptions: dividend yield of 0%, expected volatility of 0%,
risk-free interest rate of 6.5% and expected term of 5 years.  The weighted
average fair value of options granted in 1996 was $.60 per share.  The weighted
average remaining contractual life of the options outstanding was approximately
9 years.  Had the Company followed SFAS 123 rather than APB25, the reported net
income for the year ended December 31, 1996 would have been approximately
$928,200 ($.39 per share).  There were no options granted during 1997.  Options
for 493,333 shares were available for future grant under the plan at
December 31, 1997.  To date, the Company has not issued any stock appreciation
rights under this plan.

Restricted Stock Plan

Effective January 1, 1992 the Company adopted a Restricted Stock Plan. The
Restricted Stock Plan authorizes the issuance of 16,667 shares of restricted
stock to certain key employees of the Company over a five-year period. Employees
become vested in shares of restricted stock issued to them for the current
fiscal year if they remained continuously employed by the Company for the entire
fiscal year. If the employee separates from service on or before the last day of
such fiscal year (other than for separations from service due to death,
disability or unjust termination), all shares of the Company's stock allocated
to that employee for such fiscal year shall be forfeited. Once vested, all
restrictions on the shares issued expire. Restricted shares outstanding for the
plan totaled 3,333 at December 31, 1997 and 1996.


                                      28
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTE 14 - SHAREHOLDERS' EQUITY (Continued)

Treasury Stock On December 5, 1996 the Board of Directors approved the purchase
of 160,000 shares of common stock from two current officers of the Company for
$300,000.

On September 30, 1994, the Board of Directors approved the purchase of 160,000
shares of common stock held by a former officer for $5,000.00.

NOTE 15 - INCOME TAXES

The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                              1997                1996              1995
                                                       ---------------  ----------------  -----------------
<S>                                                    <C>              <C>               <C>
      Current provision:
      Federal                                               $  958,000          $577,800           $ 61,200
      State                                                    276,600           168,100             16,250
                                                            ----------          --------           --------
      Total current                                          1,234,600           745,900             77,450
                                                            ----------          --------           --------

      Deferred (benefit) provision:
      Federal                                                   56,200               600            (15,400)
      State                                                     17,600            (3,360)            (1,710)
                                                            ----------          --------           --------
      Total deferred                                            73,800            (2,760)           (17,110)
                                                            ----------          --------           --------

      Total                                                 $1,308,400          $743,140           $ 60,340
                                                            ==========          ========           ========
</TABLE>

The federal statutory rate differs from the Company's effective income tax rate
on income from continuing operations as follows:
<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                           1997           1996           1995
                                                       -------------  -------------  -------------
<S>                                                    <C>            <C>            <C>
      Federal statutory income tax rate                        34.0%          34.0%          34.0%
      Increase (reduction) in the tax rate resulting
      from:
      State income tax, net of federal effect                   5.9            5.9            5.9
      Nondeductible expenses                                    1.2            1.1            4.7
      Accruals                                                  3.8              -           (4.0)
      Other                                                    (0.1)             -           (3.6)
                                                               ----           ----           ----

                                                               44.8%          41.0%          37.0%
                                                               ====           ====           ====
</TABLE>

                                      29
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTE 15 - INCOME TAXES - (Continued)The components of the deferred tax asset and
liabilities, as reflected on the balance sheet, consist of the following:
<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                  1997                 1996              1995
                                           -------------------  -------------------  -------------
     <S>                                   <C>                  <C>                  <C>
      Deferred tax liabilities:
        Depreciation                             $(491,892)           $(513,083)        $     -
        State taxes                                (65,449)             (55,057)              -
                                                 ---------            ---------         -------
          Total deferred tax liabilities          (557,341)            (568,140)              -
                                                 ---------            ---------         -------

      Deferred tax assets
        Accounts receivable                         41,319               21,452           9,891
        Accruals                                    60,942              172,606           7,536
        Depreciation                                     -                    -           5,034
        State taxes                                      -                    -             977
        Other                                       11,080                3,882               2
                                                 ---------            ---------         -------

          Total deferred tax assets                113,341              197,940          23,440
                                                 ---------            ---------         -------

          Net                                    $(444,000)           $(370,200)        $23,440
                                                 =========            =========         =======

      Recorded as:

        Prepaid and other current assets         $ 133,000            $ 172,000         $23,440
        Deferred income taxes                     (577,000)            (542,200)              -
                                                 ---------            ---------         -------
                                                 $(444,000)           $(370,200)        $23,440
                                                 =========            =========         =======
</TABLE>

NOTE 16 - COMMITMENTS AND CONTINGENCIES

The Company is subject to various legal proceedings and claims, either asserted
or unasserted, which arise in the ordinary course of business. Management does
not believe that the outcome of any of these legal matters will have a material
adverse effect on the Company's consolidated results of operations or
consolidated financial position of consolidated cash flows.

                                      30
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTE 17 - CONCENTRATION OF CREDIT RISK

At December 31, 1997 and 1996, approximately 53 percent and 46 percent,
respectively, of the Company's accounts receivable balance was due from
customers in the banking and credit card industry. During the years ended
December 31, 1997, 1996 and 1995 the Company earned approximately 73 percent, 80
percent and 97 percent, respectively, of its total net revenue from customers in
the banking and credit card industries.

Two individual customers accounted for 10 percent or more of the Company's total
net revenue for the year ended December 31, 1997. Net revenue from these
customers was approximately 28 percent and 19 percent of total net revenue. Two
customers constituted approximately 26 percent and 13 percent of total net
revenue for the year ended December 31, 1996 and two customers constituted
approximately 34 percent and 19 percent of total net revenue, for the year ended
December 31, 1995.

The Company maintains cash balances at several financial institutions. Accounts
at each institution are insured by the Federal Deposit Insurance Corporation up
to $100,000. At December 31, 1997, the Company's uninsured cash balances on
deposit, per the bank's records, in excess of insured limits totaled $2,359,355.

NOTE 18 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                1997                   1996                1995
                                                        ---------------------  --------------------  ----------------
<S>                                                     <C>                    <C>                   <C>
Cash paid during the period for:
    Interest                                                  $  380,696           $   119,195            $ 2,935
                                                              ==========           ===========            =======
    Income taxes                                              $2,472,502           $    70,921            $79,507
                                                              ==========           ===========            =======

Noncash investing and financing activities
    Issuance of common stock in exchange
      for convertible debenture                               $        -           $   500,000            $     -
                                                              ==========           ===========            =======
    In connection with the acquisition of Color
      Graphics, Inc., assets acquired and liabilites
      assumed were as follows:
    Fair value of assets acquired                             $        -           $ 9,783,500            $     -
    Less: Cash paid                                                    -            (1,000,000)                 -
                                                              ----------           -----------            -------
    Liabilities assumed                                       $        -           $ 8,783,500            $     -
                                                              ==========           ===========            =======
    Acquisition of option
      Cost of option                                          $  750,000           $         -            $     -
      Debt incurred                                             (500,000)                    -                  -
                                                              ----------           -----------            -------
      Cash paid                                               $  250,000           $         -            $     -
                                                              ==========           ===========            =======
</TABLE>




                                      31
<PAGE>

                                DIRECTCOM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTE 19 - SEGMENT INFORMATION

The Company classifies its business operations into two segments: database,
which includes advertising and marketing services and printing services. Prior
to October 1, 1996 the Company's principal line of business was database
services. Effective October 1, 1996 the Company acquired 82 percent of the stock
of Color Graphics (see Note 3).

<TABLE>
<CAPTION>
                                                      Database                 Printing                  Total
                                               -----------------------  -----------------------  ----------------------
                            1997
            <S>                                <C>                      <C>                      <C>
             Revenues                               $10,584,057              $14,842,240               $25,426,297
             Gross profit                           $ 3,145,540              $ 7,100,211               $10,245,751
             Operating income                       $   616,791              $ 2,304,203               $ 2,920,994
             Identifiable assets                    $ 3,116,608              $11,183,160               $14,299,768

                            1996

             Revenues                               $ 7,867,656              $ 3,341,031               $11,208,687
             Gross profit                           $ 2,725,947              $ 1,421,112               $ 4,147,059
             Operating income                       $ 1,256,448              $   555,966               $ 1,812,414
             Identifiable assets                    $ 2,486,701              $ 7,747,107               $10,233,808
</TABLE>





                                      32
<PAGE>

SCHEDULE II
                                DIRECTCOM, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
                                          BALANCE AT     ADDITIONS
                                          BEGINNING       CHARGED                     BALANCE AT
CLASSIFICATION                            OF PERIOD    TO OPERATIONS    WRITE OFFS   END OF PERIOD
--------------                           -----------   -------------   -----------   -------------
<S>                                      <C>           <C>             <C>           <C>
Allowance for Doubtful Accounts
   Year Ended:

December 31, 1995                        $    26,167    $    21,000    $   (18,074)     $   29,093
                                         ===========    ===========    ===========   =============

December 31, 1996                        $    29,093    $    24,000    $         -      $   53,093
                                         ===========    ===========    ===========   =============

December 31, 1997                        $    53,093    $   107,906    $   (39,828)     $  121,171
                                         ===========    ===========    ===========   =============
</TABLE>

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

     None.


                                      33

<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Names, Ages and Positions of the Directors and Executive Officers
-----------------------------------------------------------------
<TABLE>
<CAPTION>

Name                         Age              Position
---------------------------  ---  ---------------------------------
<S>                          <C>  <C>
Robert J. Bzezensky           58  President
Nicholas Robinson             32  Chairman of the Board,
                                    Chief Executive Officer
Steven Gasner                 48  Vice President
Robert W. Paltrow             56  Director, Secretary and Treasurer
Robert E. Herman              37  Director
Anthony Nardiello             55  President, Color Graphics
</TABLE>

     The current members of DirectCom's Board of Directors are Nicholas
Robinson, Robert W. Paltrow and Robert E. Herman.  Nicholas Robinson serves as
Chairman of the Board.  Mr. Robinson is Mr. Paltrow's son-in-law.  Directors are
elected for staggered terms at the annual meeting of stockholders and remain in
office until their successors are elected and qualified or until their earlier
resignation or removal.  Mr. Herman serves as a director until DirectCom's
annual meeting in 1998, Mr. Paltrow serves as a director until DirectCom's
annual meeting in 1999 and Mr. Robinson serves as a director until DirectCom's
annual meeting in 2000.  Officers are elected by the Board and serve at the
discretion of the Board.

Business Experience of the Directors and Executive Officers
-----------------------------------------------------------

     Robert J. Bzezensky serves as the President of DirectCom, a position he has
held since January 1989.  Between 1987 and 1989 he served as the President of
North American Information Services, Inc. ("NAIS"), a direct mail response
agency specializing in database services which was a predecessor to DirectCom.
Mr. Bzezensky's prior employment experience includes service as the Vice
President, Sales and Marketing with Della Femina Travisano and Partners Direct
Ltd.; a senior consultant with CACI, Inc., a leading marketing information and
systems supplier; the Director of Marketing for R.H. Donnelley; Vice President
of Marketing for Metro Mail Corporation; and Vice President of Mail Marketing
with John Blair Marketing.

     Nicholas Robinson serves as the Chief Executive Officer of DirectCom and
Chairman of the Board, positions he has held since October 1, 1994.  Mr.
Robinson previously served as a database consultant for the Systems Integration
Practice of Andersen Consulting.

     Steven Gasner is Vice President, Database Marketing, for DirectCom, a
position he has held since January 1989.  Between 1987 and 1989 he has served as
the Vice President of NAIS. Mr. Gasner's prior employment experience includes
service as the Director of Information Management with Citicorp Retail Services
and with American Express; Vice President-Data Base Marketing with the Direct
Marketing Group; and Vice President-Data Base Marketing with Della Femina
Travisanao and Partners Direct Ltd.

     Robert W. Paltrow is the Secretary and Treasurer and a director of
DirectCom, positions held he has held since January 1989. From 1981 through 1996
Mr. Paltrow served as President of North American Communications, Inc., a direct
mail production company affiliated with DirectCom.

     Robert E. Herman is President of North American Communications, Inc.  Mr.
Herman has been employed at North American Communications since 1992 in various
departments and became its President in 1995.


                                      34
<PAGE>

     Anthony Nardiello has been President of Color Graphics since 1985 and was
Vice President of Color Graphics from 1976-1985.

ITEM 11.  EXECUTIVE COMPENSATION.

     Both the officers and directors may receive a set remuneration from
DirectCom, and reimbursements are also made for any expenses incurred on behalf
of DirectCom.  DirectCom's By-Laws provide that directors may be paid their
expenses, if any, and may be paid a fixed sum for attendance of each Board of
Directors meeting.  The current directors have waived any reimbursement of
expenses or fees for attending meetings.

     The following table sets forth certain information regarding compensation
paid during each of the last three fiscal years to DirectCom's Chief Executive
Officer and each of DirectCom's four other most highly compensated executive
officers whose annual compensation exceeded $100,000 in fiscal 1997.

                           Summary Compensation Table
                           --------------------------
<TABLE>
<CAPTION>
                                                                                              Long-Term
                                                                                             Compensation
                                            Annual Compensation                                 Awards
                                 ----------------------------------------  ----------------------------------------------
                                                                                              Securities
                                                              Other          Restricted       Underlying         All
Name and Principal      Fiscal                                Annual           Stock         Options/SAR        Other
    Position             Year       Salary       Bonus    Compensation(1)      Grants          Award(s)      Compensation
                       --------  -----------   ---------  ---------------  ---------------  ---------------  ------------
<S>                    <C>       <C>           <C>        <C>              <C>              <C>              <C>
Nicholas Robinson        1997      $120,000           --         --               --                 --            --
  Chairman & CEO         1996      $131,591           --         --               --            240,000(3)         --
                         1995        84,000           --         --               --                 --            --
Robert J. Bzezensky      1997       150,000     $ 21,055         --               --                 --            --
  President              1996      $176,376     $ 31,146         --               --                 --            --
                         1995       172,933           --         --               --                 --            --
Steven Gasner            1997      $150,000     $ 21,055         --               --                 --            --
  Vice President         1996      $176,100     $ 31,146         --               --                 --            --
                         1995       172,605           --         --               --                 --            --
Anthony Nardiello        1997       325,000           --         --               --                 --            --
  President,
Color Graphics           1996      $325,000(2)  $ 71,608         --               --                 --            --
                         1995       200,000      100,000         --               --                 --            --
</TABLE>
____________________
(1)  Since the Common Stock is infrequently traded, the fair market value of the
     Common Stock has been assumed to be $.53 per share based upon the most
     recent arm's-length sale of the Common Stock in May 1997 to Allen &
     Company.

(2)  DirectCom's financial statements show only the portion paid since
     DirectCom's acquisition of Color Graphics effective October 1, 1996.

(3)  The original grant of 2,880,000 options was reduced to 240,000 options in
     light of DirectCom's 1-for-12 reverse stock split effective September 4,
     1997.

                                      35
<PAGE>

Stock Options
-------------

     No options were granted to the executive officers listed in the Summary
Compensation Table ("Named Executive Officers").

     The following table provides information relating to the value of
unexercised options held by the Named Executive Officers at the end of fiscal
1997.  No options were exercised by the Named Executive Officers.

                  UNEXERCISED STOCK OPTIONS AT FISCAL YEAR END

<TABLE>
<CAPTION>
                                                                      Value of Unexercised
                                          Total Number of                 In-The-Money
                                        Unexercised Options(#)         Options at Year End
                                      --------------------------    --------------------------
                                      Exercisable  Unexercisable    Exercisable  Unexercisable
                                      -----------  -------------    -----------  -------------
<S>                                   <C>          <C>              <C>          <C>

Nicholas Robinson                        240,000         -           $25,000(1)        -
</TABLE>

________________________
(1)  Since the Common Stock is infrequently traded, the fair market value of the
     Common Stock underlying the options has been assumed to be $.53 per share
     based upon the most recent arm's-length sale of Common Stock in May 1997 to
     Allen & Company.

Employment Contracts
--------------------

     DirectCom has entered into an employment contract with Anthony Nardiello,
President of Color Graphics.  The agreement is for a five year term ending
September 30, 2001.  The contract may be terminated by DirectCom if Mr.
Nardiello (i) competes with DirectCom, unless such competition is consented to
by DirectCom, (ii) commits any material misrepresentation, dishonesty or theft
against DirectCom, (iii) dies or suffers a disability making him incapable of
performing his essential duties or (iv) commits acts of gross misconduct.  Under
the terms of his Employment Contract, Mr. Nardiello receives an annual base
salary of $325,000 and fringe benefits, including a Company automobile, health
and disability insurance.  In addition, Mr. Nardiello has the right to require
DirectCom to purchase his Color Graphics common stock (18% of the outstanding
common stock of Color Graphics) at a price equal to its fair market value as
determined by an independent appraisal, exercisable at any time after the
earlier of October 1, 2001 or his termination of employment for whatever reason.
DirectCom has a similar right to purchase Mr. Nardiello's stock on the same
terms.  In the event of Mr. Nardiello's death, the first $1,000,000 of the
purchase price for his Color Graphics common stock will be paid from the life
insurance policy for Mr. Nardiello paid for by DirectCom.

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

     Nicholas Robinson, Chief Executive Officer of DirectCom, and Robert W.
Paltrow, Secretary/Treasurer of DirectCom, also serve on DirectCom's Board of
Directors and on DirectCom's Compensation Committee.

                      Report of the Compensation Committee

     The compensation for the Company's executive officers was determined by the
Compensation Committee.  It is the policy of the Compensation Committee that a
significant portion of the annual compensation of the Company's Chief Executive
Officer and other executive officers should be directly linked to the Company's
performance, as well as each individual's contribution.  The Company's
compensation programs are designed to provide competitive financial rewards for
successfully meeting


                                      36
<PAGE>

the Company's strategic and operating objectives, with the purposes of retaining
personnel and supporting a performance-oriented environment.

     The compensation of the Company's Chief Executive Officer and other
executive officers is comprised of base salary, as well as cash and stock
incentives based on annual and long-term results of the Company.  Increases in
base salary, if any, will be based on individual performance, level of
responsibilities and the Company's overall performance.

     Changes in Mr. Robinson's compensation, if any, would be determined by the
Committee based upon its subjective analysis of his performance and the
Company's overall performance.  All executive officers' salaries, including the
salary of Mr. Robinson, were reduced in fiscal 1997 to provide more compensation
through bonuses and stock options.

     The Company has an incentive compensation program which rewards the
Company's executive officers based upon the Committee's subjective determination
concerning individual performance and the Company's achievement of its internal
financial objectives.  Executive officers become entitled to receive a bonus
based upon the Company's operating profit and an evaluation of each executive
officer's contribution to such operating profit.  Through this plan, a
significant portion of each executive officer's annual total compensation is
placed at risk in order to provide an incentive toward sustained high
performance.  For fiscal 1997, the Company met its projected financial goals
and, as a result, two of the Company's three executive officers received bonus
payments under this plan.

     In addition, it has been the policy of the Committee to utilize stock
options to provide a link between compensation and the market performance of the
Company's stock, and to focus attention of management on the enhancement of
shareholder value.  In this regard, in fiscal 1996, the Company's Chief
Executive Officer, Mr. Robinson, was granted options to acquire shares of Common
Stock.  If the efforts of the executive officers create additional value for the
Company's shareholders, evidenced by increases in the Company's stock price, the
Company's executive officers will also benefit through appreciation of the
potential value of outstanding stock options.  The Committee believes that the
long-term nature of stock options also encourages executive officers to remain
in the employ of the Company.

                             Compensation Committee

                               Nicholas Robinson
                               Robert W. Paltrow



1996 Stock Option Plan
----------------------

     DirectCom believes that stock option plans provide long term incentives to
its key employees, directors and consultants and encourage the ownership of
DirectCom's Common Stock.  In March 1996, DirectCom adopted the Stock Option
Plan ("Plan") which provides for the grant of stock options as well as other
types of stock and incentive awards.

     Stock Options.  The  Plan authorizes the grant of nonqualified stock
options to employees, consultants and advisors of DirectCom and its
subsidiaries.  Incentive stock options may only be granted to employees of
DirectCom and its subsidiaries.  A total of 10,000,000 shares of Common Stock
were authorized for issuance under the Plan which have been reduced to 833,333
shares of Common Stock following the Company's 1-for-12 reverse stock split
effective September 4, 1997.  As of December 31, 1997, options to purchase a
total of 340,000 shares of Common Stock were outstanding under the Plan and none
of these options have been exercised.  The exercise price of a nonqualified
stock option may be determined by the Board of Directors or the Compensation
Committee in its discretion.  The exercise price of an incentive stock option
may not be less than the fair market value of the Common Stock on the date of
grant (110% of the fair market value in the case of an incentive stock option
granted to a stockholder


                                      37
<PAGE>

owning in excess of 10% of the Common Stock). The value of Common Stock
(determined at the time of grant) that may be subject to incentive stock options
that become exercisable by any one employee in any one year is limited by the
Internal Revenue Code ("Code") to $100,000. The maximum term of stock options
granted under the Plan is ten years from the date of grant. The Board of
Directors or Compensation Committee shall determine the extent to which an
option shall become and/or remain exercisable in the event of the termination of
employment or service of a participant under certain circumstances, including
retirement, death or disability, subject to certain limitations for incentive
stock options. Under the Plan, the exercise price of an option is payable by the
participant in cash or, in the discretion of the Board of Directors or
Compensation Committee, in Common Stock or a combination of cash and Common
Stock.

     Stock Appreciation Rights.  A stock appreciation right may be granted in
connection with an option, either at the time of grant or at any time thereafter
during the term of the option.  A stock appreciation right granted in connection
with an option entitled the holder, upon exercise, to surrender the related
option and receive a payment based on the difference between the exercise price
of the related option and the fair market value of DirectCom's Common Stock on
the date of exercise.  A stock appreciation right granted in connection with an
option is exercisable only at such time or times as the related option is
exercisable and expires no later than the time when the related option expires.
A stock appreciation right also may be granted without relationship to an option
and will be exercisable as determined by the Board of Directors or Compensation
Committee, but in no event after ten years from the date of grant.  A stock
appreciation right granted without relationship to an option entitles the
holder, upon exercise, to a payment based on the difference between the base
price assigned to the stock appreciation right by the Compensation Committee on
the date of grant and the fair market value of DirectCom's Common Stock on the
date of exercise.  Payment to the holder in connection with the exercise of a
stock appreciation right may be in cash or shares of Common Stock or in a
combination of cash and shares.

     Administration.  The  Plan shall be administered by the Board of Directors
or Compensation Committee or such other committee as may be appointed by the
Board.  Subject to the limitations set forth in the  Plan, the Board of
Directors or Compensation Committee has the authority to determine the persons
to whom awards will be granted, the time at which awards will be granted, the
number of shares, units or other rights subject to each award, the exercise,
base or purchase price of an award (if any), the time or times at which the
award will become vested, exercisable or payable and the duration of the award.
The Board of Directors or Compensation Committee may provide for the
acceleration of the vesting or exercise period of an award at any time prior to
its termination or upon the occurrence of specified events.  With the consent of
the affected participant, the Board of Directors or Compensation Committee has
the authority to cancel and replace awards previously granted with new options
for the same or a different number of shares and having a higher or lower
exercise or base price, and may amend the terms of any outstanding awards to
provide for an exercise or base price that is higher or lower than the current
exercise or base price.

     Reservation of Shares.  DirectCom has authorized and reserved 833,333
shares of Common Stock for issuance under the  Plan.  The shares may be unissued
shares or treasury shares.  If any shares of Common Stock that are the subject
of an award are not issued or transferred and cease to be issuable or
transferable for any reason, such shares will no longer be charged against such
maximum share limitation and may again be made subject to awards under the
Plan.  In the event of certain corporate reorganizations, recapitalizations, or
other specified corporate transactions affecting DirectCom or the Common Stock,
proportionate adjustments may be made to the number of shares available for
grant and to the number of shares and prices under outstanding awards made
before the event.

     Term and Amendment.  The Plan has a term of ten years, subject to earlier
termination or amendment by the Board of Directors.  All awards granted under
the  Plan prior to its termination remain outstanding until exercised, paid or
terminated in accordance with their terms.  The Board of Directors may amend the
Plan at any time, except that shareholder approval is required for certain
amendments to the extent necessary for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934.


                                      38
<PAGE>

401(k) Savings and Retirement Plan
----------------------------------

     In 1993, DirectCom adopted the provisions of the amended and restated North
American Integrated Marketing 401 (k) Plan (the "401(k) Plan"), a tax-qualified
plan covering all eligible employees, as defined therein.  Each eligible
employee may elect to reduce his or her current compensation by 15%, subject to
the statutory limit (a maximum of $9,500 in 1996) and have the amount of the
reduction contributed to the 401(k) Plan. For fiscal 1996 DirectCom had
discretion to match employee contributions. Since inception of the 401(k) Plan
in 1993, DirectCom has made no matching contributions. Effective January 1,
1997, DirectCom has agreed to match 25% up to the first 6% of compensation that
eligible employees contribute to the 401(k) Plan. In addition, DirectCom may
also make discretionary contributions, as defined in the 401(k) Plan, each year
on behalf of all eligible participants.


                                      39
<PAGE>

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

     The following table sets forth certain information, as of December 31,
1997, with regard to the beneficial ownership of the Common Stock by (i) each
person known by DirectCom to be the beneficial owner of more than 5% of its
outstanding Common Stock, (ii) the Named Executive Officers and directors and
key employees of DirectCom individually and (iii) the executive officers and
directors of DirectCom as a group.

<TABLE>
<CAPTION>
Name and Address                                              Number of Shares
of Beneficial Owner                                        Beneficially Owned(1)          % of Class Outstanding
-------------------                                        ---------------------          ----------------------
<S>                                                        <C>                            <C>
First Commercial and Finance Corp.                                2,005,002(2)                   65%
  Establishment
c/o Dr. Danni Rothschild
10 Manesse Street
Zurich 800 Switzerland

Wye Investments, a Limited Partnership                              360,000(3)                 11.6%

c/o Michael Herman, General Partner
North American Communications, Inc.
Route 22 and Route 220, Wye Switches
Duncansville, PA  16635

Aspetong Partners, L.P.                                             360,000(4)                 11.6%

c/o Robert W. Paltrow, General Partner
20 Maple Avenue
Armonk, NY  10504

Nicholas Robinson                                                   240,000(5)                  7.7%

Robert J. Bzezensky                                                  80,000                     2.6%

Steven Gasner                                                        80,000                     2.6%

Robert E. Herman                                                     80,000(5)(3)               2.6%
North American Communications, Inc.
Route 22 and 220, Wye Switches
Duncansville, PA  16835

All officers & directors as a                                     3,205,002(5)                  104%(6)
group (four persons)
</TABLE>

_______________

(1)  Except as otherwise indicated in the footnotes to this table and pursuant
     to applicable community property laws, each stockholder has sole voting and
     investment power with respect to the Common Stock listed.

(2)  First Commercial and Finance Corp., Establishment, pursuant to a May 17,
     1996 Convertible Debenture Purchase Agreement with DirectCom, entered into
     a five year irrevocable proxy (effective until September 24, 2001) in favor
     of Nicholas Robinson, DirectCom's Chief Executive Officer, to vote all its
     Common Stock in his discretion.  Mr. Robinson may be deemed to be the
     beneficial owner of these shares.


                                      40
<PAGE>

(3)  Represents shares owned directly by Wye Investments, which shares could be
     deemed to be beneficially owned by Mr. Michael Herman as General Partner of
     Wye Investments. Mr. Michael Herman, as General Partner of Wye Investments,
     owns directly only a 1% interest in Wye Investments. Robert E. Herman, son
     of Michael Herman, is a limited partner in Wye Investments with a 14%
     interest in Wye Investment.

(4)  Represents shares owned directly by Aspetong Partners, L.P. which shares
     could be deemed to be beneficially owned by Mr. Paltrow as General Partner
     of Aspetong Partners, L.P.  Mr. Paltrow, as General Partner of Aspetong
     Partners, holds directly only a 1% interest in Aspetong Partners.

(5)  Represents shares issuable pursuant to stock options that may be exercised
     within 60 days from December 31, 1997.  Such shares are not deemed
     outstanding for computing the percentage of beneficial ownership of any
     other person.

(6)  Percentage exceeds 100% as a result of including unexercised stock options
     by Nicholas Robinson and Robert E. Herman in shares of Common Stock
     beneficially owned compared to 3,101,983 shares of Common Stock outstanding
     as of February 27, 1998.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          North American Communications, Inc. ("NAC"), an affiliate of
DirectCom, is one of several suppliers of mailing services and is awarded
contracts by DirectCom.  Robert W. Paltrow, a director of DirectCom, is General
Partner of Aspetong Partners, L.P. which owns 50% of the issued and outstanding
stock of NAC.  Wye Investments owns the other 50% of the issued and outstanding
stock of NAC.  Mr. Paltrow also is a director of NAC.  For fiscal 1997,
DirectCom purchased from NAC $4,799,400 in mailing services.  NAC assigned to
DirectCom, effective January 1, 1996, its lease to the Wilmington, Delaware
office.  In addition, NAC is a guarantor of DirectCom's $1,000,000 revolving
line of credit with United States National Bank.  Finally, DirectCom entered
into a Management Agreement December 15, 1997 with NAC under which DirectCom
paid 7% of its fiscal 1997 net revenues or $1,780,000 for sales and
administrative support services, client referrals, strategic advice, etc.

          In January 1998 DirectCom agreed to sell 80,000 shares of DirectCom's
Common Stock held as treasury stock to Seth Kanegis, Robert W. Paltrow's son-in-
law, for $150,000.


                                      41
<PAGE>

                                    PART IV

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

(A) 1.  FINANCIAL STATEMENTS

        The following financial statements are filed as a part of this report:
<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
        Report of Independent Public Accountants.........................................................       12
        Report of Independent Public Accountants.........................................................       13
        Consolidated Financial Statements:
        Balance Sheets as of December 31, 1997 and 1996..................................................       14
        Statements of Operations for the years ended December 31, 1997, 1996 and 1995....................       15
        Statements of Shareholders' Equity for the years ended December 31, 1997,
        1996 and 1995....................................................................................       16
        Statements of Cash Flows  for the years ended December 31, 1997, 1996 and 1995...................       17
        Notes to Consolidated Financial Statements.......................................................       18

(A) 2.  FINANCIAL STATEMENT SCHEDULES

        The following financial statement schedule is filed as part of this report:
                                                                                                               Page
                                                                                                               ----
        II  Valuation of Qualifying Accounts.............................................................       33

        All other schedules are omitted because they are not required or the required
        information is shown in the financial statements or notes thereto.

<CAPTION>


(A) 3. Exhibits:                                                                                               Page
       ---------                                                                                               ----
<S>                                                                                                            <C>
       3.1  Amended and Restated Certificate of Incorporation.
            The Certificate of Ownership and Merger was filed with
            DirectCom's Form 10-K on April 20, 1990 and
            is hereby incorporated by reference.                                                                46

       3.2  Bylaws of the Corporation already have been
            filed with DirectCom's prior Registration
            Statement effective May 18, 1989 and are
            hereby incorporated by reference.                                                                   N/A

       4.1  Form of Common Stock Certificate (specimen)
            has been filed with DirectCom's Registration
            Statement effective May 18, 1989, and is hereby
            incorporated by reference.                                                                          N/A

      10.1  Office Lease Agreement between Garrett Mountain                                                     N/A
            Office Center Associates-I and DirectCom, with
            regard to the West Paterson, New Jersey office has
            been filed with DirectCom's 10-K for the year
            ended December 31, 1996 and is hereby incorporated
            by reference.
</TABLE>

                                      42
<PAGE>

<TABLE>
<CAPTION>
    <S>    <C>                                                 <C>
     10.2   Stock Option Plan                                   49

     11.1   Statement regarding the computation of per-share
            earnings is included in Note 3 to Financial
            Statements on sequentially numbered pages 20-21
            and is hereby incorporated by reference.            N/A

     21     List of Subsidiaries                                61

     27     Financial Data Schedule (filed herewith)            62
</TABLE>





                                      43
<PAGE>

(b)    DirectCom did not file any reports on Form 8-K during the fourth quarter
       of 1997.











                                      44
<PAGE>

                                   SIGNATURES

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

NORTH AMERICAN INTEGRATED MARKETING, INC.


By:  /s/Nicholas Robinson
    -------------------------------
     Nicholas Robinson                                           March 31, 1998
     Chief Executive Officer and Chairman of the Board



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



                                   Title                              Date
                                   -----                              ----
By:  /s/Robert J. Bzezensky        President                     March 31, 1998
    ----------------------------
    Robert J. Bzezensky



By:  /s/Nicholas Robinson          Chief Executive Officer,      March 31, 1998
    ----------------------------   Chairman of the Board
    Nicholas Robinson



By:  /s/ Robert W. Paltrow         Director,                     March 31, 1998
    ----------------------------   Secretary/Treasurer
    Robert W. Paltrow



By:  /s/ Robert E. Herman          Director                      March 31, 1998
    ----------------------------
    Robert E. Herman


                                      45