EXHIBIT 99.1

              AUDITED FINANCIAL STATEMENTS FOR THE FOLLOWING FOUNDING
               COMPANIES THROUGH THE ACQUISITION DATE (AUGUST 1, 1997):

                    COMVESTRIX CORP.
                    COMPUTER OUTPUT SYSTEMS, INC.
                    DIRECT MAIL SERVICES, INC.
                    ELECTRONIC IMAGING SERVICES, INC.
                    IMAGE PRINTING SYSTEMS, INC.
                    LIRPACO INC.


<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Stockholders of

                  Comvestrix Corp.:


We have audited the accompanying  balance sheets of Comvestrix Corp. (a Delaware
corporation)  as of  December  31,  1995,  and 1996 and August 1, 1997,  and the
related statements of income, stockholders' equity, and cash flows for the years
ended  December  31, 1994,  1995,  and 1996 and the seven months ended August 1,
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 Comvestrix Corp. as of December
31, 1995,  and 1996 and August 1, 1997 and the results of its operations and its
cash flows for the years  ended  December  31,  1994,  1995,  1996 and the seven
months ended August 1, 1997 in conformity  with  generally  accepted  accounting
principles.



                                                  ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 25, 1998

<PAGE>

<TABLE>
<CAPTION>

                                COMVESTRIX CORP.

                                 BALANCE SHEETS

              AS OF DECEMBER 31, 1995 AND 1996 AND AUGUST 1, 1997

                                    ASSETS                                          1995               1996               1997
                                                                                --------------    ----------------    --------------

CURRENT ASSETS:
<S>                                                                                <C>                 <C>                 <C>
   Cash and cash equivalents                                                       $150,832            $106,610            $107,647

   Accounts receivable, net of allowance for doubtful accounts of
     $103,548, $111,724 and $86,673 in 1995, 1996 and 1997, respectively          3,258,311           4,135,168           4,699,738
   Postage receivable                                                               130,448             832,303             138,754
   Due from Vestcom                                                                       -             527,056             672,821
   Supplies inventory                                                               401,375             417,869             376,327

   Prepaid postage                                                                  920,937             885,123             886,845
   Prepaid expenses and other current assets                                        235,920             126,761             462,970
                                                                                 --------------    -------------       -------------
                Total current assets                                              5,097,823           7,030,890           7,345,102

PROPERTY AND EQUIPMENT, net of accumulated depreciation
   and amortization                                                               4,061,339           4,385,047          10,935,659

OTHER ASSETS                                                                        132,875             105,750             199,412
                                                                                 ----------         ------------        ------------
                Total assets                                                     $9,292,037         $11,521,687         $18,480,173
                                                                                ==============    ================    ==============
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

  Short-term borrowings                                                         $ 1,000,000         $ 1,900,000         $ 1,500,000
  Current portion of long-term debt                                                 626,315             785,472             982,111
  Current portion of capital lease obligations                                      255,657                --             1,276,540
  Accounts payable and accrued expenses                                           1,752,836           2,461,042           3,286,487
  Advanced postage                                                                  397,182             888,809           1,199,325
  Other current liabilities                                                         150,345             135,810             105,283
                                                                                    -------           ---------           ----------
     Total current liabilities                                                    4,182,335           6,171,133           8,349,746

LONG-TERM DEBT                                                                    1,017,380             682,611             313,695

CAPITAL LEASE OBLIGATIONS                                                               --               --               5,495,133

DEFERRED LEASE EXPENSES                                                             324,176             380,297            533,243

DEFERRED INCOME TAXES                                                                35,000               3,157             93,702
                                                                                  ---------             -------          -----------

     Total liabilities                                                            5,558,891           7,237,198          14,785,519
                                                                                  ---------           ----------         ----------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Common stock, $.00125 par value; 6,500,000 shares authorized;
    5,900,000 and 6,000,000 shares issued; 3,634,000
    shares outstanding in 1995, and 3,734,000 in 1996
    and 1997, respectively                                                          7,375                7,500               7,500
  Additional paid-in capital                                                       232,988              355,863             355,863
  Subscriptions receivable                                                          (4,500)            (106,297)            (91,295)
  Retained earnings                                                              4,935,663            5,465,803           4,860,966

Less-Treasury stock 2,266,000 shares at cost                                    (1,438,380)          (1,438,380)         (1,438,380)
                                                                                -----------          -----------         -----------
          Total stockholders' equity                                             3,733,146            4,284,489           3,694,654
                                                                                 ---------           -----------         -----------

          Total liabilities and stockhodlers' equity                            $9,292,037          $11,521,687         $18,480,173
                                                                                 =========           ==========          ==========



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

</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                          COMVESTRIX CORP.


                                        STATEMENTS OF INCOME

                        FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                              AND THE SEVEN MONTHS ENDED AUGUST 1, 1997




                                                                        December 31                            August 1,
                                                   ------------------------------------------------------
                                                        1994               1995                1996               1997
                                                   ----------------   ----------------    ---------------    ---------------

<S>                                                   <C>               <C>                 <C>                <C>
REVENUES                                              $16,605,558       $19,298,468         $21,446,745        $14,602,784

COST OF REVENUES                                        9,902,000        10,610,825          12,329,784          7,901,864
                                                   ----------------   ----------------    ---------------    ---------------

                Gross profit                            6,703,558         8,687,643           9,116,961          6,700,920

SELLING, GENERAL AND
   ADMINISTRATIVE EXPENSES                              6,423,696         7,052,765           7,282,491          4,677,958
                                                   ----------------   ----------------    ---------------    ---------------

                Income from operations                    279,862         1,634,878           1,834,470          2,022,962
                                                   ----------------   ----------------    ---------------    ---------------

OTHER INCOME (EXPENSE):
   Interest expense                                       (44,025)          (58,515)           (140,804)          (397,842)
   Interest and other income                                3,626            44,890              63,051             27,172
   Contract settlement income                                   -           475,250                   -                  -
                                                   ----------------   ----------------    ---------------    ---------------

                                                          (40,399)          461,625             (77,753)          (370,670)
                                                   ----------------   ----------------    ---------------    ---------------

                Income before provision
                  (benefit) for income taxes              239,463         2,096,503           1,756,717          1,652,292

PROVISION (BENEFIT) FOR INCOME
   TAXES                                                 (122,000)           79,277               9,298             41,307
                                                   ----------------   ----------------    ---------------    ---------------

                Net income                               $361,463        $2,017,226          $1,747,419         $1,610,985
                                                   ================   ================    ===============    ===============


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

</TABLE>




<PAGE>

<TABLE>
<CAPTION>
                                COMVESTRIX CORP.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                    AND THE SEVEN MONTHS ENDED AUGUST 1, 1997



                                                                                                                            Total
                                                                    Additional Subscrip-                                    Stock-
                                                    Common Stock    Paid-in    tions      Retained    Treasury    Stock     holders'
                                                   Shares  Amount   Capital   Receivable  Earnings    Shares     Amount     Equity
                                                   ------  ------  -------   ----------   --------   --------   -------     -------

BALANCE AT JANUARY 1, 1994                        590,000  $7,375   $232,988  ($39,610) $3,865,219   197,600 $(1,200,000)$2,865,972

<S>                                               <C>      <C>      <C>       <C>       <C>          <C>      <C>        <C>
   Purchase of treasury stock                         -        -         -       -           -        29,000    (238,380)  (238,380)
   Collection of subscriptions receivable             -        -         -      30,430       -          -          -         30,430
   Net income                                         -        -         -       -         361,463      -          -        361,463
                                                  -------  ------  ---------  --------- -----------  -------  ---------- ----------

BALANCE AT DECEMBER 31, 1994                      590,000   7,375    232,988    (9,180)  4,226,682   226,600 (1,438,380)  3,019,485

   Recapitalization of common stock             5,310,000      -         -        -           -     2,039,400      -           -
   Collection of subscriptions receivable            -         -         -       4,680        -         -          -          4,680
   Net income                                        -         -         -        -      2,017,226     -          -       2,017,226
   Distributions to stockholders                     -         -         -        -     (1,308,245)    -          -      (1,308,245)
                                               ----------  -------  ---------  -------- ----------- ---------  --------- ----------

BALANCE AT DECEMBER 31, 1995                    5,900,000    7,375   232,988    (4,500)  4,935,663 2,266,000 (1,438,380)  3,733,146
   Issuance of common stock                       100,000      125   122,875  (123,000)       -         -          -           -
   Collection of subscriptions receivable            -          -       -       21,203        -         -          -         21,203
   Net income                                        -          -       -         -      1,747,419     -          -       1,747,419
   Distributions to stockholders                     -          -       -         -     (1,217,279)    -          -      (1,217,279)
                                                ----------   ------  ------- ---------  ----------  --------- --------- -----------

BALANCE AT DECEMBER 31, 1996                     6,000,000   7,500   355,863 (106,297)   5,465,803 2,266,000 (1,438,380)  4,284,489

   Collection of subscriptions receivable            -          -       -      15,002          -        -          -         15,002
   Net income                                        -          -       -         -      1,610,985     -          -       1,610,985
   Distributions to stockholders                     -          -       -         -     (2,215,822)    -          -      (2,215,822)
                                                 ---------   ------ -------- --------   ----------- --------  ---------- ----------

BALANCE AT AUGUST 1, 1997                        6,000,000   $7,500 $355,863 ($91,295)  $4,860,966 2,266,000 $(1,438,380)$3,694,654
                                                ==========   ====== ========  ========  ========== ========= ===========  ==========


 The accompanying notes to financial statements are an integral part of these statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                COMVESTRIX CORP.


                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                       AND THE PERIOD ENDED AUGUST 1, 1997

                                                                            December 31                          August 1,
                                                         --------------------------------------------------
                                                             1994              1995              1996               1997
                                                         -------------    ---------------    --------------    ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                         <C>             <C>                <C>               <C>
   Net income                                               $361,463        $2,017,226         $1,747,419        $1,610,985
   Adjustments to reconcile net income to net cash
     provided by operating activities-
       Depreciation and amortization                         898,606         1,004,901          1,143,391         1,196,387
       Provision for doubtful accounts                         6,352            10,523              8,176                 -
       Deferred income tax provision                               -            35,000            (31,843)           90,545
       (Gain) loss on sale of property                             -                 -             (2,598)            4,266
       Changes in operating assets (increase)
         decrease in-
           Accounts receivable                              (271,441)         (198,524)          (885,033)         (564,570)
           Postage receivable                                (92,560)           53,599           (701,855)          693,549
           Supplies inventory                                (20,575)         (157,406)           (16,494)           41,542
           Prepaid postage                                  (104,396)         (601,788)            35,814            (1,722)
         Prepaid expenses and other assets                  (107,372)          (78,664)           136,284          (429,871)
       Changes in operating liabilities increase
         (decrease) in-
           Accounts payable and accrued expenses             937,583           (97,085)           708,206           825,445
           Advanced postage                                  252,917          (279,438)           491,627           310,516
           Other current liabilities                        (121,954)           17,818            (14,535)          (30,527)
           Deferred charges                                  225,041            99,135             56,121           152,946
                                                         -------------    ---------------    --------------    ---------------

                Net cash provided by operating
                  activities                               1,963,664         1,825,297          2,674,680         3,899,491
                                                         -------------    ---------------    --------------    ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of property and equipment                    (928,338)       (1,983,186)        (1,473,761)         (458,045)
   Proceeds from sale of equipment                                 -                 -              9,260             2,700
                                                         -------------    ---------------    --------------    ---------------

                Net cash used in investing activities       (928,338)       (1,983,186)        (1,464,501)         (455,345)
                                                         -------------    ---------------    --------------    ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net short-term borrowings                                (225,000)          500,000            900,000           400,000
   Proceeds from long-term borrowings                        355,000         1,524,000            507,000         1,500,000
   Principal payments on long-term debt and
     capital leases obligations                             (909,888)         (528,077)          (938,269)       (2,996,524)
   Due from Vestcom                                                -                 -           (527,056)         (145,765)
   Collection of subscriptions receivable                     30,430             4,680             21,203            15,002
   Repurchase of common stock                               (238,380)                -                  -                 -
   Distributions to stockholders                                   -        (1,308,245)        (1,217,279)       (2,215,822)
                                                         -------------    ---------------    --------------    ---------------

                Net cash provided by (used in)
                  financing activities                      (987,838)          192,358         (1,254,401)       (3,443,109)
                                                         -------------    ---------------    --------------    ---------------

NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                           47,488            34,469            (44,222)            1,037

CASH AND CASH EQUIVALENTS, beginning
   of year                                                    68,875           116,363            150,832           106,610
                                                         -------------    ---------------    --------------    ---------------

CASH AND CASH EQUIVALENTS, end of year                      $116,363          $150,832           $106,610          $107,647
                                                         =============    ===============    ==============    ===============

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                                            December 31                          August 1,
                                                         --------------------------------------------------
                                                             1994              1995              1996               1997
                                                         -------------    ---------------    --------------    ---------------

SUPPLEMENTAL DISCLOSURE OF CASH
   FLOW INFORMATION:
     Cash paid during the year for-
<S>                                                          <C>               <C>               <C>
       Interest                                              $44,025           $49,858           $137,399         $397,344
       State income tax                                           50            28,332             42,712             --
                                                         =============    ===============    =============        ==========

SUPPLEMENTAL DISCLOSURE OF
   NONCASH INVESTING AND
   FINANCING ACTIVITIES:
     Capital lease obligations incurred                         $  -              $  -               $  -        $6,943,939
     Issuance of common stock evidenced by
       subscriptions receivable                                    -                 -            123,000                 -
                                                         =============    ===============    ==============    ===============

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

</TABLE>




<PAGE>

                                COMVESTRIX CORP.


                          NOTES TO FINANCIAL STATEMENTS



(1)  NATURE OF BUSINESS:

     Comvestrix Corp. (the "Company") is a Delaware  corporation.  The Company's
     primary  businesses are (i) the production and distribution of documents on
     paper,  microfiche,  microfilm  and  compact  disc,  (ii)  computer  center
     document  outsourcing  services,  (iii)  mailing  services  and (iv)  forms
     management.

     In  February  1997,  the  Company  and  its  stockholders  entered  into  a
     definitive agreement with Vestcom International, Inc. ("Vestcom"), pursuant
     to which all  outstanding  shares of the  Company's  common  stock  will be
     exchanged for cash and shares of Vestcom's common stock (the "Acquisition")
     concurrent  with the  consummation  of the  initial  public  offering  (the
     "Offering") of the common stock of Vestcom.

(2)  SUMMARY OF SIGNIFICANT
     ACCOUNTING POLICIES:

       Use of Estimates-

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities  at the date of the financial  statements and the reported
          amounts of revenues and expenses during the reporting periods.  Actual
          results could differ from those estimates.

       Revenue Recognition-

          Revenues are recognized  when the services are rendered.  Revenues are
          presented net of postage charges in the income  statement as customers
          advance  the Company  cash to be used to purchase  postage for related
          projects.

       Cash and Cash Equivalents-

          Cash and cash equivalents include money market accounts and all highly
          liquid debt  instruments  purchased with original  maturities of three
          months or less.

       Supplies Inventory-

          Supplies  inventory  consists  of paper,  toner,  developer  and other
          disposable chemicals,  film and micrographic chemicals,  and packaging
          materials.  Supplies are valued at cost,  which  approximates  market,
          with cost determined using the first-in-first-out method.

<PAGE>


       Property and Equipment-

          Property and equipment are recorded at cost.  Depreciation is computed
          principally using the  straight-line  method over the estimated useful
          lives  of the  assets.  Leasehold  improvements  are  capitalized  and
          amortized over the shorter of the estimated useful lives of the assets
          or the terms of the related leases.

          Expenditures  for repairs and  maintenance are charged to expense when
          incurred.  Expenditures  for major  renewals  and  betterments,  which
          extend the useful lives of existing  equipment,  are  capitalized  and
          depreciated. Upon retirement or disposition of property and equipment,
          the cost and related  accumulated  depreciation  are removed  from the
          accounts  and  any  resulting  gain  or  loss  is  recognized  in  the
          statements of operations.

       Income Taxes-

          The Company has elected to be taxed under the provisions of Subchapter
          S of the Internal  Revenue Code. Under those  provisions,  the Company
          does not pay Federal  corporate  income  taxes on its taxable  income.
          Instead,  the  stockholders  are liable for individual  Federal income
          taxes on their  respective  shares of the  Company's  taxable  income.
          Accordingly,  no provision for Federal corporate income taxes has been
          made in the accompanying financial statements.

          The Company was subject to state  corporate  income tax for 1994,  but
          elected S corporation  status for 1995 state income tax purposes.  The
          Company's  state  taxable  income is  included  in each  stockholder's
          individual  state  income  tax  return.  The  Company  is liable for a
          limited state income tax.

          Deferred  state  income tax results  from the  Company  filing its tax
          returns on the cash basis and its financial  statements on the accrual
          basis,  as well as the use of different  methods of  depreciation  for
          financial statement and income tax reporting purposes.

       Long-Lived Assets-

          Effective  January 1, 1995, the Company adopted Statement of Financial
          Accounting  Standards ("SFAS") No. 121, "Accounting for the Impairment
          of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of."
          Accordingly,  in the event that facts and circumstances  indicate that
          property  and  equipment,  and  intangible  or  other  assets,  may be
          impaired,  an evaluation of recoverability  would be performed.  If an
          evaluation is required,  the estimated future  undiscounted cash flows
          associated with the assets is compared to the asset's  carrying amount
          to determine if a write-down to market value or  discounted  cash flow
          value was necessary. Adoption of this standard did not have a material
          effect on the  financial  position  or  results of  operations  of the
          Company.

       Concentration of Credit Risk-

          Financial   instruments  that   potentially   expose  the  Company  to
          concentration  of credit  risk,  as defined by SFAS No.  105,  consist
          primarily of trade accounts  receivable.  The Company's  customers are
          concentrated  in  the  United  States,  primarily  in  the  financial,
          pharmaceutical   and   telecommunication   industries.   The   Company
          establishes  an  allowance  for doubtful  accounts  based upon factors
          surrounding the credit risk of specific customers,  historical trends,
          and other information.

<PAGE>


(3)  PROPERTY AND EQUIPMENT:

          Property and equipment  consist of the following at December 31, 1995,
          1996 and August 1, 1997:

<TABLE>
<CAPTION>

                                                                                                              Estimated
                                                                                                             Useful Lives
                                                        1995              1996               1997              (Years)
                                                    --------------    --------------    ----------------   -----------------

<S>                                                    <C>                <C>                <C>                 <C>
         Software                                      $570,979           $662,059           $679,007            3 -5
         Machinery and equipment                      8,218,062          9,126,941         16,592,499           5 - 7
         Furniture and fixtures                         955,085          1,095,725          1,113,107             10
         Leasehold improvements                         499,195            955,904            965,922           8 - 10
         Construction in progress                       223,219                  -                  -
                                                    --------------    --------------    ----------------

                                                     10,446,540         11,840,629         19,350,535
         Less- Accumulated depreciation and
           amortization                              (6,405,201)        (7,455,582)        (8,414,876)
                                                    --------------    --------------    ----------------

         Property and equipment, net                 $4,061,339         $4,385,047        $10,935,659
                                                    ==============    ==============    ================

     Leased  equipment  under capital leases  (included  above)  consists of the
     following at December 31, 1995, 1996 and August 1, 1997:

                                                                                   December 31               August 1,
                                                                             -------------------------
                                                                                 1995          1996            1997
                                                                             -------------    --------    ----------------

         Equipment                                                              $642,902       $  -           $7,306,430
         Less- Accumulated amortization                                         (183,686)         -             (476,755)
                                                                             -------------    --------    ----------------

                                                                                $459,216       $  -           $6,829,675
                                                                             =============    ========    ================

</TABLE>

     The equipment held under capital lease in 1995 was purchased by the Company
     during 1996.

     Depreciation and amortization  expense on property and equipment charged to
     operations for the years ended December 31, 1994,  1995, 1996 and the seven
     months ended August 1, 1997 was $898,606,  $1,004,901  and  $1,143,391  and
     $1,196,387, respectively.

(4)  ACCOUNTS PAYABLE
     AND ACCRUED EXPENSES:

     Accounts payable and accrued expenses consists of the following at December
     31, 1995 and 1996 and August 1, 1997:


<TABLE>
<CAPTION>
                                                                                December 31                   August 1,
                                                                     -----------------------------------
                                                                          1995               1996                1997
                                                                     ---------------    ----------------    ---------------

<S>                                                                       <C>               <C>                 <C>
         Accounts payable                                                 $444,939          $1,292,925          $1,713,415
         Accrued salary and bonuses                                        726,239             794,143             678,000
         Accrued production, rent and maintenance                          360,588             199,349             816,542
         Other accruals                                                    221,070             174,625              78,530
                                                                     ---------------    ----------------    ---------------

                                                                        $1,752,836          $2,461,042          $3,286,487
                                                                     ===============    ================    ===============
</TABLE>

<PAGE>

(5)  SHORT-TERM BORROWINGS:

     The Company has a revolving  line of credit with a bank,  that provides for
     borrowings of up to $300,000 for equipment  purchases,  which is secured by
     the specific  equipment,  and an additional  $2,250,000 for working capital
     requirements, which is secured by accounts receivable. Borrowings under the
     line of credit bear interest at the bank's prevailing prime rate (8-1/2% at
     August 1, 1997). The unused line was $1,050,000 at August 1, 1997. The line
     expired on August 7, 1997 at which time the  outstanding  balance  was paid
     off.

(6)  LONG-TERM DEBT:

     Long-term  debt consists of the following at December 31, 1995 and 1996 and
     August 1, 1997:

<TABLE>
<CAPTION>

                                                                               1995              1996              1997
                                                                           --------------    --------------    --------------

<S>                                                                          <C>                <C>              <C>
         Equipment loan payable to a financial institution, bearing
           interest at the prime rate (8-1/2% at August 1, 1997) plus 1/2%,
           not to exceed 8-1/2%.  Principal is payable in monthly
           installments of $9,861 beginning November 1, 1994;
           collateralized by specific equipment.  Final payment is due
           in October 1997.
                                                                              $226,806          $108,472         $39,444
         Equipment loan payable to a financial institution, bearing
           interest at the prime rate (8-1/2% at August 1, 1996), not to
           exceed 12%.  Principal is payable in monthly installments of
           $6,500 beginning April 1, 1995; collateralized by specific
           equipment.  Final payment is due February 7, 1998.
                                                                               175,500            97,500           52,000
         Various equipment loans payable to a financial institution
           bearing interest from 7-3/4% to 8-1/4%.  Principal amounts
           are payable in aggregate monthly installments of $49,916
           maturing July 1998 through November 1999.
                                                                             1,241,389         1,262,111         1,204,362
                                                                           -----------       -----------       -----------

                                                                             1,643,695         1,468,083         1,295,806
         Less- Current maturities                                             (626,315)         (785,472)         (982,111)
                                                                           ------------      ------------      ------------

                                                                            $1,017,380          $682,611          $313,695
                                                                          ============       ===========       ============

</TABLE>


     At August 1, 1997 the aggregate  amounts of annual principal  maturities of
     long-term obligations are as follows:

<TABLE>
<CAPTION>

         August 1-
<S>        <C>                                                                                          <C>
           1998                                                                                         $982,111
           1999                                                                                          281,473
           2000                                                                                           32,222
                                                                                                    ---------------

                         Total                                                                        $1,295,806
                                                                                                    ===============
</TABLE>

     The Company's  debt  agreements  require the  maintenance of certain ratios
     related to working capital, debt compared to equity, and retained earnings.
     The Company was in compliance with all such ratios as of August 1, 1997.

<PAGE>


(7)    SUBSCRIPTIONS RECEIVABLE
       FROM STOCKHOLDERS:

          Subscriptions  receivable from  stockholders at December 31, 1995 were
          evidenced  by a 9%  promissory  note which  matured in December  1996.
          Subscriptions  receivable from  stockholders at December 31, 1996 were
          evidenced  by 6%  promissory  notes from various  stockholders.  These
          notes were subsequently paid off in August 1997.

(8)    INCOME TAXES:

          During 1994, the Company  utilized a $178,000 state net operating loss
          carryforward.  Accordingly,  the 1994 current  state tax provision has
          been reduced by  approximately  $16,000 which reflects the tax benefit
          of such net operating loss carryforward.

          In 1994,  the  deferred  state tax  provision  has been reduced by the
          effect of the tax rate differential between C corporation status and S
          corporation status for state income tax purposes (see Note 2).

          Deferred  state  taxes  primarily  relate to  property.  No  valuation
          allowance  has been  recorded as the Company  believes it will realize
          all such assets in future years.

(9)    STOCKHOLDERS' EQUITY:

          Effective  December 31,  1995,  the Company  recapitalized  its common
          stock in a 10-for-1  stock  split.  Accordingly,  authorized,  issued,
          outstanding  and treasury shares were increased for 1995 in a ratio of
          10-to-1 from 1994.  Also,  the par value of common stock was decreased
          for 1995 in a ratio of 10-to-1 from 1994.

          During 1996,  the Company  issued and sold 100,000  shares of stock to
          five long-term  employees of the Company.  The  consideration  for the
          stock consisted of promissory notes (see Note 7).

(10)   COMMITMENTS AND CONTINGENCIES:

         Operating Leases-

          The Company leases office  premises,  warehouse space and a portion of
          its machinery and equipment under operating leases expiring at varying
          dates through 2001.  Its offices are leased from an entity that is 50%
          owned by the  Company's  president  ("related  party lease") (see Note
          11).

          At August 1, 1997 the minimum annual rental commitment of the Company,
          including  the  required  funding  of a  capital  improvements  escrow
          account,  under existing agreements (including related party lease) is
          as follows:


              1998                                              $712,283
              1999                                               701,096
              2000                                               697,675
              2001                                               594,196
                                                              -----------

                           Total minimum payments             $2,705,250
                                                              ===========


<PAGE>


          Rent expense (including lease  escalations)  charged to operations for
          the years ended  December  31, 1994,  1995,  1996 and the seven months
          ended  August  1,  1997 was  $2,282,794,  $2,234,340,  $2,236,280  and
          $515,151, respectively.

         Litigation-

          The  Company is  involved  in  various  legal  actions  arising in the
          ordinary  course of  business.  Management  does not believe  that the
          outcome of such legal actions will have a material  adverse  effect on
          the Company's financial position or results of operations.

(11)   RELATED PARTY TRANSACTIONS:

          The Company  leases  certain  office  space from an entity that is 50%
          owned by its  president.  This  lease  requires  the  Company  to make
          payments into an escrow  account to be used for specific  improvements
          to the  premises.  Such  amounts are  included in other  assets in the
          accompanying  financial  statements.  The minimum future annual rental
          payments to related parties are as follows:


            August 1:

            1998                                                $472,309
            1999                                                 505,254
            2000                                                 514,485
            2001                                                 446,966
                                                                 -------

                                                              $1,939,014
                                                               ===========


          Related  party rent  expense for the years ended  December  31,  1994,
          1995,  1996 and the seven months  ended  August 1, 1997 was  $661,635,
          $363,472, $628,083 and $325,754, respectively.

          On September 19, 1996, the Company loaned Vestcom  $120,036 as part of
          Vestcom's  initial  capitalization.  Additionally,  the Company loaned
          Vestcom  $399,996 in December 1996 and $22,078 in June 1997. The loans
          bear  interest  at a rate  equal  to  the  fluctuating  interest  rate
          announced  by a certain  bank as its prime  rate  (8-1/2% at August 1,
          1997) and are due and payable on the  Offering  Date.  The Company has
          unreimbursed advances to Vestcom of $130,711 for working capital needs
          which are  included in Due from  Vestcom in the  accompanying  balance
          sheet.

(12)   EMPLOYEE BENEFIT PLAN:

          The Company  maintains a 401(k) deferred  compensation  plan. The plan
          provides for the Company to make a discretionary matching contribution
          determined as a percentage of employees' contributions.  Contributions
          to this plan for the years ended December 31, 1994, 1995, 1996 and the
          seven months ended August 1, 1997 were $39,641,  $43,477,  $61,465 and
          $42,626, respectively.

<PAGE>


(13)   SUBSEQUENT EVENTS:

     On July  30,  1997,  Vestcom  announced  the  initial  public  offering  of
     3,850,000  shares  of its  common  stock at a price of  $13.00  per  share.
     Vestcom's   underwriters  exercised  in  full  an  option  to  purchase  an
     additional 577,500 shares of the Vestcom's Common Stock at $13.00 per share
     to cover over allotments of the initial public offering. The initial public
     offering was consummated on August 4, 1997. Concurrently with the Offering,
     Vestcom acquired all of the outstanding shares of the Company. Accordingly,
     the  accompanying  financial  statements  of the  Company do not  include a
     balance sheet as of December 31, 1997 and reflect the Company's  operations
     and cash  flows up until the date of  acquisition  by  Vesctom  (August  1,
     1997). See the Vestcom financial statements included elsewhere herein.


<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To the Stockholders of

                  Computer Output Systems, Inc.:


We have audited the accompanying balance sheets of Computer Output Systems, Inc.
(a Connecticut Corporation) as of December 31, 1995 and 1996 and August 1, 1997,
and the related statements of income,  stockholders'  equity, and cash flows for
the years ended  December  31, 1994,  1995 and 1996,  and the seven months ended
August  1,  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 Computer Output Systems,  Inc.
as of  December  31,  1995 and 1996 and  August 1, 1997 and the  results  of its
operations  and its cash flows for the years ended  December 31, 1994,  1995 and
1996,  and the seven months ended August 1, 1997 in  conformity  with  generally
accepted accounting principles.


                                                  ARTHUR ANDERSEN LLP


Roseland, New Jersey
February 25, 1998

<PAGE>

<TABLE>
<CAPTION>

                                         COMPUTER OUTPUT SYSTEMS, INC.

                                                BALANCE SHEETS

                                 DECEMBER 31, 1995 AND 1996 AND AUGUST 1, 1997


                                                                                December 31,                August 1,
                                                                      ---------------------------------
                               ASSETS                                      1995              1996                1997
                                                                      ---------------    --------------     ---------------

CURRENT ASSETS:
<S>                                                                        <C>           <C>                     <C>
   Cash and cash equivalents                                               $95,468       $           -           $106,754
   Accounts receivable, net of allowance for doubtful
     accounts of $5,000 in 1996 and 1997, respectively                     721,721            964,035           1,222,789
   Supplies inventory                                                       35,191            176,211             179,101
   Prepaid postage                                                          90,757            139,458             160,253
   Prepaid expenses and other current assets                                 9,019             25,642              25,273
                                                                      ---------------    --------------     ---------------

                Total current assets                                       952,156          1,305,346           1,694,170

PROPERTY AND EQUIPMENT, net of accumulated
     depreciation and amortization                                         459,723            472,003             634,576

OTHER ASSETS                                                                23,906             36,240              37,559
                                                                      ---------------    --------------     ---------------

                Total assets                                            $1,435,785         $1,813,589          $2,366,305
                                                                      ===============    ==============     ===============

                LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Current portion of long-term debt                                       $60,000           $150,000            $250,000
   Current portion of capital lease obligations                            108,235             94,584             117,941
   Accounts payable                                                        354,215            566,064             585,219
   Accrued expenses                                                         63,870             88,720             208,807
   Advanced postage                                                        273,710            249,605             223,640
   Distributions payable to shareholders                                      -                  -                534,000
                                                                      ---------------    --------------     ---------------

                Total current liabilities                                  860,030          1,148,973           1,919,607

LONG-TERM DEBT                                                             207,358                  -                   -

CAPITAL LEASE OBLIGATIONS                                                  227,249            130,072             213,453
                                                                      ---------------    --------------     ---------------

                Total liabilities                                        1,294,637          1,279,045           2,133,060
                                                                      ---------------    --------------     ---------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Common stock, $.10 par value; 10,000 shares
     authorized, 100 shares issued and outstanding                              10                 10                  10
   Additional paid-in capital                                              732,470            732,470             732,470
   Retained earnings                                                      (591,332)          (197,936)           (499,235)
                                                                      ---------------    --------------     ---------------

                Total stockholders' equity                                 141,148            534,544             233,245
                                                                      ---------------    --------------     ---------------

                Total liabilities and stockholders' equity              $1,435,785         $1,813,589          $2,366,305
                                                                      ===============    ==============     ===============

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

</TABLE>



<PAGE>

<TABLE>
<CAPTION>

                                         COMPUTER OUTPUT SYSTEMS, INC.


                                             STATEMENTS OF INCOME

                             FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                                   AND THE SEVEN MONTHS ENDED AUGUST 1, 1997




                                                                          December 31                           August 1,
                                                       ---------------------------------------------------
                                                           1994              1995               1996              1997
                                                       --------------    --------------    ---------------   ----------------

<S>                                                       <C>              <C>               <C>                <C>
REVENUES                                                  $2,192,400       $3,542,048        $4,854,633         $4,238,866

COST OF REVENUES                                           1,459,472        2,446,078         3,131,997          2,747,232
                                                       --------------    --------------    ---------------   ----------------

                Gross profit                                 732,928        1,095,970         1,722,636          1,491,634

SELLING, GENERAL AND
   ADMINISTRATIVE EXPENSES                                   681,638          979,211         1,195,057            780,508
                                                       --------------    --------------    ---------------   ----------------

                Income from operations                        51,290          116,759           527,579            711,126
                                                       --------------    --------------    ---------------   ----------------

OTHER EXPENSE:
   Interest expense                                           34,883           49,482            38,794             29,818
   Other expense                                              15,540                -                 -                  -
                                                       --------------    --------------    ---------------   ----------------

                                                              50,423           49,482            38,794             29,818
                                                       --------------    --------------    ---------------   ----------------

                Income before provision for
                  income taxes                                   867           67,277           488,785            681,308
                                                       --------------    --------------    ---------------   ----------------

PROVISION FOR INCOME TAXES                                       250            7,365            51,353             55,207
                                                       --------------    --------------    ---------------   ----------------

                Net income                                      $617          $59,912          $437,432           $626,101
                                                       ==============    ==============    ===============   ================



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

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                         COMPUTER OUTPUT SYSTEMS, INC.


                                      STATEMENTS OF STOCKHOLDERS' EQUITY

                             FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                                   AND THE SEVEN MONTHS ENDED AUGUST 1, 1997




                                                                       Additional                               Total
                                             Common Stock                Paid-in           Retained         Stockholders'
                                      ---------------------------
                                        Shares         Amount            Capital           Earnings             Equity
                                      -----------    ------------    ----------------    --------------    -----------------

<S>                                     <C>           <C>      <C>             <C>            <C>               <C>
BALANCE AT JANUARY 1, 1994 (Note 1)       100             $10            $732,470           ($635,719)          $96,761

   Net income                               -               -                   -                 617               617
                                      -----------                      ------------      --------------     --------------
                                                       --------

BALANCE AT DECEMBER 31, 1994
                                          100              10             732,470            (635,102)           97,378

   Net income                               -               -                   -              59,912            59,912
   Distributions to
     stockholders                           -               -                   -             (16,142)          (16,142)
                                      -----------      --------        ------------      --------------     --------------

BALANCE AT DECEMBER 31, 1995
                                          100              10             732,470            (591,332)          141,148

   Net income                               -               -                   -             437,432           437,432
   Distributions to
     stockholders                           -               -                   -             (44,036)          (44,036)
                                      -----------      --------        ------------      --------------     --------------

BALANCE AT DECEMBER 31, 1996
                                          100              10             732,470            (197,936)          534,544
                                      -----------      --------        ------------      --------------     --------------

   Net income                               -               -                   -             626,101           626,101
   Distributions to
     stockholders                           -               -                   -            (927,400)         (927,400)
                                      -----------      --------        ------------      --------------     --------------

BALANCE AT AUGUST
   1, 1997                                100             $10            $732,470           ($499,235)         $233,245
                                      ===========      ========        ============      ==============     ==============



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

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                         COMPUTER OUTPUT SYSTEMS, INC.


                                           STATEMENTS OF CASH FLOWS

                             FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                                   AND THE SEVEN MONTHS ENDED AUGUST 1, 1997



                                                                              December 31                       August 1,
                                                             ----------------------------------------------
                                                                 1994            1995             1996             1997
                                                             -------------    ------------    -------------    -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                 <C>           <C>            <C>             <C>
   Net income                                                       $617          $59,912        $437,783        $626,101
   Adjustments to reconcile net income to net cash
     provided by (used in) operating activities-
       Depreciation and amortization                              86,342          105,145         132,812          89,497
       Provision for doubtful accounts                             5,000           14,373               -               -
       Loss on the abandonment of leasehold
         improvements                                              9,358                -               -               -
       Changes in operating assets (increase)
         decrease in-
           Accounts receivable                                  (105,123)        (333,798)       (242,314)       (258,754)
           Supplies inventory                                    (27,350)          (7,841)       (141,020)         (2,890)
           Prepaid postage                                       (34,549)         (49,588)        (48,701)        (20,795)
           Prepaid expenses and other assets                         740           (9,075)        (28,956)           (951)
       Changes in operating liabilities increase
         (decrease) in-
           Accounts payable                                      (23,017)         153,470         211,849         593,103
           Accrued expenses                                       12,345           38,851          24,850          97,866
           Advanced postage                                      (66,212)         166,245         (24,105)        (25,964)
                                                             -------------    ------------    -------------    -------------

                Net cash provided by (used in)
                  operating activities                          (141,849)         137,694         322,198       1,097,213
                                                             -------------    ------------    -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES --
   Acquisition of property and equipment                         (59,220)         (33,927)       (145,444)        (90,475)
                                                             -------------    ------------    -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net short-term borrowings                                           -          200,000         (50,000)        100,000
   Principal payments on capital lease obligations               (63,555)         (99,040)       (110,828)        (72,584)
   Proceeds from loans from affiliated company                   430,029                -               -               -
   Repayment of loans from affiliated company                   (185,080)         (73,442)        (67,358)              -
   Proceeds from (payments on) stockholder loans                  30,000          (30,000)              -               -
   Distributions to stockholders                                       -          (16,142)        (44,036)       (927,400)
                                                             -------------    ------------    -------------    -------------

                Net cash provided by (used in)
                  financing activities                           211,394          (18,624)       (272,222)       (899,984)
                                                             -------------    ------------    -------------    -------------

                Net (decrease) increase in cash and
                  cash equivalents                                10,325           85,143         (95,468)        106,754

CASH AND CASH EQUIVALENTS, beginning
   of year                                                             -           10,325          95,468               -
                                                             -------------    ------------    -------------    -------------

CASH AND CASH EQUIVALENTS, end of year                           $10,325          $95,468     $                  $106,754
                                                                                                        -
                                                             =============    ============    =============    =============

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

</TABLE>



<PAGE>
<TABLE>
<CAPTION>
                                                                              December 31                       August 1,
                                                             ----------------------------------------------
                                                                 1994            1995             1996             1997
                                                             -------------    ------------    -------------    -------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
   INFORMATION:
<S>                                                         <C>               <C>             <C>              <C>
     Cash paid during the year for-
       Interest                                                  $38,871          $44,797         $38,329         $30,066
       State income tax                                              250              250          19,004          50,946
                                                             =============    ============    =============    =============

SUPPLEMENTAL DISCLOSURE OF NONCASH
   INVESTING ACTIVITIES:
       Capital lease obligations incurred                      ($330,089)       ($143,700)    $          -       $161,183
                                                             =============    ============    =============    =============













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

</TABLE>


<PAGE>


                          COMPUTER OUTPUT SYSTEMS, INC.


                          NOTES TO FINANCIAL STATEMENTS



(1)  NATURE OF BUSINESS:

     The Company was formed pursuant to a "Corporate  Reorganization  Agreement"
     dated December 28, 1994, whereby Computer Output Systems, Inc. (an existing
     Connecticut  S  Corporation)   transferred  and  assigned  the  assets  and
     liabilities of its computer printing business to Hall-Cicchese  Acquisition
     Corporation  (hereinafter  referred to as  "Acquisition  Corp.").  Computer
     Output Systems,  Inc.  simultaneously  surrendered its use of the corporate
     name "Computer Output Systems,  Inc.," thereby permitting Acquisition Corp.
     to adopt the use of the corporate  name  "Computer  Output  Systems,  Inc."
     (hereinafter  referred to as the  "Company").  The  effective  date of this
     agreement, as agreed upon by the parties, was January 1, 1994.

     The Company's primary businesses are (i) the production and distribution of
     documents on paper,  (ii) computer  center document  outsourcing  services,
     (iii) marketing materials fulfillment,  (iv) mailing services and (v) forms
     management.

     The Company and its  shareholders  entered into an  agreement  with Vestcom
     International,  Inc. ("Vestcom"),  pursuant to which all outstanding shares
     of the  Company's  common  stock  were  exchanged  for cash and  shares  of
     Vestcom's common stock (the "Acquisition") concurrent with the consummation
     of the initial  public  offering  (the  "Offering")  of the common stock of
     Vestcom. The offering was effective August 1, 1997.

(2)  SUMMARY OF SIGNIFICANT
     ACCOUNTING POLICIES:

     Use of Estimates-

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported  amounts of assets and liabilities at
     the date of the financial  statements and reported  amounts of revenues and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.

     Revenue Recognition-

     Revenues  are  recognized  when the  services  are  rendered.  Revenues are
     presented  net of  postage  charges in the income  statement  as  customers
     advance  the  Company  cash to be  used to  purchase  postage  for  related
     projects.

     Cash and Cash Equivalents-

     The Company  considers all highly liquid debt  instruments  purchased  with
     original maturities of three months or less.

<PAGE>

     Supplies Inventory-

     Supplies  inventory  consists  primarily  of paper and toner.  Supplies are
     valued at cost, which approximates  market,  with cost determined using the
     first-in, first-out method.

     Property and Equipment-

     Property and equipment are recorded at cost. Depreciation is computed using
     straight-line  method  over  the  estimated  useful  lives  of the  assets.
     Leasehold  improvements and assets subject to capital lease are capitalized
     and amortized over the lesser of the estimated useful life or the remaining
     life of the building lease agreement.  The Company accounts for fixed asset
     additions under the half-year convention guidelines.

     Expenditures  for  repairs  and  maintenance  are  charged to expense  when
     incurred. Expenditures for major renewals and betterments, which extend the
     useful lives of existing equipment,  are capitalized and depreciated.  Upon
     retirement or disposition of equipment and leaseholds, the cost and related
     accumulated  depreciation  are removed from the accounts and any  resulting
     gain or loss is recognized in the statements of income.

     Income Taxes-

     The Company has elected to be taxed under the provisions of Subchapter S of
     the Internal Revenue Code. Under those provisions, the Company does not pay
     Federal  corporation  income  taxes on its  taxable  income.  Instead,  the
     stockholders  are  liable  for  individual  federal  income  taxes on their
     respective  shares  of  the  Company's  taxable  income.   Accordingly,  no
     provision  for  Federal  corporate  income  taxes  has  been  made  in  the
     accompanying statements of income.

     Long-Lived Assets-

     Effective  January 1, 1995,  the Company  adopted  Statement  of  Financial
     Accounting  Standards  ("SFAS") No. 121,  "Accounting for the Impairment of
     Long-Lived   Assets  and  for   Long-Lived   Assets  to  Be  Disposed  Of."
     Accordingly,  in the event  that  facts  and  circumstances  indicate  that
     property and equipment, and intangible or other assets, may be impaired, an
     evaluation  of  recoverability  would be  performed.  If an  evaluation  is
     required,  the estimated future undiscounted cash flows associated with the
     assets  is  compared  to the  asset's  carrying  amount to  determine  if a
     write-down  to market  value or  discounted  cash flow value is  necessary.
     Adoption of this  standard did not have a material  effect on the financial
     position or results of operations of the Company.

     Concentration of Credit Risk-

     Financial  instruments that potentially expose the Company to concentration
     of credit risk, as defined by SFAS No. 105  "Concentration of Credit Risk",
     consist primarily of trade accounts receivable. The Company's customers are
     concentrated  in the northeast  United States.  The Company  establishes an
     allowance for doubtful  accounts based upon factors  surrounding the credit
     risk of specific customers, historical trends and other information.

<PAGE>


(3)  PROPERTY AND EQUIPMENT:

     The following is a summary of property and equipment-

<TABLE>
<CAPTION>


                                                                                                               Estimated
                                                                    December 31                                 Useful
                                                            -----------------------------      August 1,         Lives
                                                                1995            1996             1997           (Years)
                                                            -------------    ------------    -------------   --------------

<S>                                                            <C>              <C>             <C>                <C>
           Furniture and fixtures                              $37,622          $37,622         $51,590            7
           Computers and equipment                             680,805          641,132         847,860            5
           Leasehold improvements                               25,492           96,045         127,419           10
                                                            -------------    ------------    -------------

                                                               743,919          774,799       1,026,869
           Less- Accumulated depreciation and
             amortization                                     (284,196)        (302,796)       (392,293)
                                                            -------------    ------------    -------------

                        Property and equipment, net           $459,723         $472,003        $634,576
                                                            =============    ============    =============
</TABLE>

     Leased  equipment  under capital leases  (included  above)  consists of the
     following-
<TABLE>
<CAPTION>

                                                                                 December 31                 August 1,
                                                                       ---------------------------------
                                                                            1995              1996             1997
                                                                       ---------------    --------------   --------------

<S>                                                                         <C>               <C>              <C>
           Computers and equipment                                          $500,289          $428,789         $589,972
           Less- Accumulated depreciation                                   (130,835)         (185,656)        (245,100)
                                                                       ---------------    --------------   --------------

                                                                            $369,454          $243,133         $344,872
                                                                       ===============    ==============   ==============
</TABLE>

     Depreciation and amortization expense was $86,342,  $105,145,  $132,812 and
     $89,497 for the years ended December 31, 1994,  1995 and 1996 and the seven
     months ended August 1, 1997, respectively.

     Minimum annual payments under capital leases,  including  interest,  are as
     follows-

<TABLE>
<CAPTION>

           August 1-
           <S>                                                                                          <C>
           1998                                                                                         $143,385
           1999                                                                                          112,584
           2000                                                                                           58,230
           2001                                                                                           42,132
           2002                                                                                           28,088
                                                                                                     --------------

                           Total minimum payments                                                        384,419

           Less- Amounts representing interest                                                           (53,025)
                                                                                                     --------------

                           Net minimum lease payments                                                    331,394

           Less- Current portion of capital lease obligations                                           (117,941)
                                                                                                     --------------

                           Long-term portion of capital lease obligations                               $213,453
                                                                                                     ==============

     The interest  rates on  capitalized  leases vary from 8.0% to 13.0% and are
     imputed based on the fair market value of the equipment at the inception of
     the lease.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

(4)  LONG-TERM DEBT:

       Long-term debt consists of the following-                           December 31,     December 31,        August 1,
                                                                               1995             1996             1997
                                                                           -------------    --------------   --------------
<S>                                                                        <C>              <C>               <C>
        $300,000 line of credit with a financial institution.  Secured
          by substantially all of the assets of the Company.  Interest
          payable monthly at prime (8-1/2% August 1, 1997) plus 1%.
          All outstanding balances due on December 19, 1997.
                                                                              $200,000         $150,000         $250,000
        Unsecured loan from an affiliated company bearing interest at
          10.25%, payable in monthly principal installments of
          approximately $7,000.  Loan is subordinated to the line of
          credit                                                                67,358                -                -
                                                                           -------------    --------------   --------------

                                                                               267,358          150,000          250,000

        Less- Current maturities                                                60,000          150,000          250,000
                                                                           -------------    --------------   --------------

                                                                              $207,358      $         -       $        -
                                                                           =============    ==============   ==============
</TABLE>

     The line of credit  agreement  requires the  maintenance  of certain ratios
     related to net worth and working  capital.  The  Company was in  compliance
     with these covenants at August 1, 1997.

     The outstanding  short-term debt balance was paid-off in full subsequent to
     August 1, 1997 by Vestcom.

(5)  COMMITMENTS AND CONTINGENCIES:

       Operating Leases-

     The Company leases  equipment and vehicles under  noncancellable  operating
     leases expiring through 1999.

     At August 1, 1997 the minimum annual rental commitment of the Company under
     existing agreements was as follows (after the allocation to the affiliate)-

<TABLE>
<CAPTION>
<S>           <C>                                                                                      <C>
              1998                                                                                     $416,363
              1999                                                                                      401,688
              2000                                                                                      284,454
              2001                                                                                      259,386
              2002                                                                                      126,900
              Thereafter                                                                                264,375
                                                                                                  ---------------

              Total minimum payments                                                                 $1,753,166
                                                                                                  ===============
</TABLE>

     Rental  expense  charged to  operations  amounted  to  $136,352,  $172,080,
     $280,337 and $83,406 for the years ended  December 31, 1994,  1995 and 1996
     and the seven months ended August 1, 1997, respectively.

<PAGE>

       Litigation-

          The  Company is  involved  in  various  legal  actions  arising in the
          ordinary  course of  business.  Management  does not believe  that the
          outcome of such legal actions will have a material  adverse  effect on
          the Company's financial position or results of operations.

       Restrictions on Sale of Common Stock-

          The common  stock of the Company is subject to  restrictions  on sale,
          assignment,  pledge,  transfer  or other  disposition  pursuant to the
          stockholders' agreement, dated December 28, 1994.

       Employment Contracts-

          The Company entered into ten year employment  contracts dated December
          28,  1994 with  Daniel  Hall and  Timothy  Cicchese.  In  addition  to
          providing for base  compensation  and bonuses based on  profitability,
          the contracts  provide for 24 months  continuation  of base salary and
          benefits if termination  occurs prior to the end of the contract.

(6)  EMPLOYEE BENEFIT PLAN:

          The Company  maintains a 401(k) deferred  compensation  plan. The plan
          provides  for the Company to  contribute  amounts  equal to 33% of the
          contributions made by employees up to 5% of their total annual salary.
          Company  contributions  to this plan for the years ended  December 31,
          1994,  1995 and 1996 and the seven  months  ended  August 1, 1997 were
          $12,876, $14,773, $15,238 and $11,495, respectively.

(7)  SIGNIFICANT CUSTOMERS:

          During the years ended December 31, 1994,  1995 and 1996, one customer
          accounted for $415,000 or 18.9%, $1,077,000 or 30.4% and $1,412,000 or
          29.1% of the  Company's  revenues,  respectively.  This  customer is a
          service bureau servicing many different business accounts. The Company
          provides  subcontracting  services for over 70 different  accounts for
          this customer.  Accounts  receivable from this customer as of December
          31, 1995 and 1996 were approximately $172,000 and $166,000.

          During the seven months ended August 1, 1997, two customers  accounted
          for  more  than  10%  of the  Company's  revenues,  respectively.  The
          customers accounted for $1,016,000 or 24.0% and $1,136,000 or 26.8% of
          the Company's revenues,  respectively.  Accounts receivable from these
          customers  as of  August  1,  1997  were  approximately  $177,000  and
          $255,000.  Similar to the customer in prior years, the new significant
          customer  is  a  service  bureau  servicing  many  different  business
          accounts.

          During 1997,  the Company and these  customers  extended their service
          agreements  whereby the Company will provide  document  generation and
          mailing services at prices specified in the agreement.

<PAGE>

(8)  EVENTS SUBSEQUENT TO DATE OF
     FINANCIAL STATEMENTS:

          On July 30, 1997,  Vestcom  announced the initial  public  offering of
          3,850,000  shares of its common  stock at a price of $13.00 per share.
          Vestcom's  underwriters  exercised  in full an option to  purchase  an
          additional  577,500 shares of the Vestcom's common stock at $13.00 per
          share to cover over  allotments of the initial  public  offering.  The
          initial   public   offering  was   consummated   on  August  4,  1997.
          Concurrently   with  the  Offering,   Vestcom   acquired  all  of  the
          outstanding  shares  of the  Company.  Accordingly,  the  accompanying
          financial  statements of the Company do not include a balance sheet as
          of December  31, 1997 and reflect the  Company's  operations  and cash
          flows up until the date of  acquisition  by Vestcom  (August 1, 1997).
          See the Vestcom financial statements included elsewhere herein.


<PAGE>






                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To the Stockholders of

                  Morris County Direct Mail Services, Inc.
                    and related companies:


We have audited the accompanying combined balance sheets of Morris County Direct
Mail  Services,  Inc. (a New Jersey  corporation)  and related  companies  as of
December  31,  1995  and 1996 and  August  1,  1997,  and the  related  combined
statements of income,  stockholders'  equity, and cash flows for the years ended
December  31,  1994,  1995 and 1996 and the seven  months  ended August 1, 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 Morris  County  Direct Mail
Services, Inc. and related companies as of December 31, 1995 and 1996 and August
1, 1997 and the results of their  operations  and their cash flows for the years
ended December 31, 1994, 1995 and 1996 and the seven months ended August 1, 1997
in conformity with generally accepted accounting principles.



                                          ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 25, 1998


<PAGE>
<TABLE>
<CAPTION>

                             MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES

                          COMBINED BALANCE SHEETS AT DECEMBER 31, 1995 AND 1996 AND AUGUST 1, 1997


                                                                                            December 31                 August 1,
                                                                                  --------------------------------
                                     ASSETS                                           1995              1996              1997
                                                                                  --------------    --------------    --------------

CURRENT ASSETS:
<S>                                                                                   <C>                <C>              <C>
   Cash and cash equivalents                                                          $534,459           $572,714         $324,409

   Accounts receivable, net of allowance for doubtful accounts of
     $211,000, $203,000 and $203,000 in 1995, 1996 and 1997, respectively            1,336,698          2,647,434        3,055,632
   Postage receivable                                                                1,019,560            330,730          617,665
   Notes receivable                                                                          -            100,000           67,216
   Due from related parties                                                            190,088            266,775          333,866
   Prepaid expenses and other current assets                                           115,785            175,594           50,745
                                                                                  --------------    --------------     -------------

                Total current assets                                                 3,196,590          4,093,247        4,449,533

PROPERTY AND EQUIPMENT, net of accumulated depreciation
   and amortization                                                                  1,867,808          1,504,158        1,579,089

GOODWILL AND OTHER INTANGIBLE ASSETS                                                         -            396,184          371,140

OTHER ASSETS                                                                            19,417            131,488           95,007
                                                                                  --------------    --------------    --------------

                Total assets                                                        $5,083,815         $6,125,077       $6,494,769
                                                                                  ==============    ==============    ==============

     LIABILITES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term borrowings                                                           $      -                160,000         150,000
  Current portion of long-term debt                                                    227,935            460,709         594,000
  Current portion of capital lease obligations                                          20,025             21,098          21,776
  Due to related parties                                                               685,384          1,231,590       1,483,935
  Accounts payable                                                                     370,551            686,646         570,522
  Accrued expenses                                                                     400,907            474,354         612,885
  Advanced postage                                                                   1,425,423            612,332         806,670
                                                                                     ---------          ---------       ----------
          Total current liabilities                                                  3,130,225          3,646,729       4,239,788

LONG TERM DEBT                                                                         343,686            933,646         841,978

CAPITAL LEASE OBLIGATIONS                                                               27,166             15,836           8,651

DUE TO RELATED PARTIES                                                                 666,001              -                  -

DEFERRED INCOME TAXES                                                                   12,200             11,420          11,422
                                                                                      --------          ---------       ---------
          Total liabilities                                                          4,179,278          4,607,631       5,101,839
                                                                                     ---------          ---------       ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Common stock-
       Morris County Direct Mail, Inc., no par value;
         2,500 shares authorized; 130 and 1,075 shares issued and
         outstanding in 1995 and 1996, respectively                                    16,000             16,000          16,000
       First Class Presort, Inc., no par value; 2,000
         shares authorized; 199 shares issued and outstanding                           1,990              1,990           1,990
       Quality Control Printing, Inc., no par value; 2,500
          shares issued and outstanding                                                 2,000              2,000           2,000
     Additional paid-in capital
       Morris County Direct Mail Services, Inc.                                        59,500             59,500          59,500
       First Class Presort, Inc.                                                      123,268            123,268         123,268
     Retained earnings                                                              1,103,279          1,716,188       1,591,672
                                                                                    ---------          ---------       ---------

                                                                                    1,306,037          1,918,946       1,794,430
  Less Treasury stock, 75 shares at cost of Morris
          County Direct Mail Services                                                (401,500)          (401,500)       (401,500)
                                                                                    ----------         ----------       ---------

          Total stockholders' equity                                                  904,537          1,517,446       1,392,930
                                                                                    ----------         ----------      ----------

          Total liabilities and stockholders' equity                              $ 5,083,815        $ 6,125,077    $  6,494,769
                                                                                   ==========         ==========       ==========
The accompanying notes to financial statements are an integral part of these balance sheets.


</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                             MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES


                                              COMBINED STATEMENTS OF INCOME

                                  FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                                        AND THE SEVEN MONTHS ENDED AUGUST 1, 1997




                                                                         December 31                           August 1,
                                                      ---------------------------------------------------
                                                          1994              1995               1996               1997
                                                      --------------    --------------    ---------------    ---------------

<S>                                                      <C>              <C>               <C>                 <C>
REVENUES                                                 $8,503,918       $9,422,646        $13,360,125         $7,892,585

COST OF REVENUES                                          6,538,866        6,429,671          9,517,339          5,766,816
                                                      --------------    --------------    ---------------    ---------------

                Gross profit                              1,965,052        2,992,975          3,842,786          2,125,769

SELLING, GENERAL AND
   ADMINISTRATIVE EXPENSES                                1,539,973        1,913,391          3,155,486          1,584,690
                                                      --------------    --------------    ---------------    ---------------

                Income from operations                      425,079        1,079,584            687,300            541,079
                                                      --------------    --------------    ---------------    ---------------

OTHER INCOME (EXPENSE):
   Interest expense                                        (126,394)         (91,042)          (159,402)          (118,370)
   Interest and other income                                  8,759           21,918             49,674             29,561
   Net loss on sale/writeoff of property
     and equipment                                                -         (114,694)            63,550            (19,796)
                                                      --------------    --------------    ---------------    ---------------

                                                           (117,635)        (183,818)           (46,178)          (108,605)
                                                      --------------    --------------    ---------------    ---------------

                Income before provision
                  (benefit) for income taxes                307,444          895,766            641,122            432,474
                                                      --------------    --------------    ---------------    ---------------

PROVISION (BENEFIT) FOR
   INCOME TAXES                                             (20,310)          30,936             28,213             17,188
                                                      --------------    --------------    ---------------    ---------------

                Net income                                 $327,754         $864,830           $612,909           $415,286
                                                      ==============    ==============    ===============    ===============






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

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
        MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES

                   COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                       AND THE SEVEN MONTHS ENDED AUGUST 1, 1997




                                               Common Stock               Additional Paid-In Capital
                               -----------------------------------------------------------------------------------------------------
                               Morris County                                Morris
                               Direct Mail   First Class   Quality Control  County      First                               Total
                               Services      Presort, Inc. Printing, Inc.   Direct      Class                               Stock-
                               ------------- ------------  --------------   Mail Ser-   Presort, Retained Treasury Stock    holder'
                               Shares Amount Shares Amount Shares  Amount   vices, Inc. Inc.     Earnings  Shares  Amount   Equity
                               ------ ------ ------ ------ ------  ------   ----------- -------- -------- -------- ------   --------


<S>                           <C>   <C>      <C>   <C>      <C>   <C>     <C>         <C>       <C>         <C>           <C>
BALANCE AT JANUARY 1, 1994    130   $16,000  199   $1,990   100   $2,000  $59,500     $123,268  ($52,326)   75 ($401,500) ($251,068)

   Net income                 -         -     -       -      -       -       -           -       327,754    -       -       327,754
   Distributions to
     stockholders             -         -     -       -      -       -       -           -       (14,000)   -       -       (14,000)
                              ---   -------  ----  ------   ---- -------- -------     --------   --------  ---- ---------  ---------

BALANCE AT DECEMBER 31, 1994  130    16,000  199    1,990   100    2,000   59,500     123,268    261,428    75  (401,500)    62,686

   Net income                 -         -     -       -      -       -       -           -       864,830    -       -       864,830
   Distributions to
     stockholders             -         -     -       -      -       -       -           -       (22,979)   -       -       (22,979)
                              ---   -------  ----  ------   ---- -------- -------     --------   --------  ---- ---------  ---------

BALANCE AT DECEMBER 31, 1995  130    16,000  199    1,990   100    2,000   59,500     123,268  1,103,279   75   (401,500)   904,537

   Stock split                945       -     -       -      -       -       -           -         -        -       -         -
   Net income                  -        -     -       -      -       -       -        612,909      -        -       -       612,909
                              ---   -------  ----  ------   ---- -------- -------     --------   --------  ---- ---------  ---------

BALANCE AT
DECEMBER 31, 1996           1,075    16,000  199    1,990   100    2,000   59,500     123,268  1,716,188   75   (401,500) 1,517,446

   Net income                  -        -     -       -      -       -       -           -      415,286     -       -       415,286
   Distributions to
     stockholders              -        -     -       -      -       -       -           -     (539,802)    -       -      (539,802)
                              ---   -------  ----  ------   ---- -------- -------     --------   --------  ---- ---------  ---------

BALANCE AT AUGUST 1, 1997   1,075   $16,000  199   $1,990   100   $2,000  $59,500    $123,268 $1,591,672   75  ($401,500)$1,392,930
                            =====   =======  ===   ======   ===   ======  =======    ======== ==========   ==== ========= =========

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

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                        MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES


                                       COMBINED STATEMENTS OF CASH FLOWS

                             FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                                   AND THE SEVEN MONTHS ENDED AUGUST 1, 1997


                                                                            December 31                          August 1,
                                                         --------------------------------------------------
                                                             1994              1995              1996              1997
                                                         --------------    -------------    ---------------    --------------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                          <C>              <C>               <C>                 <C>
   Net income                                                $327,754         $864,830          $612,909            $415,286
   Adjustments to reconcile net income to net
     cash provided by operating activities-
       Depreciation and amortization                          334,690          392,397           587,727             316,586
       Amortization of goodwill                                     -                -            16,116              25,044
       Provision for doubtful accounts                         46,467           55,260            25,693              56,736
       Deferred income tax provision                          (27,837)             566              (780)                  2
       (Gain) loss on sale of equipment                             -          114,694           (63,550)             19,796
       Loss on write-off of leasehold improvements                  -                -           496,876                   -
       Changes in operating assets (increase)
         decrease in-
           Accounts receivable                                 29,024          213,194        (1,336,429)           (464,934)
           Postage receivable                                   5,472         (431,184)          688,830            (286,935)
           Prepaid expenses and other assets                  (33,617)         (19,595)         (135,273)            161,330
       Changes in operating liabilities increase
         (decrease) in-
           Accounts payable                                   111,364         (418,965)          316,095            (116,124)
           Accrued expenses                                    (8,140)         (22,263)           73,447             138,531
           Advanced postage                                  (347,119)         317,309          (813,091)            194,338
                                                         --------------    -------------    ---------------    --------------

                Net cash provided by
                  operating activities                        438,058        1,066,243           468,570             459,656
                                                         --------------    -------------    ---------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of property and equipment                     (159,691)        (640,692)         (482,403)           (412,313)
   Proceeds from sale of property and equipment                     -                -           175,000               1,000
   Acquisition of companies                                         -                -          (762,300)                  -
                                                         --------------    -------------    ---------------    --------------

                Net cash used in investing
                  activities                                 (159,691)        (640,692)       (1,069,703)           (411,313)
                                                         --------------    -------------    ---------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net short-term borrowings                                  (50,000)               -           160,000             (10,000)
   Proceeds from long-term borrowings                         124,990          453,000         1,249,881             340,000
   Principal payments on long-term debt and
     capital lease obligations                               (493,484)        (433,597)         (437,404)           (304,884)
   Issuance of notes receivable                                     -                -          (175,000)                  -
   Collection of notes receivable                                   -                -            13,393              32,784
   Net proceeds from affiliates                                70,240           (5,153)           48,313            (183,600)
   Proceeds from stockholder loans                            155,711          143,784            31,015             368,854
   Payments on stockholder loans                             (243,991)        (251,802)         (250,810)                  -
   Distributions to stockholders                              (14,000)         (22,979)                -            (539,802)
                                                         --------------    -------------    ---------------    --------------

                Net cash provided by (used in)
                  financing activities                       (450,534)        (116,747)          639,388            (296,648)
                                                         --------------    -------------    ---------------    --------------

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                            December 31                          August 1,
                                                         --------------------------------------------------
                                                             1994              1995              1996              1997
                                                         --------------    -------------    ---------------    --------------

NET INCREASE (DECREASE) IN CASH
<S>                                                         <C>               <C>                <C>               <C>
   AND CASH EQUIVALENTS                                     ($172,167)        $308,804           $38,255           ($248,305)

CASH AND CASH EQUIVALENTS,
   beginning of year                                          397,822          225,655           534,459             572,714
                                                         --------------    -------------    ---------------    --------------

CASH AND CASH EQUIVALENTS, end of year                       $225,655         $534,459          $572,714            $324,409
                                                         ==============    =============    ===============    ==============

SUPPLEMENTAL DISCLOSURE OF CASH
   FLOW INFORMATION:
     Cash paid during the year for-
       Interest                                               $65,647          $41,739          $118,386            $118,210
       State income tax                                         6,408           14,707            41,121              14,269
                                                         ==============    =============    ===============    ==============

SUPPLEMENTAL DISCLOSURE OF NONCASH
   INVESTING AND FINANCING ACTIVITIES:
     Capital lease obligations incurred                        81,949                -                 -                   -
                                                         ==============    =============    ===============    ==============

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


</TABLE>










<PAGE>

         MORRIS COUNTY DIRECT MAIL SERVICES, INC. AND RELATED COMPANIES


                     NOTES TO COMBINED FINANCIAL STATEMENTS



(1)  NATURE OF BUSINESS:

     The  accompanying  combined  financial  statements  include the accounts of
     Morris  County  Direct  Mail  Services,   Inc.,  ("DMS"),  Quality  Control
     Printing,  Inc.  ("QCP") and First Class  Presort,  Inc.  ("FCP")  (all New
     Jersey corporations)  (collectively,  the "Company"). The Company's primary
     businesses are (i) marketing materials fulfillment,  (ii) mailing services,
     and (iii) forms management.

     In  February  1997,  the  Company  and  its  stockholders  entered  into  a
     definitive agreement with Vestcom International, Inc. ("Vestcom"), pursuant
     to which all  outstanding  shares of the  Company's  common  stock  will be
     exchanged for cash and shares of Vestcom's common stock (the "Acquisition")
     concurrent  with the  consummation  of the  initial  public  offering  (the
     "Offering") of the common stock of Vestcom.

(2)  SUMMARY OF SIGNIFICANT
     ACCOUNTING POLICIES:

     Basis of Presentation-

     The  Companies  discussed  in Note 1 are under the  common  control  of one
     stockholder. All significant intercompany transactions have been eliminated
     in combination.

     Use of Estimates-

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported  amounts of assets and liabilities at
     the date of the financial  statements and the reported  amounts of revenues
     and expenses during the reporting periods. Actual results could differ from
     those estimates.

     Revenue Recognition-

     Revenues  are  recognized  when the  services  are  rendered.  Revenues are
     presented net of postage incurred as customers  advance the Company cash to
     be used to purchase postage for related projects.

     Cash and Cash Equivalents-

     Cash and cash  equivalents  include  money  market  accounts and all highly
     liquid debt instruments  purchased with original maturities of three months
     or less.

     Supplies Inventory-

     Supplies inventory  consists of paper goods,  printing items, and packaging
     materials.  Supplies are valued at cost, which  approximates  market,  with
     cost determined using the first-in-first-out method.

<PAGE>



     Property and Equipment-

     Property  and  equipment  are  recorded at cost.  Depreciation  is computed
     principally using an accelerated method which reflects the estimated useful
     lives of the assets.  Leasehold  improvements and assets subject to capital
     lease are  capitalized  and  amortized  over the  shorter of the  estimated
     useful lives of the assets or the terms of the related leases.

     Expenditures  for  repairs  and  maintenance  are  charged to expense  when
     incurred. Expenditures for major renewals and betterments, which extend the
     useful lives of existing equipment,  are capitalized and depreciated.  Upon
     retirement or disposition  of property and equipment,  the cost and related
     accumulated  depreciation  are removed from the accounts and any  resulting
     gain or loss is recognized in the statements of operations.

     During 1996,  the Company  decided to move to a new location.  As a result,
     net leasehold  improvements  of $496,878  became  impaired and were written
     off.

     Income Taxes-

     The Company has elected to be taxed under the provisions of Subchapter S of
     the Internal  Revenue Code and, where  applicable,  State of New Jersey tax
     laws. Under those  provisions,  the Company does not pay Federal  corporate
     income  taxes  on  its  taxable   income  and,   where   applicable,   pays
     approximately  a two  percent  tax to the State of New  Jersey,  and is not
     allowed  a net  operating  loss  carryover  or  carryback  as a  deduction.
     Instead,  the  Stockholders  are liable for  individual  Federal and, where
     applicable,  State of New Jersey income taxes on their respective shares of
     the Company's  taxable income,  or include their  respective  shares of the
     Company's  Federal net  operating  loss on their  individual  tax  returns.
     Accordingly,  no provision for Federal corporate income taxes has been made
     in the accompanying financial statements.

     Deferred  state income tax results from the Company  filing its tax returns
     on the cash basis and its  financial  statements on the accrual  basis,  as
     well  as  the  use of  different  methods  of  depreciation  for  financial
     statement and income tax reporting purposes.

     Long-Lived Assets-

     Effective  January 1, 1995,  the Company  adopted  Statement  of  Financial
     Accounting  Standards  ("SFAS") No. 121,  "Accounting for the Impairment of
     Long-Lived   Assets  and  for   Long-Lived   Assets  to  Be  Disposed  Of."
     Accordingly,  in the event  that  facts  and  circumstances  indicate  that
     property and equipment, and intangible or other assets, may be impaired, an
     evaluation  of  recoverability  would be  performed.  If an  evaluation  is
     required,  the estimated future undiscounted cash flows associated with the
     assets  is  compared  to the  asset's  carrying  amount to  determine  if a
     write-down  to market value or  discounted  cash flow value was  necessary.
     Adoption of this  standard did not have a material  effect on the financial
     position  or  results  of  operations  of the  Company.  However,  impaired
     leasehold  improvements of $496,878 were written off during 1996 due to the
     application of this standard.


<PAGE>


     Concentration of Credit Risk-

     Financial  instruments that potentially expose the Company to concentration
     of credit  risk,  as defined by SFAS No. 105,  consist  primarily  of trade
     accounts  receivable.  The  Company's  customers  are  concentrated  in the
     Northeastern United States in various  industries.  The Company establishes
     an allowance  for doubtful  accounts  based upon  factors  surrounding  the
     credit  risk  of  specific   customers,   historical   trends,   and  other
     information.

     Acquisitions-

     Effective  May 17, 1996,  FCP acquired  100% of the  outstanding  shares of
     stock in Regal Mail Service, Inc. ("Regal") for $159,800 in cash. Regal was
     consolidated  into  FCP  effective  as  of  the  date  of  acquisition.  In
     connection with the acquisition, which was accounted for as a purchase, FCP
     recorded goodwill of $9,800.

     Effective  May 23, 1996,  QCP acquired  100% of the  outstanding  shares of
     stock in Stuyvesant Press, Inc. ("Stuyvesant") for $602,500.  Consideration
     paid by QCP  included  $294,000  in cash and  $228,500  in  notes  payable.
     Stuyvesant  was  consolidated   into  QCP  effective  as  of  the  date  of
     acquisition. In connection with the acquisition, which was accounted for as
     a  purchase,  QCP  recorded  goodwill  and a  covenant  not to  compete  of
     $402,500.

     Goodwill and Other Intangible Assets-

     Goodwill and the covenant not to compete are being  amortized over 15 years
     using the straight-line  method.  Accumulated  amortization at December 31,
     1996 and August 1, 1997 was $16,116 and $41,160, respectively.

(3)  PROPERTY AND EQUIPMENT:

     Property and  equipment  consist of the  following at December 31, 1995 and
     1996 and August 1, 1997-

<TABLE>
<CAPTION>

                                                                                                         Estimated
                                                                                                           Useful
                                                                                                           Lives
                                                      1995              1996              1997            (Years)
                                                 ---------------   ---------------    --------------    -------------

<S>                                                  <C>               <C>                <C>               <C>
         Transportation equipment                    $367,351          $401,093           $448,990          5-7
         Machinery and equipment                    1,836,615         2,306,921          2,617,699          5-10
         Equipment under capital lease              1,132,949         1,132,949          1,132,949          5-10
         Leasehold improvements                       634,905                 -             30,204
                                                 ---------------   ---------------    --------------

                                                    3,971,820         3,840,963          4,229,842
         Less- Accumulated depreciation and
           amortization                             2,104,012         2,336,805          2,650,753
                                                 ---------------   ---------------    --------------

         Property and equipment, net               $1,867,808        $1,504,158         $1,579,089
                                                 ===============   ===============    ==============

</TABLE>


     Leased  equipment  under capital leases  (included  above)  consists of the
     following as of December 31, 1995 and 1996 and August 1, 1997-

<TABLE>
<CAPTION>
                                                                         December 31                  August 1,
                                                               ---------------------------------
                                                                   1995               1996               1997
                                                               --------------    ---------------    ---------------

<S>                                                               <C>               <C>                <C>
         Equipment                                                $1,132,949        $1,132,949         $1,132,949
         Less- Accumulated amortization                              542,269           663,443            778,325
                                                               --------------    ---------------    ---------------

                                                                    $590,680          $469,506           $354,624
                                                               ==============    ===============    ===============

</TABLE>

     Depreciation and amortization  expense on property and equipment charged to
     operations  for the years ended  December 31,  1994,  1995 and 1996 and the
     seven  months  ended August 1, 1997 was  $334,690,  $392,397,  $587,727 and
     $316,586, respectively.

     Gross leasehold  improvements  of $735,233 and accumulated  depreciation of
     $238,357 were written off in 1996.  The loss of $496,876 is included in net
     loss on sale/write-off of property and equipment.

     At August 1, 1997 minimum  annual  payments  under capital lease  including
     interest are as follows-
<TABLE>
<CAPTION>

<S>      <C>                                                                                              <C>
         1998                                                                                             $23,265
         1999                                                                                               9,020
                                                                                                       -------------

                         Total minimum payments                                                            32,285

         Less- Amounts representing interest                                                                1,858
                                                                                                       -------------

                         Net minimum payments                                                              30,427

         Less- Current portion of capital lease obligation                                                 21,776
                                                                                                       -------------

                         Long-term portion of capital lease obligation                                     $8,651
                                                                                                       =============
</TABLE>

     The interest rate on the capitalized  lease is 5.5% and is imputed based on
     the fair market value of the equipment at the inception of the lease.

(4)  SHORT-TERM BORROWINGS:

     The Company has a $350,000  line of credit with a bank for the  purchase of
     equipment  with  interest  at the prime  rate (8.5% at August 1, 1997) plus
     .75%. The Company also has a $225,000  working  capital line of credit with
     interest at prime plus .25%.  At August 1, 1997,  $150,000 was  outstanding
     under the working capital line.

<PAGE>


(5)  LONG-TERM DEBT:

     Long-term  debt consists of the following at December 31, 1995 and 1996 and
     August 1, 1997-

<TABLE>
<CAPTION>

                                                                                     December 31                August 1,
                                                                            ------------------------------
                                                                               1995             1996              1997
                                                                            ------------    --------------    --------------

<S>                                                                         <C>              <C>               <C>
         Various notes payable to a financial institution with monthly
           installments totaling $45,915 plus interest between 7.90% and
           prime rate (8.5%) at August 1, 1997 plus .75%, secured by
           equipment, maturing between September 1997 and May 2001
                                                                              $571,621        $1,058,077        $1,121,744
         Various notes payable to third parties in monthly installments
           of $11,245 plus interest between 10.90% and 15% maturing
           between December 1997 and June 2003.                                      -           336,278           314,234
                                                                            ------------    --------------    --------------

                                                                               571,621         1,394,355         1,435,978

         Less- Current maturities                                              227,935           460,709           594,000
                                                                            ------------    --------------    --------------

                                                                              $343,686          $933,646          $841,978
                                                                            ============    ==============    ==============
</TABLE>

          At August 1, 1997 the aggregate amounts of annual principal
          maturities of long-term obligations (excluding capital lease
                          obligations) are as follows-

         1998                                                 $594,000
         1999                                                  408,981
         2000                                                  189,929
         2001                                                  118,095
         2002                                                   64,429
         Thereafter                                             60,544
                                                               --------
                         Total                              $1,435,978
                                                           ============

(6)  COMMITMENTS AND CONTINGENCIES:

     Operating Leases-

     The Company leases office  premises,  warehouse  space and a portion of its
     machinery and equipment  under  operating  leases expiring at varying dates
     through 2004.  Its offices are leased from an entity where the  controlling
     interest is held by the Company's  president  ("related  party lease") (see
     Note 7).

     At August 1, 1997 the minimum annual rental commitment of the Company under
     existing agreements (including related party lease) is as follows-

            1998                                        $1,279,159
            1999                                         1,172,531
            2000                                         1,114,465
            2001                                           791,732
            2002                                           762,732
            Thereafter                                     215,007
                                                        ----------

                         Total minimum payments         $5,335,626
                                                        ==========


     Rent expense  (including lease  escalations)  charged to operations for the
     years ended December 31, 1994, 1995 and 1996 and for the seven months ended
     August 1, 1997 was $783,326, $668,154, $852,570 and $512,728, respectively.

     Litigation-

     The Company is involved in various  legal  actions  arising in the ordinary
     course of  business.  Management  does not believe that the outcome of such
     legal  actions  will  have a  material  adverse  effect  on  the  Company's
     financial position or results of operations.

     Guarantees-

     The  Company  has  guaranteed  several  loans  made  by  various  financial
     institutions  to related parties which are majority owned by its president.
     The total amount  outstanding on these  guaranteed  loans at August 1, 1997
     was approximately $320,000.

(7)  RELATED PARTY TRANSACTIONS:

     Leased Office Space-

     The  Company  leases  certain  office  space  from  entities  in which  the
     controlling  interest is held by its  president.  The minimum future annual
     rental payments to related parties are as follows-


            1998                                             $637,830
            1999                                              492,000
            2000                                              492,000
            2001                                              173,000
            2002                                              144,000
            Thereafter                                        156,000
                                                            ----------
                                                           $2,094,830
                                                           ===========

     Related party rent expense for the years ended December 31, 1994,  1995 and
     1996 and for the seven months ended August 1, 1997 was $760,468,  $639,768,
     $777,112 and $458,722 respectively.

     Notes Receivable-

     The Company has a note  receivable from Regal's former owner as a result of
     FCP's acquisition of Regal during 1996 (Note 2). The note bears interest at
     5% and will be repaid  over three  years,  expiring  May 17,  1999  through
     services provided to FCP by the former owner.

     Notes Payable-

     Three  stockholders  of the  Company  have  loaned  certain  amounts to the
     Company.  The notes are due on demand and bear  interest at 6.5%.  Interest
     expense on such notes for the years ended December 31, 1994,  1995 and 1996
     and the seven months ended August 1, 1997 was $60,746, $49,303, $41,016 and
     $23,572, respectively.

<PAGE>

(8) EMPLOYEE BENEFIT PLAN:

     The  Company  maintains  a  401(k)  deferred  compensation  plan.  The plan
     provides  for  the  Company  to  make a  discretionary  basic  contribution
     determined  as  a  percentage  of  eligible   employees'   salaries  and  a
     discretionary   matching   contribution   determined  as  a  percentage  of
     employees' contributions. Contributions of $24,555, $25,553, $10,317 and $0
     were made by the  Company in 1994,  1995 and 1996 and for the seven  months
     ended August 1, 1997, respectively.

(9)    MAJOR CUSTOMERS:

     The  Company  has one  customer  which  accounted  for 14%,  11% and 10% of
     revenues  for  the  years  ended   December   31,  1994,   1995  and  1996,
     respectively.  Amounts  receivable  from this customer at December 31, 1995
     and 1996 were $52,088 and $151,507, respectively.  During 1997, the Company
     was  informed by this  customer  that it would not be renewing its contract
     with the Company.  Such customer accounted for 6% of revenues for the seven
     months ended August 1, 1997.

     The  Company  had no  customer  which  accounted  for  greater  than 10% of
     revenues for the seven months ended August 1, 1997.

(10) SUBSEQUENT EVENT:

     On July  30,  1997,  Vestcom  announced  the  initial  public  offering  of
     3,850,000  shares  of its  common  stock at a price of  $13.00  per  share.
     Vestcom's   underwriters  exercised  in  full  an  option  to  purchase  an
     additional 577,500 shares of the Vestcom's Common Stock at $13.00 per share
     to cover over allotments of the initial public offering. The initial public
     offering was consummated on August 4, 1997. Concurrently with the Offering,
     Vestcom acquired all of the outstanding shares of the Company. Accordingly,
     the  accompanying  financial  statements  of the  Company do not  include a
     balance sheet as of December 31, 1997 and reflect the Company's  operations
     and cash  flows up until the date of  acquisition  by  Vestcom  (August  1,
     1997). See the Vestcom financial statements included elsewhere herein.


<PAGE>




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders of
  Electronic Imaging Services, Inc.:


We have audited the accompanying  balance sheets of Electronic Imaging Services,
Inc. (a Delaware Corporation) as of December 31, 1996 and August 1, 1997 and the
related statements of operations,  stockholders'  deficit and cash flows for the
year ended  December 31, 1996 and the seven  months ended August 1, 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 Electronic Imaging Services,
Inc.  as of  December  31,  1996 and  August 1,  1997,  and the  results  of its
operations and its cash flows for the year ended December 31, 1996 and the seven
months ended August 1, 1997 in conformity  with  generally  accepted  accounting
principles.


                                                  ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 25, 1998

<PAGE>
<TABLE>
<CAPTION>

                        ELECTRONIC IMAGING SERVICES, INC.

                                 BALANCE SHEETS

                    AT DECEMBER 31, 1996 AND AUGUST 1, 1997

                                                                               December 31,     August 1,
                 ASSETS                                                          1996              1997
                                                                               ------------     ---------

CURRENT ASSETS:
<S>                                                                          <C>              <C>
   Cash and cash equivalents                                                 $     45,089     $   343,808
   Accounts receivable, net of allowance for doubtful accounts of
    $37,017 and $167,005, respectively                                            826,655         723,074

   Supplies inventory                                                             413,210         529,170

   Other current assets                                                           112,696         100,804
                                                                                ---------       ---------
           Total current assets                                                 1,397,650       1,696,856

PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization
                                                                                1,526,992       1,656,552

OTHER ASSETS                                                                       54,944          21,665
                                                                                ---------       ----------
           Total assets                                                      $  2,979,586    $  3,375,073
                                                                                =========      ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:

   Short-term borrowings                                                     $    662,575    $    750,000

   Current portion of long-term debt                                              169,393         159,744

   Current portion of capital lease obligations                                   232,863         299,287

   Accounts payable                                                             1,119,316       1,083,099

   Accrued expenses                                                               321,200         230,162

   Income tax payable                                                                -             89,770
                                                                                ----------      ----------
           Total current liabilities                                            2,505,347       2,612,062

LONG-TERM DEBT                                                                     48,644          38,844

CAPITAL LEASE OBLIGATIONS                                                         768,504         911,929

DEFERRED INCOME TAXES                                                              86,740          86,740

PLEDGED STOCK                                                                     375,000         375,000
                                                                                ---------       ---------
           Total liabilities                                                    3,784,235       4,024,575
                                                                                =========       ==========
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:

   Common stock, $.01 par value; 2,000 shares authorized; 1,261 shares
    issued;

   1,111 shares outstanding                                                            11                11

   Accumulated deficit                                                           (429,660)         (274,513)
                                                                                 ---------          --------
                                                                                 (429,649)         (274,502)

Less- Treasury stock, 150 shares at cost                                         (375,000)         (375,000)
                                                                                 ---------          --------
           Total stockholders' deficit                                           (804,649)         (649,502)
                                                                                 --------          --------
           Total liabilities and stockholders' deficit                        $ 2,979,586      $  3,375,073
                                                                                =========        ===========


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

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                        ELECTRONIC IMAGING SERVICES, INC.

                            STATEMENTS OF OPERATIONS

                      FOR THE YEAR ENDED DECEMBER 31, 1996

                    AND THE SEVEN MONTHS ENDED AUGUST 1, 1997



                                                                               December 31,        August 1,
                                                                                   1996               1997

<S>                                                                          <C>                 <C>
REVENUES                                                                     $    7,623,870      $  5,208,574
COST OF REVENUES                                                                  6,272,144         3,963,876
                                                                                -----------         ---------

           Gross profit                                                           1,351,726         1,244,698
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                      1,840,958           855,824
                                                                                -----------         ---------

           (Loss) income from operations                                           (489,232)          388,874
OTHER EXPENSES (INCOME)

   Interest expense                                                                 157,762           126,082
   Other (income) expense                                                           (11,789)           16,219
                                                                                ------------        ---------

                                                                                    145,973           142,301
                                                                                ------------        ---------

           (Loss) income before provision for income taxes                         (635,205)          246,573

PROVISION FOR INCOME TAXES                                                                -            91,426
                                                                                ------------        ---------

           Net (loss) income                                                 $     (635,205)     $    155,147
                                                                                 =============        =======

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

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                        ELECTRONIC IMAGING SERVICES, INC.


                       STATEMENTS OF STOCKHOLDERS' DEFICIT

                   FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
                        SEVEN MONTHS ENDED AUGUST 1, 1997

                                                            Retained
                                                 Additional  Earnings
                                   Common Stock   Paid-In   Accumulated    Treasury Stock
                                   Shares Amount  Capital   Deficit)       Shares    Amount    Total
                                   ------ ------  -------   ------------   --------- ------    ------

<S>                                 <C>     <C>   <C>        <C>                             <C>
BALANCE January 1, 1996             1,261   13    101,987    478,556         -       -       580,556
  Purchase of treasury stock         (240)   -        -          -           240  (600,000) (600,000)
  Reissuance of treasury stock         90    -        -          -           (90)  225,000   225,000
  Pledge of common stock             (150)   (2) (101,987)  (273,011)         -      -      (375,000)
  Net loss                              -     -       -     (635,205)         -      -      (635,205)
                                      ----   ---  -------   --------         ---  --------- ---------
BALANCE, December 31, 1996            961    11       -     (429,660)        150  (375,000) (804,649)

  Net income                           -     -        -     155,147           -      -       155,147
                                      ---   ---   ------   --------          ---- --------- ---------
BALANCE, August 1, 1997               961    11   $   -   $(274,513)         150  (375,000) (649,502)
                                      ====   ===  ======= =========         ===== =========  ========



 The accompanying notes to financial statements are an integral part of this statement.

</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                        ELECTRONIC IMAGING SERVICES, INC.

                             STATEMENT OF CASH FLOWS

                      FOR THE YEAR ENDED DECEMBER 31, 1996

                    AND THE SEVEN MONTHS ENDED AUGUST 1, 1997

                                                                 December 31,             August 1
                                                                     1996                   1997

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                              <C>                        <C>
     Net (loss) income                                           $ (635,205)                155,147
     Adjustments to reconcile net income
       to net cash provided by operating
       activities-
       Depreciation and amortization                                297,192                 234,664
       Provision for doubtful accounts                               33,923                  16,700
       Loss on write-down of property
          and equipment                                              21,968                     -
       (Gain) loss on sale of property                              (15,629)                12,650
       Changes in operating assets (increase)
          decrease in-
          Accounts receivable                                      (132,397)                86,881
          Supplies inventory                                       (137,494)              (115,690)
          Other current assets                                       61,755                 11,892
          Other assets                                                 -                    12,288
       Changes in operating liabilities increase
            (decrease) in-
          Accounts payable                                          530,454                (36,217)
          Accrued payable                                           217,821                (91,038)
          Income taxes payable                                         -                    89,770
                                                                    --------               --------
               Net cash provided by operating activities            242,388                377,047

CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisition of property and equipment                         (194,500)              (356,153)
     Proceeds from sale of property adn equipment
               Net cash used by investing activities                 70,296                    -
                                                                   --------               ----------
                                                                   (124,204)               (356,153)
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net short-term borrowings                                      469,000                  87,425
     (Decrease) increase in long-term debt and capital
          lease obligations                                        (339,993)                190,400
     Purchase of treasury stock                                    (225,000)                   -
                                                                   ---------              ---------
               Net cash (used) provided by
                  financing activities                              (95,993)                277,825
                                                                   =========               =========
               Net increase in cash and cash equivalents            22,191                  298,719

CASH AND CASH EQUIVALENTS, beginning of period                       22,898                  45,089
                                                                   --------                --------
CASH AND CASH EQUIVALENTS, end of period                          $  45,089               $ 343,808
                                                                   ========               =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the year for
     Interest                                                       167,051                 127,250
     Income taxes                                                    30,893                     -

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY:
     Capital lease obligations incurred                             347,559                 971,975
     Purchase of treasury stock through issuance of notes payable   375,000                    -




 The accompanying notes to financial statements are an integral part of these statements.
</TABLE>

<PAGE>

                        ELECTRONIC IMAGING SERVICES, INC.


                          NOTES TO FINANCIAL STATEMENTS



(1)  NATURE OF BUSINESS:

     Electronic Imaging Services,  Inc. ("EIS" or the "Company"),  is a Delaware
     corporation.  The Company's  primary  businesses are (i) the production and
     distribution  of  computer-generated  labels  and (ii) the  production  and
     distribution of documents on paper, microfiche, microfilm and compact disc.

     In  February  1997,  the  Company  and  its  stockholders  entered  into  a
     definitive agreement with Vestcom International, Inc. ("Vestcom"), pursuant
     to which all  outstanding  shares of the  Company's  common  stock  will be
     exchanged for cash and shares of Vestcom's common stock (the "Acquisition")
     concurrent  with the  consummation  of the initial  public  offering  ("the
     Offering") of the common stock of Vestcom.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported  amounts of assets and liabilities at
     the date of the financial  statements and the reported  amounts of revenues
     and expenses during the reporting periods. Actual results could differ from
     those estimates.

     Revenue Recognition

     Revenues are recognized when the services are rendered.

     Cash and Cash Equivalents

     Cash and cash  equivalents  include  money  market  accounts and all highly
     liquid debt instruments  purchased with original maturities of three months
     or less.

<PAGE>
     Supplies Inventory

     Inventories consist of paper, film and micrographic chemicals. Supplies are
     valued at the lower of cost or market.  Cost is determined by the first-in,
     first-out method.

     Property and Equipment

     Property and equipment are recorded at cost.  Depreciation is calculated by
     using the  straight-line  method  over the  estimated  useful  lives of the
     related assets.

     Expenditures  for  repairs  and  maintenance  are  charged to expense  when
     incurred. Expenditures for major renewals and betterments, which extend the
     useful lives of existing equipment,  are capitalized and depreciated.  Upon
     retirement or disposition  of property and equipment,  the cost and related
     accumulated  depreciation  are removed from the accounts and any  resulting
     gain or loss is recognized in the statements of operations.

     Income Taxes

     The Company follows the liability  method of accounting for income taxes in
     accordance with Statement of Financial  Accounting  Standards  ("SFAS") No.
     109.  Under this method,  deferred  income  taxes are  recorded  based upon
     differences  between the  financial  reporting  and tax bases of assets and
     liabilities and are measured using the enacted tax rates and laws that will
     be in effect when the  underlying  assets or  liabilities  are  received or
     settled.

     The Company has recorded a full  valuation  allowance  against all deferred
     tax assets due to the uncertainty of ultimate  realizability.  Accordingly,
     no income tax benefits have been recorded for current year losses.

     Long-Lived Assets

     Effective  January 1, 1995, the Company  adopted SFAS No. 121,  "Accounting
     for the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be
     Disposed  Of."  Accordingly,  in the event  that  facts  and  circumstances
     indicate that property and equipment,  and intangible or other assets,  may
     be impaired,  an evaluation  of  recoverability  would be performed.  If an
     evaluation  is  required,  the  estimated  future  undiscounted  cash flows
     associated  with the assets is compared to the asset's  carrying  amount to
     determine if a write-down to market value or discounted cash flow value was
     necessary.  Adoption of this standard did not have a material effect on the
     financial position or results of operations of the Company.

<PAGE>

     Concentration of Credit Risk

     Financial  instruments that potentially expose the Company to concentration
     of credit  risk,  as defined by SFAS No. 105,  "Disclosure  of  Information
     about  Financial  Instruments  with  Off-Balance-Sheet-Risk  and  Financial
     Instruments with Concentrations of Credit Risk," consist primarily of trade
     accounts  receivable.  The  Company's  customers  are  concentrated  in the
     southern and eastern  United States.  The Company  establishes an allowance
     for doubtful  accounts  based upon factors  surrounding  the credit risk of
     specific customers, historical trends, and other information.

(3)  PROPERTY AND EQUIPMENT:

     Property and equipment consisted of the following:
<TABLE>
<CAPTION>

                                                                                                Estimated
                                                                                                Useful
                                                           December 31,     August 1,           Lives
                                                               1996             1997            (Years)

<S>                                                      <C>              <C>                     <C>
        Furniture and fixtures                           $   146,458      $  146,458              10

        Production equipment                               2,365,483       2,706,427             5-7

        Delivery equipment                                    65,998          65,998              5

        Leasehold improvements                                39,105          36,816              7
                                                            --------       ----------             ---

                                                           2,617,044       2,955,699

        Less -  Accumulated depreciation and               1,090,052       1,299,147
             amortization
                                                           ---------       ---------
                Property and equipment                 $   1,526,992    $  1,656,552
                                                           =========       =========

</TABLE>



     Leased  equipment under capital leases  (included  above)  consisted of the
     following

<TABLE>
<CAPTION>

                                                           December  31,       August 1,
                                                               1996               1997

<S>                                                      <C>               <C>
        Equipment                                        $  1,381,584      $  1,791,846

        Less -  Accumulated depreciation                      314,672           479,287
                                                            ---------         ----------

                                                         $  1,066,912      $  1,312,559
                                                            ========          =========

</TABLE>

     Depreciation  and  amortization  expense was  $297,192 and $234,664 for the
     year ended  December  31, 1996 and the seven  months  ended August 1, 1997,
     respectively.  At August 1, 1997  minimum  annual  payments  under  capital
     leases including interest are as follows:

<TABLE>
<CAPTION>

         August 1 -
<S>           <C>                                                                      <C>
              1998                                                                     $      401,391
              1999                                                                            395,358
              2000                                                                            345,306
              2001                                                                            186,783
              2002                                                                             92,258
              Thereafter                                                                       33,092
                                                                                            ---------
                     Total minimum payments                                                 1,454,188
            Less- Amount representing interest                                                242,972
                                                                                            ---------
                 Net minimum lease payments                                                 1,211,216
            Less- Current portion of capital lease obligations                                299,287
                                                                                            ---------
                 Long-term portion of capital lease obligations                        $      911,929
                                                                                            =========
</TABLE>



     The interest  rates on  capitalized  leases vary from 8.6% to 13.3% and are
     imputed based on the fair market value of the equipment at the inception of
     the lease.

<PAGE>

(4)  SHORT-TERM BORROWINGS:

     The  Company  has a line of credit  with a bank that  provides  for maximum
     borrowings  of  $750,000.  Borrowings  bear  interest  at 9.25% per  annum,
     adjusted  periodically with interest  payments only required  monthly.  The
     borrowings are secured by accounts  receivable,  inventory and the personal
     guarantee of two stockholders.

(5)  LONG-TERM DEBT:

     Long-term debt consisted of the following -

<TABLE>
<CAPTION>

                                                                                  December 31,         August 1,
                                                                                      1996               1997
                                                                                -----------------    -----------
<S>                        <C>                                                     <C>                <C>
     Note payable to bank; 80% guaranteed by the U.S. Small Business
       Administration; interest at 8%; payable in monthly installments of
       $6,083, including interest; secured by fixed assets and the personal
       guarantee of two stockholders; due September 1997 or immediately if
       the Company is to merge with another company                             $    58,695           $  18,008
     Notes payable of $113,594 original principal to bank and finance
         Company, interest ranging from 4.8% to 9.75%, due in monthly
       installments of $3,600 and $2,966, respectively, including interest;
       secured by accounts receivable, auto, inventory and personal
       guarantees of two stockholders; due January 1997 to December 1999             64,946               45,146
     Note payable to supplier, due in monthly installments of $5,888,
       unsecured, due June 1999                                                         -                135,434
     Notes payable of $375,000 to two stockholders, interest at 7.00% per
       annum, due in semiannual installments on January 15 and July 15 of
       $112,500 on each note through 1998, secured by Stock Pledge Agreements
                                                                                    375,000                 -
     Notes payable to stockholders, interest at a rate of 10% per annum,
       interest only payable monthly, due February 27, 1997                          66,000                 -
     Note payable to supplier, due in monthly installments of $1,115,
       including interest, unsecured, due April 1999                                 28,396                 -
                                                                                   --------              -------
                                                                                    593,037              198,588

     Less-  Current maturities                                                      394,393              159,744
                                                                                   --------              -------
                                                                                $   198,644        $      38,844
                                                                                   ========              =======

</TABLE>


     At August 1,  1997,  the  aggregate  amounts  of  future  annual  principal
maturities of long-term obligations (excluding capital lease obligations) are as
follows-

<TABLE>
<CAPTION>
         August 1 -
<S>         <C>                                           <C>
            1998                                          $     159,744
            1999                                                 38,844
                                                                --------
                      Total                               $     198,588
                                                                ========
</TABLE>

<PAGE>


(6)  COMMITMENTS AND CONTINGENCIES:

     Operating Leases

     The Company  conducts its operations  from facilities that are leased under
     noncancellable  operating  leases expiring through August 2002. The Company
     maintains  production  equipment,  office  furniture,   equipment  and  two
     automobiles under operating leases expiring through April 2001.

     Net future minimum rental  payments  required  under  operating  leases for
     facilities and equipment as of August 1, 1997, are as follows:

         August 1 -

              1998                                       $    836,196
              1999                                            747,403
              2000                                            408,009
              2001                                            274,401
              2002                                            197,475
              Thereafter                                      130,901
                                                            ---------
                Total minimum payments                   $  2,594,385
                                                            =========

     Rent  expense for all leases was  $534,555  and $495,623 for the year ended
     December 31, 1996 and the seven months ended August 1, 1997, respectively.

     Litigation

     The Company is involved in various  legal  actions  arising in the ordinary
     course of  business.  Management  does not believe that the outcome of such
     legal  actions  will  have a  material  adverse  effect  on  the  Company's
     financial position or results of operations.

(7)  EMPLOYEE BENEFIT PLAN:

     The  Company  maintains  a  401(k)  deferred  compensation  plan.  The plan
     provides for the Company to make a discretionary  matching contribution not
     to exceed $1,500 per  participant.  Contributions to this plan for the year
     ended  December  31, 1996 and the seven  months  ended  August 1, 1997 were
     $4,749 and $3,625, respectively.

(8)  MAJOR CUSTOMERS:

     During 1996,  the Company had sales to two customers  which exceeded 10% of
     total sales, one which accounted for 29.5% of total sales and another which
     accounted for 15.7%. For the seven months ended August 1, 1997, the Company
     had sales to three customers which exceeded 10% of total sales,  accounting
     for 29.0%, 15.7% and 12.1% of total sales.  Accounts  receivable from these
     three  customers at August 1, 1997 were  $237,054,  $147,178 and  $148,034,
     respectively.

(9)  STOCK REPURCHASE PLAN:

     The Company  repurchased 240 shares of stock from two of the Company's four
     stockholders in April 1996. The Company has the option to purchase up to an
     additional  334 shares at $2,500 per share.  After  December 31, 1996,  the
     purchase  price  increases  at a rate of 7% per year  through  December 31,
     2001. By way of another  agreement,  an additional 140 shares at $2,500 per
     share may be purchased through December 31, 1996 with an increase of 7% per
     year thereafter through December 31, 2002.

     The Company entered into two stock pledge  agreements with  stockholders on
     April 24, 1996. One agreement  requires the Company to repurchase 30 shares
     on January 15 and July 15, 1997 and 1998. The other requires the Company to
     buy back 15 shares on January 15 and July 15, 1997.

     In  connection   with  the  above   transactions,   the  Company   recorded
     compensation expense of $528,000.

     In February 1997, the Company entered into an agreement among  stockholders
     which  establishes that stock will be transferred  among  stockholders at a
     price of $1,000 per share if the Acquisition occurs.

     See Note 11 for discussion of termination of the above agreements.

(10) EXECUTIVE COMPENSATION:

     The Company has executed a Stock Bonus  Compensation  Agreement dated April
     24,  1996,  for a maximum  issuance of 151 shares of the  Company's  common
     stock.  As of  December  31,  1996,  90 shares had been  issued  under this
     agreement.


(11) SUBSEQUENT EVENT:

     The stock repurchase  agreements and stock pledge  agreements  described in
     Notes 9 and 10 were terminated as part of the Acquisition.

     On July  30,  1997,  Vestcom  announced  the  initial  public  offering  of
     3,850,000  shares  of its  Common  Stock at a price of  $13.00  per  share.
     Vestcom's   underwriters  exercised  in  full  an  option  to  purchase  an
     additional  577,500 shares of Vestcom's Common Stock at $13.00 per share to
     cover  overallotments  of the initial public  offering.  The initial public
     offering was consummated on August 4, 1997. Concurrently with the Offering,
     Vestcom acquired all of the outstanding shares of the Company. Accordingly,
     the  accompanying  financial  statements  of the  Company do not  include a
     balance sheet as of December 31, 1997 and reflect the Company's  operations
     and cash  flows up until the date of  acquisition  by  Vestcom  (August  1,
     1997). See the Vestcom financial statements included elsewhere herein.


<PAGE>




REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Shareholders of
Image Printing Systems, Inc.:

We have audited the accompanying balance sheets of Image Printing Systems,  Inc.
(a Wisconsin  corporation)  as of December 31, 1995 and 1996 and August 1, 1997,
and the related  statements of operations,  stockholders'  equity and cash flows
for the years ended December 31, 1994,  1995 and 1996 and the seven months ended
August  1,  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 Image Printing Systems, Inc. as
of  December  31,  1995 and 1996 and  August  1,  1997,  and the  results of its
operations  and its cash flows for the years ended  December 31, 1994,  1995 and
1996 and the seven months ended August 1, 1997,  in  conformity  with  generally
accepted accounting principles.


                                             ARTHUR ANDERSEN LLP



Roseland, New Jersey
February 25, 1998

<PAGE>

<TABLE>
<CAPTION>

                          IMAGE PRINTING SYSTEMS, INC.


                                 BALANCE SHEETS

                 DECEMBER 31, 1995 AND 1996 AND AUGUST 1, 1997


                                                   December 31        August 1,
          ASSETS                               1995        1996         1997
CURRENT ASSETS:


<S>                                          <C>         <C>           <C>
Cash and cash equivalents                    $ 61,835    $ 61,137      $82,539
Accounts   receivable,   net
of allowance for doubtful
accounts of $0, $63,868 and $138,792
in 1995, 1996 and 1997, respectively         1,002,680  1,422,234   1,214,828
Supplies inventory                             149,072    256,729     159,373
Prepaid postage                                199,205    324,922     180,461
Prepaid expenses and other current assets      163,028     77,738      30,164
                                             ---------  ---------   ---------
          Total current assets               1,575,820  2,142,760   1,667,365
PROPERTY  AND EQUIPMENT,  net of accumulated
  depreciation and amortization              2,368,263  2,725,129   3,503,573
OTHER ASSETS                                     -         -           21,606
                                             ---------  ---------   ---------
          Total assets                      $3,944,083 $4,867,889  $5,192,544
                                             =========  =========   =========

    LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Short-term borrowings                       $  320,494 $  795,494 $  645,494
Current portion of long-term debt              597,290    311,812    592,489
Current portion of capital lease obligations    29,159    156,282    293,962
Accounts payable                               780,237  1,022,927    636,271
Distribution payable to stockholder               -         -        462,381
Accrued expenses and other
  current liabilities                          730,309    841,956    696,915
                                             ---------  --------   ---------
     Total current liabilities               2,457,489  3,128,471  3,327,512
LONG-TERM DEBT                                 592,702    331,271    276,890
CAPITAL LEASE OBLIGATIONS                      686,201  1,102,539  1,574,282
                                             ---------  ---------  ---------
     Total liabilities                       3,736,392  4,562,281  5,178,684

COMMITMENTS  AND  CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Common  stock, $10 par value; 4,400 shares
    authorized;  1,559.25  shares
    issued; 1,386 shares outstanding           15,593     15,593      15,593
  Subscriptions receivable                    (10,855)      -             -
  Retained earnings                           204,686    291,748          -
                                              -------    -------     --------
                                              209,424    307,341      15,593
Less- Treasury stock, 173.25 shares, at par    (1,733)    (1,733)     (1,733)
                                              -------    --------   ---------
     Total stockholders equity                207,691    305,608      13,860
Total liabilities and stockholders'
     equity                                $3,944,083 $4,867,889 $ 5,192,544
                                           ----------  ---------  ----------

</TABLE>

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

<PAGE>
<TABLE>
<CAPTION>

                          IMAGE PRINTING SYSTEMS, INC.


                            STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                   AND THE SEVEN MONTHS ENDED AUGUST 1, 1997



                                     December 31                   August 1,
                                    1994         1995          1996        1997
<S>                             <C>         <C>          <C>         <C>
REVENUES                        $ 8,628,330 $ 8,061,927 $ 9,033,680 $ 5,880,554
COSTS OF REVENUES                 6,311,170   5,994,010   6,389,208   4,109,689
                                  ---------  ----------  ----------  ----------
Gross profit                      2,317,160   2,067,917   2,644,472   1,770,865
SELLING, GENERAL AND
   ADMINISTRATIVE EXPENSES        2,130,987   2,119,588   2,305,378   1,342,982
                                  ---------   ---------   ---------   ---------
Income (loss) from operations       186,173     (51,671)    339,094     427,883
                                  ---------   ----------  ---------   ----------
OTHER INCOME (EXPENSE):
     Interest expense             (311,977)    (306,304)   (259,784)   (253,088)
Other income, net                   37,323        9,816       7,752       7,485
                                  ---------    --------   ---------    ---------
                                  (274,654)    (296,488)   (252,032)   (245,603)
                                  ---------    --------   ---------    ---------

Net income (loss)               $  (88,481) $  (348,159)  $    87,062 $   182,280
                                 ==========  ===========   ==========  ==========

</TABLE>

        The accompanying notes are an integral part of these statements.


<PAGE>
<TABLE>
<CAPTION>

                          IMAGE PRINTING SYSTEMS, INC.


                       STATEMENTS OF STOCKHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                   AND THE SEVEN MONTHS ENDED AUGUST 1, 1997



                                                                                                    Total
                                                                                                    Stock
                         Common Stock      Subscriptions    Retained       Treasury    Stock         holders'
                      Shares      Amount    Receivable       Earnings       Shares     Amount       Equity
BALANCE,
  January 1, 1994    1,599.25   $ 15,593     $(11,155)     $ 990,743        173.25  $ (1,733)    $ 993,448
  Net loss              -           -            -           (88,481)           -        -         (88,481)
  Distributions to
     stockholders       -           -            -          (105,881)           -        -        (105,881)
                    ---------    -------      --------       --------      -------    -------     ----------
BALANCE,
  December 31, 1994  1,599.25     15,593      (11,155)       796,381       173.25    (1,733)       799,086
    Collection of
      subscriptions
      receivable        -           -            300            -               -        -             300
     Net loss           -           -             -        (348,159)            -        -        (348,159)
     Distributions
        to stockholders -           -             -        (243,536)            -        -        (243,536)
                     -------   --------      --------      ---------       --------  -------      --------
BALANCE,
     December 31, 1995 1,559.25   15,593      (10,855)       204,686        173.25    (1,733)      207,691
     Write-off of
       subscriptions
       receivable       -           -          10,855            -              -        -          10,855
     Net income         -           -             -           87,062            -        -          87,062
                      ---------   ------      -------       --------       ---------  -------     ---------
BALANCE,
     December 31, 1996 1,559.25   15,593          -          291,748        173.25    (1,733)      305,608
     Net income         -           -             -          182,280            -        -         182,280
     Distributions to
       stockholders     -           -             -         (474,028)           -        -        (474,028)
                       --------   ------      --------      ---------      --------  ---------   ----------
BALANCE,
     August 1, 1997    1,559.25  $ 15,593    $    -       $    --           173.25   $ (1,733)  $   13,860
                       ========  ========    ========      =========        ======    =======     ========

        The accompanying notes are an integral part of these statements.

<PAGE>


                          IMAGE PRINTING SYSTEMS, INC.


                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                   AND THE SEVEN MONTHS ENDED AUGUST 1, 1997

                                                        December 31                    August 1,
                                                  1994         1995          1996        1997
                                                  ----         ----          ----        ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                          <C>          <C>            <C>           <C>
     Net income (loss)                       $ (88,481)   $ (348,159)    $  87,062     $182,280
     Adjustments to reconcile net
         income (loss) to net cash
         provided by operating
         activities-
          Depreciation and amortization        796,062      715,497        636,035     396,932
          Provision for doubtful accounts         -             -           63,868      74,924
          (Gain) loss on sale of assets           -          52,365           (762)     (3,800)
     Loss on write-off of subscriptions
          receivable                              -             -           10,855        -
Changes in operating assets (increase)
     decrease in-
     Accounts receivable                       186,772      (2,623)      (483,422)     132,482
     Supplies inventory                        (42,085)     42,776       (107,657)      97,356
     Prepaid expenses and other
        current assets                          36,264      18,514        (40,427)     170,429
Changes in operating assets (increase)
     decrease in
     Accounts payable                          (20,338)    226,918        242,690     (386,656)
     Accrued expenses and other
        current liabilities                    174,529       2,933        111,647     (145,041)
                                             ---------    --------        -------     ---------
     Net cash provided by
        operating activities                 1,042,723     708,221        519,889      518,906
                                             ---------    --------        -------      -------
CASH  FLOWS FROM  INVESTING
ACTIVITIES:
     Acquisition of property
        and equipment                         (830,522)   (397,256)       (374,027)   (540,736)
     Proceeds from sale of assets                 -        470,000           8,500     109,697
                                             ----------   --------        --------    ---------
          Net cash provided by (used in)
             investing activities             (830,522)     72,744        (365,527)   (431,039)
                                             ----------   --------        ---------   ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net short-term borrowings                  10,000     (29,506)        475,000    (150,000)
     Proceeds from long-term borrowings        611,684     638,741           -         450,000
     Principal payments on long-term
       debt and capital lease
       obligations                            (741,184) (1,119,674)       (630,060)   (354,818)
     Collection of subscriptions receivable       -          -                 300       -
          Distributions to stockholders       (105,881)   (243,536)          -         (11,647)
                                             ---------- ----------        --------    ---------
               Net cash used in financing
                  activities                  (225,381)   (753,675)       (155,060)    (66,465)
                                              --------- -----------       ---------    --------
               Net increase (decrease)
                   in cash and cash
                   equivalents                 (13,180)     27,290            (698)     21,402
CASH AND CASH EQUIVALENTS, beginning of year    47,725      34,545          61,835      61,137
                                              --------     -------         -------      ------
CASH AND CASH EQUIVALENTS, end of year       $  34,545    $ 61,835       $  61,137   $  82,539
                                              ========     =======         =======     =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION:
     Cash paid during the year
        for interest                         $ 307,745    $306,304       $ 261,812   $ 253,088
SUPPLEMENTAL   DISCLOSURE  OF
NONCASH FINANCING ACTIVITY:
     Capital lease obligations incurred      $    -       $  -           $ 626,612   $ 761,894

</TABLE>

        The accompanying notes are an integral part of these statements.

<PAGE>

                          IMAGE PRINTING SYSTEMS, INC.


                         NOTES TO FINANCIAL STATEMENTS


1.       NATURE OF BUSINESS

Image Printing  Systems,  Inc. (the "Company") is a Wisconsin  corporation.  The
Company's  primary  businesses  are  (i)  the  production  and  distribution  of
documents on paper,  microfiche,  microfilm  and compact  disc,  (ii)  marketing
materials  fulfillment,  (iii) demand publishing,  (iv) mailing services and (v)
forms management.

The Company and its shareholders  have entered into a definitive  agreement with
Vestcom  International,  Inc.  ("Vestcom"),  pursuant  to which all  outstanding
shares of the  Company's  common stock will be exchanged  for cash and shares of
Vestcom's common stock (the  "Acquisition")  concurrent with the consummation of
the initial public offering (the "Offering") of the common stock of Vestcom.

2.       SUMMARY OF SIGNIFICANT
         ACCOUNTING POLICIES

Use of Estimates

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

Revenue Recognition

Revenues are recognized  when the services are rendered.  Revenues are presented
net of postage charges in the income statement as customers  advance the Company
cash to be used to purchase postage for related projects.

Cash and Cash Equivalents

Cash and cash  equivalents  include money market  accounts and all highly liquid
debt instruments purchased with original maturities of three months or less.

Supplies Inventory

Inventories  consist of paper and other  supplies  and work in  process  and are
valued at the  lower of cost or  market.  Cost is  determined  by the  first-in,
first-out method.

Property and Equipment

Property and equipment are recorded at cost.  Depreciation is computed utilizing
the straight-line method. The assets are depreciated over their estimated useful
lives.

Expenditures  for repairs and  maintenance are charged to expense when incurred.
Expenditures for major renewals and  betterments,  which extend the useful lives
of existing  equipment,  are  capitalized  and  depreciated.  Upon retirement or
disposition  of  property  and  equipment,  the  cost  and  related  accumulated
depreciation  are removed from the accounts  and any  resulting  gain or loss is
recognized in the statement of operations.

The Company  accounts for  long-lived  assets in  accordance  with  Statement of
Financial  Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of." Accordingly,
in the event that facts and circumstances  indicate that property and equipment,
and intangible or other assets, may be impaired, an evaluation of recoverability
would  be  performed.  If  an  evaluation  is  required,  the  estimated  future
undiscounted  cash flows  associated  with the assets is compared to the asset's
carrying  amount to determine if a write-down to market value or discounted cash
flow value was necessary.

Income Taxes

The Company has elected to be taxed under the  provisions of Subchapter S of the
Internal Revenue Code. Under those provisions,  the Company does not pay Federal
or state corporation income taxes on its income.  Instead,  the stockholders are
liable for individual  Federal and state income taxes on their respective shares
of the Company's taxable income.  Accordingly, no provision for Federal or state
corporate income taxes has been made in the accompanying financial statements.

Concentration of Credit Risk

Financial  instruments that  potentially  expose the Company to concentration of
credit  risk,  as defined by SFAS No.  105,  "Disclosure  of  Information  about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," consist primarily of trade accounts  receivable.
The Company's customers are concentrated in the Midwestern United States and its
primary customers are financial institutions and local governments and agencies.
The Company  establishes  an allowance for doubtful  accounts based upon factors
surrounding the credit risk of specific customers,  historical trends, and other
information.

<PAGE>

3.    PROPERTY AND EQUIPMENT

Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                                     Estimated
                                           December 31,               August 1,     Useful Lives
                                             1995          1996         1997          (Years)
                                           -----------     ----       ---------      ----------
<S>                                      <C>           <C>         <C>                   <C>
Land and building                        $  756,749    $ 756,749   $  756,749            19
Machinery and equipment                   6,001,691    6,968,637    7,401,613             7
Office equipment, furniture and fixtures    597,761      604,465      687,098             7
Leasehold improvements                      339,213      353,702      516,682           7-19
                                          ---------    ---------    ---------
                                          7,695,414    8,683,553    9,362,142
Less-Accumulated depreciation and
     amortization                        (5,327,151)  (5,958,424)  (5,858,569)
                                         -----------  -----------  -----------
          Property and equipment, net   $ 2,368,263  $ 2,725,129  $ 3,503,573
                                         -----------  -----------  -----------
</TABLE>

The Company  leases its principal  location  under a capitalized  lease expiring
July 31,  2008.  The  property is leased from  stockholders  of the Company (the
"related party lease") (Note 8). The annual rent is $120,000, and the lessor has
the option to increase  the rent by the lesser of 4% per year or the  percentage
increase in the Consumer Price Index. The lease also requires  contingent rental
payments based on the current-year real estate taxes levied on the property. The
real estate tax expense totaled  $24,918,  $22,290,  $22,633 and $51,743 for the
years ended December 31, 1994,  1995 and 1996, and the seven months ended August
1,  1997,  respectively.  The  Company  is also  obligated  to pay all  repairs,
maintenance  and  utilities on the  property.  In addition,  the Company  leases
certain  equipment under  capitalized  leases.  Capital leases  (included above)
consist of the following:

                                     December 31                    August 1,
                                   1995          1996                   1997
                                   ----          ----                  -----
Land and building             $   756,749   $   756,749           $  756,749
Machinery and equipment            90,000       626,612            1,388,506
                                  -------    ----------            ---------
                                  846,749     1,383,361            2,145,255
Less- Accumulated depreciation
    and amortization             (309,062)     (372,202)            (478,622)
                                 ---------   -----------            ---------
                               $  537,687  $  1,011,159          $ 1,666,633
                                 ---------   -----------           ----------

Depreciation  and  amortization  expense  charged to  operations on property and
equipment,  including capital leases, totaled $796,062,  $715,497,  $636,035 and
$396,932 for the years ended  December 31,  1994,  1995 and 1996,  and the seven
months ended August 1, 1997, respectively.

<PAGE>

At August  1, 1997  minimum  annual  payments  under  capital  leases  including
interest are as follows:

            Year ending August 1:
                 1998                         $   492,727
                 1999                             462,800
                 2000                             426,303
                 2001                             397,062
                 2002                             249,992
             Thereafter                           720,000
                                                ---------

                      Total minimum payments    2,748,884

             Less-Amounts representing interest   880,640
                                               ----------
                    Net minimum payments        1,868,244
              Less-Current portion of
                      capital lease
                      obligations                 293,962
                                               ----------
                    Long-term portion of capital
                      lease obligations        $1,574,282
                                                =========

The interest rates on capitalized leases vary from 7.9% to 14.0% and are imputed
based on the fair market value of the equipment at the inception of the lease.

4.    ACCRUED EXPENSES AND
      OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

                                      December 31              August 1,
                                    1995       1996              1997
                                    ----       ----              ----
Accrued salary and bonus         $ 158,277  $ 180,861         $ 207,599
Postage deposit                    531,979    599,929           424,087
Other current liabilities           40,053     61,166            65,229
                                   -------   --------            ------
                                 $ 730,309  $ 841,956         $ 696,915
                                   -------   --------          --------

5.       SHORT-TERM BORROWINGS

The  Company has an $850,000  secured  line of credit with a bank which  expires
September  30, 1997.  The line is secured by a general  security  agreement  and
personal  guarantees of the stockholders of the Company totaling  $700,000.  The
line bears interest at a rate of prime (8.5% at August 1, 1997) plus .75%.

<PAGE>

6.       LONG-TERM DEBT

Long-term debt consists of the following:

                                             December 31             August  1,
                                        1995          1996             1997
                                        ----          ----             ----
Various  equipment loans payable to a
financial  institution,  bearing
interest at 1% above the prime rate
(8.5% at August 1, 1997).  Principal
amounts are payable in aggregate monthly
installments of $21,095 maturing
September 1997 through February 2000;
collateralized by specific equipment
and secured by personal guarantees of
stockholders                         $   725,024  $  391,043    $  696,852
Various   equipment  loans  payable
to vendors  bearing  interest at
rates between 9.5% and 14%.  Principal
amounts are payable in aggregate
monthly  installments  of $8,717
maturing July 1998 through October
1998; collateralized by specific
equipment                                395,028     198,360       133,735
Equipment  loan payable to a
financial institution bearing
interest at 6%.  Principal is
payable in monthly  installments
of $1,939 beginning  November 1993
through October 1996 and $2,403
thereafter; collateralized by
specific equipment.  Final payment
is due on December 31, 1998               69,940      53,680        38,792
                                      ---------      --------     ---------
                                      1,189,922      643,083       869,379

Less- Current maturities               (597,290)    (311,812)     (592,489)
                                    -----------     ---------     ---------
                                   $    592,702     $ 331,271    $ 276,890
                                    ===========     =========     ========

At August 1, 1997,  the  aggregate  amounts of annual  principal  maturities  of
long-term obligations (excluding capital leases) are as follows:

               Year ending August 1:
                    1998                          $  592,489
                    1999                             221,113
                    2000                              55,777
                                                     --------
                                                  $  869,379
                                                    =========

7.    COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company is  committed  under  various  operating  leases for  warehouse  and
operating facilities as well as equipment and automobiles.  These leases run for
periods  of one to five  years and have  monthly  payments  ranging  from $85 to
$12,108.

<PAGE>


At August 1, 1997 the minimum  annual  rental  commitments  of the Company under
existing agreements are as follows:

           Year ending August 1:
               1998                          $   258,509
               1999                              152,409
               2000                               71,381
               2001                               43,018
               2002                               30,571
                                                 --------
                    Total minimum payments   $   555,888
                                              ===========


The above  building  leases  also  require  the  lessee to pay for taxes  and/or
maintenance, insurance and utilities on the properties.

Rent expense for the years ended December 31, 1994,  1995 and 1996 and the seven
months ended  August 1,  1997 was  $302,903,  $302,999,  $267,509 and  $179,630,
respectively.

Buy Sell Agreements

The  Company  has the  option to  purchase  all of the  shares  owned by certain
stockholder  employees should the individuals leave the employ of the Company or
cease to be actively involved in the business.

Litigation

The Company is involved in various legal actions  arising in the ordinary course
of business.  Management does not believe that the outcome of such legal actions
will have a material  adverse  effect on the  Company's  financial  position  or
results of operations.

8.  RELATED PARTY TRANSACTIONS

The Company has a  capitalized  real estate lease with the  stockholders  of the
Company  for its  principal  location.  The annual  rental is  $120,000  and the
expiration date is July 31, 2008 (Note 3). The lessor has the option to increase
the rent by the lesser of 4% per year or the percentage increase in the Consumer
Price Index.

The  stockholders  were indebted to Image Printing  Systems,  Inc. on unsecured,
noninterest  bearing  demand notes  originally  dated  September 10, 1984 in the
amount of  $10,855,  which  were  included  in  subscriptions  receivable  as of
December 31, 1995 and written off in 1996.

<PAGE>

9.       EMPLOYEE BENEFIT PLAN

The Company has a profit sharing plan (401(k)) covering all employees who are at
least  19  years  of age and  have  completed  at  least  one  year of  service.
Contributions  are accrued and paid at the discretion of management.  Currently,
the Company has elected to match employee  contributions  at the rate of 50% for
the first 4% of compensation deferred. The Company contributed $12,059, $44,006,
$36,613 and $20,433 to the plan for the years ended December 31, 1994,  1995 and
1996 and the seven months ended August 1, 1997, respectively.

10.   SUBSEQUENT EVENT:

On July 30, 1997,  Vestcom  announced  the inital  public  offering of 3,850,000
shraes  of  its  common  stock  at  a  price  of  $13.00  per  share.  Vestcom's
underwriters  exercised  in full an option to  purchase  an  additional  577,500
shares of Vestcom's  common stock to cover over allotments of the initial public
offering.  The  initial  public  offering  was  consummated  on August 4,  1997.
Concurrently,  with the Offering, Vestcom acquired all of the outstanding shares
of the  Company.  Accordingly,  the  accompanying  financial  statements  of the
Company do not include a balance  sheet as of December  31, 1997 and reflect the
Company's  operations and cash flows up until the date of acquisition by Vestcom
(August 1,  1997).  See the  Vestcom  Financial  Statements  included  elsewhere
herein.

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To the Stockholders of

                  Lirpaco Inc. and subsidiary:


We have audited the accompanying  consolidated balance sheets of Lirpaco Inc. (a
Canadian  Corporation)  and subsidiary as of July 31, 1995 and 1996 and December
31,  1996,  and the related  consolidated  statements  of income,  stockholders'
equity,  and cash  flows  for the  years  ended  July 31,  1995 and 1996 and the
five-month  period ended December 31, 1996.  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 Lirpaco Inc. as of July 31,
1995 and 1996 and  December 31, 1996 and the results of its  operations  and its
cash flows for the years ended July 31, 1995 and 1996 and the five-month  period
ended  December  31,  1996 in  conformity  with  generally  accepted  accounting
principles.


                                   ARTHUR ANDERSEN LLP


Roseland, New Jersey
February 17, 1997



<PAGE>
<TABLE>
<CAPTION>

                           LIRPACO INC. AND SUBSIDIARY


                           CONSOLIDATED BALANCE SHEETS

               AS OF JULY 31, 1995 AND 1996, AND DECEMBER 31, 1996


                                                                                      July 31                    December 31,
                                ASSETS                                       1995                 1996                  1996
                                                                        ----------------    -----------------     -----------------

CURRENT ASSETS:
<S>                                                                     <C>                                             <C>
   Cash and cash equivalents                                            $        -                 $86,226              $88,198
   Accounts receivable, net of allowance for
     doubtful accounts of $4,080, $35,015 and
     $35,132, respectively                                                   1,032,467             729,505              743,380
   Due from related party                                                            -              42,963               19,474
   Supplies inventory                                                          141,936             130,412              129,439
   Prepaid expenses and other current assets                                    83,600              75,788               73,076
                                                                             ---------           ---------            ----------
                Total current assets                                         1,258,003           1,064,894            1,053,567
PROPERTY AND EQUIPMENT, net of
   accumulated depreciation and amortization                                   438,698             443,944              661,901
DEFERRED CHARGES                                                                10,379               3,030                  --
                                                                             ---------           ---------            ----------
     Total assets                                                           $1,707,080         $ 1,511,868          $ 1,715,468
                                                                             =========           =========            ==========

                    LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current portion of long-term debt                                             42,045              21,495               51,752
  Accounts payable and accrued liabilities                                   1,343,964             824,396              675,274
  Income taxes payable                                                          40,562              10,075               36,299
                                                                             ---------             -------            ---------

     Total current liabilities                                               1,426,571             855,966              763,325
LONG-TERM DEBT                                                                   7,693               --                 245,166
DEFERRED INCOME TAXES                                                             --                38,620               26,474
                                                                             ---------            --------            ---------

     Total liabilities                                                      1,434,264              894,586            1,034,965

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
   Class A common shares, voting, no par value,
     unlimited amount authorized, 100 issues
     and outstanding                                                              102                 102                   102
    Class B common shares, nonvoting, no par value
     unlimited amount authorized, no shares
     issued and outstanding                                                       --                --                       --
    Class C preferred shares, noncumulative, no par
      value, nonparticipating, voting, unlimited
      amount authorized, no shares issued and
      outstanding                                                                 --                --                       --
     Class D preferred shares, noncumulative, no par
       value, nonparticipating, nonvoting, unlimited
       amount authorized, no shares issued and
       outstanding                                                               --                 --                       --
     Class E preferred shares, noncumulative, no par
       value, nonparticipating, nonvoting, unlimited
       amount authorized, 417,082 shares issued
       and outstanding                                                            102                 102                   102
     Class F preferred shares, noncumulative, no par
       value, non participating, nonvoting, unlimited
       amount authorized, 166,566 shares issued and
       outstanding                                                             170,104            170,104               170,104
     Retained earnings                                                          87,985            424,707               474,943
     Cumulative translation adjustments                                         14,523             22,267                35,252
                                                                              --------            -------               -------
          Total stockholderws' equity                                          272,816            617,282               680,503
                                                                              --------            -------               -------
          Total liabilities and stockholders' equity                       $ 1,707,080         $1,511,868            $1,715,468
                                                                             =========          =========             =========


 The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                           LIRPACO INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME

                   FOR THE YEARS ENDED JULY 31, 1995 AND 1996

        AND THE FIVE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED) AND 1996






                                                              Year Ended                   Five Months Ended December 31
                                                                July 31
                                                        1995              1996                1995               1996
                                                   ---------------    --------------    -----------------    --------------
                                                                                        (unaudited)

<S>                                                   <C>                <C>              <C>                  <C>
REVENUES                                              $3,914,089         $4,987,369       $2,058,250           $1,973,842

COST OF REVENUES                                       2,657,407          3,220,847        1,370,548            1,331,274
                                                   ---------------    --------------    -----------------    --------------

                Gross profit                           1,256,682          1,766,522          687,702              642,568

SELLING, GENERAL AND
   ADMINISTRATIVE EXPENSES                             1,088,835          1,325,318          534,769              536,019
                                                   ---------------    --------------    -----------------    --------------

                Income from operations                   167,847            441,204          152,933              106,549

OTHER EXPENSES:
   Interest expense                                       47,496             27,516           13,444                4,126
   Loss on sale of asset                                       -                  -                -               26,693
                                                   ---------------    --------------    -----------------    --------------

                Income before provision
for income taxes                                         120,351            413,688          139,489               75,730

PROVISION FOR INCOME TAXES                                22,710             76,966           28,985               25,494
                                                   ---------------    --------------    -----------------    --------------

                Net income                               $97,641           $336,722         $110,504              $50,236
                                                   ===============    ==============    =================    ==============
The accompanying notes to consolidated financial statements are an integral part of these statements.

</TABLE>

<TABLE>
<CAPTION>



                           LIRPACO INC. AND SUBSIDIARY


                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                   FOR THE YEARS ENDED JULY 31, 1995 AND 1996

                   AND THE FIVE MONTHS ENDED DECEMBER 31, 1996




                                                                                  (Accumulated
                                                                                     Deficit)      Cumulative
                                          Preferred   Stock     Common Stock        Retained       Translation
                                          Shares      Amount    Shares Amount       Earnings       Adjustments       Total
                                          ------     --------   -------------      -----------     -----------      -------
<S>                                       <C>       <C>         <C>     <C>         <C>              <C>           <C>
BALANCE, August 1, 1994                   583,648   $170,206    100     $102        ($9,656)         $12,276       $172,928

   Net income                               -          -         -        -          97,641            -            97,641
   Translation adjustment                   -          -         -        -             -              2,247         2,247
                                          -------   --------    -----  ------    --------------     -----------    --------

BALANCE, July 31, 1995                    583,648    170,206    100      102         87,985           14,523       272,816
                                          -------   --------    -----  ------    --------------     -----------    --------
   Net income                               -          -         -        -         336,722             -          336,722
   Translation adjustment
                                            -          -         -        -           -                7,744         7,744
                                          -------   --------    -----  ------    --------------     ----------     --------

BALANCE, July 31, 1996                    583,648   170,206     100      102        424,707           22,267       617,282

   Net income                               -          -         -        -          50,236              -          50,236
   Translation adjustment                   -          -         -        -           -               12,985        12,985
                                          -------   --------    -----  ------    ----------          ---------    --------
BALANCE, December 31,
   1996                                   583,648  $170,206     100     $102       $474,943          $35,252      $680,503
                                          =======  ========     =====  ======    ===========         =========    ========


 The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                           LIRPACO INC. AND SUBSIDIARY


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                   FOR THE YEARS ENDED JULY 31, 1995 AND 1996

        AND THE FIVE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED) AND 1996


                                                                    Year Ended                Five Months Ended December 31
                                                                     July 31
                                                              1995              1996              1995              1996
                                                          --------------    -------------    ---------------    -------------
                                                                                              (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                        <C>               <C>               <C>                <C>
   Net income                                              $  97,641         $336,722          $110,504           $50,236
   Adjustments to reconcile net income to net cash
     provided by operating activities-
       Depreciation and amortization                         118,767          113,074            49,796            59,516
       Provision for doubtful accounts                          -              35,382               -                 -
       (Gain) loss on disposal of fixed assets                (2,429)            -                  -              26,693
       Deferred income tax provision                          11,570           59,449            20,158           (12,146)
       Changes in operating assets (increase)
         decrease in-
           Accounts receivable                               (340,924)         267,580            76,839           (13,875)
           Supplies inventory                                 (29,640)          11,524           (34,284)              973
           Prepaid expenses and other current
              assets                                          (49,959)          (4,540)         (135,332)           (6,021)
           Deferred charges                                     7,332            7,349             3,050             3,030
       Changes in operating liabilities increase
         (decrease) in-
           Accounts payable and accrued liabilities           293,247         (519,568)         (121,426)         (149,122)
           Income taxes payable                                40,562          (30,487)           81,754            26,224
                                                          --------------    -------------    ---------------    ------------
                Net cash provided by (used in)
                  operating activities                        146,167          276,485            51,059           (14,492)
                                                          --------------    -------------    ---------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of property and equipment                     (114,528)        (118,320)          (35,740)         (304,166)
   Proceeds from disposal of fixed assets                       4,396                -                 -             7,349
                                                          --------------    -------------    ---------------    ------------
                Net cash used in investing activities        (110,132)        (118,320)          (35,740)         (296,817)
                                                          --------------    -------------    ---------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term borrowings                               -                -                 -           291,864
   Principal payments on long-term debt                        (13,616)        (28,607)          (11,656)          (2,072)
   Loan to related party                                            -          (42,963)                -                 -
   Collection of loan to related party                              -                -                 -            23,489
   Payment on loan from related party                          (22,419)           (369)           (3,663)                -
                                                          --------------    -------------    ---------------    -----------
                Net cash provided by (used in)
                  financing activities                         (36,035)        (71,939)          (15,319)          313,281
                                                          --------------    -------------    ---------------    -----------
NET INCREASE IN CASH AND CASH
   EQUIVALENTS                                                     -             86,226                 -             1,972
CASH AND CASH EQUIVALENTS,
   beginning of period                                             -                -                   -            86,226
                                                          --------------    -------------    ---------------    -----------
CASH AND CASH EQUIVALENTS,
   end of period                                          $        -             $86,226      $                     $88,198
                                                          ==============    =============    ===============    ===========
SUPPLEMENTAL DISCLOSURE OF CASH     FLOW INFORMATION:
     Cash paid during the period for-
       Interest                                                $47,496          $27,231           $13,309            $4,097
       Income taxes                                                 -            32,878                 -                 -
                                                          ==============    =============    ===============    ============




           The accompanying notes to consolidated financial statements
                    are an integral part of these statements.
</TABLE>

<PAGE>
                           LIRPACO INC. AND SUBSIDIARY


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  NATURE OF BUSINESS:

     Lirpaco Inc. (the "Company"), a Canadian corporation,  is a holding company
     with  one  subsidiary,  COS  INFORMATION  Inc.  a Quebec  Corporation.  The
     Company's  primary  businesses are (i) the production and  distribution  of
     computer-generated   labels,   (ii)  the  production  and  distribution  of
     documents on paper,  microfiche,  microfilm and compact disc,  (iii) demand
     publishing,  (iv) mailing services and (v) forms  management.  Its customer
     base is mainly comprised of businesses in and around Montreal, Canada.

     The  Company  and  its  stockholders  intend  to  enter  into a  definitive
     agreement with Vestcom International,  Inc. ("Vestcom"),  pursuant to which
     all outstanding  shares of the Company's common stock will be exchanged for
     cash and shares of Vestcom's  common stock (the  "Acquisition")  concurrent
     with the  consummation of the initial public  offering (the  "Offering") of
     the common stock of Vestcom.

(2)  SUMMARY OF SIGNIFICANT
     ACCOUNTING POLICIES:

     Basis of Presentation-

     The financial  statements  have been  prepared  from records  maintained in
     Canada. The Company's financial statements are presented in accordance with
     the  generally  accepted  accounting  principles  of the  United  States of
     America. All significant intercompany  transactions have been eliminated in
     consolidation.

     Foreign Currency-

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
     52,  "Foreign  Currency   Translation,"   income  statement   accounts  are
     translated at the average exchange rates in effect during the period, while
     assets and  liabilities  are  translated  at the rates of  exchange  at the
     balance sheet date. The resulting balance sheet translation adjustments are
     $2,247,  $7,744 and  $12,985 for the years ended July 31, 1995 and 1996 and
     the five months ended December 31, 1996, respectively.

     Use of Estimates-

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported  amounts of assets and liabilities at
     the date of the financial  statements and the reported  amounts of revenues
     and expenses during the reporting periods. Actual results could differ from
     those estimates.

     Revenue Recognition-

     Revenues  are  recognized  when the  services  are  rendered.  Revenues are
     presented  net of  postage  charges in the income  statement  as  customers
     advance  the  Company  cash to be  used to  purchase  postage  for  related
     projects.

<PAGE>

     Cash and Cash Equivalents-

     Cash and cash  equivalents  include  money  market  accounts and all highly
     liquid debt instruments  purchased with original maturities of three months
     or less.

     Supplies Inventory-

     Supplies inventory consists of paper, toner, developer and other disposable
     chemicals,  film  and  micrographic  chemicals,  and  packaging  materials.
     Supplies  are  valued  at  cost,  which  approximates   market,  with  cost
     determined using the first-in-first-out method.

     Property and Equipment-

     Property  and  equipment  are  recorded at cost.  Depreciation  is computed
     principally using an accelerated  method over the estimated useful lives of
     the assets.  Leasehold  improvements are capitalized and amortized over the
     shorter  of the  estimated  useful  lives of the assets or the terms of the
     related leases.

     Expenditures  for  repairs  and  maintenance  are  charged to expense  when
     incurred. Expenditures for major renewals and betterments, which extend the
     useful lives of existing equipment,  are capitalized and depreciated.  Upon
     retirement or disposition  of property and equipment,  the cost and related
     accumulated  depreciation  are removed from the accounts and any  resulting
     gain or loss is recognized in the statements of operations.

     Income Taxes-

     Income  taxes  are  provided  based  on  earnings  reported  for  financial
     statement purposes. The provision for income taxes differs from the amounts
     currently  payable  because of timing  differences  in the  recognition  of
     certain income and expense items for financial  reporting and tax purposes.
     In  accordance  with SFAS No. 109,  the Company  accounts  for income taxes
     using an asset  and  liability  method.  The  asset  and  liability  method
     requires the  recognition  of deferred tax  liabilities  and assets for the
     expected future tax consequences of temporary differences between tax bases
     and financial reporting bases of assets and liabilities, measured using the
     enacted tax rates and laws that will be in effect when the  differences are
     expected to reverse.

     New Accounting Pronouncement-

     Effective  January 1, 1995, the Company  adopted SFAS No. 121,  "Accounting
     for the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be
     Disposed  Of."  Accordingly,  in the event  that  facts  and  circumstances
     indicate that property and equipment,  and intangible or other assets,  may
     be impaired,  an evaluation  of  recoverability  would be performed.  If an
     evaluation  is  required,  the  estimated  future  undiscounted  cash flows
     associated  with the assets is compared to the asset's  carrying  amount to
     determine if a write-down to market value or discounted cash flow value was
     necessary.  Adoption of this standard did not have a material effect on the
     financial position or results of operations of the Company.

<PAGE>


     Concentration of Credit Risk-

     Financial  instruments that potentially expose the Company to concentration
     of credit  risk,  as defined by SFAS No. 105,  consist  primarily  of trade
     accounts  receivable.  The Company's  customers are concentrated in eastern
     Canada.  The Company  establishes an allowance for doubtful  accounts based
     upon factors surrounding the credit risk of specific customers,  historical
     trends, and other information.

(3)  PROPERTY AND EQUIPMENT:

     Property and  equipment  consist of the following at July 31, 1995 and 1996
     and December 31, 1996-

<TABLE>
<CAPTION>
                                                                                                             Estimated
                                                           July 31                     December 31,             Useful
                                                   1995               1996                 1996             Lives (Years)
                                              ---------------    --------------   -------------------    -----------------

<S>                                           <C>                <C>                   <C>                      <C>
      Machinery and equipment                 $1,926,410         $1,905,968            $1,522,185               10
      Furniture and fixtures                     117,499            130,074               148,566               10
      Leaseholds improvements                    124,305            126,269               258,794                7
      Computer hardware                          221,281            284,840               300,282                6
      Computer software                           15,008             26,955                27,292                5
                                              ---------------    --------------   ---------------

                                               2,404,503          2,474,106             2,257,119

      Less- Accumulated
        depreciation and
        amortization                          (1,965,805)        (2,030,162)           (1,595,218)
                                           ---------------    ----------------      ---------------

      Property and equipment,
        net                                     $438,698           $443,944              $661,901
                                              ===============    ================      ===============

</TABLE>


     Leased  equipment  under capital leases  (included  above)  consists of the
following at July 31, 1995 and 1996 and December 31, 1996-


<TABLE>
<CAPTION>

                                                                                 July 31                  December 31
                                                                          1995             1996               1996
                                                                      -------------    -------------    -------------

<S>                                                                       <C>            <C>               <C>
      Equipment                                                           $32,199        $47,430           $47,430
      Less- Accumulated amortization                                       (8,413)       (13,795)          (17,574)
                                                                      -------------    -------------      -----------

                                                                          $23,786        $33,635           $29,856
                                                                      =============    =============      ===========
</TABLE>

     Depreciation and amortization  expense on property and equipment charged to
operations for the years ended July 31, 1995 and 1996 and the five-month periods
ended December 31, 1995 (unaudited) and 1996 was $118,767, $113,074, $49,796 and
$59,516, respectively.

<PAGE>



(4)  ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

     Accounts payable and accrued expenses consists of the following at July 31,
1995 and 1996 and  December  31,  1996-  July 31  December  31,  1995  1996 1996

<TABLE>

<S>                                                                   <C>                <C>                  <C>
     Accounts payable                                                 $860,995           $372,399             $420,115
     Wages payable                                                     217,247            314,209              156,881
     Sales taxes payable                                                52,908            108,967               91,435
     Customer advances                                                 118,443                600                6,843
     Other                                                              94,371             28,221                    -
                                                                   ---------------    ---------------      ---------------

                                                                    $1,343,964           $824,396             $675,274
                                                                   ===============    ===============      ===============
</TABLE>

(5)  LONG-TERM DEBT:

     Long-term  debt  consists  of the  following  at July 31, 1995 and 1996 and
     December 31, 1996-

<TABLE>
<CAPTION>

                                                                                     July 31                December 31
                                                                              1995            1996             1996
                                                                           ------------------------        --------------
<S>                                                                          <C>              <C>                <C>
         Various noninterest bearing equipment loans payable to various
           companies for capital leases.  Principal amounts are payable in
           aggregate monthly installments of $2,225; collateralized by
           specific equipment.  Maturing November 1996 through June 1997.     $19,059         $19,423           $5,054

         Equipment loan payable to a financial institution.  Final payment
           was made in September 1996.                                         30,679           2,072               -
         Leasehold improvement loan payable to a financial institution,
           bearing interest at 1/2% over the Daily Floating Base interest
           rate (8 1/2% at December 31, 1996).  The principal is payable
           in escalating monthly installments of $2,554 to $5,472;
           collateralized by the assets of the Company.  The final payment
           is due in December 2001.                                              -              -              291,864

                                                                               49,738          21,495          296,918

         Less- Current maturities                                              42,045          21,495           51,752
                                                                           ------------    ------------     -----------

                                                                               $7,693       $   -             $245,166
                                                                           ============    ============     ===========

</TABLE>

     At December 31, 1996 the aggregate  amounts of annual principal  maturities
of long-term debt (including capital leases) are as follows-

         1997                                                   $51,752
         1998                                                    56,917
         1999                                                    56,917
         2000                                                    65,666
         2001                                                    65,666
                                                               --------

                                                               $296,918
                                                               =========

<PAGE>

(6)  INCOME TAXES:

       The provision (benefit) for income taxes consists of the following-

<TABLE>
<CAPTION>
                                                                Year Ended                  Five Months Ended December 31
                                                                 July 31
                                                          1995              1996               1995               1996
                                                     ---------------    --------------    ----------------    --------------
                                                                                            (unaudited)
<S>                                                         <C>              <C>          <C>                       <C>
           Current tax expense-
             Federal                                          $67             $3,847       $                        $27,077
                                                                                                      -
             Provincial                                    11,073             13,670              8,827              10,563
                                                     ---------------    --------------     --------------      -------------

                           Total current                   11,140             17,517              8,827              37,640
                                                     ---------------    --------------     --------------      -------------

           Deferred tax expense
             Federal                                       15,273             57,931             19,570              (8,533)
             Provincial                                    (3,703)             1,518                588              (3,613)
                                                     ---------------    --------------     --------------      -------------

                           Total deferred                  11,570             59,449             20,158             (12,146)
                                                     ---------------    --------------     --------------      -------------

                           Total provision                $22,710            $76,966            $28,985             $25,494
                                                     ===============    ==============     ==============      =============
</TABLE>


     The Canadian  statutory tax rate is 18.87% on the first $200,000 of taxable
revenue.  The Company  pays taxes on its  taxable  income at this rate except as
modified for certain permanent differences.

(7)  COMMITMENTS AND CONTINGENCIES:

       Operating Leases-

     The Company leases office  premises,  warehouse  space and a portion of its
machinery and equipment under operating leases expiring at varying dates through
2001.

     At December 31, 1996 the minimum  annual  rental  commitment of the Company
under existing agreements are as follows-

            1997                                                $405,260
            1998                                                 298,559
            1999                                                 138,079
            2000                                                  65,597
            2001                                                  50,267
                                                                ---------

                         Total minimum payments                 $957,762
                                                                ========

     Rent expense  including  lease  escalations  charged to operations  for the
years ended July 31, 1995 and 1996 and the five months  ended  December 31, 1995
(unaudited) and 1996 was $41,827, $41,135, $22,637 and $17,267, respectively.

<PAGE>

     Litigation-

     The Company is involved in various  legal  actions  arising in the ordinary
course of business.  Management  does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's  financial position
or results of operations.

(8)  RELATED PARTY TRANSACTIONS:

     A stockholder had noninterest  bearing loans  outstanding to the Company in
     the  amounts of $0,  $42,963  and  $19,474 at July 31,  1995 and 1996,  and
     December 31, 1996, respectively,  included in due from related party in the
     accompanying balance sheets. The loans were repaid in January 1997.


(9)  EMPLOYEE BENEFIT PLAN:

     The Company  maintains a profit  sharing plan for all  employees.  The Plan
     provides for the Company to contribute 30% of pretax income, net of certain
     adjustments.  Contributions  to this plan for the years ended July 31, 1995
     and 1996 and the five months ended December 31, 1995  (unaudited)  and 1996
     were $88,605, $179,777, $62,349 and $38,365, respectively.

(10) MAJOR CUSTOMERS:

     The Company has one customer  which  accounted for 15.1% and 12.9% of sales
     for the year ended July 31, 1996 and the five  months  ended  December  31,
     1996, respectively,  and another customer which represented 10.9% and 10.6%
     of  sales  for the year  ended  July 31,  1996  and the five  months  ended
     December 31, 1996, respectively.

(11) EVENTS SUBSEQUENT TO DATE OF REPORT OF
     INDEPENDENT PUBLIC ACCOUNTANTS (UNAUDITED):

     In March 1997, the Company and its  stockholders  entered into a definitive
     agreement  with Vestcom  providing  for the  Acquisition  of the Company by
     Vestcom.


<PAGE>

                           Lirpaco Inc. and Subsidiary

                        Consolidated Financial Statements

                                  July 31, 1997



                                    Contents



Auditors' report                                                         1

Financial statements

    Balance sheet                                                        2

    Statement of earnings and retained earnings                          3

    Statement of changes in financial position                           4

    Notes to the financial statements                                  5-8


<PAGE>

AUDITORS' REPORT


To the Shareholders of Lirpaco Inc.



We have audited the consolidated balance sheet of Lirpaco Inc. and Subsidiary as
at July 31,  1997 and the  consolidated  statements  of  earnings  and  retained
earnings  and changes in  financial  position  for the seven  months then ended.
These consolidated  financial statements are the responsibility of the company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform an audit to obtain  reasonable
assurance  whether the  consolidated  financial  statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated  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.

In our opinion,  these consolidated  financial statements present fairly, in all
material respects, the financial position of the company as at July 31, 1997 and
the results of its operations and the changes in its financial  position for the
seven  months  then  ended in  accordance  with  generally  accepted  accounting
principles.

LIPPMAN LEEBOSH APRIL


Chartered Accountants

Montreal, Quebec
October 11, 1997

<PAGE>


Lirpaco Inc. and Subsidiary

Consolidated Balance Sheet (In U.S. Dollars)

At July 31, 1997


Assets
Current assets
Cash                                                  $   49,857
Accounts receivable                                      655,766
Inventories                                              144,659
Prepaid expenses and other current assets                 75,492
                                                         -------
                                                         925,774
Capital assets  [note 2]                                 687,730
Deposits and deferred charges                             22,605
                                                       ---------
                                                       1,636,109
                                                       =========

Liabilities
Current liabilities
Accounts payable and accrued liabilities                 462,233
Income taxes payable                                      44,927
Long-term debt - current portion                          80,079
                                                       ---------
                                                         587,239
Long-term debt  [note 4]                                 213,314
Deferred income taxes                                     33,093
                                                       ---------
                                                         833,646
                                                       ---------


Shareholders'  equity
Share capital  [note 5]                                  170,308
Retained earnings                                        554,009
Cumulative translation adjustments                        78,146
                                                         -------
                                                         802,463
                                                         -------
                                                       1,636,109
                                                       =========



<PAGE>



Lirpaco Inc. and Subsidiary

Consolidated Statement of Earnings and Retained Earnings (In U.S. Dollars)

Seven months ended July 31, 1997

Sales                                               $2,493,385
Cost of sales                                        1,650,689
                                                     ---------
Gross profit                                           842,696
                                                     ---------


Expenses
Selling, general and administrative                    620,473
Interest on long-term debt                              13,881
Interest - other                                         6,457
Amortization                                            81,033
                                                     ---------
                                                       721,844
                                                     ---------
Earnings before income taxes                           120,852
Income taxes                                            41,786
                                                     ---------
Net earnings                                            79,066
                                                     ---------
Retained earnings - beginning of period                474,943
Retained earnings - end of period                      554,009
                                                     ---------


<PAGE>

Lirpaco Inc. and Subsidiary

Consolidated Statement of Changes in Financial Position (In U.S. Dollars)

Seven months ended July 31, 1997



Operating activities
Net earnings                                          $  79,066
Charges to earnings not involving cash:
Amortization of capital assets                           81,033
Deferred income taxes                                     6,619
                                                        -------
                                                        166,718
Net change in non-cash working capital balances         (38,278)
                                                        --------
                                                        128,440
                                                        -------


Investing activities
Acquisition of capital assets                          (112,324)
Increase in deposits and deferred charges               (22,605)
                                                       ---------
                                                       (134,929)
                                                       ---------


Financing activities
Repayment of long-term debt                             (31,852)

                                                        --------
Decrease in cash                                        (38,341)
Cash -beginning of period                                88,198
                                                        --------
Cash - end of period                                     49,857
                                                        ========



<PAGE>


Lirpaco Inc. and Subsidiary

Notes to the Consolidated Financial Statements (In U.S. Dollars)

July 31, 1997



1.  Accounting policies

Principles of consolidation:  The consolidated  financial statements include the
accounts  of the  company  and  its  wholly-owned  subsidiary.  All  significant
inter-company transactions and account balances are eliminated on consolidation.

Inventories:  Inventories  of raw  materials  are  valued  at the  lower of cost
(first-in, first-out basis) and net replacement cost.

Amortization of capital assets:  Amortization is provided for over the estimated
useful lives of the related assets using the following rates and methods:

         Machinery and equipment        -    20% diminishing balance
         Furniture and fixtures         -    20% diminishing balance
         Leasehold improvements         -    straight-line over lease term plus
                                             first renewal option
         Computer hardware              -    30% diminishing balance
         Computer software              -    33.3% straight-line

Foreign  currency:  Income  statement  accounts  are  translated  at the average
exchange  rates in effect  during the period  while assets and  liabilities  are
translated  at the rates of exchange at the balance  sheet date.  The  resulting
balance sheet translation adjustment for the seven months ended July 31, 1997 is
$42,894.

Concentration of credit risk: Financial  instruments that potentially expose the
company to  concentration  of credit risk consist  primarily  of trade  accounts
receivable.  The company  establishes  an allowance for doubtful  accounts based
upon  factors  surrounding  the credit  risk of specific  customers,  historical
trends, and other information.


2.  Capital assets


Machinery and equipment                                   $ 1,628,289
Furniture and fixtures                                        155,013
Leasehold improvements                                        262,422
Computer hardware                                             260,282
Computer software                                              39,977
                                                            ---------
                                                            2,345,983
Less:  Accumulated amortization                             1,658,253
                                                            ---------
Net                                                           687,730
                                                            =========


3.  Bank security

Any bank borrowings are secured by a hypothec on moveable property,  inventories
and receivables.


<PAGE>



Lirpaco Inc. and Subsidiary

Notes to the Consolidated Financial Statements

July 31, 1997



4.  Long-term debt



Bank  loan  payable,  bearing  interest  at prime  plus .5%,
secured by a moveable hypothec on equipment, inventories and
receivables,  repayable in 3 monthly  instalments of $3,981,
24 monthly  instalments of $4,705, 18 monthly instalments of
$5,429 and a final  payment of $485,  plus interest , due in
2001                                                             223,070

Amount due under  conditional  sales  contract for equipment
with a net book  value of  $48,994,  repayable  in 3 monthly
blended   instalments  of  $2,534  and  27  monthly  blended
instalments  of $2,675 at an  interest  rate of 10%,  due in
1999                                                             70,323
                                                                 -------
                                                                 293,393
Current portion                                                   80,079
                                                                 -------
                                                                 213,314

Principal repayments are due as follows:


1998                                               $  80,079
1999                                                  85,410
2000                                                  78,570
2001                                                  49,334
                                                      ------
                                                     293,393
                                                     =======

5.  Share capital

Authorized

An unlimited number of no par value shares

Class "A" common shares, voting

Class "B" common shares, non-voting

Class "C" preferred  shares,  non-cumulative,  non-participating,  redeemable at
amount paid, voting


                                                     continued


<PAGE>


Lirpaco Inc. and Subsidiary

Notes to the Consolidated Financial Statements

July 31, 1997


5.  Share capital  (cont'd.)

Class  "D"  preferred  shares,   non-cumulative,   redeemable  at  amount  paid,
non-participating, non-voting

Class  "E"  preferred  shares,   non-cumulative,   redeemable  at  amount  paid,
non-participating, voting

Class  "F"  preferred  shares,   non-cumulative,   redeemable  at  amount  paid,
non-participating, non-voting

Issued


      100    Class "A" common shares                $    102
  417,082    Class "E" preferred shares                  102
  166,566    Class "F" preferred shares              170,104
                                                     -------
                                                     170,308
                                                     =======


6.  Commitments and contingencies

a)   The company leases office  premises,  warehouse  space and a portion of its
     machinery and equipment  under  operating  leases expiring at varying dates
     through 2001. At July 31, 1997, the minimum annual rental  commitment under
     existing  agreements,  excluding an escalation clause covering increases in
     property taxes and operating expenses, is as follows: $

       1998                                                 416,287
       1999                                                 299,020
       2000                                                 162,077
       2001                                                  84,933
       Thereafter                                            11,081

b)   In August 1997, the company entered into an agreement to purchase machinery
     and equipment in the amount of $180,000.

c)   The company is involved in a legal action arising in the ordinary course of
     business.  Management does not believe that the outcome of this action will
     have a material effect on the company's  financial  position or results of'
     operations.

<PAGE>


                                     Lirpaco Inc. and Subsidiary

                              Notes to the Consolidated Financial Statements

                                           July 31, 1997


7.  Subsequent event

The  company  and its  shareholders  entered  into  an  agreement  with  Vestcom
International,  Inc.  providing  for the  acquisition  of the company by Vestcom
International, Inc. after the close of business on July 31, 1997.



8.  Comparative figures

Comparative  figures have not been  presented as financial  statements  have not
been prepared for the seven month period ended July 31, 1996.