<PAGE>
                               EXHIBIT 13
                   MANAGEMENT'S DISCUSSION AND ANALYSIS
             OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       
   The following table sets forth for the years indicated certain items
   from the Condensed Consolidated Statements of Operations (expressed
   in millions of dollars). The operating results for the years ended
   July 31, 1997 and 1996 include the results of two foreign
   subsidiaries which have been divested.  The Company sold its interest
   in AM Japan Co., Ltd. in September, 1996, and on October 17, 1996,
   the Company's Canadian subsidiary filed a voluntary assignment in
   bankruptcy.

   During the fiscal year ended July 31, 1998, the Company acquired
   certain assets of Hanley Graphic Products Company and Progressive
   Lithoplate and Supply Company, both graphic arts dealers competing in
   Northern Illinois, and purchased all of the outstanding shares of
   capital stock of Akron, Ohio based Publishing Solutions Inc., a
   systems integrator.  All acquisitions have been accounted for as
   purchases and, accordingly, the Company's consolidated financial
   statements include the post-acquisition results of these operations
   since their respective acquisition dates. All per share data is
   presented on a diluted basis.
<TABLE>
   OPERATING RESULTS (Continuing Operations)

   Years ended July 31,               1998           1997        1996
   <S>                               <C>            <C>        <C>
   Revenues                          $95.3          $88.7      $168.1
   Gross margin                       25.2           24.8        37.6
   Operating expenses                 21.9           23.5        54.0
   Operating income (loss)             3.3            1.3       (16.4)
   Non-operating expenses              1.6            1.2         3.8
   Income (loss) before taxes         $1.7           $0.1      ($20.2)
   Net income (loss)                  $1.1           $0.1      ($20.1) 
</TABLE>

   Comparison of 1998 to 1997  

   Net income in 1998 of $1.1 million ($0.37 per common share) improved
   by $1.0 million over the prior year net income of $0.1 million ($0.04
   per common share). In the prior year, the Company had a gain of $2.6
   million on the divestiture of its interest in AM Japan Co., Ltd.
   Excluding the gain on the divestiture, net income improved by $3.6
   million from the prior year. The improved result in 1998 was
   primarily due to a reduction in operating expense levels which
   resulted from the Company's elimination of unprofitable product
   lines, its exit from machine manufacturing,  efficiency improvements
   in distribution and service activities, and increased gross margins
   on higher revenue levels attributable to the acquisitions made in the
   current year.
 <PAGE>
   Revenues in 1998 of $95.3 million increased by $6.6 million over the
   prior year.  The 7% growth in revenues was largely attributable to
   the acquisitions of the three regional graphic arts dealers over the
   last eight months of the fiscal year.  The acquired businesses serve
   the same customer base as the Company.  The acquisitions complement
   the Company's internal efforts to expand its product offerings, and
   bring enhanced digital sales and support capabilities as well as an
   expanded customer base in the Company's traditional markets.  In
   addition, the Company has undertaken marketing programs focusing on
   obtaining national service accounts with manufacturers and national
   retail outlets.  Market demand for the Company's manufactured
   duplicator press products, particularly in the in-plant market
   segment, has experienced long term decline due in part to inroads
   from competing printing technologies.  As a result, the installed
   base of the Company's duplicator press equipment has declined which
   has led to decreased sales of duplicator supplies and services.
   Revenues from acquisitions, new products and increased service
   offerings collectively were more than sufficient to offset the
   decline in revenues from the prior year divestitures of operations in
   Japan and Canada, the discontinuance of unprofitable product lines,
   and the exit from manufacturing duplicator presses which,
   collectively, had contributed revenues of $7.5 million to the prior
   year.

   Gross margin of $25.2 million was $0.4 million higher than the prior
   year largely as a result of increased revenue volume.  The overall
   gross margin rate declined 1.6 percentage points to 26.4%.  The lower
   margin rate largely resulted from the shift in revenue mix from the
   Company's traditional higher margin manufactured products and service
   offerings, the demand for which has been in long term decline, to
   revenues derived from product lines added through distribution
   agreements, affiliations with third parties, and acquisitions of
   graphic arts dealers.  In anticipation of the decline in margins, the
   Company invested in information systems and instituted various
   reorganization measures which increased operational efficiency and
   lowered expense levels.

   Operating expenses decreased by $4.2 million in 1998 from 1997, after
   adjusting 1997 to exclude the $2.6 million gain from the divestiture
   of AM Japan Co. Ltd.  The decrease in expenses was largely due to the
   divestiture of foreign operations, discontinued product lines and
   elimination of costs associated with the Company's exited
   manufacturing operation which collectively added $2.4 million in the
   prior year.  The remainder of the decrease in expenses resulted from
   reductions in selling, general and administrative expenses as the
   Company transitioned to a distribution and service organization.

   Non-operating expenses increased $0.4 million in 1998, largely due to
   a $1.1 million reduction in interest income due to lower investment
   balances in 1998 following the $14.1 million dividend in May, 1997,
   offset by a $0.7 million reduction in interest expense. The decrease
   in interest expense was primarily due to lower prepetition debt
   obligations, which have been reduced by scheduled payments, and lower
   interest costs on post retirement benefit obligations.
 <PAGE>
   The Company recorded income tax expense of $0.6 million during 1998.
   Fresh start reporting rules require recognition of tax expense
   although the Company had no requirement to pay U.S. Federal taxes due
   to utilization of net operating loss carry forwards available to the
   Company.  Net income from continuing operations improved by $1.0
   million over 1997 due to the factors cited above.


   Comparison of 1997 to 1996

   Net income in 1997 of $0.1 million ($0.04 per common share) improved
   significantly over the net loss of $20.2 million from continuing
   operations in 1996.  The improved results in 1997 was primarily due
   to restructuring initiatives the Company had formulated and executed
   during 1995 and 1996.

   Declining market demand for the Company'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.  The Company's growth strategy in the
   graphic arts market is focused on expanding its product offering,
   enhancing its digital support capabilities, taking advantage of
   unique national service capabilities and increasing market
   penetration and coverage through acquisitions of regional dealers.

   Revenues in 1997 of $88.7 million decreased by $79.4 million from
   1996.  The revenue decrease was primarily the result of: 1) the
   divestitures of foreign subsidiaries in Japan and Canada which
   accounted for a revenue decline of $37.8 million, and 2) a $35.0
   million decrease due to the discontinuance of certain unprofitable
   product lines, including manufactured offset duplicator presses.

   Gross margin decreased in 1997 from 1996 due largely to the lower
   revenue level; however, the gross margin rate improved by 5.6
   percentage points over the previous year due to a more favorable
   product mix and the elimination of manufacturing overhead costs.

   Operating expenses decreased by $30.5 million in 1997 from 1996.  The
   decrease in expenses was due to: 1) a $12.0 million reduction in
   selling, general and administrative expenses which reflected improved
   efficiencies as the business transitioned to a distribution and
   service organization, and a reduction in corporate expenses; 2) the
   elimination of foreign operations, which accounted for $12.5 million
   of the reduction, including a $2.6 million gain on the divestiture of
   AM Japan Co., Ltd.; and 3) a reduction of $6.4 million in
   restructuring charges as compared with the prior year.

   Non-operating expenses decreased in 1997 by $2.6 million due to the
   elimination in 1997 of borrowings under the revolving credit
   agreement, lower interest costs on general unsecured claims, and
   interest income which was earned on divestiture proceeds received in
   1997 from the sales of the Sheridan Systems segment and the Company's
   interest in AM Japan Co., Ltd.  Net income of $0.1 million in 1997
   improved by $20.3 million over 1996 due to improved gross margin
   rates and lower expenses as described.
 <PAGE>
   LIQUIDITY AND CAPITAL RESOURCES (three years ended July 31, 1998)

   The Company's total cash and cash equivalents of $2.9 million as of
   July 31, 1998 decreased by $7.5 million during the fiscal year,
   following an increase in cash balances of $7.8 million in 1997, and a
   $10.0 million decrease in cash in 1996.


   Operating Activities

   In 1998, the Company had a cash outflow from operating activities of
   $2.8 million.  The 1998 cash outflow was primarily due to a $5.1
   million reduction in accrued liabilities largely from restructuring
   payments which included payments for severance, accrued vacation and
   the settlement of a lease recourse obligation from a discontinued
   business, and a $1.8 million reduction in trade payables primarily
   due to lower inventory purchases.  A $1.8 million reduction in
   inventories partially offset other outflows and was due to lower
   stocking levels of machines resulting from an increase in drop
   shipment sales, and improved supplies and parts turnover rates
   reflective of the transition from a manufacturing to a distribution
   and service operation.

   In 1997, the Company had a cash outflow from operating activities of
   $15.6 million. The 1997 cash outflow was primarily due to a $10.2
   million reduction in trade payables as extended credit terms were
   reduced with vendors, and a $14.7 million reduction in accrued
   liabilities primarily due to restructuring payments which included
   payments for severance, accrued vacation and the settlement of a
   lease obligation.  A $9.0 million reduction in accounts receivable
   partially offset other outflows and was due to improved collection
   rates, the collection of receivables from the phased out manufactured
   machine product line, and a lower revenue level.  Inventories
   increased $0.3 million in supplies and parts to improve product
   availability.

   In 1996, the Company had a cash outflow of $3.9 million, which
   improved by $1.0 million over 1995.  The net loss of $45.5 million in
   1996 was largely offset by a $26.3 million reduction in the net
   assets of discontinued operations, primarily accounts receivable and
   leases receivables, and reductions in the accounts receivable and
   inventories of the continuing business.  The inventory reduction was
   the result of the phase out of machine manufacturing and general
   reductions in stock levels due to liquidity problems.

   Depreciation and amortization remained flat from 1997 to 1998 at $1.9
   million, but 1997 decreased by $2.3 million from 1996.  In 1996 an
   additional $2.0 million was provided against certain manufacturing
   assets following the decision to phase out manufacturing. The
   Company's fixed assets consist primarily of leasehold improvements
   and computer systems.
 <PAGE>
   Investing Activities

   In 1998, the Company invested $6.9 million in the acquisitions of
   three regional graphic arts equipment and supply dealers.  In 1997,
   the Company received net proceeds of $50.6 million from the
   divestitures of Sheridan Systems and AM Japan Co., Ltd.  In 1996, the
   Company received  $6.8 million from the disposition of property,
   primarily from the sale of its Mt. Prospect, IL manufacturing and
   headquarters facility.  Capital expenditures of $0.6 million in 1998
   and $1.9 million in 1997 were made to upgrade information systems and
   customer service capabilities, and to maintain facilities.  Capital
   expenditures in 1996 of $9.0 million were primarily for leasehold
   improvements of new facilities in conjunction with the planned exit
   from the Company's manufacturing facilities, and to upgrade
   information systems equipment.

   Financing Activities

   In 1998 the Company had a net inflow of $2.8 million from financing
   activities, as compared to net outflows in 1997 and 1996 of $25.5
   million and $2.7 million, respectively.  In 1998 the Company borrowed
   $7.8 million under its revolving credit agreement to finance the
   operating and investing activities noted above.  In 1997 the Company
   repaid its outstanding balance under its revolving credit agreement
   of $5.4 million with the proceeds from divestitures.   The borrowings
   in 1996 were necessitated by operating losses.  The Company has made
   payments of $4.3 million, $5.3 million and $5.1 million in 1998, 1997
   and 1996, respectively, to resolve unsecured claims and priority tax
   claims in accordance with the Reorganization Plan of 1993.  In 1997
   the Board of Directors declared a $2.00 per share special dividend to
   holders of record as of May 13, 1997.  The dividend totaling $14.1
   million was paid on May 27, 1997.  In 1996 the Company received $4.0
   million, primarily from capital lease agreements, which was utilized
   to fund leasehold improvements and computer system upgrades.  In 1996
   discontinued operations had a $6.7 million outflow which resulted
   primarily from reductions in long term debt and capital lease
   obligations.

   The Company's primary source of financing is its revolving credit
   facility which was established in May, 1997 and which has
   subsequently been amended to provide liquidity needed to execute the
   Company's growth strategy.  The Company believes that its existing
   cash reserves and the liquidity provided by the credit facility are
   sufficient to finance current operations and support future growth
   strategies, which may include the acquisitions of other regional
   dealers or distributors in the graphic arts industry. The Company may
   also seek to increase its capital availability to expand its growth
   strategy beyond its current sources of liquidity.
 <PAGE>
   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company is exposed to market risk related to change in interest
   rates.  At July 31, 1998, the Company had approximately $7.8 million
   of debt outstanding on a revolving credit facility with floating
   interest rates tied to the prime rate.  If this rate was to increase
   10 percent, the increase in interest payments would not have a
   material impact on the Company's net income or cash flows.  In
   addition, the Company has fixed rate financing arrangements under
   capital lease obligations in the amount of $1.7 million.  A 10
   percent change in interest rates would not have a material impact on
   the fair market value of this debt.

   YEAR 2000 DISCLOSURE

   The Company's information systems will require certain modifications
   to enable them to be able to process information without regard to
   whether the date occurs prior to or after the year 2000.  Currently,
   some information systems do not properly identify a year that begins
   with "20" instead of the familiar "19".   These and similar issues
   are generally referred to as "Year 2000" issues.  The Company's
   information systems are relatively new, and its recent systems
   implementation in the Fall of 1997 achieved near compliance in the
   Company's operating systems and full compliance in its host hardware.
   Based on the Company's experience in the new system implementation
   and its analysis of the work remaining, the Company anticipates that
   expenditures for modifying the systems will be approximately $0.2
   million, and the work necessary to complete all modifications will be
   complete by mid 1999.  The Company is working with its software and
   systems licensor in completing this project.  Accordingly, the
   Company does not believe that the remaining actions or the associated
   costs will be material to the Company's operating results.

   The Company has also undertaken a review of its other equipment and
   operating systems, and has begun the process of contacting its
   significant vendors and service providers to assess the possible
   impact on the Company of such third parties' failure to address Year
   2000 issues.  Although the Company cannot verify the results of its
   inquiries of third parties, it has not received any information which
   would lead it to believe that there will be material problems in
   obtaining products, supplies and services from its third party
   service providers and vendors.  Nevertheless, any significant or
   prolonged interruption in the supply of essential services or
   products could adversely effect the Company's revenues and financial
   results.  Similarly, problems with any significant portion of the
   Company's 20,000 customers in processing and paying invoices from the
   Company could result in cash flow shortages and liquidity problems.
 <PAGE>
   The Company is undertaking a number of steps to address potential
   Year 2000 problems.  The systems issues and supplier contacts
   described above are a part of those efforts.  In the event that the
   Company identifies potential problems with a service provider or
   other vendor, it will attempt to obtain services and products from
   other sources.  The Company has available to it a broad range of
   products, however, and it is unlikely that serious shortages will
   materialize.  Similarly, although the Company will have completed and
   tested its systems capabilities in advance of the year 2000, the
   Company is preparing to operate without significant portions of its
   operating and information systems.  Customer service representatives
   are trained to take orders without access to the information systems,
   purchasing representatives are trained to purchase parts without
   access to the information systems, and the Company's finance
   department is preparing to invoice and bill customers without access
   to the information systems, if necessary.  The Company is unable to
   anticipate whether significant customers or significant numbers of
   its customers will have difficulty processing and paying its
   invoices.

   FORWARD LOOKING STATEMENTS

   This document contains certain forward-looking statements and other
   statements that are not historical facts concerning, among other
   things, market conditions and the Company's strategies for growth and
   expansion.  These statements are highly dependent upon a variety of
   important factors that could cause such results or events to differ
   materially.  These factors include, but are not limited to, changing
   market conditions, the availability and cost of products, maintenance
   of principal vendor relations, the impact of competitive products and
   pricing, the Company's ability to execute its strategic plans, the
   continued availability of sources of financing to assist in the
   execution of the Company's strategic plans, and other risks detailed
   herein and from time-to-time in the Company's Securities and Exchange
   Commission filings.  There can be no assurance that the Company has
   accurately identified and properly weighed all of the factors that
   affect market conditions and demand for the Company's products and
   services, that the public information on which the Company has relied
   is accurate or complete or that the Company's analysis of the market
   and demand for its products and services is correct and, as a result,
   that the strategies based on such analysis will be successful.
<PAGE>
<TABLE>
                              Multigraphics, Inc.
                     Consolidated Statements of Operations
                (Dollars in thousands, except per share amounts)
 

                                                Twelve Months Ended

                                       July 31,     July 31,   July 31,
                                         1998         1997       1996

  <S>                                    <C>        <C>        <C>
  Revenues
   Machines and Supplies                 $  54,990  $  45,274   $112,118
   Services                                 40,261     43,387     55,934

         Total Revenues                     95,251     88,661    168,052

  Cost of Sales
   Machines and Supplies                     42,724    37,335     94,448
   Services                                  27,346    26,536     35,973

         Total Cost of Sales                 70,070     63,871   130,421

  Gross Margin                               25,181     24,790    37,631
  Operating Expenses
       Selling, general and administrative   21,910     25,616    47,048
       Unusual items, net (income) expense        -    (2,095)     7,032

         Total Operating Expenses            21,910     23,521    54,080
  Operating Income (Loss)                     3,271      1,269   (16,449)
  Non-operating income (expense):
       Interest income                          211      1,288       169
       Interest expense                      (1,723)    (2,574)   (3,762)
   Other, net                                   (42)       120      (212)

  Income (loss) from continuing
  operations before income taxes               1,717       103   (20,254)

    Income tax expense (benefit)                 646         -       (97)

  Net income (loss) from continuing
  operations                                   1,071       103   (20,153)

  Net income (loss) from discontinued
  operations, net of tax                           -         -   (25,342)


  Net Income (Loss)                          $ 1,071   $   103  $(45,499)


  Per share of common stock: (a)
   Basic:
  Income (loss) from continuing operations   $  0.38   $  0.04   $ (7.19)
  Income (loss) from discontinued
  operations                                       -         -     (9.04)

              Net income (loss)              $  0.38   $  0.04   $(16.23)

   Diluted:
  Income (loss) from continuing operations   $  0.37   $  0.04   $ (7.19)
  Income (loss) from discontinued
  operations                                       -         -     (9.04)

              Net income (loss)              $  0.37   $  0.04   $(16.23)


  Weighted average shares of common stock
  and common stock equivalents outstanding
   (in thousands)

                          Basic                2,823     2,807      2,803                         Diluted
                          Diluted              2,895     2,811      2,803


   (a)  The weighted average number of common shares outstanding
        and net income per common share have been restated to reflect
        the effect of the 1 for 2 1/2 share reverse stock split which
        was approved by the Company's shareholders on May 28,1997.
        The Notes to Consolidated Financial Statements are an integral
        part of these financial statements.
</TABLE>
<PAGE>
<TABLE>

                         Multigraphics, Inc.
                     Consolidated Balance Sheets
           (Dollars in thousands, except per share amounts)

                                                  July       July
                                                  31,        31,
                                                  1998       1997

   <S>
                     ASSETS                       <C>       <C>
   Current assets:
       Cash and cash equivalents                  $2,869    $10,376

       Accounts receivable, net                   14,629     10,746

       Inventories, net                           13,188     11,893

       Prepaid expenses and other assets             726        744

   Total current assets                           31,412     33,759

   Property, plant and equipment, net              9,554     10,222

   Goodwill                                        3,681          -

   Other assets, net                                 992        919

        Total assets                             $45,639    $44,900



      LIABILITIES AND SHAREHOLDERS' EQUITY
   Current liabilities:
   Short-term borrowings and current 
   maturities of long-term debt                  $10,844     $5,773

   Accounts payable                                7,312      5,217

   Service contract deferred income               12,013     11,738

   Payroll related expenses                        5,709      6,803

   Other current liabilities                       6,737     10,152

  Total current liabilities                       42,615     39,683

   Post-retirement benefit obligations             8,626      9,729

   Long-term debt                                  1,048      3,352

   Other long-term liabilities                     3,494      4,036

        Total liabilities                         55,783     56,800

   Shareholders' equity:
   Preferred stock, 0.5 million shares
   authorized; no shares issued                        -          -
   Common stock, $.025 par value; 9.5
   million shares authorized;
   2,829,526 issued as of July 31,
   1998 and 2,815,337 issued
   as of July 31, 1997                                70         70

   Capital in excess of par value                 22,847     22,162

   Accumulated earnings (deficit)               (33,061)   (34,132)

        Total shareholders' equity              (10,144)   (11,900)

   Total liabilities and shareholders' equity    $45,639    $44,900


   The Notes to Consolidated Financial Statements are an
   integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>   
                              Multigraphics, Inc.
                     Consolidated Statements of Cash Flows
                            (Dollars in thousands)



                                                   Twelve Months Ended

                                              July 31,  July 31,   July 31,
                                                1998      1997       1996
   <S>                                         <C>       <C>       <C>
   Cash Flows from Operating
   Activities:
   Net income (loss)                           $ 1,071   $   103   $(45,499)
   Adjustments to reconcile net income to
   cash flow from operating activities:

   Depreciation of property, plant
     and equipment                               1,859     1,836       3,769
   Amortization and writedown of
     other assets                                   42         -         407
   Benefit from operating loss
     carryforwards                                 646         -           -
   Discontinued  operations                          -         -      26,284      Net assets held for sale
   Net assets held for sale                          -         -      (2,682)
   Change in assets and
     liabilities:
   Accounts receivable, net                         27     9,028       6,308
   Inventory, net                                1,750     (291)      13,056
   Prepaid expenses and other assets               193       858        (334)
   Accounts payable and accruals                (6,633)  (26,132)     (2,434)
   Other, net                                   (1,719)   (1,041)     (2,794)

   Cash flow from operating
   activities                                   (2,764)  (15,639)     (3,919)


   Cash Flows from Investing
     Activities:
   Acquisition Activities                       (6,873)        -           -
   Capital expenditures                           (638)   (1,862)     (8,990)
   Proceeds from Divested Operations                 -    50,638           -
   Proceeds from disposition of
     property                                        -       149       6,822
   Cash flow from investing activities          (7,511)   48,925      (3,430)
         
   Cash Flows from Financing
     Activities:
   Net borrowings (payments) under
   revolving credit facilities                   7,768    (5,430)      5,430

   Payment of Bankruptcy Claims                 (4,285)   (5,318)     (5,106)

   Borrowings under capital lease
     and other arrangements                          -         -       4,041

   Payments under capital lease
     arrangements                                 (715)     (642)       (358)

   Payment of special dividend                       -   (14,080)          -

   Discontinued operations                           -         -      (6,661)

   Cash flow from financing
     activities                                  2,768   (25,470)     (2,654)

   Increase (decrease) in cash and
     cash equivalents                           (7,507)    7,816     (10,003)
   Cash and cash equivalents at
     beginning of period                        10,376     2,560      12,563

   Cash and cash equivalents at end of
   period                                      $ 2,869   $10,376    $  2,560

   The Notes to Consolidated Financial Statements are an integral part of
   these financial statements.
</TABLE>
<PAGE>
<TABLE>
                                          Multigraphics, Inc.
                            Consolidated Statement of Shareholders' Equity
                                         (Dollars in thousands)
                                                               
                                                                 
                               Common  Stock     Treasury  Stock         Warrants                                           Total
                            -----------------    ----------------  ----------------   Capital in  Accumulated  Cumulative   Share-
                             Number               Number            Number            Excess of   Earnings/   Translation  holders
                            of Shares  Amount   of Shares  Amount  of Shares  Amount  Par Value   (Deficit)    Adjustment   Equity
                              (a)                  (a)               (a)                          
                            ---------   -----    ------    ------   -------   -----    -------   ---------      -------    -------
<S>                         <C>         <C>        <C>     <C>      <C>       <C>      <C>       <C>             <C>       <C>
Balance at July 31, 1995    2,804,000   $  70      498     $  (6)   438,000   $ 383    $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                                           134                                                                           -
  Other, net                                                                               228                                 228
                            ---------   -----    ------    ------   -------   -----    -------   ---------      -------    -------
Balance at July 31, 1996    2,804,000      70      632        (6)   438,000     383     35,865     (34,234)         218      2,296
  Net income                                                                                           103                     103
  Aggregate effect of
   current year translation
   adjustments                                                                                                     (218)      (218)
  Issuance of new common
   stock                       11,969                                                                                            -
  Retirement of Treasury
   Stock                         (632)            (632)        6                            (6)                                  -
  Expiration of Warrants                                            (438,000)  (383)       383                                   -
  Payment of special
   dividend                                                                            (14,080)                            (14,080)
  Other, net                                                                                            (1)                     (1)
                            ---------   -----    ------    ------   -------   -----    -------   ---------      -------    -------
Balance at July 31, 1997    2,815,337      70        -         -          -       -     22,162     (34,132)           -    (11,900)
  Net  Income                                                                                        1,071                   1,071
  Benefit from operating
   loss carryforwards                                                                      646                                 646
  Issuance of new common
   stock                       13,523                                                       39                                  39
  Stock option exercises          666                                                                                            -
                            ---------   -----    ------    ------   -------   -----    -------   ---------      -------    -------
Balance at July 31, 1998    2,829,526   $  70         -    $   -          -   $   -   $ 22,847   $ (33,061)     $     -   $(10,144)
                            =========   =====    ======    ======   =======   =====    =======   =========      =======    ======
 (a) The number of shares have been restated to reflect the effect of
     the 1 for 2 1/2 share reverse stock split which was approved by the
     Company's shareholders on May 28, 1997.

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

</TABLE>  
<PAGE>

   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: Multigraphics, Inc. (the "Company"), a Delaware
   corporation, distributes an extensive range of equipment, supplies,
   and services to the graphic arts industry.  The Company has
   approximately 20,000 customers, including small and mid-size
   commercial printers, quick print franchises, in-plant 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 eight distribution facilities.  To a lesser extent,
   products are distributed internationally through independent dealers.
   The Company employs 342 service technicians throughout the United
   States to provide technical service and training.

   Basis of Presentation: The Consolidated Financial Statements include
   the accounts of Multigraphics, 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 revenues 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.  It is the Company's policy to invest its excess cash in
   interest bearing deposits with major banks and institutional money
   market funds.

   Inventories: Inventories are valued at the lower of cost 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 3 to 10 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."

   Goodwill: The excess purchase price over the fair market value of net
   assets acquired has been allocated to goodwill.  These amounts are
   amortized over the estimated useful lives not to exceed 40 years.
<PAGE>

   Revenue Recognition: Revenue is recognized from sales when a product
   is shipped.  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 experience. Amounts billed for service
   contracts are credited to Service contract deferred income and
   recognized as revenues over the term of the contracts.

   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:  "Basic earnings per share" have been
   calculated based upon the weighted average number of shares actually
   outstanding, and "diluted earnings per share" have been calculated
   based upon the weighted average number of common shares outstanding
   and other potential common shares if they were dilutive.


   Note 2 -  Acquisitions

   In December, 1997 the Company purchased all of the outstanding shares
   of Publishing Solutions Inc., and acquired the operating assets of
   Hanley Graphic Products Company.  Publishing Solutions provides its
   customers in northeast and central Ohio with equipment and systems
   integration solutions utilizing digital technologies for design, pre-
   press, imaging, and interactive media applications.  Hanley Graphic
   Products Company is a regional dealer of graphic arts equipment and
   supplies serving customers in Northern Illinois.  In June, 1998 the
   Company acquired the business and certain assets of Progressive
   Lithoplate and Supply Company, a regional graphic arts dealer serving
   customers in Northern Illinois.

   The aggregate purchase price for the three companies was $6,873
   including expenses of the transactions, and could increase by a
   maximum of $1,950, contingent upon the attainment of certain
   operating targets by the acquired companies over the next two years.
   The excess purchase price over the fair market value of net assets
   acquired amounts to a  preliminary value of $3,723, which will be
   amortized over a period not to exceed forty years.  The allocation of
   purchase price was based on preliminary estimates, and may be revised
   at a later date.

   The acquisitions have been accounted for as purchases and,
   accordingly, the financial statements include results of operations
   from the date of acquisition.  The following pro forma summary
   presents the results of operations for the current and prior period
   as though the acquisitions had taken place at the beginning of the
   prior period.  The pro forma amounts give effect to certain
   adjustments including increased interest expense, goodwill
   amortization, estimated income tax expense as well as other factors,
   and do not necessarily reflect the results which would have occurred
   had the businesses operated as a single entity during such periods,
   nor are they necessarily indicative of results which may be obtained
   in the future.
<PAGE>

<TABLE>
                        July 31,    July 31,
                            1998        1997
   <S>                  <C>         <C>
   Revenues             $108,063    $120,385
                        
   Net Income           $  1,110    $    335

   Earning per share:

   Basic                 $  0.39     $  0.12

   Diluted               $  0.38     $  0.12
</TABLE>

   Note 3 - Borrowing Arrangements

   The Company's short and long-term borrowings are comprised of the
   following:
<TABLE>
                                 July 31,        July 31,
                                   1998            1997
    <S>                            <C>           <C>
    Revolving Credit Facility      $ 7,768       $      -
    General Unsecured Claims      
      & Priority Tax Claims          2,364          6,649
    Capital Leases                   1,760          2,476

             Total                 $11,892       $  9,125




   Classified in the Consolidated Balance Sheet
   as follows:
      Short-term                   $10,844       $  5,773
      Long-term                      1,048          3,352

              Total                $11,892       $  9,125

</TABLE>
<PAGE>
   In May, 1997 the Company entered into a $10,000 three year secured
   Revolving Credit Facility (subject to borrowing base limitations)
   with Foothill Capital Corporation ("Foothill").  The Revolving Credit
   Facility includes a $5,000 sub-facility for the issuance of letters
   of credit.  As security for utilization of the Revolving Credit
   Facility, the Company granted a security interest and general lien
   upon all of its assets.  On February 19, 1998 the Revolving Credit
   Facility was amended and restated ("the Amendment") to add the
   Company's wholly owned subsidiary, Publishing Solutions Inc., as a
   co-borrower under the Facility.  The Amendment was made, among other
   things, to allow the eligible assets of Publishing Solutions Inc. to
   be included in the Company's borrowings base and to reset the
   Company's covenant requirements in light of the acquisitions made by
   the Company during the quarter ended January 31, 1998.  On July 30,
   1998 the Revolving Credit Facility was amended further to, among
   other things, (1) grant the Company the ability to increase the
   Revolving Credit Facility limit in increments of $1,000 up to a
   maximum limit of $15,000 and, (2) extend the expiration date an
   additional two years to May 30, 2002 plus an automatic one year
   extension unless terminated pursuant to the terms of the Revolving
   Credit Facility.  On July 31, 1998, the Company increased the
   Revolving Credit Facility limit to $11,000 and the calculated
   borrowing base was approximately $11,000.  As of July 31, 1998, the
   Company had borrowings of $7,768 under the Revolving Credit Facility
   and was utilizing approximately $1,804 of the facility to secure
   outstanding letters of credit.  Interest generally will be charged at
   a spread of 1% above the reference (i.e. prime) rate of Foothill and
   can be reduced in 1/2% increments in each of the next two fiscal
   years if certain performance measures are achieved.  As of July 31,
   1998 the reference rate was 8.5%.  Letter of credit fees are 0.75%
   per annum plus issuance costs and processing fees.  The agreement
   contains restrictive covenants limiting capital expenditures,
   restricting the payment of dividends and other payments and providing
   for quarterly measures of working capital and net worth, among other
   things.  In addition, the agreement limits the Company's ability to
   borrow or to request letters of credit following a material adverse
   change as determined by Foothill.  As of July 31, 1998, the Company
   was in compliance with the covenants of the Revolving Credit
   Facility.

   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, 1998 the Company had $2,179 of restricted cash which pertains to
   the settlement of disputed claims in accordance with the Plan.

<PAGE>


   Note 3 - Borrowing Arrangements  (Continued)

   As of July 31, 1998, aggregate maturities of total debt and
   capitalized leases, are as follows:
<TABLE>
        <S>
        Due fiscal year ending:
                  <C>                      <C>
                  1999                     $3,078
                  2000                        533
                  2001                        211
                  2002                      7,925
                  2003 and thereafter         145
</TABLE>
   The Revolving Credit Facility is classified as a current liability on
   the balance sheet to comply with the accounting requirements.
   However, for the aggregate debt maturities above,  the Revolving
   Credit Facility amount of $7,768 is reflected in 2002, the year the
   Revolving Credit Facility expires.

   Cash paid for interest was $1,202 during 1998, $1,647 during 1997 and
   $2,282 during fiscal 1996.


   Note 4 - Capital Structure

   On May 1, 1997 the Board of Directors declared a special dividend of
   $2.00 per common share, payable to holders of record as of May 13,
   1997.  The dividend, which totaled approximately $14,080, was
   disbursed on May 27, 1997.

   On May 28, 1997 the Company's shareholders approved amendments to the
   Company's Second Restated Certificate of Incorporation: (1)
   decreasing the authorized number of shares of capital stock from
   50,000,000 shares to 10,000,000 shares with 9,500,000 shares being
   reserved for issuance as Common Stock and 500,000 shares being
   reserved for issuance as Preferred Stock, (2) changing the name of
   the Company to Multigraphics, Inc., and (3) effecting a 1 for 2 1/2
   share reverse stock split thereby decreasing the number of issued and
   outstanding shares of the Company's Common Stock to 2,815,337
   (without giving effect to elimination of fractional shares) and
   increasing the par value of each Common share from $.01 to $.025 per
   share.  The Company has not issued any Preferred Stock.  The Common
   Stock is not subject to conversion or redemption and when issued is
   fully paid and non-assessable and has no preemptive rights.  All
   references in the accompanying financial statements to the number of
   common shares and per-share amounts have been restated to reflect the
   reverse stock split and change in par value.

<PAGE>
   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, 1998 and
   July 31, 1997, disputed claims amounted to $5,205 and $8,205,
   respectively.  The disputed claims are primarily comprised of
   environmental and product liability claims.  Although the vast
   majority of the claims filed in the bankruptcy proceedings have been
   expunged or resolved within the Company's reserves, a few significant
   disputed claims remain pending in the bankruptcy proceeding.

   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.  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 in the bankruptcy proceedings and the other legal
   proceedings 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.



   Note 5 - Commitments and Contingencies (continued)

   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.

<PAGE>
   Note 6 - Income Taxes
<TABLE>
   The components of income tax expense (benefit) are as follows:


                                       Twelve Months Ended

                                  July 31,   July 31,   July 31,
                                    1998       1997       1996

   <S>                           <C>         <C>        <C>
   The domestic and foreign components of income (loss)
     from continuing operations are as follows:

   Domestic                      $   1,717    $    366   $(18,857)

   Foreign                               -        (263)    (1,397)

                                 $   1,717    $    103   $(20,254)
                                                      

   Provision (benefit) for income taxes
      for continuing operations:

      Domestic                   $     646    $      -   $      -

      Foreign                            -           -        (97)

                                 $     646    $      -   $    (97)

                                                          

   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 (loss)                 $     584     $    35   $ (6,886)

   Operating loss with no
    current tax benefit and
    varying tax rates of other
    national governments                 -          89      6,597

   Permanent tax differences            19        (124)       192

   State taxes, net of federal
     benefit                            43           -          -

   Income tax expense (recovery) $     646     $     -   $    (97)
   
</TABLE>

<PAGE>
   Note 6 - Income Taxes (continued)

   The Company accounts for income taxes pursuant to Statement of
   Financial Accounting Standard (SFAS) No. 109.  At July 31, 1998 and
   July 31, 1997 the approximate amounts of deferred tax assets and
   deferred tax liabilities resulting from temporary differences and
   carryforwards were as follows:
<TABLE>

                                    1998       1997
  <S>                            <C>         <C>
  Deferred Tax Assets
        Inventory valuation       $ 1,200    $ 1,100
        Insurance reserves          4,400      4,700
        Other                       3,800      6,100

   Subtotal                         9,400     11,900
   Domestic tax operating loss
   carryforwards limited by
   Sec 382.                        21,000     21,000
   Domestic tax operating loss
   carryforwards                   60,000     59,300
   AMT credit carryforward          1,800      1,800

   Deferred Tax assets             92,200     94,000
        Valuation allowance       (92,200)   (94,000)

   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, 1998, the Company had domestic tax loss carryforwards of
   approximately $158,000 attributable to post-reorganization periods
   and therefore not subject to limitation.  The domestic tax loss
   carryforwards will expire from 1999 to 2013.  The AMT credit,
   although subject to the Sec. 382 limitation, has no expiration date.

   During 1998, the deferred tax asset and related valuation allowance
   decreased by $1,800 primarily due to decreases in the Company's
   reserve balances.  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 by
   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.

<PAGE>
   Note 7 - Deferred Compensation

   Restated for the reverse stock split discussed in Note 4, as of July
   31, 1998, the Company's 1994 Long Term Incentive Plan provides for
   the issuance of 560,000 shares of $.025 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, become
   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 canceled upon the employee's termination and
   any vested shares must be exercised within 90 days or they are also
   canceled
<TABLE>
                                         1998                     1997

                                        Exercise                 Exercise 
                                         Price                    Price
                            Number       Range        Number      Range
                              of                        of
                            Shares     Per Share      Shares     Per Share
   <S>                    <C>      <C>              <C>       <C>
   Outstanding at the                                                  
   Beginning of the Year   293,649 $2.1875-8.660     202,460  $  6.250-8.660

    Granted                129,000 $ 2.500-4.875     179,150  $2.1875-2.4375
    Exercised                (666) $      2.4375    (11,969)* $        3.000
    Canceled              (71,600) $2.1875-8.660    (75,992)  $ 4.6426-6.875

   Outstanding at the End
   of the Period           350,383 $2.1875-8.660     293,649  $ 2.1875-8.660
    
   Exercisable at the End
   of the Period           104,416 $2.1875-8.660      87,039  $ 2.1875-8.660
   

   * All 11,969 shares were issued as share awards and not as options
   under the Company's 1995 Executive Incentive Compensation Plan.
</TABLE>
   As permitted under Statement of Financial Accounting Standards No.
   123 ("SFAS 123"), "Accounting for Stock-Based Compensation," the
   Company has elected to follow Accounting Principles Board Opinion No.
   25, "Accounting for Stock Issued to Employees" ("APB 25"), in
   accounting for stock-based awards to employees.  Under APB No. 25,
   because the exercise price of the Company's employee stock options
   equals the market price of the underlying stock on the date of grant,
   no compensation expense is recognized in the Company's financial
   statements for all periods presented.

   Pro forma information regarding net income and earnings per share is
   required by SFAS No. 123. This information is required to be
   determined as if the Company had accounted for its employee stock
   options granted subsequent to July 31, 1995 under the fair value
   method of that statement. The fair value of options granted in fiscal
   years 1998, 1997 and 1996 reported below has been estimated at the
   date of grant using the following weighted average assumptions:
<PAGE>
<TABLE>
   <S>                           <C>      <C>      <C>
                                 1998     1997     1996
   Risk-free rate (%)            5.90     5.85     5.96
   Volatility  (%)               33.0     25.0     30.0
   Expected Life (in years)      5        5        5
   Dividend Yield                ---      ---      ---
</TABLE>
   Option valuation models require the input of highly subjective
   assumptions, including the expected stock price volatility. Because
   the Company's options have characteristics significantly different
   from those of traded options, and because changes in the subjective
   input assumptions can materially affect the fair value estimate, in
   the opinion of management, the existing models do not necessarily
   provide a reliable single measure of the fair value of its options.
   The weighted average estimated fair value of stock options granted
   through July 31, 1998, 1997 and 1996 was $1.55, $1.72 and $2.38 per
   share, respectively.

   Note 7 - Deferred Compensation (continued)

   For purposes of pro forma disclosures, the estimated fair value of
   the options is amortized to expense over the options' vesting period.
   The Company's pro forma net income and per share data from continuing
   operations is as follows:

<TABLE>
   <S>                             <C>       <C>      <C>
                                    1998      1997     1996
   Pro Forma Net Income (loss):    $1,029    $   94   $ (20,159)

   Pro Forma Per Share Data:
                     Basic         $  .36    $  .03   $   (7.19)
                     Diluted       $  .36    $  .03   $   (7.19)
</TABLE>

   Because the Company anticipates making additional grants and options
   vest over several years, the effects on pro forma disclosures of
   applying SFAS No. 123 are not likely to be representative of the
   effects on pro forma disclosures of future years. SFAS No. 123 is
   applicable only to options granted subsequent to July 31, 1995.


   Note 8 - Unusual Items

   On September 20, 1996, the Company completed the sale of its
   2,148,000 shares of AM Japan Co., Ltd. ("AM Japan") and received
   proceeds of approximately $10,600, net of certain costs.  A gain of
   approximately $2,600 was recorded by the Company in the quarter ended
   November 2, 1996, after providing for expenses related to the sale.

   On October 17, 1996, the Company's Canadian subsidiary filed for
   voluntary assignment in bankruptcy.  Reserves for the cost to exit
   Canada, which had been established in the fiscal year ended July 31,
   1996, were adequate and no additional costs were recognized.
<PAGE>
   On December 2, 1996, the Company and Xeikon, N.V. entered into an
   agreement under which the parties agreed not to renew the
   distribution agreement.  The distribution agreement provided for the
   Company to sell and service Xeikon digital color presses in North
   America.  As part of this agreement, Xeikon America, Inc. has
   acquired certain assets from the Company and assumed certain
   responsibilities of the Company.  The divestiture of the assets
   resulted in a net loss of approximately $500 which the Company
   recorded in the quarter ending November 2, 1996.

   During 1996, the Company had provided $7,032 to cover certain
   restructuring actions to be carried out in 1997.  These restructuring
   actions consisted of: 1) $2,845 of severance and benefits associated
   with the termination of seven employees, including three officers, in
   conjunction with approved plans to close the corporate office and
   consolidate certain functions of the Company, 2) $3,561 to write-off
   net assets of the Company's Canadian subsidiary in connection with
   plans to exit this operation, and 3) $626 of facility closure,
   equipment disposal, and severance costs associated with management's
   plans to exit its manufacturing business.  These actions were
   substantially concluded in 1997.


   Note 9 - Discontinued Operations


   The results of discontinued business units are included in the
   consolidated statements of operations under "discontinued
   operations."  The following table summarizes key financial data
   related to the discontinued operations:
<TABLE> 
                                        Twelve Months ended

                                   July 31,    July 31,   July 31,
                                     1998       1997        1996
   <S>                              <C>        <C>        <C>
   Net sales                        $     -    $     -    $ 149,256

   Gross margin                           -          -       34,709

   Operating income (loss)                -          -      (6,749)

   Non-operating (income)
   expense                                -          -        2,136

   Allocated interest expense             -          -          581
                                         
   Income tax provision
   (benefit) applicable
   to discontinued businesses             -          -          664

   Income (loss) from operations
   of discontinued businesses net
   of taxes                               -          -     (10,130)

   Loss on sale                           -          -     (15,212)

   Income (loss) from
   discontinued operations          $     -    $     -    $(25,342)
</TABLE>
<PAGE>

   
   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 was 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 fiscal year 1996 the Company completed the exit of its
   Multigraphics - International subsidiaries with the sale of its
   subsidiaries in the Netherlands, France, and Belgium and the
   placement of the Company's 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
   Multigraphics - International subsidiaries.   The results of operations
   of Sheridan Systems and the divested 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.

<PAGE>
<TABLE>
   Note 10 - Balance Sheet Accounts

                                       July 31,   July 31,
                                         1998       1997
   <S>                               <C>         <C>
   Accounts receivable:
     Accounts receivable             $ 14,929    $ 11,080
     Allowance for doubtful
      accounts                          (300)       (334)

   Accounts receivable, net          $ 14,629    $ 10,746

   Property, plant and equipment:
     Machinery and equipment         $ 11,985    $ 14,196
   
     Leasehold improvements             3,338       3,103

                                       15,323      17,299
   Less accumulated depreciation       
   and amortization                   (5,769)     (7,077)

   Property, plant and equipment, net $ 9,554    $ 10,222

   Goodwill:
        Goodwill                     $  3,723    $      -
        Amortization                     (42)           -

        Goodwill,  net               $  3,681    $      -
</TABLE>

   Note 11 - Retirement Benefit Plans

   The Company maintains defined contribution retirement plans for
   domestic employees comprised of a savings plan (401(k)) and a profit
   sharing plan (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 $800, $911 and $1,317 in
   1998, 1997 and 1996 respectively.

   In addition, 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.
<PAGE>
   Net post-retirement life and health care cost includes the following
   components:
<TABLE>
                                            Twelve Months Ended

                                       July 31,   July 31,    July 31,
                                         1998       1997        1996

   <S>                                 <C>         <C>        <C>
   Service Cost - benefits earned      
   during the period                   $       3   $      3   $      5
   Interest cost on accumulated post-
   retirement benefit obligation             622        622        843
   Amortization of unrecognized
   actuarial gain                           (50)      (304)          -

   Total life and health care costs    $     575   $    321   $    848

   The plans' funded status at July
   31, was as follows:
                                           1998       1997        1996

   Actuarial present value of benefit
   obligations-
      Retirees                         $   7,323   $  8,348   $  9,617
      Fully eligible active
        participants                         197        224        294

   Accumulated postretirement benefit
   obligation                              7,520      8,572      9,911
   Cumulative unrecognized actuarial
   gain                                    1,106      1,157        253
   Plan assets                                 -          -          -

   Accrued post-retirement life and    
   health care costs                   $   8,626   $  9,729   $ 10,164


   Assumptions used for the Company's retiree life and health care plans
   as of July 31, were as follows:

                                           1998       1997
   Discount rate for determining
   obligations and interest cost           7.25%      7.25%
</TABLE>

   If the health care cost trend rates were increased 1% for all future
   years, the accumulated post-retirement benefit obligation would have
   increased 2.9% at July 31, 1998.  The effect of this change on the
   aggregate of service and interest costs would have been an increase
   of 2.6% for 1998.  An 11% increase in the health care cost trend rate
   was assumed for retirees under age 65 and an 9.0% increase for those
   over the age of 65.  These rates are assumed to decrease gradually to
   5.5% in the year 2001.

<PAGE>
   Note 12 - 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, 1998, the future lease payments
   for continuing operating leases are as follows:
<TABLE>
             <C>                                    <C>
             1999                                   $1,666
             2000                                    1,413
             2001                                    1,264
             2002                                    1,266
             2003                                    1,283
             2004  and thereafter                    2,459

             Total future operating
             lease payments                         $9,351
</TABLE>

   Rental expenses for all operating leases were $2,026, $2,741 and
   $5,184 in 1998, 1997 and 1996, respectively.


   Note 13 - Geographic Segments

   The Company is a distributor of equipment, supplies and services to
   the graphic arts industry.  Its only current operations are in the
   United States.  The Company distributes on a lesser scale
   internationally through foreign dealers.  In September 1996, the
   Company sold all of its interest in its AM Japan subsidiary.

<TABLE>
                          Twelve Months Ended

                    July 31,   July 31,    July 31,
                      1998      1997        1996
   <S>               <C>        <C>      <C>
   Revenues
      North America  $ 95,251   $87,510  $137,981
      Japan                 -     1,151    30,071
             Total   $ 95,251   $88,661  $168,052


   Operating Profit (Loss)
      North America  $  3,271    $1,609  $(16,007)
      Japan                 -     (340)      (442)

             Total   $  3,271    $1,269  $(16,449)


   Assets
      North America  $ 45,639   $44,900  $  47,324
      Japan                 -         -      7,698

             Total   $ 45,639   $44,900  $  55,022
</TABLE>
<PAGE>
   Note 14 - Quarterly Financial Information - (Unaudited)
   A summary of quarterly financial information for fiscal 1998 and 1997
   is as follows:
<TABLE>
                                               Quarter
   <S>                       <C>      <C>       <C>      <C>      <C>
   1998                       1st       2nd      3rd      4th      Total
                                                                    Year
   Revenues                  $20,700  $22,199   $27,431  $24,921  $ 95,251
   Gross Profit                5,546    5,364     7,165    7,107    25,182

   Net income                $   158  $   164   $   555   $  194  $  1,071


   Per Common Share (1):

   Basic                     $  0.06  $  0.06   $  0.20   $ 0.07  $   0.38

   Diluted                   $  0.06 $   0.06   $  0.19   $ 0.07  $   0.37

   Closing Market Price (2)
            High             $ 2.750  $ 4.688   $ 6.375   $8.938   $ 8.938
            Low              $ 1.625  $ 2.500   $ 3.750   $4.750   $ 1.625


                                               Quarter

   1997                       1st       2nd      3rd      4th      Total
                                                                    Year
   Revenues                  $27,699  $20,767   $20,869  $19,326  $ 88,661
   Gross Profit                7,246    5,558     6,277    5,709    24,790
   Net income (loss)         $   519  $ (857)   $   268   $  173  $    103



   Per Common Share (1):
                             
   Basic                     $  0.19  $(0.31)   $  0.10   $ 0.06  $   0.04

   Diluted                   $  0.19  $(0.31)   $  0.10   $ 0.06  $   0.04

   Closing Market Price (2)
            High              $1.700   $1.850   $ 1.500   $2.500  $  2.500
            Low               $0.550   $1.500   $ 1.100   $1.500  $  0.550


   (1) Sum of quarters may not equal the total for the year due to changes
       in the number of shares outstanding during the year.

   (2) The Company's common stock is traded on the American Stock Exchange
       under the ticker symbol "MTI".  Market price has been restated to
       reflect the effect of the 1 for 2-1/2 share reverse stock split
       approved by the Company's shareholders on May 28, 1997.
</TABLE>
<PAGE>

   Note 15 - Five Year Financial Summary
<TABLE>                                                                   
                                                       Sept. 30    Aug. 1
                                                         1993      1993
                                                        Through   Through
                                  Years Ended              
    
    Operations:           July     July    July    July  July 31,  Sept. 29,
                          31,      31,     31,     31,     1994      1993
                         1998      1997   1996    1995
    <S>                 <C>      <C>     <C>     <C>    <C>       <C>
    Revenues            $ 95.3   $ 88.7  $168.1  $191.5 $  163.8  $     26.5
    Gross profit          25.2     24.8    37.6    52.7     51.4         7.0
      as a percent     
      of revenues         26.4%    28.0%   22.4%   27.5%    31.4%      26.4%
    Unusual items
    (inc.) exp.              -     (2.1)    7.0       -        -           -
    Operating
      income (loss)        3.3      1.3   (16.4)   (2.5)     6.8       (2.0)
      as a percent       
      of revenues          3.5%     1.5%   -9.8%   -1.3%     4.2%      -7.5%
    Net income (loss)
      from continuing
      operations           1.1      0.1   (20.2)   (4.2)     2.1        21.8
    Income (loss)
      from discontinued
      operations             -        -   (25.3)    8.8      4.6      (27.8)     

    Extraordinary gain                        -       -        -        58.7
    Net income (loss)   $  1.1   $  0.1  $(45.5) $  4.6 $    6.7  $     52.7
    Capital Employed
      Working Capital    (11.2)    (5.9)  (38.9)   61.5      8.7      (17.6)
      Total Assets        45.6     44.9    98.0   163.1    169.2       164.4
      Long-Term Debt       1.0      3.4     8.5    14.9     19.4        25.5
    Shareholder's Equity (10.1)   (11.9)    2.3    48.3     42.8        36.0
    Per Common Share
     Net income(loss) from
       continuing operations                                             N/A
     
      Basic             $ 0.38   $ 0.04  $(7.19) $(1.48)  $ 0.75
      Diluted           $ 0.37   $ 0.04  $(7.19) $(1.48)  $ 0.75
    Market Price            
      High (1)          $8.938   $2.500  $20.938 $30.625  $29.688        N/A
      Low (1)           $1.625   $0.550  $ 4.688 $20.313  $21.875        N/A
    Average number of common shares
     and equivalents (in thousands) (2)
                        
      Basic             $2,823   $2,807  $2,803  $2,808   $2,802         N/A
      Diluted           $2,895   $2,811  $2,803  $2,808   $2,802         N/A
   Number of Employees
   at Year End             671      651   1,121   1,378    1,520       1,633
   
                
       (1) Trading of Reorganized Company Stock commenced on
           December 6, 1993.
<PAGE>
       (2) The weighted average number of common shares and net income
           per common share have been restated to reflect the effect of
           the 1 for 2 1/2 share reverse stock split which was approved
           by the Company's shareholders on May 28, 1997.  The net income
           per common share and average number of common shares and
           equivalents for the predecessor Company has not been presented
           as this information is not comparable.
</TABLE>



                     REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


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

   We have audited the accompanying consolidated balance sheets of
   Multigraphics, Inc. as of July 31, 1998 and 1997, and the related
   consolidated statements of operations, shareholders' equity and cash
   flows for each of the three years in the period ended July 31, 1998.
   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
   Multigraphics, Inc. as of July 31, 1998 and 1997, and the results of
   its operations and cash flows for each of the three years in the
   period ended July 31, 1998, in conformity with generally accepted
   accounting principles.


   ARTHUR ANDERSEN LLP


   Chicago, Illinois
   September 25, 1998

<PAGE>

                 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                ON SCHEDULE


   To Multigraphics, Inc.:

   We have  audited,  in  accordance with  generally  accepted  auditing
   standards,  the   consolidated  financial   statements  included   in
   Multigraphics, Inc.'s Annual Report  to Stockholders incorporated  by
   reference in this Form 10-K, and have issued our report thereon dated
   September 25, 1998.  Our audit was made for the purpose of forming an
   opinion on those statements taken as a whole.  The schedule listed in
   Part IV,  Item  14(a)(2)  is  the  responsibility  of  the  Company's
   management and is presented  for the purposes  of complying with  the
   Securities and Exchange  Commission's rules and  is not  part of  the
   basic financial statements.  This schedule has been subjected to  the
   auditing procedures  applied  in the  audit  of the  basic  financial
   statements and,  in  our  opinion,  fairly  states  in  all  material
   respects the financial data required to  be set forth therein in  re-
   lation to the basic financial statements taken as a whole.


   ARTHUR ANDERSEN LLP



   Chicago, Illinois,
   September 25, 1998


                       
   COMPANY DESCRIPTION

        Multigraphics, Inc., is a distributor of a broad range of
        equipment and supplies and a service provider to the graphic
        arts industry. The Company employs approximately 670 people and
        is headquartered in Mt. Prospect, Illinois.  In May, 1997 the
        Company's Stockholders approved a change in the name of the
        corporation from "AM International, Inc." to "Multigraphics,
        Inc."

   STOCKHOLDER INFORMATION

        Stock Information

        Multigraphics, Inc.'s Common Stock trades on the American Stock
        Exchange under the ticker symbol "MTI".

        Stockholders of Record

        As of October 21, 1998 the Company had approximately 1,000
        stockholders of record.

        Investor Inquiries
<PAGE>
        Analysts, portfolio managers and representatives of financial
        institutions seeking information about the Company should
        contact Thomas D. Rooney at the corporate headquarters or call
        (847) 375-1700.

        Stock Transfer Agent and Registrar

        First Chicago Trust Company of New York
        P.O. Box 2500
        Jersey City, New Jersey  07310
        (800) 446-2617

        Annual Meeting of Stockholders

        The Annual Meeting of Stockholders for the fiscal year ended
        July 31, 1998 will be held on December 3, 1998 at 11:00 a.m.
        (Central Standard Time) at the Company's headquarters at 431
        Lakeview Court, Mt. Prospect, IL, 60056.

        Reports and Publications

        The Company's Report on Form 10-K (without exhibits other than
        those specifically incorporated therein by reference), Annual
        Report to Stockholders, Proxy Statement, Quarterly Reports or
        other printed corporate literature can be obtained without
        charge, upon written request to the Shareholder Relations
        Department at the corporate headquarters, or by calling (847)
        375-1700.

        Independent Public Accountants     Corporate Headquarters

        Arthur Andersen LLP                Multigraphics, Inc.
        33 West Monroe Street              431 Lakeview Court
        Chicago, Illinois  60603           Mt. Prospect, Illinois
        60056
                                          (847) 375-1700


        Board of Directors

        Jeff M. Moore                      Robert E. Anderson III
        Apollo Advisors, L.P.              Owens & Minor, Inc.

        Jeffrey D. Benjamin                Robert N. Dangremond
        Co-Chief Executive Officer         Principal
        Libra Investments                  Jay Alix & Associates
                                           
        Thomas D. Rooney                   
        President and CEO
        Multigraphics, Inc.

        Committees of the Board
<PAGE>
        Audit Committee           Compensation and Management Committee

        Jeff M. Moore, Chairman           Jeffrey D. Benjamin, Chairman
        Robert E. Anderson III            Robert E. Anderson III
        Jeffrey D. Benjamin               Robert N. Dangremond
        Robert N. Dangremond              Jeff M. Moore

        Executive Officers

        Thomas D. Rooney
        President and
        Chief Executive Officer

        Steven R. Andrews
        Vice President, General Counsel and Secretary

        Mark F. Duchesne
        Vice President Distribution Operations

        Donald W. Hanigan
        Vice President and President,
        Hanley Graphic Products Division

        Gregory T. Knipp
        Vice President, Chief Financial Officer and Treasurer

        Raymond T. Leach
        Vice President and CEO,
        Publishing Solutions Inc.

        Charles T. Richards
        Vice President Service Operations

        Keith E. Stewart
        Vice President and President
        Publishing Solutions Inc.