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

                                   FORM 10-K
(Mark One)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM                     TO
                               -------------------    ---------------

                         Commission file number 0-28834

                           ABACUS DIRECT CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                                                  <C>
                   Delaware                                                      84-111816 6
--------------------------------------------------------------        ------------------------------------
(State or Other Jurisdiction of Incorporation or Organization)        (I.R.S. Employer Identification No.)

                 8774 Yates Drive, Westminster, Colorado                      80030
-------------------------------------------------------------------------------------------------
                 (Address of principal executive offices)                  (Zip Code)
</TABLE>


Registrants telephone number including area code:  (303) 657-2800

                        (Registrant's telephone number)

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

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

                    Common Stock, Par Value $.001 Per Share
--------------------------------------------------------------------------------
                                (Title of Class)


Indicate by checkmark 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 checkmark 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 2, 1998 is $434,467,775.

The number of shares outstanding of the registrant's Common Stock as of March
2, 1998 is 9,693,690.

Portions of the definitive Proxy Statement to be filed pursuant to Regulation
14A promulgated under the Securities Exchange Act of 1934 in connection with
the registrant's 1998 Annual Meeting of Stockholders are incorporated by
reference herein.

Exhibit A to the definitive Proxy Statement filed pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934 in connection with the
registrant's 1997 Annual Meeting of Stockholders is incorporated by reference
herein.

Exhibit 10.06 to the Annual Report on Form 10-KSB of the registrant for the
fiscal year ended December 31, 1996 is incorporated by reference herein.

Portions of the registrant's Registration Statement which includes the
Prospectus, dated September 26, 1996, of the registrant filed pursuant to Rule
424(b) promulgated under the Securities Act of 1933 are incorporated by
reference herein.



                                    - 2 -

<PAGE>   3
                                     PART I

ITEM 1.   BUSINESS.

          Abacus Direct Corporation ("Abacus" or the "Company") is a leading
provider of information products and marketing research services to the direct
marketing industry.  Abacus has developed a comprehensive and predictive source
of information regarding consumer purchasing behavior by creating a database
which includes consumer purchasing data from over 870 merchandise catalogs.
Abacus uses this proprietary database and its advanced statistical modeling
technology to provide direct marketers with information and analysis which
allows them to increase response rates and profits from their marketing
campaigns.  The cost to a catalog company of using the Company's services is
typically less than 10% of the overall cost of such a marketing campaign.

          As the global market for consumer goods and services has become
increasingly competitive, businesses are seeking to enhance their market
position by strengthening relationships with existing customers and targeting
new markets and customers. As a result, a growing number of businesses are
using direct marketing programs to identify and reach large numbers of
consumers in a cost-effective manner. Direct marketing programs are used for a
wide variety of products and services, including catalog merchandise, books and
periodicals, financial services, telecommunications, retail, business to
business, technology and fundraising.

          Direct marketers, particularly consumer catalog companies, have long
considered consumers' past catalog purchasing patterns to be the best predictor
of future purchasing behavior and, therefore, the best indicator for targeting
marketing efforts. It has historically been difficult, however, for direct
marketers to obtain a comprehensive view of consumers' purchasing patterns.
Such companies have, therefore, attempted to expand their customer base by
augmenting their existing customer lists with lists of rented or exchanged
names of prospects who have purchased merchandise from other catalogs and
continuing to use those lists that generate sufficiently high response rates
and profit levels and abandoning those lists that do not. Although this
traditional approach has allowed many catalog companies to expand their
customer base, increasing competition and rising costs of direct marketing
activities have created a need for a comprehensive source of consumer catalog
purchasing information to allow more cost-effective targeting of their
marketing efforts.

          The Company has addressed the need for a comprehensive source of
information on purchasing behavior by forming the Abacus Alliance, a
cooperative arrangement through which direct marketers, particularly catalog
companies, contribute their customers' purchasing histories to the Company in
exchange for access to the Company's information products and marketing
research services. The Company's services allow such companies to improve the
profitability of their mailing campaigns by enabling them to (i) target new
consumers whose past purchasing




                                    - 3 -


<PAGE>   4
behavior indicates that they are likely to purchase a particular product at a
given time, (ii) prioritize existing customers by the probability of a positive
response based on historical buying patterns, (iii) eliminate prospects from
rented or exchanged lists that have a low probability of responding, and (iv)
properly position their products and develop marketing strategies through
market research.

          As of December 31, 1997, the Abacus database contained over 88
million detailed buyer profiles compiled from records of over 1.5 billion
catalog purchasing transactions. The Company receives this data from the more
than 870 members of the Abacus Alliance. The Company believes Abacus Alliance
members include over 75% of the largest consumer merchandise catalogs in the
United States.  The Company works closely with each client to determine its
needs, and applies advanced statistical modeling techniques to extract from the
database the names of consumers most likely, or least likely, to buy a product
offering. The Company's database is continually enhanced as members contribute
current sales transaction information and additional catalog companies join the
Abacus Alliance.

          In order for clients to use the Company's services, they must pay for
each service according to a fee schedule established by the Company from time
to time, every time they utilize such services.  By continually adding new data
to its database, increasing the performance of its existing information
products and marketing research services, providing new types of value added
services and continuing to invest in new technology, the Company seeks to
increase revenue from existing clients, develop new sources of revenue and
maintain its high client retention rate.  The Company believes that the
favorable results that its clients have achieved using the Company's
information products and marketing research services have led to a retention
rate of more than 90% from 1996 to 1997, from 1995 to 1996 and from 1994 to
1995, respectively, excluding those clients that are no longer operating
catalogs.  In addition, the Company has begun to leverage the resources and
capabilities it has developed to serve the catalog industry by applying those
resources and capabilities to other industries which use direct marketing
techniques.

          On October 2, 1996, the Company consummated an initial public
offering (the "Offering") of 5,068,000 shares of its Common Stock, par value
$.001 per share (the "Common Stock"), of which 4,613,455 shares were sold by
certain stockholders (the "Selling Stockholders") of the Company.  On October
28, 1996, the Company consummated the sale of 760,200 shares of Common Stock of
the Selling Stockholders solely to cover over-allotments.  The Common Stock was
sold in the Offering at a price of $14.00 per share less underwriters discounts
and commissions of $.98 per share.  The Offering was underwritten on a firm
commitment basis by Robertson, Stephens & Company LLC, Hambrecht & Quist LLC
and William Blair & Company LLC, as representatives of the underwriters.

          The Company's predecessor, Abacus Direct Corporation, was
incorporated in Colorado in May, 1989. The Company was reincorporated in
Delaware on September 9, 1996. The term





                                    - 4 -
<PAGE>   5

"Company" as used herein refers to Abacus Direct Corporation, a Colorado
corporation prior to the reincorporation and the successor Delaware corporation
thereafter. The principal executive offices of the Company are located at 8774
Yates Drive, Westminster, Colorado 80030 and its telephone number is (303)
657-2800.

RECENT DEVELOPMENTS

          During the year ended December 31, 1997, Abacus continued to expand
its database and the Abacus Alliance. The number of participating catalogs
increased to over 870 catalogs as of December 31, 1997 from 700 as of December
31, 1996, representing an increase of approximately 25%. In addition, the
Company continued making investments in technology and systems capabilities,
significantly increasing its computing capacity.  This growth has enhanced the
predictive capability of the Company's database and the quality of its
housefile, scoring and list optimization products. To more effectively exploit
the benefits of these changes, the Company increased its staff by 60% during
the year ended December 31, 1997.  This has enabled the Company to increase its
revenue by expanding the use of its existing services and providing more
value-added services to its existing clients.

          To accelerate the distribution of data products to the catalog
industry and to other industry segments, Abacus launched the Abacus E-Net(TM)
during 1997. The Abacus E-Net is comprised of a consortium of industry service
bureaus who have agreed to distribute Abacus data services to their customers
using an Abacus standard electronic just-in-time product delivery system.

          The Company is also expanding applications of its services to other
industries which utilize direct marketing techniques. By leveraging its
database and analytical capabilities, the Company has initiated efforts to
provide data lists and related services to prospective clients in the financial
services, telecommunications, retail, business to business, technology and
fundraising industries.

SERVICES

          The Company provides five general categories of information products
and marketing research services to its clients: prospect lists, housefile
scoring, list optimization, marketing research and data enhancement.

          Prospect Lists.  The Company's prospect lists service provides a
client with a list of prospective consumers which is ranked according to the
likelihood that such consumers will respond to a particular direct marketing
campaign.  The criteria for ranking include recency, frequency, time of year
and dollar amount of catalog purchases. This service enables catalog companies
to expand their business base and offset consumer attrition.




                                    - 5 -

<PAGE>   6
          Housefile Scoring.  The Company's housefile scoring service provides
a client with a ranking of the consumers contained on the client's housefile
according to the probability that a particular consumer will make a repeat
purchase from a catalog. This service also allows a client to identify inactive
consumers who are most likely to respond to a renewed sales initiative. The
Company provides these services by matching the Company's database of active
direct marketing consumers with a client's housefile. The housefile program
enables catalog companies to profitably manage promotional programs targeted at
their existing customers and cost effectively determine when to solicit
customers who have not made recent purchases from the catalog.

          List Optimization.  The Company's list optimization service
eliminates stale or unresponsive names from lists that a client has purchased
from or exchanged with other catalog companies, enabling the client to identify
and target the most likely buyers. This process not only increases the
profitability of lists a client currently uses, but permits the client to use
lists that were previously considered unprofitable.

          Marketing Research.  The Company's marketing research service
provides a client with detailed information regarding the catalog industry
which was not previously available to catalog companies. The Company uses the
data contributed by the Abacus Alliance members to create comprehensive written
reports which accurately describe catalog market size, share, activity and
other key marketing data that allow clients to develop their marketing
initiatives. The marketing research service reports provide clients information
on (i) seasonality, to help identify optimal mail dates, (ii) cross-category
catalog purchasing behavior, to allow the refinement of the catalog's
merchandise mix, and (iii) transaction histories, to aid in planning
advertising, cross-promotion and mail frequency.

          Data Enhancement.  The Company's data enhancement service allows
clients outside the catalog industry to use Abacus data to target their
customers. The Company achieves this by overlaying its proprietary database
variables onto its clients' files which provides additional information to
clients regarding their customers. This service is offered to large consumer
companies in industries such as financial services, telecommunications, retail,
business to business and technology and fundraising

TECHNOLOGY

          The Company has made significant investments to develop its
proprietary database and technology. Key elements of the Company's technology
include its proprietary database management and modeling software.

          Database.  The Abacus Alliance database is primarily comprised of
transactional data contributed by the Abacus Alliance members on a monthly,
quarterly or semi-annual basis. The database contains information regarding
each consumer purchase transaction, including the catalog





                                          - 6 -

<PAGE>   7
name, catalog product category, date of purchase and amount of purchase.
Millions of new transactions are added to the database each week, providing an
increasingly detailed purchase profile underlying each catalog consumer in the
database. Transaction updates received from Abacus Alliance members are
converted to the Company's format and processed through a rigorous quality
assurance program. The data is enhanced with externally sourced demographic
data. The Company's database contains records of over 1.5 billion consumer
catalog transactions collected over the past five years. Based on the Direct
Marketing Association's ("DMA") estimate that approximately 82 million
consumers in the United States have purchased from catalog companies during the
past 12 months, the Company believes its database includes virtually all
catalog consumers in the United States.

          Proprietary Software.  The Company's proprietary database management
software is able to manage large databases, facilitating rapid and
cost-effective delivery of modeling and production functions. The Company's
proprietary modeling software utilizes predictive scoring and analytical
techniques to improve list performance. The Company has also developed process
automation software which integrates and automates virtually all stages of
model development and list production and allows the Company to quickly and
cost effectively generate dozens of models for a given client.

          Computer Technology.  The Company has adopted client server computer
architecture which (i) enables parallel processing, permitting large numbers of
tasks to be executed simultaneously at high speed, (ii) is highly scalable,
allowing ongoing capacity increases, and (iii) provides system and data
redundancies that protect against system failures. The Company attempts to
maintain a secure environment for both systems and data by protecting against
unauthorized electronic access. The Company's database is backed up regularly,
utilizing four separate offsite locations. The Company operates its data center
24 hours a day, 7 days a week.

SALES AND MARKETING

          The Company markets and sells its services through a direct sales and
marketing force comprised of 49 people.  The Company believes that its sales
representatives have an in-depth understanding of the catalog industry which
allows them to function as marketing resources for their clients. The Company's
sales strategy includes (i) adding new members to the Abacus Alliance, (ii)
increasing penetration of existing clients by selling additional prospect names
and offering new value added services and (iii) leveraging the Company's
database to serve non-catalog industries that also use direct marketing to
reach their customers.

          The Company has significantly increased its efforts to educate the
catalog industry on the unique marketing services it offers to its clients by
regularly publishing an industry newsletter that highlights a particular
catalog's use of the Company's database and by having Company employees
regularly speak at industry conventions. The Company also hosted its second
annual catalog





                                          - 7 -

<PAGE>   8
company symposium in January 1998, attended by approximately 220 representatives
from catalog companies. Selling and marketing expenses for the year ended
December 31, 1997 were 24.5% of revenue.  The Company believes that selling and
marketing expenses will remain relatively stable as a percentage of revenue
during the next fiscal year.

CUSTOMERS AND CONTRACTS

          The Abacus Alliance consists of over 870 members. Members typically
operate under a three-year contract which provides that a client (i) submit
complete customer history transaction information to the Company on a regular
basis, (ii) license Abacus to use the data and (iii) pay for the Company's
services based upon an established price schedule.  Such three year contracts
do not obligate the Company's clients to use the Company's services or pay the
Company any guaranteed fees. The contracts generally provide for automatic
thirty-six month renewals unless either party elects not to renew.

COMPETITION

          The market for the Company's services is highly competitive.  The
Company believes that the principal competitive factors in this market are
consistent delivery of (i) lists which generate high response rates, in a
timely fashion, and at competitive prices, (ii) large quantities of high
response names, and (iii) individualized customer support.  The Company
competes directly with Smartbase, a division of Acxiom Corporation, Direct
Marketing Technology, a division of Experion Corp. and Experion Corp., each of
which collect and manage information relating to consumer purchase transactions
contributed by large numbers of catalog companies. The Company also competes
with a wide variety of companies which own and generate lists. In addition, the
Company competes indirectly with a number of direct marketing information
service businesses including Metromail Corp., Database America Information
Services, Inc., Donnelley Marketing, Inc. and R.L. Polk. Many of the Company's
existing competitors, and many potential new competitors, have longer operating
histories, greater name recognition and significantly greater financial,
technical and marketing resources than the Company. Such competitors may be
able to undertake more extensive marketing campaigns and make more attractive
offers to potential employees, distribution partners, and database
contributors.

PROPRIETARY TECHNOLOGY

          The Company regards much of its software, database management
methods, modeling techniques and other data base information strategies as
proprietary trade secrets and relies on a combination of trade secret,
copyright, unfair competition and other intellectual property laws as well as
contractual agreements to protect its rights to such intellectual property. Due
to the difficulty of monitoring unauthorized use of and access to the Company's
intellectual property, however, such measures may not provide adequate
protection. In addition, there can be no





                                          - 8 -

<PAGE>   9
assurance that the courts will enforce the contractual arrangements which the
Company has entered into to protect its proprietary technology. In addition,
there has been substantial litigation in the information services and computer
industry involving the ownership and scope of intellectual property rights. The
Company may bring or be subject to litigation to defend against claimed
infringement of its rights or of the rights of others or to determine the scope
and validity of the intellectual property rights of the Company and others.
Adverse determinations in such litigation could result in the loss or compromise
of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties, or prevent
the Company from selling its services which could have a material adverse effect
on the Company's business, financial condition and results of operations.

REGULATION; PRIVACY ISSUES.

          Growing concern about privacy and the collection, distribution and
use of information about individuals has led to self-regulation of such
practices by the direct marketing industry and to increased federal and state
regulation.  The DMA has adopted guidelines regarding the fair use of such
information which it recommends be followed by participants in the direct
marketing industry. The Company is also subject to various federal and state
regulations concerning the collection, distribution and use of information
regarding individuals. Such laws include the Federal Drivers Privacy Protection
Act of 1994 and other state laws which limit or preclude the use of voter
registration and drivers license information, as well as laws which govern the
collection and release of consumer credit information.  Although the Company's
compliance with the DMA's guidelines and such federal and state regulations has
not had a material adverse effect on the Company, no assurance can be given
that the DMA will not adopt additional guidelines or that additional federal or
state laws or regulations (including antitrust and consumer privacy laws) will
not be enacted or applied to the Company or its clients. Any such guidelines,
laws or regulations would adversely affect the ability of the Company to
collect and distribute consumer and other information or otherwise have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, such guidelines, laws or regulations might
restrict or increase the cost of the activities of companies engaged in direct
marketing, potentially reducing their demand for the Company's services which
would have a material adverse effect on the Company's business, financial
condition and results of operations. To the extent the Company's clients do not
comply with such guidelines, laws or regulations, the Company may incur
liabilities which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has also
adopted other policies to address these privacy concerns, including restricting
access to its database, requiring each employee to sign a nondisclosure and
confidentiality agreement and implementing data security systems at the
Company's data center. The Company has typically entered into three year
contracts with its catalog clients and there can be no assurance that a private
litigant or governmental entity will not challenge such arrangements under any
applicable antitrust or other laws.





                                    - 9 -

<PAGE>   10
PRINCIPAL CUSTOMERS

          The Company's ten largest customers accounted for 19.8% of the
Company's net sales for the year ended December 31, 1997.  No customer
accounted for more than 6% of the Company's consolidated net sales in the
fiscal year ended December 31, 1997. No customer accounted for more than 5% of
the Company's consolidated net sales in the fiscal year ended December 31,
1997.

RESEARCH AND DEVELOPMENT

          During the year ended December 31, 1997, the Company spent $1,507,000
for research and development, as compared to $913,000 and $407,000 in the
fiscal years ended December 31, 1996 and 1995, respectively.  The Company's
research and development activities during the past year consisted primarily of
developing technologies and processes to deliver new and better data service
products to existing and prospective clients and industry segments.

EMPLOYEES

          As of December 31, 1997, the Company employed approximately 155
people on a full time basis, including 67 in data processing, programming and
data production, 49 in sales and marketing, 12 in statistical and product
development, and 27 in general and administration. None of the Company's
employees are covered by a collective bargaining agreement.  The Company
believes that its relations with its employees are good.

SEASONALITY

          The Company's business is seasonal in nature.  The third and fourth
quarters of each year include the peak selling season during which the Company
supplies the direct marketing industry with data services in advance of the
fall and holiday seasons.  In the first and second quarters, orders are fewer
and smaller.  As a result, cost of operations, sales and marketing, general and
administrative, and research and development expenses as a percentage of
revenues are usually lower and operating profit is usually higher during the
second half of each year.

ITEM 2.   PROPERTIES.

          The Company's executive office and principal operations are located
in a 27,218 square feet facility that it leases in Westminster, Colorado
pursuant to an agreement which expires September, 1999. In 1998, the aggregate
annual rental payments for the facility will be approximately $825,000. The
Company leases an additional 11,298 square feet in Westminster, Colorado
pursuant to an agreement which expires March, 1999 and provides for aggregate
annual





                                          - 10 -

<PAGE>   11
rental payments of $206,000. The Company also leases a 6,378 square feet in New
York City pursuant to an agreement which expires September 2002 and provides
for aggregate annual rental payments of $239,000. In addition, the Company
leases 1,424 and 1,983 square feet of general office space in Hawthorne, New
York and Atlanta, Georgia, respectively.  The Company believes that its
existing facilities are adequate for its present needs.

ITEM 3.   LEGAL PROCEEDINGS.

          The Company is not a party to any material legal proceedings.

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

          Not applicable.

                                    PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

          The Company's Common Stock is traded in the Nasdaq National Market
System.  There were approximately 2,000 beneficial holders of the Company's
Common Stock at March 2, 1998.  The table below sets forth high and low bid
prices for the Company's Common Stock for each quarter from the Offering
through December 31, 1997.

<TABLE>
<CAPTION>
                                               High           Low
                                               ----           ---
<S>                                           <C>           <C>
September 1996                                $21           $17
October-December 1996                         $32.50        $15.75
January-March 1997                            $30.25        $18
April- June 1997                              $33.25        $17
July-September 1997                           $34.25        $26.50
October-December 1997                         $44.25        $31.50
</TABLE>

          The Company has not declared or paid a cash dividend since its
organization and has no present intention of paying any such dividend in the
foreseeable future.

          During 1997 the Company issued an aggregate of 136,824 shares of
Common Stock upon exercise of options granted under each of the Company's
Amended and Restated 1989 Stock Option Plan, as amended, and its Amended and
Restated 1996 Stock Option Plan, at a weighted average exercise price of $30.71
per share.  Certain of such issuances were exempt from the registration
provisions of the Securities Act of 1933 pursuant to Section 4(2) thereof and
the rules promulgated thereunder, and the securities issued in connection
therewith were deemed to be restricted securities.  The remainder of such
issuances were covered by the Company's Registration Statement on Form S-8. No
underwriter was engaged in connection with such sales of Common Stock.





                                    - 11 -

<PAGE>   12
ITEM 6.   SELECTED FINANCIAL DATA.

        (In thousands, except supplemental operating and per share data)
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                              -------------------------------------------------------------
                                                1997          1996         1995         1994        1993
                                              --------      --------     --------     --------    ---------
 <S>                                          <C>           <C>          <C>          <C>         <C>
 STATEMENT OF OPERATIONS DATA:

 Revenue                                      $ 30,971      $ 17,532     $  9,331     $  6,451    $  4,155
 Income (loss) from operations                  11,611         6,370        3,174        2,395       1,327

 Income (loss) before income taxes              11,806         6,254        2,976        2,072         958
 Net income (loss)                               7,497         3,865        2,426        2,012         944

 Net income (loss) per common share -         $   0.78      $   0.43     $   0.27     $   0.57    $   0.44
 basic

 Net income (loss) per common share -         $   0.74      $   0.40     $   0.27     $   0.23    $   0.11
 diluted
 Weighted average number of outstanding          9,546         9,094        9,079        3,513       2,164
 common shares - basic

 Weighted average number of outstanding         10,058         9,614        9,120        8,743       8,420
 common shares - diluted


 SUPPLEMENTAL OPERATING DATA:

 Abacus Alliance catalogs                          874           700          565          393         296
 Households represented in database (in
   millions)                                        88            88           78           49          42

</TABLE>



<TABLE>
<CAPTION>
                                                                     AS OF DECEMBER 31,
                                              -------------------------------------------------------------
                                                 1997          1996         1995         1994         1993
                                              --------      --------     --------     --------    ---------
 <S>                                          <C>           <C>          <C>          <C>         <C>
 BALANCE SHEET DATA:

 Cash and cash equivalents                    $ 10,490      $  5,924     $  1,345     $  1,856    $     96
 Working capital                                16,127         8,218        2,424        2,386       1,543

 Total assets                                   22,592        12,064        5,050        4,244       2,718

 Stockholders' equity (deficit)                 19,177        10,012        1,190      (1,233)     (3,310)
</TABLE>





                                    - 12 -

<PAGE>   13
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

OVERVIEW

          Abacus believes it has developed the most comprehensive and predictive
source of catalog consumer purchasing behavior in the United States by creating
a database which includes consumer purchasing data from over 870 catalogs.  The
Company's information and marketing research services allow catalog companies to
improve the profitability of their direct mailing campaigns by enabling them to
(i) target new consumers whose past purchasing behavior indicates that they are
likely to purchase a particular product at a given time, (ii) prioritized
existing customers by the probability of a positive response based on historical
buying patterns, (iii) eliminate prospects from rented or exchanged lists that
have a low probability of responding, and (iv) properly position their products
and develop marketing strategies through market research.

          During the last three years, the Company has experienced rapid growth
of its client base, database, revenue and operating income.  The Abacus Alliance
grew from 565 to over 870 catalogs and the Company's database grew from 77
million to approximately 88 million households during this period of time. The
Company's revenue for the years ended December 31, 1995, 1996 and 1997 increased
by 44.6%, 87.9%, and 76.7% respectively, while its operating profits increased
from $3.2 million in 1995 to $11.6 million in 1997.  The Company attributes its
revenue and operating profit growth to the widespread acceptance of Abacus'
services within the catalog industry, increased penetration of the Company's
services among its existing clients, an increased number of clients and a
broadening of its service line.  Annual operating margins for the years ended
December 1995, 1996 and 1997 were 34.0%, 36.3%, and 37.5%, respectively as the
Company continued to better leverage its costs of revenue and operating
expenses.  The Company believes that Abacus Alliance members represent over 75%
of the largest consumer merchandise catalogs in the United States.

          The Company's principal sources of revenue are derived from
prospecting lists, housefile scoring, list optimization, and marketing
information services.  The Company creates prospect lists for its clients by
selecting names from the Abacus Alliance database of consumers who have
purchased merchandise in response to direct mail campaigns.  Revenues from
prospecting services represented 78% of the Company's revenue for the year ended
December 31, 1997.  The Company's housefile and optimization services, which
enable catalog companies to more profitably manage promotional programs directed
to existing and prospective customers, accounted for 20% of revenue for the year
ended December 31, 1997.  The Company's marketing information services, which
provide clients with comprehensive catalog industry information, accounted for
2% of revenues in 1997.





                                    - 13 -

<PAGE>   14
          The Company's cost of revenue includes expenses associated with
creating, updating and managing the Company's database as well as building
statistical models.  Selling and marketing expenses include the costs of
salaries and related benefits, commissions, travel and promotion.  General and
administrative expenses include legal, accounting, insurance, human resources,
corporate communications and administrative salaries and related benefits.
Operating margins have been higher in the second half of each calendar year, as
second half revenues have historically been favorably affected by holiday
related direct marketing campaigns, while operating costs have not had a
corresponding seasonal increase.  The Company's operating expenses are
determined, in part, based upon the Company's expectations of future revenue
growth and are substantially fixed in the short term.  As a result, unexpected
changes in revenue growth could have a disproportionate effect on net income in
any given period.


RESULTS OF OPERATIONS

Twelve Months Ended December 31, 1997 Compared To Twelve Months Ended December
31, 1996

          Revenues.  Revenues increased 76.7% to $31.0 million for the year
ended December 31, 1997 from $17.5 million for the year ended December 31, 1996
principally due to increased sales to existing customers and, to a lesser
extent, new customers.  Revenues from existing customers, those customers that
joined the Abacus Alliance prior to 1997, accounted for 85.8% of total revenues
while customers joining the Alliance in 1997 represented 14.2% of revenues.
All of the Company's service lines grew significantly with prospecting growing
75.4%, optimization 113.2%, housefile 57.6%, and marketing information services
135.3%.  As a percentage of total revenues, prospecting accounted for 78%,
optimization and housefile 20%, and marketing information services 2%.

          Cost of Revenues.  Cost of revenues increased 58.4% to $5.9 million
for the year ended December 31, 1997 from $3.8 million for the year ended
December 31, 1996, primarily due to increased staff, depreciation and
processing costs associated with supporting higher revenues.  Cost of revenues
decreased as a percentage of net revenues to 19.2% in 1997 from 21.4% in 1996,
primarily due to the fixed nature of a large portion of software, hardware and
systems processing costs which did not increase at the same rate as net
revenues.

          Selling and Marketing Expenses.  Selling and marketing expenses
increased 86.3% to $8.0 million for the year ended December 31, 1997 from $4.3
million for the year ended December 31, 1996. The increase in selling and
marketing expenses is due to increases in the Company's sales force and related
expenses, higher commissions as a result of significantly higher revenues,





                                    - 14 -

<PAGE>   15
and the hiring of new marketing personnel dedicated to developing markets
outside the catalog business.  As a percentage of net revenues, selling and
marketing expenses increased to 25.8% in 1997 from 24.5% in 1996.  The increase
was due to investments of $1.1 million, or 3.6% of net revenues, to develop
direct marketing initiatives outside the catalog business, which were partly
offset by increased productivity in the catalog business of the Company.
During this initial stage of development, the Company has incurred, and expects
to continue to incur, costs in personnel, statistical modeling and other
related areas without an offsetting increase in revenues.  While early testing
in these areas and initial customer response appear favorable, there can be no
assurance that meaningful revenues will be generated in these markets.

          General and Administrative.  General and administrative expenses
increased 77.5% to $3.9 million for the year ended December 31, 1997 from $2.2
million for the year ended December 31, 1996.  The increase in general and
administrative expenses resulted primarily from increased staff to support
overall Company growth along with increased performance bonuses and salary
increases, higher recruiting and legal expenses and other expenses associated
with being a public company.  General and administrative expenses during 1997
remained unchanged as a percentage of revenues at 12.6% from the year ended
December 31, 1996.

          Research and Development.  Research and development expenses
increased 65.0% for the year ended December 31, 1997 to $1.5 million from
$913,000 for the year ended December 31, 1996. As a percent of revenue,
research and development expenses decreased to 4.9% in 1997 compared to 5.2% in
1996. The increase in expense resulted from additional development efforts to
achieve increased product performance and new product development. In addition,
expenses increased due to start-up development costs for the Abacus E-Net and
for statistical development costs associated with industry segments outside the
catalog business. These increases, however, were less than the increase in
revenues for the year resulting in slightly lower research and development
expenses as a percentage of revenues during 1997.

          Operating Profit.  Operating profit increased 82.3% for the year
ended December 31, 1997 to $11.6 million from $6.4 million for the year ended
December 31, 1996.  The operating margin rose to 37.5% for 1997 from 36.3% in
1996.  The increases in operating profit and operating margin are due to higher
revenues along with the low variable nature of certain costs as slightly offset
by growing investments in the development of new markets by the Company.

          Interest and Other Income (Expense), Net.  Net interest income for
the year ended December 31, 1997 increased to $195,000 from net interest
expense of ($116,000) for the year ended December 31, 1996.  The increase in
interest income was primarily due to the retirement of the Company's
subordinated debentures, the increased interest income earned on higher Company
cash balances resulting from the Company's initial public offering (IPO) in
September, 1996 and from internally generated funds.





                                    - 15 -

<PAGE>   16
          Income Taxes.  The Company's effective income tax rate for the year
ended December 31, 1997 was 36.5% compared to 38.2% for the year ended December
31, 1996.  The Company achieved a lower income tax rate primarily due to a
lower provision for state income taxes.

          Net Income.  Net income for the year ended December 31,1997 was $7.5
million or $0.74 per share (diluted) compared with net income of $3.9 million
or $0.40 per share (diluted) in 1996.  The increase in net income and net
income per share reflects higher operating income and net interest income and a
lower effective tax rate partly offset by a 4.8% increase in the weighted
average number of common and common equivalent shares outstanding.


Twelve Months Ended December 31, 1996 Compared to Twelve Months Ended December
31, 1995

          Revenues.  Revenues increased 87.9% to $17.5 million for the year
ended December 31, 1996 from $9.3 million for the year ended December 31, 1995,
principally due to increased sales of prospect lists to existing clients and,
to a lesser extent, new clients. New clients during 1996 represented 14.9% of
revenues for the year ended December 31, 1996.  Further contributing to the
increased sales were the growth of revenues from housefile scoring, 88.4%, and
optimization, 103.3% along with early stage revenues from marketing information
services.

          Cost of Revenues.  Cost of revenues increased 98.9% to $3.8 million
for the year ended December 31, 1996 from $1.9 for the year ended December 31,
1995, primarily due to increased costs associated with the Company's decision
to hire additional data processing staff to support growth in the Company's
client base and enhancements to the Company's database. Cost of revenues
increased as a percentage of revenue to 21.4% from 20.2%.

          Selling and Marketing Expenses.  Selling and marketing expenses
increased 74.8% to $4.3 million for the year ended December 31, 1996 from $2.5
million for the year ended December 31, 1995, principally due to increased
costs associated with the Company's decision to hire additional sales and
marketing staff to support the growth in the Company's client base. Selling and
marketing expenses decreased as a percentage of revenue to 24.5% from 26.3%.

          General and Administrative Expenses.  General and administrative
expenses increased 56.6% to $2.2 million for the year ended December 31, 1996
from $1.4 million for the year ended December 31, 1995, primarily due to the
addition of a Chief Operating Officer and employee performance bonuses during
the year.  General and administrative expenses decreased as a percentage of
revenue to 12.6% from 15.1% for the year ended December 31, 1995.

          Research and Development Expenses.  Research and development expenses
increased 124.5% to $913,000 for the year ended December 31, 1996 from $407,000
for the year ended December 31, 1995, principally due to increased costs
associated with hiring additional research and development staff to pursue
basic research and customized modeling.  Research and development expenses
increased as a percentage of revenue to 5.2% from 4.4%.





                                    - 16 -

<PAGE>   17
          Interest and Other Income (Expense).  Net expense decreased 41.4% to
($116,000) for the year ended December 31, 1996 from ($198,000) for the year
ended December 31, 1995, primarily due to the retirement of the Company's
subordinated debentures and due to increased interest income earned on higher
Company cash balances resulting from the IPO and cash generated by operations.

          Provision for Income Taxes.  Provision for income tax expense
increased to $2.4 million for the year ended December 31, 1996 from $550,000
for the year ended December 31, 1995, primarily due to the utilization of all
available net operating loss carry forwards during 1995.

          Seasonality.  The Company's business is seasonal in nature.  The
third and fourth quarters of each year include the peak selling season during
which the Company supplies the direct marketing industry with data services in
advance of the fall and holiday seasons.  In the first and second quarters,
orders are fewer and smaller.  As a result, cost of operations, sales and
marketing, general and administrative, and research and development expenses as
a percentage of revenues are usually lower and operating profit is usually
higher during the second half of each year.


LIQUIDITY AND CAPITAL RESOURCES

          The Company met its short-term liquidity needs and its capital
requirements through funds generated from operations and cash on hand.
Historically, the Company has funded its operations through cash flow from
operations and debt and equity financing.

          Cash provided by operating activities was $6.7 million for the year
ended December 31, 1997 compared to $4.0 million for the same period in 1996.
Cash provided by operating activities was $2.4 million in 1995.  The increases
in each period were due to higher net income before depreciation and
amortization, which was partially offset by investments in working capital.
The working capital increases were principally related to higher accounts
receivable balances resulting from increases in net revenue.

          Cash used in investing activities was $2.3 million for the year ended
December 31, 1997 compared to $1.5 million for the same period in 1996.  Cash
of $642,000 was used in investing activities in 1995.  These activities
represent capital expenditures for computer equipment and systems and office
equipment necessary to support growth in the Company's revenues.  Cash provided
by financing activities was $200,000 compared to $2.1 million provided by
financing activities in the same period in 1996.  Cash used by financing
activities was $2.3 million in 1995.  In 1997 cash was generated in
consideration for the issuance of stock upon the exercise of stock





                                    - 17 -

<PAGE>   18
options and in 1996 cash was generated from proceeds of the Company's IPO.  In
1995 cash was used principally to retire long term debt and to redeem Series A
Preferred Stock.  The Company believes that its cash flow from operations and
cash on hand will provide adequate resources to meet its capital requirements
and operational needs for the foreseeable future.

NEW ACCOUNTING PRONOUNCEMENTS

          In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 128, Earnings Per
Share, which specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS").  SFAS 128 replaces the presentation
of primary and fully diluted EPS with basic and diluted EPS. Basic EPS excludes
all dilution and is based upon the weighted average number of common shares
outstanding during the period.  Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock.  Common equivalent shares are excluded
from the computation in periods in which they have an anti-dilutive effect.  The
Company has adopted SFAS 128 for 1997 and has restated all previously reported
per share amounts to conform to the new presentation.

          In June 1997, the FASB issued SFAS 130, Reporting Comprehensive
Income.  SFAS 130 establishes standards for the reporting and presentation of
comprehensive income and its components in a full set for general purpose
financial statements.  SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements.  SFAS 130 is effective for fiscal years beginning
after December 15, 1997.  The Company will adopt SFAS 130 in 1998 and does not
expect such adoption to have a material impact on the Company's results of
operations.

          In June 1997, the FASB issued SFAS 131, Disclosure about Segments of
an Enterprise and Related Information.  SFAS 131 revises the current
requirements for reporting business segments by redefining such segments
according to management's disaggregation of the business for purposes of making
operating decision and allocating internal resources.  SFAS 131 is effective
for fiscal years beginning after December 15, 1997, and the Company will adopt
SFAS 131 in 1998.  Currently, the Company has no business segments that require
a change in reporting under SFAS 131.

FORWARD LOOKING INFORMATION

          This Annual Report on Form 10-K (including this Management Discussion
and Analysis) contain forward looking statements that involve risks and
uncertainties, including those statements relating to customer outlook and
future opportunities, the expansion of the Abacus Alliance, the reception of
new products and technologies, the success of new initiatives and the
likelihood of





                                          - 18 -

<PAGE>   19
incremental revenues offsetting expenses related to those new initiatives.  The
actual results of the future events described in such forward-looking
statements could differ materially from those stated in such forward-looking
statements.  Among the factors that could cause actual results to differ
materially are: demand for the Company's services from the direct marketing
industry, governmental regulation regarding privacy issues, the actions of
current and potential new competitors, rapid changes in technology, cyclical
nature of the direct marketing industry, overall economic conditions, postal
rates and paper prices and other risks detailed from time to time in the
Company's periodic earnings releases and reports filed with the Securities and
Exchange Commission, as well as the risks and uncertainties discussed in this
Annual Report on Form 10-K.


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

          The Company is exposed to interest rate risk primarily through its
portfolio of cash equivalents and short term and marketable securities, which
is designed for safety of principal, liquidity and diversification. Such
instruments are subject to inherent interest rate risk as they mature and are
renewed at current market rates. The Company does not presently use derivative
financial instruments to adjust its risk profile. The Company, as a result of
its activities in the retail catalog market, is subject to the competitive and
fluctuating economic conditions of the direct marketing industry.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

          The response to this item is included in Item 14.


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

          Not applicable.



                                    PART III

          In accordance with General Instruction E(3), the information called
for by Part III (Items 10 through 13) is incorporated by reference from the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934 in connection with the
Company's 1997 Annual Meeting of Stockholders.





                                    - 19 -

<PAGE>   20
                                    PART IV

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

            (a)  1.   Financial Statements and Schedules.  The following
                      Financial Statements of the Company are included herein:

<TABLE>
<CAPTION>
<S>                                                                                                                   <C>
     Report of Independent Accountants  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

     Balance Sheet - December 31, 1997 and 1996   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

     Statement of Operations - Years ended December 31, 1997, 1996 and 1995   . . . . . . . . . . . . . . . . . . . . F-3

     Statement of Changes in Stockholders' Equity (Deficit) - Years ended December 31, 1997,
          1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4

     Statement of Cash Flows - Years Ended December 31, 1997, 1996 and 1995   . . . . . . . . . . . . . . . . . . . . F-5

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

</TABLE>

       2.   Financial Statement Schedules

       The following financial statement schedule of the Company for each of
       the years ended December 31, 1997, 1996 and 1995 is filed as part  of
       this Form 10-K, and should be read in conjunction with the Financial
       Statements, and the related notes thereto of the Company.

       Schedule II - Valuation and Qualifying Accounts                Page S-1

            Schedules other than those listed above have been omitted
     because they are not applicable or the required information is shown in
     the Financial Statements or the Notes thereto.

                 3.   Exhibits:

                      3.01  Certificate of Incorporation of Abacus Direct
                            Corporation.  Incorporated by reference to Exhibit
                            3.01 to the Registration Statement on Form SB-2
                            (Registration No. 333-5380) filed by the Company on
                            August 7, 1996 as amended (the "Registration
                            Statement").

                      3.02  By-laws of Abacus Direct Corporation.  Incorporated
                            by reference to Exhibit 3.02 to the Registration
                            Statement.

                     10.01  Amended and Restated 1989 Stock Option Plan, as
                            amended.  Incorporated by reference to Exhibit
                            10.0 to the Registration Statement.





                                          - 20 -

<PAGE>   21
                     10.02  Amended and Restated 1996 Stock Incentive Plan.
                            Incorporated by reference to Exhibit A to the
                            definitive proxy statement filed pursuant to
                            Regulation 14A promulgated under the Securities
                            Exchange Act of 1934 in connection with the
                            Company's 1997 Annual Meeting of Stockholders.

                     10.03  Employment Agreement dated August 6, 1996 between
                            the Company and M. Anthony White. Incorporated by
                            reference to Exhibit 10.03 to the Registration
                            Statement.

                     10.04  Employment Agreement dated August 6, 1996 between
                            the Company and Daniel C. Snyder. Incorporated by
                            reference to Exhibit 10.04 to the Registration
                            Statement.

                     10.05  Employment Agreement dated April 25, 1997 between
                            the Company and Carlos E. Sala.

                     10.06  Lease dated November 19, 1996, as amended, between
                            Sheridan Realty Partners, L.P. and the Company for
                            suites 100, 200, 210 and 310, Sheridan Park One,
                            8774 Yates Drive, Westminster, CO 80030.
                            Incorporated by reference to Exhibit 10.06 to the
                            Annual Report on Form 10-KSB of the Company for the
                            fiscal year ended December 31, 1996.

                     10.07  Lease dated December 2, 1997, between Westpike LLC,
                            Garfield Limited Liability Company, 520 Cooper
                            Limited Liability Company and Philip M. Holstein, as
                            landlord, and the Company for suite 110 at 8700
                            Turnpike Drive, Westminster, CO 80030.

                     10.08  Sublease dated May 15, 1997, between The Really
                            Useful Company, Inc. and the Company for a portion
                            of the 15th floor at One Rockefeller Plaza, New
                            York, New York.

                     10.09  Form of Indemnification Agreement entered into
                            between the Company and each of its officers and
                            directors.  Incorporated by reference to Exhibit
                            10.10 to the Registration Statement.





                                    - 21 -

<PAGE>   22
                     10.10  Form of agreement between the Company and members
                            of the Abacus Alliance.  Incorporated by reference
                            to Exhibit 10.11 to the Registration Statement.

                     10.11  Registration Rights Agreement dated as of August 5,
                            1996 among the Company and certain shareholders of
                            the Company named therein. Incorporated by reference
                            to Exhibit 10.18 to the Registration Statement.

                     10.12  Forms of Stock Option Agreements used under the
                            Amended and Restated 1989 Stock Option Plan, as
                            amended.  Incorporated by reference to Exhibit 10.19
                            to the Registration Statement.

                     23.01  Consent of Price Waterhouse LLP.

                     27.01  Financial Data Schedule.

            (b)  Reports of Form 8-K:

                            No reports on Form 8-K have been filed during the
                            last quarter of the period covered by this report.



                                   SIGNATURES

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


Dated:      March 30, 1998               ABACUS DIRECT CORPORATION




                                            By: /s/ M. Anthony White
                                                -----------------------------
                                                   M. Anthony White
                                                   Chairman of the Board and
                                                   Chief Executive Officer and
                                                   Director



                                     -22-

<PAGE>   23


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


<TABLE>
<S>                                            <C>                                      <C>
PRINCIPAL EXECUTIVE
OFFICER:

 /s/ M. Anthony White                          Chairman of the Board and Chief           March 30, 1998
 -------------------------------------------   Executive Officer and Director
 M. Anthony White

PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER:


 /s/ Carlos E. Sala                            Senior Vice President -                   March 30, 1998
 -------------------------------------------   Finance, Chief Financial Officer,
 Carlos E. Sala                                Secretary and Treasurer



DIRECTORS:

 /s/ Daniel C. Snyder                          President, Chief Operating Officer and    March 30, 1998
 -------------------------------------------   Director
 Daniel C. Snyder


 /s/ Frank Kenny                               Director                                  March 30, 1998
 -------------------------------------------
 Frank Kenny


 /s/ Antony H. Lee                             Director                                  March 30, 1998
 -------------------------------------------
 Antony H. Lee
</TABLE>


                                     -23-



<PAGE>   24
                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and
Stockholders of Abacus Direct Corporation

         In our opinion, the financial statements listed in the index appearing
under Item 14(a)1. and 2. present fairly, in all material respects, the
financial position of Abacus Direct Corporation at December 31, 1997 and 1996,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which  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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.




/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boulder, Colorado

January 26, 1998



                                       F-1
<PAGE>   25

                            ABACUS DIRECT CORPORATION

                                  BALANCE SHEET

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,  DECEMBER 31,
                                                                                     1997          1996
                                                                                  ------------  ------------
<S>                                                                                 <C>         <C>
Current assets:
  Cash and cash equivalents                                                         $10,490     $ 5,924
  Accounts receivable (less
    allowance for doubtful
    accounts of $787 and $375
    at December 31, 1997, and 1996,
    respectively)                                                                     8,120       3,735
  Prepaid expenses and other assets                                                     391         298
  Income taxes receivable                                                                52        --
  Deferred tax assets                                                                   474         284
                                                                                    -------     -------
         Total current assets                                                        19,527      10,241
   Property and equipment, net                                                        3,065       1,823
                                                                                    -------     -------
                                                                                    $22,592     $12,064
                                                                                    =======     =======

                                           LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                                  $   220     $   225
  Accrued expenses and other                                                          3,180       1,522
    Income taxes payable                                                               --           276
                                                                                    -------     -------
         Total current liabilities                                                    3,400       2,023
Long-term obligations under capital lease                                                15          29
Commitments and contingencies (Note 6)                                                 --          --
Stockholders' equity:
  Preferred stock, $1.00 par value,
    1,000 shares authorized;
    no shares issued and outstanding                                                   --          --
  Common stock, $.001 par value;
    25,000 shares authorized;
    9,638 and 9,501 shares
    issued and outstanding at December
    31, 1997 and 1996, respectively                                                      10          10
  Additional paid-in capital                                                          6,902       5,234
  Retained earnings                                                                  12,265       4,768
                                                                                    -------     -------
         Total stockholders' equity                                                  19,177      10,012
                                                                                    -------     -------
                                                                                    $22,592     $12,064
                                                                                    =======     =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.



                                       F-2







<PAGE>   26




                            ABACUS DIRECT CORPORATION

                             STATEMENT OF OPERATIONS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31,
                                           -------------------------------------
                                             1997          1996          1995
                                           --------      --------      --------
<S>                                           <C>           <C>           <C>
Net Revenues                               $ 30,971      $ 17,532      $  9,331
Cost of revenues                              5,942         3,751         1,886
                                           --------      --------      --------
         Gross profit                        25,029        13,781         7,445
                                           --------      --------      --------

Operating expenses:
  Selling and marketing                       8,000         4,294         2,456
  General and administrative                  3,911         2,204         1,408
  Research and development                    1,507           913           407
                                           --------      --------      --------
         Total operating expenses            13,418         7,411         4,271
                                           --------      --------      --------
Income from operations                       11,611         6,370         3,174
                                           --------      --------      --------
Interest and other income
  (expense), net                                195          (116)         (198)
                                           --------      --------      --------
Income before income taxes                   11,806         6,254         2,976
Provision for income taxes                   (4,309)       (2,389)         (550)
                                           --------      --------      --------
Net income                                 $  7,497      $  3,865      $  2,426
                                           ========      ========      ========
Net income per common share - basic        $   0.78      $   0.43      $   0.27
                                           ========      ========      ========
Net income per common share - diluted      $   0.74      $   0.40      $   0.27
                                           ========      ========      ========

Weighted average number of outstanding
  common shares - basic                       9,546         9,094         9,079
                                           ========      ========      ========
Weighted average number of outstanding
  common shares - diluted                    10,058         9,614         9,120
                                           ========      ========      ========

</TABLE>




   The accompanying notes are an integral part of these financial statements.


                                       F-3





<PAGE>   27




                            ABACUS DIRECT CORPORATION

             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                          TOTAL
                                      COMMON STOCK         ADDITIONAL      RETAINED    STOCKHOLDERS'
                                  ----------------------     PAID-IN       EARNINGS       EQUITY
                                   SHARES        AMOUNT      CAPITAL       (DEFICIT)     (DEFICIT)
                                  --------      --------   ----------      ---------   ------------
<S>                                  <C>        <C>          <C>           <C>           <C>
Balance at December 31, 1994         9,094      $      9     $    280      ($ 1,523)     ($ 1,234)
Repurchase of common stock             (49)         --             (3)         --              (3)
Issuance of common stock, net            1          --           --            --            --
Net income                            --            --           --           2,426         2,426
                                  --------      --------     --------      --------      --------
Balance at December 31, 1995         9,046             9          277           903         1,189
Issuance of common stock, net          455             1        4,957          --           4,958
Net income                            --            --           --           3,865         3,865
                                  --------      --------     --------      --------      --------
Balance at December 31, 1996         9,501      $     10     $  5,234      $  4,768      $ 10,012
Issuance of common stock, net          137          --            212          --             212
Tax benefit related to
  non-qualified stock options                       --          1,456          --           1,456
Net income                                          --            --          7,497         7,497
                                  --------      --------     --------      --------      --------
Balance at December 31, 1997         9,638      $     10     $  6,902      $ 12,265      $ 19,177
                                  ========      ========     ========      ========      ========
</TABLE>








   The accompanying notes are an integral part of these financial statements.


                                       F-4





<PAGE>   28




                            ABACUS DIRECT CORPORATION

                             STATEMENT OF CASH FLOWS

                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                         -------------------------------------
                                                           1997          1996          1995
                                                         ---------     --------      ---------
<S>                                                      <C>           <C>           <C>
OPERATING ACTIVITIES

Net income                                               $  7,497      $  3,865      $  2,426
Adjustments to reconcile net income to net
  cash provided by operating activities:
  Depreciation and amortization                             1,048           692           470
   Provision for doubtful accounts receivable                 412           249             4
  Provision for deferred income taxes                        (190)         (164)         (120)
  Changes in:
    Accounts receivable                                    (4,797)       (1,587)         (993)
    Prepaid expenses and other assets                         (93)         (140)          (35)
    Accounts payable                                           (5)          146            15
    Accrued expenses                                        1,658           995           288
    Income taxes                                            1,128           (84)          361
                                                         --------      --------      --------
         Net cash provided by operating activities          6,658         3,972         2,416
                                                         --------      --------      --------

INVESTING ACTIVITIES

Purchases of property and equipment                        (2,299)       (1,492)         (640)
Other                                                          10             5            (2)
                                                         --------      --------      --------
Net cash provided by (used in) investing activities        (2,289)       (1,487)         (642)
                                                         --------      --------      --------

FINANCING ACTIVITIES

Principal payments on long-term debt                          (15)       (2,864)         (581)
Issuance (repurchases) of stock                               212         4,957            (3)
Redemption of Series A preferred stock                       --            --          (1,700)
                                                         --------      --------      --------
         Net cash provided by (used in)
           financing activities                               197         2,093        (2,284)
                                                         --------      --------      --------
Net increase (decrease) in cash and cash equivalents        4,566         4,578          (510)
Cash and cash equivalents at beginning of period            5,924         1,346         1,856
                                                         --------      --------      --------
Cash and cash equivalents at end of period               $ 10,490      $  5,924      $  1,346
                                                         ========      ========      ========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest paid                                            $      5      $    210      $    282
Income taxes paid                                           1,893         2,601           309

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
  FINANCING ACTIVITIES

Additional paid in capital - exercise
of non-qualified stock options                           $  1,456      $   --        $   --
</TABLE>




   The accompanying notes are an integral part of these financial statements.


                                       F-5





<PAGE>   29




                            ABACUS DIRECT CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Abacus Direct Corporation ("Abacus" or the "Company"), is a leading
provider of specialized consumer information and analysis for the direct
marketing industry. The Company provides its services through its proprietary
database and advanced modeling technology.

REVENUE RECOGNITION

         The Company generally provides services to its clients that result in a
deliverable product in the form of marketing data or customized written reports.
The Company's clients are billed and revenue is recognized when such product is
shipped to a client.

CASH EQUIVALENTS

         Cash equivalents consist of money market investments purchased with
original maturities of three months or less. Such cash equivalents aggregated
approximately $9,937 and $5,258 at December 31, 1997 and 1996, respectively.
Cash equivalents are carried at amortized cost which approximates fair value.

PROPERTY AND EQUIPMENT

         Property and equipment are carried at cost and depreciated using the
straight-line method over their estimated useful lives as follows:


         Office and data processing equipment            3-10 years
         Computer software                               3 years
         Leasehold improvements                          Lease term

RESEARCH AND DEVELOPMENT COSTS

         Research and development costs are expensed as incurred.

CONCENTRATIONS OF CREDIT RISK

         The Company's customers are primarily comprised of direct-marketing
companies. The Company performs periodic credit evaluations of its customers'
financial condition and does not generally require collateral.

ESTIMATES

         The preparation of the Company's 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 liabilities as well as the reported
amounts of revenue and expenses. Actual results could differ from those
estimates making it reasonably possible that a change in these estimates could
occur in the near term.




                                       F-6





<PAGE>   30



NET INCOME PER COMMON SHARE


         In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard 128, Earnings Per Share ("SFAS 128"),
which specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS"). SFAS 128 replaces the presentation of primary and
fully diluted EPS with basic and diluted EPS. Basic EPS excludes all dilution
and is based upon the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that would occur
if securities or other contracts to issue common stock were exercised or
converted into common stock. Common equivalent shares are excluded from the
computation in periods in which they have an anti-dilutive effect. The Company
has adopted SFAS 128 for 1997 and has restated all previously reported per share
amounts to conform to the new presentation.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts of the Company's financial instruments, including
cash and cash equivalents, short-term receivables and payables, approximate fair
values.

STOCK COMPENSATION PLANS

         The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, in accounting for its stock option plans. The Company has adopted the
disclosure provisions of SFAS 123, Accounting for Stock-Based Compensation.

RECENT PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting on Comprehensive Income ("SFAS 130"), which is effective for all
periods beginning after December 15, 1997. SFAS 130 establishes standards for
reporting and displaying comprehensive income and its components with the same
prominence as other financial statements. All prior periods must be restated to
conform with the provisions of SFAS 130. The Company will adopt SFAS 130 during
the first quarter of fiscal 1998, but does not expect the new accounting
standard to have a material impact on the Company's reported financial results.

RECLASSIFICATIONS

         Certain reclassifications have been made in the 1996 and 1995 financial
statements to conform to the 1997 presentation.

2.  PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:


<TABLE>
<CAPTION>
                                                  DECEMBER 31,
                                                 1997         1996
                                              -------      -------
<S>                                           <C>          <C>
Office and data processing equipment          $ 4,286      $ 2,839
Computer software                               1,138          630
Leasehold improvements                            417          369
                                              -------      -------
                                                5,841        3,838
Accumulated depreciation and amortization      (2,776)      (2,015)
                                              -------      -------
Property and equipment, net                   $ 3,065      $ 1,823
                                              =======      =======
</TABLE>



                                       F-7





<PAGE>   31




3.  ACCRUED EXPENSES AND OTHER

    Accrued expenses consists of the following:

<TABLE>
<CAPTION>
                                     DECEMBER 31,
                                   1997       1996
                                 ------     ------
<S>                              <C>        <C>
Sales commissions                $  397     $  165
Bonuses                           1,149        647
Vacations                           371        261
Payroll and related expenses        549       --
Third party commissions             207         42
Other                               507        407
                                 ------     ------
                                 $3,180     $1,522
                                 ======     ======
</TABLE>


4.  STOCK OPTION PLAN AND EARNINGS PER SHARE

STOCK OPTION PLAN:

  1989 Plan

         The Company's Amended and Restated 1989 Stock Option Plan (the 1989
Plan) provided for the granting of options to purchase up to 1,836 shares of
Common Stock to key employees and others associated with the Company. The
exercise price per share of a nonqualified stock option to directors or
consultants could not be less than 85% of the fair market value at the time of
grant as determined by the board of directors. The exercise price per share of
an incentive stock option to key employees could not be less than 100% of the
fair market value at the time of grant.

         In 1994, the 1989 Plan was amended to provide for immediate vesting in
all stock options with the Company having certain repurchase rights at the price
paid by optionee. These repurchase rights generally lapse over a five-year
period. The Board of Directors has resolved that no additional options would be
granted from this plan after September, 1996.

  1996 Plan

         In August 1996, the Company adopted a Stock Incentive Plan with 400
shares reserved for issuance to employees and directors of the Company. Options
granted under this plan expire ten years from the date of grant and generally
vest over a period of four years.

         In June 1997, the Shareholders of the Company approved the amendment of
the 1996 Stock Incentive Plan to increase the number of shares available for
issuance by 325.



                                       F-8





<PAGE>   32



         The following is a summary of stock option activity:

<TABLE>
<CAPTION>
                                             WEIGHTED
                                             AVERAGE
                                             EXERCISE
                                   OPTIONS    PRICE
                                   -------   --------
<S>                                <C>       <C>
Outstanding December 31, 1994         10      $  .06
  Granted                            502        1.32
  Forfeited                           (1)        .06
  Exercised                           (1)        .06
                                   -----      ------
Outstanding December 31, 1995        510        1.30
  Granted                            235        8.86
  Forfeited                           (1)       1.32
  Exercised                         --          --
                                   -----      ------
Outstanding December 31, 1996        744        3.69
  Granted                            494       24.73
  Forfeited                          (35)      11.05
  Exercised                         (137)       1.55
                                   -----      ------
Outstanding December 31, 1997      1,066       13.46
                                   =====      ======
</TABLE>

         The following table summarizes information about exercisable stock
options as of the following dates:

<TABLE>
<CAPTION>
                                                           WEIGHTED
                                                           AVERAGE
                                                           EXERCISE
                                          SHARES            PRICE
                                          ------           -------
<S>                                       <C>              <C>
         December 31, 1995                    5             $ .06
         December 31, 1996                  102              1.25
         December 31, 1997                  575              3.78
</TABLE>


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

<TABLE>
<CAPTION>
                                                      WEIGHTED
                                                      AVERAGE
          RANGE OF            OUTSTANDING            REMAINING
          EXERCISE                AT                CONTRACTUAL
           PRICES              12/31/97                LIFE
           ------              --------                ----
<S>                                <C>                 <C>
           $.06                    1                   5.71
           1.32                   362                  7.67
           4.20                   133                  8.34
          14.00                    77                  8.74
          21.25                     4                  9.25
          21.50                   152                  9.12
          21.75                     8                  9.01
          26.25                   316                  9.43
          27.75                     6                  8.85
          35.00                     7                  9.78
                             --------               -------
                                1,066                  8.59
                             ========               =======
</TABLE>

         At December 31, 1997 there were 232 shares available for grant under
the stock option plan.







                                     F-9





<PAGE>   33



         The Company applies APB Opinion 25 in accounting for its stock
compensation plans, and no compensation expense has been recognized in the
financial statements. Had compensation expense for the Company's stock option
plan been determined based on the fair values at the grant dates for awards
under the plan consistent with the method of accounting prescribed by FASB
Statement 123, the Company's net income and income per share would have been
decreased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                 1997            1996
                                                              -----------     ----------
<S>                                          <C>              <C>               <C>
 Net income                                  As reported       $7,497            $3,865
                                             Pro forma          5,713             3,681
 Net income per common share - basic
                                             As reported       $  .78            $  .43
                                             Pro forma            .60               .40
 Net income per common share - diluted
                                             As reported       $  .74            $  .40
                                             Pro forma            .57               .38
</TABLE>


         In accordance with the guidance provided under SFAS 123, fair values
are based on minimum values. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in the year ended
December 31, 1997: dividend yield of zero; expected volatility of .648;
risk-free interest rates ranging from 5.75% to 5.80%; and an expected term of
five years. The assumptions used for grants in the year ended December 31, 1996
were as follows: Dividend yield of zero, expected volatility of .784; risk-free
interest rates ranging from 6.03% to 6.25%; and a term of three years. The
risk-free rate used in the calculation is the yield on the grant date of a U.S.
Treasury Note with a maturity equal to the expected term of the option.

         The weighted average fair value of options granted during the year
ended December 31, 1997 and 1996 was $14.15 per share and $6.29 per share,
respectively.



                                      F-10





<PAGE>   34



EARNINGS PER SHARE:

         The Company adopted SFAS 128, Earnings Per Share, for 1997. SFAS 128
requires mandatory presentation of both a basic and diluted earnings per share.
All per share amounts have been restated to comply with the requirements of SFAS
128. Basic and diluted net income per common share were arrived at using the
calculations outlined below:


<TABLE>
<CAPTION>
                                      YEAR ENDED DECEMBER 31,
                                   -------------------------------
                                    1997         1996        1995
                                   -------     -------     -------
<S>                                <C>         <C>         <C>
Net Income available to
  common shareholders              $ 7,497     $ 3,865     $ 2,426

Weighted average shares
  for basic EPS                      9,546       9,094       9,079

Basic EPS                          $   .78     $   .43     $   .27

Effect of dilutive securities:
  Stock options                        512         520          41

Weighted average shares
  for diluted EPS                   10,058       9,614       9,120

Diluted EPS                        $   .74     $   .40     $   .27
</TABLE>

         The dilutive effects of stock options were arrived at by applying the
treasury stock method, assuming the Company was to purchase common shares with
the proceeds from stock option exercises. The Company has no issued preferred
stock from which dividends would reduce earnings available to common
shareholders.

5.  INCOME TAXES

         The Company's provision for income taxes is comprised of the following
for the years ended December 31:


<TABLE>
<CAPTION>
                                       1997         1996         1995
                                     -------      -------      -------
<S>                                  <C>          <C>          <C>
Current tax expense
  Federal                            $ 3,998      $ 2,269      $   590
  State                                  501          284           80
                                     -------      -------      -------
Total current expense                  4,499        2,553          670
                                     -------      -------      -------
Deferred tax benefit
  Federal                               (186)        (164)        (110)
  State                                   (4)        --            (10)
                                     -------      -------      -------
Total deferred tax benefit              (190)        (164)        (120)
                                     -------      -------      -------
Total provision for income taxes     $ 4,309      $ 2,389      $   550
                                     =======      =======      =======
</TABLE>

         The Company's deferred tax assets are comprised of the following at
December 31:


<TABLE>
<CAPTION>
                                    1997     1996
                                    ----     ----
<S>                                 <C>      <C>
Allowance for doubtful accounts     $288     $142
Depreciation and amortization         43       27
Accruals and other                   143      115
                                    ----     ----
                                    $474     $284
                                    ====     ====
</TABLE>



                                      F-11





<PAGE>   35



         The provision for income taxes differs from the amount computed by
applying the U.S. federal income tax rate of 34% to income before income taxes
as follows:


<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                          ---------------------------------
                                           1997          1996         1995
                                          -------      -------      -------
<S>                                       <C>          <C>          <C>
U.S. federal income tax expense
  at statutory rate                       $ 4,014      $ 2,126      $ 1,012
Increases (decreases) resulting from:
  State income taxes, net of
    federal benefit                           327          173           62
  Utilization of net operating
    loss carryforwards and research
    and  development credits                 (108)         (20)        (510)
  Nondeductible items                          76          110          (14)
                                          -------      -------      -------
  Provision for income taxes              $ 4,309      $ 2,389      $   550
                                          =======      =======      =======
</TABLE>

6.  COMMITMENTS AND CONTINGENCIES

         The Company leases office space under certain non-cancelable operating
leases which expire through September 29, 2002 and provide for options to renew
at the end of the primary terms. Rent expense under these operating leases
during the years ended December 31, 1997, 1996 and 1995 was $517, $254 and $210,
respectively. Future minimum payments under these operating leases as of
December 31, 1997 are as follows:


<TABLE>
<CAPTION>
<S>                                     <C>
         1998                           $   858
         1999                               592
         2000                               239
         2001                               239
         2002                               179
                                        -------
                                        $ 2,107
                                        =======
</TABLE>

         During 1995, the Company implemented a 401(K) plan for the benefit of
its employees. The Company matches 50% of employee contributions up to 6% of an
individual's salary under this plan. During 1997, 1996 and 1995, the Company's
matching contribution totaled $163, $124, and $25, respectively.

7.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

         The following is a summary of unaudited quarterly financial data for
the years 1997 and 1996:


<TABLE>
<CAPTION>
                                                                   EARNINGS
                                                                     PER
                                       GROSS       NET           COMMON SHARE
                           SALES       PROFIT     INCOME        BASIC   DILUTED
                           -----       ------     ------        -----   -------
<S>                    <C>         <C>         <C>             <C>        <C>
March 31, 1997         $    5,525  $    4,222  $      981      $  .10     $ .10
June 30, 1997               5,986       4,700       1,085         .11       .11
September 30, 1997         10,756       9,117       3,377         .35       .33
December 31, 1997           8,704       6,990       2,054         .21       .20
                       ----------  ----------     -------
                       $   30,971  $   25,029     $ 7,497
                       ==========  ==========     =======

March 31, 1996         $    2,780  $    1,895  $      252      $  .03     $ .03
June 30, 1996               3,267       2,421         383         .04       .04
September 30, 1996          6,368       5,401       1,975         .22       .21
December 31, 1996           5,117       4,064       1,255         .14       .13
                       ----------  ----------     -------
                       $   17,532  $   13,781     $ 3,865
                       ==========  ==========     =======
</TABLE>




                                      F-12





<PAGE>   36



                                                                     SCHEDULE II

                            ABACUS DIRECT CORPORATION

                        VALUATION AND QUALIFYING ACCOUNTS



<TABLE>
<CAPTION>
                                  BALANCE AT   ADDITIONS              BALANCE AT
                                  BEGINNING    CHARGED TO                 END
                                  OF PERIOD    OPERATIONS  WRITE-OFFS  OF PERIOD
                                  ---------    ----------  ----------  ---------
<S>                               <C>          <C>         <C>         <C>
Allowance for Doubtful Accounts
Year Ended:

        December 31, 1995            $122        $ 67        $ (63)      $126
        December 31, 1996            $126        $326        $ (77)      $375
        December 31, 1997            $375        $622        $(210)      $787
</TABLE>



                                       S-1
<PAGE>   37



                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER   DESCRIPTION
-------  -----------
<S>      <C>
10.05    Employment Agreement dated April 25, 1997 between the Company and
         Carlos E. Sala.

10.07    Lease dated December 2, 1997, between Westpike LLC, Garfield Limited
         Liability Company, 520 Cooper Limited Liability Company and Philip M.
         Holstein, as landlord, and the Company for suite 110 at 8700 Turnpike
         Drive, Westminster, CO 80030.

10.08    Sublease dated May 15, 1997, between The Really Useful Company, Inc.
         and the Company for a portion of the 15th floor at One Rockefeller
         Plaza, New York, New York.

23.01    Consent of Price Waterhouse LLP.

27.01    Financial Data Schedule.

</TABLE>