AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1998

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K
(MARK ONE)
/ X /  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(D) OF THE
       SECURITIES  EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal
       year ended December 31, 1997

                                       OR

/   /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
       SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                         COMMISSION FILE NUMBER 333-8925

                        AMERICOMM DIRECT MARKETING, INC.
                          5775 PEACHTREE DUNWOODY ROAD
                                   SUITE C-150
                             ATLANTA, GEORGIA 30342
                                 (404) 256-1123

INCORPORATED IN DELAWARE                                    IRS EMPLOYER
                                                   IDENTIFICATION NO. 23-2574778

          SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:

TITLE OF EACH CLASS                               NAME OF EACH EXCHANGE ON: NONE
11 5/8% $100,000,000 SENIOR UNSECURED NOTES


       SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT : NONE

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED  BY  SECTION  13 OR 15 (D) OF THE  SECURITIES  EXCHANGE  ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER  PERIOD THAT THE  REGISTRANT
WAS  REQUIRED  TO FILE SUCH  REPORTS),  AND (2) HAS BEEN  SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. X YES    NO.
                                  ---    ---

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT  FILERS  PURSUANT TO ITEM 405
OF REGULATION  S-K IS NOT CONTAINED  HEREIN,  AND WILL NOT BE CONTAINED,  TO THE
BEST OF REGISTRANT'S  KNOWLEDGE,  IN DEFINITIVE PROXY OR INFORMATION  STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ( )

THE  AGGREGATE  MARKET  VALUE OF  VOTING  STOCK  HELD BY  NON-AFFILIATES  OF THE
REGISTRANT WAS $46,178,412 BASED UPON THE PRICE AT WHICH THE OUTSTANDING  COMMON
STOCK WAS ORIGINALLY ISSUED.

AS OF DECEMBER 31, 1997,  THERE WERE 283,807 SHARES OF THE  REGISTRANT'S  COMMON
STOCK, PAR VALUE $0.01 PER SHARE OUTSTANDING.

<PAGE>
ITEM 1.  BUSINESS

     THIS REPORT ON FORM 10-K (THE "REPORT") CONTAINS FORWARD LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION  27A OF THE  SECURITIES  ACT OF 1933.  DISCUSSIONS
CONTAINING  SUCH  FORWARD-LOOKING  STATEMENTS  MAY BE  FOUND IN ITEMS 1, 3 AND 7
HEREOF, AS WELL AS WITHIN THIS REPORT GENERALLY.  IN ADDITION, WHEN USED IN THIS
REPORT, THE WORDS "BELIEVES,"  "ANTICIPATES,"  "EXPECTS" AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT
TO A NUMBER OF RISKS AND  UNCERTAINTIES.  ACTUAL  RESULTS  IN THE  FUTURE  COULD
DIFFER  MATERIALLY FROM THOSE DESCRIBED IN THE  FORWARD-LOOKING  STATEMENTS AS A
RESULT OF  FLUCTUATIONS IN THE COST OF PAPER AND OTHER RAW MATERIALS USED BY THE
COMPANY,  CHANGES  IN  THE  ADVERTISING  AND  PRINTING  MARKETS,  THE  FINANCIAL
CONDITION OF THE COMPANY'S CUSTOMERS, THE CONDITION OF THE UNITED STATES ECONOMY
AND OTHER  MATTERS SET FORTH IN THE REPORT.  THE COMPANY DOES NOT  UNDERTAKE ANY
OBLIGATION   TO  PUBLICLY   RELEASE  THE  RESULTS  OF  ANY  REVISIONS  TO  THESE
FORWARD-LOOKING  STATEMENTS  THAT MAY BE MADE TO REFLECT  ANY  FUTURE  EVENTS OR
CIRCUMSTANCES.


GENERAL

     The  following  summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial  statements  and notes thereto,  appearing  elsewhere in this Form
10-K. Unless otherwise stated in this document,  references to (a) "the Company"
shall  mean  AmeriComm  Direct  Marketing,  Inc.,  a Delaware  corporation,  (b)
"Transkrit"  shall mean the former Transkrit  Corporation,  and its subsidiaries
which were  acquired on June 28,  1996,  (c) "LAI"  shall mean the former  Label
America, Inc., which was acquired on February 21, 1997,(d) "ADMI" shall mean the
former AmeriComm Direct Marketing, Inc., which was acquired on April 24, 1997.

     The Company  believes it provides a comprehensive  offering of products and
services  that  encompass  each  stage of the  direct  mail  marketing  process,
including the  identification  of target audiences,  information  processing and
database   management,   printing,   production  and  lettershop   services  and
fulfillment and response  analysis.  In addition,  the Company  produces a broad
range of  products  which  are  customized  to  target  direct  mail  customers,
including  custom pressure  sensitive  labels,  custom  envelopes and impact and
non-impact  mailers.  The  Company's  products are grouped  into four  principal
business areas that  accounted for the following  percentages of 1997 net sales:
direct mail products and services  (21%),  impact and non-impact  mailers (26%),
custom pressure sensitive labels (27%) and custom envelopes (26%).


HISTORY

     AmeriComm  Direct  Marketing,  Inc.  (the  Company)  was  formed in 1989 as
National  Fiberstok  Acquisition  Co.  ("NFAC")  by McCown  De Leeuw,  a private
investment firm specializing in buying and building middle market businesses. On
September 18, 1989,  NFAC  purchased the assets and assumed the  liabilities  of
National Fiberstok  Corporation  ("NFC"), a manufacturer of custom file folders.
NFAC was  organized  solely for the purpose of acquiring  the net assets of NFC.
Subsequent  to the  acquisition,  NFAC  changed  its  name  to  NFC.  Since  its
inception,  the Company has pursued an acquisition  strategy aimed at creating a
leading manufacturer of custom paper-based  communication products targeting the
direct mail and transaction processing industries. In 1992, the Company acquired
Diversified  Assembly,  Inc., a manufacturer  of expanding  envelopes,  pockets,
wallets and other products for the professional office, and also acquired Double
Envelope  Corporation,  a  manufacturer  and  distributor  of custom  envelopes,
catalog  bind-in  order  forms  and  pressure  sensitive  labels.  The  Company,
simultaneous  with the  acquisition of Double Envelope  Corporation,  became the
sole  subsidiary  of DEC  International,  Inc.,  the former  name of its holding
company. In 1996, the Company purchased Transkrit Corporation and its subsidiary
Label Art.  Transkrit,  founded in 1938, is a  manufacturer  and  distributor of
direct marketing products,  mailer forms and systems, as well as custom pressure
sensitive  labels.  In 1997, the Company  expanded its pressure  sensitive label
product line and geographic coverage with the purchase of Label America, Inc., a
producer of custom thermal and laser labels. Later in 1997, the Company acquired
AmeriComm Direct Marketing,  Inc., a direct mail marketing  products and service
provider with national coverage.

     The Company has four  principal  product  lines:  direct mail  products and
services,  mailers,  custom pressure sensitive labels and custom envelopes.  The
following  table  summarizes the company's  historical net sales by product line
(in thousands):

<TABLE>
<CAPTION>
                                                                      Fiscal Year Ended December 31
                                                                 1995              1996              1997
<S>                                                   <C>              <C>               <C>
Direct Mail Products and Services                             $13,087           $16,829           $39,172
Mailers                                                             -            23,396            50,139
Custom Pressure Sensitive Labels                                3,643            21,276            51,049
Custom Envelopes                                               54,527            49,841            50,731
                                                      ================ ================= =================
                                                              $71,257          $111,342          $191,091
                                                      ================ ================= =================
</TABLE>



MARKET BACKGROUND

     MARKET  DATA  USED  THROUGHOUT  THIS  REPORT  WAS  OBTAINED  FROM  INDUSTRY
PUBLICATIONS  AND INTERNAL  COMPANY  ESTIMATES.  WHILE THE COMPANY BELIEVES SUCH
INFORMATION  IS  RELIABLE,  THE  ACCURACY  OF  SUCH  INFORMATION  HAS  NOT  BEEN
INDEPENDENTLY VERIFIED AND CANNOT BE GUARANTEED.


DIRECT MAIL INDUSTRY

     Direct   marketing  has  become  an   increasingly   important   marketing,
advertising  and  sales  promotion  medium  and an  integral  component  of many
companies' overall marketing  programs.  Direct marketing programs are delivered
to a targeted  audience  through a variety of channels,  including  direct mail,
telemarketing,  print,  radio and  television.  As consumer  data and  marketing
analyses have become more sophisticated, advertisers have been able to precisely
target specific  audiences  using database  marketing  techniques.  As a result,
advertisers  have used a greater  number  of more  customized,  feature-oriented
marketing  campaigns.  Manufacturers  and  fulfillment  providers,  such  as the
Company, have capitalized on this industry trend as marketers have demanded more
specialized products and have outsourced the execution of these campaigns.

     Direct  mail  is  the  second  largest  direct  marketing   segment  (after
telemarketing) with 1996 revenues of approximately  $36.5 billion,  representing
approximately  24% of total  industry  expenditures.  Over the past five  years,
direct mail  expenditures  have grown at a compound annual rate of approximately
6%.

     The Company competes in the highly  fragmented  direct mail segment,  where
the majority of industry  participants  are small,  specialized  firms formed to
capitalize on the industry's growth. Most competitors offer customers a range of
services  including  strategic and creative  design,  information  and data base
management and tracking and fulfillment  production.  Large  corporations  often
undertake direct mail campaigns  internally and represent the other component of
the direct mail segment.

     The Company offers a selection of products, including catalog bind-in order
forms,  advertising inserts and self mailers,  which are sold exclusively to the
direct mail segment of the direct marketing industry.  The Company also provides
direct mail services, which include personalization,  addressing and mailing. To
complement these direct marketing products and services,  mailers, envelopes and
labels  produced  by the  Company  are  customized  and sold  for use in  direct
marketing applications.


MAILER INDUSTRY

     The Company competes in the U.S. mailer market,  which includes both impact
mailers and non-impact  mailer systems  ("laser  forms").  Mailers are used by a
wide  variety of  businesses  and  organizations  as a  substitute  for the most
commonly used mailing method,  a printed  flatsheet which is folded and inserted
into an envelope. Because of their convenience and cost advantages,  mailers are
widely used for the preparation and mailing of invoices, payroll checks, account
and  direct  deposit  statements,   W-2  forms  and  university  grade  reports.
Management  believes that mailers are also popular with direct  marketers due to
the cost effectiveness of this form of solicitation.

     The introduction of laser and other non-impact printer compatible  mailers,
which have  numerous  advantages  relative to  traditional  spot  carbon  impact
mailers, has expanded the range of potential  applications for customers who are
willing  to  substitute   mailers  for  traditional  fold  and  insert  methods.
Management  believes  that the  growth of the  overall  mailer  market  has been
relatively  flat over the past five  years as a decline in impact  mailer  sales
during  that  period  has  been  largely  offset  by  rapid  growth  in sales of
non-impact mailers.

     Impact mailers are an integrated  mailing  package with addresses and other
data printed  inside the package using built-in  carbonized  paper and an impact
printer.  With management estimated annual revenues of $160 million, this market
has a core group of customers  who use impact  mailers for the  preparation  and
mailing  of  payroll  checks,   vendor  payments,   direct  deposit  statements,
collection notices,  medical and utility bills and tax notices.  Since the early
1990's,  the impact  mailer market has decreased in size due to the rapid growth
of laser,  inkjet and other  non-impact  printers which are not compatible  with
impact  mailers.  This  contraction  in the impact mailer market has resulted in
industry consolidation. Management believes that the decline in this market will
continue,   and  that  the  exit  of  certain  manufacturers   provides  further
consolidation opportunities for focused competitors such as the Company.

     Responding to the changes in office printing technology,  a small number of
manufacturers,   including  the  Company,   have  developed  mailers  which  are
compatible  with  laser and other  non-impact  printer  systems.  Unlike  impact
mailers,  non-impact  mailers are typically  sold as an  integrated  system that
combine mailer forms and dedicated and patented  folding and sealing  equipment.
The non-impact  mailer offers the cost  advantages  and  convenience of a mailer
form  and  the  versatility  and  image  quality  of a  laser  printed  product.
Non-impact  mailers have  experienced  rapid  acceptance for the preparation and
mailing of payroll  checks,  vendor  payments,  direct  deposit  statements  and
university grade reports.  Management believes that non-impact mailer technology
provides an attractive alternative to traditional mailing methods.


PRESSURE SENSITIVE LABEL INDUSTRY

     Management   estimates  that  the  total  U.S.   label  market   (excluding
non-customized  labels sold primarily in office supply stores) had 1996 revenues
of  approximately  $8.2  billion.  The  pressure  sensitive  label  segment  had
estimated 1996 revenues of $3.7 billion,  representing  approximately 45% of the
overall U.S. label market. The Company competes in this segment and according to
an October 1996 survey  contained  on Business  Forms,  Labels and Systems,  the
Company is the largest  manufacturer selling custom pressure sensitive labels to
independent  distributors.  The other major segment,  glue-applied  labels,  had
estimated 1996 revenues of $4.1 billion,  representing  approximately 50% of the
overall  market.  Management  estimates  that the more mature glue applied label
segment is growing at  approximately 2% annually,  while the pressure  sensitive
label market is growing at approximately  7% annually.  The rapid growth in this
market is believed to be attributable to several  advantages  pressure sensitive
labels have over traditional  glue-applied labels, such as reduced wrinkling and
superior adhesion and durability.

     A number of other  factors are  believed to have  contributed  to the rapid
growth of pressure  sensitive labels including:  (i) new government  regulations
requiring  an increase in the amount of  information  displayed  on consumer and
industrial  products,  including food, bulk chemicals,  household appliances and
automobiles;  (ii) increased use of bar-coding to track retail sales of consumer
products and business inventories in a wide variety of manufacturing industries;
(iii)  continued  demand from  businesses of all types for targeted  promotional
material;  and (iv) continued need for manufacturers to reduce potential product
liabilities by providing  consumers with more information on the proper usage of
products.  Pressure  sensitive  labels  are used by  virtually  all  industries,
including  airlines  (baggage  tags),  automotive  (warning  labels),   consumer
durables  (operating  instructions  and  warnings),  food and beverage  (product
labeling),  health and beauty (product  labeling),  household chemicals (product
labeling and warnings),  industrial chemicals (hazard warnings),  pharmaceutical
(dosage  information),  retail (price and inventory data) and transportation and
distribution (logistics).

     The pressure  sensitive  label  industry is served by  approximately  2,000
manufacturers,  most of whom operate one production  facility and maintain close
relationships  with local and regional  customers.  The fact that many  pressure
sensitive  label  customers are  accustomed  to  conducting  business with local
manufacturers  has  contributed  to the  fragmentation  of the industry.  Due to
significant economies of scale achieved through consolidation, however, national
manufacturers  have  acquired  small  regional  firms and  integrated  them into
national networks.

CUSTOM ENVELOPE INDUSTRY

     In 1996, the custom envelope market accounted for 59%, or $1.9 billion,  of
the  overall  $3.2  billion  U.S.   envelope   market.   Custom   envelopes  are
distinguished from commodity  envelopes by design,  printing and other finishing
features which are tailored to specific customer needs. Custom envelope features
include  special  shapes,  labels,  multiple  windows  and flap  lengths,  often
designed for comparability with specific direct-mail insertion equipment,  and a
large variety of paper and printing options  designed to meet specific  customer
needs. Major customers in the custom envelope segment include direct mail firms,
financial institutions,  publishers, utilities and businesses using the mail for
billing and advertising  purposes.  Due to the specific  value-added features of
custom envelopes, including complex graphics and envelope enhancements, products
generally have a higher average selling price, higher gross margins and are sold
to customers under one to three year fixed term contracts.

     Manufacturers  of custom and specialty  envelopes  are generally  separated
into  two  groups.  The  first  group is  composed  of a small  number  of large
multi-plant  companies  with sales in excess of $50  million  who  produce  both
commodity  and  custom  envelopes  for the  national  market  or large  regional
markets. The rest of the market consists of smaller one-plant manufacturers with
sales ranging from $5 million to $25 million and which produce custom  envelopes
for local and regional customers.

PRODUCTS AND SERVICES

DIRECT MAIL PRODUCTS AND SERVICES.

     The Company  provides  customers  with direct mail  products  and  services
including mail list preparation, name selection, marketing data base warehousing
and maintenance, demographic modeling and mining of marketing databases, art and
copy  preparation,   prepress  services,   printing,   printed  personalization,
addressing, stuffing, labeling and mail sorting, bundling and logistic services.
The Company also offers a selection of products sold  exclusively  to the direct
mail industry,  which include catalog bind-in order forms,  advertising  inserts
and  self  mailers.  The  Company's  mailers,  envelopes  and  labels  are  also
extensively customized and sold for use in direct mail applications.

     The  primary end use markets for the  Company's  direct mail  products  and
services are retail, catalog  merchandisers,  financial services and publishing.
The Company's  direct mail customers  include  Macy's,  Harris  Publishing,  Cox
Communications,  Bear Creek Direct  (Harry & David),  Frederick's  of Hollywood,
Inc., the American Red Cross and American  Bankers  Insurance Group. The Company
believes  that its array of products and services to the direct mail industry is
extensive.

MAILER PRODUCTS.

     The Company believes that it is a leading U.S.  manufacturer of spot carbon
impact mailers and believes it has the largest installed base of laser and other
non-impact  printer  compatible mailer systems with  approximately  1,800 units.
Impact mailers are  ready-to-mail,  multi-part  forms,  which are widely used to
print correspondence such as account statements,  invoices, tax notices, utility
bills and medical  bills  without  opening or sealing the  envelope.  Non-impact
mailers  are laser  printer  compatible  self-mailer  forms  which are  printed,
folded,  sealed and mailed as payroll  checks,  direct  deposit  statements  and
vendor remittances.  Sales of the Company's  non-impact mailers are experiencing
rapid growth due to the  proliferation of laser and inkjet printers and the cost
effectiveness of mailers versus traditional fold and insert mailing methods.

     Since 1968,  when the  Company  began  manufacturing  impact  mailers,  the
Company  has been a leader in the  development  of  mailer  technology  and,  at
December 31, 1997, held patents valued at approximately  $16.3 million. In 1987,
the Company introduced the patented  InfoSeal(R)  self-mailer system,  which led
the industry in the development of laser printer compatible mailers. InfoSeal(R)
is an  integrated,  turn-key  mailer  system  utilizing a patented form which is
printed and then processed by dedicated  equipment that moistens an adhesive and
folds  the  form  into  a  one-piece  mailer.  The  Company  believes  that  the
InfoSeal(R)  system has the  largest  installed  base of  dedicated  self-mailer
office equipment with over 1,800 units installed. Competitive mailer systems are
available  in the market  which  utilize more  expensive  pressure  seal or more
maintenance intensive glue vat systems. The Company's ability to produce mailers
in all popular  sizes and with a wide variety of custom  features  enables it to
offer a broad line of high quality stock and custom mailers.


CUSTOM PRESSURE SENSITIVE LABELS.

     According to an October 1996 survey contained in Business Forms, Labels and
Systems (the "1996  Survey"),  the Company is the largest U.S.  manufacturer  of
custom  pressure  sensitive  labels sold through  independent  distributors,  as
measured by revenues.  In this segment,  the Company  competes with other larger
national  manufacturers who are dominant in other channels,  particularly in the
direct sales distribution  channel.  The Tag and Label  Manufacturers  Institute
estimates  that the  pressure  sensitive  label  market is growing at a compound
annual rate of  approximately  7%, and the Company's  custom pressure  sensitive
label products,  including the acquisition of LAI,  achieved compound annual net
sales growth of 9%, over the past five years.

     The Company  believes it  differentiates  itself  from its  competitors  by
offering a variety of customized  value-added  label products aimed at short and
medium-run customers.  Operating out of four strategically located manufacturing
facilities,  the Company offers a variety of value-added products aimed at short
and  medium-run  customer  orders.  Management  believes  that  the  Company  is
recognized  in the industry for its high quality  products,  excellent  customer
service and an ability to respond quickly to time-sensitive customer orders. The
Company  introduced  Label  Launch(TM)  service  in  1996,  an  online  software
application  which enables pressure  sensitive label customers to electronically
process  orders and  transfer  artwork  directly  to the  Company's  facilities,
thereby  reducing  pre-press set up time,  order entry and shipping  costs.  The
Company also provides  national  24-hour order  processing for short  production
runs requiring rapid turnaround.

     The Company's  custom pressure  sensitive label products are used by a wide
range of businesses and institutions in numerous end-use applications, including
mailing labels, promotional literature,  inventory routing, packaging and retail
pricing.  The  Company's  largest  end-user  markets  are the  retail,  food and
beverage,  health and beauty,  toy  manufacturing and chemical  industries.  The
Company's customers include  distributors such as Bank-N-Business  Forms, Taylor
Business  Products  and  Standard  Forms,  Inc.  Direct  customers  include  the
Paralyzed Veterans of America,  Boston Scientific Corporation,  Sterilite,  Inc.
and USA Today. No single customer  represented greater than 10% of the Company's
1997 custom pressure sensitive label net sales.

CUSTOM ENVELOPES.

     According  to the  Envelope  Manufacturers  Association  (the  "EMA"),  the
Company is the second largest U.S.  supplier of custom  envelopes in the growing
Southeastern  regional market (which currently  represents  approximately 13% of
the overall  custom  envelope  market) as measured by revenues.  The Company has
focused on the high  value-added  specialty  segments  of the  envelope  market,
placing particular emphasis on the direct mail and  photo-finishing  industries,
where  management  believes the Company has  established a leadership  position.
Almost  all  of  the  Company's  envelope  products  are  specially  printed  or
manufactured  to  end-user  specifications  and have higher  margins  than plain
commodity  envelopes.  The Company also  produces  custom  expanding  envelopes,
pockets,  wallets and other products for the professional office. These products
are hand  assembled,  medium to large sized folders used to file legal documents
or store and carry artwork.

     From its four production facilities,  the Company manufactures in excess of
2.5 billion envelopes per year. Net sales of the Company's custom envelopes have
increased at a compound  annual  growth rate of  approximately  2% over the past
five  years.  The  Company  competes  in this  market  with many small  regional
suppliers and several larger national manufacturers.

SALES, DISTRIBUTION AND MARKETING

DIRECT MAIL PRODUCTS AND SERVICES

     The Company sells its direct mail products and services primarily through a
direct  sales  force  consisting  of 30 sales  representatives  and eight  sales
managers,  which are allocated amongst three operating divisions. In addition to
these divisional resources, the Company has recently initiated the creation of a
national  sales force  which will be  responsible  for  selling  multi-component
direct mail packages from across the Company's  four business  units to national
accounts.  As of December 31, 1997,  this national  sales force  included a Vice
President of Sales and Marketing and one national  account  representative.  The
Company expects to add between two and four additional  account  representatives
in the next twelve months.

     In addition  to these  direct  selling  resources,  the Company  operates a
centralized  customer  service  hub in Roanoke,  Virginia  for direct mail sales
quotation and order  processing.  This customer  service hub is comprised of two
managers and thirteen customer service representatives.

     The  Company had in excess of 1,400  active  direct  mail  customers  as of
December 31, 1997.

MAILER PRODUCTS

     The Company markets mailers to approximately 5,000 independent distributors
across the U.S.  through seven regional sales managers.  Distributors,  in turn,
sell these products to the end user. In 1997 independent  distributors accounted
for approximately 90% of the Company's mailer product net sales with the balance
sold directly to major direct  manufacturers and end-use customers.  In addition
to the independent  distributor network, the Company benefits from the marketing
efforts of its  corporate  partners--the  Xerox  Corporation,  Wallace  Computer
Services,  Inc. and Tab Products Co. The Xerox Corporation's  Supplies Group has
selected the Company's  InfoSeal(R)  system as the only non-impact mailer system
to be marketed by its sales force.  Likewise,  Wallace  Computer  Services  Inc.
introduced the product as their  exclusive  one-piece  laser  compatible  mailer
system.  InfoSeal(R)  equipment  for high and medium volume users is marketed by
Tab Products Co. which manufactures the machines.

CUSTOM PRESSURE SENSITIVE LABELS

     The  Company  markets  its  custom  pressure   sensitive   labels  to  both
independent distributors and directly to end-users.  Over the past 24 months the
Company  has  conducted   business   with   approximately   26,000   independent
distributors,  such as business forms companies,  printing brokers, printers and
quick printers. Sales to independent distributors collectively accounted for 54%
of 1997 net sales with the top 20 distributor accounts accounting for 9% of 1997
custom pressure sensitive label net sales. Direct sales customers constitute the
remaining 46%.

CUSTOM ENVELOPES

     Due to the  exacting  specifications  and high volume  requirements  of the
custom  envelope  customer,   the  Company  sells  these  products  directly  to
end-users.  The Company maintains a 28 person sales force which primarily covers
the Southeastern U.S. and averages 12 years of industry experience.  These sales
people receive commissions  determined by the relationship between selling price
and estimated full  production  cost. The Company  maintains a diverse  customer
base with the top 20 envelope accounts  providing 48% of total 1997 envelope net
sales.  Expanding  envelopes,  pockets and wallets  are sold  primarily  through
independent  distributors  due to the smaller  order  size,  which is typical of
sales of these products.


MANUFACTURING

DIRECT MAIL PRODUCTS AND SERVICES

     Direct mail  products  and  services  are  supplied  from seven  facilities
located strategically near major originators of direct mail campaigns.  Three of
these facilities,  in Kentucky,  Colorado and Virginia,  are full-service plants
with  database,  lettershop,  mailing  and  fulfillment  capabilities.  A fourth
facility in New Jersey,  houses a large data  management and analysis  center as
well as senior sales executives  responsible for key New York City accounts. The
other three plants are all located in Roanoke and Salem,  Virginia,  and produce
custom and specialized direct mail pieces in a variety of formats.

     Equipment utilized by this business unit includes  mainframe  computers and
client/server  networks  for  database  management  and  analysis,  hot and cold
sheet-fed and continuous laser printers for variable imaging of letters,  letter
mail package inserts and personalized labels, Electron Beam Imaging for collated
mailer products,  impact printers for collated mail  personalization,  sheet and
web  offset  high-color  printing  presses,  collators  and  off-line  finishing
equipment  capable of  producing  value-added  features,  ink-jet  printers  for
address  personalization  of letters  and other  mail  pieces,  applicators  for
addressed and  pre-sorted  labels,  and  multistation  inserters for letter mail
packages.

CUSTOM PRESSURE SENSITIVE LABELS

     Pressure  sensitive labels are produced in four facilities  located in Fort
Smith,  Arkansas,  San Carlos,  California,  Wilton,  New  Hampshire and Tucker,
Georgia,  which are  strategically  positioned  throughout the U.S. These plants
incorporate 29 traditional high speed flexographic  presses ranging in web width
from 6.5" to 18", which produce a full complement of label  graphics,  including
process  printing and foil stamping.  All but one of these plants is equipped to
meet quick response label orders and utilize 10 highly customized letter presses
designed to cost effectively produce labels in small order quantities with fewer
colors.  The Company  believes  its  manufacturing  expertise  and high  quality
standards allow it to serve highly  prestigious  customers with rigorous quality
specifications and manufacturing tolerance.

MAILER PRODUCTS

     Mailers are produced in three facilities located in Roanoke, Virginia, Fort
Smith, Arkansas and Sparks,  Nevada,  thereby allowing  cost-effective  national
distribution.  In total,  these facilities utilize 20 web offset presses ranging
in width from 20.5" to 30.5" to create rolls of printed materials.  This printed
material is then further  converted on 18 highspeed  collators into multiple ply
mailer sets.  Additional major pieces of equipment in these plants include three
MICR encoders,  two integrated self label  converting lines and five InfoSeal(R)
converting  lines,  one of which is a fully  integrated  printing and converting
line.

CUSTOM ENVELOPES

     Custom  envelopes  are  produced in three  plants  located  throughout  the
Company's  core  Southeastern  U.S.  regional  market in  Gainesville,  Florida,
Louisville,  Kentucky, and Roanoke, Virginia.  Production equipment at the three
envelope  plants  includes eight  high-speed  web folding  machines with in-line
flexographic printing capacity which can produce finished,  customized envelopes
in one pass. In addition,  these plants house 43 folding  machines which convert
die-cut  blanks into  finished  envelopes.  Other  equipment  includes  computer
controlled high-speed  die-cutters and a variety of off-line printing equipment,
including pressure sensitive label applicators.

     Custom  expanding  envelopes,  pockets,  wallets and other products fir the
professional  office  are  produced  at the  Diversified  Assembly  facility  in
Austell, Georgia, which incorporates a wide array of specialized die-cutters and
assembly equipment.  At the end of 1996, the Company entered into an outsourcing
manufacturing  arrangement with one of the largest envelope producers in Mexico.
The Company provides the technology and ships material to the partner in Mexico,
which manufactures over one million expanding envelopes for the Company for sale
in the U.S. market.

     All of the  Company's  direct  mail,  mailer and pressure  sensitive  label
facilities are supported by state of the art, electronic pre-press capabilities.
These services are also available to the Company's  custom  envelope  plants via
electronic  file  transfer on the  Company's  frame relay  based  intranet.  The
Company's  pre-press design  capability is composed of Apple MacIntosh and Mecca
hardware architecture.

SUPPLIERS

     The  Company  has a broad base of high  quality,  national  suppliers.  The
primary  raw  materials  used by the  Company are  uncoated  and coated  papers,
plastic films, inks and adhesives.

     Paper  is  the  Company's   single   largest  raw  material,   representing
approximately  one half of the Company's  costs of products sold in 1997.  Union
Camp Corp., International Paper Co., Georgia-Pacific Corp., Kimberly-Clark Corp.
and  Appleton   Paper  are  the  largest  paper   suppliers  for  the  Company's
transactional mailers,  direct mail products and custom envelopes.  In 1997, the
Company  purchased paper from more than eleven major suppliers and several major
paper  merchants.   The  Company's  custom  pressure  sensitive  label  business
purchases paper and other key substrates from Fasson and Flexcon Inc.

     Paper has a historical pattern of cyclical price change based upon industry
capacity versus market demand. Supply has historically been available;  however,
during  periods of increased  economic  activity  and  resultant  low  inventory
levels, paper companies tend to place customers on allocation,  which limits the
short term supply available.  Prices during these periods tend to increase.  The
Company maintains multiple sources of supply in all grades of paper which limits
the risk of paper  shortage  due to isolated  paper plant  shut-downs  and which
provides  alternate  sources during  allocation  periods.  Because the Company's
customer  quotations  are  honored for a period of 30 days from  quotation,  the
Company  historically  has  been  able  to pass  paper  price  increases  to its
customers.   In  addition,  the  Company's  sales  contracts  generally  contain
provisions   permitting  escalation  of  prices  based  upon  increases  in  the
underlying paper cost.

COMPETITION

     The  markets  for  the  Company's   products  are  highly   fragmented  and
competitive.  Competition  is based  upon  product  breadth,  geographic  reach,
delivery time, product quality and customer service.  Customer  relationships in
the markets in which the Company competes tend to be long-term,  and service and
familiarity with a customer's needs, as well as personal factors,  are important
in building and maintaining  such  relationships.  Competitors  range from large
manufacturers to regional and local firms.

DIRECT MAIL PRODUCTS AND SERVICES

     Direct mail products and services are sold primarily directly to end-users.
Competitors range from smaller,  single-plant operations that provide individual
products or services (such as data processing,  printing,  binding or lettershop
capabilities), to larger companies which offer greater breadth. Included in this
latter group are  MetroMail,  Harte  Hanks,  Webcraft  Technologies  (Big Flower
Press),  Communicolor (the Standard  Register  Company) and ColorForms  (Wallace
Computer  Services,  Inc.).  While these larger competitors offer several direct
mail products and services,  each typically  competes with the Company on only a
segment  of  the  Company's  extensive  product  line.  Furthermore,  management
believes that many of the Company's larger  competitors are organized to process
larger volumes and are,  therefore,  less  competitive in the  medium-size  runs
which are the focus of the Company's strategy.

MAILER PRODUCT

     Impact mailers are sold through two principal distribution channels, direct
to customers and to independent distributors.  The Company's primary competitors
in the  distributor  channel  include Poser  Business  Forms (Mail Well,  Inc.),
Goodwin Graphics and Perry Printing Company.  The direct channel is dominated by
large  manufacturers,  which include  Wallace  Computer  Services,  Inc.,  Moore
Corporation  Limited,  Uarco Business Forms and the Standard  Register  Company.
These manufacturers generally maintain long term relationships and tend to offer
a full range of business form products,  with mailers  generally  representing a
small percentage of total sales to customers.

     The non-impact mailer market is comprised of three primary competitors: the
Company,  Moore Corporation  Limited and the Standard  Register  Company.  These
three competitors offer self-mailer systems, that consist of one piece forms and
dedicated   folder/sealer  equipment  All  three  companies  target  medium  and
high-volume customers.

     Management  believes  that the Company,  through its  patented  InfoSeal(R)
system, has the largest number of non-impact self-mailer installations with over
1,800.  The  Company  has  recently   developed  a  patented  low  cost  desktop
folder/sealer  machine to  specifically  address the low volume  small  business
segment.  Management  believes  that it is the first  manufacturer  to develop a
self-mailer  system  targeting small  businesses and satellite  offices of large
companies.

CUSTOM PRESSURE SENSITIVE LABELS

     Competitors in the custom label market sell their products  either directly
to end-use customers or to independent  distributors.  These companies primarily
produce  stock  labels but also  compete in the  market for custom  labels.  The
Company is  recognized  as the  market  leader in the  independent  distribution
channel.  Major competitors in this highly  fragmented  channel include Discount
Labels,  Inc.  (American  Business  Products),  Data Labels,  Inc.,  Continental
Datalabel,  Inc., Rittenhouse,  Inc. and Lancer Labels, Inc. Competitors in this
channel are typically  small regional,  privately-owned  operators with a single
production  facility.  Those competitors that sell directly to end-users include
the Standard Register Company,  Moore Corporation Limited,  Uarco Business Forms
and Wallace Computer Services, Inc.

CUSTOM ENVELOPES

     Due  to  the  high   bulk  and   weight   characteristics   of   envelopes,
transportation  and freight  costs are  generally an important  component of the
total  cost  of  envelope   production.   With  transportation  costs  typically
accounting for 3% of total  envelope  production  costs,  long distance trade is
often limited to high value-added products. As a result,  envelope manufacturers
generally focus production  facilities on immediate regional markets.  According
to the EMA,  the  Company  had  approximately  13%  market  share of the  custom
envelope  market in the  Southeastern  U.S  during  1997.  The  Company's  major
competitors  in  this  region  are  Atlantic   Envelope  Co.  (National  Service
Industries,  Inc.),  Tri State Envelope  Corp.,  Oles Envelope  Corp.  and, to a
lesser  extent,  Mail-Well,  Inc. and Westvaco Corp.  Like the Company,  most of
these competitors maintain an in-house sales force.

EMPLOYEES

     As of December 31, 1997, the Company employed  approximately  1,834 people,
of which  1,309  work in  manufacturing  facilities,  310 work in  sales/service
functions, 208 work in administration and 7 work in corporate functions. None of
the Company's  employees are unionized,  and the Company believes relations with
employees are good.

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

     Like similar companies, the Company's operations and properties are subject
to a wide variety of federal,  state and local laws and regulations.  These laws
and  regulations  govern  the use,  storage,  handling,  generation,  treatment,
emission,  release, discharge and disposal of certain materials,  substances and
wastes, the remediation of contaminated soil and groundwater, and the health and
safety of employees.  As such, the nature of the Company's operations exposes it
to the risk of claims with respect to  environmental  protection  and health and
safety  matters and there can be no assurance that material costs or liabilities
will not be incurred in connection with such claims.

     In  January   1988,   the  Company  was  notified  by  the  United   States
Environmental  Protection  Agency  ("EPA")  that  it and 11  other  parties  are
potentially liable for costs incurred by the EPA in responding to the cleanup of
the  Dixie  Caverns  Landfill  Superfund  Site  in  Roanoke  County,   Virginia.
Subsequently,  Roanoke County expended $2.0 million to clean up a portion of the
Dixie  Cavern  Landfill  Site and has filed suit  against the Company and the 11
other  potentially  responsible  parties  ("PRPs")  for  reimbursement  of these
cleanup costs. Although,  under Superfund, the PRPs may be jointly and severally
liable for cleanup  costs,  management  believes  that the  Company's  potential
liability in connection  with the County's  claim is de minimis,  based upon the
amount of waste attributable to it in relation to the other parties.  Management
believes  that  the  Company  will  have no  liability  in  connection  with the
remaining portion of the site, and that the ultimate outcome of this matter will
not have a  material  adverse  impact on the  financial  position  or results of
operations of the Company.


ITEM 2.  PROPERTIES

     As of December 31, 1997 the Company operated  manufacturing,  warehouse and
distribution  facilities  in the US with a  total  floor  area of  approximately
998,000  square feet. Of this  footage,  approximately  492,000  square feet are
leased and approximately 506,000 square feet are owned.

        The  following   table  describes  the   manufacturing,   warehouse  and
distribution facilities of the Company as of December 31, 1997.

<TABLE>
<CAPTION>
                         NUMBER OF              BUSINESS        OWNED/          EXPIRATION     SQUARE FEET / $SF
LOCATION                 EMPLOYEES              UNIT1           LEASED2         OF LEASE       (IN THOUSANDS)
------------------------ ---------------------  --------------  --------------  -------------- ---------------------
<S>                      <C>                    <C>             <C>             <C>            <C>
ARKANSAS
         Fort Smith      220                    M, D            O                              125 /Owned
         Fort Smith      15                     L               L               12/31/1999     20 / $1.68 S.F.
CALIFORNIA
         San Carlos      62                     L               L               8/11/98        24 / $6.00 S.F.
COLORADO
         Denver          55                     D               L               4/30/2000      40 / $3.20 S.F.
FLORIDA
         Gainesville     108                    E               O                              52 / Owned
GEORGIA
         Atlanta         14                     A               L               8/31/2000      6 / $17.17 S.F.
         Austell         90                     E               L               9/1/2001       39 / $3.22 S.F.
         Tucker          108                    L               L               10/31/2003     48 / $4.29 S.F.
KENTUCKY
         Louisville      85                     E               L               3/31/2000      70 / $1.77 S.F.
         Louisville      125                    D               L               3/31/1999      98 / $2.12 S.F.
NEVADA
         Sparks          32                     M               L               11/30/1998     42 / $3.76 S.F.
NEW HAMPSHIRE
         Wilton          225                    L               O                              79 / Owned
         Amherst         15                     L               O                              2 / Owned
NEW JERSEY
         Mountainside    30                     D               L               9/14/1999      11 / $11.97 S.F.
PENNSYLVANIA
         Norristown      7                      E               L               4/30/2001      15 / $7.16 S.F.
 VIRGINIA
         Norfolk         162                    D               L               11/30/2000     52 / $3.35 S.F.
         Roanoke         243                    E, D            O                              137 / Owned
         Roanoke         231                    M, D            O                              111 / Owned
         Salem           7                      D, L            L               1/31/1998      27 / $3.25 S.F.
</TABLE>

-------------------------------------
1.  D=Direct Mail;  E=Envelopes;  L=Labels; M=Mailers;  A=Administrative

2.  O=Owned   L=Leased


ITEM 3.  LEGAL PROCEEDINGS

     The  Company is a party to various  litigation  matters  incidental  to the
conduct of its business. The Company does not believe that the outcome of any of
the  matters in which it is  currently  involved  will have a  material  adverse
effect on the financial condition or results of operations of the Company.


ITEM 4.  SUBMISSION OF MATTERS TO VOTE OR SECURITY HOLDERS

     None.

<PAGE>
                                     PART II

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

     None.


ITEM 6.  SELECTED FINANCIAL DATA

     The following table sets forth selected financial data of the Company.  The
selected  financial  data as of and for  each of the  five  fiscal  years in the
period  ended  December  31,  1997  were  derived  from  the  audited  financial
statements of the Company (in thousands except share data):

<TABLE>
<CAPTION>
                                                                     For the year ended December 31,
                                              ------------------------------------------------------------------------

                                              1993             1994             1995             1996             1997
                                              ----             ----             ----             ----             ----
<S>                                        <C>              <C>              <C>              <C>              <C>
OPERATING DATA:

Net sales............................      $  64,545        $  65,998        $  71,257        $  111,342       $  191,091
Gross profit.........................         13,161           13,388           15,549           31,127           57,492
Selling, general and administrative..         12,930           12,428           13,410           25,200           44,490
Operating income (loss)..............         (2,020)          960              2,139            5,927            13,002
Interest expense, net................         2,873            2,975            3,179            8,126            13,765
Loss before income taxes.............         (4,893)          (2,015)          (1,040)          (2,199)          (762)
Income (loss) before
  extraordinary item.................         (3,550)          (2,015)          860              (1,572)          (1,350)
Extraordinary item...................         -                -                -                (798)            -
Net income (loss)....................         (3,550)          (2,015)          860              (2,370)          (1,350)
Average shares outstanding...........         284              284              284              284              284
Per share of common stock:
    Net income (loss) before
      extraordinary item.............      $  (12.50)       $  (7.10)        $  3.03          $  (5.54)        $  (4.75)
    Extraordinary item...............         -                -                -                (2.81)           -
    Net income (loss)................         (12.50)          (7.10)           3.03             (8.35)           (4.75)
Dividends declared...................         -                -                -                -                -

OTHER DATA:

EBITDA (a)...........................      $  3,610         $  4,308         $  5,159         $  12,495        $  25,456
Depreciation and amortization........         6,345            6,776            6,024            7,409            13,050
Capital expenditures.................         1,179            940              2,308            3,490            4,563
Ratio of Earnings to Fixed
  Charges (b)........................         -                -                -                -                -

BALANCE SHEET DATA (AT PERIOD END):

Working capital......................      $  7,190         $  7,202         $  7,182         $  18,840        $  26,620
Net property, plant and equipment....         11,285           9,881            10,302           47,367           51,194
Total assets.........................         39,607           37,837           38,116           133,374          177,685
Long-term debt, net of...............
  current portion....................         22,541           21,776           21,412           102,353          115,245
Common stockholder's equity..........         7,883            5,867            6,727            12,122           34,651

<FN>
(a) EBITDA is defined  as  operating  income  plus  depreciation,  amortization,
non-cash  charges related to the defined  benefits plans and reduced by gains on
disposal of equipment and the non-cash gain due to change in vacation policy.

(b) The ratio of earnings to fixed  charges is computed by adding fixed  charges
(interest and amortization of deferred  financing costs and discounts) to income
or loss before  provision  for income taxes and dividing  that sum by the sum of
fixed  charges.  Earnings  were  insufficient  to cover fixed charges by $4,893,
$2,015,  $1,040,  $2,199 and $762 for the years ended  December 31, 1993,  1994,
1995, 1996 and 1997, respectively.
</FN>
</TABLE>

     On June 28, 1996,  the Company  acquired all of the issued and  outstanding
capital stock of Transkrit Corporation for $86.5 million plus transaction costs.
Subsequent to the acquisition, Transkrit and all of its subsidiaries were merged
into the Company.  The results of operations of Transkrit  have been included in
the results of operations of the Company since June 29, 1996.

     On  February  21,  1997,  the  Company  acquired  all  of  the  issued  and
outstanding capital stock of LAI for $8.5 million, less outstanding indebtedness
and certain capitalization lease obligations, plus transaction costs. Subsequent
to the acquisition,  LAI was merged into the Company.  The results of operations
of LAI have been  included in the  results of  operations  of the Company  since
February 22, 1997.

     On April 24, 1997, the Company  acquired all of the issued and  outstanding
stock  ADMI  for  $23.6  million  plus  transaction  costs.  Subsequent  to  the
acquisition,  ADMI was merged  into the  Company.  The results of ADMI have been
included in the results of operations of the Company since April 24, 1997.


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

     On June 28, 1996,  the Company  acquired all of the issued and  outstanding
capital stock of Transkrit Corporation for $86.5 million plus transaction costs.
Subsequent to the acquisition, Transkrit and all of its subsidiaries were merged
into the Company.  On February 21, 1997, the Company  acquired all of the issued
and  outstanding  capital  stock  of  LAI  for  $8.5  million  less  outstanding
indebtedness and certain  capitalized lease obligations plus transaction  costs.
Subsequent  to the  acquisition,  LAI was merged into the Company.  On April 24,
1997, the Company  acquired all of the issued and  outstanding  capital stock of
ADMI for $24.6 million plus  transaction  costs.  Subsequent to the acquisition,
ADMI was merged into the Company.

     The  discussion  below  relates to the  financial  condition and results of
operations of the Company, which includes the results of operations of Transkrit
from June 29, 1996, LAI from February 21, 1997 and ADMI from April 24, 1997.

     The Company has four  principal  product  lines:  direct mail  products and
services, mailer systems, custom pressure sensitive labels and custom envelopes.
The following  table  summarizes  the Company's  historical net sales by product
line (in thousands):
<TABLE>
<CAPTION>
                                                                     FISCAL YEAR ENDED DECEMBER 31,
                                                                 1995              1996              1997
<S>                                                   <C>              <C>               <C>
Direct Mail Products and Services.................            $13,087           $16,829           $39,172
Mailer Systems....................................                  -            23,396            50,139
Custom Pressure Sensitive Labels..................              3,643            21,276            51,049
Custom Envelopes..................................             54,527            49,841            50,731
                                                      ---------------- ----------------- -----------------
                                                              $71,257          $111,342          $191,091
                                                      ================ ================= =================
</TABLE>

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     Net Sales for the year ended December 31, 1997  increased  $79.8 million to
$191.1 million,  or 71.6%, from the comparable 1996 period. The overall increase
in net sales was due to the  acquisitions of Transkrit,  LAI and ADMI. Net sales
for mailer systems products  increased 114.7% or $26.8 million from 1996 to 1997
due to the  Transkrit  acquisition.  Net  sales for  direct  mail  products  and
services  increased  133.0% or $22.4 million due to the acquisition of ADMI. Net
sales for customer  pressure  sensitive labels increased 141.7% or $30.4 million
due to the  acquisitions  of LAI and Transkrit.  Net sales for custom  envelopes
increased 2.7%, or $1.3 million from 1996 to 1997.

     Gross profit for the year ended December 31, 1997 increased  $26.4 to $57.5
million, or 84.9%, from the comparable 1996 period. In addition, gross profit as
a percentage of net sales,  increased from 28.0% for 1996 to 30.0%. The increase
in gross profit in dollars and as a percent of net sales is mostly  attributable
to the product lines  acquired in the  acquisitions  of LAI and ADMI in 1997 and
Transkrit in 1996.

     Selling,  general and administrative  expenses increased $19.2 million from
1996 to 1997  due to the  acquisitions  of  Transkrit,  LAI and  ADMI.  Selling,
general and  administrative  expenses,  as a percent of net sales,  increased to
23.3% from 22.6% from the  comparable  1996  period.  The  increase  in selling,
general and administrative expenses, as a percent of net sales, is the result of
the acquisitions of Transkrit,  LAI and ADMI which  historically  incur a higher
percentage of these costs.

     Income  from  operations  for the year ended  December  31,  1997 was $13.0
million,  or 6.8% of net sales as compared to $5.9  million or 5.3% of net sales
for the  comparable  1996 period.  The increase of $7.1 million is the result of
the  acquisitions  of  Transkrit,  LAI and ADMI.  The  increase  in income  from
operations as a percent of net sales from 1996 to 1997 is due to the increase in
gross profit from the acquired product lines reduced, to a lesser extent, by the
increase  in  selling,  general  and  administrative  expenses.   EBITDA,  as  a
percentage of net sales, increased to 13.3% for the year ended December 31, 1997
from 11.2% for the  comparable  1996 period.  EBITDA for the year ended December
31, 1997 increased to $25.5 million from $12.5 million for the  comparable  1996
period due to the acquisitions of Transkrit, LAI and ADMI.

     Interest  expense  for the year ended  December  31,  1997  increased  $5.7
million,  or 69.4%,  to $13.8  million from $8.1 million for 1996.  The weighted
average interest rate for the year ended December 31, 1997 was 12.3% as compared
to 11.7% for the comparable  1996 period.  The increase in interest  expense and
the weighted  average  interest rate from 1996 to 1997 is due to the issuance of
the $100.0 million Senior Unsecured Notes on June 28, 1996.

     Income tax expense (benefit) for the years ended December 31, 1997 and 1996
was $.6 million and $(.6)  million,  respectively,  resulting in  effective  tax
rates of 77% and 28%, respectively. The income tax expense recorded for the year
ended December 31, 1997 is primarily  based upon  benefiting the net loss before
taxes  offset by  non-deductible  amortization  and other  expenses  and certain
minimum state income taxes.

     As of December 31, 1997,  $7.3 million of  cumulative  net  operating  loss
carryforward  benefits have been recognized based upon the expected reversals of
temporary  differences into taxable income and management's  estimate of taxable
income  within the period  prior to the  expiration  of the net  operating  loss
carryforwards.  The Company  expects to  generate  taxable  income  prior to the
expiration  of the net  operating  loss  carryforward.  Taxable  income  of $7.3
million would have to be realized  prior to the year ended  December 31, 2011 to
ensure  realizability  of the net  operating  loss  carryforward  prior to their
expiration  for federal  income tax purposes.  The cumulative net operating loss
carryforward, generated from 1989 through 1996, will begin to expire in 2004 and
continue through 2011.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

     Net Sales for the year ended December 31, 1996  increased  $40.1 million to
$111.3 million,  or 56.3%, from the comparable 1995 period.  Net sales of custom
envelopes  decreased 8.6%, or $4.7 million from 1996 to 1995.  While the average
unit price for envelope  sales  increased .8%, the total number of units shipped
decreased  11.2%.  The decrease in the number of envelope  units  shipped is the
result of a managed  change in the mix of products sold and, to a lesser extent,
weak  industry  conditions.  The Company has changed the mix of products sold in
the envelope  business  units toward  value-added,  higher margin  products (see
discussion  regarding  envelope  gross  profits  below).  The increase in mailer
systems,  direct mail products and services and custom pressure  sensitive label
net sales is the result of the acquisition of Transkrit  Corporation.  Net sales
for direct mail products and services  increased 20.5% or $2.7 million from 1995
to 1996. Net sales for custom  pressure  sensitive  labels  increased  484.0% or
$17.6 million from 1995 to 1996.

     Gross profit for the year ended December 31, 1996  increased  $15.6 million
to $31.1 million, or 100.7%, from the comparable 1995 period. In addition, gross
profit,  as a percent  of net  sales,  increased  from  21.9% for the year ended
December 31, 1995 to 28.0% for the comparable 1996 period. The increase in gross
profit in absolute dollars and as a percent of net sales is mostly  attributable
to the product lines acquired from the  acquisition  of Transkrit.  The acquired
product  lines of mailer  systems,  direct mail products and services and custom
pressure  sensitive  labels  generate  higher  gross  profit  margins  than  the
historical  product  lines of the  Company.  Gross  profit for custom  envelopes
remained relatively  unchanged from 1995 to 1996 even though net sales decreased
8.6%.

     Selling, general and administrative expenses, as a percentage of net sales,
increased by $11.8  million from 18.8% of net sales for the year ended  December
31, 1995 to 22.6% of net sales for the comparable 1996 period. The $11.8 million
increase in these  expenses is due to the  acquisition  of Transkrit at June 28,
1996.  The acquired  product lines from the Transkrit  acquisition  historically
incur a higher percentage of selling,  general and administrative  expenses as a
percent of net sales.

     Income  from  operations  for the year  ended  December  31,  1996 was $5.9
million,  or 5.3% or net sales as compared to $2.1  million or 3.0% of net sales
for the  comparable  1995  period.  The  increase of $3.8 million of income from
operations is the result of the acquisition of Transkrit. The increase in income
from  operations  as a  percent  of  revenues  from  1995  to 1996 is due to the
increase in gross profit from the acquired product lines reduced by, to a lesser
extent, the increase in selling, general and administrative expenses. EBITDA, as
a percentage  of net sales,  increased to 11.2% for the year ended  December 31,
1996  from  7.3% for the  comparable  1995  period.  EBITDA  for the year  ended
December  31,  1996  increased  to  $12.5  million  from  $5.2  million  for the
comparable  1995 period.  The increase in EBITDA from 1995 to 1996 is the result
of the acquisition of Transkrit.

     Interest  expense  for the year ended  December  31,  1996  increased  $5.0
million,  or  157.2%,  to $8.2  million  from $3.2  million  for the year  ended
December 31, 1995 on  significantly  higher average debt balances for the period
ended December 31, 1996. The weighted  average  interest rate for the year ended
December 31, 1996 was 11.7% as compared to 13.8% for the comparable 1994 period.
The  increase  in the  average  debt  balances  from  1995 to 1996 is due to the
issuance of $100,000,000  Senior  Unsecured  Notes issued to purchase  Transkrit
partially  offset by the payoff and termination of the revolving line of credit,
bank  long-term  debt and  subordinated  outstanding  as of June 28,  1996.  The
weighted  average  interest  rate  decreased  from 1995 to 1996 due to the lower
borrowing  rate of the Senior  Unsecured  Notes of 11 5/8% versus 1995 long-term
debt and subordinated debt stated interest rates ranging from 10.25% to 14%.

     Income tax  benefit for the year ended  December  31, 1996 and 1995 was $.6
million and $1.9  million,  respectively,  resulting in an effective tax rate of
28% and 183%,  respectively.  The income  tax  benefit  recorded  in 1995 is the
result of benefiting  the  cumulative net operating loss as of December 31, 1995
previously not recognized.

     As of December 31, 1996,  $10.9  million of cumulative  net operating  loss
carryforward  benefits have been recognized based upon the expected reversals of
temporary  differences into taxable income and management's  estimate of taxable
income  within the period  prior to the  expiration  of the net  operating  loss
carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided by operating activities was $2.0 million and $7.1 million
for the years ended  December 31, 1997 and 1996,  respectively.  The decrease in
net cash provided by operating  activities  for the year ended December 31, 1997
is mostly  attributable to the increase in net operating assets,  reduced,  to a
lesser extent, by a lower net loss and higher depreciation and amortization when
compared to the year ended December 31, 1996.

     Net cash used in investing  activities  was $38.9 million and $79.8 million
for the years ended  December 31, 1997 and 1996,  respectively.  The decrease in
net cash used in investing  activities is mostly due to the  acquisitions of LAI
for  $9.5  million  and  ADMI  for  $25.0  million  in 1997 as  compared  to the
acquisition of Transkrit for $79.4 million in 1996.

     Capital expenditures, excluding acquisitions (but including purchases under
capital leases), were $7.6 million and $6.3 million for the years ended December
31, 1997 and 1996, respectively.

     Net cash  provided  by  financing  activities  was $36.2  million and $74.2
million for the years ended  December 31, 1997 and 1996,  respectively.  The net
cash provided by financing  activities  for the year ended  December 31, 1997 is
primarily  attributable  to the $10.8 increase on the revolving loan facility to
fund the  acquisition  of LAI and the $23.9 million  capital  contribution  from
AmeriComm Holdings, Inc. ("AHI") to fund the acquisition of ADMI.

INFORMATION SYSTEMS AND THE YEAR 2000

     The Company's  four major  business  segments have analyzed  their exposure
related to year 2000 dysfunctional coding in all software and firmware utilized.
The  Company  expects  to incur an  immaterial  amount of costs in 1998 to fully
ensure the  functional  integrity of all systems by the year 2000.  In addition,
management  believes  there  are no  mission  critical  systems  which  would be
compromised  at the year 2000.  The four  business  segments  primarily  rely on
packaged software  applications which use commercially  available databases that
have current  software  releases which are year 2000 compliant.  The Company has
either  implemented  these releases or has scheduled to implement these releases
in the normal maintenance cycle during 1998.

INFLATION AND PRICE CHANGES

     The Company  believes that inflation,  exclusive of paper price  increases,
has not had a material  impact on its results of operations  for the three years
ended  December 31,  1997.  The Company  currently  does not nor does it plan to
engage in hedges to offset potential  changes in the cost of paper or changes in
interest rates.

     Paper is the Company's  primary raw material,  accounting for approximately
50% of the  Company's  cost of goods  sold.  Generally,  when the price of paper
decreases,  the Company has a short-term  opportunity  to improve its  operating
margins due to delays in passing price reductions through to customers. However,
since  paper  price  declines  tend to occur in a weak  economy,  net  sales and
operating  margins  may be  negatively  affected  in  the  short-term  since  it
generally takes from 30 to 90 days to realize such price declines in its pricing
from vendors. In the longer-term,  however,  since paper price increases tend to
occur in a  strong  economy,  the  Company  is  generally  able to pass  through
increases in its cost of paper to customers  and  therefore  maintain or improve
operating margins.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Reference  is made to the  Index to  Financial  Statements  on page F-1 for
AmeriComm  Direct  Marketing,  Inc.'s  financial  statements  and notes  thereto
included  herein.  All  schedules  have been omitted as they are not required or
they are not applicable or because the  information  required to be presented is
included in the financial statements and the related notes thereto.


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

     None.

<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following  are the  executive  officers and directors of the Company at
December 31, 1997:

                   TERM OF
NAME               OFFICE   AGE  POSITION
-----------------  -------  ---  -------------------------------------------
Robert M. Miklas      1     46   Director, President and CEO
Robert B. Webster     1     50   Executive Vice President and CFO
Thomas J. Cobery      1     51   Senior Vice President/President-Label Art
Jack Resnick          1     50   Executive Vice President/President-Transkrit
Robert D. Oliver      1     46   Senior Vice President/General Manager-Envelopes
John D. Weil          1     50   Chairman of the Board of Directors
David E. De Leeuw     1     54   Director
David E. King         1     39   Director
Glenn S. McKenzie     1     45   Director
Calvin Ingram         1     64   Director
Martin R. Lewis       1     68   Director
Timothy Beffa         1     46   Director

TIMOTHY BEFFA (46),  Director of the Company since January,  1997. Mr. Beffa has
been President and Chief Executive  Office of Outsourcing  Solutions,  Inc. (OSI
Holdings Corp.), a receivables  management  company in which McCown De Leeuw has
invested, since August, 1996. From May, 1989 to August, 1996 Mr. Beffa served as
president  and Chief  Operating  Officer of DIMAC  Marketing,  a publicly  owned
direct  marketing  company.  Mr. Beffa joined DIMAC as Senior Vice President and
Chief Financial Officer.  From April, 1981 to May, 1989 he was Vice President of
Finance for the  International  Division of Pet, Inc. Prior to April,  1981, Mr.
Beffa was employed by Ernst & Young.

THOMAS J. COBERY (51), Senior Vice President of the Company since June 1996. Mr.
Cobery has been  President of Label Art, Inc.  since November 1987 till June 28,
1996 (the  acquisition  date of  Transkrit  Corporation  and  subsidiary  by the
Company).  Mr. Cobery is currently  President of the Tag and Label Manufacturers
Institute,  the major  trade  association  for the label  industry in the United
States.

DAVID E. DE LEEUW (54),  Director of the Company since  September  1989.  Mr. De
Leeuw is a managing  general partner of MDC Management  Company II, LP, which is
the general partner of McCown De Leeuw & Co. II, LP, McCown De Leeuw Associates,
LP, MDC Management Company IIE, LP, McCown De Leeuw & Co. Offshore (Europe), LP,
MDC Management Company IIA, LP, and McCown De Leeuw & Co. Offshore (Asia), LP He
currently serves as a director of American  Residential  Investment Trust, Inc.,
Vans, Inc., Pelican Companies, MBW Holdings, Inc., OSI Holdings Corp., Nimbus CD
International, Inc. and Tiara Motorcoach Corporation.

CALVIN INGRAM (64),  Director of the Company since January 1995.  Mr. Ingram has
served as Chairman of ADMI since January 1991. Mr. Ingram also currently  serves
as a director of AmeriMarketing Group and Associated Premium.

DAVID E. KING (39),  Director  of the Company  since  April 1991.  Mr. King is a
general  partner of MDC Management  Company II, LP. Mr. King has been associated
with McCown De Leeuw & Co. since 1990. He currently  serves as a director of OSI
Holdings   Corp.,   International   Data   Response   Corporation,   Nimbus   CD
International, Inc., Fitness Holdings, Inc. and ASC Networks, Inc.

MARTIN R. LEWIS (68), Director of the Company since January,  1997. Mr. Lewis is
the former CEO of  Williamhouse-Regency,  Inc. After two years with New York law
firm Thayer & Gilbert and  teaching at the NYU School of Law,  Mr.  Lewis joined
the Uptown Paper & Envelope Corp.,  the predecessor  company to The Williamhouse
of Fine  Converting.  Mr.  Lewis took the  company  public in 1961,  and in 1967
presided over the merger with Regency  Thermographers.  In 1982, Mr. Lewis led a
private buy out of the company and  subsequently,  after a  recapitalization  in
1986,  shepherded the sale of the business to American Pad & Paper in October of
1995.

GLENN S. MCKENZIE (45), Director of the Company since October 1992. Mr. McKenzie
has been President of Alpha  Investments,  Inc., a management  consulting  firm,
since October 1991. He currently  serves as a director of Specialty  Paperboard,
Inc.,  Nimbus CD International,  Inc.,  Exeter Health Resources,  Inc. and Tiara
Motorcoach Corporation.

ROBERT M. MIKLAS (46),  Director,  President and Chief Executive  Officer of the
Company  since June 1990.  Mr.  Miklas has been  Director,  President  and Chief
Executive  Officer of AHI since June 1990.  Prior to  joining  AHI,  Mr.  Miklas
worked for 15 years with the consumer  packaging  division of the Boise  Cascade
Corporation and its successor owner, Sonoco Products Company.

ROBERT D. OLIVER (46),  Senior Vice President.  Mr. Oliver joined the Company in
December 1993 as Vice President/Manufacturing. Previously Mr. Oliver was an area
manufacturing  manager  with  Graham  Packaging  Company,  a HDPE  blow  molding
manufacturer.  Prior to joining  Graham,  Mr.  Oliver held  several  operational
positions with Sonoco Products Company and Boise Cascade Corporation.

JACK RESNICK (50),  Executive Vice President of the Company since June 1996. Mr.
Resnick was Chief  Operating  Officer of Transkrit  from January 1991 until June
1996.  Prior to  joining  Transkrit,  Mr.  Resnick  worked  in the  direct  mail
marketing and business  forms  industry with Wallace  Computer  Services,  Uarco
Business Forms and Torrington Product Ventures, where he served as President and
Vice Chairman.

ROBERT B.  WEBSTER,  CPA (50),  Executive  Vice  President  and Chief  Financial
Officer of the Company since June 1995.  Mr. Webster has been the Executive Vice
President and Chief Financial Officer of AHI since June 1995. Mr. Webster served
as Vice President and Chief Financial  Officer of Sunds  Defibrator,  Inc., from
March 1991 to November 1994. Prior, Mr. Webster worked in the business forms and
computer industry with Burroughs Corp. and Wang Laboratories, Inc.

JOHN D. WEIL (50),  Chairman  of the Board of  Directors  of the  Company  since
October  1995.  In 1995,  Mr. Weil joined  McCown De Leeuw & Co. as an operating
affiliate to assist in portfolio management.  From 1991 to 1994, Mr. Weil served
as President and Chief Executive Officer of American  Envelope Company.  Between
1983 and 1994,  Mr.  Weil  served as a director  of the  Envelope  Manufacturers
Association (the "EMA"),  as Chairman of the EMA's Public Affairs  Committee and
has served on its Technical,  Training, Plant Operations and Finance Committees.
Mr.  Weil  also  serves as a  director  of  Specialty  Paperboard,  Inc.,  Tiara
Motorcoach  Corporation,   International  Data  Response  Corporation  and  Sage
Enterprises, Inc.

DIRECTOR COMPENSATION

     Non-employee  directors (excluding Mr. Weil, Mr. De Leeuw, Mr. King and Mr.
McKenzie) of the Company  receive  $2,000 per meeting of the Board of Directors,
$1,000 per  special  meeting of the Board of  Directors  and $500 per  Committee
meeting plus, in each case,  reimbursement for travel and out-of-pocket expenses
incurred in connection  with  attendance at all such  meetings.  Mr. Weil was an
employee of the Company during 1997 and received compensation.

LATE FILINGS

     None.


ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

     The following table sets forth information concerning the compensation paid
or  accrued  for the  years  ended  December  31,  1997 and  1996 for the  Chief
Executive  Officer  of the  Company  and  each of the  four  other  most  highly
compensated  executive  officers of the  Company.  The  compensation  of Messrs.
Miklas, Webster and Oliver was paid entirely by the Company and the compensation
of Messrs. Resnick and Cobery was paid by Transkrit and the Company.

     Summary Compensation Table

<TABLE>
<CAPTION>
                                                                            Long Term Compensation
                                                                            --------------------------- -------------
                                     Annual Compensation                    Awards                      Payouts
                                     -------------------------------------- --------------------------- -------------
                                                                            Restricted   Securities                   All
                                                            Other   Annual  Stock        Underlying     LTIP          Other
                                                 Bonus      Compensation    Award(s)     Options/       Payouts       Compensation
Name and Principal Position  Year    Salary ($)  ($) (1)    ($)              ($)         SARs (#) (4)   ($)           ($) (2)
---------------------------- ------- ----------- ---------- --------------- ------------ -------------- ------------- ----------
<S>                          <C>     <C>         <C>        <C>             <C>          <C>            <C>           <C>
Robert M. Miklas
President & CEO              1997    222,754     -          -               -            -              -             639(3)
                             1996    190,144     -          -               -            -              -             625(3)

Robert B. Webster
Executive Vice President
and CFO                      1997    156,840     -          -               -            28,868         -             1,358(3)
                             1996    153,000     -          -               -            57,736         -             567(3)

Thomas J. Cobery (5)
Senior Vice President        1997    195,936     57,431     -               -            47,763         -             -
                             1996    184,626     27,431     -               -            47,763         1,518,300     -

Jack Resnick (6)
Executive Vice President     1997    230,409     55,072     55,250          -            58,495         -             -
                             1996    205,792     67,249     -               -            58,485         329,039       -

Robert D. Oliver
Senior Vice President        1997    119,226     8,638      -               -            -              -             294
                             1995    118,242     5,233      -               -            -              -             464

<FN>
(1)   Includes amounts earned and accrued.

(2)  Represents   the  dollar   value  of  annual   compensation   not  properly
     characterized as salary or bonus.  Following Commission rules,  perquisites
     and  other  personal  benefits  which  do  not  exceed  25%  of  the  total
     perquisites  and other  personal  benefits for each of the named  executive
     officers have been omitted from these footnotes.

(3)  Consists of the taxable  portion of group term life insurance  premiums for
     paid by the Company.

(4)  Certain  employees  of the  Company  are  participants  in the  amended and
     restated AmeriComm Holdings, Inc. 1996 stock option plan.

(5)  Includes  bonus  payments to Mr.  Cobery under the Label Art,  Inc.  Equity
     Share Plan (the "Equity  Share  Plan").  Pursuant to the Equity Share Plan,
     Mr. Cobery has received 138,468 equity shares ("Equity Shares")  simulating
     ownership in Label Art,  Inc. The Equity Share Plan  provides that if Label
     Art, Inc.  declares a dividend on its common stock at any time during which
     a participant  has been allocated  Equity  Shares,  the  participant  shall
     receive a bonus, equal to the dividend he or she would have received if his
     or her Equity  Shares were common stock of Label Art, Inc. The Equity Share
     Plan was terminated  concurrently  with the consummation of the acquisition
     of  Transkrit.  Mr. Cobery sold 4,898 Equity Shares back to Label Art, Inc.
     in February, 1994 for which he received $22,114.

(6)  Includes  $27,416  representing  dividends on 220.5 equity  shares  ("Stock
     Credits")  simulating economic ownership in Transkrit issued to Mr. Resnick
     under his employment  agreement with Transkrit,  dated January 9, 1991 (the
     "Employment  Agreement").  As  holder  of Stock  Credits,  Mr.  Resnick  is
     entitled to receive  amounts equal to the cash dividends that he would have
     received had he owned a number of shares of common stock of Transkrit equal
     to the number of Stock Credits then credited to Mr. Resnick's account.  The
     Employment  Agreement was terminated  concurrently with consummation of the
     acquisition of Transkrit. Also includes $15,984 representing  reimbursement
     for relocation expenses.
</FN>
</TABLE>



<PAGE>
STOCK OPTION PLAN AND OTHER BENEFIT PLANS AND ARRANGEMENTS

     The Company  does not have any stock option  plans.  AHI has a stock option
plan in which several the Company employees participate.

AMENDED AND RESTATED AMERICOMM HOLDINGS, INC.  1996 STOCK OPTION PLAN

     AHI adopted the AmeriComm Holdings,  Inc. 1996 Stock Option Plan (the "1996
Plan") on June 28,  1996,  and was  amended  and  restated by AHI on January 28,
1997. The 1996 Plan is administered by the  Compensation  Committee of the Board
of  Directors  (the  "Board")  of AHI (or such other Board  committee  as may be
designated by the Board) (the  "Committee").  Under the 1996 Plan, the Committee
may grant or award (a)  stock  options  (which  may be  either  incentive  stock
options ("ISOs"), within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended,  or stock options other than ISOs), (b) stock  appreciation
rights  granted  in  conjunction  with  stock  options  or  independently,   (c)
restricted stock, (d) bonuses or other compensation  payable in stock and/or (e)
other  stock-based  awards  to  executive  and  other  key  salaried  employees,
including  officers,   as  well  as  to  consultants  of  the  Company  and  its
subsidiaries  and  affiliates  designated  by the  Committee,  but excluding non
employee directors and members of the Committee.

AMERICOMM HOLDINGS, INC. 1997 STOCK OPTION PLAN FOR DIRECTORS

     The AmeriComm  Holdings,  Inc.  1997 Stock Option Plan For  Directors  (the
"1997  Plan")  was  adopted  by AHI on  January  28,  1997.  The  1997  Plan  is
administered  by the Board.  Stock  options,  which are not ISO's,  were granted
under the 1997 Plan as of January 28, 1997, to certain  members of the Board who
are not eligible to participate in any plan  entitling  participants  to acquire
securities or derivative securities of the Company (and who otherwise qualify as
"eligible directors" within the meaning of the 1997 Plan), who are designated in
the 1997 Plan (or in a Board  resolution).  Such stock options may be granted by
the Board  under the 1997 Plan  from time to time  after  such date to  eligible
directors designated by the Board to receive such options.

<TABLE>
<CAPTION>
                                                                                       Potential
                                                                                       Realizable Value
                                              Individual Grants                        At Assumed
                           -------------------------------------------------------     Rates of
                           Number of      Percent of                                   Stock Price
                           Securities     Total Options                                Appreciation for
                           Underlying     Granted to       Exercise                    Option Term
                           Options        Participants     Price        Expiration     -----------------
                           Granted (#)    in 1996          ($/share)       Date        5% ($)    10% ($)
                           -----------    -------------    ---------       ----        ------    -------
<S>                        <C>            <C>              <C>           <C>          <C>        <C>
Robert M. Miklas               -              -                  -              -           -          -
Jack Resnick               58,485            21               4.33       6/28/2006    412,501    656,839
Thomas J. Cobery           47,763            17               4.33       6/28/2006    336,878    536,422
Robert B. Webster          57,736            21               2.62(a)    6/28/2006    407,219    648,428
Robert D. Oliver               -              -                  -              -           -          -

<FN>
(a)  The  exercise  price of $2.62 is an average  exercise  price for the 57,736
     stock  options  granted  to Mr.  Webster  per the  terms  of Mr.  Webster's
     employment  agreement  dated June 8, 1995 of which 28,868 were  immediately
     vested on June 28, 1996 and  exercised at $0.91 per share and the remaining
     28,868 currently unvested options for shares of common stock of AHI with an
     exercise price of $4.33 per share.
</FN>
</TABLE>

RETIREMENT PLANS

     The Company sponsors two defined benefit plans,  the Transkrit  Corporation
Employees' Pension Plan, which covers Mr. Resnick, and the Employees' Retirement
Plan of National Fiberstok Corporation.

     Transkrit  Corporation  Employees' Pension Plan. The Transkrit  Corporation
Employees'  Pension Plan (the "Transkrit Plan") provides an annual benefit equal
to .4% of "average final  compensation"  multiplied by benefit service completed
before July 15, 1971,  plus .7% of "average  final  compensation"  multiplied by
benefit  service  completed  after  July 15,  1971,  plus an  additional  .3% of
"average  final  compensation"  multiplied  by benefit  service  earned while an
employee  of Short Run Labels,  Inc.,  if any.  Average  final  compensation  is
determined by averaging a participant's  compensation  for the five  consecutive
calendar  years  during  the  ten  years   immediately   preceding   retirement,
termination of employment, or death that give the highest average. The following
table  gives  the  estimated   annual  benefit   payable  upon   retirement  for
participants in the Transkrit Plan:

                              TRANSKRIT PLAN TABLE
                                Years of Service
               --------------------------------------------------
REMUNERATION   15          20          25          30          35
------------   --          --          --          --          --
100,000        10,500      14,000      17,500      21,000      24,500
125,000        13,100      17,500      21,900      26,300      30,600
150,000        15,800      21,000      26,300      31,500      36,800
175,000        18,000      24,200      30,300      36,400      42,500
200,000        20,300      27,300      34,300      41,300      48,300
225,000        22,000      29,700      37,400      45,100      52,700
250,000        22,000      29,700      37,400      45,100      52,700
275,000        22,000      29,700      37,400      45,100      52,700
300,000        22,000      29,700      37,400      45,100      52,700
325,000        22,000      29,700      37,400      45,100      52,700
350,000        22,000      29,700      37,400      45,100      52,700
375,000        22,000      29,700      37,400      45,100      52,700
400,000        22,000      29,700      37,400      45,100      52,700
425,000        22,000      29,700      37,400      45,100      52,700
450,000        22,000      29,700      37,400      45,100      52,700
475,000        22,000      29,700      37,400      45,100      52,700
500,000        22,000      29,700      37,400      45,100      52,700

     Compensation  covered by the  Transkrit  Plan is equal to the annual amount
paid to a participant  by Transkrit  which  includes  base salary,  overtime and
commissions,  as shown in the Summary  Compensation Table, but excluding bonuses
as shown in the Summary Compensation Table; provided,  however,  compensation in
excess of $150,000 is disregarded.

     The  estimated  years of  credited  service  for  purposes  of  calculating
benefits for Mr. Resnick is five. The current amount of compensation  covered by
the Transkrit Plan for Mr. Resnick is $197,687.

     Benefits shown above are computed as a single life annuity beginning at age
65 and are not subject to any offset amounts.



<PAGE>
EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS

     The Company and Robert M. Miklas entered into an agreement dated as of June
28,1996  which sets  forth  certain  terms of the  employment  of Mr.  Miklas as
President and CEO of the Company and AHI. This agreement  provides for an annual
base salary  which may be  increased  pursuant to an agreed upon plan subject to
the approval of the Compensation  Committee of the Board of Directors of AHI and
the Company.  Mr. Miklas is eligible to receive bonus compensation as determined
from time to time by the Board of Directors of the Company and AHI. In the event
that the Company terminates Mr. Miklas' employment under certain  circumstances,
Mr.  Miklas shall be entitled to  continuation  of his base  compensation  for a
period of one year.

     The Company and Jack Resnick entered into an agreement dated as of June 28,
1996  which  sets  forth  certain  terms of the  employment  of Mr.  Resnick  as
Executive Vice President of the Company and AHI and President of Chief Executive
Officer--Transkrit.  This agreement provides for an annual base salary which may
be  increased  pursuant  to an agreed upon plan  subject to the  approval of the
Compensation  Committee of the Board of  Directors  of the  Company or AHI.  The
agreement also provides a plan under which bonus  compensation is to be awarded.
In the event that the Company terminates Mr. Resnick's  employment under certain
circumstances,  Mr.  Resnick  shall  be  entitled  to  continuation  of his base
compensation for a period of one year.

     The Company and Thomas J. Cobery entered into an agreement dated as of June
28,  1996 which sets forth  certain  terms of the  employment  of Mr.  Cobery as
Senior Vice  President  of the Company and AHI and  President--Label  Art.  This
agreement  provides for an annual base salary which may be increased pursuant to
an agreed upon plan subject to the approval of the Compensation Committee of the
Board of Directors of the Company or AHI.  The  agreement  also  provides a plan
under which bonus  compensation is to be awarded.  In the event that the Company
terminates Mr. Cobery's employment under certain circumstances, Mr. Cobery shall
be entitled to continuation of his base compensation for a period of six months.

     The Company and AHI and Robert B. Webster entered into an agreement on June
8, 1995 which sets forth certain terms of employment of Mr. Webster as Executive
Vice President and Chief Financial Officer of the Company and AHI. The agreement
provides for an annual base salary that is subject to annual  upward  adjustment
at the  discretion  of the  Board of  Directors  of the  Company  and  AHI.  The
agreement also provides for bonus  compensation  and stock options based upon an
agreed upon plan. In the event that the Company or AHI terminates Mr.  Webster's
employment  for any reason under  certain  circumstances,  Mr.  Webster shall be
entitled to his base compensation for a period of nine months.

     The Company and Robert D. Oliver  entered  into an  agreement  on March 15,
1997 which sets forth  certain  terms of employment of Mr. Oliver as Senior Vice
President  of the Company and AHI.  The  agreement  provides  for an annual base
salary that is subject to annual  upward  adjustment  at the  discretion  of the
Board of directors of the Company and AHI. The agreement also provides for bonus
compensation  based  upon an agreed  upon plan.  In the event  that the  Company
terminates Mr. Oliver's  employment for any reason under certain  circumstances,
Mr.  Oliver  shall be  entitled  to his base  compensation  for a period  of six
months.



<PAGE>
ITEM 12. SECURITY OWNERSHIP

     The  authorized  capital  stock of the  Company  as of  December  31,  1997
consists of 300,000 shares of common stock,  par value $.01 per share,  of which
283,807 shares are issued and  outstanding,  all of which have voting rights and
are presently held by AHI.

     The authorized capital stock of AHI as of December 31, 1997 consists of (i)
4,000,000  shares of Class A common stock,  par value $.0001 per share, of which
2,752,284 shares are issued and 2,690,464 shares are outstanding, and which have
voting rights. In addition, AHI has issued options to purchase 265,636 shares of
Class A common  stock to the  management  and  directors  of AHI and the Company
pursuant to the 1996 Plan and the 1997 Plan and  warrants  to  purchase  143,589
shares  of  Class  A  common  stock  to  certain  investors,  all of  which  are
outstanding;  (ii) 300,000 shares of Class B common stock,  par value $.0001 per
share, of which no shares are issued and  outstanding,  and which have no voting
rights.

     The  following  table sets forth,  as of December 31, 1997,  the number and
percentage  of shares of AHI Class A Common  Stock  capital  stock  beneficially
owned by (i) each person known to the Company to be the beneficial owner of more
than 5% of any  class of AHI's  equity  securities,  (ii) each  director  of the
Company or AHI,  and (iii) all  directors  and  executive  officers  of AHI as a
group.
<TABLE>
<CAPTION>
                                                                                      PERCENTAGE
                                                      AMOUNT AND                      OF AHI
                                                      NATURE OF                       CLASS A
                                                      BENEFICIAL OWNERSHIP            COMMON
                                                      OF AHI CLASS A                  STOCK
                                                      COMMON STOCK                    OUTSTANDING
<S>                                                   <C>                             <C>
McCown De Leeuw & Co. II, LP(2).....................  1,403,104                       52.15%
   c/o McCown De Leeuw & Company
   3000 Sand Hill Road
   Building 3, Suite 290
   Menlo Park, CA 94025
McCown De Leeuw Associates, LP(2)...................  755,603                         28.08%
   c/o McCown De Leeuw & Company
   30M Sand Hill Road
   Building 3, Suite 290
   Menlo Park, CA 94025
MDC/JAFCO Ventures, LP(3)...........................  52,174                          1.94%
   c/o McCown De Leeuw & Company
   3000 Sand Hill Road
   Building 3, Suite 290
   Menlo Park, CA 94025
David E. De Leeuw(4)................................  2,210,881                       82.17%
   c/o McCown De Leeuw & Company
   3000 Sand Hill Road
   Building 3, Suite 290
   Menlo Park, CA 94025
Glenn McKenzie......................................  9,294                           0.35%
   24 Beach Plum Way
   Hampton, NH 03842
Linchmen & Co.......................................  202,433                         7.52%
   c/o TCW / Crescent Mezzanine, L.L.C.
   11100 Santa Monica Boulevard, Suite 2000
   Los Angeles, CA  90025
TCW Shared Opportunity Fund II, LP .................  8,435                           0.31%
   c/o TCW / Crescent Mezzanine, L.L.C.
   11100 Santa Monica Boulevard, Suite 2000
   Los Angeles, CA  90025
Robert Miklas.......................................  57,736                          2.15%
   4982 Carol Lane
   Atlanta, GA 30327
All directors and executive officers as a group.....  123,219                         4.58%

<FN>
(1)  Class A Common  Stock is the only class of  capital  stock of AHI which has
     voting rights.  Beneficial  ownership is determined in accordance  with the
     rules of the  Commission.  Shares of  capital  stock  subject  to  options,
     warrants and convertible  securities currently  exercisable or convertible,
     or exercisable or convertible  within 60 days, are deemed  outstanding  for
     computing  the  percentage  of the person  holding such options but are not
     deemed outstanding for computing the percentage of any other person. Except
     as indicated by  footnote,  the persons  named in the table above have sole
     voting and  investment  power with  respect to all shares of capital  stock
     indicated as beneficially owned by them.

(2)  MDC  Management  Company II, LP ("MDC II") is the  general  partner of both
     McCown De Leeuw & Co. II, LP and McCown De Leeuw  Associates,  LP George E.
     McCown,  David E. De Leeuw,  Robert B. Hellman,  Charles  Aires,  Steven A.
     Zuckerman  and David E. King are the  general  partners  of MDC II.  Mr. De
     Leeuw is the managing general partner of MDC II.

(3)  MDC  Management  Company  ("MDC")  is  the  general  partner  of  MDC/JAFCO
     Ventures,  LP  George  E.  McCown  and  David E. De Leeuw  are the  general
     partners of MDC. Mr. De Leeuw is the managing general partner of MDC.

(4)  Represents shares of AHI Class A Common Stock held by McCown De Leeuw & Co.
     II, LP, McCown De Leeuw Associates,  LP and MDC/JAFCO  Ventures,  LP Mr. De
     Leeuw, a director of the Company,  may be deemed to own beneficially all of
     the  shares  held by  McCown  De  Leeuw  & Co.  II,  LP,  McCown  De  Leeuw
     Associates,  LP and  MDC/JAFCO  Ventures,  LP  because of his  position  as
     managing  general  partner  of MDC II and MDC.  Mr.  De Leeuw has no direct
     ownership  of any  Class A  Common  Stock of AHI and  disclaims  beneficial
     ownership  as  to  all  of  such  shares,  except  to  the  extent  of  his
     proportional partnership interests.
</FN>
</TABLE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ADVISORY SERVICES AGREEMENT

     The Company maintains a Advisory Services Agreement (the "Advisory Services
Agreement") with MDC Management Company II, LP ("MDC Management"), an affiliate.
Under  the  Advisory  Services   Agreement,   MDC  Management  provides  certain
consulting,  financial,  and  managerial  functions  to  the  Company  for a fee
initially in an amount not to exceed  $350,000 in any fiscal year,  which amount
may be increased to an amount not to exceed $500,000 in any fiscal year with the
approval of the members of the Board of Directors of the Company who do not have
a direct  financial  interest in any person  receiving  such payments  under the
Advisory Services Agreement.  MDC Management has agreed to subordinate its right
to receive such fees in the event of an  acceleration  of maturity of the Senior
Unsecured Notes or a bankruptcy,  liquidation or insolvency proceeding involving
the Company.  In 1997 and 1996, the Company paid $350,000 and $862,000 (of which
$562,000 was accrued as of December 31, 1995), respectively,  for such services.
The  Advisory  Services  Agreement  expires  December  31, 2000 and is renewable
annually thereafter,  unless terminated by the Company for justifiable cause, as
defined.


<PAGE>
                                    PART IV

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

(a)(1)  FINANCIAL  STATEMENTS  -  Reference  is made to the  Index to  Financial
     Statements on page F-1 included herein.

(a)(2) FINANCIAL  STATEMENT SCHEDULES - Reference is made to Note 2 of the Notes
     to Financial Statements on page F-8. All schedules have been omitted as not
     required  or not  applicable  or because  the  information  required  to be
     presented is included in the financial statements and related notes.

(a)(3) EXHIBITS

     2  - Stock  Purchase  Agreement,  dated  as of March 16, 1998, by and among
          AmeriComm Direct Marketing,  Inc., Cardinal Marketing,  Inc., Cardinal
          Marketing of New Jersey,  Inc. and James Smith,  Christopher Smith and
          Douglas Smith.
     12 - Statement  Re : Ratio of  Earnings  to Fixed  Charges
     23 - Consent of Independent Public Accountants
     27 - Financial Data Schedule

SIGNATURES

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

                           AMERICOMM DIRECT MARKETING, INC.

Date : March 31, 1998      John D. Weil
       --------------      ------------
                           Director

Date : March 31, 1998      Robert M. Miklas
       --------------      ----------------
                           President and Chief Executive Officer
                           (Principal Executive Officer)

Date : March 31, 1998      David E. De Leeuw
       --------------      -----------------
                           Director

Date : March 31, 1998      David E. King
       --------------      -------------
                           Director

Date : March 31, 1998      Glenn S. McKenzie
       --------------      -----------------
                           Director

Date : March 31, 1998      Timothy Beffa
       --------------      -------------
                           Director

Date : March 31, 1998      Calvin Ingram
       --------------      -------------
                           Director

Date : March 31, 1998      Martin R. Lewis
       --------------      ---------------
                           Director

Date : March 31, 1998      Robert B. Webster
       --------------      -----------------
                           Executive Vice President and Chief Financial Officer
                           (Principal Financial and Accounting Officer)

<PAGE>
                          INDEX TO FINANCIAL STATEMENTS
                        AMERICOMM DIRECT MARKETING, INC.

                                                                           PAGE
Report of Independent Public Accountants..............................      F-2
Balance Sheets at December 31, 1996 and 1997 .........................      F-3
Statements of Operations for the years ended December 31, 1995,
   1996 and 1997......................................................      F-5
Statements of Stockholder's Equity for the years ended December 31,
   1995, 1996 and 1997................................................      F-6
Statements of Cash Flows for the years ended December 31, 1995
   1996 and 1997......................................................      F-7
Notes to Financial Statements.........................................      F-8


<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To AmeriComm Direct Marketing, Inc.:

     We have  audited  the  accompanying  balance  sheets  of  AMERICOMM  DIRECT
MARKETING,  INC. (a Delaware Corporation,  formerly  known as National Fiberstok
Corporation)  as of December  31, 1996 and 1997 and the  related  statements  of
operations,  stockholder's equity, and cash flows for each of the three years in
the  period  ended  December  31,  1997.  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 in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of AmeriComm Direct Marketing,
Inc. as of December 31, 1996 and 1997 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.

                                                        ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 27, 1998
           (except with respect to the
           matter discussed in Note 9,
           as to which the date is
           March 16, 1998)


<PAGE>
                        AMERICOMM DIRECT MARKETING, INC.
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1997
                                     ASSETS

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31
                                                                          --------------------------------
                                                                                1996              1997
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
Current Assets:
  Cash and cash equivalents............................................   $    1,979,493    $    1,313,618
  Accounts receivable, net of allowance for doubtful...................
    accounts of $611,170 and $963,130, respectively....................       17,384,354        27,943,109
  Income taxes receivable..............................................          547,944           497,565
  Inventories..........................................................       11,261,155        13,330,921
  Deferred income taxes................................................          304,599           508,664
  Other ...............................................................        1,835,674         3,037,262
                                                                          --------------    --------------
         Total current assets..........................................       33,313,219        46,631,139
                                                                          --------------    --------------

Property and Equipment:
  Land  ...............................................................        1,852,686         1,852,686
  Buildings............................................................       12,020,573        12,149,009
  Machinery and equipment..............................................       36,970,991        45,571,274
  Office equipment, furniture and fixtures.............................        2,993,039         5,375,241
  Leasehold improvements...............................................        1,045,565         1,201,024
  Vehicles.............................................................          166,677           219,703
  Construction in progress.............................................        1,809,007         1,708,944
                                                                          --------------    --------------
                                                                              56,858,538        68,077,881
  Less accumulated depreciation and amortization.......................      (9,491,356)      (16,884,196)
                                                                          --------------    --------------
         Net property and equipment....................................       47,367,182        51,193,685
                                                                          --------------    --------------

Other Assets:
  Goodwill, net of accumulated amortization of $1,290,028,
    and $2,253,195, respectively.......................................       25,079,097        46,172,983
  Patents, net of accumulated amortization of $1,038,940 and
    $3,119,740, respectively...........................................       18,405,060        16,324,260
  Resident address lists, net of accumulated amortization
    of $0 and $971,471, respectively...................................                -         6,314,552
  Deferred financing costs, net of accumulated amortization
    of $478,283 and $1,448,587, respectively...........................        5,260,429         4,390,045
  Covenants not to compete, net of accumulated amortization
    of  $5,703,213 and $6,050,824, respectively........................          487,304         1,840,000
  Prepaid pension cost ................................................        1,931,101         2,078,067
  Due from parent......................................................          875,931         1,807,464
  Other ...............................................................          655,056           932,815
                                                                          --------------    --------------

         Total other assets............................................       52,693,978        79,860,186
                                                                          --------------    --------------
         Total assets..................................................   $  133,374,379    $  177,685,010
                                                                          ==============    ==============
</TABLE>


      The accompanying notes are an integral part of these balance sheets.


<PAGE>
                        AMERICOMM DIRECT MARKETING, INC.
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1997
                      LIABILITIES AND STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>

                                                                                      DECEMBER 31
                                                                          --------------------------------
                                                                                1996              1997
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
Current Liabilities:
  Current portion of long-term debt....................................   $      446,037    $      864,487
  Bank overdraft.......................................................        1,505,703         4,624,033
  Accounts payable.....................................................        4,337,366         4,898,701
  Accrued employee compensation........................................        2,873,080         4,872,591
  Other accrued expenses...............................................        5,310,772         4,751,522
                                                                          --------------    --------------
         Total current liabilities.....................................       14,472,958        20,011,334
                                                                          --------------    --------------

Noncurrent Liabilities.................................................        4,426,790         7,777,250
                                                                          --------------    --------------

Long-Term Debt:
  Senior unsecured notes ..............................................      100,000,000       100,000,000
  Revolving loan facility..............................................                -        10,761,083
  Long-term debt.......................................................        2,352,881         4,484,145
                                                                          --------------    --------------
         Total long-term debt..........................................      102,352,881       115,245,228
                                                                          --------------    --------------

Commitments and Contingencies (Note 8)


Stockholder's Equity:
  Common stock, $.01 par value, 300,000 shares authorized,
    283,807 shares issued and outstanding..............................            2,838             2,838
  Additional paid-in capital...........................................       22,296,581        46,175,574
  Accumulated deficit..................................................     (10,177,669)      (11,527,214)
                                                                          --------------    ---------------

         Total stockholder's equity....................................       12,121,750        34,651,198
                                                                          --------------    --------------
         Total liabilities and stockholder's equity....................   $  133,374,379    $  177,685,010
                                                                          ==============    ==============
</TABLE>


      The accompanying notes are an integral part of these balance sheets.

<PAGE>
                        AMERICOMM DIRECT MARKETING, INC.
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

<TABLE>
<CAPTION>
                                                                           DECEMBER 31
                                                         -------------------------------------------------
                                                              1995             1996              1997
                                                         --------------   --------------    --------------
<S>                                                      <C>              <C>               <C>
Net sales............................................    $   71,257,112   $  111,342,230    $  191,090,864
Cost of products sold................................        55,708,018       80,215,498       133,598,403
                                                         --------------   --------------    --------------
Gross profit.........................................        15,549,094       31,126,732        57,492,461
                                                         --------------   --------------    --------------
Operating expenses:
  Selling............................................         6,760,438       10,716,599        18,194,512
  General and administrative.........................         4,833,618       11,949,210        22,903,698
  Amortization:
    Goodwill.........................................           236,113          459,560           963,167
    Patents..........................................                 -        1,038,940         2,080,800
    Covenants not to compete.........................         1,439,607        1,035,472           347,611
    Other............................................           140,000                -                 -
                                                         --------------   --------------    --------------
    Total operating expenses.........................        13,409,776       25,199,781        44,489,788
                                                         --------------   --------------    --------------
Income from operations...............................         2,139,318        5,926,951        13,002,673
Interest expense.....................................         3,179,328        8,125,767        13,764,549
                                                         --------------   --------------    --------------
Net loss before income taxes and
  extraordinary item.................................       (1,040,010)      (2,198,816)         (761,876)
Income tax expense (benefit).........................       (1,900,000)        (626,739)           587,669
                                                         --------------   --------------    --------------
Net income (loss) before extraordinary item..........           859,990      (1,572,077)       (1,349,545)
Extraordinary loss on retirement
  of debt, net of tax benefit of $460,864............                 -        (797,903)                 -
                                                         --------------   --------------    --------------
Net income (loss)....................................    $      859,990   $  (2,369,980)    $  (1,349,545)
                                                         ==============   ==============    ==============
</TABLE>


        The accompanying notes are an integral part of these statements.

<PAGE>
                        AMERICOMM DIRECT MARKETING, INC.
                       STATEMENTS OF STOCKHOLDER'S EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997


<TABLE>
<CAPTION>
                                    COMMON STOCK           ADDITIONAL
                                --------------------        PAID-IN          ACCUMULATED
                                SHARES     PAR VALUE        CAPITAL           DEFICIT            TOTAL
<S>                            <C>          <C>           <C>              <C>               <C>
Balance, December 31, 1994.    283,807      $2,838        $14,532,070      $ (8,667,679)     $ 5,867,229
Net income.................          -           -                  -            859,990         859,990
                               -------      ------        -----------      -------------     -----------
Balance, December 31, 1995.    283,807       2,838         14,532,070        (7,807,689)       6,727,219
Capital contribution.......          -           -          7,764,511                  -       7,764,511
Net loss...................          -           -                  -        (2,369,980)     (2,369,980)
                               -------      ------        -----------      -------------     -----------
Balance, December 31, 1996.    283,807       2,838         22,296,581       (10,177,669)      12,121,750
Capital contribution.......          -           -         23,878,993                  -      23,878,993
Net loss...................          -           -                  -        (1,349,545)     (1,349,545)
                               -------      ------        -----------      -------------     -----------
Balance, December 31, 1997.    283,807      $2,838        $46,175,574      $(11,527,214)     $34,651,198
                               =======      ======        ===========      =============     ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

<PAGE>
                        AMERICOMM DIRECT MARKETING, INC.
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
                                                                            DECEMBER 31
                                                          ------------------------------------------------
                                                               1995             1996             1997
                                                          --------------   --------------   --------------
<S>                                                       <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..................................     $      859,990   $  (2,369,980)   $  (1,349,545)
  Adjustments to reconcile net income (loss) to net
    cash (used in) provided by operating activities:
      Extraordinary loss on early retirement of debt,
        net of income tax benefit....................                  -          797,903                -
      Depreciation and amortization..................          4,004,992        7,409,137       13,049,541
      Deferred income tax (benefit) expense..........        (1,900,000)        (626,739)          381,350
      Net (gain) loss on disposal of property and
        equipment....................................          (173,646)        (294,000)          440,898
      Amortization of prepaid pension asset..........          (180,310)         (45,865)        (149,699)
      Imputed interest...............................            130,172           60,414                -
      Changes in operating assets and liabilities:
        Accounts receivable..........................            216,782        2,045,704      (5,747,677)
        Income taxes receivable......................                  -                -          717,202
        Inventories..................................            141,682        1,017,917        (610,123)
        Other assets.................................            (7,436)        (226,946)        (948,157)
        Accounts payable.............................        (2,143,754)          534,704      (1,560,048)
        Accrued expenses and other...................        (1,165,768)      (1,154,287)      (2,189,159)
                                                          --------------   --------------   --------------
         Net cash (used in) provided by operating
           activities................................          (217,296)        7,147,962        2,034,583
                                                          --------------   --------------   --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment................        (2,308,105)      (3,490,447)      (4,562,731)
  Proceeds from sale of property and equipment.......            369,194          423,428          106,123
  Proceeds from investment securities ...............                  -        2,620,000                -
  Payment for the purchase of the outstanding stock of
    Transkrit Corporation, net of cash acquired .....                  -     (79,390,682)                -
  Payment for the purchase of the outstanding stock of
    Label America, Inc., net of cash acquired........                  -                -      (9,469,418)
  Payment for the purchase of the outstanding stock of
    AmeriComm Direct Marketing, Inc., net of cash
    acquired.........................................                  -                -     (24,954,538)
                                                          --------------   --------------   --------------

         Net cash used in investing activities.......        (1,938,911)     (79,837,701)     (38,880,564)
                                                          --------------   --------------   --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase (decrease) in bank overdraft, net.........          2,354,437      (2,758,170)        3,118,330
  Payments on term loans.............................           (50,000)     (16,900,000)                -
  Due from parent....................................                  -        (875,931)        (931,533)
  Payments on capital leases.........................           (37,130)        (216,888)        (546,767)
  Net borrowings (payments) on revolving loan
    facilities.......................................             50,000      (7,050,000)       10,761,083
  Increase in deferred financing costs ..............                  -      (5,738,712)        (100,000)
  Proceeds from issuance of senior unsecured notes ..                  -      100,000,000                -
  Additional capital contribution....................                  -        7,764,511       23,878,993
                                                          --------------   --------------   --------------

         Net cash provided by financing activities...          2,317,307       74,224,810       36,180,106
                                                          --------------   --------------   --------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................................            161,100        1,535,071        (665,875)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.........            283,322          444,422        1,979,493
                                                          --------------   --------------   --------------
CASH AND CASH EQUIVALENTS, END OF YEAR...............     $      444,422   $    1,979,493   $    1,313,618
                                                          ==============   ==============   ==============
SUPPLEMENTAL DISCLOSURES:
  Cash paid for interest ............................     $    2,821,000   $    7,744,000   $   12,835,000
                                                          ==============   ==============   ==============
  Cash paid for income taxes.........................     $            -   $            -   $      107,000
                                                          ==============   ==============   ==============
  Assets acquired by assuming liabilities ...........     $            -   $   11,038,000   $    8,324,000
                                                          ==============   ==============   ==============
</TABLE>

SUPPLEMENTAL  DISCLOSURE  OF  NONCASH  INVESTING   ACTIVITIES:
     Capital lease  obligations of $2,799,000 and $3,085,000  were incurred when
     the Company  entered  into leases for new  equipment  during 1996 and 1997,
     respectively.


        The accompanying notes are an integral part of these statements.

<PAGE>
                        AMERICOMM DIRECT MARKETING, INC.
                          NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

1.   BACKGROUND

     AmeriComm Direct Marketing, Inc. (the "Company", formerly known as National
Fiberstok  Corporation),  a wholly-owned  subsidiary of AmeriComm Holdings, Inc.
("AHI" or "Parent",  formerly known as DEC  International,  Inc.),  is a leading
provider of products and  services  focused  primarily  on the direct  marketing
industry.  The Company's  principal strategy is to offer a comprehensive line of
direct  marketing  products and services while  continuing to participate in the
rapidly  growing  markets for custom  pressure  sensitive  labels and non-impact
self-mailers.  The Company  markets its  products to  customers  throughout  the
United  States  through  operations  in Norfolk,  Roanoke  and Salem,  Virginia;
Austell and Tucker, Georgia; Louisville, Kentucky; Gainesville, Florida; Wilton,
New Hampshire;  Sparks,  Nevada; San Carlos,  California;  Fort Smith, Arkansas;
Mountainside, New Jersey and Denver, Colorado.

     On June 28, 1996,  the Company  acquired all of the issued and  outstanding
capital  stock of  Transkrit  Corporation  ("Transkrit")  for  $86,500,000  plus
transaction  costs.  Subsequent  to the  acquisition,  Transkrit  and all of its
subsidiaries  were merged into the Company.  The Transkrit  acquisition has been
accounted for using the purchase  method of  accounting  and,  accordingly,  the
results  of  operations  of  Transkrit  have been  included  in the  results  of
operations of the Company since June 29, 1996.  The purchase price was allocated
to assets and liabilities  based on their estimated fair value as of the date of
the acquisition.  The excess of the  consideration  paid over the estimated fair
value of net assets acquired of $17,542,000 has been recorded as goodwill and is
being amortized on the straight-line basis over 40 years.

     On  February  21,  1997,  the  Company  acquired  all  of  the  issued  and
outstanding  capital stock of Label America,  Inc. ("LAI") for $8,500,000,  less
outstanding  indebtedness plus transaction  costs.  Additional  consideration of
$700,000 was paid to the principal stockholder for a noncompete agreement.  Upon
consummation  of the  acquisition,  LAI was  merged  into the  Company.  The LAI
acquisition  has been accounted for using the purchase method of accounting and,
accordingly,  the results of operations of LAI have been included in the results
of  operations  of the  Company  since  February  22,  1997.  The  excess of the
consideration  paid over the  estimated  fair  value of net assets  acquired  of
$6,636,000  has  been  recorded  as  goodwill  and  is  being  amortized  on the
straight-line basis over 40 years.

     On April 24, 1997 the Company  acquired  all of the issued and  outstanding
stock  of  AmeriComm  Direct  Marketing,  Inc.  ("ADMI")  for  $23,635,000  plus
transaction  costs.  Additional  consideration  of  $1,000,000  was  paid to the
principal  stockholder  for a noncompete  agreement.  Upon  consummation  of the
acquisition,  ADMI was merged into the Company.  The ADMI  acquisition  has been
accounted for using the purchase  method of  accounting  and,  accordingly,  the
results of operations of ADMI have been included in the results of operations of
the Company since April 25, 1997. The excess of the consideration  paid over the
estimated fair value of net assets  acquired of $15,273,000 has been recorded as
goodwill and is being amortized on the straight-line basis over 40 years.

     The acquisition of ADMI was financed by a capital  contribution from AHI of
$23,878,993.  To  provide  funds  for  the  capital  contribution,   AHI  issued
$35,000,000  aggregate  principal  amount of 12.5% Notes (the "Notes") due April
24, 2003. A portion of the Notes were used to redeem AHI  redeemable  cumulative
preferred stock. The Notes place certain  restrictions on the Company's  ability
to incur  additional  indebtedness  or make future  acquisitions.  In  addition,
future  interest and principal  payments by AHI are  dependent  primarily on the
operations of the Company through  payments to AHI as permitted under the Senior
Notes.  Interest is due quarterly commencing June 30, 1997. As a result, AHI may
pay a portion or all of any six quarterly  interest  installments prior to April
24, 1999 by issuing  additional  notes ("PIK Notes") with interest  ranging from
12.5% to 13.0%. The initial interest  installments due June 30, 1997,  September
30, 1997 and  December 31, 1997 were paid by the issuance by AHI of PIK Notes at
12.5% interest. The PIK Notes must be redeemed prior to April 24, 2003.

     The  following  presents,  on an unaudited  pro forma basis,  the Company's
results of operations  for the years ended  December 31, 1995,  1996 and 1997 as
though the  acquisition  of Transkrit and related  transactions  had occurred on
January 1, 1995 and the  acquisitions  of LAI and ADMI and related  transactions
had occurred on January 1, 1996 (in thousands) :

<TABLE>
<CAPTION>
                                                                    1995             1996              1997
                                                                    ----             ----              ----
<S>                                                             <C>               <C>               <C>
Net sales............................................           $168,760         $202,033          $201,500
Operating income.....................................             12,347           11,740            13,667
Net income (loss) before extraordinary item..........              2,364            (489)             (979)
</TABLE>

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Revenue Recognition

     Sales are recorded as products are  shipped,  except for certain  sales for
which  revenue is  recognized  when the  customer is billed  based on passage of
legal title at the date of billing.  Such `bill and hold' sales are not material
to the Company's results of operations.

Use of Estimates

     The  preparation of the financial  statements in conformity  with generally
accepted accounting principles requires management to make certain estimates and
assumptions.  These  estimates and  assumptions  affect the reported  amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  as well as during the  reporting  period.
Actual results could differ from these estimates.

Cash Equivalents

     For purposes of the  reporting  of cash flows,  the Company  considers  all
highly  liquid  debt  instruments  with a maturity  at date of purchase of three
months or less to be cash equivalents.

     The Company does not believe it is exposed to any  significant  credit risk
on money market funds with  commercial  banks because its policy is to make such
deposits only with highly rated institutions.

Accounts Receivable

     A summary of changes in the allowance for doubtful accounts is as follows:


<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                         -------------------------------------------------
                                                               1995             1996              1997
                                                         --------------   --------------    --------------
<S>                                                      <C>              <C>               <C>
Balance, beginning of period.........................    $      141,841   $      171,950    $      611,170
Acquired balance from Transkrit (Note 1).............                 -          495,154                 -
Acquired balance from ADMI (Note 1)..................                 -                -           209,789
Acquired balance from LAI (Note 1)...................                 -                -            47,176
Provisions...........................................            78,089          215,455           385,282
Recoveries...........................................            18,679           75,028            40,148
Write-offs...........................................          (66,659)        (346,417)         (330,435)
                                                         --------------   --------------    --------------


Balance, end of period...............................    $      171,950   $      611,170    $      963,130
                                                         ==============   ==============    ==============
</TABLE>


Inventories

     Inventories  are  stated  at the  lower  of cost or  market.  Costs  of raw
materials are determined using the first-in, first-out (FIFO) method. Costs (net
of an obsolescence  reserve) of work in process,  finished goods, and customized
stock  (consisting  of products  which have been  produced  and held for certain
customers under short-term  delayed-shipping  arrangements) are determined using
the average cost (which approximates FIFO), or FIFO method.

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                          --------------------------------
                                                                                1996              1997
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
Raw materials..........................................................   $    5,837,794    $    7,351,264
Work in process........................................................        1,288,685         1,585,171
Finished goods.........................................................        2,834,589         3,350,315
Customized stock.......................................................        1,300,087         1,044,171
                                                                          --------------    --------------

Balance, end of period.................................................   $   11,261,155    $   13,330,921
                                                                          ==============    ==============
</TABLE>

Property and Equipment

     Property and equipment  are recorded at cost or at estimated  fair value at
date of acquisition (Note 1), if acquired as part of a business combination, and
are depreciated using the straight-line method over the following lives:

Buildings....................................................25 to 30 years
Machinery and equipment........................................3 to 7 years
Office equipment, furniture and fixtures.......................3 to 7 years
Vehicles.......................................................3 to 5 years

     Leasehold  improvements are depreciated over the lesser of the useful lives
of the assets or the lease term.

     The Company's policy is to remove the cost and accumulated  depreciation of
retirements  from the accounts and  recognize  the related gain or loss upon the
disposition  of  assets.  Depreciation  expense  in  1995,  1996  and  1997  was
approximately $2,020,000, $4,313,000 and $7,717,000, respectively.

Goodwill

     Goodwill is stated at cost, less accumulated amortization, and is amortized
over 15 to 40 years  using  the  straight-line  method.  The  recoverability  of
goodwill is periodically reviewed by management based on current and anticipated
conditions.  The amount of goodwill  considered  realizable,  however,  could be
reduced in the near term if changes occur in anticipated conditions.  Based upon
a review of projected undiscounted cash flow from operations and other pertinent
information,  management  is of the opinion that there has been no diminution in
the value assigned to goodwill.

Patents

     The Company has been granted several  patents  related to certain  products
manufactured  by the  Company.  Patents  acquired  through  the  acquisition  of
Transkrit were recorded at their  estimated  fair value at date of  acquisition.
These amounts are being amortized on a  straight-line  basis over the life (four
to twelve years) of the patents.

Covenants Not to Compete

     Covenants not to compete have been recorded at cost and are being amortized
on a straight-line basis over the terms (three to five years) of the agreements.

Resident Address Lists

     The Company has purchased and maintains national  residential address lists
used by its  customers  in making  saturation  or  targeted  mailings.  Resident
address lists  acquired  through the  acquisition of ADMI were recorded at their
estimated  fair  value at the  date of  acquisition.  These  amounts  are  being
amortized  on a  straight-line  basis over the life (six years) of the  resident
address lists.

Amortization  expense for 1997 of $971,471 is included in costs of products sold
in the accompanying statement of operations.

Deferred Financing Costs

     Deferred  financing  costs  represent costs incurred to raise financing and
are amortized over the related terms of the borrowings (Note 3).

Due from parent

     Due  from  parent   represents  funds  borrowed  by  AHI  to  fund  certain
transactions  as allowed by the Senior Notes and revolving  loan facility  (Note
3). Such amounts are not  expected to be repaid  within one year and no interest
is charged on such borrowings.

Income Taxes

     The Company  accounts for income taxes using the asset and liability method
for  recognition  of deferred tax  consequences  of temporary  differences,  net
operating  losses,  and tax  credits by  applying  enacted  statutory  tax rates
applicable  to future  years to  differences  between  the  financial  statement
carrying amounts and the tax bases of existing assets and liabilities.

Concentration of Risk

     During 1995, 1996, and 1997, the Company's ten largest customers  accounted
for 25%,  18% and 16%,  respectively,  of total  Company  sales.  No  individual
customer  accounted  for  more  than 6% of sales in any  year.  In  management's
opinion, a loss of any one individual  customer would not have a material impact
on the Company's financial position or results of operations.

     The Company's  largest  purchased raw material is paper.  While the Company
utilizes  multiple paper suppliers,  two suppliers  provided 67%, 30% and 41% of
its paper  requirements  in 1995,  1996, and 1997,  respectively.  Further,  the
supply and price of paper are  cyclical in nature.  As a result,  the Company is
subject to the risk that pricing may significantly  impact results of operations
and that it may be unable to  purchase  sufficient  quantities  of paper to meet
production requirements during times of tight supply. While the Company believes
that it could obtain other  suppliers of paper,  paper  industry  conditions may
have a material effect on the Company's results of operations.

Vacation Policy

     In 1995,  the Company  revised its vacation  policy for certain  locations,
whereby  employees must take vacation  earned during the year prior to January 1
or forfeit the balance. As a result of this change in policy, a vacation accrual
is no longer  required as of December  31,  1995 and  approximately  $575,000 of
accrued  vacation  was  reversed  and is  reflected  as a  reduction  in cost of
products sold in 1995.

Fair Value of Financial Instruments

     The Company's  financial  instruments  consist primarily of cash,  accounts
receivable,  accounts payable and debt. The carrying  amounts of cash,  accounts
receivable  and accounts  payable  approximate  their fair values because of the
short-term  maturity  of such  instruments.  The fair value of the Senior  Notes
(Note 3) at December 31, 1996 and 1997 was approximately  $106,000,000 which was
estimated  using a quote  from a broker.  At  December  31,  1996 and 1997,  the
carrying value of the other long-term debt approximated its fair value,  because
interest rates on such debt are periodically  adjusted and approximated  current
market rates.

3.     LONG-TERM DEBT

     Long-term  debt  consists of the  following  at December 31, 1996 and 1997,
respectively:

<TABLE>
<CAPTION>
                                                                                       1996              1997
                                                                                 --------------    --------------
<S>                                                                              <C>               <C>
11 5/8% Senior Unsecured Notes, interest payable
  semi-annually commencing December 15, 1996...................................  $  100,000,000    $  100,000,000

Revolving loan facility with Heller Financial,  Inc.,  principal payable in full
  upon the  earlier  of  termination,  as  defined,  or June 28,  2001,  bearing
  interest  at the 30 to 180 day  London  Interbank  Offered  Rate plus 2.25% or
  Prime plus 1% (8.35% and 9.50% at December 31, 1997,
  respectively)................................................................               -        10,761,083

Capital  lease  payable  to The CIT  Group/Equipment  Financing,  Inc.  ("CIT"),
  monthly  principal  and  interest  payments  of $48,250  commencing  July 1996
  through June 2001 with a balloon payment of $513,485 due
  July 2001, interest at 10.2%.................................................       2,405,831         2,056,883

Capital leases payable to General Electric Capital Corporation  ("GE"),  monthly
  principal and interest  payments of $53,867  commencing  December 1997 through
  November 1999,  declining to $44,073 commencing  December 1999 through October
  2001 with a balloon payment of $1,615,077
  due November 2001, interest at 9.36%.........................................               -         3,025,154

Other..........................................................................         393,087           266,595
                                                                                 --------------    --------------
                                                                                    102,798,918       116,109,715
Less current portion...........................................................       (446,037)         (864,487)
                                                                                 --------------    --------------

                                                                                 $  102,352,881    $  115,245,228
                                                                                 ==============    ==============
</TABLE>


     Maturities  of long-term  debt and capital  lease  obligations  at December
31,1997 are as follows:

1998..........................................   $      864,487
1999..........................................          985,265
2000..........................................          819,774
2001..........................................       13,440,189
2002..........................................      100,000,000
                                                 --------------
                                                 $  116,109,715
                                                 ==============

     Prior to the  issuance of the 11 5/8% Senior  Unsecured  Notes (the "Senior
Notes"),  the Company maintained  agreements under which the Company had certain
term loans and a revolving line-of-credit facility (the "Line"). Concurrent with
the issuance of the Senior Notes on June 28, 1996 discussed  below,  the Company
repaid the term loans and the Line and paid a prepayment  penalty,  all of which
aggregated to approximately $25,100,000.  As a result of the early retirement of
debt, the Company incurred an extraordinary loss of $797,903,  net of income tax
benefit of $460,864, during 1996. Subsequently, the agreements were terminated.

     Concurrent with the consummation of the acquisition of Transkrit  discussed
in Note 1, the Company issued $100,000,000  aggregate principal amount of Senior
Notes due June 15, 2002. Interest is payable  semi-annually  commencing December
15,  1996.  The Senior Notes are senior  obligations  of the Company and will be
pari passu in right of payment to all future senior indebtedness.  The indenture
to the Senior Notes limits the  incurrence  of  additional  debt by the Company,
does not allow the  Company to pay any  common  stock  dividends  and limits the
Company's  ability  to  redeem  any  capital  stock and to sell its  assets,  as
defined. The Company may incur additional  indebtedness,  as defined, as long as
its fixed charge  coverage  ratio,  as defined,  is greater than certain minimum
levels.

     Concurrent  with the  consummation  of the  acquisition  of Transkrit,  the
Company  entered  into a revolving  loan  facility  with  Heller.  The  facility
provides  borrowings  based on the lesser of qualified  accounts  receivable and
inventories,  as defined,  or $25,000,000.  Borrowings  under the revolving loan
facility are subject to certain financial covenants that include,  among others,
minimum  fixed charge  coverage and total  indebtedness  to operating  cash flow
ratio,  as  defined.  The  Company was in  compliance  with each  covenant as of
December 31, 1997.  As of December 31, 1997,  $14,238,917  was  available on the
revolving loan facility.

     Under the CIT capital lease  payable,  CIT has a  first-perfected  security
interest in certain  equipment.  At the end of the lease term,  the Company will
have the option to purchase the  equipment  for  $513,485.  Under the GE capital
leases payable, GE has a first-perfected security interest in certain equipment.
At the end of each lease term,  the Company will have the option to purchase the
equipment for an aggregate of $1,615,077. The capital leases are cross-defaulted
with other loan agreements if such default is not cured within 90 days following
the default.

     Interest  expense on long-term  debt and capital  leases in 1995,  1996 and
1997 was  approximately  $3,179,000,  $8,126,000 and  $13,765,000  respectively,
including  approximately  $231,000,  $564,000  and  $971,000,  respectively,  of
deferred finance cost amortization.

4.   INCOME TAXES

     The income tax  benefits  for the years  ended  December  31, 1995 and 1996
represent the income tax benefit from operating losses. As a result,  income tax
benefits for 1995 and 1996 consist of deferred tax benefits.

     The  reconciliation  of  the  federal  statutory  income  tax  rate  to the
Company's  effective  income tax rate for the 1995 and 1996 benefit and the 1997
expense for income taxes is as follows:

<TABLE>
<CAPTION>
                                                              1995           1996            1997
                                                              ----           ----            ----
<S>                                                        <C>              <C>             <C>
Federal tax benefit at statutory rate................        $(353,600)     $(747,597)      $(259,038)
State, net of federal benefit........................          (34,000)       (58,049)         206,669
Change in valuation allowance........................       (1,485,000)              -               -
Non-deductible amortization .........................                 -        164,139         367,460
Non-deductible expenses .............................                 -         42,854          69,920
Other, net...........................................          (27,400)       (28,086)         202,658
                                                           ------------     ----------       ---------
Actual income tax (benefit) expense..................      $(1,900,000)     $(626,739)       $ 587,669
                                                           ============     ==========       =========
Effective tax rate...................................              183%            29%           (77%)
                                                                   ====            ===           =====
</TABLE>


     Significant  components of the Company's net deferred tax liabilities as of
December 31, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                                   1996                1997
                                                                                   ----                ----
<S>                                                                            <C>                 <C>
Deferred tax assets (liabilities):
    Net operating loss carryforwards.......................................... $  4,127,000        $  2,773,000
    Book basis in property over tax basis.....................................  (6,703,000)         (6,932,000)
    Resident address lists....................................................            -         (2,400,000)
    Patents...................................................................  (1,457,000)           (998,000)
    Inventories...............................................................    (712,000)           (497,000)
    Goodwill..................................................................    (185,000)           (261,000)
    Prepaid pension cost......................................................    (692,000)           (774,000)
    Covenant not-to-compete...................................................    1,556,000           1,413,000
    Employee benefit accruals.................................................      903,000             917,000
    Liabilities not currently deductible......................................      548,000             402,000
    Allowance for doubtful accounts...........................................      155,000             309,000
    Other, net................................................................        2,377             (1,954)
                                                                               ------------        ------------
Net deferred tax liabilities.................................................. $(2,457,623)        $(6,049,954)
                                                                               ============        ============
</TABLE>

     The net operating loss  carryforwards will be used to offset future taxable
income,  subject to their expirations,  beginning in 2004 and continuing through
2011.  Any future  issuance of stock by the Company could result in an ownership
change, as defined by the Tax Reform Act of 1986, and could limit utilization of
net  operating  loss  carryforwards.  Also,  benefits  derived  from  using  net
operating  loss  carryforwards  to offset any taxes  calculated  as  alternative
minimum tax could be less than the  recorded  amount of the net  operating  loss
carryforwards.  Although realization is not assured, management believes all net
operating loss carryforwards will be realized.

5.   CAPITAL STOCK

     Concurrent  with the  acquisition  of Transkrit and ADMI (Note 1), AHI made
capital   contributions   in  1996  and  1997  of  $7,764,511  and  $23,878,993,
respectively.

     Effective  June 28, 1996,  the board of directors of the Parent adopted the
AmeriComm Holdings, Inc. 1996 Stock Option Plan. During 1996 and 1997, the board
of  directors   granted   options  to  purchase   244,889  and  39,265   shares,
respectively,  of AHI Class A common  stock at an exercise  price  ranging  from
$2.62 to $5.38 per share,  the  estimated  fair  value at the date of grant,  to
certain  employees and directors of the Company.  As of December 31, 1997, there
are 255,286 options outstanding. The options vest based upon time and based upon
the  profitability  and the liquidation  value of the Company if it is sold to a
third  party.  During  1996 and  1997,  28,868  and 0  options  vested  and were
exercised, respectively.

     Effective  January 28, 1997,  the board of directors of the Parent  adopted
the AmeriComm Holdings, Inc. 1997 Stock Option Plan for Directors.  During 1997,
the board of directors  granted options to purchase 10,350 shares of AHI Class A
common stock at an exercise  price of $5.38 per share,  the estimated fair value
at the date of grant,  to certain  directors  of the  Company.  The options vest
based  upon  time or in the  event of a change  in  control  of the  Parent,  as
defined. As of December 31, 1997, 2,898 options were vested and are exercisable.

     The  Parent  accounts  for  its  stock  option  plans  in  accordance  with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees,"  under which no compensation was recognized during 1996 and 1997.
In 1996, AHI adopted SFAS No. 123,  "Accounting for  Stock-Based  Compensation,"
for disclosure purposes. In accordance with the disclosure  requirements of SFAS
No. 123, AHI is required to calculate pro forma  compensation  cost of all stock
options  granted using an option pricing model.  Accordingly,  the fair value of
the stock  option  grants has been  estimated  as of the grant  dates  under the
minimum value method using the following  weighted average  assumptions for 1996
and 1997: a risk-free  interest rate of  approximately  6.4%,  dividend yield of
0.0%,   volatility  of  0.0%  and  expected  life  of  4.5  years.  Using  these
assumptions,  the fair value of the stock  options at the dates of grant was $0.
As a result, there is no pro forma compensation expense.

6.   RELATED-PARTY TRANSACTIONS

Fees to Affiliate

     The Company maintains an Advisory Services Agreement (the "Agreement") with
MDC Management Company II, L.P. ("MDC"), an affiliate.  Under the Agreement, MDC
provides certain consulting,  financial, and managerial functions for a $250,000
annual fee through June 28, 1996 and a $350,000 annual fee thereafter.  In 1995,
1996 and 1997, $187,500,  $862,000 (of which $562,000 was accrued as of December
31, 1995) and $350,000,  respectively,  were paid. No payments  shall be made by
the  Company  to MDC under the  Agreement  if there is an event of  default,  as
defined,  under the revolving  loan facility or the Senior Notes (Note 3). As of
December 31, 1997,  there are no such events of default.  The Agreement  expires
December 31, 2000 and is renewable thereafter,  unless terminated by the Company
for justifiable cause, as defined.

     During 1996, for services  related to the acquisition of Transkrit (Note 1)
and the  issuance of the Senior Notes (Note 3), the Company paid MDC $500,000 of
which $350,000 has been recorded as deferred  financing costs. In addition,  for
services  related to the  acquisition of ADMI in 1997 (Note 1), the Company paid
MDC $552,000.

Stockholder's Agreement

     Certain officers and former officers of the Company purchased and own as of
December 31, 1996 and 1997,  an aggregate of 236,947 and 259,421,  respectively,
shares of AHI common stock,  representing  10% of the outstanding  voting common
stock of AHI for 1996 and 1997.  The stock was purchased at a price ranging from
$4.33 to $4.63 per  share,  the fair value at the date of such  purchases.  Such
stock was  purchased  through cash  payments and the issuance of 6%  nonrecourse
notes by MDC in 1996 and prior and by AHI in 1997.  During 1997,  AHI  purchased
from MDC the outstanding 6% nonrecourse notes and accrued but unpaid interest of
$493,132.  As of December  31,  1997,  the  outstanding  principal  and interest
balance on the notes was approximately $587,000.

     All  stockholders  of AHI  are  subject  to  the  terms  of a  stockholders
agreement. This agreement restricts the stockholders' ability to sell, transfer,
and assign the AHI common  stock,  with AHI having the first right of  purchase.
The  holders of the stock may be forced to sell the shares to AHI under  certain
conditions.  In addition,  on expiration of a stockholder's  employment with the
Company,  the Company has the option to buy back the stockholder's  common stock
at a specified  price  primarily based upon either the cost of the shares or the
book value of AHI.

7.   EMPLOYEE BENEFIT PLANS

Defined Benefit Plans

     The Company has a defined benefit pension plan ("The Employees'  Retirement
Plan of National Fiberstok Corporation") covering certain employees. On December
20, 1993, the Company amended the plan, freezing future participation by any new
employee of the Company  effective  December  31, 1993.  Effective  December 31,
1994,  the Company again amended the plan,  freezing  future accrual of benefits
for all  participants.  In conjunction with this agreement,  all participants of
the plan were retroactively vested.

     The  funded  status  of the  plan as of  December  31,  1996 and 1997 is as
follows:

<TABLE>
<CAPTION>
                                                                                1996             1997
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
Actuarial present value of benefit obligations:
  Accumulated projected benefit obligation.............................   $ (16,991,377)    $ (18,292,100)
  Plan assets at fair value............................................       17,320,422        19,510,900
                                                                          --------------    --------------
Plan assets greater than projected benefit obligation..................          329,045         1,218,800
Unrecognized net loss from past experience.............................          784,056           209,300
                                                                          --------------    --------------
Prepaid pension cost...................................................   $    1,113,101    $    1,428,100
                                                                          ==============    ==============
</TABLE>

     The  weighted  average  discount  rates  used to  measure  the  accumulated
projected   benefit   obligation  were  7.50%  and  7.25%  for  1996  and  1997,
respectively.  The expected  long-term  rates of return on assets were 8.75% and
9.00 % for 1996 and 1997, respectively.

     Net periodic pension costs for 1995, 1996, and 1997 include the following:

<TABLE>
<CAPTION>

                                                              1995              1996              1997
                                                         --------------   --------------    --------------
<S>                                                      <C>              <C>               <C>
Service cost -- benefits earned during the period....    $            -   $            -    $            -
Interest cost on projected benefit obligation........         1,230,610        1,266,209         1,242,200
Actual return on plan  assets........................       (1,772,831)      (1,252,658)       (1,556,899)
Net amortization on plan assets......................           361,915        (204,216)                 -
                                                         --------------   --------------    --------------
                                                         $    (180,306)   $    (190,665)    $    (314,699)
                                                         ==============   ==============    ==============
</TABLE>

     The  Company has  another  defined  benefit  pension  plan ("The  Transkrit
Corporation  Employees'  Pension Plan") covering  certain  employees.  Effective
April 30,  1997,  the Company  amended the plan,  freezing  future  benefits for
participants  at certain  locations.  In conjunction  with this  agreement,  the
participants  with frozen future  benefits  were  retroactively  vested.  Normal
retirement age is 65, but a provision is made for early retirement. Benefits are
based on the  employee's  compensation  level and years of service.  The Company
makes annual  contributions  to the plan equal to the maximum amount that can be
deducted for income tax purposes.

     The 1996 and 1997  projected  benefit  obligation  was  computed  using the
projected unit credit method, assuming a discount rate on benefit obligations of
7.50% and 7.25%,  respectively.  The expected  long-term  rate of return on plan
assets  is 9% for  1996  and 1997 and  annual  salary  increases  is 4% over the
remaining service lives of the employees in the plan for 1996 and 1997.

     The  funded  status  of the  plan as of  December  31,  1996 and 1997 is as
follows:

<TABLE>
<CAPTION>
                                                                                1996              1997
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
Actuarial present value of benefit obligations:
Accumulated projected benefit obligation, including vested benefits
  of $2,144,000 and $2,679,000.........................................   $  (2,243,000)    $  (2,817,000)
                                                                          ==============    ==============
Projected benefit obligation...........................................      (3,924,000)       (4,470,000)
Plan assets at fair value..............................................        5,137,000         5,631,000
                                                                          --------------    --------------
Plan assets greater than projected benefit obligation..................        1,213,000         1,161,000
Unrecognized net gain..................................................        (395,000)         (508,000)
                                                                          --------------    --------------
Prepaid pension cost...................................................   $      818,000    $      653,000
                                                                          ==============    ==============
</TABLE>

     Net periodic pension costs for 1996 and 1997 include the following:

<TABLE>
<CAPTION>
                                                                                1996              1997
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
Service Cost -- benefits earned during the period......................   $      230,000    $      415,000
Interest Cost on projected benefit obligation..........................          143,000           287,000
Actual return on plan assets...........................................        (227,000)         (444,000)
Recognition of curtailment gain........................................                -          (93,000)
Net Amortization on Plan Assets........................................           52,000                 -
                                                                          --------------    --------------
                                                                          $      198,000    $      165,000
                                                                          ==============    ==============
</TABLE>

Deferred Compensation Plans

     The  Company  has  unfunded  deferred   compensation   plans  that  provide
retirement  benefits to certain current and former employees.  The plans provide
retirement  benefits generally based on the service provided by the employees to
the Company.  Benefits are vested as service is provided.  The Company  provides
for these plans during the related service lives of the  participants at amounts
sufficient  to accrue the present value of benefits  earned to their  retirement
dates.  Effective  December 31, 1994, the Company froze future benefit  accruals
under  certain  of  these  deferred  compensation  agreements.  Included  in the
accompanying  balance sheets are  liabilities of $587,000 and $592,000 for these
plans as of December 31, 1996 and 1997, respectively.

Defined Contribution Plans

     The Company  sponsors  several  voluntary 401(k) savings plans covering all
eligible  employees at certain  locations.  The plans include  provisions  which
allow  employees  to make  pretax  contributions  ranging  from 1% to 15% of the
employee's wages.  Maximum pretax  contributions are capped at 10% or 15% of the
employee's wages, depending on the location. The Company matches between 15% and
60% of employee contributions up to 4% to 6% of eligible employee's wages, which
varies by location.  The Company recorded an expense of approximately  $283,000,
$421,000  and  $979,000  in 1995,  1996 and 1997,  respectively,  as a result of
contributions to the plans.

     Effective  January 1, 1998,  the Company  consolidated  its various  401(k)
savings plans into a single plan. Substantially all of the benefits available to
participants of the plan have been  standardized as of January 1, 1998, with the
exception of the Company matching contribution, which varies by location.

Postretirement Benefits

     The Company  provides  certain health care and life insurance  benefits for
certain  retired  individuals.  The  Company  accounts  for  these  benefits  in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." The plan was frozen in 1993 and all eligible  participants
of the plan are  retired.  The  accrued  postretirement  benefit  obligation  at
December 31, 1996 and 1997 was $711,000 and $478,000, respectively.

     Assumptions used in the computation of  postretirement  benefit expense and
the related obligation are as follows:

<TABLE>
<CAPTION>
                                                                                1996              1997
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
Discount rate used to determine accumulated postretirement
  benefit obligation...................................................               8%             7.75%
Initial health care cost trend rate....................................              13%               13%
Ultimate health care cost trend rate...................................               5%                5%
Year ultimate health care cost trend rate..............................             2009              2009
</TABLE>

     If the health  care trend  rates  increased  1% for all future  years,  the
accumulated postretirement benefit obligation as of December 31, 1997 would have
increased by 4%. The effect of such a change on the interest cost for 1997 would
have been an increase of approximately $17,000.

8.   COMMITMENTS AND CONTINGENCIES

Operating Leases

     The Company has certain noncancelable operating leases for office and plant
facilities and office equipment. Total rental expense was $351,000, $826,000 and
$1,669,000 in 1995, 1996, and 1997, respectively. Minimum annual rental payments
remaining under  noncancelable  operating  leases as of December 31, 1997 are as
follows:

1998....................................  $   1,338,000
1999....................................        854,000
2000....................................        674,000
2001....................................        444,000
2002....................................        273,000
                                          -------------
                                          $   3,583,000


Environmental Liabilities

     The Company has been notified by the United States Environmental Protection
Agency  ("EPA") that it and 11 other  parties are  potentially  liable for costs
incurred by the EPA in responding  to the cleanup of the Dixie Caverns  Landfill
Superfund  Site  in  Roanoke  County,  Virginia.  Subsequently,  Roanoke  County
expended  $2,000,000 to clean up a portion of the Dixie Cavern landfill site and
has filed suit  against  the Company  and the 11 other  potentially  responsible
parties ("PRPs") for reimbursement of these cleanup costs. Although the PRPs may
be jointly and severally liable for cleanup costs,  management believes that the
Company's claim is de minimis, based upon the amount of waste attributable to it
in relation to the other parties. Management believes that the Company will have
no liability in connection with the remaining  portions of the site and that the
ultimate  outcome of this matter will not have a material  adverse impact on the
financial position or results of operations of the Company.

Litigation

     The  Company  is party to  various  litigation  matters  incidental  to the
conduct of its business. The Company does not believe that the outcome of any of
the  matters in which it is  currently  involved  will have a  material  adverse
effect on the financial condition or results of operations of the Company

9.   SUBSEQUENT EVENT

Purchase of Cardinal Marketing, Inc. and Cardinal Marketing of  New Jersey, Inc.

     On March 16, 1998, the Company  acquired all of the issued and  outstanding
capital stock of Cardinal Marketing,  Inc. and Cardinal Marketing of New Jersey,
Inc.  (collectively  referred to as "Cardinal") for $4,000,000 plus  transaction
costs,  which was funded  through  borrowings  on its revolving  loan  facility.
Additional  consideration  of  $600,000  will  be paid  to the  stockholders  of
Cardinal for noncompete agreements, of which $200,000 was paid on March 16, 1998
and  the  remaining  $400,000  will be paid  in two  equal  annual  installments
commencing March 16, 1999. Upon consummation of this  acquisition,  Cardinal was
merged into the Company.