<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549       

                                   FORM 10-K

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

                    For the fiscal year ended July 31, 1996
                          Commission File Number 1-683

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

               DELAWARE                              34-0054940         
        (State of Incorporation)          (I.R.S. Employer Identification No.)
           431 LAKEVIEW COURT
         MT. PROSPECT, ILLINOIS                        60056
(Address of principal executive offices)             (Zip Code)

       Registrant's telephone number, including area code: (847) 375-1700

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

                                                Name of each exchange on
     Title of each class                            which registered 
    ---------------------                       ------------------------
Common Stock, $0.01 par value                    American Stock Exchange

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

                    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
                                   ----      ----
                               
<PAGE>   2

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

                    The aggregate market value of voting stock held by
nonaffiliates of the Registrant as of October 28, 1996:

                          Common Stock, $0.01 par value:   $12,431,950


                    Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.

                              Yes   X     No_____

                    Indicate the number of shares outstanding of the
Registrant's classes of common stock as of October 28, 1996:

            7,008,421 shares of Registrant's common stock, par value
   $0.01 per share were outstanding as of October 28, 1996.


                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's definitive proxy statement for Registrant's next Annual
Meeting of Stockholders (the "1996 Proxy Statement") are incorporated by 
reference into Part III.

<PAGE>   3

                                     PART I


ITEM 1. BUSINESS

(a)      General Development of Business and Recent Events

         1.     Introduction.

                AM International, Inc. is incorporated in Delaware.  As used
herein, "Registrant" or the "Company" means AM International, Inc. and its
subsidiaries, unless the context indicates the contrary.

                Registrant currently conducts its business through one business
segment, AM Multigraphics, which serves the graphics arts industry in the United
States. In September, 1996, Registrant sold its interest in AM Japan Co., Ltd.
On October 17, 1996, Registrant's Canadian subsidiary initiated bankruptcy
proceedings.  Both of these subsidiaries were included as part of AM
Multigraphics for financial reporting purposes. In the last eighteen months, as
previously reported, Registrant has divested its Sheridan Systems and AM
Multigraphics - International business segments.

                On August 27, 1996, Registrant sold substantially all of the
assets and liabilities of the Sheridan Systems division, a leading supplier of
systems and components to both the printing and newspaper publishing
industries, to Heidelberger Druckmaschinen AG. The sale included substantially
all of the assets and liabilities of Registrant's AM Graphics International
Limited subsidiary in Slough, England.

                The disposition of the AM Multigraphics - International
operations has taken place in stages, as Registrant has divested its
unprofitable foreign subsidiaries. In February, 1996, Registrant's AM
International UK Limited subsidiary in England entered into an Adminstration
proceeding, which resulted in the sale of certain portions of that business.  In
March, 1996, Registrant sold its Netherlands holding company, including all its
subsidiaries in the Netherlands, France and Belgium, to a local management
buyout team.

                All financial information has been restated to reflect the
Sheridan Systems and the AM Multigraphics - International operations as
discontinued operations.  AM Multigraphics is a distributor of an extensive
range of equipment, supplies and services to the graphics arts industry, having
recently undertaken the final steps to exit the manufacture of equipment. The
majority of Registrant's equipment, systems and supplies are sold under the AM
Multigraphics(R) brand name.  To complement and expand its product lines,
Registrant purchases additional products from outside suppliers, which are sold
either under Registrant's or the producing company's trade names.

                On October 29, 1996 the Company entered into a definitive Merger
Purchase Agreement with a corporation newly formed by affiliates of Pacholder
Associates, Inc., a Cincinnati-based provider of investment management,
financial advisory and investment banking services to institutional clients.
This agreement provides for the merger of a subsidiary of purchaser with and
into the Company pursuant to which the current shareholders of the Company will
receive $5.00 per common share and the Company will become a wholly-owned
subsidiary of the purchaser. The transaction is conditioned upon the purchaser
finalizing a credit facility within 30 days as well as a number of additional
conditions, including approval by a majority of the shareholders of the 
Company at a meeting tentatively scheduled for January, 1997.

         2.     Bankruptcy Proceedings.

                On May 17, 1993, Registrant and its subsidiary,
Addressograph-Multigraph Corporation ("AMC"), filed for protection under
Chapter 11 of the United States Bankruptcy Code, in The United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") case
numbers 93-582 through 93-583 (the "Bankruptcy Proceedings").  Registrant also
filed on that date a proposed Plan of Reorganization.  The Chapter 11 filing
related to Registrant's domestic operations and did not include its foreign
subsidiaries.

<PAGE>   4

                On August 26, 1993, a hearing was held by the Bankruptcy Court
to consider approval of a Disclosure Statement to be distributed to creditors
and shareholders of Registrant.  After that hearing, and by Order of the
Bankruptcy Court dated August 26, 1993, the Second Amended Disclosure Statement
(hereinafter the "Disclosure Statement") was approved as containing "adequate
information" for creditors and shareholders of Registrant in accordance with
Section 1125(b) of the Bankruptcy Code.  Further information on the First
Amended Plan of Reorganization as amended by Amendment No. 1 thereto (as so
amended the "Plan") and the disclosures made in connection therewith, is
available in the Disclosure Statement and the Plan incorporated
herein by reference to Exhibits 28 and 10(A), respectively, to the Company's
Annual Report on Form 10-K for the fiscal year ended July 31, 1993, File No.
1-683.

                On September 29, 1993, Registrant's Plan was confirmed by the
Bankruptcy Court.  In general, the Plan provided for distribution of
approximately 7,000,000 shares of new Common Stock ("Common Stock"), of which   
approximately  97% was distributed to former holders of Registrant's 12% Senior
Subordinated Debentures, 2% to former holders of Registrant's $2.00 Convertible
Exchangeable Preferred Stock ("Old Preferred Stock") and 1% to former holders
of Registrant's Common Stock ("Old Common Stock").  The Plan also provided for
distribution of 1,095,000 Warrants to Purchase Common Stock ("Warrants") to
former holders of Old Preferred Stock.  The Warrants permitted the holder to
purchase an aggregate of 1,095,000 shares of Common Stock until October 15,
1996 at an exercise price of $18.00 per share, but have now expired and are of
no further effect.  Under the Plan, general unsecured creditors are to be paid
in full over a period of five years with interest at 5% per annum unless they
elected to be paid in full under the convenience class (claims under $2,000) or
unless they elected before September 29, 1993 to receive Common Stock in lieu
of cash.

                The Plan became effective on October 13, 1993 (the "Effective
Date").  Distributions provided for in the Plan, including Common Stock and
Warrants, commenced on that date.  On the Effective Date, all Old Preferred
Stock, Old Common Stock, Old Warrants to Purchase Common Stock and Old
Preferred Stock Purchase Rights attached to the Old Common Stock were canceled
and became of no further force and effect except as evidence of the holder's
entitlement to a distribution under the Plan.  All exchange rights associated
with the Old Preferred Stock and Old Common Stock expired on October 13, 1995.
For information relating to shares of Common Stock outstanding and shares of
Common Stock held for exchange as described above, see Notes 4 and 14 of the
"Notes to Consolidated Financial Statements" contained in Item 8 hereof.  Also
on the Effective Date the former directors of Registrant were replaced.

         3.     Events Leading to Bankruptcy Proceedings.

                Reference is made to Section D of Part III of the Disclosure
Statement (pages 22 to 29), incorporated herein by reference to Exhibit 28 to
the Company's Annual Report on Form 10-K for the fiscal year ended July 31,
1993, File No. 1-683, for information on the general development of the
business of Registrant and events which led to commencement of the Bankruptcy
Proceedings on May 17, 1993.

         4.     Corporate Structure of Registrant

                Registrant, AM International, Inc., was originally incorporated
in Delaware in 1924 as Addressograph Securities Corporation.  Registrant has
had several name changes, one of which was Addressograph-Multigraph Corporation
for the period May 6, 1931 to January 2, 1979.  Registrant's subsidiary,
Addressograph-Multigraph Corporation ("AMC") was originally incorporated in
Delaware in 

                                       2
<PAGE>   5

August 1972 as AM International, Inc. and changed its name to
Addressograph-Multigraph Corporation on January 2, 1979.  Until October 13,
1993, AMC was a wholly owned subsidiary of Registrant and was a holding company
for certain foreign subsidiaries.  Pursuant to the Plan, AMC was merged with
and into Registrant on October 13, 1993.


(b)      Financial Information About Industry Segments

                See the information in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
in Note 12 to the "Notes to Consolidated Financial Statements" under the
section entitled "Geographic Segments" contained in Items 7 and 8 of this
Report, respectively.
 
 (c)     Narrative Description of Business

                Registrant currently conducts its business through its one
remaining business segment:  AM Multigraphics, which currently has
approximately 800 employees.  AM Multigraphics is a distributor of equipment,
supplies and services to the graphic arts industry, and is currently exiting
the engineering and manufacturing of offset duplicating equipment and supplies
to focus  exclusively on distribution of equipment, supplies and service.  In
1996, the Registrant divested its Sheridan Systems and AM
Multigraphics - International operations in previously reported transactions.

         AM Multigraphics is headquartered in Mount Prospect, Illinois, where,
historically, it has manufactured and distributed a broad product line of
equipment and supplies and provided services for the graphics arts industry
through its own direct sales and service organizations in the United States.
AM Multigraphics products traditionally have included small offset printing
equipment, automated copy/duplicating systems, digital color printing systems,
pre and post press products and supplies.

                Presently, AM Multigraphics is completing its plans to exit the
engineering and manufacturing of offset duplicating equipment to focus entirely
on distribution of supplies, services and equipment to the graphics arts
industry.  The declining market for the segment's traditional offset duplicator
products, due to inroads by alternative technologies, resulted in the
re-evaluation of its traditional strategy and the decision to exit
manufacturing and focus upon the distribution of supplies, services and
equipment.  Accordingly, the Registrant today is focused on (1) supplies and 
prepress products, and (2) service and parts.  

         The supplies and prepress category consists of consumable products
used in the production of printed materials, such as films, inks, plates,
rubber rollers, cleaning solutions and cotton pads, as well as pre-press
products such as platemakers and image-setters.  The Registrant tracks various
categories of these products, none of which accounts for more than 10% of its
revenues.  Similarly, no single supplier accounts for more than 10% of
Registrant's revenues.

         The service and parts category provides service for the traditional
installed base of offset duplicators and associated prepress products and
simple bindery equipment.  The Company has 400 service representatives.

         The following table sets forth the breakdown of revenues among
machines, supplies and services in the United States, Canada and Japan for
fiscal 1996, 1995 and 1994.


<TABLE>
<CAPTION>


                              Twelve Months Ended July 31,      
                        ----------------------------------------
                          1996            1995            1994  
                        --------        --------        --------
<S>                     <C>             <C>             <C>
UNITED STATES
  Machines              $ 39,598        $ 50,829        $ 46,775
  Supplies                40,921          43,578          45,599
  Services                47,511          52,748          55,936
                        --------        --------        --------
                         128,030         147,155         148,310
                        --------        --------        --------
                                                                
CANADA                                                          
  Machines                 4,352           3,849           4,599
  Supplies                 2,312           2,842           2,865
  Services                 3,287           3,594           4,093
                        --------        --------        --------
                           9,951          10,285          11,557
                        --------        --------        --------
                                                                
JAPAN
  Machines                13,574          15,928          14,889
  Supplies                11,361          12,383          10,376
  Services                 5,136           5,734           5,216
                        --------        --------        --------
                          30,071          34,045          30,481
                        --------        --------        --------
                                                                
TOTAL                                                           
  Machines                57,524          70,606          66,263
  Supplies                54,594          58,803          58,840
  Services                55,934          62,076          65,245
                        --------        --------        --------
                        $168,052        $191,485        $190,348
                        ========        ========        ========
</TABLE>







                                       3
<PAGE>   6


         AM Multigraphics also manages a network of approximately 74
independent dealers and sales representatives selling in approximately 95 other
countries.

                The principal customers of AM Multigraphics include in-plant
print shops, franchised and independent quick print shops, small commercial
printers and governmental and educational institutions.  AM Multigraphics has
in excess of 50,000 customers.  No customer accounts for more than 10% of
Registrant's revenues.

         5.  Competition and Competitive Conditions

                The Company operates in a highly competitive market in which
price, delivery and customer service are key factors.  The Registrant's
customers are in-plant, quick print and small commercial printer market
segments.  The market for small offset duplicator presses, the traditional
proprietary equipment of the division, is mature and continues to face
competition from alternative technologies.  Because the installed base of
equipment has historically provided the primary market for many of Registrant's
services and supplies, the Company is increasingly reliant on its general
distribution capabilities in continuing to serve its market segments.  Gross
margins are expected to decrease as the Company seeks to add product lines
through distribution agreements, joint ventures and affiliations with third
parties.  To offset the lower margins the Company has invested in information
systems and has undertaken other reorganization measures to increase efficiency
and lower expenses.

         The competitive market is also one of heavy regional competition, but
consolidation of dealers is occurring, which brings consolidated buying power
and distribution cost efficiencies.  The Registrant's investments in
information systems and other reorganization measures are designed to enable it 
to expand its business opportunities with existing customers and possibly to
add volume through acquisitions over time.

         6.     Cyclical Nature of Business and Liquidity

                The revenues of Registrant are dependent upon trends in the
printing industry, which are a function of (among other factors) overall
economic factors and advertising expenditures.  The backlog for the AM
Multigraphics segments is less than 5% of annual revenues and is not a material
factor in the conduct of the business.  Registrant believes that substantially
all of this backlog will be shipped during the 1997 fiscal year.

                Certain customers of  AM Multigraphics require long-term
financing for purchases of equipment distributed by the Company.  Registrant
cooperates with various independent finance and leasing companies to provide
such financing.  These agreements are sometimes on a partial recourse basis
with remarketing arrangements on a non-discretionary, non-priority basis.  From
time to time, Registrant's operations enter into long-term leases with their
customers.  Registrant periodically sells identified pools of lease receivables
and pools of rental equipment to financial institutions on a limited recourse
basis. The existence of such financing is not, however, significant to
Registrant's domestic or international operations each taken as a whole.

         7.     Research and Development; Patent and Trademarks


                                       4
<PAGE>   7

                Approximately $0.4 million was expended by Registrant for
research and development in fiscal 1996, $0.7 million in 1995, and $0.6
million in 1994.   Registrant's research, development and engineering
expenditures are made primarily to maintain competitive product offerings.

                Registrant owns or is licensed under various patents and
trademarks.  While such rights are important, Registrant does not believe that
its business as a whole is materially dependent on any one patent or trademark
or group of patents or trademarks.


                                       5
<PAGE>   8

ITEM 2.  PROPERTIES

                Registrant's principal executive offices are located in Mt.
Prospect, Illinois.  Registrant moved its corporate headquarters from Rosemont,
Illinois to its current headquarters in September, 1996, following the
disposition of Registrant s Sheridan Systems division.  Registrant moved to
Rosemont in April, 1995 and previously had been located at the AM Multigraphics
facility in Mt. Prospect, Illinois since March 22, 1993 when it moved from its
downtown Chicago location.

                In 1996, Registrant undertook the relocation of its AM
Multigraphics operations from its 700,000 square foot manufacturing and office
facility in Mt. Prospect to newer, more cost efficient facilities.  The project
consisted of three parts:  (1) relocation of the business offices to a 64,400
square foot facility in Mt. Prospect; (2) relocation of the distribution center
to an 80,000 square foot nearby complex in Arlington Heights, Illinois, to
enhance the unit's distribution capabilities; and, (3) the sale of  its former
Mount Prospect, Illinois facility for approximately $6.8 million in 1996.

                Registrant owns or leases distribution, sales and service
facilities throughout the United States.  In the United States, Registrant
occupies 30 leased facilities with total square footage of 455,000.  Leases for
approximately 185,000 square feet will expire in April and May of 1997, and
will not be renewed.

                The facilities occupied by Registrant as of October 28, 1996,
which have more than 20,000 square feet of space or which are otherwise
material to Registrant's businesses, are set forth below.  Although certain
facilities remain underused, Registrant believes that the properties and
equipment included therein are well maintained, in good operating condition and
adequate for the current needs of its operations.


                                       6
<PAGE>   9

                                FACILITIES

<TABLE>
<CAPTION>
                                                                            APPROXIMATE SQUARE
                                                                            FEET OF FLOOR AREA  
                                                                           --------------------
         LOCATION AND BUSINESS SEGMENT              USE (1)                 OWNED       LEASED 
         -----------------------------              -------                 -----       -------
         <S>                                           <C>                 <C>      <C>   

         Corporate
         ---------
         Rosemont, Illinois                                     ADM                  10,700  (2)

         AM Multigraphics - Domestic
         ---------------------------
         Arlington Heights, Illinois                           DIST                  79,700  (3)
         Mt. Prospect, Illinois                        MFG/ADM/DIST                 175,000  (4)
         Mt. Prospect, Illinois                                 ADM                  64,400  (3)
</TABLE>





         ______________________________________________
         (1) ADM = Administrative; MFG = Manufacturing and
             Engineering; DIST - Distribution Center; R&D = Research and
             Development.
         (2) Lease expires in May, 1997, and will not be renewed.
         (3) Leases expire in 2005.
         (4) Manufacturing operations are winding up and lease for this
             facility will expire in April, 1997, and will not be renewed.

                                       7
<PAGE>   10

ITEM 3.    LEGAL PROCEEDINGS

                 Reference is made to Item 1, Section (a) Paragraph 2, for
information on Registrant's Bankruptcy Proceedings.  The commencement of the
Bankruptcy Proceedings resulted in an automatic stay of certain litigation
against Registrant pursuant to Section 362 of the Bankruptcy Code as of May 17,
1993.  Therefore, with certain exceptions, all legal proceedings against
Registrant pending as of May 17, 1993, will be resolved through the bankruptcy
process.  In addition, there are significant claims pending in the Bankruptcy
Proceeding.  Registrant believes the resolution of these legal proceedings and
claims will not have a material adverse effect on the business or the financial
position of Registrant.

                 Registrant has been notified of various environmental matters
in connection with certain current or former locations in  Illinois, Indiana,
Ohio, Pennsylvania, and Rhode Island.  Registrant believes that the legal
liability relating to such matters, if any, will either be resolved
consensually between Registrant and relevant governmental authorities or will
be subject to resolution through the bankruptcy process as with other disputed
claims.  Registrant believes the resolution of these matters will not have a
material adverse effect on the business or the financial position of
Registrant.

                 Registrant is involved in various other administrative and
legal proceedings incidental to its business, including product liability and
general liability lawsuits against which Registrant is partially insured.  The
resolution of these other proceedings is not expected to have a material
adverse effect on the business or the financial position of Registrant.


ITEM 4.    RESULT OF VOTES OF SECURITY HOLDERS.

                 None.

ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT

                 The following is a list of the names and ages, as of October
28, 1996, of all of the executive officers of Registrant and all positions and
offices of Registrant held by each person and each such person's occupation or
employment on such date and during the preceding five years.  All such persons
have been elected to serve until their successors are elected or until their
earlier resignation or retirement.

                                       8
<PAGE>   11
<TABLE> 
<CAPTION>         
                                   Positions and Offices Held and                                                           
                                   Principal Occupations or Employment                                                      
Name                     Age       During the Past Five Years                                                               
------------------       ---       -------------------------------------------------                                        
<S>                      <C>       <C>                                                                                        
Jerome D. Brady          52        Chairman of the Board of Directors, Chief Executive Officer and President                
                                   since September 1994.  Mr. Brady was Vice President of FMC Corporation, a                
                                   manufacturer of chemicals and machinery, and General Manager of its Food                 
                                   Machinery Group from October 1992 until he joined the Company.  From 1978 to             
                                   1992 Mr. Brady held a number of senior management positions at Harsco                    
                                   Corporation, a diversified industrial manufacturing and services company,                
                                   most recently as Senior Vice President of Operations responsible for the                 
                                   Industrial Services and Building Products Group.                                         
                                                                                                                            
Steven R. Andrews        43        Vice President, General Counsel and Secretary of Registrant since June 1994.             
                                   Mr. Andrews was Vice President and General Counsel of Amana Refrigeration,               
                                   Inc., a manufacturer of major household appliances, from February 1993 to                
                                   June 1994 and Senior Deputy General Counsel of Registrant from January 1992              
                                   to February 1993.  From 1988 to 1991 Mr. Andrews was Associate General                   
                                   Counsel of Tonka Corporation, an international manufacturer and marketer of              
                                   toys and games.                                                                          
                                                                                                                            
Gregory T. Knipp         41        Treasurer of Registrant since September 1995.  From 1987 to 1994 Mr. Knipp               
                                   held several treasury-related management positions of Registrant, including              
                                   that of Assistant Treasurer from 1994 to 1995.  From 1981 to 1987, Mr. Knipp             
                                   was the Cash Manager of Woodland Services Co., a spinoff company of Masonite             
                                   Corporation.  Prior to 1981, Mr. Knipp was an auditor with Peat Marwick  
                                   Mitchell & Co.                                                           
                                                                                                                            
Thomas D. Rooney         49        President of Multigraphics since August of 1996, Vice President of               
                                   Registrant since February 1986, Chief Financial Officer since August 1993,       
                                   and Controller and Chief Accounting Officer of Registrant from September         
                                   1989 to August 1993.  From 1986 to 1989 Mr. Rooney was President of              
                                   Registrant's former AM Bruning division, a manufacturer and distributor of                     
                                   equipment, supplies and services for the engineering graphics market.            
</TABLE>
                                       9

<PAGE>   12

                                    PART II

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

                 (a) Market and Other Information

                 Registrant's Plan of Reorganization provided for the amendment
and restatement of Registrant's Certificate of Incorporation and Bylaws.  The
new charter authorized 50 million shares of stock of which 40 million shares
were reserved for issuance as new Common Stock and 10 million shares were
reserved for issuance as new Preferred Stock.  On the Effective Date of the
Plan, the Board of Directors authorized the issuance of 7 million shares of new
Common Stock, $.01 par value, to holders of claims and interests as described
in Note 14 of "Notes to Consolidated Financial Statements" contained in Item 8
hereto.

                 On the Effective Date, Registrant also issued 1,095,000 new
Warrants to Purchase Common Stock at an exercise price of $18.00 per share
which expired on October 15, 1996, and are of no further effect.

                 At the Annual Meeting of Stockholders held on December 8,
1994, Registrant's stockholders approved the 1994 Long- Term Incentive Plan
(the "Plan").  In conjunction therewith, an additional aggregate of 1,400,000
Common Stock shares are available pursuant to and in accordance with the terms
of the Plan, subject to adjustments as provided in Section 6.7 of the Plan.

                 Registrant's new Common Stock, $.01 par value commenced
trading on the American Stock Exchange on December 6, 1993 under the ticker
symbol "AM."

                 For information regarding quarterly stock prices for the
Common Stock, see Note 13 to the "Notes to Consolidated Financial Statements"
in Item 8 entitled "Quarterly Financial Information."

         (b)     Holders

                 At October 28, 1996, Registrant had approximately 1,200
                 stockholders of record.

         (c)     Dividends

                 Registrant has not paid cash dividends on its Common Stock
                 since August 15, 1981.




                                       10
<PAGE>   13

ITEM 6.    SELECTED FINANCIAL DATA

FIVE YEAR FINANCIAL SUMMARY - Financial information has been restated to
reflect the Sheridan Systems and the Multigraphics - International operations
as discontinued operations.


<TABLE>
<CAPTION>
                                              Reorganized Company             |           Predecessor Company
                                  --------------------------------------------|------------------------------------------
                                          Years  Ended         Sept. 30, 1993 | Aug. 1, 1993       Years Ended July, 31
                                  ----------------------------     Through    |     Through        --------------------- 
                                  July 31, 1996  July 31, 1995 July 31, 1994  | Sept. 29, 1993       1993        1992
                                  -------------  ------------- -------------  |--------------     ----------- ---------
<S>                                <C>        <C>              <C>            | <C>                <C>        <C>
OPERATIONS                                                                    |
   Revenues                        $168.1      $191.5          $163.8         | $26.5              $195.7      $202.4
   Gross profit                      37.6        52.7            51.4         |   7.0                57.0        62.5
     as a percent of revenues        22.4%       27.5%           31.4%        |  26.4%               29.1%       30.9%
  Unusual items (inc.)/exp.           7.0         0.0             0.0         |   0.0                37.6         0.0
  Operating income (loss)           (16.4)       (2.5)            6.8         |  (2.0)              (34.3)      (75.4)
     as a percent of revenues        (9.8%)      (1.3%)          (4.2%)       |  (7.5%)             (17.5%)     (37.3%)
  Net Income (Loss) from                                                      |
      Continuing Operations         (20.2)       (4.2)            2.1         |  21.8               (43.8)      (83.1)
  Income (Loss) from                                                          |
     discontinued operations        (25.3)        8.8             4.6         | (27.8)              (81.9)      (41.7)
  Extraordinary Gain                  0.0         0.0             0.0         |  58.7                 0.0         0.0
  Net income (loss)                ($45.5)       $4.6            $6.7         | $52.7             ($125.7)    ($124.8)
Capital Employed                                                              |
  Working capital                   (38.9)       61.5             8.7         |  (17.6)                5.6       (23.6)
  Total assets                       98.0       163.1           169.2         |  164.4               175.4       271.8
  Long-term debt                      8.5        14.9            19.4         |   25.5               129.0        62.6
  Shareholders' equity                2.3        48.3            42.8         |   36.0               (49.7)       69.3
Per Common Share                                                              |
  Net income (loss) from                                                      |
   continuing operations           ($2.88)     ($0.59)          $0.30         |    N/A                 N/A         N/A
  Market price - High (1)(3)       $8.375     $12.250         $11.875         |    N/A                 N/A         N/A
                    Low (1)(3)     $1.875      $8.125          $8.750         |    N/A                 N/A         N/A
Average number of common  shares                                              |
  and equivalents (in thousands)(2) 7,009       7,021           7,006         |    N/A                 N/A         N/A
NUMBER OF EMPLOYEES AT YEAR END     1,121       1,378           1,520         |  1,633               1,662       1,897
                                   ------      ------        --------         | ------              ------      ------
</TABLE>

     (1)  Trading of Reorganized Company Common Stock commenced on December 6, 
1993.

     (2) The net income per common share and average number of common shares  
and equivalents for the Company has not been presented as this information  is  
not comparable.

     (3) Trading of Predecessor Company Common Stock and Preferred Stock
was suspended on May 21, 1993.  Periods prior to this date are not presented
as they are not comparable.

Refer to Management's Discussion and Analysis for explanations of significant 
factors affecting comparability of the above date.



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

ANALYSIS OF CONTINUING OPERATIONS AND DISCONTINUED OPERATIONS

         Over the past several years, the Company has formulated and executed
various restructuring plans in order to improve operating results.  These plans
have included the exit from certain unprofitable foreign subsidiaries, the
divestitures of non-core product lines, the exit from manufacturing operations
at AM Multigraphics and the implementation of strategic investments in new
products and capabilities.  In July 1996 the Company entered into an Asset
Purchase Agreement with Heidelberger Druckmaschinen AG for the sale of its
Sheridan Systems segment.  The sale of Sheridan Systems was concluded in August
1996.  In addition, during 1996 the Company disposed of its AM
Multigraphics-International Operations.  These segments are reflected as
discontinued operations.  Included in Continuing Operations are results of the
two remaining foreign subsidiaries; however, the Company sold its interest in
AM Japan Co., Ltd. in September, 1996, and on October 17, 1996, AM Canada filed
a voluntary assignment in bankruptcy.


CONTINUING OPERATIONS

Results of Operations

(dollars in millions)
<TABLE>
<CAPTION>
                                                  Year ended July 31,
                                     1996             1995               1994
                                    ------           ------             ------
<S>                                <C>              <C>               <C>
Revenues                            $168.1           $191.5             $190.3
Operating Income (Loss)               16.4)            (2.5)               4.8
Non Operating Expenses                (3.9)            (3.2)              21.5
                                    ------           ------             ------
Pre Tax Income (Loss)                (20.3)          $ (5.7)            $ 26.3
Net Income (Loss)                    (20.2)          $ (4.2)            $ 23.9
                                    ======           ======             ======
</TABLE>

          Note: To facilitate a meaningful discussion of the Company's
comparative operating performance in fiscal years 1996, 1995, and 1994, the
results are presented on a traditional comparative basis for all periods.
Consequently, the information presented for fiscal year 1994 does not comply
with the accounting requirements for companies upon emergence from bankruptcy,
which calls for separate reporting for the Reorganized Company and the
Predecessor Company.

OPERATING RESULTS

         The Continuing Operations are comprised of one business segment, the
AM Multigraphics segment.  The AM Multigraphics segment serves the graphics
arts industries in North America, and until September 1996 Japan, by 
distributing an extensive range of sheet fed offset duplicating presses, 
digital color printing equipment, pre and post press equipment, and a wide 
range of supplies and technical 


                                       11
<PAGE>   14

services. In 1995 the operation initiated efforts to transition out of 
engineering and manufacturing to focus primarily on distribution, sales and 
service activities.

         In response to declining demand for manufactured duplicator products
and services, AM Multigraphics developed a strategic plan during 1995 to
transition from being a manufacturing based supplier to becoming a broad based
distributor of equipment, supplies and services to the graphics arts markets.
Efficiency in providing a broad line of products and services to its large
customer base and differentiation through the provision of technical service
and support are the tactical objectives of the strategy.  The Company has
efforts underway to phase out its manufacturing operations, expand its product
offering through new distribution agreements and transition its organization
structure and capabilities to function as an efficient distribution business.
While progress has been made in adding new products, updating and enhancing
systems and restructuring the organization, significant efforts to complete the
transition from a manufacturing based supplier to a distribution business still
need to be completed.  In addition, with the divestiture of Sheridan Systems,
it will be necessary for the Company to restructure its corporate staff and
eliminate excess facilities and equipment.

         During September of fiscal year 1994, the Company emerged from Chapter
11 Bankruptcy.  The Company had operated under the protection of Chapter 11
following a voluntary petition for reorganization filed in May 1993.  With the
emergence from Chapter 11 in 1994, the Company adopted Fresh Start Reporting,
which resulted in material changes to the balance sheet, including valuation
changes of assets and liabilities at fair market value and valuation of equity
based on the appraised reorganization value of the business.

          Revenues in 1996 declined $23.4 million, or 12% from the prior year
period. In 1995 revenues increased slightly after a decline of 3% in 1994 from
1993. The decline in revenues, which has been consistent with longer term
trends, has occurred principally in the sheet fed offset duplicator products
which include press and post-press machines, supplies and maintenance services.
The duplicator machines and supplies are products which have been largely
manufactured by the Company. Market demand for the Company's duplicator
products has declined due to inroads from competing printing
technologies. As a result of these competitive inroads, the installed base of
duplicator equipment has experienced long term decline which has led to
decreased sales of equipment, supplies and services. In addition, the Company
experienced significant liquidity problems during 1996 which led to a reduction
in inventory levels, among other things. The lower inventory level negatively
affected the Company's ability to serve its supply and service customers which
resulted in lower revenues and gross margin. The subsidiaries in Japan and
Canada, which the Company has divested, contributed revenues of $40.0 million
in 1996, $44.3 million in 1995 and $42.1 in 1994.

         Non Operating Expenses consisted primarily of interest expense in
1996, 1995 and 1994.  The interest expense related primarily to borrowings
under the Domestic Revolving Credit Agreement, which have been required to fund
operations, and interest on general unsecured claims and priority tax claims
from the Company's reorganization.  In 1994 the Company recorded reorganization
income of $23.9 million which pertained to the adoption of Fresh Start
Reporting, as previously described.  The income resulted from fair market
adjustments to tangible 


                                       12
<PAGE>   15

assets and liabilities of $8.0 million, a provision of $10.1 million to accrue
for professional fees related to the reorganization, and to record the
Reorganization Value in Excess of Fair Market Value of $26.0 million.

         The net loss of $20.2 million from Continuing Operations in 1996
worsened by $16.0 million as compared with 1995.  The increased loss was
primarily due to volume driven margin erosion in 1996, declines in gross margin
rates resultant from shifts in product mix to lower margin distributed
products, and restructuring charges.  The restructuring charges of $7.0 million
in 1996 related to the shutdown of manufacturing operations, the closure of
corporate offices and the exit costs for the Canadian subsidiary.  Continuing
Operations had a net loss of $4.2 million in 1995 compared with a net income of
$23.9 million in 1994.  With the emergence from Chapter 11 in 1994, the Company
adopted Fresh Start Reporting, which resulted in material changes to the
balance sheet, including valuation changes of assets and liabilities at fair
market value and valuation of equity based on the appraised reorganization
value of the business.  The reorganization and adoption of Fresh Start
Reporting in 1994 resulted in a one time reorganization income of $23.9
million.

  The decrease in net income for the year ended July 31, 1995 as compared with
fiscal year 1994 was again primarily due to lower gross margins related to the
change in product mix to lower margin distributed products.  In addition, in
1994 the Company recorded a favorable adjustment of $23.9 million which
resulted from the adoption of Fresh Start Reporting in 1994, as previously
described.

DISCONTINUED OPERATIONS

Results of Operations

<TABLE>
<CAPTION>
                 (dollars in millions)                          Year Ended July 31,
                                                            1996        1995       1994
                                                            ------     ------     ------
<S>                                                        <C>         <C>
Revenues

   Sheridan Systems                                         $109.3     $182.2     $158.1
   AM Multigraphics - International                           40.0      135.8      142.4
                                                            ------     ------     ------
            Total                                            149.3      318.0      300.5

Operating income (loss)
   Sheridan Systems                                           (2.6)      17.8       14.4
   AM Multigraphics - International                           (4.2)      (5.7)      (2.5)
   Unusual items income (expense)                                -        4.8          -
                                                            ------     ------     ------
             Total                                            (6.8)      16.9       11.9

Non operating expense                                         (2.6)      (3.5)     (30.9)
                                                            ------     ------     ------
Pre-tax income (loss)                                         (9.4)      13.4      (19.0)

Income (loss)                                                (10.1)       8.8      (23.2)

Loss on sale                                                 (15.2)         -          -
                                                            ------     ------     ------

Income (loss) from discontinued operations                  $(25.3)    $  8.8     $ 23.2
                                                            ======     ======     ======
</TABLE>

                                       13
<PAGE>   16

          Note: To facilitate a meaningful discussion of the Company's
comparative operating performance in fiscal years 1996, 1995 and 1994 the
results are presented on a traditional comparative basis for all periods.
Consequently, the information presented for fiscal year 1994 does not comply
with the accounting requirements for companies upon emergence from bankruptcy,
which calls for separate reporting for the Reorganized Company and the
Predecessor Company. 


OPERATING RESULTS

         The Discontinued Operations is comprised of two business segments, the
Sheridan Systems segment and the divested AM Multigraphics - International
segment.  The Sheridan Systems business serves the printing and newspaper
publishing industries by providing bindery systems and newspaper mailroom
systems.  The products sold by Sheridan Systems were largely capital equipment
items and market demand has historically been cyclical.  The divested AM
Multigraphics - International segment served certain foreign graphics arts
markets through wholly owned subsidiaries, situated primarily in Europe.  The
divested AM Multigraphics - International subsidiaries distributed an extensive
range of sheet-fed offset duplicating presses, digital color printing
equipment, pre and post press equipment and a wide range of  supplies and
technical services.

          The net loss from Discontinued Operations was $25.3 million in 1996
compared to net income of $8.8 million in 1995, and a net loss of $23.2 million
in 1994.  The increased loss in 1996 over 1995 resulted primarily from
deteriorating market conditions for the Sheridan Systems segment in 1996, and a
$15.2 million loss recorded on the sale of the segment.  During September of
fiscal year 1994, the Company emerged from Chapter 11 Bankruptcy. The Company
had operated under the protection of Chapter 11 following a voluntary petition
for reorganization filed in May 1993.  With the emergence from Chapter 11 in
1994, the Company adopted Fresh Start Reporting, which resulted in material
changes to the balance sheet, including valuation changes of assets and
liabilities at fair market value and valuation of equity based on the appraised
reorganization value of the business.  The reorganization and adoption of Fresh
Start Reporting in 1994 resulted in a one time reorganization expense of $27.0
million.

         The operating results of Sheridan Systems significantly varied from
period to period primarily due to the cyclical nature of the business which
dramatically affected revenue levels and gross margins. Orders for Sheridan
Systems bindery and newspaper mailroom products have been in the millions of
dollars and therefore revenues, margins and customer backlogs varied
significantly depending on the timing of customer orders.  In 1996 Sheridan
Systems revenues declined $72.9 million from the prior year . Weak market
demand and a low beginning backlog were the principal reasons for the decrease
in revenues.  The weak market demand was attributable to a combination of
factors which include a reduction in printed product for magazines, catalogs
and direct mail and the existence of excess capacity in the printing industry.
Historically, the health of the retail sector of the U.S. economy which
directly impacts advertising expenditures impacts market demand.  Sheridan
Systems incurred an operating loss of $2.6 million in 1996, compared to income
of $17.8 million in the prior year period due principally to the lower volume.
Fiscal year 1995 revenues increased 15% over 1994 largely due to higher orders
particularly for bindery equipment, and a reduction in backlog.  In 1995
Sheridan Systems recognized approximately 

                                       14
<PAGE>   17

$20.0 million in revenues from prototype equipment which had been shipped 
in 1994 and accepted by customers in 1995. The operating income in 1995 of 
$17.8 million improved by $3.4 million over 1994 due to the increased revenue 
level and related gross margin increase. The 1994 operating results reflected 
revenues of $158.1 million which was only slightly improved over 1993.

         The results of the divested AM Multigraphics - International segment
consistently reflected operating losses and declining revenues.  The revenue
decreases, throughout the periods, were attributable to declining market demand
for offset duplicating presses and the related erosion of the installed base of
duplicating equipment.  The decline in market demand has been the result of
inroads made by competing printing technologies.  The users of duplicators have
been the principal customers for the related supplies and services. The
divested AM Multigraphics - International operations were also adversely
impacted by decreases in sales and margins of electronic pre-press products due
to competitive pressures in all periods.  The Company undertook numerous
restructuring initiatives in response to the declining revenues and 
operating losses, with significant headcount reductions accomplished and
overall cost reductions implemented over the reporting periods.  The
restructurings were costly due to local statutory requirements and required
labor negotiations which slowed the implementation of cost reduction actions.
Despite these restructuring efforts and cash expenditures the Company was not
able to eliminate the operating losses which ultimately led to the divestiture
of these operations.

         In 1996 the Company had unusual item expense of $15.2 million which
resulted from the sales of substantially all of the assets and liabilities of
the Sheridan Systems division.  In 1995 the Company had unusual item income of
$4.8 million.  This income resulted from divestitures of non-core product lines
in the Discontinued Operations.  The divestitures included the sale of certain
assets related to the service of forms and sheetfed presses, the service and
supply business formerly known as Advanced Imaging Products, and the U.K.
copier business.

         Non Operating expenses include interest expense, primarily on
borrowings under the Revolving Credit Agreement and goodwill amortization
expense.  In 1994 the Company recorded reorganization expense of $27.0 million
which pertained to the adoption of Fresh Start Reporting, as previously
described.  The expense resulted from fair market adjustments to tangible
assets and liabilities of $9.7 million, a write off of existing Goodwill of
$39.8 million and to record the Reorganization Value on Excess of Fair Market
Value of $22.5 million.

LIQUIDITY AND CAPITAL RESOURCES


         The Company's total cash and cash equivalents were $2.6 million as of
July 31, 1996 as compared with $12.6 million on July 31, 1995. In addition to
the reduction in cash balances, net short term borrowings increased $8.2
million from prior year levels.

         During 1996, the primary sources of cash from operating activities
were a reduction in inventories of $13.1 million, and an accounts receivable
reduction of $6.3 million. The inventory reduction in the current period was
primarily the result of the phase out of machine manufacturing 



                                       15
<PAGE>   18

activities and a related reduction in parts and finished goods inventories.
The reduction in accounts receivable was the result of the collection of
comparatively higher outstanding balances which existed at July 31, 1995 due to
a higher revenue level in the period. Throughout the reporting periods, 
collection rates have remained relatively consistent while increases and 
decreases in the overall accounts receivable balance were due principally to 
changes in revenue levels.

         The primary use of cash in 1996 was the net loss of $45.5 million.
The net loss included a loss of $25.3 million from discontinued operations.
This loss in discontinued operations was offset by a reduction in assets of
discontinued operations prior to their divestiture of $26.3 million.  The
reduction in the discontinued operations assets was primarily the collection of
accounts receivable and other long term assets, primarily lease receivables.

         Capital expenditures of $9.0 million in 1996 were primarily to upgrade
systems and equipment and to provide for leasehold improvements. The Company
received $6.8 million in proceeds for the sale of its AM Multigraphics
headquarters, manufacturing and distribution facility in Mt. Prospect,
Illinois.  The Company has committed to capital expenditures related to certain
increased systems capabilities. These expenditures will be financed utilizing a
combination of cash balances, funds obtained under the revolving credit
facility, and third party lease arrangements.

         The Company's principal credit facility as of July 1996 was its $25.0
million revolving credit facility, which expired in October 1996.  The
utilizations under this facility were limited by a borrowing base which as of
July 31, 1996, was approximately $18.4 million.  The $8.2 million increase in
short-term borrowings for the year ended July 31, 1996, was required to
principally fund the net loss, required payments to holders of general unsecured
claims, and priority tax claims under the Company's Plan of Reorganization and 
lease obligations.

         In August 1996 the Company completed the sale of its Sheridan Systems
segment for proceeds of $50.1 million.  In September the Company collected
approximately $11.0 million from the sale of its interest in AM Japan Co., Ltd. 
The increase in cash balances from these transactions provides the Company with
adequate financial resources for the foreseeable future.  At September 28,
1996, the Company had a cash balance of $41.2 million after repaying bank debt
and meeting other short-term obligations.  The Company is currently seeking to
obtain new banking facilities to provide for the issuance of letters of credit,
fund selected customer financing programs, and increase liquidity to the
Company.

PLAN OF REORGANIZATION

          On September 29, 1993 the Company's Reorganization Plan (the Plan) was
confirmed by the United States Bankruptcy Court, with the Plan being consummated
on October 13, 1993.  As a result of the reorganization and the recording of the
restructuring transaction and implementation of Fresh Start Reporting, the
Company's results of operations for the year ending July 31, 1996 are not
comparable to the two preceding years.  See Note 14 of "Notes to
                                          
                                       16
<PAGE>   19
 
Consolidated Financial Statements" for information on consummation of 
the Plan and implementation of Fresh Start Reporting.

         The most significant adjustments which resulted from recording the
restructuring transaction and the implementation of Fresh Start Reporting
affected the Company's Statement of Operations.  These adjustments related to
decreased interest expense, decreased amortization of intangibles and increased
income tax expense.  In the Consolidated Balance Sheet, the most significant
adjustments affected long term debt and equity.


                                       17
<PAGE>   20

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                                         AM INTERNATIONAL, INC.
                                  CONSOLIDATED STATEMENT OF OPERATIONS
                             (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                         REORGANIZED  COMPANY (A)                     | PREDECESSOR COMPANY
                                            -------------------------------------------------------   |  -------------------
                                                                                        TEN MONTHS    |        TWO MONTHS   
                                                    TWELVE MONTHS ENDED                   ENDED       |           ENDED
                                           JULY 31, 1996          JULY 31, 1995       JULY 31, 1994   |     SEPT. 29, 1993
                                           -------------          -------------       -------------   |     --------------
<S>                                         <C>                     <C>                <C>            |       <C>
REVENUES                                     $168,052               $191,485             $163,816     |         $26,532
                                                                                                      |
COST OF SALES                                 130,421                138,752              112,395     |          19,526
                                                                                                      |
GROSS MARGIN                                   37,631                 52,733               51,421     |           7,006
                                                                                                      |
OPERATING EXPENSES                                                                                    |
  Selling, general and administrative          47,048                 55,224               44,632     |           9,032
  Unusual items                                 7,032                      0                    0     |               0
                                             --------               --------             --------     |        --------
    TOTAL OPERATING EXPENSES                   54,080                 55,224               44,632     |           9,032
                                                                                                      |
                                                                                                      |
OPERATING INCOME (LOSS)                       (16,449)                (2,491)               6,789     |          (2,026)
                                                                                                      |
Non-operating income (expense):                                                                       |
  Interest income                                 169                    222                  517     |               2
  Interest expense                             (3,762)                (3,355)              (2,663)    |             (51)
  Reorganization items, net                         0                      0                  575     |          23,946
  Other, net                                     (212)                   (53)                (742)    |             (76)
                                             --------               --------             --------     |        --------
Income (loss) before income taxes,                                                                    |
  discontinued operations and                                                                         |
  extraordinary gain                          (20,254)                (5,677)               4,476     |          21,795
Income tax expense (benefit)                      (97)                (1,526)               2,394     |               0
                                             --------               --------             --------     |        --------    
  Net income (loss) before discontinued                                                               |
    operations and extraordinary gain         (20,157)                (4,151)               2,082     |          21,795
Net income (loss) of discontinued                                                                     |
  operations, net of tax                      (25,342)                 8,764                4,570     |         (27,810)
                                             --------               --------             --------     |        --------
Net income (loss) before extraordinary                                                                |
  gain                                       $(45,499)                $4,613               $6,652     |         $(6,015)
                                             --------               --------             --------     |        --------    
Extraordinary gain                                  0                      0                    0     |          58,704
                                             --------               --------             --------     |        --------     
NET INCOME (LOSS)                            $(45,499)                $4,613               $6,652     |         $52,689
                                             ========               ========             ========     |        ========       
                                                                                                      |
                                                                                                      |
PER SHARE OF COMMON STOCK: (B)                                                                        |
Income (loss) from continuing                                                                         |
  operations                                   $(2.88)                $(0.59)               $0.30     |           N/A
Income (loss) from discontinued                                                                       |
   operations                                   (3.62)                  1.25                 0.65     |           N/A
                                             --------               --------             --------     |         --------
     Net income (loss)                         $(6.49)                 $0.66                $0.95     |           N/A
                                             ========               ========              =======     |         ========      
                                                                                                      |
Weighted average shares of common stock                                                               |
     and common stock equivalents                                                                     |
     outstanding (in thousands)                 7,009                  7,021                7,006     |           N/A
                                              =======               ========             ========     |         ========
</TABLE>



(a)  Due to the Reorganization and implementation of Fresh Start Reporting,
     financial statements for the Reorganized Company (period starting  
     September 30, 1993) are not comparable to those of the Predecessor 
     Company.   See Notes to the Financial Statements (Note 14) for additional 
     information.

(b)  The weighted average number of common shares outstanding and net income
     per common share for the Predecessor Company have not been presented
     because due to the Reorganization and implementation of Fresh Start
     Reporting, they are not comparable to subsequent periods.

The Notes to Consolidated Financial Statements are an integral part of these
financial statements.


                                      18
<PAGE>   21

                                 AM INTERNATIONAL, INC.
                              CONSOLIDATED BALANCE SHEETS
                    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>                                                                                     JULY  31,              JULY  31,
                                                                                                1996                   1995
                                                                                              ---------              ---------
<S>                                                                                           <C>                   <C>
 ASSETS
 CURRENT ASSETS:
  Cash and cash equivalents                                                                     $2,560                $12,563
  Accounts receivable, net                                                                      19,774                 36,409
  Inventories, net                                                                              11,602                 28,432
  Prepaid expenses and other assets                                                              1,069                  1,722
  Net assets held for sale                                                                       7,698                      0
  Net assets of discontinued operations                                                         42,940                 61,301
                                                                                               --------              --------
 TOTAL CURRENT ASSETS                                                                           85,643                140,427
  Property, plant and equipment, net                                                            10,867                 12,453
  Excess reorganization value                                                                        0                  5,430
  Other assets, net                                                                              1,452                  4,762
                                                                                               -------               --------
          TOTAL ASSETS                                                                         $97,962               $163,072
                                                                                               =======               ========
                                                                                               
LIABILITIES AND SHAREHOLDERS' EQUITY
 CURRENT LIABILITIES:
  Short-term borrowings and current maturities of long-term debt                               $14,381                 $6,132
  Accounts payable                                                                              15,435                 21,134
  Service contract deferred income                                                              12,924                 17,312
  Payroll related expenses                                                                      13,227                 13,175
  Other current liabilities                                                                     17,956                 21,172
                                                                                               -------                -------
 TOTAL CURRENT LIABILITIES                                                                      73,923                 78,925


 Long-term debt                                                                                  8,527                 14,915
 Other long-term liabilities                                                                    13,216                 20,931
                                                                                               -------               -------- 
           TOTAL LIABILITIES                                                                    95,666                114,771

 COMMITMENTS AND CONTINGENCIES (NOTE 5)
 SHAREHOLDERS' EQUITY:
 Common stock, $.01 par value; 40 million shares authorized;
 7,010,000 issued as of July 31, 1996 and July 31, 1995                                             70                     70
 Capital in excess of par value                                                                 35,865                 35,637
 Less:  treasury stock, at cost, 1,579 shares as of July 31, 1996
 and 1,245 shares as of July 31, 1995                                                               (6)                    (6)
 Warrants, 1,095,000 issued, exercise price of $18.00
 as of July 31, 1996 and July 31, 1995                                                             383                    383
 Accumulated earnings (deficit)                                                                (34,234)                11,265
 Cumulative translation adjustment                                                                 218                    952
                                                                                               -------               --------
 TOTAL SHAREHOLDERS' EQUITY                                                                      2,296                 48,301
                                                                                               -------               --------
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                    $97,962               $163,072
                                                                                               =======               ========  
</TABLE>

The Notes to Consolidated Financial Statements are an integral part of these
financial statements.

                                      19
<PAGE>   22
                            AM INTERNATIONAL, INC
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                    Preferred Stock          Common Stock            Treasury Stock               Warrants     
                                  ------------------      -------------------      -------------------      -------------------   
                                    Number                  Number                   Number                   Number              
                                  of Shares   Amount      of Shares    Amount      of Shares    Amount      of Shares    Amount   
                                  ------------------      -------------------      -------------------      -------------------   
 <S>                              <C>         <C>         <C>          <C>         <C>          <C>         <C>          <C>      
 PREDECESSOR COMPANY:                                                                                                             
 Balance July 31, 1993            3,414,065   $ 34        52,477,683   $ 525         5,483,600  $(23,107)                           
                                                                                                                                  
Net Income                                                                                                                        
Reorganization Items:                                                                                                             
  Cancellation of Stock          (3,414,065)   (34)       52,477,683    (525)       (5,483,600)   23,107          -        -   
  Fresh Start Adjustments                 -      -                 -       -                 -         -                            
  Aggregate effect of                                                                                                             
    current year translation                                                                                                      
    adjustments                                                                                                                   
  Issuance of New Common Stock                             7,000,000      70                                                      
  Issuance of Warrants                                                                                      1,095,000     383     
                                  ---------     --       -----------     ---         ---------    ------    ---------    ----  
 Reorganized Company Balance,                                                                                                     
   September 30, 1993 (a)                 -      -         7,000,000      70                 -         -    1,095,000     383
                                  ---------     --       -----------     ---         ---------    ------    ---------    ----  
                                                                                                                                  
 REORGANIZED COMPANY                                                                                                              
   Net Income                                                                                                                     
   Aggregate effect of                                                                                                            
     current year translation                                                                                                     
     adjustments                                                                                                                  
  Purchase of Treasury Stock                                                            1,119        (6)                            
                                  ---------    --         -----------  ---          ---------    ------      ---------    ----  
  Balance July 31, 1994                  -      -           7,000,000   70              1,119        (6)     1,095,000            
   Net Income                                                                                                                     
   Aggregate effect of                                                                                                            
     current year translation                                                                                                     
     adjustments                                                                                                                  
   Issuance of new common stock                                10,000    -                                                     
                                                                                                                                  
   Purchase of Treasury                                                                                                           
     Stock                                                                                126         -                            
                                  ---------    --         -----------  ---          ---------    ------      ---------    ----  
  Balance at July 31, 1995                -     -           7,010,000   70              1,245        (6)     1,095,000     383   
                                  ---------    --         -----------  ---          ---------    ------      ---------    ----  
   Net loss                                                                                                                       
   Aggregate effect of                                                                                                            
     current year translation                                                                                                     
     adjustments                                                                                                                  
   Purchase of Treasury Stock                                                             334         -                            
   Other, net                                                                                         -                             
                                  ---------    --         -----------  ---          ---------    ------      ---------    ----  
 Balance at July 31, 1996                 -   $ -           7,010,000  $70              1,579       $(6)     1,095,000    $383   
                                  =========    ==         ===========  ===          =========    ======      =========    ====    
                                                                                                                                  
                                                                                                                                  

<CAPTION>
                                     Capital in                                        Cumulative                 Total
                                     Excess of                Accumulated             Translation             Shareholders'
                                      Par Value             Earnings(Deficit)          Adjustment                Equity
                                  ------------------      -------------------      -------------------      -----------------   
 <S>                              <C>                     <C>                      <C>                      <C>
 PREDECESSOR COMPANY:             
 Balance July 31, 1993              $ 339,781                $(368,842)                 $ 1,958              $ (49,651)
                                  
Net Income                                                      52,689                                          52,689
Reorganization Items:             
  Cancellation of Stock              (339,781)                                                                (317,233)
  Fresh Start Adjustments                   -                  316,153                   (2,125)               314,028
  Aggregate effect of             
    current year translation      
    adjustments                                                                             167                    167
  Issuance of New Common Stock         35,547                                                                   35,617
  Issuance of Warrants                                                                                             383
                                    ---------                  -------                    -----                -------   
 Reorganized Company Balance,     
   September 30, 1993 (a)              35,547                        -                        -                 36,000

 REORGANIZED COMPANY              
   Net Income                                                    6,652                                           6,652
   Aggregate effect of            
     current year translation     
     adjustments                                                                            130                    130
  Purchase of Treasury Stock                                                                 (6)
                                    ---------                  -------                    -----                -------   
  Balance July 31, 1994                35,547                    6,652                      130                 42,776
   Net Income                                                    4,613                                           4,613
   Aggregate effect of            
     current year translation     
     adjustments                                                                            822                    822
   Issuance of new common stock            90                                                                       90
   Purchase of Treasury Stock                                                                                        -
                                    ---------                  -------                    -----                -------   
  Balance at July 31, 1995             35,637                   11,265                      952                 48,301
                                    ---------                  -------                    -----                -------   
   Net loss                                                    (45,499)                                        (45,499)
   Aggregate effect of            
     current year translation     
     adjustments                                                                           (734)                  (734)
   Purchase of Treasury Stock                                                                                        -
   Other, net                              228                                                                     228
                                    ----------                  -------                    -----                -------   
 Balance at July 31, 1996           $   35,865                $ (34,234)                $    218             $    2,296
                                   ===========                =========                 ========             ==========    
</TABLE>

(a)  Due to the Reorganization and implementation of Fresh Start Reporting,
     financial statements for the Reorganized Company (period starting       
     September 30, 1993) are not comparable to the Predecessor Company.  See 
     Notes to the Financial Statements (Note 14) for additional information.

The Notes to Consolidated Financial Statements are an integral part of these
financial statements.

                                      20
<PAGE>   23


CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)


<TABLE>
<CAPTION>
                                                                         REORGANIZED  COMPANY                  | PREDECESSOR COMPANY
                                                          -----------------------------------------------------|--------------------
                                                                                                SEPT. 30, 1993 |AUGUST  1, 1993
                                                                  TWELVE MONTHS ENDED              THROUGH     |    THROUGH
                                                          JULY 31, 1996       JULY 31, 1995     JULY 31, 1994  |SEPT. 29, 1993
                                                          -------------       -------------     -------------  |----------------
<S>                                                        <C>                   <C>              <C>          |  <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                          |
NET INCOME (LOSS)                                          $(45,499)              $4,613            $6,652     |   $52,689
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH FLOW                                                               |
  FROM OPERATING ACTIVITIES:                                                                                   |
  Depreciation of property, plant and equipment               3,769                1,632             2,204     |       327
  Amortization and writedown of other assets                    407                  706             1,395     |         -
  Benefit from operating loss carryforwards                       -                8,037            10,494     |         -
     Discontinued operations                                 26,284              (15,715)           12,636     |     9,596
     Net assets held for sale                                (2,682)                   -                 -     |         -
  Change in assets and liabilities:                                                                            |
     Accounts receivable, net                                 6,308                 (391)           (5,105)    |     6,855
     Inventory, net                                          13,056                2,703            (4,455)    |      (559) 
     Prepaid expenses and other assets                         (334)                (372)           (2,816)    |       314
     Accounts payable and accruals                             (288)              (2,157)           (6,843)    |    10,704
     Other, net                                              (2,794)              (3,950)            3,130     |     1,041
     Changes due to Fresh Start Reporting                                                                      |
        and reorganization                                        -                    -                 -     |   (82,650) 
                                                             -------              ------            ------     |   -------
CASH FLOW FROM OPERATING ACTIVITIES                          (1,773)              (4,894)           17,292     |    (1,683) 
                                                             -------              ------            ------     |   -------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                          |
  Capital expenditures                                       (8,990)              (2,362)           (1,560)    |      (135)
  Proceeds from disposition of property                       6,822                    -                 -     |         -
    Discontinued operations                                  (1,262)                 886            (2,973)    |         -
                                                             -------              ------            ------     |   -------
CASH FLOW FROM INVESTING ACTIVITIES                          (3,430)              (1,476)           (4,533)    |      (135)  
                                                             -------              ------            ------     |   -------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                          |
  Net borrowings (payments) under short-term                                                                   |
    borrowing agreements                                       8,249                 131            (1,074)    |       100
  Principal borrowings (payments) on long-term debt           (6,388)             (4,443)           (5,126)    |     1,831
  Discontinued operations                                     (6,661)              2,133             2,565     |     1,061
                                                             -------              ------            ------     |   -------
CASH FLOW FROM FINANCING ACTIVITIES                           (4,800)             (2,179)           (3,635)    |     2,992
                                                             -------              ------            ------     |   -------
INCREASE (DECREASE) IN CASH AND                                                                                |
  CASH EQUIVALENTS                                           (10,003)             (8,549)            9,124     |     1,174
Cash and cash equivalents at beginning of period              12,563              21,112            11,988     |    10,814
                                                             -------              ------            ------     |   -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                  $  2,560             $12,563           $21,112     |  $ 11,988
                                                             =======              ======            ======     |   =======
</TABLE>

(a) Due to the Reorganization and implementation of Fresh Start Reporting, 
    financial statements for the Reorganized Company (period starting 
    September 30, 1993) are not comparable to those of the Predecessor 
    Company. See Notes to the Financial Statements (Note 14 for additional 
    information).

The Notes to Consolidated Financial Statements are an integral part of these
financial statements.

                                      21
<PAGE>   24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Dollars in thousands, except as otherwise noted and per share amounts)
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations:  AM International, Inc. (the "Company"), a Delaware
corporation, distributes equipment and supplies, and provides services for the
graphics arts industry.  The Company is in process of executing plans to exit
its' machine manufacturing business, consistent with management's strategic
objectives.  The Company's continuing distributed products consist primarily of
pre-press equipment, supplies and services.  The Company has in excess of
50,000 customers, including small commercial printers, large quick print
franchises, company run in-house print shops, governmental agencies, and
educational institutions.  No individual customer accounts for more than 10% of
net revenue.

The Company's headquarters and primary operations are located in Mt. Prospect,
Illinois.  Products are distributed throughout the United States utilizing six
distribution facilities.  To a lesser extent, products are distributed
internationally through independent dealers.  The Company employs approximately
400 service technicians throughout the United States to provide technical
service and training.

Basis of Presentation: The Consolidated Financial Statements of the Reorganized
Company (period beginning September 30, 1993)  and the Predecessor Company
(periods prior to September 30, 1993) include the accounts of AM International,
Inc. and its subsidiaries (the "Company").  All significant intercompany
transactions have been eliminated.  The Company's fiscal year end is July 31.
All references to years, unless otherwise indicated, refer to the fiscal year.
Certain prior year amounts have been reclassified to be consistent with current
year presentation.

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

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

Inventories: Inventories are valued at the lower of cost, which includes
material, labor and overhead, determined by the first-in, first out (FIFO)
method, or market.

Properties, Equipment and Depreciation: Properties and Equipment are stated at
cost and are depreciated over estimated useful lives, ranging from 5 to 30
years, primarily on a straight-line basis. The Company adjusts the net book
value to recognize impairments in accordance with "SFAS 121: Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."

Intangibles: Excess reorganization values are amortized on a straight-line
basis over periods not exceeding 20 years.  Identifiable intangible assets are
amortized on a straight-line basis over their estimated useful lives.
Accumulated amortization of excess reorganization value was  $2,472 at July 31,
1996 and $2,065 at July 31, 1995.   The Company continually evaluates current
events and circumstances in order to determine whether the estimated useful
lives and recorded balances of excess reorganization value have been impaired.
The Company utilizes evaluations of estimated undiscounted future cash flows
and financial ratios in this review.

Currency Translation: Foreign assets and liabilities have been translated into
United States dollars at current exchange rates as of the balance sheet dates,
and revenues and expenses have been translated at the average exchange rates in
effect during each period.  Translation adjustments are reported as a separate
component of Shareholders  Equity.  Exchange gains and losses on foreign
currency transactions are included in the Consolidated Statement
of Operations and are not material.

                                      22
<PAGE>   25

NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition: Revenue is recognized from sales when a product is
shipped.  Amounts billed for service contracts are credited to Service Contract
Deferred Income and recognized as revenues over the term of the contracts.  The
Company recognizes warranty and equipment installation expenses at the time a
product is shipped, if applicable.  The expense is estimated considering
current warranty policies and historical expense.

Research and Development Expense: Expenses for research and development are
charged to income as incurred.  For the reorganized company, such expenses were
$364 in 1996, $744 in 1995, and $559 in 1994.  Such expenses were $95  for the
Predecessor Company in 1994.

Income Taxes: Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards (SFAS) No.
109, " Accounting for Income Taxes."  Deferred income taxes are recorded to
reflect the future tax consequences of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each year end.

Income per Common Share: Income per share amounts are determined after
deducting any dividend requirements of preferred shares and are based on the
weighted average shares of common stock and common stock equivalents
outstanding during each period.

Financial Instruments: The carrying value of financial instruments approximates
fair market value of those assets and liabilities.

Future Adoption of Accounting Standards:  In fiscal 1997, the Company is
required to adopt "SFAS 123: Accounting for Stock-Based Compensation."  The
adoption of this accounting standards is not expected to have a material impact
on the financial statements.

                                      23
<PAGE>   26
NOTE 2 - DISCONTINUED OPERATIONS


In August 1996, the Company completed the sale of substantially all of the
assets and liabilities of  the Sheridan Systems division for proceeds of
$50,100.  A loss of  $15,212 has been recorded in the fourth quarter of the
Company's fiscal year ended July 31, 1996 as a result of the transaction, with
no recorded tax benefit.

During the year, the Company completed the exit of its AM Multigraphics -
International subsidiaries with the sale of its subsidiaries in the Netherlands,
France, and Belgium and the placement of the Company's AM Multigraphics UK
holding company into an Administration Proceeding.  The sale of the subsidiaries
in the Netherlands, France, and Belgium required the Company to provide
consideration of approximately $3,000 in the form of cash and other assets.  No
gain or loss was recorded as a result of the exit of the AM Multigraphics -
International subsidiaries.

The results of these discontinued business units are included in the
consolidated statements of income under "discontinued operations."  The
following table summarizes key financial data related to the above discontinued
operations:


<TABLE>
<CAPTION>
                                        Twelve Months          Ten Months     |    Two Months
                                           Ended                  Ended       |      Ended
                               July 31, 1996  July 31, 1995   July 31, 1994   |  Sept. 29, 1993
                               -------------  -------------   -------------   |  --------------
<S>                              <C>             <C>            <C>           |  <C>
Net sales                        $149,256        $318,016       $257,809      |    $ 42,682
Gross margin                       34,709          86,219         77,115      |      11,722
Unusual income                        -            (4,845)           -        |         -
Operating income (loss)            (6,749)         16,944         12,220      |        (323)
Non-operating (income)                                                        |
  expense                           2,136           3,212          3,046      |         443
Allocated interest expense            581             314            315      |           0
Reorganization items, net             -               -              -        |      27,049
Income tax provision                                                          |
 (benefit) applicable to                                                      |
  discontinued businesses             664           4,654          4,289      |          (5)
                                 --------        --------       --------      |    --------
Income (loss) from                                                            |
  operations of discontinued                                                  |
  business net of applicable                                                  |
  taxes                           (10,130)          8,764          4,570      |     (27,810)
Loss on sale                      (15,212)            -              -        |         -
                                 --------        --------       --------      |    --------
Income (loss) from                                                            |
  discontinued operations        $(25,342)       $  8,764       $  4,570      |    $(27,810)
                                 ========        ========       ========      |    ========
</TABLE>                                                                      

The results of operations, net of taxes, and the net assets of Sheridan Systems
and the divested AM Multigraphics - International operations are presented in
the consolidated financial statements as discontinued operations.  Interest
expense pertaining to the Company's Revolving Credit Facility has been
allocated based upon the ratio of the net assets of the discontinued operations
to the consolidated capitalization of the Company.  Continuing operations and
discontinued operations reflect the net tax benefit or tax expense generated by
the respective operations, limited, however, by the income tax benefit or tax
expense recognized in the Company's historical financial statements.  No
general corporate expenses have been allocated to the discontinued operations.
The results of the discontinued operations are not necessarily indicative of
the results of operations which may have been obtained had the continuing and
discontinued operations been operating independently.


                                      24
<PAGE>   27

NOTE 2 - DISCONTINUED OPERATIONS (CONTINUED)


The net assets of discontinued operations included in the Consolidated
Balance Sheets at July 31, 1996 and July 31, 1995 amounted to $42,940 and
$61,301, respectively, and consisted primarily of receivables inventory,
property and equipment, intangible assets related to the discontinued
operations, net of accounts payable and accrued liabilities.

The net assets of discontinued operations included in the Consolidated Balance
Sheet at July 31, 1996 is net of approximately $7,000 of liabilities to be paid
from the $50,100 sale proceeds.

                                      25
<PAGE>   28

NOTE 3 - BORROWING ARRANGEMENTS


The Company's short and long-term borrowings are comprised of the following:



<TABLE>
<CAPTION>


                                                         July 31, 1996                  July 31, 1995
                                                         -------------                  -------------
<S>                                                      <C>                            <C>
   Revolving Credit Facility                             $      5,430                   $          -
   General Unsecured Claims & Priority Tax Claims              13,795                         21,047
   Capital Leases                                               3,683                              -
                                                         -------------                  -------------
                     Total                               $     22,908                   $     21,047
                                                         =============                  =============
Classified in the Consolidated Balance Sheet
as follows:
   Short-term                                            $     14,381                   $      6,132
   Long-term                                                    8,527                         14,915
                                                         -------------                  -------------
                    Total                                $     22,908                   $     21,047
                                                         =============                  =============
</TABLE>

The Company maintained a $25,000 three year secured domestic Revolving Credit
Facility (subject to borrowing base limitations) which expired October 12, 1996
with BT Commercial Corporation and LaSalle National Bank.  The Revolving Credit
Facility included a $10,000 sub-facility for the issuance of letters of credit.
As of July 31, 1996, the calculated borrowing base was approximately $18,400.
As security for utilizations of the Revolving Credit Facility, the Company
granted a security interest and general lien upon its domestic assets.  As of
July 31, 1996 the Company had borrowings of $5,430 under the Revolving Credit
Facility and was utilizing $3,347 of the facility to secure outstanding letters
of credit.  Interest was charged at a rate of 1.75% in excess of the prime
lending rate of Bankers Trust Company.  Letter of credit fees were 2.5% per
annum plus a 0.5% facing fee on standby letters of credit and 1.5% per annum on
commercial documentary letters of credit.  As of July 31, 1996, the interest
rate was 10.0%.

The Revolving Credit Facility agreement contained restrictive covenants which
limited capital expenditures, restricted the payment of dividends and other
payments and provided for quarterly measures of pretax net income and interest
coverage, among other things.  In addition, the agreement limited the Company's
ability to borrow or to request letters of credit following a material adverse
change as determined by the lenders.

In August, 1996 the Company completed the sale of substantially all of the
assets and liabilities of the Sheridan Systems division for proceeds of $50,100.
The proceeds of the sale were used in part to pay off all outstanding
borrowings on the Revolving Credit Facility and to cash collateralize
outstanding letters of credit.  At September 28, the Company had a cash balance
of $41,228 after repaying bank debt and meeting other short term obligations.
The Company is currently seeking to obtain new banking facilities to provide
for the issuance of letters of credit, fund selected customer financing
programs, and increase liquidity to the Company.

                                      26
<PAGE>   29
NOTE 3 - BORROWING ARRANGEMENTS (CONTINUED)

On October 13, 1993 the Company concluded a reorganization when the United
States Bankruptcy Court for the District of Delaware confirmed the Company's
Plan of Reorganization (Plan).  The Plan provides that holders of allowed
general unsecured claims receive cash payments toward satisfaction of the full
amount of their claims in equal quarterly payments payable on the last business
day of each calendar quarter ending after October 13, 1993 over a five-year
period, together with interest at 5% per annum.  Holders of priority tax claims
are paid 10% of the allowed claim together with accrued and unpaid interest at
8% per annum on the then outstanding amount on each anniversary of October 13,
1993 which occurs prior to the sixth anniversary of the date of assessment and
the balances of such claims along with accrued and unpaid interest on the sixth
anniversary.  For financial reporting purposes interest on general unsecured
claims has been imputed at 9% per annum.  At July 31, 1996 the Company had $872
of restricted cash which primarily pertains to the settlement of disputed claims
in accordance with the Plan.

As of July 31, 1996, aggregate maturities of total debt, excluding capitalized
leases, are as follows:

<TABLE>
   <S>                                               <C>
    Due fiscal year ending:
           1997                                      $13,178
           1998                                        4,855
           1999                                        1,192
           2000                                            -
           2001                                            -
           Thereafter                                      -
</TABLE>

Cash paid for interest was $2,282 during 1996, $1,103 during fiscal 1995, 
and $655 for the ten months ended of the Reorganized Company in 1994. 
The Predecessor Company paid no interest in the two months ended 1994.

                                      27
<PAGE>   30

NOTE 4 - CAPITAL STRUCTURE


The Company s charter authorizes 50 million shares of stock, of which 40
million shares are reserved for issuance as Common Stock and 10 million shares
are reserved for issuance as Preferred Stock.  The Board of Directors has
authorized the issuance of 7,010,000 of such shares of $.01 par value Common
Stock.  Of these shares, 7,000,000 were issued on the effective date to holders
of claims and interests as described in Note 14.  In addition, the Company
issued Warrants on the Effective Date to purchase 1,095,000 shares of Common
Stock.  The Warrants were exercisable at $18.00 per share and expired on
October 15, 1996.  No  warrants were exercised prior to their expiration.  As
of July 31, 1996 the Company has not yet issued any Preferred Stock.  The
Common Stock and all other equity securities issued under the new charter are
voting securities (although the voting rights of any preferred stock issued
would differ from those of the Common Stock) and will not have any preemptive
rights to subscribe for additional shares.  The Common Stock is not subject to
conversion or redemption and when issued is fully paid and non-assessable.

                                      28
<PAGE>   31

NOTE 5 - COMMITMENTS AND CONTINGENCIES


The Company received creditor claims during its bankruptcy proceedings which
the Company believes are duplicative, erroneous or exaggerated and to which the
Company believes it has valid defenses.  The Company has filed objections to
these disputed claims in the United States Bankruptcy Court in Delaware.  As of
July 31, 1995 and July 31, 1996, disputed claims amounted to $50,700 and
$31,300, respectively.  The disputed claims are primarily comprised of
environmental and product liability claims.  The Company has been notified of
various environmental matters in connection with certain current or former
Company locations in Illinois, Ohio, Indiana, Pennsylvania, and Rhode Island.
In the third quarter of 1996 the Company recorded a $2,800 favorable adjustment
due to the resolution of legal disputes which had been previously reserved.
The Company is also involved in various other administrative and legal
proceedings incidental to its business, including product liability and general
liability lawsuits against which the Company is partially insured.  The
disputed claims are in many cases in excess of recorded reserves.  At the
present time, it is management s opinion, based on information available to the
Company and management s experience in such matters, that the resolution of
these legal proceedings is not expected to have a material adverse effect on
the Company s financial condition, results of operations or liquidity.

The Company has sold certain receivables related to machine sales, subject to
recourse provisions and repurchase provisions.  Management believes
unreserved exposures pertaining to these contingencies will not materially
impact the Company's financial condition, results of operations or liquidity.

                                      29
<PAGE>   32
NOTE 6 - INCOME TAXES


The components of income tax expense (benefit) are as follows:


<TABLE>
<CAPTION>
                                                   Reorganized Company                 | Predecessor Company
                                        ---------------------------------------------- |   --------------
                                                 Twelve Months            Ten Months   |    Two Months
                                                     Ended                  Ended      |      Ended
                                        July 31, 1996    July 31, 1995   July 31, 1994 |   Sept. 29, 1993
                                        -------------    -------------   ------------- |   --------------
<S>                                      <C>              <C>             <C>          |     <C>
The domestic and foreign                                                               | 
  components of income (loss) from                                                     | 
  continuing operations are as                                                         | 
  follows:                                                                             | 
Domestic                                  $(18,857)        $ (5,302)       $4,029      |       $21,988
Foreign                                     (1,397)            (375)          447      |         (193)
                                          --------         --------        ------      |       -------
                                          $(20,254)        $ (5,677)       $4,476      |       $21,795
                                          ========         ========        ======      |       =======
Provision (benefit) for income taxes                                                   | 
  for continuing operations:                                                           | 
  Domestic                                $      -         $ (1,744)       $2,050      |       $     -
  Foreign                                      (97)             218           344      |             -
                                          --------         --------        ------      |       -------
                                          $    (97)        $ (1,526)       $2,394      |       $     -
                                          ========         ========        ======      |       =======
A reconciliation of the income tax                                                     |
expense (benefit) on income (loss)                                                     |
per the U.S. federal statutory rate to                                                 |
the reported income tax expense                                                        |
(benefit) follows:                                                                     |
                                                                                       |
US Federal statutory rate                                                              |
 applied to pretax income                 $ (6,886)        $ (1,930)       $1,521      |       $ 7,410
Intangibles with no tax benefit                138              240           474      |             -
Operating loss with no current                                                         |  
 tax benefit and varying tax rates                                                     |  
 of other national governments               6,597              130           192      |           732
State income tax                                 -                -           162      |             -
Non taxable reorganization items                 -                -             -      |        (8,142)
Other                                           54               34            45      |             -
                                          --------         --------        ------      |       -------
INCOME TAX EXPENSE (RECOVERY)             $    (97)        $ (1,526)       $2,394      |       $     -
                                          ========         ========        ======      |       =======
</TABLE>

                                      30
<PAGE>   33
NOTE 6 - INCOME TAXES (CONTINUED)


The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standard (SFAS) No. 109.  At July 31, 1996 and July 31, 1995 the
approximate amounts of deferred tax assets and deferred tax liabilities
resulting from temporary differences and carryforwards were as follows:


<TABLE>
<CAPTION>
                                                 1996           1995
                                               --------      --------
<S>                                           <C>            <C>
Deferred Tax Assets
   Inventory valuation                         $  3,600      $  2,400
   Insurance reserves                             6,400         7,000
   Other                                         10,700        10,700
                                               --------      --------
Subtotal                                         20,700        20,100
Domestic tax operating loss carryforwards
   limited by Sec 382.                           21,000        21,000
Domestic tax operating loss carryforwards        49,800        37,400
Foreign tax operating loss carryforwards          2,700         2,400
AMT credit carryforward                           1,800         1,800
                                               --------      --------
Deferred Tax assets                              96,000        82,700
   Valuation allowance                          (96,000)      (82,700)
                                               --------      --------
Net deferred tax asset                         $      -      $      -
                                               ========      ========
</TABLE>

The Sec. 382 ownership change which resulted from the 1993 bankruptcy
reorganization imposed a limitation on the usage of pre-reorganization domestic
tax operating loss carryforwards.  Usage of this loss carryforward is limited
to $3,689 per year or $55,335 for a period of 15 years following the ownership
change.  In addition, as of July 31, 1996 the Company had domestic tax loss
carryforwards of approximately $131,000 attributable to post-reorganization
periods and therefore not subject to limitation.  The domestic tax loss
carryforwards will expire from 1997 to 2011.  The AMT credit, although subject
to the Sec. 382 limitation, has no expiration date.

During 1996, the deferred tax asset increased by $13,300 primarily due to the
creation of additional domestic loss carryforwards.  Due to the uncertainty as
to the realizability of the deferred tax assets, the Company has established
valuation allowances in accordance with SFAS No. 109 to offset the asset.

To the extent the Company realizes a tax benefit as a result of future
reductions in the valuation allowance related to the utilization of
pre-reorganization deferred tax assets, fresh start accounting rules provide
for the reporting of such benefit first by reducing "Reorganization Value in
Excess of Amounts Allocable to Identifiable Assets" and thereafter increasing
Capital in excess of par value.  Although the future recognition of this
benefit will have no impact on net earnings, the Company will realize a cash
benefit from utilization of the "Pre-Reorganization Benefits" against any
future tax liabilities.


                                      31
<PAGE>   34

NOTE 7 - DEFERRED COMPENSATION


The Company's 1994 Long Term Incentive Plan provides for the issuance of
1,400,000 shares of new $.01 par value Common Stock.  Options to purchase the
Common Stock are awarded at a price not less than 100% of the market price on
the date of grant, which becomes exercisable at various dates generally from
one to four years after the date of grant, and expire ten years after the date
of grant.  In the event a holder of options is no longer employed by the
Company, the unvested shares are cancelled upon the employee's termination and
any vested shares must be excercised within 90 days or they are also cancelled.
The number of shares outstanding at the end of 1996 includes 57,200 unvested
and 35,336 vested shares with an option price range of $2.130 - $9.625 which
are held by Sheridan Systems employees.  The unvested shares were cancelled on
the date of the Sheridan Systems sale, August 27, 1996, and the vested shares
may be exercised by no later than November 25, 1996.


<TABLE>
<CAPTION>
                                   1996                             1995
                        ---------------------------       -------------------------
                                      Option Price                     Option Price
                        Number of         Range           Number of       Range
                         Shares         Per Share          Shares       Per Share
                        ---------     -------------        -------    -------------
<S>                     <C>           <C>                <C>         <C>        
Outstanding at
 Beginning of the Year   598,417      $8.750-12.125       376,000     $9.625-11.500
Granted                   91,236       $2.130-8.125       277,917     $8.750-12.125
Exercised                     -                 -             -                 -
Canceled                (183,500)     $2.130-12.125       (55,500)    $9.625-10.000
                         -------      -------------        ------     -------------
Outstanding at
End of Period            506,153      $8.750-12.125       598,417     $8.750-12.125
                         =======      =============       =======     =============

Exercisable at
End of Period            205,600      $8.125-12.125       127,900     $9.125-11.500
                         =======      =============       =======     =============
</TABLE>


                                      32
<PAGE>   35

NOTE 8 - UNUSUAL ITEMS

During 1996, the Company committed to certain restructuring actions in an
effort to realign the operations with established strategic objectives.   The
restructuring actions are summarized as follows:

<TABLE>
          <S>                                                             <C>
          Change in Control Payments                                      $1,250
          Corporate Restructuring                                          1,595
          Bankruptcy of Canadian Subsidiary                                3,561
          Exit of Manufacturing Operations and Office Closures               626
                                                                          ------
          Total Restructuring Costs                                       $7,032
</TABLE>                                                                  ======

On August 27, 1996 the Company completed the sale of substantially all the
assets of its Sheridan Systems division.  As a result of the event, "Change in
Control" provisions included within employment agreements of certain Company
executives were activated.  Total charges pertaining to such provisions amounted
to $1,250 and were paid in the first quarter of fiscal 1997.

In conjunction with the Sheridan Systems sale and in an effort to reduce costs,
management committed to a plan to close its Corporate headquarters and
consolidate certain functions within the AM Multigraphics operations.  This
decision ultimately will result in the termination of seven employees, including
three officers.  Severance and benefits associated with these terminations
amounted to $1,595.

During the fourth quarter, the Company committed to a plan to exit its Canadian
subsidiary.  On October 17, 1996 the subsidiary filed for a voluntary
assignment in bankruptcy.  In connection with the exit plan, reserves were
established to write-off net assets of the operation.  The Canadian subsidiary
had revenues of $9,951, $10,285 and $11,557 in 1996, 1995 and 1994,
respectively.

During the year, management finalized plans to exit the machine manufacturing
business and consolidate its field sales and service facilities.  Costs
associated with the exit plan are comprised primarily of facility closure
costs, disposal of manufacturing equipment and severance costs.  The Company
began implementation of such plans during the fourth quarter and anticipates
all actions to be completed within one year.

                                      33
<PAGE>   36
NOTE 9 - BALANCE SHEET ACCOUNTS

The components of certain balance sheet accounts are as follows:

<TABLE>
<CAPTION>
                                      July 31, 1996     July 31, 1995     
                                      -------------     -------------     
<S>                                     <C>               <C>             
ACCOUNTS RECEIVABLE:                                                      
  Accounts receivable                   $20,596           $37,721         
  Allowance for doubtful accounts          (822)           (1,312)        
                                        -------           -------         
     Total accounts receivable, net     $19,774           $36,409         
                                        =======           =======         
                                                                          
INVENTORIES:                                                              
  Raw materials                         $ 1,407           $ 1,415         
  Work-in-process                         2,959             3,485         
  Finished goods                          7,236            23,532         
                                        -------           -------         
     Total inventories, net             $11,602           $28,432         
                                        =======           =======         
PROPERTY, PLANT AND EQUIPMENT                                             
  Land                                  $    -            $ 4,600         
  Buildings                                  -              2,101         
  Machinery and equipment                13,240             8,699         
  Leasehold improvements                  3,026               608         
                                        -------           -------         
                                         16,266            16,008         
  Less accumulated depreciation and                                       
   amortization                          (5,399)           (3,555)        
                                        -------           -------         
     Net property, plant and equipment  $10,867           $12,453         
                                        =======           =======         

</TABLE>


                                      34
<PAGE>   37

NOTE 10 - RETIREMENT BENEFIT PLANS

The Company maintains defined contribution retirement plans for  domestic
employees comprised of savings plans (401(k)) and a  Retirement Accumulation
Plan.   Contributions to these  plans take  the form  of (i)  company
contributions to match a  portion of employee contribution  and (ii)
contributions  made at the discretion  of the Board of Directors.  The
Company's contributions to the domestic defined contribution plans  were $1,317,
$1,778  and $2,019  for  the Reorganized  Company  in  1996, 1995  and  1994
respectively,  and  $403 for  the Predecessor Company in 1994.

The Company also maintains defined benefit pension plans for certain U.S.
employees under a Company maintained plan.   The components of net periodic
pension cost for these plans are shown below for 1996, 1995 and 1994:


<TABLE>
<CAPTION>
                                                                                          PREDECESSOR
                                                      REORGANIZED COMPANY                   COMPANY                    
                                          --------------------------------------------|  --------------  
                                                                        Ten Months    |    Two Months    
                                           Twelve Months Ended            Ended       |       Ended      
                                         July 31 1996  July 31 1995    July 31, 1994  |  Sept. 29, 1993  
                                         ------------  -------------   -------------  |  --------------  
<S>                                           <C>          <C>              <C>       |       <C>        
Benefits earned during the year                $ 233         $ 226            $  92   |          $  18   
Interest accrued on projected benefit                                                 |                  
  obligation                                      63            41               41   |              8   
Actual return on assets                            -             -                -   |              -   
Net amortization and deferral                     12            24                -   |              7   
                                               -----         -----            -----   |          -----   
Net periodic pension cost                      $ 308         $ 291            $ 133   |          $  33   
                                               =====         =====            =====   |          =====   
</TABLE>

       The status of the defined benefit pension plans at July 31 was as
follows:

<TABLE>
<CAPTION>
                                                            1996       1995
                                                            ----       ----
<S>                                                         <C>     <C>
Plan assets at fair value                                $     -    $     -
Actuarial present value of benefit obligation                   
   Vested                                                  1,069      1,186
   Nonvested                                                   -          - 
                                                         -------    -------
Accumulated Benefit Obligation                             1,069      1,186
Effect of projected future salary increases                    -        265
                                                         -------    -------
Projected benefit obligation                               1,069      1,451
                                                         -------    -------
Plan assets in excess of (less than) projected                  
 benefit obligation                                       (1,069)    (1,451)
Unrecognized net transition (asset) obligation                -           -
Unrecognized net (gain) loss                                 190        468
                                                         -------    -------
Prepaid (accrued) pension cost at year end               $  (879)   $  (983)
                                                         =======    =======
</TABLE>


                                      35

<PAGE>   38
NOTE 10 - RETIREMENT BENEFIT PLANS (CONTINUED)

The assumed discount rate on benefit obligations was 7.0% in 1996 and 1995.  
The assumed rates of compensation increases were 4.0% in 1996 and 3.3% in 1995.

The Company's operations in Canada and Japan also maintain defined benefit
pension plans.  The unfunded benefit obligation for Japan amounted to $3,508 in
1996 and $4,519 in 1995.  The prepaid pension cost in Canada was $3,114 in
1996 and $3,015 in 1995.  The combined net periodic pension cost was $290 in
1996, $327 in 1995 and $258 in 1994.  Such expenses were $60 for the
Predecessor Company in 1994.  As discussed in Note 8 and Note 15, the Company
completed the exit of these operations in the first quarter of 1997.

In addition to pension benefits, the Company provides limited life insurance
and health care benefits to certain domestic retired employees and provides for
certain medical and life insurance benefits for retirees of previously closed
manufacturing locations.  The effect of adopting SFAS 106 was
not material.

Net post-retirement life and health care cost includes the following
components:

<TABLE>
<CAPTION>
                                                           REORGANIZED COMPANY                        | PREDECESSOR COMPANY
                                                        --------------------------------------------- | -------------------
                                                                                         Ten Months   |      Two Months
                                                           Twelve Months Ended              Ended     |         Ended
                                                        July 31, 1996   July 31, 1995   July 31, 1994 |     Sept. 29, 1993
                                                        -------------   -------------   ------------- |     --------------  
<S>                                                        <C>             <C>            <C>         |        <C>       
 Service Cost - benefits earned during the period           $  5            $  5           $  5       |         $  1     
 Interest cost on accumulated post-retirement                                                         |                  
    benefit obligation                                       843             846            591       |          118     
                                                                                                      |                  
 Total life and health care costs                           ----            ----           ----       |         ----     
                                                            $848            $851           $596       |         $119     
                                                            ====            ====           ====       |         ====     
 The plans' funded status at July 31, was as
</TABLE>

<TABLE>
<CAPTION>
                                                           1996             1995
                                                           ----             ---- 
<S>                                                       <C>            <C>
 Actuarial present value of benefit obligations-
    Retirees                                              $9,617         $10,412
    Fully eligible active participants                       294             269
                                                          ------         -------
 Accumulated postretirement benefit obligation             9,911          10,681
 Cumulative unrecognized actuarial (gain)loss                253            (167)
 Plan assets                                                   -               -
 Accrued post-retirement life and health                 -------         -------
    care costs                                           $10,164         $10,514
                                                         =======         =======

 Assumptions used for the Company's retiree life and health care plans as of July 31, were as following:
</TABLE>

<TABLE>
<CAPTION>
                                                         1996             1995
                                                      -----------     -----------
 <S>                                                        <C>             <C>
 Discount rate for determining obligations and              8.00%           8.00%
    interest cost
                                 
</TABLE>


                                      36
<PAGE>   39

NOTE 10 - RETIREMENT BENEFIT PLANS (CONTINUED)

If the health care cost trend rates were increased 1% for all future years, the
accumulated postretirement benefit obligation would have increased 0.1% at July
31, 1996.  The effect of this change on the aggregate of service and interest
cost would have been an increase of 4.9% for 1996.  A 13% increase in the
health care cost trend rate was assumed for retirees under age 65 and an 11.0%
increase for those over the age of 65.  These rates are assumed to decrease
gradually to 5.5% in the year 2003.

                                      37
<PAGE>   40

NOTE 11 - LEASE TRANSACTIONS

The Company leases certain real and personal property and is responsible for
most maintenance, insurance and tax expenses related to leased facilities.  At
July 31, 1996, the future lease payments for continuing operating leases are as
follows:
<TABLE>
                            <S>                                                      <C>
                            1997                                                      $2,718
                            1998                                                       1,593
                            1999                                                       1,060
                            2000                                                       1,005
                            2001                                                         949
                            2002 and thereafter                                        3,642
                                                                                     -------
                                 Total future operating lease payments               $10,967
                                                                                     =======
</TABLE>





Rental expenses for all operating leases were $5,184, $2,437 and $2,457 for the
Reorganized Company in 1996, 1995 and 1994, respectively, and $491 for the
Predecessor Company in 1994

During 1996, the Company entered into certain capital lease arrangements,
primarily relating to computer hardware and software.  Obligations under these
arrangements amount to approximately $3,683 as of July 31, 1996 and extend for
periods of three to five years.

                                      38
<PAGE>   41
NOTE 12 - GEOGRAPHIC SEGMENTS



The Company's operations are conducted through AM Multigraphics, its sole
continuing business segment.  AM Multigraphics is a leading distributor and to a
lesser degree a manufacturer of equipment and service to the graphics arts
industry.  Its principal operations are in North America.  The Company also
distributes internationally through foreign dealers and a majority owned
subsidiary in Japan.  In September 1996, the Company sold all of its interest in
its AM Japan subsidiary.

<TABLE>
<CAPTION>
                                  Reorganized Company                   |    Predecessor Company    
                     -----------------------------------------------    |    -------------------    
                                                         Ten Months     |        Two Months         
                           Twelve Months Ended             Ended        |           Ended           
                      July 31, 1996    July 31, 1995    July 31, 1994   |      Sept. 29, 1993       
                      -------------    -------------    -------------   |      --------------       
<S>                         <C>          <C>            <C>             |     <C>                   
Revenues                                                                |                           
   North America            $137,981     $157,440       $137,047        |         $22,820           
   Japan                      30,071       34,045         26,769        |           3,712           
                            --------     --------       --------        |         -------           
          Total             $168,052     $191,485       $163,816        |         $26,532           
                            ========     ========       ========        |         =======           
                                                                        |                           
Operating Profit (Loss)*                                                |                           
   North America            ($15,221)      $1,278         $9,292        |          $1,221           
   Japan                        (442)         911          1,847        |            (292)          
                            --------       ------        -------        |          ------           
          Total             ($15,663)      $2,189        $11,139        |            $929           
                            ========       ======        =======        |          ======           
Assets**                                                                |                           
   North America             $45,675      $69,555        $71,314        |         $60,495           
   Japan                       7,698       20,284         19,383        |          17,552           
                             -------      -------        -------        |         -------           
          Total              $53,373      $89,839        $90,697        |         $78,047           
                             =======      =======        =======        |         =======           
</TABLE>

* Before Corporate expenses and unusual items

** Excludes Corporate assets primarily consisting of cash and assets of
discontinued operations.


                                      39
<PAGE>   42
NOTE 13 - QUARTERLY FINANCIAL INFORMATION (Unaudited)


A summary of quarterly financial information for fiscal 1996, 1995 and 1994 is
as follows:

<TABLE>
<CAPTION>
                                                                                   QUARTER
                                                            -------------------------------------------------------
1996                                                          1ST         2ND        3RD        4TH      TOTAL YEAR
---------------------------------------------               -------------------------------------------------------   
<S>                                                         <C>         <C>       <C>          <C>       <C>
Revenues                                                    $42,994     $40,886    $44,340     $39,832    $168,052
Gross Profit                                                 10,889       9,400     11,321       6,021      37,631
Net income (loss) from continuing operations                 (3,460)     (4,329)     2,493     (14,861)    (20,157)
Net income (loss) from discontinued operations                 (310)     (4,401)    (1,163)    (19,468)    (25,342)
                                                             -------     -------    -------     -------    -------- 
Net income (loss)                                            (3,770)     (8,730)     1,330     (34,329)    (45,499)
                                                             =======     =======    =======     =======    ========
Per Common Share (2):                                       
 Net income (loss) from continuing operations                ($0.49)     ($0.62)     $0.36      ($2.12)     ($2.88)
 Net income (loss) from discontinued operations               (0.04)      (0.63)     (0.17)      (2.78)      (3.62)
                                                             -------     -------    -------     -------    --------
     TOTAL                                                   ($0.54)     ($1.25)     $0.19      ($4.90)     ($6.49)
                                                             =======     =======    =======     =======    ========
 Closing Market Price
                         High                                $8.375      $7.500     $4.688      $3.063      $8.375
                         Low                                 $7.250      $4.688     $1.875      $1.875      $1.875

                                                                                   QUARTER
                                                            ------------------------------------------------------- 
1995                                                          1ST        2ND         3RD        4TH      TOTAL YEAR
---------------------------------------------               -------------------------------------------------------   
Revenues                                                    $43,532     $47,697    $47,095     $53,161    $191,485
Gross Profit                                                 12,392      12,787     13,203      14,351      52,733
Net income (loss) from continuing operations                 (1,442)     (1,400)      (557)       (752)     (4,151) 
Net Income (loss) from discontinued operations                1,741       1,656        730       4,637       8,764
                                                             -------     -------    -------     -------    --------
Net Income (loss)                                               299         256        173       3,885       4,613
                                                             =======     =======    =======     =======    ========
Per Common Share (2):
 Net income (loss) from continuing operations                ($0.20)     ($0.20)    ($0.08)     ($0.11)     ($0.59)
 Net income (loss) from discontinued operations                0.24        0.24       0.10        0.66        1.25 
                                                            --------     -------    -------     -------    --------  
     Total                                                    $0.04       $0.04      $0.02       $0.55       $0.66
                                                            ========     =======    =======     =======    ========
 Closing Market Price
                         High                               $12.250     $10.125     $9.250      $9.250     $12.250
                         Low                                $10.000      $8.875     $8.625      $8.125      $8.125


<CAPTION>
                                            PREDECESSOR    |
                                               COMPANY     |                       REORGANIZED COMPANY
                                            ------------   |   --------------------------------------------------------
                                            AUG. 1, 1993   |    SEPT. 30, 1993
                                               THROUGH     |       THROUGH                  QUARTER
                                                           |               --------------------------------------------
1994                                      SEPT. 29, 1993   | OCT. 30, 1993   2ND        3RD        4TH     TOTAL PERIOD
-----------------------------------------------------------|-----------------------------------------------------------
<S>                                            <C>         |   <C>         <C>        <C>        <C>         <C>
Revenues                                       $26,532     |   $19,030      $44,375    $47,121     $53,290    $163,816
Gross Profit                                     7,006     |     4,548       13,751     15,401      17,721      51,421
Net income (loss) from continuing ops  (1)      21,795     |    (1,277)         191      1,196       1,972       2,082
Net income (loss) from discontinued operations (27,810)    |     1,506        1,166      1,477         421       4,570 
                                               --------    |    -------     -------    -------     -------    -------- 
Net income (loss)                               (6,015)    |       229        1,357      2,673       2,393       6,652 
                                               ========    |    =======     =======    =======     =======    ========
Per Common Share (2):                                      |
 Net income (loss) from continuing operations      N/A (3) |    ($0.18)       $0.03      $0.17       $0.28       $0.30
 Net income (loss) from discontinued operations    N/A (3) |      0.21         0.16       0.21        0.06         .65
                                              ---------    |   -------      -------    -------     -------    --------
     Total                                         N/A (3) |     $0.03        $0.19      $0.38       $0.34       $0.95
                                              =========    |   =======      =======    =======     =======    ========
 Closing Market Price:                                     |
                         High                      N/A (4) |       N/A (4)  $10.250    $10.875     $11.875     $11.875
                         Low                       N/A (4) |       N/A (4)   $9.500     $9.125      $8.750      $8.750
</TABLE>

 (1) Net loss excludes $58,704 of Extraordinary Gain.
 (2) Sum of quarters may not equal the total for the year due to changes in the
     number of shares outstanding during the year.
 (3) The net income (loss) per common share for the Predecessor Company has 
     not been presented because it is not comparable.
 (4) Trading of Predecessor Company Common Stock and Preferred Stock was 
     suspended on May 21, 1993.  Periods prior to this date are not presented 
     as they are not comparable.
                                

                                      40
<PAGE>   43

NOTE 14 - PLAN OF REORGANIZATION AND FRESH START REPORTING

The United States Bankruptcy Court for the District of Delaware confirmed the
Company's Plan of Reorganization (the Plan) on September 29, 1993 (the
Confirmation Date), which allowed the Company to emerge from Chapter 11
Bankruptcy effective October 13, 1993 (the Effective Date).  The Company
operated under the protection of Chapter 11 following a voluntary petition for
reorganization filed May 17, 1993.  The Plan provided for the issuance of
approximately seven million new shares of common stock and distributions to
major creditors and shareholders.  The holders of the Company's 12% senior
subordinated debentures received nearly 97% of the new common stock with the
balance of the new common stock distributed to preferred stock and common stock
holders.  General unsecured creditors receive quarterly cash payments for five
years with payments commencing December 31, 1993.  All distributions were made
in accordance with the plan provisions.

The distribution of shares of the new Common Stock and Warrants commenced on
October 13, 1993.  The new Common Stock and new Warrants became listed on the
American Stock Exchange on December 6, 1993.

Fresh Start Reporting

As of the Confirmation Date, the Company adopted Fresh Start Reporting in
accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7 (SOP 90-7) -- "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code."  Fresh Start Reporting resulted in
material changes to the consolidated balance sheet, including valuation of
assets and liabilities at fair market value and valuation of equity based on
the appraised reorganization value of the ongoing business.

The Company recorded a reorganization value of $36,000 (the approximate fair
value) which was based on the consideration of many factors and various
valuation methods, including discounted cash flows and price/earnings and other
applicable ratios and valuation techniques believed by management and its
financial advisors to be representative of the Company's business and industry.
The excess of the reorganization value over the fair value of net assets and
liabilities is reported as excess reorganization value and is amortized over a
twenty year period.

The Reorganization and the adoption of Fresh Start Reporting resulted in the
following adjustments to the Company's Consolidated Statement of Operations for
the period ended September 29, 1993:


Reorganization Items:

<TABLE>
<CAPTION>
                                                                                           Income/(expense)      
                                                                                      ---------------------------
                                                                                      Continuing     Discontinued
                                                                                      Operations     Operations  
                                                                                      -----------    ----------- 
<S>                                                                                   <C>            <C>         
Fair Market Value Adjustments to tangible Assets and Liabilities, net                     $8,024        ($9,680) 
Write-off existing Goodwill                                                                    -        (39,840) 
Accrue Professional Fees to complete reorganization process                              (10,100)             -  
Reorganization Value in excess of Fair Market Value tangible Assets and Liabilities       26,022         39,471  
Certain foreign entites with Reorganization Value                                                                
  Less than Fair Value of tangible Assets and Liabilities                                      -        (17,000) 
                                                                                      -----------    ----------- 
                             Total Reorganization Items                                  $23,946       ($27,049) 
                                                                                      ===========    =========== 
                                                                                                                 
<CAPTION>                                                                                                        
                                                                                            Income/(expense)     
                                                                                      ---------------------------
Extraordinary Gain:                                                                   Continuing     Discontinued
                                                                                      Operations     Operations  
                                                                                      -----------    ----------- 
<S>                                                                                   <C>            <C>         
Carrying Value of 12% Senior Subordinated Debentures plus accrued interest               $93,624          $ -    
Fair Value of Equity exchanged for Debt per the Plan                                     (34,920)                
                                                                                      -----------    ----------- 
                              Total Extraordinary Gain                                   $58,704          $ -    
                                                                                      ===========    ===========

</TABLE>


                                      41
<PAGE>   44

NOTE 15 - SUBSEQUENT EVENTS

During the fourth quarter of 1996, the Company committed to sell all of its
ownership interest in its majority owned Japanese subsidiary.  On September 20,
1996 the Company completed the sale of its 2,148,000 shares of AM Japan Co.,
Ltd, and the Company received proceeds of approximately $10,600, net of
certain costs.   At July 31, 1996, the Company's investment in the subsidiary
amounted to $7,698 and is reflected as "Net assets held for sale" in the
Consolidated Balance Sheet.  This amount consists primarily of receivables,
inventory, property and equipment, intangible assets, net of accounts payable
and accrued liabilities.  A gain of approximately $2,600 will be recorded by
the Company in the first quarter of fiscal 1997 as a result of the sale.

On October 29, 1996 the Company entered into a definitive Merger Purchase
Agreement with a corporation newly formed by affiliates of Pacholder
Associates, Inc., a Cincinnati-based provider of investment management,
financial advisory and investment banking services to institutional clients. 
The agreement provides for the merger of a subsidiary of purchaser with and
into the Company pursuant to which the current shareholders of the Company will
receive $5.00 per common share and the Company will become a wholly-owned
subsidiary of the purchaser.  The transaction is conditioned upon the purchaser
finalizing a credit facility within 30 days.  The transaction is subject to a
number of additional conditions, including approval by a majority of the
shareholders of the Company at a meeting tentatively scheduled for
January, 1997.

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

         None.





                                      42
<PAGE>   45

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders and the
Board of Directors of 
AM International, Inc.

We have audited the accompanying consolidated balance sheets of AM
International, Inc. (Reorganized Company) and subsidiaries as of July 31, 1996
and 1995 and the related consolidated statements of operations, shareholders'
equity and cash flows for the years ended July 31, 1996 and 1995, and the
period from September 30, 1993 through July 31, 1994.  We have also audited the
related consolidated statements of operations, shareholders' equity and cash
flows of AM International, Inc. (Predecessor Company) and subsidiaries for the
period from August 1, 1993 through September 29, 1993.  These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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 financial statements referred to above present fairly, in
all material respects, the financial position of AM International, Inc.
(Reorganized Company) and subsidiaries as of July 31, 1996 and 1995 and the
results of their operations and cash flows for the years ended July 31, 1996
and 1995, and for the period from September 30, 1993 through July 31, 1994 and
the results of operations and cash flows of AM International, Inc. (Predecessor
Company) for the period from August 1, 1993 through September 29, 1993, in
conformity with generally accepted accounting principles.



                                                ARTHUR ANDERSEN LLP


October 29, 1996
Chicago, Illinois




                                       43
<PAGE>   46



                                    PART III


ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

               See the information with respect to the Directors of the
Registrant which will be set forth in the section entitled "Election of
Directors" of the 1996 Proxy Statement.  Except for the paragraphs relating to
the remuneration of directors, this section is incorporated herein by reference.

               For information regarding Executive Officers of Registrant, see
Item 4(A) of this Report which is incorporated herein by reference.


ITEM 11.       EXECUTIVE COMPENSATION

               See the information to be set forth in the sections entitled
"Remuneration of Directors" and "Executive Compensation" in the 1996 Proxy
Statement.  This information is incorporated herein by reference.


ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT

               See the information to be set forth in the sections entitled
"Principal Stockholders" and "Security Ownership of Directors and Executive
Officers" in the 1996 Proxy Statement, which is incorporated herein 
by reference.


ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

               Such transactions, if any, will be disclosed in a section
entitled "Certain Transactions" in the 1996 Proxy Statement, and will be
incorporated herein by reference.


                                      44
<PAGE>   47

                                    PART IV


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

(a)(1)          FINANCIAL STATEMENTS.

                The "Consolidated Financial Statements" including the notes
                thereto and the Report of Arthur Andersen LLP dated
                October 29, 1996.

(a)(2)          FINANCIAL STATEMENT SCHEDULE.

                The Financial Statement Schedule listed below should be read 
                in conjunction with Registrant's "Consolidated Financial 
                Statements" included herein.  Schedules not listed here have 
                been omitted because they are not applicable or they are 
                immaterial or the required information is included in 
                Registrant's "Consolidated Financial Statements" including the
                notes thereto.

                                                           SCHEDULE        PAGE
                                                              NO.           NO.
                                                              ---           ---
                Valuation and
                  Qualifying Accounts                         II            47


(a)(3)          EXHIBITS.

                Reference is made to the separate exhibit index commencing on
                page 48 hereof.

(b)             REPORTS ON FORM 8-K

                A Current Report on Form 8-K dated July 11, 1996 was filed
                relating to the agreement to sell Sheridan Systems.


                                      45
<PAGE>   48

                                   SIGNATURES


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

Dated:  October 29, 1996             AM INTERNATIONAL, INC.
                                              (REGISTRANT)



                                        By /S/Jerome D. Brady                
                                           -----------------------------
                                           Jerome D. Brady, Chairman,
                                           President and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on October 29, 1995 by the following persons on
behalf of the Registrand and in the capacities indicated.

<TABLE>
<CAPTION>
         SIGNATURE                                             TITLE
         ---------                                             -----
<S>                                            <C>
/S/JEROME D. BRADY                             CHAIRMAN, CHIEF EXECUTIVE OFFICER
----------------------------------                   AND PRESIDENT
JEROME D. BRADY                                      


/S/THOMAS D. ROONEY                            PRESIDENT, MULTIGRAPHICS, VICE PRESIDENT AND 
----------------------------------             CHIEF FINANCIAL  OFFICER (PRINCIPAL ACCOUNTING &          
THOMAS D. ROONEY                               FINANCIAL OFFICER)




/S/ROBERT E. ANDERSON, III                     DIRECTOR
----------------------------------
ROBERT E. ANDERSON, III


/S/JEFFREY D. BENJAMIN                         DIRECTOR
----------------------------------
JEFFREY D. BENJAMIN


/S/ROBERT N. DANGREMOND                        DIRECTOR
----------------------------------
ROBERT N. DANGREMOND


/S/WILLIAM E. HOGAN II                         DIRECTOR
----------------------------------
WILLIAM E. HOGAN II


/S/JEFF M. MOORE                               DIRECTOR
----------------------------------
JEFF M. MOORE
</TABLE>



                                       46
<PAGE>   49
                                                         SCHEDULE II

                             AM INTERNATIONAL, INC.
                        VALUATION & QUALIFYING ACCOUNTS
                    FOR THE THREE YEARS ENDED JULY 31, 1996
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                            Reserves Deducted in the 
                                                            Balance Sheet from Assets
                                                         --------------------------------
                                                           Accounts          
                                                          Receivable          Inventories
                                                          ----------          -----------
<S>                                                      <C>                  <C>
Predecessor Company:
BALANCE JULY 31, 1993                                        $ 1,690             $ 6,082

        Additions Charged to Cost & Expenses                     157                 295

        Deductions from Reserves                                (334)               (727)
                                                              ------              ------
BALANCE SEPTEMBER 29, 1993                                     1,513               5,650
-----------------------------------------------------------------------------------------

Reorganized Company:

        Additions Charged to Cost & Expenses                     128               1,428

        Deductions from Reserves                                (201)             (1,320)

        Other (1)                                                  0              (1,177)
                                                              ------              ------

BALANCE JULY 31, 1994                                          1,440               4,581

        Additions Charged to Cost & Expenses                     337               2,659

        Deductions from Reserves                                (465)             (2,582)
                                                              ------              ------
BALANCE JULY 31, 1995                                          1,312               4,658

        Additions Charged to Cost & Expenses                     193               7,156

        Reclassification to Assets Held for Sale                (171)               (270)

        Deductions from Reserves                                (512)             (2,890)
                                                              ------              ------

BALANCE JULY 31, 1996                                           $822              $8,654
                                                              ======              ======
</TABLE>

(1) Represents Fresh Start adjustments in accordance with SOP 90 - 7 relating
to used and finished machine inventory valuation.


                                      47
<PAGE>   50
                                EXHIBIT INDEX

NO.             DESCRIPTION
---             -----------

2(A)       Asset Purchase Agreement among Registrant, AM Graphics International
           Limited and Heidelberg Druckmaschinen AG dated as of July 9, 1996 
           (incorporated by reference to Appendix A to Registrant's Proxy 
           Statement dated August 2, 1996, filed with the Commission on 
           August 1, 1996).

2(B)       Definitive Agreement dated August 21, 1996 among Registrant, 
           JAC Co., Ltd. and Shigeru Watanabe (incorporated by reference to 
           Registrant's Report on Form 8-K filed as Exhibit 2 with the 
           Commission on October 2, 1996).

3          Certificate of Incorporation and By-laws 
           (A)  Second Restated Certificate of Incorporation of Registrant.*
           (B)  By-laws of Registrant effective as of October 13, 1993.*

4          Instruments Defining the Rights of Security Holders
           (A)  Warrant Agreement dated as of October 13, 1993 between
                Registrant and First Chicago Trust Company of New York.*

10         Material Contracts
           (A)  AM International, Inc. 401(k) Employees' Savings and 
                Investment Plan, Amendment 1995-1.**
           (B)  AM International, Inc. Executive Incentive Compensation Plan 
                Fiscal Year 1996.**
           (C)  AM International, Inc. Retirement Accumulation Plan.**
           (D)  Settlement Agreements between Registrant and Richard J. 
                Bonnie and David A. Roberts, dated January 19, 1996 and
                September 13, 1996, respectively.
           (E)  Letter Agreement dated December 8, 1994 between Registrant and 
                Jerome D. Brady (Incorporated by Reference to Registrant's 
                Report on Form 10-Q filed as Exhibit 10(A) with the Commission 
                on March 13, 1995).**
           (F)  Letter Agreement dated December 8, 1994 between Registrant and 
                Steven R. Andrews (Incorporated by reference to Registrant's 
                Report on Form 10-Q filed as Exhibit 10(B) with the Commission 
                on March 13, 1995).**
           (G)  Letter Agreement dated January 31, 1995 between Registrant and 
                David A. Roberts.**
                


                                      48
<PAGE>   51
 
                (H)  Change-In-Control and Termination Benefits Agreements 
                     dated July 7, 1995 between Registrant and Messrs. Brady,
                     Andrews, Bonnie, Roberts and Rooney.**
                (I)  AM International, Inc. 1994 Long-Term Incentive Plan 
                     (incorporated by reference to Registrant's Annual Report
                     for the year ended July 31, 1994, filed as Exhibit 10(A) 
                     with the Commission on October 27, 1994).**
                (J)  Engagement Letter dated January 27, 1994 between 
                     Registrant and Jay Alix & Associates (incorporated by
                     reference to Registrant's Annual Report for the year 
                     ended July 31, 1994, filed as Exhibit 10(B) with the
                     Commission on October 27, 1994).
                (K)  Employment Agreement dated September 19, 1994 between 
                     Jerome D. Brady and Registrant (incorporated by reference
                     to Registrant's Annual Report for the year ended July 31,
                     1994, filed as Exhibit 10(C) with the Commission on 
                     October 27, 1994).**
                (L)  AM International, Inc. 401(k) Employees' Savings and 
                     Investment Plan (Restated December 17, 1993, effective
                     January 1, 1989) (incorporated by reference to
                     Registrant's Annual Report for the year ended July 31, 
                     1994, filed as Exhibit 10(F) with the Commission on 
                     October 27, 1994).**
                (M)  First Amended Plan of Reorganization, as amended September
                     29, 1993 (incorporated by reference to registrant's Annual
                     Report for the year ended July 31, 1993, filed as Exhibit
                     10(A) with the commission on october 29, 1993).
                (N)  Registrant's Amended Plan of Reorganization, as amended
                     July 16, 1984 (incorporated by reference to Registrant's
                     Annual Report for the year ended July 31, 1984, filed as
                     Exhibit 4(A) with the Commission on October 26, 1984).
                (O)  Amendment 1991-1 to the AM International, Inc.
                     Supplemental Executive Retirement Plan.  (incorporated by
                     reference to Registrant's Annual Report for the year ended
                     July 31, 1991, filed as Exhibit 10(M) with the Commission
                     on October 29, 1991).** 
                (P)  AM International, Inc. Supplemental Executive Retirement
                     Plan (incorporated by reference to Registrant's Annual
                     Report for the year ended July 31, 1987, filed as Exhibit 
                     10(N) with the Commission on october 28, 1987).**
                (Q)  Retirement Plan for Outside Directors of AM International,
                     Inc. (incorporated by reference to Registrant's Annual
                     Report for the year ended July 31, 1987, filed as Exhibit
                     10(Q) with the Commission on October 28, 1987).**
                (R)  Amendment to Retirement Plan for Outside Directors of AM 
                     International, Inc. (incorporated by reference to
                     Registrant's Annual Report for the year ended July 31,
                     1988, filed as Exhibit 10(M) with the Commission on 
                     October 25, 1988).**
                (S)  Letter Agreement dated May 8, 1992 between Registrant and 
                     Thomas Rooney (incorporated by reference to Registrant's
                     Annual Report as Exhibit 10(d) for the year ended July 31,
                     1992, as filed with the Commission on October 29, 1992).**

23              Consent of Arthur Andersen LLP

24              Powers of Attorney

99              Additional exhibits
                     Second Amended Disclosure Statement dated August 26, 1993 
                     (incorporated by reference to Registrant's Annual Report 
                     for the year ended July 31, 1993, filed as Exhibit 28 with
                     the Commission on October 29, 1993).


                                      49

<PAGE>   52

_______________________________________________

*            Incorporated herein by reference to exhibit of the same number
             filed with the Registrant's Annual Report for the year ended
             July 31, 1993, as filed with the Commission on October 29,
             1993.
**           Management contract or compensatory plan, contract or arrangement.









                                      50