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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
            Act of 1934 for the fiscal year ended December 31, 2000.

[ ]   Transition Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the transition period from ___ to ___

                             Commission File Number
                                    333-23519

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

          New Jersey                                  22-3477425
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

               5 Henderson Drive, West Caldwell, New Jersey 07006
                                 (973) 882-7000
          (Address, including zip code, and telephone number, including
             area code, of registrant's principal executive office)

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

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


                               Title of each class
                               -------------------
                           Common Stock, no par value

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

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

Aggregate market value of voting stock held by non-affiliates as of March 1,
2001 was approximately $16.6 million.

Number of shares of Common Stock outstanding as of March 1, 2001:  9,056,806.

Documents incorporated by reference: Definitive Proxy Statement for the
registrant's 2001 Annual Meeting of Shareholders (Part III).




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                           VESTCOM INTERNATIONAL, INC.

                                TABLE OF CONTENTS

                                                                          PAGE

                                     Part I
Item 1     Business.
Item 2     Properties.
Item 3     Legal Proceedings
Item 4     Submission of Matters to a Vote of Security Holders
Item 4A    Executive Officers of the Registrant.

                                Part II

Item 5     Market for the Registrant's Common Equity and Related
                Stockholder Matters.
Item 6     Selected Financial Data
Item 7     Management's Discussion and Analysis of Results of
                Operations and Financial Condition
Item 7A    Quantitative and Qualitative Disclosures About Market Risk.
Item 8     Financial Statements and Supplementary Data
Item 9     Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure.

                               Part III

Item 10    Directors of the Registrant
Item 11    Executive Compensation.
Item 12    Security Ownership of Certain Beneficial Owners and
                Management
Item 13    Certain Relationships and Related Transactions.

                                Part IV

Item 14    Exhibits, Financial Statement Schedules and Reports
                on Form 8-K.

Signatures.



                                      -2-

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                                     PART I

Item 1.  Business

This Annual Report on Form 10-K contains forward-looking statements based on
current expectations, estimates and projections about Vestcom's industry,
management's beliefs and certain assumptions made by management. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Disclosures Regarding Forward-Looking Statements."

General

Vestcom International, Inc. ("Vestcom" or the "Company") is a leading provider
of business communications, customer relationship management and retail
marketing services, using technology and innovation to supply enhanced value in
all phases of communications between businesses and their customers. Vestcom
helps its clients market to and communicate with their customers through a wide
range of applications in business communications, marketing and data management.
Vestcom employs approximately 1,000 individuals and serves customers from 29
facilities throughout the United States and Canada.

Vestcom was founded in September 1996. Concurrently with the consummation of
Vestcom's initial public offering (the "IPO") on August 4, 1997, Vestcom
acquired seven companies in the business communications industry. Since the IPO,
Vestcom has expanded its operations through internal growth and by acquiring
eight additional companies in the business communications industry. The
companies acquired by Vestcom are referred to herein as the "Operating
Companies." Prior to the IPO, Vestcom did not conduct any operations. Unless
otherwise indicated, all references to Vestcom's business prior to the IPO refer
to the businesses of the original seven Operating Companies as they were
conducted on an independent basis. Vestcom maintains a website at vestcom.com.

Vestcom's Expertise Enables it to Provide Value-Added Services to Customers

Vestcom's knowledge of the industry, technological expertise, resources and
operating efficiencies enable it to provide a broad range of business
communications and marketing services from multiple locations at a competitive
cost. The Operating Companies provide a number of value-added services to
customers, including managing critical data for customers, printing and
distributing personalized documents and providing customer relationship
management ("CRM"). Vestcom's services include the creation, management and
distribution of critical business communications such as statements, invoices
and confirms, as well as database management, and production and distribution of
direct mail in support of marketing initiatives. Vestcom also provides enhanced
value by creating and managing custom built web storefronts for its customers,
and providing the related fulfillment services, including management,
warehousing, kitting and distribution of the requested products and literature.

As part of its business communications services, in the financial services
industry, Vestcom provides added value by producing statements, invoices and
trade confirms in a cost-effective, timely manner, with enhanced graphics, and
by providing innovative technology which lets the customer individualize the
documents with targeted messages.

As part of its CRM services, Vestcom's web-based fulfillment capabilities
integrate the power of the Internet with brick and mortar traditional
fulfillment capabilities to strengthen its clients' relationships with their
customers. For example, a Vestcom customer can direct its clients to a Vestcom
hosted website where the client can request specific information or products.
Vestcom captures the request, generates and personalizes the information or
product, and distributes it to the requesting individual.

As part of its retail marketing services, Vestcom works with its customers in
the retail industry to process and distribute product pricing and merchandising
support materials. Vestcom not only produces pricing labels and point-of
purchase displays, but also provides its customers with value-added services
such as database services, the production and distribution of frequent shopper
and personalized ID cards, price books, equipment and supplies for onsite
production of product pricing materials and other merchandising support needs.

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Vestcom provides services to customers in a broad range of industries. In
addition to the financial services and retail industries, Vestcom provides
services to customers in the pharmaceutical, telecommunications, utilities,
travel and leisure, software and other commercial industries. Vestcom provides
its customers with solutions to meet their business communications and marketing
services requirements. Vestcom's services enable customers to:

         o  Obtain customized business critical documents to meet their specific
         needs

         Vestcom believes that one of its key competitive advantages is its
         significant data processing and programming capabilities. Vestcom's
         technical staff designs and implements the software and systems to
         produce customized business communications for customers. These
         documents not only communicate business critical data, but may also
         provide personalized and focused marketing messages and may be
         supplemented through selective insertion of marketing materials.
         Vestcom's capabilities provide customers with the flexibility to
         produce small or large volumes of business critical documents with the
         same high quality, while permitting each document to contain customized
         or individualized information. Vestcom produces documents for most of
         its customers on a daily, weekly, monthly, or quarterly basis.

         o  Fulfill multiple business communication and marketing needs from one
         source, at a competitive price

         Vestcom's advanced data processing and distribution capabilities permit
         customers to fulfill many of their business critical communication and
         marketing needs from a single source, at a competitive cost. By using
         Vestcom's services, customers can reduce their production, distribution
         and mailing costs. They can also reduce their overhead and fixed costs
         by decreasing or eliminating their investments in technology and the
         need for expensive equipment, floor space, personnel, utilities and
         other related expenses.

         o  Build and sustain strong relationships with their customers

         Vestcom's marketing services assist customers in building and
         sustaining strong and profitable relationships with their customers.
         Vestcom supports a broad range of marketing services from creative
         development to sophisticated database management, including E-CRM, to
         timely distribution processes. Whether to increase customer brand
         awareness, or introduce new offers, products or services, Vestcom's
         capabilities offer clients multiple opportunities to capitalize on the
         business potential of customer communications.

         o  Manage and utilize critical client information to enhance client
         communication

         Vestcom works with companies to transform each point of contact with
         customers into a marketing opportunity. Vestcom's database management
         technologies give companies the power to create comprehensive customer
         databases that include customer specific information, such as recent
         purchases or activities, interests and demographic information.
         Vestcom's database management capabilities assist customers in creating
         and implementing marketing campaigns and in determining how each
         segment of a marketing campaign performed, including response
         percentages, return on investment, profit per piece and how many pieces
         converted to sales. Additionally, Vestcom assists its clients in
         modifying future campaigns based on the captured information.

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         o  Reduce production turnaround time and equipment downtime

         Vestcom's advanced computer network shifts production to various
         locations, thereby increasing efficiency, productivity, cost
         effectiveness and timely delivery. Vestcom reduces turnaround time and
         downtime through its:

                  o  direct customer data links, which speed processing time;

                  o distributed processing, by which Vestcom increases equipment
                  utilization and distributes data received from customers to
                  geographically dispersed production and distribution centers,
                  enabling customers to improve delivery time; and

                  o internal equipment redundancy and multi-site production
                  capabilities, which provide backup protection for equipment
                  failure.

         o  Gain access to the newest technologies and key business services

         Vestcom keeps abreast of frequent changes in technology and continually
         upgrades its production capabilities and services, enabling its
         customers to:

                  o  receive the benefits of technological advances without
                  making significant investments in hardware and software;

                  o  retain the flexibility to change the equipment and
                  technologies that Vestcom utilizes to produce their work; and

                  o select from among a variety of medium, such as paper,
                  electronic formatting via the Internet and compact disc, for
                  the production of their communications.

                  Examples of these new technologies and service offerings
                  include:

                           o Vestcom's database management services, including
                           E-CRM, which assist customers in designing,
                           implementing and determining the effectiveness of
                           marketing campaigns; and

                           o Vestcom's electronic based services which provide
                           customers with the option of:

                                    o  Ordering products and marketing materials
                                    via the Internet;

                                    o  Providing electronic document delivery;
                                    and

                                    o Offering electronic bill presentment and
                                    payment.

Industry Overview

The business communications and marketing services industry is highly fragmented
and is characterized by many small companies, which typically serve local
markets and provide a narrow range of services, and by numerous in-house
operations and several national service providers, some of whom serve
specialized market niches. As a result of the increased complexity and volume of
business critical documents and the increased costs of producing these documents
in-house, a growing number of companies have looked to outsourcing as an
alternative to creating, managing and distributing business critical documents
in-house. Vestcom believes that many companies offering outsourcing services
comparable to Vestcom's services:

         o  are unable to meet the needs of large and/or geographically
         dispersed clients;.

                                      -5-
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         o  do not invest sufficiently in rapidly changing technologies, such as
         electronic based services; and

         o  have insufficient capital for expansion.

Vestcom believes that the growth of its market is being driven by several
factors, including:

         o  the increasing trend of businesses to outsource their non-core
         functions;

         o  the increasing trend of viewing business communications as marketing
         opportunities;

         o the growth of the companies and industries in Vestcom's customer
         base, which has resulted in an increase in the volume and variety of
         business critical documents which these companies need to generate;

         o the increased demand of managers, employees and customers for
         business critical documents as a result of recent advances in
         information technology;

         o  government regulations that require the reporting and retention of,
         and access to, a broad range of information; and

         o  new technologies, such as the Internet.

Strategy

Vestcom has implemented the following business strategy:

                          Strategy for Internal Growth:

Provide Technological Leadership and Value-Added Solutions

Vestcom's technological expertise combined with its size and scope of service
offerings enables it to provide customers with "one stop" shopping at a
competitive cost for many of their business communications and marketing
services requirements. Using a focused sales approach, driven by a customer
intimate strategy, Vestcom provides a broad range of high quality, value added
services from multiple locations. Vestcom provides these services on an
outsourced basis in which it generally assumes the responsibilities previously
performed by the customer's in-house operations. Vestcom believes that, in most
cases, it can perform these services more cost-effectively than the customer can
perform them internally.

Achieve Enhanced Operating Efficiency and Promote Name Recognition Through
Integration

Vestcom believes that by integrating its business units it can improve both its
national and local marketing opportunities and increase resource utilization.
Vestcom believes that using fewer, but bigger, more modern and technologically
advanced facilities should enable it to compete more effectively for larger,
more profitable projects from new and existing regional and national accounts,
and also improve its efficiency, turn-around time and capacity.

Vestcom intends to continue its program to integrate its operating units,
including consolidating business locations and eliminating overhead costs.
Vestcom believes that this integration will continue to improve
cost-effectiveness and brand recognition by:

              o  reducing or eliminating redundant functions and facilities;

                                      -6-

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              o  increasing equipment utilization; and

              o  creating common sales and marketing materials and approaches.

New Products and Services

Vestcom intends to supplement the selling efforts of its operating units by
corporate-sponsored internal product development, acquisition of new products
and services and sales and marketing efforts. For example, Vestcom began
offering electronic customer relationship management ("E-CRM") services during
2000, as an additional marketing communication tool.

Leverage technical know-how and production resources

Vestcom's operating units share a common technical expertise, which includes
data management skills, programming know-how, and expertise related to
image/document transmission, formatting, presentation, production and
distribution. The units also operate similar printing and related production
equipment. To leverage its technical know-how and production resources, Vestcom
is continuing its program to transfer industry specific application expertise
among its various operating units. For example, some applications marketed to
customers in the retail industry are produced at operating units not comprising
Vestcom's Retail Solutions Group, and production locations comprising Vestcom's
Retail Solutions Group may produce work for customers in markets other than
retail.

Increase Sales Emphasis on Larger Opportunities

Vestcom intends to capitalize on its available capacity by aggressively
marketing through its integrated sales force. The Company intends to continue
focusing its sales and marketing efforts on large, multi-year projects.

Capitalize on Cross-Selling Opportunities

Vestcom has initiated cross-selling efforts and intends to further capitalize on
the expertise of the various Operating Companies to expand the range of services
provided to existing customers as well as to broaden Vestcom's customer base. As
examples, Vestcom believes that its E-CRM services could be marketed to certain
customers for whom Vestcom presently produces business critical documents, and
its fulfillment services could be marketed to certain customers in the financial
services industry for whom Vestcom presently provides laser printing and
document distribution services. Vestcom further believes that technologies
shared among the Operating Companies, such as the ability to electronically
distribute data received from customers to geographically dispersed locations,
will increase Vestcom's cross-selling opportunities. In addition, certain of the
Operating Companies have expertise in particular industries and with specific
types of customers, such as financial institutions, retail chains and
telecommunications companies. Vestcom believes that this expertise enhances its
ability to obtain and service customers.

For a discussion of certain risks associated with Vestcom's internal growth
strategy, see "Risk Factors - There Are Various Risks Related to Integrating
Vestcom's Operating Companies", " - Vestcom May Not Be Able to Successfully
Manage Its Growth" and "- Vestcom May Not Be Able to Sustain Internal Growth".

                              Acquisition Strategy:

Concurrently with the consummation of its IPO, Vestcom acquired seven companies
in the business communications industry. Since the IPO, Vestcom has expanded its
operations through internal growth and by acquiring eight additional Operating
Companies. Vestcom plans to continue to take advantage of the fragmentation in
the business communications and marketing services industries by making
strategic acquisitions. Through selective acquisitions, the Company will seek to
serve new geographic markets, expand its presence in its existing markets and/or
add complementary services.

                                      -7-
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Targeted geographical areas include those areas which have a high concentration
of potential customers with high-volume, business communications requirements.
In identifying potential acquisition candidates, Vestcom will look for
companies:

              o  that are expected to be accretive to Vestcom's earnings per
              share;

              o  with services that are similar or complementary to those
              provided by Vestcom;

              o  serving geographic markets targeted by Vestcom; and

              o  with strong management and customer relationships.

Vestcom's current focus is on "tuck-in" acquisitions involving companies whose
businesses could be merged into the Company's existing operations without
creating additional fixed costs. Vestcom believes that it can increase market
share through tuck-ins by adding additional customers and leveraging operational
efficiencies through the sharing of capacities and capabilities and the
elimination of duplicate overhead.

For a discussion of certain risks associated with Vestcom's acquisition
strategy, see "Risk Factors--Vestcom Faces Risks Related to its Acquisition
Strategy" and "--Vestcom May Not Be Able to Obtain Adequate Financing to Fund
its Acquisition Program".

Vestcom is regularly engaged in discussions with additional acquisition
candidates and may from time to time enter into letters of intent with respect
to the acquisition of such businesses. No assurance can be given, however, that
Vestcom will acquire any additional businesses.

Services

Vestcom provides a variety of services for its customers based on their specific
needs for business communications and marketing services. These services can be
broken down into business communications, customer relationship management
("CRM") and retail marketing, each of which is discussed below.

Business Communications

Vestcom's business communications production and distribution operations,
sometimes referred to as print and mail operations, provide data processing,
laser printing, variable and selective insertion, and distribution of
time-sensitive documents. Vestcom converts electronic data received from its
customers into informative, accurate and customized business communications such
as brokerage statements, transaction confirms, bank statements, invoices,
pension reports, credit union statements and management reports (including sales
reports, financial and accounting reports and inventory reports). Vestcom
processes its customer's data through specialized systems and software generally
developed by or licensed to Vestcom.

Vestcom's data processing capabilities enable the Company to create personalized
and focused business critical documents, which may include selective marketing
messages, specialized graphics and highlight color. Vestcom's capabilities also
enable it to image small or large volumes of documents with the same high
quality, while permitting each document to contain customized or individualized
information. Vestcom also has the ability to receive data from customers in a
central location and electronically distribute this data to geographically
dispersed production and distribution centers, improving delivery time to
customers. Vestcom produces documents for most of its customers on a regular
basis, either daily, weekly, monthly or quarterly.

Vestcom offers its customers a variety of medium for the production and
distribution of business communications, including paper, electronic formatting
via the Internet, compact disc, microfiche, and microfilm. Vestcom offers
electronic document delivery and electronic bill payment and presentment via the
Internet, which speeds delivery time and enables end users to view information
in electronic format. Vestcom also offers electronic archiving of information
which can be accessed via the Internet. Compact disc is primarily used for rapid
access to information and in situations where the user needs to manipulate the
data easily. Microfiche and microfilm are used primarily for archiving and for
other purposes which are not highly time-sensitive.

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Vestcom utilizes similar processes to produce and distribute direct marketing
material for its customers. In addition, Vestcom's technological capabilities
enable it to produce marketing materials using four color, variable digital
print. Through this process, Vestcom produces mailings containing individualized
information and personal photographs. For example, a pharmaceutical company may
promote a particular drug by producing informational posters and bulletins about
their product that contain a picture of the targeted doctor as well as the
doctor's mailing information. By combining variable, digital color operations
with Vestcom's database capabilities, the Company is able to produce custom made
marketing literature that selects print choices based upon known customer
information.

The Company's production operations also provide intelligent insertion of
supplementary marketing material into envelopes, selective distribution, quality
control and cost-effective and expedited postal delivery. Vestcom provides both
selective (intelligent) and non-selective insertion services. Vestcom's
technology folds and inserts reports, bills, invoices and other marketing
materials into envelopes. Vestcom provides cost effective and rapid distribution
of completed documents. By electronically distributing data received from
customers to geographically dispersed production and distribution centers,
Vestcom reduces distribution costs while improving delivery time.

In addition to Vestcom's individualized applications for customers, the Company
also targets customers desiring to outsource a significant portion or all of
their laser printing and document distribution processes. Vestcom will typically
assume most of the responsibilities previously performed by the customer's
in-house operations either on a facilities management basis or on an outsourced
basis. Vestcom believes that outsourcing will often enable the customer to close
its in-house document management center.

Vestcom's business communications services include the purchase, storage and
inventory management of printed forms, envelopes, letterhead and marketing
materials for customers. Vestcom also offers limited offset printing services to
print forms, stationery and other marketing materials.


Retail Marketing

Vestcom's retail marketing operations include the production and distribution of
laser printed retail shelf labels on both vinyl and laminated paper, laser
printed price books, customer communications material and database services for
the retail industry. In addition, Vestcom produces and distributes
point-of-purchase displays, frequent shopper and personalized ID cards and other
merchandising support materials. For example, major grocery and drug-store
chains rely on Vestcom to manage product pricing information. Promotions and
price changes are transmitted weekly to Vestcom for the creation of
point-of-purchase shelf labels, which are laser printed and ready for
distribution to retail stores throughout North America generally within 24 hours
of receipt of data. These labels typically display the product's price
(including unit price), a bar-code for scanning and information about the
product such as its size and weight. Vestcom utilizes high-speed laser printers
and specialized finishing equipment to produce these labels. Through its
nationwide distribution network, Vestcom provides rapid turnaround of labels to
its customers' stores and distribution centers daily, weekly or as otherwise
required to reflect changes in the information contained on the labels.

Vestcom also produces identification cards for the health insurance industry,
merchandise support products such as store signage and label clips, produce and
meat labels, scale label blanks, and register tape for grocery and drugstore
chains. The Company also sells laminating machines and a full range of
consumable supplies, including blank vinyl label sheets, to customers choosing
to produce identification cards and retail price shelf labels in-house.

                                      -9-
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The Company seeks to increase its share of the retail labeling market through
increased penetration of existing retail customers and the introduction of new
products. In 1999, the Company introduced new products such as Pop-O-Gram
(in-store product advertising) and Plan A+ shelf strips (combining pricing and
product shelf layout / Plan-O-Gram data for retail store chains) and increased
its marketing and sales of these products during 2000. These new products are
intended to assist retail store operators with in-store merchandising and
advertising.

Customer Relationship Management ("CRM") Services

Vestcom's CRM services include database, fulfillment and Internet related
services.

         Database

Vestcom's database services include the creation and maintenance of customer
databases through targeted e-mail, web pages or captured survey and response
data. Vestcom's advanced data management techniques and e-CRM services assist in
creating customer driven marketing campaigns. Through its e-CRM services the
Company helps its customers tailor their marketing focus and target specific
desired audiences. The combination of database management with Vestcom's other
capabilities, including the printing and distribution of direct marketing
materials and electronic presentment, enables the Company to provide its
customers with end-to-end value-added services. Vestcom is able to assist its
customers by:

              o  collecting customer specific information and organizing this
              critical information;

              o  identifying and targeting customers;

              o  developing and creating promotional marketing materials and
              direct mail marketing programs aimed at these customers;

              o  distributing the marketing materials electronically and via
              traditional mail;

              o  determining the effectiveness of direct marketing programs by
              performing database response analyses; and

              o  modifying future marketing campaigns based upon customer
              response.

Vestcom's strategy is to expand its database management services by
cross-selling these services to its direct mail and fulfillment customers.
Vestcom expects its e-CRM services to increase business communications volume in
the future as the database marketing work generates electronic and printed
information.

         Fulfillment

Vestcom provides fulfillment services whereby it warehouses clients' inventory
of literature or products, receives and compiles orders and then distributes the
materials to various locations based upon the customer's order. Vestcom
processes requests via business reply cards, fax ordering, inbound telemarketing
and the Internet. Vestcom's inbound telemarketing service includes customer
service representatives who take orders and provide information concerning
inventory availability, anticipated delivery and the status of previously placed
orders. Vestcom's services allow customers to seamlessly integrate their call
center or website to Vestcom, enabling Vestcom to fill orders directly. Vestcom
also produces customized computer reports which track the volume and frequency
of shipments of materials to various locations.

                                      -10-
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Vestcom's automated fulfillment process and its laser print capabilities allow
the Company to store literature electronically, enabling the Company to
personalize specific materials and print marketing materials and letters on
demand. Vestcom can accommodate quick changes of new information and eliminate
waste by limiting the amount of obsolete inventory.

Vestcom's fulfillment operations use Oracle's Online Analytical Processing
("OLAP") technology, which enables Vestcom's clients to determine customer
demand and optimize selling strategies. Vestcom's fully integrated web-based
fulfillment interface works in tandem with the Company's other fulfillment
services. A client's website is incorporated into Vestcom's materials ordering
process which links the site activity to inventory and customer information
databases. This allows Vestcom's clients, their customers and other users to
view materials prior to ordering and to analyze data directly from their office
PC to check on usage and inventory levels and adjust to current market demands.
These links are achieved through standard web interfaces and browsers that do
not require any additional hardware or software investment.

As part of its fulfillment services, Vestcom prints, packages and distributes
documents that are subject to frequent revision or unpredictable demand, such as
product instruction manuals, training manuals and technical materials. For
example, a software company that provides instruction manuals to its customers
may need to update the manuals frequently to reflect changes in its product.
Vestcom's print on demand system permits the customer to revise the instruction
manual, cost-effectively producing the number of copies required at the time the
information is needed. The flexibility of Vestcom's system enables the customer
to make product enhancements (such as corrections or improvements to product
manuals) without maintaining costly inventories of documents that might quickly
become outdated. Vestcom also provides complete assembly of software packages,
including coordination of software duplication and production of the applicable
documentation.


         Internet Services

Vestcom's range of data management and delivery services include Internet-based
solutions such as electronic bill presentment and payment, web-based fulfillment
services and e-mail distribution. Vestcom's automated information and technology
infrastructure enables the Company to distribute bills, statements and marketing
material over the Internet. Vestcom also provides Internet-based data archiving.

Vestcom's Internet services are complementary to the Company's more traditional
services and add a unique distribution tool. Just as paper-based bills received
by consumers often contain marketing inserts and product offerings, Vestcom's
Internet bill presentment capabilities enable its customers to advertise
additional products and services on their electronic bills. Further, a Vestcom
customer can determine to distribute the same information to the end users via
different medium, such as traditional paper-based marketing literature and
e-mail messaging.

Vestcom believes that an increasing number of communications service providers,
utilities, financial services and other industries will require electronic
statement and information presentment capabilities. Because of its existing
volume, state-of-the-art processing systems and strong client relationships, the
Company believes its is in a unique position as a one-stop, full-service
supplier of either paper-based or electronically delivered information.

Development of New Services

Vestcom believes that its future success depends on its ability to enhance its
current services and develop new services that address the increasingly
sophisticated needs of its customers.

Sales and Marketing

Vestcom's sales efforts are handled principally through its in-house direct
sales staff of 56 sales professionals. Vestcom also employs customer service
representatives to provide on-going support to existing customers and to oversee
the implementation of new customer projects.

                                      -11-
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Vestcom's sales force is aligned by vertical markets such as financial services,
pharmaceutical services and retail services to provide the sales professionals
with a deeper understanding of the dynamics of a particular industry. This
alignment assists the sales force in tailoring solutions to a particular client.
Vestcom's sales force is trained and encouraged to cross-sell the Company's
products and services and to seek out higher margin opportunities. In addition,
Vestcom employs technical product managers who can help local sales
professionals with local opportunities when an expert is needed, such as
Internet services or database solutions.

Vestcom's sales professionals and its customer service support staff interact
extensively with the customer and Vestcom's operations staff to address specific
customer needs. Local sales efforts are augmented by corporate supported
participation in industry trade shows and conferences, articles and
advertisements in trade journals and seminars sponsored by Vestcom for customers
and prospective customers. Vestcom provides marketing support to its sales staff
through the production and distribution of marketing materials, telemarketing
and seminars.

Customers

Vestcom provides services to customers in a broad range of industries, including
the financial services, retail, pharmaceutical, telecommunications, utilities,
health care, travel and leisure and software industries. No one customer
presently accounts for over 6% of Vestcom's revenues.

Competition

Vestcom operates in a highly competitive industry. There can be no assurance
that Vestcom's targeted customer base will outsource more of their needs for
business communications and marketing services or that such businesses will not
bring in-house services that they currently outsource. In addition, with respect
to those services that are outsourced, Vestcom competes with a variety of
companies, many of which have greater financial resources than Vestcom. A number
of Vestcom's current suppliers of equipment and services are also a source of
competition. Vestcom's major competitors include Output Technology Solutions
(a division of DST Systems), IKON Office Solutions, Wallace Computer Services,
Inc., Bowne & Co., Inc., Moore Corporation Ltd., The Relizon Company (formerly a
division of Reynolds & Reynolds), Acxiom Corporation, Harte Hanks
Communications, Inc., F.Y.I. Incorporated, Xerox Business Services, Pitney Bowes
Management Services, Anacomp, and Lason, Inc., as well as smaller local,
regional and national providers.

Certain of Vestcom's competitors operate in broader geographic areas than
Vestcom, and others may choose to compete in Vestcom's areas of operation in the
future. In addition, Vestcom intends to enter new geographic areas through
internal growth and by acquiring existing companies, and expects to encounter
significant competition from established competitors in each of these new areas.
As a result of this highly competitive environment, Vestcom may lose customers
or have difficulty in acquiring new customers and new companies and its results
of operations may be adversely affected.

Vestcom believes that the principal competitive factors in providing one-stop
solutions to meet customers' business communications and marketing services
requirements include technological expertise, quality and accuracy, turnaround
time, price, reliability and security of service, reputation, client industry
expertise, capacity back-up and redundancy capabilities and customer support and
service. Vestcom believes that it competes favorably with respect to these
factors, although there can be no assurance that it will continue to do so.

Employees

At December 31, 2000, Vestcom had approximately 1000 full-time and 100 part-time
employees. No employees of Vestcom are represented by a labor union. Vestcom
considers its relations with its employees to be good.

                                      -12-
<PAGE>


                                  RISK FACTORS

Vestcom Has Limited Combined Operating History

Prior to the consummation of the IPO and the acquisitions of the original seven
Operating Companies on August 4, 1997, Vestcom conducted no operations and
generated no revenues. Vestcom has acquired eight additional Operating Companies
since the IPO. These companies, together with the original seven companies, are
referred to as the "Operating Companies." Prior to their acquisition by Vestcom,
the Operating Companies operated as separate, independent businesses. Vestcom
cannot be certain that the Operating Companies or the companies it may acquire
in the future will achieve sales and profitability justifying Vestcom's
investment in them.

There are Various Risks Related to Integrating Vestcom's Operating Companies

The process of integrating the operations of the Operating Companies and other
businesses Vestcom may acquire into Vestcom's business may involve unforeseen
difficulties and may require a significant amount of Vestcom's financial and
other resources, including management time. In connection with the integration
process, Vestcom may experience:

              o  the loss of customers;

              o  the loss of personnel;

              o  increased costs related to recruitment and termination
              payments;

              o  operating interruptions;

              o  moving and relocation costs;

              o  abandonment costs related to the termination of leases; and

              o  increased expenditures for leasehold improvements and fit up
              costs for new facilities.

Vestcom cannot be certain that it will be able to integrate the operations of
these businesses successfully into its operations. In addition, to improve
operating efficiencies, Vestcom must conform all acquired companies into certain
necessary common systems and procedures, including certain production and
accounting systems. Vestcom cannot be certain that it will successfully
institute these common systems and procedures for all acquired companies or
accomplish this without substantial costs, delays or other operational or
financial difficulties. Vestcom's inability to integrate or successfully manage
the companies it has acquired or may acquire in the future could have a material
adverse effect on Vestcom's business, financial condition and results of
operations.

Vestcom May Not Be Able to Successfully Manage Its Growth

Vestcom expects to expend significant time and effort in expanding its business
and acquiring other businesses. This growth may place a significant strain on
Vestcom's resources. Vestcom cannot be certain that its systems, procedures and
controls will be adequate to support its operations as they expand. Any future
growth also will impose significant additional responsibilities on members of
Vestcom's senior management, including the need to identify, recruit and
integrate new senior level managers and executives. Vestcom cannot be certain
that it will be able to identify and retain such additional managers and
executives. As a result, Vestcom cannot be certain that it will be able to
expand its business or manage any future growth effectively and profitably.

                                      -13-
<PAGE>


Vestcom May Not Be Able to Sustain Internal Growth

A key element of Vestcom's strategy is to generate internal growth by
capitalizing on cross-selling opportunities, generating new clients through
aggressive marketing, focusing on larger opportunities and expanding its service
offerings. Internal growth will depend upon factors including:

              o  the effective initiation, development and maintenance of client
              relationships;

              o  the expansion and coordination of sales functions;

              o  the development and success of new products and services;

              o  Vestcom's ability to maintain the high quality of the services
              it offers; and

              o  the recruitment, motivation and retention of qualified
              management and other personnel.

Sustaining growth will also require continued access by Vestcom to capital, the
successful cross-selling of products and services among the Operating Companies
and the realization by Vestcom of economies of scale. Vestcom cannot be certain
that its strategies will continue to generate internal growth or that it will be
able to generate cash flow adequate for its operations and to support growth.

Vestcom Depends on Certain Technology

Vestcom's success is dependent on its ability to acquire and utilize competitive
production technologies on a more cost-effective basis than Vestcom's existing
and potential customers can utilize them in-house. Vestcom's services could be
rendered noncompetitive or obsolete by technological advances made by its
current or potential production technology suppliers, some of whom may be
competitors. In addition, Vestcom could make a significant investment in
equipment or technology which quickly becomes obsolete. Vestcom cannot be
certain that it will be able to obtain the rights to use any of these
technologies, that it will be able to implement effectively these technologies
on a cost-effective basis or that these technologies will not render
noncompetitive or obsolete Vestcom's role as a leading provider of business
communications, CRM and retail marketing services.

Vestcom May Be Affected by Consolidation in the Industries of Certain Customers

A significant portion of Vestcom's customers are in the financial services and
retail industries. These industries have experienced consolidation in recent
years and may experience additional consolidation in the future. Vestcom cannot
predict the effects that such consolidation, or the possible consolidation in
other industries which Vestcom serves, such as the healthcare industry, may have
on its business or future prospects. For example, in connection with such
consolidation, Vestcom may either lose or gain additional customers or
experience variations in the volume of work received from its customers.

Vestcom Faces Risks Related to its Acquisition Strategy

Vestcom intends to expand its operations through the acquisition of additional
businesses in the business communications, CRM and retail marketing businesses.
There can be no assurance that Vestcom will be able to identify, acquire or
profitably manage additional businesses or successfully integrate acquired
businesses, if any, into Vestcom without substantial costs, delays or other
operational or financial difficulties. Further, acquisitions may involve a
number of special risks, including:

              o  adverse effects on Vestcom's operating results;

              o  diversion of management's attention;

              o  failure to retain key personnel or customers of an acquired
              company;

              o  risks associated with unanticipated events; and

              o  amortization of acquired intangible assets.

                                      -14-
<PAGE>


Some or all of these risks could have a material adverse effect on Vestcom's
business, financial condition or results of operations. In addition, if
competition for acquisition candidates increases, the cost of acquiring
businesses could increase materially. Changes in accounting requirements
relating to acquisitions could make it more difficult for Vestcom to structure
accretive acquisitions. Unfavorable developments at a single acquired company
could have a material adverse impact on the reputation and business of Vestcom
as a whole. In addition, there can be no assurance that acquired businesses, if
any, will achieve anticipated revenues and earnings. The inability of Vestcom to
implement and manage its acquisition strategy successfully may have an adverse
effect on the business or future prospects of Vestcom.

Vestcom May Not Be Able to Obtain Adequate Financing to Fund its Acquisition
Program

Vestcom cannot readily predict the timing, size and success of its acquisition
efforts or the capital it will need for these efforts. Vestcom currently intends
to finance future acquisitions by using a combination of its Common Stock, notes
and cash. As a result of the decrease in the market value of Vestcom's Common
Stock since the IPO, it currently is more difficult and dilutive for Vestcom to
use stock in structuring acquisitions. If the Common Stock does not maintain a
sufficient market value, or if the owners of the businesses Vestcom wishes to
acquire are unwilling to accept Common Stock as part of the purchase price,
Vestcom will be required to use more of its cash resources, if available, to
maintain its acquisition program. Using cash for acquisitions limits Vestcom's
financial flexibility and makes Vestcom more likely to seek additional capital
through borrowing money or selling stock. Vestcom may not be able to obtain cash
if and when it is needed on acceptable terms, or at all. This could have a
material adverse effect on Vestcom's business, financial condition and results
of operations.

The Price of Vestcom's Common Stock May Be Volatile

In recent years the stock market has experienced significant price and volume
fluctuations that often have been unrelated or disproportionate to the operating
performance of particular companies. These fluctuations, as well as a shortfall
in sales or earnings compared to public market analysts' expectations, changes
in analysts' recommendations or projections, and general economic, industry
specific and market conditions, may adversely affect the market price of
Vestcom's Common Stock. Vestcom's quarterly results of operations may vary
materially as a result of factors which include: the costs of integrating
acquired companies, the gain or loss of material customers and contracts,
changes in Vestcom's operating cost structure, variations in the prices charged
for Vestcom's services and the timing and structure of Vestcom's acquisitions.
Fluctuations in Vestcom's stock price may adversely affect Vestcom's business.

Vestcom May Face Potential Liability for Breach of Confidentiality

A substantial portion of Vestcom's business involves the handling of data
containing confidential and other sensitive information. There can be no
assurance that unauthorized disclosure will not result in liability to Vestcom
or damage Vestcom's reputation. In addition, in connection with providing its
Internet suite of products, Vestcom transmits information about third parties
over the Internet. Vestcom may be exposed to liability with respect to the
transmission of such third party information.

Vestcom May Have Business Interruptions

Vestcom believes that its future results of operations are dependent in large
part upon its ability to provide prompt and efficient services to its customers.
Certain of Vestcom's operations are performed at a single location and are
dependent on continuous computer, electrical and telephone service. As a result,
any disruption of Vestcom's day-to-day operations could have a material adverse
effect upon Vestcom. There can be no assurance that a fire, flood, earthquake,
power loss, phone service loss or other event affecting one or more of Vestcom's
facilities would not disable these services. Any significant damage to any such
facility or other failure that causes significant interruptions in Vestcom's
operations may not be covered by insurance. Any uninsured or underinsured loss
could have a material adverse effect on Vestcom's business, financial condition
or results of operations.

                                      -15-
<PAGE>



Vestcom's Business May Be Affected By Fluctuations in the Price of Supplies and
other Costs or Alternative Technologies

Prices for paper, equipment maintenance, delivery services and labor costs may
increase from time to time in the future. Any significant increases in the
prices of these materials and services that cannot be passed on to customers
could have a material adverse effect on Vestcom's business, financial condition
or results of operations. In addition, increases in the prices of supplies and
other materials and services might cause some of Vestcom's customers to utilize
alternative technologies in their respective businesses that do not involve the
use of paper or the mail, such as the Internet. While Vestcom presently offers
electronic distribution services via the Internet, there can be no assurance
that these services will be accepted widely by Vestcom's customers, or that
other technologies (whether now existing or developed in the future) may not in
the future reduce or supplant the demand for Vestcom's services, which could in
turn adversely affect Vestcom's business.

Effect of Certain Charter and Bylaw Provisions, Shareholder Rights Protection
Plan and New Jersey Law

The Board of Directors of Vestcom is empowered to issue common stock and
preferred stock without shareholder action. The existence of this "blank-check"
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of Vestcom by means of a tender offer, merger, proxy
contest or otherwise and may adversely affect the prevailing market price of
Vestcom's Common Stock. In addition, the New Jersey Shareholders Protection Act
prohibits certain persons from engaging in business combinations with Vestcom.

In December 1999, Vestcom adopted a shareholder protection rights plan as part
of its strategy of enhancing shareholder value. The Board believed that the plan
would provide it with more negotiating leverage in seeking to obtain a full and
fair price from any potential bidder. Although the Board considered that the
shareholder protection plan might deter an acquisition proposal or tender offer
for the Company's common stock that might otherwise be forthcoming, the Board
believed that the advantages of the plan far outweighed the disadvantages.

The Board also adopted several bylaw amendments in December 1999 to protect
shareholder value. The Board amended the bylaws to (a) eliminate the right of
20% shareholders to call a special meeting of shareholders, (b) provide
procedures that must be followed by shareholders who seek to have the Company's
shareholders take corporate action by written consent and (c) provide advance
notification procedures for shareholders who want to nominate persons for
election to the Board or propose other business for consideration at a meeting
of shareholders. Since the Board of Directors owes a fiduciary duty to all
shareholders, while outside third parties who may seek to acquire the Company do
not, the purpose of the amendments is to encourage these parties to negotiate
with the Board and to establish clear procedures for parties to follow. While
the bylaw amendments may limit the ability of a shareholder to call a special
meeting, they do not eliminate that right, and shareholders still have a range
of alternatives.

                                      -16-
<PAGE>



Item 2. Properties

Vestcom currently operates in 29 facilities, aggregating approximately 855,000
square feet. These facilities are located in 17 states and in the Provinces of
Quebec and Ontario, Canada. All of these facilities are leased and are used for
operations, administrative and/or storage functions. Leases vary in term
remaining from month-to-month to 13 years and in some cases, include options to
extend the lease term.

Item 3. Legal Proceedings

Vestcom is, from time to time, a party to legal proceedings arising in the
normal course of its business. Management believes that none of the currently
outstanding legal proceedings arising in the normal course of Vestcom's business
will have a material adverse effect on Vestcom's business, financial position or
results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

During the fourth quarter of the year ended December 31, 2000, no matters were
submitted to a vote of Vestcom's security holders.

Item 4A. Executive Officers of the Registrant

Vestcom's executive officers are as follows:

<TABLE>
<CAPTION>

Name                                       Age*                Positions with Vestcom
----                                       ----                ----------------------
<S>                                         <C>                <C>
Joel Cartun                                 61                 Chairman of the Board

Brendan Keating                             46                 Chief Executive Officer, President and Chief
                                                               Operating Officer

Michael D. Helfand                          41                 Executive Vice President, Chief Financial
                                                               Officer, Treasurer and Assistant Secretary

Sheryl Bernstein Cilenti                    32                 Vice President, General Counsel and Secretary

David Adler                                 49                 Vice President and Chief Technology Officer
</TABLE>

* Ages are as of March 1, 2001.

Joel Cartun has been a director of Vestcom since its incorporation in September
1996 and Chairman of the Board since August 1997. He served as Chief Executive
Officer from its incorporation until April 2000, and as President of Vestcom
from its incorporation until March 1999. Mr. Cartun founded Comvestrix Corp.
(now known as Vestcom Mid-Atlantic, Inc. ("VMA")), one of the original seven
Operating Companies, in 1969, and has served as a director of that corporation
since its incorporation, and as Chief Executive Officer until April 2000, and as
President until October 1998. Mr. Cartun was a founder of Xplor International, a
trade association for the electronic printing industry.

Brendan Keating has served as Chief Executive Officer of Vestcom since April
2000, as President of Vestcom since March 1999, as a director since May 1998,
and as Chief Operating Officer of Vestcom since October 1997. He served as
Executive Vice President of Vestcom from October 1997 until March 1999. He has
served as President of VMA since October 1998, and as Chief Operating Officer of
VMA from October 1997 until April 1998. He served as Vice President of Bowne &
Co., Inc. (a financial printing company) from 1991 until October 1997. He also
served as Vice President of Operations of Bowne of New York City, Inc. from 1985
to 1991, and as President of Bowne Business Communications from 1993 to 1995.

                                      -17-
<PAGE>

Michael D. Helfand has served as Executive Vice President, Chief Financial
Officer and Treasurer of Vestcom since October 1999 and as Assistant Secretary
since February 2000. Prior to joining Vestcom, Mr. Helfand served as the
Executive Vice President and Chief Financial Officer of World Color Press from
February 1998 to December 1998. Prior to that, he served as Vice President and
Assistant Controller of ABC, Inc. from October 1994 to February 1998.

Sheryl Bernstein Cilenti has served as Vice President and General Counsel of
Vestcom since October 1997 and as Secretary of Vestcom since November 1997. From
September 1993 until joining Vestcom, Ms. Cilenti was an associate at Lowenstein
Sandler PC in Roseland, New Jersey, where she practiced law primarily in the
areas of mergers and acquisitions, securities and general corporate law.

David Adler has served as Vice President of Vestcom since February 28, 2001 and
as Chief Technology Officer of Vestcom, and Vice President and Chief Technology
Officer of VMA since May, 1998. Prior to joining Vestcom, from 1993 through
April 1998, Mr. Adler served as the Director of Database Marketing and
Management for the Business Marketing Division of AT&T (a telecommunications
company). Prior to that, he served as Vice President - Information Services and
Chief Information Officer for AT&T American Transtech, from 1988 through 1993.




                                      -18-


<PAGE>



                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Vestcom's Common Stock has traded on the Nasdaq National Market since July 30,
1997, under the symbol "VESC". The following table sets forth the range of high
and low closing sales prices for the Common Stock on the Nasdaq National Market
for the periods indicated:


                                               High                       Low
                                               ----                       ---
Year ended December 31, 1999:
              First quarter                    8.50                      4.750
              Second quarter                   6.438                     3.50
              Third quarter                    4.688                     2.625
              Fourth quarter                   3.875                     2.688

Year ended December 31, 2000:
              First quarter                    6.375                     3.50
              Second quarter                   5.375                     3.063
              Third quarter                    4.00                      2.375
              Fourth quarter                   2.656                     1.531


As of March 19, 2001, there were 61 holders of record of the Common Stock.

Vestcom has not declared or paid any dividends on its Common Stock. Vestcom
currently intends to retain earnings to support its growth strategy and does not
anticipate paying dividends in the foreseeable future. Payment of future
dividends, if any, will be at the discretion of Vestcom's Board of Directors
after taking into account various factors, including Vestcom's financial
condition, results of operations, current and anticipated cash needs and plans
for expansion and any restrictions that may be imposed by Vestcom's future
credit facilities. Vestcom's credit facility with Summit Bank restricts
Vestcom's ability to pay cash dividends on its Common Stock. The credit facility
provides that Vestcom may declare and pay quarterly cash dividends on its Common
Stock only if after giving effect to any such payment Vestcom would not be in
default under any of the provisions of such credit facility.

In November 2000, the Company issued 127,746 shares of Common Stock that were
not registered under the Securities Act of 1933. Such shares were issued to a
former shareholder of one of the original seven Operating Companies, and were
issued upon the conversion of shares of a Canadian subsidiary. No other
consideration was given for the shares. The shares were issued in reliance upon
the exemption provided by Section 4(2) of the Securities Act of 1933.

                                      -19-

<PAGE>


Item 6.       SELECTED FINANCIAL DATA

         Vestcom acquired the original seven Operating Companies on August 4,
1997 concurrently with the consummation of the Company's initial public offering
("IPO"). Prior to the consummation of the IPO, Vestcom conducted no activities,
other than those related to the IPO and the acquisition of the seven original
Operating Companies. For financial statement presentation purposes, Vestcom has
been identified as the accounting acquirer. The following selected historical
financial data of Vestcom have been derived from the audited financial
statements of Vestcom. The Statements of Operations Data included below reflect
the operations of the Operating Companies from the respective dates of their
acquisition.

                             SELECTED FINANCIAL DATA
                (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                                                                    Period from
                                                                                                                     Inception
                                            Year Ended        Year Ended         Year Ended       Year Ended    (September 19, 1996)
                                            ----------        ----------         ----------       -----------   --------------------
                                            December 31,      December 31,       December 31,     December 31,     to December 31,
                                           -------------     -------------      -------------    -------------     ---------------
                                               2000               1999               1998             1997              1996
                                               ----               ----               ----             ----              ----
<S>                                        <C>               <C>                <C>              <C>            <C>
Statement of Operations Data:

Revenues................................     $  146,076         $ 130,240          $  108,676        $ 29,777        $       -

Income (Loss) from Operations...........     $    7,250         $ (1,383)          $    8,927        $  2,671           (1,633)

Net Income (Loss) - Basic...............     $    2,337         $ (2,333)          $    4,627        $  1,308        $  (5,078)
Net Income (Loss) - Diluted.............     $    2,337         $ (2,333)          $    4,623        $  1,249        $  (5,078)
Net Income (Loss) per share - Basic.....     $      .26         $   (.26)          $      .52        $    .31        $       -
Net Income (Loss) per share - Diluted...     $      .26         $   (.26)          $      .52        $    .29        $       -

Additional Information
EBITDA                                       $   18,344         $   6,862          $   15,228        $  4,681

                                             December 31,      December 31,      December 31,     December 31,
                                            -------------     -------------     -------------     ------------
Balance Sheet Data:                             2000              1999              1998               1997
                                                ----              ----              ----               ----

Working capital                              $    6,319         $   7,864          $    3,745        $ 17,147
Total assets                                 $  155,944         $ 159,380          $  142,544        $114,346
Long term obligations                        $   27,857         $  34,144          $   21,386        $ 10,802
Stockholders' equity                         $   92,078         $  89,799          $   89,911        $ 83,028
</TABLE>

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

Overview

         The following discussion of the financial condition and results of
operations of Vestcom should be read in conjunction with Vestcom's Consolidated
Financial Statements and the related notes thereto appearing elsewhere herein.

Disclosures Regarding Forward Looking Statements

         This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended that are based on
the beliefs of Vestcom's management as well as assumptions made by and
information currently available to Vestcom's management. Such statements reflect
the current views of Vestcom with respect to future events based on currently
available information and are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward-looking statements. Factors that could cause actual results to differ


                                      -20-
<PAGE>

materially from Vestcom's expectations include, but are not limited to, the
following: the ability of the Company to execute and manage the Company's growth
strategy, the results of the Company's investment spending, the ability to
effectively consolidate production facilities and functions as part of the
Company's integration program, the ability to realize reduced overhead costs,
increased production capacity and operating efficiencies, improved financial
results, operational synergies and enhanced services at the newly consolidated
facilities, acceptance of Vestcom's products and services, including electronic
and Internet related services, in the marketplace, the entry of new competitors
in the marketplace, the ability to attract and retain key customers, the ability
to positively modify its revenue mix, variations in quarterly results, the
sufficiency of the Company's working capital, changes in the business
communications industry, the availability of suitable acquisition candidates and
the assimilation of new acquisitions with existing business. Other factors are
described from time to time in Vestcom's public filings with the Securities and
Exchange Commission, news releases and other communications. Also, when Vestcom
uses the words "believes", "expects", "anticipates," "estimates," "plans,"
"intends," "objectives," "goals," "aims," "projects" or similar words or
expressions, Vestcom is making forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. Vestcom does not undertake any obligation to release
publicly any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Introduction

         Vestcom International, Inc. was incorporated in September 1996.
Concurrently with the consummation of Vestcom's IPO on August 4, 1997, Vestcom
acquired seven companies in the business communications industry each of which
had been operating as a separate independent entity. For accounting purposes,
the acquisitions of the original seven Operating Companies were deemed to be
made August 1, 1997, using purchase accounting, with Vestcom as the acquirer.
Since the IPO, Vestcom has acquired eight additional companies in the business
communications industry (collectively with the original companies referred to
herein as "Operating Companies").

Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 ($ in
000's)

         Revenues increased $15,836 or 12.2%, from $130,240 for the year ended
December 31, 1999 to $146,076 for the year ended December 31, 2000. This growth
was primarily due to increased sales to new and existing customers primarily in
the financial services and retail markets. In addition, the Company's
fulfillment revenue has grown significantly over the prior year due to new
customers.

         Certain 1999 expenses have been reclassified from selling, general and
administrative expenses to cost of revenues in order to conform to the 2000
presentation. The Company believes these expenses relate more directly to
revenue generation activities and have been reclassified to more accurately
reflect gross margins.

         Vestcom's gross profit increased $4,610, or 12.2%, from $37,727 for the
year ended December 31, 1999 to $42,337 for the year ended December 31, 2000.
The increase in gross profit was primarily attributable to the Company's
increased revenue for the year. Gross margins year over year have remained
stable at 29%, while the Company experienced increased costs associated with its
newly upgraded facilities.

         Selling, general and administrative expenses increased $1,260, or 3.7%,
from $33,932 for the year ended December 31, 1999, to $35,191 for the year ended
December 31, 2000. As a percentage of revenues, selling general and
administrative expenses decreased from 26.1% in 1999, to 24.1% in 2000. This
decrease was attributable to the Company's effort to streamline its cost
structure and enhance efficiencies, which has been attained through the
Company's restructuring and consolidation efforts made during 1999.

         During the second quarter of 2000, the Company reversed approximately
$383 of restructuring reserves incurred during 1999 in connection with the
consolidation and integration of operating facilities. The Company also recorded
a nonrecurring charge of $279, in 2000 for impaired assets, which resulted from
the restructuring plan implemented at the Company's facilities.


                                      -21-
<PAGE>


         Interest expense increased $515, or 22.7%, from $2,269 for the year
ended December 31, 1999, to $2,784 for the year ended December 31, 2000. This
increase was attributable to increased borrowings on the Company's credit
facility early in 2000 and increased interest rates in 2000 over the prior year.

         Other income increased $1,171, or 547.1%, from $214 for the year ended
December 31, 1999, to $1,385 for the year ended December 31, 2000. This increase
was primarily related to the gain on the sale of the Company's mail presort
assets which were sold in the fourth quarter of 2000.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 ($ in
000's)

         Revenues increased $21,565, or 19.8%, from $108,676 for the year ended
December 31, 1998, to $130,240 for the year ended December 31, 1999. This
increase was primarily attributable to the full year effect of 1998 acquisitions
which accounted for approximately $14,429, or 13.3%, of such increase. The
remainder of the increase, or approximately $7,136, was attributable to internal
growth over 1998 revenues. This internal growth, of 6.6%, was due to increased
sales to new and existing customers primarily in the financial services and
retail markets. The Company's internal growth rate accelerated in the fourth
quarter of 1999 due to the Company's consolidation and integration plan.

         Certain 1999 expenses have been reclassified from selling, general and
administrative expenses to cost of revenues in order to conform to the 2000
presentation. The Company believes these expenses relate more directly to
revenue generation activities and have been reclassified to more accurately
reflect gross margins.

         Vestcom's gross profit decreased $2,155, or 5.4%, from $39,882 for the
year ended December 31, 1998, to $37,727 for the year ended December 31, 1999.
Excluding the effect of the reclassification, the gross profit would have
increased $2,856, or 7.2%, to $42,738 for the year ended December 31, 1999. The
increase in gross profit, excluding the effect of the reclassification, was
primarily attributable to acquisitions which accounted for $5,423, or 13.6%, of
such increase, offset by increased costs and duplicate expenses incurred as the
Company consolidated its operations and excess capacity in its fulfillment
operations. These costs caused gross margins to decrease from 36.7% in 1998, to
32.8% in 1999, excluding the effect of the reclassification.

         Selling, general and administrative expenses increased $2,977, or 9.6%,
from $30,955 for the year ended December 31, 1998, to $33,932 for the year ended
December 31, 1999. Excluding the effect of the reclassification, selling,
general and administrative expenses would have increased $7,988, or 25.8%, to
$38,943 for the year ended December 31, 1999. As a percentage of revenues,
selling general and administrative expenses increased from 28.5% in 1998, to
29.9% in 1999, excluding the effect of the reclassification. The increase,
excluding the effect of the reclassification, was attributable in part to
acquisitions, which accounted for approximately $2,450, or 7.9%, of such
increase. The remaining increase in selling, general and administrative expense
was primarily due to increased compensation expense including increased
commissions on higher sales, increased staffing for new technical and
administrative personnel to support the greater volume of business, increased
spending in sales and marketing programs and the costs associated with increased
corporate development programs. In addition, the Company incurred costs in
connection with its efforts to integrate its Operating Companies. These costs
included redundant overhead and facility costs and other integration costs.

         In 1999, the Company recorded $5,178 of restructuring and other
non-recurring charges. The Company's restructuring plan was comprised of the
consolidation of certain facilities and the integration of operations in three
of the Company's operating locations: the Mid-Atlantic area, the New England
area and Canada. The restructuring charges included $2,786 of facility closure
and consolidation costs and $1,250 related to the termination of employees. In
addition, the Company incurred moving expenses of $1,142 related to the various
relocations during the second and third quarters of 1999. The restructuring plan
did not contemplate the Company eliminating any of its current products or
services; the consolidations were designed to make the Company's existing
businesses more efficient.


                                      -22-
<PAGE>


         Interest expense increased $1,473, or 185.1%, from $796 for the year
ended December 31, 1998, to $2,269 for the year ended December 31, 1999. This
increase was attributable to increased borrowings on the Company's credit
facility to finance acquisitions, equipment purchases, leasehold improvements
and payments related to earnout agreements.

Liquidity and Capital Resources

       At December 31, 2000, Vestcom had working capital of approximately $6,319
compared to $7,864 at December 31, 1999. The decrease is primarily attributable
to a decrease in income tax receivables, as a result of tax refunds received
during 2000. Net cash provided by operating activities for the year ended
December 31, 2000, was approximately $14,380 and was generated primarily from
net income, depreciation, amortization charges and income tax refunds, partially
offset by increases in accounts receivable. Net cash used in investing
activities for the year ended December 31, 2000, was approximately $6,416, which
consisted primarily of $9,998 used for the purchase of property and equipment
(which includes software), partially offset by proceeds from the sale of the
Company's mail presort assets sold in the fourth quarter of the year. Net cash
used in financing activities for the year ended December 31, 2000, was
approximately $8,732, which reflected the reduction of the Company's long term
debt.

       On August 13, 1997, the Company and Summit Bank entered into an Equipment
Facility and Revolving Credit Agreement in the amount of $30,000 (the "Credit
Facility"). On May 8, 2000, the Company and Summit Bank entered into the Fifth
Amendment to the Credit Facility, which among other things, increased the Credit
Facility to $31,500. On February 2, 2001, the Company and Summit Bank entered
into the Sixth Amendment to the Credit Facility, which extended the maturity
date to April 1, 2002. On December 31, 2000, approximately $16,732 was
outstanding and $12,885 remained available under the Credit Facility. Under the
terms of the Credit Facility, amounts paid back on equipment loans are not
available for future borrowings.

       Vestcom incurs postage costs on behalf of customers of approximately
$2,500 to $6,000 each month. Vestcom seeks to collect such postage costs from
its customers in advance. At December 31, 2000, Vestcom had postage advances
from customers in the amount of approximately $5,454 and had prepaid postage and
postage receivables of approximately $2,536. To the extent Vestcom is
unsuccessful in obtaining postage costs in advance, cash flow is negatively
affected and Vestcom may be required to utilize its working capital or credit
facility to cover the cash outlay.

       Capital expenditures of approximately $9,998 for property and equipment,
leasehold improvements and software were made in 2000. These investments, which
were financed primarily by borrowings and vendor financing, relate to the
purchase of supplemental production equipment and improved technology to meet
customer demands for business communications. The Company anticipates additional
capital expenditure requirements in 2001, relating primarily to technology and
the production equipment needs of the business. Currently, these expenditures
are estimated to be approximately $10,000. However, as additional revenue
generating opportunities arise the Company may be required to expend additional
capital to support those opportunities. While no assurance can be given,
management believes that its cash flow from operations combined with existing
cash and the availability of funds under the Credit Facility, and potential
additional credit capacity, will be sufficient to meet its working capital,
capital expenditure and debt service requirements and its current plans to
acquire additional related businesses for the foreseeable future. The preceding
sentence constitutes a forward looking statement.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

       Vestcom's major "market risk" exposure is the effect of changing interest
rates. Vestcom manages its interest expenses by using a combination of fixed and
variable rate debt. At December 31, 2000, Vestcom's debt consisted of
approximately $9,353 of fixed-rate debt with a weighted average interest rate of
8.2% and $14,843 of variable-rate debt, which consisted of a LIBOR thirty-day
loan entered into on December 28, 2000 for $12,000 at 8.6% and $2,843 of other
variable rate debt with a weighted average interest rate of 10.5%. The amount of
variable-rate debt fluctuates during the year based on Vestcom's cash
requirements; maximum borrowings at any quarter end during 2000 were $24,036. If
interest rates on such variable debt were to increase by 200 basis points, the
net impact on Vestcom's results of operations and cash flows would be
immaterial.


                                      -23-
<PAGE>



Item 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements:                                              Page

Report of Independent Public Accountants                                    F-1
Vestcom International, Inc. and Subsidiaries
       Consolidated Balance Sheets at December 31, 2000 and 1999            F-2
Vestcom International, Inc. and Subsidiaries
       Consolidated Statements of Operations for the years ended
       December 31, 2000, 1999 and 1998                                     F-3
Vestcom International, Inc. and Subsidiaries
       Consolidated Statements of Stockholders' Equity
       for the years ended December 31, 2000, 1999 and 1998                 F-4
Vestcom International, Inc. and Subsidiaries
       Consolidated Statements of Cash Flows for the
       years ended December 31, 2000, 1999 and 1998                         F-5
Vestcom International, Inc. and Subsidiaries
       Notes to Consolidated Financial Statements                           F-6


                                      -24-
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Vestcom International, Inc.:

We have audited the accompanying consolidated balance sheets of Vestcom
International, Inc. (a New Jersey corporation) and subsidiaries, as of December
31, 2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. 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 auditing standards generally accepted
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vestcom
International, Inc. and subsidiaries as of December 31, 2000 and 1999 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.


ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 23, 2001


                                       F-1


<PAGE>
                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
ASSETS                                                                                   2000                     1999
                                                                                         ----                     ----
<S>                                                                                   <C>                      <C>
CURRENT ASSETS
Cash                                                                                  $    633,567            $  1,458,613
Accounts receivable, net of allowance for
    doubtful accounts of $1,247,370 and $1,521,924 in 2000 and
    1999, respectively                                                                  31,263,745              27,228,690
Supplies inventory                                                                       5,295,564               5,369,750
Income taxes receivable                                                                          -               2,287,582
Prepaid expenses and other current assets                                                5,134,900               6,956,375
                                                                                      ------------             -----------
                           Total current assets                                         42,327,776              43,301,010

PROPERTY AND EQUIPMENT, at cost, net of
    accumulated depreciation and amortization                                           39,313,069              37,518,273

GOODWILL, net                                                                           73,912,726              77,894,965

OTHER ASSETS                                                                               390,609                 665,345
                                                                                      ------------            ------------
                           Total assets                                               $155,944,180            $159,379,593
                                                                                      ============            ============

</TABLE>

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


                                       F-2


<PAGE>
                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY                                                            2000            1999
                                                                                              ----            ----
<S>                                                                                     <C>                <C>
CURRENT LIABILITIES
Current portion of long-term debt                                                        $  1,236,437      $  2,573,729
Current portion of capital lease obligations                                                2,874,695         2,847,647
Accounts payable                                                                           14,913,615        15,067,563
Accrued expenses                                                                           15,385,854        13,372,619
Income taxes payable                                                                          753,774                 -
Other current liabilities                                                                     843,960         1,575,385
                                                                                         ------------      ------------

                  Total current liabilities                                                36,008,335        35,436,943

LONG-TERM DEBT                                                                             16,449,273        21,950,879
CAPITAL LEASE OBLIGATIONS                                                                   3,635,585         5,555,643
DEFERRED CHARGES & OTHER LIABILITIES                                                                -           549,344
DEFERRED INCOME TAXES                                                                       7,772,610         6,088,235
                                                                                         ------------      ------------

                  Total liabilities                                                        63,865,803        69,581,044

STOCKHOLDERS' EQUITY:
Preferred Stock, Class B, 1 share authorized, issued and outstanding at
     December 31, 2000 and December 31, 1999                                                1,240,274         2,651,867
Common Stock, no par value; 20,000,000 shares authorized:
     9,056,806 shares issued and outstanding at December 31, 2000 and
     December 31, 1999                                                                     90,300,456        88,888,863
Retained earnings (accumulated deficit)                                                       861,565        (1,475,638)
Accumulated other comprehensive (loss)                                                       (323,918)         (266,543)
                                                                                         ------------      ------------
                  Total stockholders' equity                                               92,078,377        89,798,549
                                                                                         ------------      ------------
                  Total liabilities & stockholders' equity                               $155,944,180      $159,379,593
                                                                                         ============      ============
</TABLE>


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

<PAGE>
                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
                                                                        2000                   1999                1998
                                                                        ----                   ----                ----
<S>                                                                 <C>                    <C>                 <C>
REVENUES                                                            $146,076,045           $130,240,331        $108,675,572

COST OF REVENUES                                                     103,739,430             92,513,350          68,793,382
                                                                    ------------           ------------        ------------
          Gross Profit                                                42,336,615             37,726,981          39,882,190
SELLING, GENERAL & ADMINISTRATIVE EXPENSES                            35,191,158             33,931,551          30,955,177
RESTRUCTURING CHARGE AND OTHER NON- RECURRING ITEMS                      104,416             (5,178,473)                  -
                                                                    ------------           ------------        ------------
         Income (loss) from operations                                 7,249,873             (1,383,043)          8,927,013
                                                                    ------------           ------------        ------------
OTHER INCOME (EXPENSE)
         Interest expense                                             (2,783,738)            (2,269,200)           (796,251)
         Other income                                                  1,385,117                214,059             243,432
                                                                    ------------           ------------        ------------
                                                                      (1,398,621)            (2,055,141)           (552,819)
         Income (loss) before provision (benefit) for
            income taxes                                               5,851,252             (3,438,184)          8,374,194

PROVISION (BENEFIT) FOR INCOME TAXES                                   3,514,049             (1,105,179)          3,746,773
                                                                    ------------           ------------        ------------
          Net income (loss)                                         $  2,337,203          $  (2,333,005)       $  4,627,421
                                                                    ============          =============        ============
EARNING PER SHARE:

Net income (loss) per share-basic                                   $       0.26          $       (0.26)       $       0.52
                                                                    ============          =============        ============


Net income (loss) per share - diluted                               $       0.26          $       (0.26)       $       0.52
                                                                    ============          =============        ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.


                                       F-3

<PAGE>
                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
                                                                                               (Accumulated        Accumulated
                                                                                                 Deficit)/            Other
                                           Common Stock                Preferred Stock            Retained         Comprehensive
                                     Shares           Amount         Shares       Amount         Earnings         Income (Loss)
                                     ------           ------         ------       ------         --------         -------------
<S>                               <C>               <C>              <C>       <C>             <C>                <C>
Balance at December 31, 1997       8,483,811         84,229,597       301       2,651,867       (3,770,054)           (83,584)
                                   =========        ===========     =====      ==========     ============          =========
Issuance of Common Stock in
Connection with Earnouts             304,779          2,552,418      (200)              -                -
Translation Adjustment                     -                  -         -               -                -           (296,325)
Net Income                                 -                  -         -               -        4,627,421                  -

    Total Comprehensive Income             -                  -         -               -                -                  -
                                   ---------        -----------     -----      ----------     ------------          ---------
Balance At December 31, 1998       8,788,590        $86,782,015       101      $2,651,867     $    857,367          $(379,909)
                                   =========        ===========     =====      ==========     ============          =========
Issuance of Common Stock in
Connection with Earnouts             268,216          2,106,848      (100)              -                -                  -
Translation Adjustment                     -                  -         -               -                -            113,366
Net Loss                                   -                  -         -               -      (2,333,005)                  -

    Total Comprehensive Income             -                  -         -               -                -                  -
                                   ---------        -----------     -----      ----------     ------------          ---------
Balance At December 31, 1999       9,056,806        $88,888,863         1      $2,651,867     $(1,475,638)          $(266,543)
                                   =========        ===========     =====      ==========     ============          =========
Issuance of Common Stock in
Connection with Conversion                            1,411,593                (1,411,593)
Translation Adjustment                                                                                                (57,375)
Net Income                                                                                       2,337,203

    Total Comprehensive Income
                                   ---------        -----------     -----      ----------     ------------          ---------
Balance At December 31, 2000       9,056,806        $90,300,456         1      $1,240,274     $    861,565          $(323,918)
                                   =========        ===========     =====      ==========     ============          =========

<CAPTION>
                                        Total           Compre-
                                     Stockholders'      hensive
                                       Equity         Income(Loss)
                                       ------         ------------
<S>                                  <C>              <C>
Balance at December 31, 1997          83,027,826
                                      ==========
Issuance of Common Stock in
Connection with Earnouts               2,552,418                  -
Translation Adjustment                  (296,325)          (296,325)
Net Income                             4,627,421          4,627,421
                                                        -----------
    Total Comprehensive Income                 -        $ 4,331,096
                                     -----------        ===========
Balance At December 31, 1998         $89,911,340
                                     ===========
Issuance of Common Stock in
Connection with Earnouts               2,106,848                  -
Translation Adjustment                   113,366            113,366
Net Loss                              (2,333,005)        (2,333,005)
                                                        -----------
    Total Comprehensive Income                 -        $(2,219,639)
                                     -----------        ===========
Balance At December 31, 1999         $89,798,549
                                     ===========
Issuance of Common Stock in                    -
Connection with Conversion
Translation Adjustment                   (57,375)           (57,375)
Net Income                             2,337,203          2,337,203
                                                        -----------
    Total Comprehensive Income                          $ 2,279,828
                                     -----------        ===========
Balance At December 31, 2000         $92,078,377
                                     ===========
</TABLE>

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

                                       F-4

<PAGE>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:                                   2000                    1999                 1998
                                                                        ----                    ----                 ----
<S>                                                                 <C>                     <C>                  <C>
Net income (loss)                                                   $  2,337,203            $ (2,333,005)        $  4,627,421
Adjustments to reconcile net income (loss) to net cash provided
by operating activities-
         Depreciation and amortization                                 9,709,203               8,030,922            6,058,897
         Loss on disposal of equipment                                    17,069                  45,798              176,796
         Restructuring charges                                           279,442                 628,669                    -
         Gain on sale of assets                                       (1,331,701)                      -                    -
Changes in operating assets (increase) decrease in-
         Accounts receivable                                          (3,860,055)             (5,253,475)          (2,408,887)
         Prepaid expenses, inventory and other current assets          4,129,237              (1,853,878)          (1,429,006)
         Other assets                                                    137,578                 394,672              (93,408)
Changes in operating liabilities increase (decrease) in-
         Accounts payable and accrued expenses                         1,632,572              (1,365,181)           7,595,995
         Income taxes payable and other current liabilities              194,844              (1,873,390)          (1,188,715)
         Deferred charges & other liabilities                          1,135,031               2,000,919            1,925,181
                                                                   -------------            ------------         ------------

Net cash provided by (used in) operating activities                   14,380,423              (1,577,949)          15,264,274

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                                 (9,997,943)            (15,691,264)         (11,604,831)
Proceeds from sale of assets                                              17,800                  29,825              161,225
Dispositions (Acquisition) of businesses, net of cash acquired         3,563,957              (1,774,263)         (30,421,549)
Sale (purchase) of marketable securities                                       -                       -            9,040,439
                                                                   -------------            ------------         ------------

Net cash used in investing activities                                 (6,416,186)            (17,435,702)         (32,824,716)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on borrowings                                                39,486,556              44,119,444           30,963,889
Payment of debt                                                      (48,218,464)            (30,115,845)         (19,957,536)
Issuances of common stock                                                      -               2,106,848            2,552,418
                                                                   -------------            ------------         ------------

Net cash (used in) provided by financing activities                   (8,731,908)             16,110,447           13,558,771
Effects of exchange rates on cash balances                              (57,375)                 113,366             (296,325)
                                                                   -------------            ------------         ------------

NET (DECREASE) INCREASE IN CASH                                         (825,046)             (2,789,838)          (4,297,996)

CASH, beginning of period                                              1,458,613               4,248,451            8,546,447
                                                                   -------------            ------------         ------------

CASH, end of period                                                 $    633,567            $  1,458,613         $  4,248,451
                                                                    ============            ============         ============

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Capital lease (restructured) obligation incurred                       1,006,831               4,662,112           (4,054,104)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest                                                 3,180,095               1,968,791              775,028
Cash (refunded) paid for income taxes                                 (1,353,287)                357,477            3,324,054
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                       F-5

<PAGE>
                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:

         Vestcom International, Inc. (a New Jersey corporation) ("Vestcom" or
the "Company"), was formed in September 1996 and is a leading provider of
business communications, customer relationship management and retail marketing
services, using technology and innovation to supply enhanced value in all phases
of communications between businesses and their customers. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.

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 amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Supplies Inventory

         Supplies inventory consists of paper, vinyl, laminating materials,
toner, developer and other items including, film, compact discs and micrographic
materials, and packaging materials. Supplies are valued at cost, determined
using the first-in-first-out method, which approximates market value.

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.

Acquisitions

         In January 1998, the Company acquired substantially all the assets of
Creative Data Services and D.B. Acquisition, Inc. (doing business as Business
Mail Express). In April 1998, the Company acquired substantially all the assets
of Dee Cee Graphics, Inc. and in August 1998, the Company acquired substantially
all the assets of Graphic Technology Systems, Inc. In October 1998, the Company
acquired substantially all the assets of Manus Services Corporation.

         The aggregate price paid for these acquisitions including certain
earnout payments in 1999 and note payments made in 2000, was approximately $18
million in cash plus the Company issued a note payable for $1,150,000 payable in
March, 2001 bearing interest at 5% and an aggregate of 40,000 shares of Common
Stock, of which $850,000 was paid in 2000. The estimated goodwill associated
with these acquisitions aggregated approximately $16.8 million. All the above
acquisitions have been accounted for as purchases.

         As of February 12, 1999, the Company acquired substantially all of the
assets of Conversion Printing Systems, Inc. ("CPS"). For the twelve months ended
December 31, 1998, CPS' revenues were approximately $8 million, of which
approximately sixty percent were derived from sales to Vestcom operating units.
The acquisition of CPS was accounted for as a purchase. The estimated goodwill
associated with this acquisition was approximately $1,600,000.

                                      F-6
<PAGE>
Revenue Recognition

         Revenues are recognized when the services are rendered or products are
delivered to the customer.

Income Taxes

         The Company follows the liability method of accounting for income
taxes. 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.

Earnings per Share

         Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution if
certain securities are converted and also includes certain shares that are
contingently issuable. The following is the computation of earnings per share:
<TABLE>
<CAPTION>
                                     For the Year Ended                 For the Year Ended                For the Year Ended
                                     December 31, 2000                  December 31, 1999                 December 31, 1998
                                     ------------------                 ------------------                ------------------
                                                       Per-Share                         Per-Share                         Per-Share
Basic Earnings Per Share:       Income       Shares     Amount      (Loss)     Shares     Amount     Income      Shares     Amount
                                ------       ------     ------      ------     ------     ------     ------      ------     ------
<S>                          <C>           <C>         <C>       <C>          <C>        <C>       <C>          <C>        <C>
Net income (loss)/weighted
average shares outstanding    $ 2,337,203   9,056,806   $ 0.26   $(2,333,005) 9,056,806   $(0.26)  $4,627,421   8,904,371  $  0.52
                              -----------   ---------   ------   -----------  ---------   ------   ----------   ---------  -------
Diluted Earnings Per Share:
Net income (loss)/weighted
average  shares outstanding   $ 2,337,203   9,056,806            $(2,333,005) 9,056,806            $4,627,421   8,904,371
Goodwill adjustment on
earnouts                                                                                           $   (4,385)
Assumed earned shares by
Acquired Companies                                                                                                 66,245
Options                                        20,167                                                               3,887
                              -----------   ---------   ------   -----------  ---------   ------   ----------  ----------  -------
Net income (loss)/average
weighted shares
outstanding adjusted or
assumed conversions to
common stock                  $ 2,337,203   9,076,973   $ 0.26   $(2,333,005) 9,056,806   $(0.26)  $4,623,036   8,974,503  $  0.52
                              ===========   =========   ======   ===========  =========   ======   ==========   =========  =======
</TABLE>
         Options covering approximately 899,931, 541,329 and 126,164 shares of
Common Stock were not included in computing diluted earnings per share in 2000,
1999 and 1998, respectively, because their effects were antidilutive. Included
in this amount for 1999 were options covering 65,677 shares which were excluded
due to the net loss for 1999.

Foreign Currency

         In accordance with Statement of Financial Accounting Standards 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 adjustment was $(57,375), $113,366 and $(296,325) for
the years ended December 31, 2000, 1999 and 1998, respectively.

<PAGE>
Comprehensive Income

         Comprehensive income includes foreign currency translation gains and
(losses).

Goodwill

         Goodwill consists primarily of excess purchase price over net assets
acquired, which is being amortized over its estimated useful life of 30 years.
In conformance 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", the Company's management continually evaluates
whether events and circumstances indicate that the remaining estimated useful
life of intangible assets may warrant revisions or that the remaining balance of
intangibles or other long-lived assets may not be recoverable. To make this
evaluation, management uses an estimate of undiscounted net income over the
remaining life of the intangibles or other long-lived assets. Management does
not believe any such events have occurred. Accumulated amortization at December
31, 2000 and 1999 was $8,671,869 and $5,879,066 respectively.

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 Concentration of Credit Risk," consist primarily of
trade accounts receivable. The Company's customers are concentrated in North
America, primarily in the financial, retail, telecommunications, pharmaceutical,
health care, travel and leisure, publishing and software industries. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends, and other information.

Fair Value of Financial Instruments

         Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the financial statements at fair value because of the short term
maturity of those instruments. The fair value of the Company's debt is discussed
in Note 7.

New Accounting Pronouncements

         In 1998, the Financial Accounting Standards Board issued SFAS No 133,
"Accounting for Derivative Instruments and Hedging Activities". In June 2000,
the Financial Accounting Standards Board issued SFAS No 138, which amended SFAS
No 133. These Statements establish accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or a liability measured at its fair value. The Statements require that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset related results on the
hedged item in the income statement and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. The Company is required to adopt these standards in the first
quarter of 2001. Based on management's current understanding of the Statements,
adoption is not expected to have a material impact on the Company's financial
statements.

Reclassifications

         Certain 1999 amounts have been reclassified in order to conform with
the 2000 presentation.


<PAGE>
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS:

The activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
                                              Balance at                      Charged to        Write-offs
                                             Beginning of       Balance        Costs and         Net of         Balance at End of
                                                Period         Acquired        Expenses         Recoveries           Period
                                                ------         --------        --------         ----------           ------
<S>                                          <C>             <C>               <C>             <C>                 <C>
Year Ended December 31, 2000
  Allowance for doubtful accounts            $ 1,521,924      $        -       $ 590,578       ($865,132)           $ 1,247,370
Year Ended December 31, 1999
  Allowance for doubtful accounts            $ 1,123,581      $  152,000       $ 725,401       ($479,058)           $ 1,521,924
Year Ended December 31, 1998
  Allowance for doubtful accounts            $   354,952      $  625,413       $ 276,984       ($133,768)           $ 1,123,581
</TABLE>
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Prepaid expenses and other current assets consist of the following at
December 31:
                                              2000          1999
                                              ----          ----

Prepaid postage...........................$ 2,273,631    $ 2,445,019
Postage receivable........................    262,439      2,368,040
Prepaid maintenance.......................    677,080        518,649
Net deferred tax asset....................    221,911        363,290
Other    .................................  1,699,837      1,261,377
                                          -----------    -----------
                                          $ 5,134,900    $ 6,956,375
                                          ===========    ===========
5. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
                                                                                                        Estimated
                                                                                                       Useful Lives
                                                                      2000             1999              (Years)
                                                                      ----             ----              -------
<S>                                                              <C>               <C>                 <C>
Machinery, equipment and software..............................      47,615,453       40,289,905          3-10
Furniture and fixtures.........................................       1,705,504        1,642,818            10
Leasehold improvements.........................................       5,290,752        4,224,571          2-14
                                                                 --------------    -------------
                                                                     54,611,709       46,157,294
Less - Accumulated depreciation
& amortization.................................................    (15,298,640)      (8,639,021)
                                                                 --------------    -------------
Property and equipment, net....................................  $   39,313,069    $  37,518,273
                                                                 ==============    =============
</TABLE>
Leased equipment under capital leases (included above) consists of the following
at December 31:
<TABLE>
<CAPTION>
                                                                      2000             1999
                                                                      ----             ----
<S>                                                              <C>               <C>
Equipment........................................................$   12,418,791    $  11,607,509
Less - Accumulated amortization..................................    (3,573,783)      (2,511,754)
                                                                 --------------    -------------
                                                                 $    8,845,008    $   9,095,755
                                                                 ==============    =============
</TABLE>
Capitalized Software Developed or Obtained for Internal Use (included above)
consists of the following at December 31:
<TABLE>
<CAPTION>
                                                                      2000             1999
                                                                      ----             ----
<S>                                                              <C>              <C>
Software ........................................................$    3,373,616    $   1,209,878
Less - Accumulated amortization..................................      (858,936)        (201,646)
                                                                 --------------    -------------
                                                                 $    2,514,680    $   1,008,232
                                                                 ==============    =============
</TABLE>
During the fourth quarter of 2000, the Company sold its mail presort assets and
recorded a gain on the sale of approximately $1.3 million which is included in
other income, net in the accompanying consolidated statement of operations.

Depreciation and amortization expense on property and equipment charged to
operations for the years ended December 31, 2000, 1999 and 1998 was $6,916,400,
$5,274,444 and $3,624,950, respectively.

<PAGE>
At December 31, 2000, minimum annual payments under capital leases are as
follows:

2001.............................................................$   3,312,279
2002.............................................................    2,188,740
2003.............................................................    1,224,218
2004.............................................................      513,238
2005 and thereafter..............................................      120,253
                                                                 -------------
Total minimum payments...........................................    7,358,728
Less interest....................................................      848,448
                                                                 -------------
Net minimum lease payments.......................................    6,510,280
Less - current portion of capital lease obligations..............   (2,874,695)
                                                                 -------------
Long-term portion of capital lease obligations...................$   3,635,585
                                                                 =============

         The interest rates on the capitalized leases range from 3.3% to 15% and
are imputed based on the fair market value of the equipment at the inception of
the lease.

6. ACCRUED EXPENSES:

Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
                                                                      2000                 1999
                                                                      ----                 ----
<S>                                                               <C>                   <C>
Advanced postage..................................................$  5,453,674          $  5,284,959
Accrued payroll and payroll related expenses......................   3,204,538             2,377,399
Accrued professional fees.........................................     849,446               749,242
Accrued taxes other than income...................................     633,340               223,189
Other.............................................................   5,244,856             4,737,830
                                                                  ------------          ------------
                                                                  $ 15,385,854          $ 13,372,619
                                                                  ============          ============
</TABLE>
7. DEBT:

Long-term obligations

Long-term obligations consist of the following at December 31:
<TABLE>
<CAPTION>
                                                                  2000                   1999
                                                                  ----                  -----
<S>                                                            <C>                    <C>
Revolving credit line (a)..............................        $ 14,843,186           $ 19,923,020

Equipment loans payable to a bank at interest rates
     ranging from 6.53% to 9.35% with monthly payments
     and a final payment due November 2004 (a).........           1,888,945              2,401,088

Notes payable to sellers of acquired companies
     with interest rates of 5% and a final payment
     due March 31, 2001................................             300,000              1,912,500


Notes payable to equipment manufacturers at
     interest rates ranging from 1%-9.5% with final
     payment due July 2005 ............................             653,579                288,000
                                                               ------------           ------------
                                                                 17,685,710             24,524,608
     Less current maturities...........................          (1,236,437)            (2,573,729)
                                                               ------------           ------------
                                                               $ 16,449,273           $ 21,950,879
                                                               ============           ============
</TABLE>
         The fair value of the Company's debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The Company believes that
the stated values of the Company's debt instruments represent the estimated fair
values.

<PAGE>
Maturities of Long-Term Obligations

As of December 31, 2000, maturities of long-term obligations are as follows:

Years Ending December 31:
2001..........................................................$  1,236,437
2002..........................................................$ 15,643,274
2003..........................................................$    461,172
2004..........................................................$    299,683
2005 and thereafter...........................................$     45,144
                                                               -----------
Total.........................................................$ 17,685,710
                                                              ============

       (a) On August 13, 1997, the Company and Summit Bank entered into the
Equipment Facility and Revolving Credit Agreement in the amount of $30,000,000
(the "Credit Facility"). On May 8, 2000 the Company and Summit Bank entered into
the Fifth Amendment to the Credit Facility, which among other things, increased
the Credit Facility to $31,500,000. On February 2, 2001, the Company and Summit
Bank entered into the Sixth Amendment to the Credit Facility, which extended the
maturity date to April 1, 2002. The interest rate is based on certain financial
performance ratios plus a rate equal to LIBOR or a Summit Bank alternate base
rate, which was 9.5% at December 31, 2000. The Credit Facility is subject to
various covenant restrictions, the most restrictive of which requires tangible
net worth to be a minimum of 10% of stated net worth. At December 31, 2000 there
was approximately $1,888,945 outstanding related to equipment loans, $14,843,186
outstanding on the revolving credit line and approximately $12,855,068 remained
available under this Credit Facility. Under the terms of the Credit Facility,
amounts paid back on equipment loans are not available for future borrowings.

8. RESTRUCTURING AND OTHER NON RECURRING ITEMS:

         In 1999, the Company recorded an aggregate restructuring charge of
$5,178,000. The Company's restructuring plan was comprised of the consolidation
of certain facilities and the integration of operations in three of the
Company's operating locations: the Mid-Atlantic area, the New England area and
Canada. The plan was aimed at reducing the number of locations, consolidating
facilities and reducing personnel costs. The restructuring charge included (a)
facility closure and consolidation costs of $2,786,000, which relate to
estimated costs to close redundant facilities, lease costs and other costs
associated with closed facilities, and (b) personnel costs of $1,250,000 related
to severance due to closing/relocating certain operating facilities. In
addition, the Company incurred moving expenses of $1,142,000 related to various
relocations during the second and third quarters of 1999. During the fourth
quarter of 1999 and the second quarter of 2000, the Company reversed $740,000
and $383,000, respectively of previously provided restructuring reserves no
longer required due to the revision of certain estimates. At December 31, 2000,
the Company had approximately $464,000 of accrued restructuring costs related to
facilities.

         During the second quarter of 2000, the Company recorded a non-recurring
charge of $279,000 for assets written down to fair value. Based on management's
assessment of fair value, the equipment written down to fair value was
identified to be impaired due to the restructuring of the Company's facilities.

9. STOCKHOLDERS' EQUITY:

         In July 1997, the Company filed an amendment to its Restated
Certificate of Incorporation which created 200 shares of Class A Convertible
Preferred Stock, one share of Class B Preferred Stock and 100 shares of Class C
Convertible Preferred Stock, with each share having a liquidation value of $.10
per share. The Class A shares were issued to certain former shareholders of
Electronic Imaging Services, Inc. and the Class C shares were issued to certain
former shareholders of Image Printing Systems, Inc (now known as Vestcom
Wisconsin, Inc.). The shares of Class A and Class C Convertible Preferred Stock
were issued pursuant to the earnout provisions of the applicable acquisition
agreements. In April 1998, in connection with a determination of the earnout for
Electronic Imaging Services, all of the outstanding shares of Class A
Convertible Preferred Stock were converted into shares of Common Stock. In March
1999, in connection with a determination of the earnout for Vestcom Wisconsin
all of the outstanding shares of Class C Preferred Stock were converted into
shares of Common Stock. The one share of Class B Preferred Stock was issued to
selling shareholders of a Canadian Operating Company and was originally equal to
239,988 shares of Common Stock valued at $11.05 per share with equal voting
rights. In November 2000, 127,746 shares of Common Stock were issued upon the
conversion of an equal number of shares of a Canadian subsidiary, which resulted
in the Class B Preferred Stock being modified to the equivalent of 112,242
shares of Common Stock.

<PAGE>
         In April 1998, the Company issued 304,779 shares of Common Stock in
connection with a determination of earnouts for two of the original Operating
Companies. In March 1999, the Company issued 228,216 shares of Common Stock in
connection with a determination of earnouts for another original Operating
Company and 40,000 shares of Common Stock for a later acquired company.

         In December 1999, the Company adopted a Shareholder Protection Rights
Agreement (the "Rights Agreement") as part of its strategy of enhancing
shareholder value. The Rights Agreement provides for one right to be attached to
each share of Common Stock. The Rights are currently not exercisable or
transferable apart from the Common Stock, and have no voting rights. Under
certain circumstances, the rights will separate from the Common Stock, and will
entitle the holder thereof to purchase, one one-hundredth of a share of
participating preferred stock (the substantial equivalent of one share of Common
Stock) for $27.00 (the exercise price).

                  The rights become exercisable if a person or group (i)
acquires ten percent or more of the Company's outstanding shares of Common
Stock, or (ii) announces a tender offer which would increase the person's or
group's beneficial ownership to ten percent or more of the Company's outstanding
shares of Common Stock, subject to certain exceptions. After the events in
clause (i) or (ii) occur, each right (other than those rights owned by the
acquiring person or group, which become void) will entitle the holder to
purchase Common Stock from the Company, having a market price equal to twice the
exercise price for an amount equal to the then current exercise price. If the
Company enters into a merger or other business combination, each exercisable
right would entitle the holder to purchase Common Stock of the acquiring company
having a market price of twice the exercise price, for an amount equal to the
then current exercise price.

                  In certain circumstances, the Board of Directors may exchange
each right (other than those held by an acquiring party) for one share of the
Company's Common Stock. The rights can be redeemed at $.01 per right at any time
prior to becoming exercisable and expire on December 29, 2009, provided,
however, the rights may expire earlier in connection with the automatic sunset
provision, which provides for termination of the Rights Agreement at the third,
sixth and ninth anniversaries unless the Board of Directors affirmatively
determines to extend the Rights Agreement during the twelve months prior to the
sunset dates.

10. STOCK OPTION PLAN:

         In March 1997, the Company approved the 1997 Equity Compensation
Program (the "Stock Option Plan") which provides for the granting or awarding of
stock options and stock appreciation rights to non-employee directors, officers
and other key employees and consultants (including officers of the Operating
Companies). The number of shares authorized and reserved for issuance under the
Plan is limited to the greater of 1,318,000 shares or 15 percent of the number
of shares of Common Stock outstanding. In general, the terms of the option
awards (including vesting schedules) will be established by the Compensation
Committee of the Board of Directors.

          The Stock Option Plan also provides for automatic option grants to
directors who are not employed by Vestcom or its subsidiaries. Upon commencement
of service, a non-employee director will receive a nonqualified option to
purchase 12,000 shares of Common Stock, and continuing non-employee directors
will receive an annual grant of options to purchase 12,000 shares of Common
Stock, all at fair market value on the date of the grant. Options granted to
non-employee directors become fully exercisable one year after the date of
grant. Non-employee directors' options have a term of ten years from the date of
grant and are generally exercisable annually in 20% increments beginning with
the first anniversary after the date of grant.

<PAGE>

                                                 Options Activity
                                                 ----------------
                                                      Weighted Average Exercise
                                         Shares            Price Per Share
Balance at December 31, 1997             404,050             $  14.61
Granted                                  252,800                 9.49
Cancelled                               (100,000)               21.63
Forfeited                                (45,400)               11.60
Exercised                                      -                    -
                                       ---------             --------
Balance, December 31, 1998               511,450             $  12.09
                                       =========             ========
Granted                                  401,200                 4.16
Forfeited                               (167,100)               10.49
Exercised                                      -                    -
                                       ---------             --------
Balance at December 31, 1999             745,550             $   7.75
                                       =========             ========
Granted                                  131,600                 3.62
Forfeited                                (51,700)                9.28
Exercised                                      -                    -
                                       ---------             --------
Balance at December 31, 2000             825,450             $   7.00
                                       =========             ========
Exercisable at December 31, 2000         332,851             $   9.54
                                       =========             ========

         The Company has elected to account for options in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 permits, but
does not require, a fair value-based method of accounting for employee stock
option plans which results in compensation expense recognition when stock
options are granted. As permitted by SFAS No. 123, the Company has provided pro
forma disclosure of net income and earnings per share, as applicable, in these
notes to consolidated financial statements.

         The weighted average fair value of options granted in 2000 at market
value was $3.28. The weighted average exercise price of options granted in 2000
at market value was $3.62.

         The fair value of each stock option grant is estimated as of the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:

                                2000                1999             1998
                                ----                ----             ----
Risk-Free Interest Rate         6.23%               5.6%             5.7%
Expected Lives                  7-10 years          7-10 years       7-10 years
Expected Volatility             95.99%              22.3%            32.8%

<PAGE>

The following table summarizes information about stock options outstanding at
December 31, 2000:

                              Number of           Weighted
                               Options             Average
                              Outstanding         Remaining         Weighted
                            at December 31,     Contractual         Average
Range of Exercise Price          2000           Life (years)     Exercise Price
-----------------------     ---------------   --------------    ----------------
$2.88-$5.38                    479,200              8.81           $    3.90
$8.00-$10.13                   178,750              7.43                9.10
$13.00-$18.88                  167,500              6.60               13.60
                              --------              ----           ---------
                               825,450              8.06           $    7.00
                              ========              ====           =========

         Had compensation expense for all stock options granted in 2000, 1999
and 1998 been determined consistent with SFAS No. 123, the Company's net income
and income per share would have been as follows:
<TABLE>
<CAPTION>
                                                        2000             1999              1998
                                                        ----             ----              ----
<S>                        <C>                       <C>             <C>                <C>
Net Income (Loss):         As Reported               $ 2,337,203     $ (2,333,005)      $ 4,627,421
                           Pro Forma                 $ 1,535,009     $ (3,152,081)      $ 3,928,865
Net Income (Loss)
Per Share:                 As Reported - basic       $       .26     $       (.26)      $       .52
                           Pro Forma - basic         $       .17     $       (.35)      $       .44
                           As Reported - diluted     $       .26     $       (.26)      $       .52
                           Pro Forma - diluted       $       .17     $       (.35)      $       .44
</TABLE>
         The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts and additional awards in future years are
anticipated.

11. EMPLOYEE BENEFIT PLANS:

         Effective on January 1, 1998, the Company established a new defined
contribution 401K plan and merged all of the U.S. companies' plans into the
newly adopted plan. Substantially all employees are eligible to participate in
the plan and are permitted to contribute between 1% and 15% of their annual
salary. The Company makes matching contributions on behalf of the employees. The
company offers no post-employment or post-retirement benefits. The expense
incurred related to the 401K plan for the years ended December 31, 2000, 1999
and 1998 was $540,178, $516,868 and $419,047, respectively.

12. INCOME TAXES:

The provision for federal and state income taxes consists of the following:

                   Year Ended            Year Ended              Year Ended
                   -----------           -----------             ----------
                December 31, 2000     December 31, 1999       December 31, 1998
                -----------------     -----------------       -----------------
Federal           $ 2,593,750          $ (1,087,851)            $ 3,060,007
  State               920,299               (17,328)                686,766
                  -----------          ------------             -----------
                  $ 3,514,049          $ (1,105,179)            $ 3,746,773
                  ===========          =============            ===========

<PAGE>
The differences in income taxes provided and the amounts determined by applying
the federal statutory tax rate (34%) to income (loss) before income taxes result
from the following:
<TABLE>
<CAPTION>
                                            Year Ended                 Year Ended               Year Ended
                                         December 31, 2000          December 31, 1999        December 31, 1998
                                         -----------------          -----------------        -----------------
<S>                                      <C>                         <C>                       <C>
Tax (benefit) at statutory rate            $ 1,989,426                 $ (1,168,983)             $ 2,847,226
State income taxes                             198,943                      (11,436)                 453,266
Non deductible expenses
 (primarily goodwill)                          926,875                      725,397                  723,079
Book versus tax basis on asset
 sale                                          547,512
Other                                         (148,707)                    (650,157)                (276,798)
                                           -----------                 ------------              -----------
                                           $ 3,514,049                 $ (1,105,179)             $ 3,746,773
                                           ===========                 ============              ===========
</TABLE>
         Deferred taxes result primarily from cash to accrual differences and
differences in the reporting of depreciation, the allowance for doubtful
accounts, goodwill and other non-deductible accruals.

The components of deferred income tax assets and liabilities, are as follows:

                                                          December 31,
                                               --------------------------------
Deferred tax assets                                2000                1999
                                                   ----                ----
     Allowance for doubtful accounts            $     73,008        $   172,068
     Restructuring                                   186,196            657,774
     Other                                            20,000                  -
                                                ------------        -----------
Total deferred tax assets                            279,204            829,842
Deferred tax liabilities
     Tax over book depreciation                    6,694,769          4,995,596
     Cash to accrual differences                      57,292            387,417
     Goodwill                                        818,328            506,430
     Other                                           259,514            665,344
                                                ------------        -----------
Total deferred liabilities                         7,829,903          6,554,787
                                                ------------        -----------
Net deferred liability                          $  7,550,699        $ 5,724,945
                                                ============        ===========

         Included in other current assets at December 31, 2000 and 1999 was
$221,911 and $363,290, which represented the current portion of net deferred
income tax assets.

13. LEASE COMMITMENTS

         The Company and its subsidiaries lease various office buildings,
machinery, equipment, and vehicles under operating leases expiring at various
dates through 2004. Most of the real property leases have escalation clauses
related to increases in real property taxes. The approximate future minimum
lease payments under operating leases are as follows:

                                                            Operating
Years Ending December 31                                      Leases
------------------------                                   ------------
2001.......................................................$  7,256,000
2002.......................................................   5,714,000
2003.......................................................   4,826,000
2004.......................................................   4,176,000
2005 and thereafter........................................  21,930,000
                                                           ------------
Total minimum lease payments...............................$ 43,902,000
                                                           ============

         Rent expense for all operating leases for the twelve months ended
December 31, 2000, 1999 and 1998 was approximately $7,633,000, $6,265,000 and
$5,600,000, respectively.

<PAGE>
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

Quarterly results of operations for the years ended December 31, 2000 and 1999
are as follows:

                (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                   March 31,          June 30,       September 30,      December 31,
                                                   ---------          --------       -------------      -----------
                                                     2000               2000             2000              2000
                                                     ----               ----             ----              ----
<S>                                               <C>               <C>              <C>                <C>
Revenues........................................   $  35,743         $  33,669        $  37,102          $ 39,562

Gross Profit....................................   $  10,760         $   9,223        $  10,536          $ 11,818

Net Income......................................   $     872         $     189        $     442          $    834
Earnings per share of common stock
Basic and Diluted...............................   $     .10         $     .02        $     .05          $    .09

                                                   March 31,          June 30,       September 30,      December 31,
                                                   ---------          --------       -------------      -----------
                                                     1999               1999             1999              1999
                                                     ----               ----             ----              ----

Revenues........................................   $  31,923         $  31,394        $  31,786          $ 35,137

Gross Profit....................................   $  10,119         $   8,950        $   8,206          $ 10,452

Net Income (Loss)...............................   $   1,058         $  (2,543)       $  (2,301)         $  1,454
Earnings (Loss) per share of common stock
Basic and Diluted...............................   $     .12         $   (.28)        $    (.25)         $    .16
</TABLE>
Earnings per share are computed independently for each of the quarters
presented. The sum of the quarters may not be equal to the full year earnings
per share amounts.

15. RELATED-PARTY TRANSACTIONS:

Leasing Transactions

         Joel Cartun, Vestcom's Chairman of the Board, has a fifty percent
interest in the partnership which owns the property previously used by Vestcom
and Vestcom Mid-Atlantic, Inc. ("VMA") in Lyndhurst, New Jersey. The partnership
leases the property to VMA, pursuant to a lease, which expires in May 2001. Cash
outlays for this property for the years ended December 31, 2000, 1999 and 1998
were approximately $553,000, $535,000 and $397,000, respectively, which the
Company believes to be the fair market rental value of the property.

         Two employees of Image Printing Systems, Inc. (now known as Vestcom
Wisconsin, Inc.) ("Vestcom Wisconsin"), own the property leased to and used by
Vestcom Wisconsin, in Milwaukee, Wisconsin. The lease will expire in 2002
subject to an option to renew the lease for an additional five years. Vestcom
Wisconsin's related party rent expense for these properties for the years ended
December 31, 2000, 1999 and 1998 was $234,100, $236,800 and $222,000,
respectively inclusive of building operating costs. The rent payable by Vestcom
Wisconsin under the lease is $225,000 per year, triple net, which the Company
believes to be the fair market rental value of the property.

<PAGE>
Business Relationship

         Vestcom entered into an arrangement with Interliant, Inc. whereby,
Vestcom utilizes Interliant's technology hosting and related services. During
2000, Vestcom incurred approximately $113,000 of expense for such services.
Leonard Fassler, a member of Vestcom's Board of Directors is a co-chairman of
Interliant. Vestcom believes the arrangement to be on fair market terms.

16. COMMITMENTS AND CONTINGENCIES:

Litigation

         The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial position or results of
operations of the Company.

Contracts

         In August 1999, Vestcom entered into an agreement with CIBC World
Markets for advisory services. During 2000, Vestcom paid CIBC World Markets a
total of approximately $104,000 for advisory services and related fees and
expenses under this agreement. In August 2000, the Company terminated its
agreement with CIBC World Markets, however certain provisions of the agreement
extend for a period of one year beyond the termination date. Richard D. White, a
Director of Vestcom, is Managing Director of CIBC Capital Partners, an affiliate
of CIBC World Markets.

         Certain executives of the Company have each entered into employment
agreements and/or change-in-control agreements with the Company. In general, the
change-in-control agreements provide that, in the event of a termination of
employment, upon the occurrence of certain events, such employee will be
entitled to receive an amount in cash equal to twice the employee's then current
annual base salary and bonus.


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

None.


<PAGE>
                                    Part III

Item 10. Directors of the Registrant

The registrant incorporates by reference herein information set forth in its
definitive proxy statement for its 2001 annual meeting of shareholders that is
responsive to the information required with respect to this Item.

Item 11. Executive Compensation

The registrant incorporates by reference herein information set forth in its
definitive proxy statement for its 2001 annual meeting of shareholders that is
responsive to the information required with respect to this Item.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The registrant incorporates by reference herein information set forth in its
definitive proxy statement for its 2001 annual meeting of shareholders that is
responsive to the information required with respect to this Item.

Item 13. Certain Relationships and Related Transactions

The registrant incorporates by reference herein information set forth in its
definitive proxy statement for its 2001 annual meeting of shareholders that is
responsive to the information required with respect to this Item.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

              (a)    (1)    Financial Statements.

              For the financial statements filed as part of this Annual Report
              on Form 10-K refer to "Index to Financial Statements" included in
              "Item 8 - Financial Statements and Supplementary Data" of this
              Annual Report on Form 10-K.

                   (2)    Financial Statement Schedules.

              All financial statement schedules are omitted either because they
              are not required or the required information is shown in Vestcom's
              consolidated financial statements or the notes thereto.

                   (3)    The following exhibits are incorporated by reference
                          herein or filed with this Annual Report on Form 10-K.



Exhibit
Number                                    Description
------                                    -----------
2.1  --           Agreement and Plan of Reorganization, dated as of February 28,
                  1997, by and among Vestcom International, Inc., Computer
                  Output Acquisition Corp., Computer Output Systems, Inc. and
                  the Stockholders named therein, is incorporated by reference
                  to Exhibit 2.1 to Vestcom's Registration Statement on Form S-1
                  (no. 333-23519).


                                      -25-
<PAGE>

2.2  --           Agreement and Plan of Reorganization, dated as of February 28,
                  1997, by and among Vestcom International, Inc., Comvestrix
                  Acquisition Corp., Comvestrix Corp. and the Stockholders named
                  therein, is incorporated by reference to Exhibit 2.2 to
                  Vestcom's Registration Statement on Form S-1 (no. 333-23519).

2.3  --           Agreement and Plan of Reorganization, dated as of February 28,
                  1997, by and among Vestcom International, Inc., Electronic
                  Imaging Acquisition Corp., Electronic Imaging Services, Inc.
                  and the Stockholders named therein, is incorporated by
                  reference to Exhibit 2.3 to Vestcom's Registration Statement
                  on Form S-1 (no. 333-23519).

2.4  --           Agreement and Plan of Reorganization, dated as of February 28,
                  1997, by and among Vestcom International, Inc., Imaging
                  Printing Acquisition Corp., Image Printing Systems, Inc. and
                  the Stockholders named therein, is incorporated by reference
                  to Exhibit 2.4 to Vestcom's Registration Statement on Form S-1
                  (no. 333-23519).

2.5  --           Agreement and Plan of Reorganization, dated as of February 28,
                  1997, by and among Vestcom International, Inc., Direct Mail
                  Services Acquisition Corp., Quality Control Printing
                  Acquisition Corp., First Class Presort Acquisition Corp.,
                  Morris County Direct Mail Services, Inc., Quality Control
                  Printing, Inc., First Class Presort, Inc. and the Stockholders
                  named therein, is incorporated by reference to Exhibit 2.5 to
                  Vestcom's Registration Statement on Form S-1 (no. 333-23519).

2.6  --           Agreement and Plan of Reorganization, dated as of February 28,
                  1997, by and among Vestcom International, Inc., Mystic Graphic
                  Acquisition Corp., Mystic Graphic Systems, Inc. and the
                  Stockholders named therein, is incorporated by reference to
                  Exhibit 2.6 to Vestcom's Registration Statement on Form S-1
                  (no. 333-23519).

2.7  --           Share Purchase Agreement dated March 10, 1997 by and among
                  Vestcom International, Inc., LIRPACO Acquisition Corp.,
                  LIRPACO Inc. and the Stockholders named therein, is
                  incorporated by reference to Exhibit 2.7 to Vestcom's
                  Registration Statement on Form S-1 (no. 333-23519).

2.8  --           Asset Purchase Agreement, dated as of January 20, 1998, by and
                  among Vestcom International, Inc., Creative Data Services,
                  Inc., DB Acquisition, Inc., d/b/a Business Mail Express and
                  certain other parties, is incorporated by reference to
                  Vestcom's Current Report on Form 8-K dated February 4, 1998.


3.1  --           Restated Certificate of Incorporation of Vestcom
                  International, Inc., as amended, is incorporated by reference
                  to Exhibit 3.1 to Vestcom's Quarterly Report on Form 10-Q for
                  the Period Ending June 30, 1997.


                                      -26-
<PAGE>

3.2  --           By-laws of Vestcom International, Inc. are incorporated by
                  reference to Exhibit 4.2 to Vestcom's Current Report on Form
                  8-K filed with the SEC on December 17, 1999.

4.1  --           Form of certificate evidencing ownership of Common Stock of
                  Vestcom International, Inc., is incorporated by reference to
                  Exhibit 4.1 to Vestcom's Registration Statement on Form S-1
                  (no. 333-23519).

4.2  --           Shareholder Protection Rights Agreement, dated as of December
                  16, 1999, between Vestcom International, Inc. and American
                  Stock Transfer & Trust Company, as Rights Agent, is
                  incorporated by reference to Exhibit 4.1 to Vestcom's Current
                  Report on Form 8-K filed with the SEC on December 17, 1999.

10.1 --           Vestcom International, Inc. 1997 Equity Compensation Program,
                  is incorporated by reference to Exhibit 10.1 to Vestcom's
                  Registration Statement on Form S-1 (no. 333-23519).

10.2 --           Employment Agreement, dated as of March 10, 1997, by and
                  between Vestcom International, Inc. and Joel Cartun, is
                  incorporated by reference to Exhibit 10.2 to Vestcom's
                  Registration Statement on Form S-1 (no. 333-23519).

10.3 --           Note and Stock Purchase Agreement, dated December 31, 1996,
                  between Vestcom International, Inc. and certain investors, is
                  incorporated by reference to Exhibit 10.7 to Vestcom's
                  Registration Statement on Form S-1 (no. 333-23519).

10.4 --           Letter Agreement, between Oppenheimer & Co., Inc. and Vestcom
                  International, Inc., is incorporated by reference to Exhibit
                  10.8 to Vestcom's Registration Statement on Form S-1 (no.
                  333-23519).

10.5 --           Employment Letter Agreement, dated as of September 29, 1999,
                  between Vestcom International, Inc. and Michael D. Helfand, is
                  incorporated by reference to Exhibit 10.13 to Vestcom's
                  Quarterly Report on Form 10-Q for the quarter ended September
                  30, 1999.

10.6 --           Employment Letter Agreement, dated September 23, 1997, between
                  Vestcom International, Inc. and Brendan Keating, is
                  incorporated by reference to Exhibit 10.10 to Vestcom's
                  Registration Statement on Form S-4 (no. 333-39077).


10.7   --         Change in Control Agreements, dated January 1, 1999, between
                  Vestcom International, Inc. and each of Joel Cartun and
                  Brendan Keating are incorporated by reference to Exhibit 10.8
                  to Vestcom's Annual Report on Form 10-K for the year ended
                  December 31, 1998.

10.8   --         Change in Control Agreement, dated January 1, 1999, between
                  Vestcom International, Inc. and Sheryl Bernstein Cilenti is
                  incorporated by reference to Exhibit 10.8 to Vestcom's Annual
                  Report on Form 10-K for the year ended December 31, 1999.


                                      -27-
<PAGE>


10.9   --         Equipment Facility and Revolving Credit Agreement, dated as of
                  August 13, 1997, as amended, between Vestcom International,
                  Inc. and Summit Bank, is incorporated by reference to Exhibit
                  10.9 to Vestcom's Annual Report on Form 10-K for the year
                  ended December 31, 1998.

10.10 --          Fourth Amendment to Equipment Facility and Revolving Credit
                  Agreement, dated as of November 5, 1999, between Vestcom
                  International, Inc. and Summit Bank, is incorporated by
                  reference to Exhibit 10.12 to Vestcom's Quarterly Report on
                  Form 10-Q for the quarter ended September 30, 1999.

21.1   --         List of subsidiaries of Vestcom International, Inc.

23.1   --         Consent of Arthur Andersen LLP.

24.1   --         Power of Attorney.

(b)      Reports on Form 8-K:

                           None


                                      -28-
<PAGE>

                                   SIGNATURES

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

Date:      March 28, 2001               VESTCOM INTERNATIONAL, INC.

                                        By: /s/ Brendan Keating
                                            -----------------------------------
                                            Brendan Keating
                                            Chief Executive Officer, President
                                            And Chief Operating Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed by the following persons in the capacities
indicated on the date indicated.
<TABLE>
<CAPTION>

Signatures                                Title                                                  Date
----------                                -----                                                  ----
<S>                                       <C>                                                    <C>
/s/ Joel Cartun                           Chairman and Director                                  March 28, 2001
---------------
Joel Cartun

/s/ Brendan Keating*                      President, Chief Executive Officer, and                March 28, 2001
-------------------                       Chief Operating Officer and Director
Brendan Keating

/s/ Stephen R. Bova*                      Director                                               March 28, 2001
--------------------
Stephen R. Bova

/s/ Leonard J. Fassler*                   Director                                               March 28, 2001
-----------------------
Leonard J. Fassler

/s/ Fred S. Lafer*                        Director                                               March 28, 2001
------------------
Fred S. Lafer

/s/ Robert J. Levenson*                   Director                                               March 28, 2001
-----------------------
Robert J. Levenson

/s/ Richard D. White*                     Director                                               March 28, 2001
---------------------
Richard D. White

/s/ Michael D. Helfand                    Executive Vice President, Chief Financial              March 28, 2001
 ----------------------                   Officer and Treasurer (Principal Financial and
Michael D. Helfand                        Accounting Officer)


                                            *By: /s/ Joel Cartun
                                            --------------------
                                            Joel Cartun, Attorney-in-Fact
</TABLE>