<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D. C.  20549
                                   FORM 10-Q

(Mark One)
  XX   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----                                                                    
       EXCHANGE ACT OF 1934
       For the quarterly period ended         June 30, 1997
                                     ----------------------

                                      or

       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   1-9603
                                             ------------

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

           Delaware                                     75-2159407
        ------------------------------------------------------------
        (State or other jurisdiction of            (IRS Employer
         incorporation or organization)         Identification No.)

              5500 Airport Freeway, Fort Worth, Texas      76117
              ---------------------------------------------------
              (Address of principal executive offices) (zip code)

                                 817/831-3911
                                 ------------
             (Registrant's telephone number, including area code)

              ---------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                      Yes  XX    No  
                                          ----      ----

                     APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
 

      Title of Each Class                       Outstanding at August 8,1997
-------------------------------                 -----------------------------

Series A Stock, $0.10 Par Value                       7,339,468
Series B Stock, $0.10 Par Value                       2,110,634
 
<PAGE>
 
                               TABLE OF CONTENTS
                               -----------------
 
 
PART I.   FINANCIAL INFORMATION                                      PAGE NUMBER
 
   Item 1.   Financial Statements
 
                Consolidated Condensed Balance Sheets                    3
                December 31, 1996 and June 30, 1997                  
                (unaudited)                                          
                                                                     
                Consolidated Condensed Statements of Operations          4
                Three and Six months ended June 30, 1997 and 1996    
                (unaudited)                                          
                                                                     
                Consolidated Condensed Statements of                     5
                Stockholders' Equity December 31, 1996 and Six       
                months ended June 30, 1997  (unaudited)              
                                                                     
                Consolidated Condensed Statements of Cash Flows          6
                Six months ended June 30, 1997 and 1996 (unaudited)  
                                                                     
                Notes to Consolidated Condensed Financial Statements     7
                (unaudited)                                          
                                                                     
   Item 2.  Management's Discussion and Analysis of Financial            9
            Condition and Results of Operations                   
                                                                     
                                                                     
   PART II. OTHER INFORMATION                                        
                                                                     
   Item 1.   Legal Proceedings                                          13
                                                                     
   Item 4.   Submission of Matters to a Vote of Security                14
             Holders                                              
                                                                     
   Item 6.   Exhibits and Reports on Form 8-K                           14
 

                                       2
<PAGE>
 
                 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONSOLIDATED CONDENSED BALANCE SHEETS
                   (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE> 
<CAPTION> 
 
                                                                   DECEMBER 31, 1996    JUNE 30, 1997
                                                                   -----------------    -------------      
                                                                                         (unaudited)
<S>                                                                     <C>                    C> 
                               ASSETS
Current assets:
  Cash...........................................................       $   3,338           $    183
  Temporary investments..........................................              --              1,360
  Trade accounts receivable, less allowance for losses of
   $4,225 and $3,496 in 1996 and 1997, respectively..............          11,777              7,025
  Costs and estimated earnings in excess of billings on
   long-term contracts...........................................           4,263              2,547
  Inventory (Note 3).............................................          14,169             14,197
  Refundable income taxes........................................           2,464                 68
  Other current assets...........................................           2,095                485
  Assets held for sale  (Note 6).................................          14,250                 --
                                                                        ---------           --------
              Total current assets...............................          52,356             25,865
Property, plant and equipment....................................          17,957             16,618
Other assets, net................................................           7,104              6,842
                                                                        ---------           --------
                                                                        $  77,417           $ 49,325
                                                                        =========           ========
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Trade accounts payable.........................................       $   9,834           $  4,502
  Billings in excess of costs and estimated earnings on
   long-term contracts...........................................           1,544                203
  Other current liabilities......................................          11,697              9,531
  Customer deposits..............................................           2,064              1,470
  Advances from affiliates.......................................             950                950
  Current portion of long-term debt  (Note 4)....................          37,743             25,700
                                                                        ---------           --------
              Total current liabilities..........................          63,832             42,356
Long-term debt...................................................             113                 58
Deferred pension costs...........................................           2,576              2,576
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $0.10 par value, 2,000,000 shares
   authorized, none issued and outstanding
  Series A common stock, $0.10 par value, 20,000,000
   shares authorized, 7,340,000 shares
   issued and outstanding at December 31, 1996 and
   June 30, 1997.................................................             734                734
  Series B common stock, $0.10 par value, 6,000,000
   shares authorized, 2,111,000 shares
   issued and outstanding at December 31, 1996 and
   June 30, 1997.................................................             211                211
  Additional paid-in-capital.....................................          39,844             39,844
  Foreign currency translation adjustment........................            (167)              (324)
  Excess pension liability adjustment............................          (1,466)            (1,466)
  Retained earnings (deficit)....................................         (28,260)           (34,664)
                                                                        ---------           --------
  Total stockholders' equity.....................................          10,896              4,335
                                                                        ---------           --------
                                                                        $  77,417           $ 49,325
                                                                        =========           ========
</TABLE>

See notes to consolidated condensed financial statements.
 

                                       3
<PAGE>
 
                 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
                CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
 
 
<TABLE> 
<CAPTION>  
                                             THREE MONTHS ENDED      SIX MONTHS ENDED
                                                  JUNE 30,                 JUNE 30,
                                            1996          1997      1996          1997
                                         --------       -------    -------     --------
<S>                                     <C>             <C>       <C>          <C>  
Net sales............................     $18,732       $ 7,311    $41,345     $ 16,091
Cost of sales........................      16,680         7,883     35,474       15,712
                                          -------       -------   --------  -----------
Gross profit (loss)..................       2,052          (572)     5,871          379

Selling, general and administrative
 expenses............................       4,446         1,846      9,291        4,753
Restructuring charge.................       1,000            --      1,000           --
                                          -------       -------   --------  -----------
Operating income (loss)..............      (3,394)       (2,418)    (4,420)      (4,374)

Other income (expense):
Interest income......................          24             3         38           15
Interest expense.....................      (1,026)         (805)    (1,957)      (1,869)
Lawsuit settlement expense (Note 5)..        (700)           --       (700)          --
Other, net...........................        (198)         (185)      (315)        (176)
                                          -------       -------   --------  -----------
                                           (1,900)         (987)    (2,934)      (2,030)
                                          -------       -------   --------  -----------
Income (loss) before income taxes....      (5,294)       (3,405)    (7,354)      (6,404)
Income tax (expense) benefit.........       1,553            --      2,528           --
                                          -------       -------   --------  -----------
Net income (loss)....................     $(3,741)      $(3,405)   $(4,826)    $ (6,404)
                                          =======       =======    =======     ======== 

Net income (loss) per common share
 (Note 7)............................      $(0.40)       $(0.36)    $(0.51)      $(0.68)
                                          =======       =======    =======     ======== 

Weighted average number of shares of
 common and common stock equivalents
 outstanding during the  periods
 (Note 7)............................       9,451         9,451      9,451        9,451
                                          =======       =======    =======     ======== 
 
</TABLE> 
 
           See notes to consolidated condensed financial statements.

                                       4
<PAGE>
 
                 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
           CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
                    FOR THE SIX MONTHS ENDED JUNE 30, 1997
                                  (UNAUDITED)
                            (AMOUNTS IN THOUSANDS)
 
<TABLE> 
<CAPTION> 
 
 
                                                               SHARES     AMOUNT
                                                              --------  ----------
<S>                                                           <C>       <C> 
Series A Stock
  Balance, December 31, 1996............................          7,340  $    734
  Conversion of Series B stock to Series A stock........             --        --
                                                               --------  --------
  Balance, June 30, 1997................................          7,340  $    734
                                                               ========  ========
                                                                         
Series B Stock
  Balance, December 31, 1996............................          2,111  $    211
  Conversion of Series B stock to Series A Stock........             --        --
                                                               --------  --------
  Balance, June 30, 1997................................          2,111  $    211
                                                               ========  ========
                                                                         
Additional Paid-In Capital
  Balance, December 31, 1996............................                 $ 39,844
                                                                         --------
  Balance, June 30, 1997................................                 $ 39,844
                                                                         ========
Foreign Currency Adjustment
  Balance, December 31, 1996............................                 $   (167)
  Translation Adjustments...............................                     (157)
                                                                         --------
  Balance, June 30, 1997................................                 $   (324)
                                                                         ========
                                                                         
Pension Liability Adjustment
  Balance, December 31, 1996............................                 $ (1,466)
                                                                         --------
  Balance, June 30, 1997................................                 $ (1,466)
                                                                         ========
                                                                         
Retained Earnings (Deficit)
  Balance, December 31, 1996............................                 $(28,260)
  Net (loss) for six months ended June 30, 1997.........                   (6,404)
                                                                         --------
  Balance, June 30, 1997................................                 $(34,664)
                                                                         ========
                                                                         
Stockholders' Equity at June 30, 1997...................                 $  4,335
                                                                         ========
</TABLE> 

           See notes to consolidated condensed financial statements.

                                       5
<PAGE>
 
                 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                            (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
 
                                                               SIX MONTHS ENDED
                                                                   JUNE 30,
                                                              -------------------
                                                                1996      1997
                                                              --------  ---------
<S>                                                           <C>       <C>
Cash provided by operations:
  Net (loss)...............................................   $(4,826)  $ (6,404)

  Adjustments to reconcile net income to net cash provided
       by (used in) operating activities:
  Depreciation and amortization............................     2,761      1,588
  Deferred and refundable taxes............................    (2,661)        --
  Lawsuit settlement expense...............................       700         --
  Other....................................................      (327)      (157)
  Changes in operating assets and liabilities:
  Trade accounts receivable................................     4,339      4,752
  Contract costs in excess of billings.....................     5,608        375
  Inventory................................................    (2,530)       (28)
  Refundable income taxes..................................        --      2,396
  Other assets.............................................      (838)     1,746
  Trade accounts payable...................................      (720)    (5,332)
  Other liabilities........................................    (1,116)    (2,760)
                                                              -------   --------
Total cash provided by (used in ) operating activities.....       390     (3,824)
                                                              -------   --------

Cash provided by (used in ) investing activities:
  Additions to property, plant and equipment...............      (679)       (27)
  Deposits and other.......................................       113         --
  Disposal of Bernal Division..............................        --     14,298
                                                              -------   --------
Total cash provided by (used in) investing activities......      (566)    14,271
                                                              -------   --------

Cash provided by (used in) financing activities:
  Net proceeds from (repayments of) long-term debt.........    (3,489)   (12,242)
  Increase in current portion of long-term debt............     3,568         --
                                                              -------   --------
Total cash provided by (used in) financing activities......        79    (12,242)
                                                              -------   --------

Decrease in cash and temporary investments.................       (97)    (1,795)
Cash and temporary investments at beginning of period......       814      3,338
                                                              -------   --------
Cash and temporary investments at end of period............   $   717   $  1,543
                                                              =======   ========

Supplemental disclosure of cash flow information:
    Cash paid (received) during the period for:
    Interest...............................................   $ 1,525   $    532
    Income taxes...........................................        90     (2,311)

</TABLE>

           See notes to consolidated condensed financial statements.

                                       6
<PAGE>
 
                 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                  (Unaudited)


1.  The consolidated condensed balance sheet as of June 30, 1997, the
    consolidated condensed statement of stockholders' equity for the period
    ended June 30, 1997, the consolidated condensed statements of operations for
    the three and six months ended June 30, 1997 and 1996, and the consolidated
    condensed statements of cash flows for the six month periods then ended have
    been prepared by the Company without audit. In the opinion of management,
    all adjustments (which include only normal recurring adjustments) necessary
    to present fairly the financial position as of June 30, 1997 and the results
    of operations for the three and six months ended June 30, 1997 and 1996 and
    the cash flows for the six months ended June 30, 1997 and 1996 have been
    made. The December 31, 1996 consolidated condensed balance sheet is derived
    from the audited consolidated balance sheet as of that date. Complete
    financial statements for December 31, 1996 and related notes thereto are
    included in the Company's Annual Report on Form 10-K for the year ended
    December 31, 1996 (the "1996 Form 10-K").

    The above financial statements have been prepared in accordance with the
    instructions to Form 10-Q and therefore do not include all information
    included in the 1996 Form 10-K. The results of operations for the three and
    six months ended June 30, 1997 and 1996 are not necessarily indicative of
    the results to be expected for the full year.

2.  The Company designs, manufactures, markets and services web-fed packaging
    and printing systems and related equipment for its customers in the
    packaging industry and in the specialty/commercial and banknote and security
    segments of the printing industry. The Company also markets and manufactures
    high-speed image processing systems primarily for use in the banknote and
    security printing industry. In addition, the Company is a worldwide leader
    in the manufacture of platen die cutting and creasing equipment. The Company
    manufactures equipment capable of converting and printing, among other
    items, food and beverage containers, liquid container cartons, banknotes,
    postage stamps, lottery tickets, direct mail inserts, personal checks and
    business forms. The Company has the technological and engineering expertise
    to combine any of the four major printing methods (offset, flexography,
    rotogravure and intaglio) together with cutters and creasers and product
    delivery systems into a single system. Complete press systems are capable of
    multiple color and multiple size printing and perform such related functions
    as numbering, punching, perforating, slitting, cutting, creasing, folding
    and stacking. The presses can be custom engineered for non-standard form
    size and special auxiliary functions.

                                       7
<PAGE>
 
3.  Inventories consist of the following:

<TABLE>
<CAPTION>
 
                                    December 31,    June 30,
                                      1996            1997
                                   ------------   ------------
                                       (Amounts in thousands)
<S>                                 <C>           <C>
Finished product                      $ 5,205         $ 2,569
Work in progress                        4,026           3,538
Raw materials                           4,938           8,090
                                      -------         -------
                                      $14,169         $14,197
                                      =======         =======
</TABLE>

4.  For a description of the restructured bank credit facility and Senior
    Subordinated Notes at August 1, 1997, see "Liquidity and Capital Resources".
    Substantially all assets of the Company continue to be pledged as collateral
    on the Company's credit facilities. The senior and senior subordinated debt
    is classified as a current liability and is recorded net of unamortized debt
    issue costs of $0.4 million at June 30, 1997.


5.  The Company has been the subject of lawsuits, from time to time, with
    respect to the Company's inability to pay certain vendors on a timely basis.
    To date, most of such actions have been settled, but there can be no
    assurance that the Company, if named a defendant in such actions in the
    future, will be able to settle such claims in the future. In addition, the
    Company is subject to various claims, including product liability claims,
    which arise in the ordinary course of business, and is a party to various
    legal proceedings that constitute ordinary routine litigation incidental to
    the Company's business. A successful product liability claim brought against
    the Company in excess of its product liability coverage could have a
    material adverse effect upon the Company's business, operating results and
    financial condition.


    In management's opinion, other than with respect to collection lawsuits, the
    Company has adequate legal defenses and/or insurance coverage in respect to
    each of these legal actions and does not believe that they will materially
    affect the Company's operations, liquidity, or financial position. See
    "Legal Proceedings" herein and in the 1996 Form 10-K.


6.  In March 1997, the Company sold substantially all of the assets of its
    Bernal Division ("Bernal") including the product technology and related
    intangibles to Bernal International, Inc., a new company formed for the
    asset purchase. The cash proceeds were approximately $15 million, and in
    addition, the purchaser assumed certain liabilities of Bernal approximating
    $5 million, including the accounts payable. This transaction resulted in a
    $12 million permanent reduction of availability under the Company's bank
    credit agreement. For the year ended December 31, 1996, Bernal contributed
    sales of approximately $17.8 million and approximately $0.7 million income
    before interest, corporate charges and taxes, of which $10.6 million in
    sales and $1.0 million in income before interest, corporate charges and
    taxes were recorded in the first six months of 1996. The loss on the sale of
    Bernal net assets of approximately $3.5 million was reflected in the 1996
    results of operations.

                                       8
<PAGE>
 
7.  Due to accumulated losses, there are no recoverable income taxes for the
    three and six months ended June 30, 1997. The benefit of recoverable income
    tax expense for the three and six months ended June 30, 1996 was $1,553,000
    and $2,528,000, respectively, which was principally related to reductions in
    currently payable taxes.


8.  Earnings (loss) per common share for 1997 and 1996 are based upon the
    weighted average number of shares of common and common stock equivalents
    (stock options, when dilutive) outstanding during the periods. Since the
    Series A and Series B stock have identical dividend and participation rights
    in the Company's earnings, they have been considered to be comparable in the
    calculation.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS


RESULTS OF OPERATIONS

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996


Sales  The Company's sales for the six months ended June 30, 1997 decreased by
-----
$25.3 million (or 61.1%) compared to sales in the same period in 1996 due
primarily to sales decreases in the packaging systems divisions ($14.7 million),
specialty web products division ($9.6 million) and banknote printing equipment
division ($0.8 million) offset by increases in sales at the French service and
repair division ($0.2 million). Sales and gross profit in 1997 include $0.7
million in proceeds from the sale of certain press system contract rights. The
Company sold these rights in lieu of a long repossession and resale process. The
packaging systems divisions decrease included $10.6 million of Bernal sales
which division was sold by the Company in the first quarter of 1997.

Gross Profit  The Company's gross profit for the six months ended June 30, 1997
------------
decreased by $5.5 million compared to gross profit in the same period in 1996
due primarily to decreased sales volume for packaging systems and specialty web
products. Gross profit margin for 1997 decreased to 2.4% of sales as compared to
14.2% for 1996. This decrease in gross profit margin in 1997 was due primarily
to absorption of fixed costs over a lower volume of sales and costs incurred in
completing the Automatic Currency Examination ("ACE") system for the Bank of
England Printing Works. Sales and gross profit in 1997 include $0.7 million in
proceeds from the sale of certain press system contract rights. The Company sold
these rights in lieu of a long repossession and resale process.


Selling, General and Administrative Expenses  The Company's selling, general and
--------------------------------------------
administrative expenses decreased by $4.5 million (or 48.8%) for the six months
ended June 30, 1997 compared to the same period in 1996 due to cost reduction
efforts at corporate headquarters and at all divisions in connection with the
reduced volume of sales, the sale of Bernal, and a reduction in the allowance
for losses on collection of trade accounts receivable in the 1997 period.
Selling, general and administrative expenses for the six months ended June 30,
1997 were 29.5% of sales compared to 22.5% of sales for the same period in 1996
due to the decrease in sales in 1997 described above.

                                       9
<PAGE>
 
Other Income (Expense)   The Company's interest expense decreased by $0.1
----------------------
million for the six months ended June 30, 1997 compared to the same period in
1996 due to the reduced borrowings in 1997 resulting from the application of
Bernal sale proceeds to pay down bank indebtedness, offset by an increased cost
of borrowing in 1997. Interest income was approximately the same for the six
months ended June 30, 1997 as compared to interest income in the same period in
1996.


COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1996


Sales  The Company's sales for the three months ended June 30, 1997 decreased by
-----
$11.4 million (or 61%) compared to sales in the same period in 1996 due
primarily to sales decreases in the packaging systems divisions ($7.3 million),
specialty web products division ($3.4 million) and banknote printing equipment
division ($0.6 million) offset by increases in sales at the French service and
repair division ($0.1 million). The packaging systems divisions decrease
included $6.2 million of Bernal sales which division was sold by the Company in
the first quarter of 1997.

Gross Profit (Loss)  The Company's gross profit (loss) for the three months
-------------------
ended June 30, 1997 decreased by $2.6 million compared to gross profit in the
same period in 1996 due primarily to decreased sales volume for packaging
systems and specialty web products. Gross profit margin for 1997 decreased to 
(-7.8%) of sales as compared to 11.0% for 1996. This decrease in gross profit
margin in 1997 was due primarily to absorption of fixed costs over a lower
volume of sales and cost incurred in completing the ACE system.

Selling, General and Administrative Expenses  The Company's selling, general and
--------------------------------------------
administrative expenses decreased by $2.6 million (or 58.5%) for the three
months ended June 30, 1997 compared to the same period in 1996 due to cost
reduction efforts at corporate headquarters and at all divisions in connection
with the reduced volume of sales, the sale of Bernal, and a reduction in the
allowance for losses on collection of trade accounts receivable in the 1997
period. Selling, general and administrative expenses for the three months ended
June 30, 1997 were 25.2 % of sales compared to 23.7% of sales for the same
period in 1996 due to the decrease in sales in 1997 described above.

Other Income (Expense)   The Company's interest expense decreased by $0.2
----------------------
million for the three months ended June 30, 1997 compared to the same period in
1996 due to the reduced borrowings in 1997 resulting from the application of the
Bernal sale proceeds to pay down bank indebtedness, offset by an increased cost
of borrowing in 1997. Interest income decreased slightly for the three months
ended June 30, 1997 as compared to interest income in the same period in 1996.


TAX MATTERS

The Company's effective state and federal income tax rate ("effective tax rate")
was 0% and 29.3% for the three months and 0% and 34.4% for the six months ended
June 30, 1997 and 1996, respectively. Due to continuing losses in 1997, there
are no recoverable tax benefits for the three and six months ended June 30,
1997. The 1996 effective tax rate was due to recoverable taxes in 1996 and
certain research and experimental expenditure tax credits that were recorded in
March 1996.

                                       10
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES


LIQUIDITY AND CAPITAL RESOURCES

As a result of its cash collections and the sale of Bernal (see Note 6 of Notes
to Consolidated Condensed Financial Statements), the Company was able to make
principal payments on its bank credit facility of $2 million and $15 million in
January and March, 1997, respectively. These transactions and normal working
capital advances decreased the Company's net direct bank borrowings from $23.1
million at December 31, 1996 to $10.8 million at June 30, 1997.

The Company requires capital primarily to fund its ongoing operations, to
service its existing debt and to pursue its strategic objectives including new
product development and penetration of international markets. The Company's
working capital needs typically increase because of a number of factors,
including the duration of the manufacturing process and the relatively large
size of most orders.

Net cash provided by (used in) operating activities (before working capital
requirements) was ($4.97) and ($4.35) million for the six months ended June 30,
1997 and 1996, respectively. Working capital provided cash of $1.15 and $4.74
million for the six months ended June 30, 1997 and 1996, respectively. The
Company's working capital needs increase during periods of sales growth because
of a number of factors, including the duration of the manufacturing process and
the relatively large size of most orders. During periods of sales decline such
as 1996 and the first six months of 1997, the Company's working capital provides
cash as receivables are collected and inventory is utilized.

In August 1997, the Company, its bank lender and the holders ("Note Holders") of
the Company's Senior Subordinated Notes due June 30, 2000 ("Senior Subordinated
Notes") entered into agreements providing for the modification of the bank
credit facility and the agreement governing the Senior Subordinated Notes. These
agreements provided for the waiver of all prior defaults; revised financial
covenants, including a minimum net worth requirement of $2 million; certain
limitations on permitting refinancings of the bank credit facility; payment of
$100,000 in interest on the Senior Subordinated Notes in August, 1997, with an
additional payment of $200,000 in interest in December, 1997, and $1.03 million
in interest and fees added to principal of the Senior Subordinated Notes and due
on June 30, 2000; and an increase in the interest rate under the bank credit
facility to 2.5% over the bank's prime rate of interest. Substantially all of
the assets of the Company continue to serve as collateral for the indebtedness
evidenced by the bank credit facility and the Senior Subordinated Notes. In
addition, the modifications contemplate sales of certain assets of the Company
in order to further reduce bank indebtedness, subject to approval of the bank,
prior to December 31, 1997 and May 31, 1998.

At June 30, 1997, the Company's indebtedness was comprised primarily of a bank
credit facility due December 31, 1997 and the Company's Senior Subordinated
Notes due June 30, 2000. In addition, the Company's Chairman has loaned the
Company $950,000 as described below. As of June 30, 1997, there was outstanding
$15.3 million in Senior Subordinated Notes, bearing interest at the rate of
10.5% per annum, with principal payments of $7.2 million being due on June 30,
1998, $4.0 million due on June 30, 1999, and a final payment of $5.1 million at
maturity, including $1.03 million in interest and fees per the August 1997
agreement with the Note Holders. The Senior

                                       11
<PAGE>
 
Subordinated Notes are classified as currently payable since the Company has not
completed the sale of certain assets being offered for sale.

Under its credit facility at June 30, 1997 and under the August 1997
modification discussed earlier, the Company's maximum borrowings were limited to
a borrowing base formula, which could not exceed $14.7 million in the form of
direct borrowings and letters of credit. As of June 30, 1997 there was $10.8
million in direct borrowings and $0.1 million in standby letters of credit
outstanding under the bank credit facility, with additional availability for
such borrowings of $0.4 million as determined by the borrowing base formula.

At June 30, 1997, $10.8 million of the Company's bank borrowings were at the
lender's prime rate of interest (8.50%) plus 1.75%, or a total of 10.25%
interest. The amounts borrowed under the credit facility have been used for
working capital. As indicated above, effective August 1, 1997 the interest rate
on the bank credit facility increased to 2.5% over the lender's prime rate.

The borrowings under the bank credit facility and Senior Subordinated Notes
agreement are subject to various restrictive covenants related to financial
ratios as well as limitations on capital expenditures and additional
indebtedness. The Company is not allowed to pay dividends.

With the sale of Bernal, and assuming that one of several strategic, financial
alternatives, principally the additional sale of assets, among others presently
being pursued by the Company is consummated, management believes that cash flow
from operations will be adequate to fund its existing operations and repay
scheduled indebtedness over the next 12 months.

There can be no assurance that future sales of assets, if any, can be
successfully accomplished on terms acceptable to the Company. Under current
circumstances, the Company's ability to continue as a going concern depends upon
the further redeployment of assets and the sale of certain assets by December
31, 1997, and a return to profitable operations. If the Company is unsuccessful
in these efforts, it may be unable to comply with the covenants in its debt
agreements, as well as other obligations, making it necessary to undertake such
other actions as may be appropriate to preserve asset values.

In addition, the Company may incur, from time to time subject to the approval of
the bank and Note Holders, additional short- and long-term bank indebtedness
(under its existing credit facility or otherwise) and may issue, in public or
private transactions, its equity and debt securities to provide additional funds
necessary for the continued pursuit of the Company's operational strategies. The
availability and terms of any such sources of financing will depend on market
and other conditions. There can be no assurance that such additional financing
will be available or, if available, will be on terms and conditions acceptable
to the Company. In 1996, the Company's Chairman and Chief Executive Officer
loaned the Company $950,000 for its short-term cash requirements which is to be
mandatorily repaid from proceeds of the Banque de France receivable
(approximately $1.7 million). The Chairman has agreed with the Company's bank
not to seek repayment until after December 31, 1997. Although the Banque de
France receivable has been collected, as of June 30, 1997, this loan from the
Chairman had not been repaid.

The success of the Company's plans will continue to be impacted by its ability
to achieve timely deliveries, final acceptance of the ACE system by the Bank of
England, improved terms of domestic

                                       12
<PAGE>
 
orders, and timely implementation of cost reduction measures. While the Company
believes it is making significant progress in these areas, there can be no
assurance that the Company will be successful in these endeavors.

Backlog and Orders  The Company's backlog of unfilled orders at June 30, 1997
------------------
was approximately $13.8 million compared to $20.7 million at December 31, 1996,
a decrease of (33%). The backlog decrease included $5.5 million of specialty web
and $2.3 million of packaging equipment as compared to year-end 1996, offset by
small changes in the Company's other divisions. The backlog at June 30 in each
of the preceding five years has ranged from a low of $27.4 million in 1996 to a
high of $65.0 million in 1995.

The reduction in backlog is the result of a reduced order flow in 1997 and 1996.
Orders for the six months ended June 30, 1997 were $9.4 million compared to
$29.8 for the comparable period in 1996, a decrease of $20.4 million, including
a $7.9 million decrease due to the sale of Bernal, while shipments decreased
$25.2 million. The Company believes the reduced order flow is the result of
fluctuations in the flow of major printing and packaging system orders, certain
product performance issues, and in part to liquidity problems faced by the
Company. As a result, the Company is continuing to adjust its rate of future
production and accompanying costs to match this reduced order flow.

When sales are recorded under the completed contract method of accounting, the
Company normally experiences a six to nine month lag between the time new orders
are booked and the time they are reflected in sales and results of operations.
Larger orders, which are accounted for using the percentage of completion method
of accounting, are reflected in sales and results of operations as the project
progresses through the manufacturing cycle.


PART II   OTHER INFORMATION
   

ITEM 1.   LEGAL PROCEEDINGS
   

In 1996, the Company filed a suit seeking damages and injunctive relief against
Paul W. Bergland, a former vice-president, for, among other things, theft of
trade secrets, fraud, breach of contract, and breach of a confidential
relationship. Discovery is ongoing. On March 3, 1997, Bergland filed his
original answer and a counterclaim. ConverTek, Inc., a corporation in which
Bergland claims an ownership interest, has joined the suit as a counter claimant
against the Company. The counterclaim alleges claims for defamation, tortious
interference with prospective business relationships and breach of contract
against the Company. It also seeks a declaratory judgment declaring that the
confidential information agreement and agreement not to compete signed by
Bergland are unenforceable. The Company denies all liability and intends to
prosecute its claims and defend the counterclaims vigorously.

                                       13
<PAGE>
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
The Company held its 1997 Annual Meeting of Stockholders (the "Meeting") on May
22, 1997. At the Meeting, the stockholders of the Company considered and voted
upon the following matters, with the results indicated:

(1)  The following directors, constituting all of the directors of the Company,
     were elected to serve as directors for the ensuing year:
     
<TABLE>
<CAPTION>
 
              Series A Nominees       Votes For     Votes Withheld
              -----------------       ---------     --------------
              <S>                     <C>          <C>
              John W. Stodder         3,961,740          95,915
              Edgar H. Schollmaier    3,962,890          94,765
            
 
              Series B Nominees
              -----------------

              Paul I. Stevens         1,812,220              85
              Richard I. Stevens      1,812,220              85
              Constance I. Stevens    1,812,220              85
              Robert H. Brown, Jr.    1,812,220              85
              James D. Cavanaugh      1,812,220              85
              Michel A. Destresse     1,812,220              85
</TABLE>

(2)  The stockholders of the Company ratified the selection of Deloitte & Touche
     as the Company's independent accountants to audit the Company's financial
     statements for the 1997 fiscal year by the following vote:
     
                                                    Abstentions /
              Votes For         Votes Against     Broker Non-Votes
              ---------         -------------     ----------------
              5,833,435            17,800             18,725
 

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
  
         (a) Exhibits:
  
 
  EXHIBIT     NUMBER DESCRIPTION OF EXHIBIT
  -------     -----------------------------
    3.1       Second Amended and Restated Certificate of Incorporation of the
              Company. (1)
    3.2       Bylaws of the Company, as amended. (2)
    4.1       Specimen of Series A Common Stock Certificate. (3)
    4.2       Specimen of Series B Common Stock Certificate. (4)
   10.1       Sixth Amendment to Amended and Restated Senior Subordinated Note
              Agreement and Waiver by and between Stevens International, Inc.,
              Aetna Life Insurance Company, The Mutual Life Insurance Company of
              New York, and MONY Life Insurance Company of America, dated July
              31, 1997. (*)
   10.2       Fifth Amendment to Credit Agreement by and between Bank of America
              Texas, N.A., Stevens International, Inc., PMC Liquidation, Inc.,
              and Printing and Packaging Equipment Finance Corporation, dated
              July 31, 1997. (*)

                                       14
<PAGE>
 
  EXHIBIT     NUMBER DESCRIPTION OF EXHIBIT
  -------     -----------------------------
   10.3       Second Amendment to Amended and Restated Subordination and
              Intercreditor Agreement by and between Stevens International,
              Inc., PMC Liquidation, Inc., Printing and Packaging Equipment
              Finance Corporation, Aetna Life Insurance Company, The Mutual Life
              Insurance Company of New York, MONY Life Insurance Company of
              America, Bank of America Texas, N.A., and The Bank of New York,
              dated July 31, 1997. (*)
   11.1       Computation of Net Income per Common Share. (*)
   27.1       Financial Data Schedule. (*)

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

  *  Filed herewith.
(1)  Previously filed as an exhibit to the Company's Annual Report on Form 10-K
     for the year ended December 31, 1990 and incorporated herein by reference.
(2)  Previously filed as an exhibit to the Company's Registration Statement on
     Form S-1 (No. 33-15279) and incorporated herein by reference.
(3)  Previously filed as an exhibit to the Company's Registration Statement on
     Form S-1 (No. 33-24486) and incorporated herein by reference.
(4)  Previously filed as an exhibit to the Company's report on Form 8-A filed 
     August 19, 1988 and incorporated herein by reference.

     (b)  The Registrant filed a Current Report on Form 8-K dated March 18, 1997
to report the sale of Bernal under Item 2. Acquisition or Disposition of Assets.

                                       15
<PAGE>
 
                                  SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Stevens
International, Inc. has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.



                             STEVENS INTERNATIONAL, INC.



Date: August 11, 1997        By: /s/  Paul I. Stevens
                                 ------------------------
                                 Paul I. Stevens
                                 Chief Executive Officer
                                 and Acting Chief Financial Officer

                                       16