FORM 10-KSB - ANNUAL OR TRANSITIONAL REPORT UNDER 
             SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                                  FORM 10-KSB 
                                  (Mark One)

   [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934

   For the fiscal year ended     December 31, 1997              


   Commission File Number:           0-24188

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

          FLORIDA                                     59-3181162
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
   incorporation or organization)

                          118 WEST ADAMS STREET, SUITE 900
                            JACKSONVILLE, FLORIDA 32202
               (Address of principal executive offices)   (Zip Code)

   Registrant's telephone number,                904-355-2592
       including area code   

   Securities registered pursuant to Section 12(b) of the Act:  None
   Securities registered pursuant to Section 12(g) of the Act:  
          Common Stock, $.01 par value

   Check 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 [ ]

   Check if disclosure of delinquent filers in response to Item 405 of
   Regulation S-B is not contained in this Form, and no disclosure will be
   contained, to the best of the Registrant's knowledge, in definitive proxy
   or information statements incorporated by reference in Part III of this
   Form 10-KSB or any amendment to this Form 10-KSB.  Yes [x]    No [ ]

   Registrant's revenues for the fiscal year ended December 31, 1997 were
   $60,257,468.

   The aggregate market value of the voting common stock held by non-
   affiliates of the Registrant as of April 15, 1998 was approximately
   1,661,313.

   The number of shares outstanding of Common Stock, $.01 par value, as of
   April 15, 1998: 21,414,013.

                      Documents Incorporated by Reference

   None.

   Transitional Small Business Disclosure Format (check one):  Yes [ ]  No [x]

   <PAGE>
                                Jotan, Inc.

                                Form 10-KSB


                             Table of Contents


   PART I
        Item 1.     Description of the Business . . . . . . . . . . . . .   1
        Item 2.     Description of Property . . . . . . . . . . . . . . .   4
        Item 3.     Legal Proceedings . . . . . . . . . . . . . . . . . .   5
        Item 4.     Submission of Matters to a Vote of Security Holders .   7

   PART II
        Item 5.     Market for the Registrant's Common Equity and 
                    Related Shareholder Matters . . . . . . . . . . . . .   7
        Item 6.     Management's Discussion and Analysis. . . . . . . . .   8
        Item 7.     Financial Statements  . . . . . . . . . . . . . . . .  14
        Item 8.     Changes in and Disagreements with Accountants on 
                    Accounting and Financial Disclosure . . . . . . . . .  15

   PART III
        Item 9.     Directors, Executive Officers, Promoters and Control 
                    Persons . . . . . . . . . . . . . . . . . . . . . . .  15
        Item 10.    Executive Compensation  . . . . . . . . . . . . . . .  17
        Item 11.    Security Ownership of Certain Beneficial Owners and 
                    Management  . . . . . . . . . . . . . . . . . . . . .  18
        Item 12.    Certain Relationships and Related Transactions  . . .  20
        Item 13.    Exhibits and Reports on Form 8-K  . . . . . . . . . .  22

   <PAGE>
                                    PART I

   Item 1. Description of the Business

   Business Development

   Jotan, Inc. (the "Company") was originally organized on December 5, 1988
   under the laws of the State of Idaho as Antelope Resources, Inc. 
   Following the acquisition of Jotan, Inc., a Florida corporation, in March
   1994, the Company, through its wholly-owned subsidiary, Jotan-Florida,
   became actively engaged in the business of distributing packaging and
   shipping supplies for industrial customers in the southeastern United
   States. 

   On May 14, 1996 the stockholders approved a proposal to change the
   Company's state of incorporation from Idaho to Florida and to increase the
   Company's authorized shares of common stock from ten million (10,000,000)
   to forty million (40,000,000) and to authorize a class of blank-check
   preferred stock.  The re-incorporation and the change in authorized shares
   were accomplished by merging the Company into the Company's wholly-owned
   subsidiary, Jotan-Florida.

   On March 4, 1997 the Company completed the acquisition of 100% of the
   stock of Southland Holding Company ("SHC").  The subsidiaries of SHC and
   one affiliate of the Company merged with and into SHC in 1997 which
   changed its name to Southland Container Packaging Corp. ("Southland"). 
   Southland is a distributor of packaging and shipping supplies with eleven
   distribution centers throughout the United States. Southland served
   primarily the moving and storage industry, but also provided packaging
   products to the air freight and perishable food markets. As of June 20,
   1997 the Company completed the acquisition of the assets of Cove Container
   Corporation ("Cove").  Cove is a distributor of packaging and shipping
   supplies with a distribution center located in Pontiac, Michigan, and a
   manufacturing facility in West Branch, Michigan.  Cove serves both the
   industrial and the moving and storage industries.

   The Company's principal executive offices are located at 118 West Adams
   Street, Suite 900, P.O. Box 836, Jacksonville, Florida 32201, and its
   telephone number is (904) 355-2592. 

   Present Business Activities

   The Company is a distributor of packaging and shipping supplies with
   twenty-four distribution centers and two production facilities located
   throughout the United States.  The Company sells to a broad customer base
   including industrial, moving and storage, air freight, and perishable food
   market segments.  Prior to March 1997, Jotan, Inc. was a southeast
   regional distributor of packaging materials providing "Just On Time As
   Needed" delivery service for its industrial customers.

   Industrial Market

   The Company offers its industrial customers a comprehensive line of
   products and services on a "Just On Time As Needed" (Jotan) basis, whereby
   the Company determines the daily packaging and shipping supply demands of
   its customers and delivers to the customer, as needed, the 
   finished packaging and shipping products tailored to the customer's needs. 
   The Company designs a supply system for each customer based on "just in
   time" inventory management by providing all of the customer's packaging
   and shipping supplies as needed.

   The Company has developed a supply system of inventory management that
   provides a single source for all of its customers' packaging and shipping
   supplies.  It is designed to save the customer time, effort, storage space
   and money.  By using the Company's services, a customer can eliminate its
   packaging and shipping supplies inventories thereby freeing up warehouse
   space, reducing labor costs and reducing required capital.  Customers can
   fulfill their packaging and shipping supply needs on a schedule tailored
   to their specific production runs and manufacturing systems.  Common
   problems encountered by manufacturers such as procurement, storage,
   delivery and financing of packaging and shipping supplies become the
   responsibility of the Company. 

   Moving and Storage Market

   The Company sells and distributes corrugated moving supplies, wrapping and
   cushioning materials, moving van and warehouse pads, material handling
   equipment, and other supplies to the moving and storage industry.  The
   Company offers the capability for customers to pick up products from
   geographically dispersed distribution centers.  This is extremely
   important to the many "over the road" drivers who make up a large portion
   of the service providers in the moving and storage industry.

   Perishable Product Packaging and Air Freight Markets

   The Company provides packaging products to air freight haulers and seafood
   and agricultural products producers.  These include air freight
   containers, coated corrugated containers, and other packaging materials
   specifically designed for the unique requirements of the perishable
   product shipper.  The air freight business has become the dominant market
   segment for the west coast operations, and the perishable packaging
   product lines are rapidly growing throughout the southeast.

   Products

   The Company's supplier base includes all the major integrated forest
   products manufacturers.  Together with a regional supplier base serving
   smaller run specialty requirements, the Company possesses sufficient
   supply capacities to meet the demands of the Company and its customers. 
   The Company also purchases from its suppliers products such as bubble and
   shrink wrap, foam filling, packing peanuts, pallet wrap, tape, labels, and
   related packaging equipment.  Because there are many manufacturers of its
   products, the Company does not rely on any single supplier or limited
   source in order to meet customer demands; and the Company has available to
   it several practical alternative sources for all of its products.

   Research and Development

   The Company has not allocated funds for conducting research and
   development activities and, because of the nature of the Company's
   business, it is not anticipated that funds will be allocated for research
   and development in the immediate future.  Development of special or
   customized products for a customer is usually facilitated through the
   Company's representatives working closely with the customer to design the
   specific product required to meet the customer's needs. 

   Marketing and Distribution

   The Company distributes its products over a broad geographical area, with
   distribution centers located in the northeast, southeast, mid-west, south
   central, and western United States.  Each of the Company's service and
   distribution centers concentrates on attracting and retaining customers
   from within the general geographical area of the facility. From its
   corporate headquarters in Jacksonville, Florida, the Company provides its
   distribution centers with planning and budgeting services, financial
   controls, procurement, information systems, personnel training and
   guidance in the marketing of specialized product lines.  Inventory
   maintained at each of the Company's facilities is based on customers'
   requirements including the type of product needed and optimal production
   runs.   During 1997, the Company established and maintained new warehouse
   operations in Carrollton, TX and Findlay, OH.

   The Company maintains a direct sales force that solicits business from
   potential customers within the immediate area of each respective service
   and distribution center.  Each of the Company's representatives works
   closely with their customers to develop a customized plan to maximize the
   efficiency of inventory control for packaging and shipping supplies. 

   Competition

   The Company is in direct competition with manufacturers of corrugated
   boxes and other manufacturers of packaging and shipping products that
   market directly to end users.  Many of the Company's competitors possess
   greater financial and personnel resources than the Company.  Management
   believes that the Company is able to compete with these other companies
   because of its more personalized service and because of its ability to
   deliver packaging and shipping materials to its customers at a competitive
   price on a just-on-time-as-needed basis.  Such ability to compete,
   however, depends upon the ability of the Company to finance its
   acquisition of inventory sufficient to satisfy the customer.

   In addition to competition from manufacturers, the Company also competes
   with distributors who provide a similar distribution link between the
   manufacturers and the end user.  This is particularly true in the moving
   and storage segment of the business.  The moving and storage industry is a
   mature industry.  Packaging materials represent a significant component in
   its cost structure.  As a result of the similarity of services offered by
   the Company and its major competitors, the price of packaging is a major
   factor in the selection of a packaging vendor.  Some of these competitors
   have superior financial resources to the Company.

   Certain competitive conditions existed in 1997 that materially affected
   the performance of the Company.  These conditions are discussed in "Item
   3, Legal Proceedings."

   Patents and Trademarks 

   The Company has filed a trademark application for the name "Jotan".  The
   Company has adopted and is the owner of the trademark "Thermal Shield"
   which is the subject of a pending application in the United States Patent
   and Trademark Office.

   The Company has filed an application, and patent protection is pending for
   "Method And Apparatus For Packaging Perishable Goods".  These products are
   marketed under the "Thermal Shield" trademark.

   Government Regulation

   The distribution of packaging and shipping supplies is not specifically
   regulated by any particular government agency, either federally or
   locally.  Aside from the general business regulatory requirements, the
   Company is not aware of any specific governmental approvals or licenses
   that must be obtained or maintained to operate its business in the normal
   course. 

   Employees

   As of the date hereof, the Company employs approximately 240 people full-
   time in management, administrative, sales, warehouse, distribution, and
   production functions.  Management currently anticipates hiring additional
   employees as business warrants. 

   Item 2.   Description of Property

   The Company's principal place of business and executive offices are 
   located at 118 West Adams Street, Jacksonville, Florida 32202 and consist 
   of 5,000 square feet of office space which is subject to a five year lease 
   expiring in 1999. The Company has production, service, and distribution
   centers consisting of warehouse and office space all leased except one, at 
   the following locations: 

   609 East 10th Street       610 East 10th Street     1730 Colonial 
   Jacksonville, FL           Jacksonville, FL         Thomasville, GA 

   502 McKean Street          1629 South Highway 14    2025 West Belt Line Road
   Auburndale, FL             Greer, SC                Carrollton, TX

   200 Northparke Drive       3001 Directors Row       3625 Oakcliff Road
   Findlay, OH                Orlando, FL              Atlanta, GA 

   2211 F Dis. Center Dr.     1536 Castle Hayne Road   8620 Dorsey Run Road
   Charlotte, NC              Wilmington, NC           Jessup, MD 

   333 Park Avenue            125 National Road        166 National Road 
   Federalsburg, MD           Edison, NJ               Edison, NJ

   36 Holton Street           4490 Steelway Boulevard  120 West 155th Street 
   Winchester, MA             Liverpool, NY            Gardena, CA 

   3112 & 3114 Via Mondo      214 Shaw Road #7         2810 Marshal
   Rancho Dominguez, CA       San Francisco, CA        Tacoma, WA

   5075 Kinston Street        444 South Boulevard E    3891 South M-76 
   Denver, CO                 Pontiac, MI              West Branch, MI


   Each of the Company's properties is leased except the Thomasville, Georgia
   property which is owned by the Company.

   Item 3.   Legal ProceedingsThe following is a list of the material legal
             proceedings instituted by or pending against the Company:

   Jotan, Inc. v. Golden State Container et. al.

   The Company instituted a civil action against Golden State Container, Inc.
   (k/n/a Victory Packaging, Inc.) ("Golden State") and the following
   defendants: David Rapson, Pete Dougherty, Fred Brown, Jeff Barber, Mason
   Shelby, Ron Sheldon, Dawn Berti, Mike O'Malley, George Miller, Cheryl
   Becker and Tomas Toro (collectively, the "Defendants") on January 22,
   1998, in the 192nd District Court of Dallas County, Dallas, Texas for
   Injunctive Relief and Temporary Restraints.  The action was filed to
   restrain all such named Defendants from continuing to take certain actions
   or taking action which would (i) result in the breach of existing
   contractual relations with certain named Defendants, (ii) result in
   tortious interference with business contracts, and (iii) result in a
   violation of state antitrust laws and public policy in regard to
   disclosure of confidential and proprietary information.  A temporary
   restraining order was granted by the 192nd District Court of Dallas.  Upon
   receipt of service of process, counsel for Defendant, Golden State,
   entered into a Rule 11 Agreement with counsel for the Company, whereby the
   temporary restraining order was modified.  Thereafter, the Defendant,
   Golden State, filed a Motion to Transfer Venue from Dallas County to
   Harris County, Houston, Texas, the domicile of Golden State.  The Motion
   to transfer venue was granted by the Dallas Court on February 5, 1998. 
   The Company then instituted an action in the 270th District Court of
   Harris County for Injunctive Relief and Temporary Restraints on February
   6, 1998.  In such proceeding, the Court instructed the parties to reach an
   agreement.  Counsel for Defendants and the Company then agreed under the
   terms of a Rule 11 Agreement, as adopted and entered by the Court, to
   restrain certain acts of the Defendant relating to the Company's employees
   and operations. Subsequently, the Motion to Transfer Venue as granted by 
   192nd Dallas Court was transferred and assigned to the 189th District 
   Court in Harris County.  Defendants have filed motions to consolidate the 
   claims brought in the 270th Court into the 189th Court in Harris County.  
   The Company has filed a reply and Plea in Abatement in regard to 
   Defendants' motion.  The Company simultaneously filed a Motion to Transfer 
   the claims transferred and assigned to the 189th Court into the 270th 
   Court where the agreed to Rule 11, as adopted and entered by the Court as 
   a Temporary Injunction is in place.  Further, the Company is preparing 
   responses to certain special appearances of named Defendants filed in the 
   270th Court.  Litigation continues with the Temporary Injunction, as 
   adopted by the Court, in place as mutually agreed by the parties and as 
   adopted by the Court until the time of trial.  There is no assurance that 
   any injunction will remain in place after the trial.

   John L. Sanders et. al. v. Jotan, Inc.
   --------------------------------------

   On January 8, 1998, the Company sent a notice of claims letter to John L.
   Sanders, Jr., Lester G. Gegenheimer, and William P. Blincoe III, the
   selling shareholders of Southland ("Selling Shareholders"), demanding in
   excess of Eleven Million Dollars ($11,000,000) representing losses
   suffered for breaches of certain representations and warranties and
   covenants in the Share Purchase Agreement dated December 19, 1996 as
   supplemented and amended ("Purchase Agreement"), in accordance with the
   provisions thereof.  Upon receipt of the notice letter, the Selling
   Shareholders responded by asserting a claim for arbitration pursuant to
   the Purchase Agreement.  The Selling Shareholders assert in the
   Arbitration Notice, filed January 23, 1998, claims for payment of certain
   bonuses and adjustment increases to the selling price of the shares of the
   capital stock of Southland.  The Company is presently preparing its
   response to the Arbitration Notice and a counterclaim based upon the
   claims asserted in the notice of claims letter as sent to the Selling
   Shareholders on January 8, 1998.  The matter is pending before the
   American Arbitration Association ("AAA") and will be conducted pursuant to
   the rules and procedures of the AAA.  There is no assurance that the
   Company will prevail on all or any of its claims against the Selling
   Shareholders.  The Company believes that any liabilities related to this
   claim have been adequately provided for in the financial statements.

   The February One Group, Inc. vs. Jotan, Inc.
   --------------------------------------------

   On July 18, 1996, The February One Group, Inc. filed suit against the
   Company in a dispute over the repayment of a loan that February One made
   to the Company.  The Company believes that it has an offsetting claim
   against February One in a dispute over a failed financing attempt by
   Coleman & Co.  The Company believes that any liabilities to February One
   have been adequately provided for in its financial statements.

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

   Information required by this item number has been omitted because it is
   inapplicable.


                                  PART II

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

   There has not been an established public trading market for the shares of
   the Company's common stock.  Quotations on the Company's common stock,
   when available, are published on the OTC Bulletin Board under the symbol
   "JTAN", and in the National Quotation Bureau, Inc. (NQB) pink sheets under
   "Jotan, Inc."

   As of December 31, 1997, there were 126 holders of record of the common
   stock, which figure does not take into account those shareholders whose
   certificates may be held in the name of broker-dealers. In addition, there
   are three holders of record of warrants immediately exercisable into
   shares of the common capital stock of the Company.

   Dividends

   The Company has not declared or paid cash dividends or made distributions
   in the past, and the Company does not anticipate that it will pay cash
   dividends or make distributions to holders of the Company's common stock
   in the foreseeable future. The Company, except as discussed below,
   currently intends to retain and reinvest future earnings to finance its
   operations. 

   Certain requirements exist as a result of amendments to the Credit
   Agreement (defined hereinafter) that restrict the payment of dividends to
   common equity holders.

   Recent Sales of Unregistered Securities

   As of May 16, 1996, the Company signed an agreement that resulted in the
   sale of 1,265,823 shares of Series A Convertible Preferred Stock to F-
   Jotan, L.L.C. ("F-Jotan"), an affiliate of Fairview Capital, L.L.C., a
   Raleigh, North Carolina, based private investment company ("Fairview"). 
   The Series A Convertible Preferred Stock carries an 8% annual dividend
   payable in additional shares of preferred stock, beginning January 1,
   1997.  (As of April 14, 1998, F-Jotan held 1,435,705 shares of Series A
   Convertible Preferred Stock.)

   As of February 28, 1997, the Company entered into an agreement with Rice
   Partners II, L.P. ("Rice") and two Fairview affiliates to purchase $10
   million (face amount) of Series B Redeemable Preferred Stock together with
   15,210,990 shares of immediately exercisable common stock warrants of the
   Company related thereto, and $9,000,000 of 12.5% senior subordinated
   notes.  The Series B Redeemable Preferred Stock accrues dividends at a
   rate of 8.0% per annum, payable quarterly in cash or, at the Company's
   option, in kind by the issuance of additional shares of Series B
   Redeemable Preferred Stock. As of June 20, 1997, the Company entered into
   an agreement with Rice which resulted in Rice purchasing an additional
   $2,625,000 of Series B Redeemable Preferred Redeemable Stock together with
   3,620,473 shares of immediately exercisable common stock warrants of the
   Company related thereto, and $2,625,000 of 12.5% senior subordinated
   notes.  (For a more complete discussion of the Fairview and Rice
   transactions, see the "Liquidity and Capital Resources" section included
   in Item 6 below).

   As of January 23, 1998, Rice purchased an additional $250,000 of Series B
   Redeemable Preferred Stock.  As of April 14, 1998, the Company entered
   into an agreement with Rice to borrow an additional $1.25 million in
   exchange for certain 12.5% senior subordinated notes and warrants to
   purchase 42,377,173 shares of the Company's common stock.  Concurrently,
   the Company issued warrants to Rice for the purchase of 8,475,638 shares
   of Common Stock as additional consideration for Rice's $250,000 Series B
   Redeemable Preferred Stock purchase in January 1998 (for further
   discussion of these transactions, see "Liquidity and Capital Resources"
   included in Item 6 below).

   Item 6.   Management's Discussion and Analysis 

   The following information should be read in conjunction with the
   consolidated financial statements and notes thereto appearing elsewhere in
   this Form 10-KSB. 

   Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996

   On March 4, 1997, the Company completed the acquisition of 100% of the
   stock of SHC from the Selling Shareholders.  On June 23, 1997, the Company
   completed the acquisition of the assets of Cove.  As a result of these
   acquisitions, the Company's financial statements after March 4, 1997 are
   not comparable to financial statements prior to that date.  

   To facilitate a meaningful comparison of the Company's operating
   performance, the following discussion and analysis is presented on a
   traditional basis.  Included in the following discussion are comparisons
   of EBITDA (earnings before interest, taxes, depreciation, and
   amortization). The Company believes EBITDA is helpful in understanding
   cash flow generated from operations that are available for taxes, debt
   service and capital expenditures.  In addition, EBITDA facilitates the
   monitoring of covenants related to certain long-term debt.  EBITDA should
   not be considered by investors as an alternative to net earnings as an
   indicator of the Company's operating performance or to cash flows as a
   measure of its overall liquidity.

   Jotan, Inc., and its consolidated subsidiaries reported a net loss of
   $38.3 million for the year ended December 31, 1997 compared to net income
   of $.2 million for the same period in 1996.  EBITDA for the year ended
   December 31, 1997 reflected a loss of $1.5 million compared to $.4 million
   for the same period in 1996. This included the establishment of
   significant reserves for bad debts, inventory obsolescence, and certain
   termination and other costs.

   The Company incurred significant losses during 1997 related to its
   acquisition of Southland.  The losses were due to, among other things,
   loss of key employees and significant customers and increased, intense
   competition.  The Company evaluated these adverse indicators and
   determined that they impaired the value of the long-lived assets acquired
   from Southland.  Accordingly, the Company determined that the fair value
   of the goodwill and noncompete agreements was less than the carrying value
   by approximately $29.9 million which was written off in late 1997.

   Net sales increased to $60.2 million for the year ended December 31, 1997
   from $11.7 million for 1996.  The increase in net sales was primarily
   related to post acquisition revenue generated by Southland and Cove.  Net
   sales also increased from new business at the Company's six existing
   distribution center, and the two new distribution centers opened and
   maintained in Carrollton, Texas and Findlay, Ohio during 1997.

   Gross profit increased to $16.7 million for the year ended December 31,
   1997 from $2.9 million for the year ended December 31, 1997.  Gross profit
   margins were improved as a result of post acquisition revenue generated by
   Southland and Cove.

   Operating expenses increased to $18.7 million in 1997 from $2.5 million
   for the same period in 1996.  The major factor contributing to these
   increases was the inclusion of Southland's and Cove's operating expenses
   in the post-acquisition period.  Other contributing factors included
   expenses related to integration of Southland's administrative functions,
   and professional fees relating to staffing and regulatory filings.

   Expenses (which do not constitute a write-down) related to amortization of
   goodwill and non-compete agreements were $3.0 million.  These expenses are
   determined before recognition of the impairment and the associated
   writedown described above.  There was no amortization expense in the same
   period of 1996.  This increase relates to the amortization of goodwill and
   non-compete agreements resulting from the Southland and Cove acquisitions.

   Interest expense for 1997 increased to $3.6 million from $0.3 million for
   the equivalent period of 1996.  This increase reflected the impact of
   increased borrowings related to the Southland and Cove acquisitions.

   1997 Operations

   Revenues and earnings in 1997 were both significantly short of
   expectations.  Increases in total industry capacity for containerboard and
   softened demand for corrugated containers contributed to a decline in
   published linerboard prices of approximately 45% by mid-year 1997.  By
   year end 1997, published industry prices had recovered more than 25% from
   their low point in 1997.  This, coupled with loss of key employees and
   aggressive actions taken by competitors in several of Southland's markets,
   had a significant adverse impact on revenue and earnings.  After the
   acquisition of Southland, the Company began an effort to enhance its
   management strength.  The Company recruited a President in June of 1997
   and hired a new Chief Financial Officer in October of 1997.  In mid-
   December, the Board of Directors engaged Allomet Partners, Ltd. to analyze
   the business and develop a strategy focused on cost reduction and improved
   liquidity.  After the resignation of the President in January, 1998, the
   Board assigned one of the partners of Allomet Partners to function in the
   role of Chief Executive Officer.  In April, 1998, the Company selected
   Raleigh C. Minor to be Chief Executive Officer of the Company and
   Southland.  Mr. Minor had been serving as Interim Chief Executive Officer. 
   Mr. Minor was also a principal of Allomet Partners Ltd., but resigned when
   selected to be the Chief Executive Officer.

   The Company under-estimated the time required to implement a common
   information systems network throughout the acquired locations.  This
   resulted in delays to the achievement of certain cost-containment and
   asset management goals initially targeted. 

   The Company faced intense competition after the acquisition of Southland. 
   Aggressive competitors pressured gross profit margins, particularly in the
   moving and storage segment of the business.  A number of the Company's key
   sales employees were recruited by a competitor requiring a significant
   rebuild of the sales staff.  The Company filed a lawsuit against this
   competitor and has obtained a Temporary Injunction restraining the
   competitor from continuing to recruit the Company's employees.  (See Item
   3, "Legal Proceedings".)

   On December 31, 1997, the Company failed to make the scheduled principal
   and interest payments required in its Credit Agreement (as defined below). 
   On April 21, 1998, the Banks (as defined below) and Rice and Fairview
   agreed to amendments to, and waivers of, the defaults under the Credit
   Agreement and the Note Purchase Agreement, respectively (as defined
   below).  (See "Liquidity and Capital Resources" for more detail).  The
   Company and the Banks and Rice and Fairview have further amended the
   Credit Agreement and the Note Purchase Agreement to help meet the
   immediate capital needs of the Company.

   In December 1997 the Company determined that its cash flow was
   insufficient to provide its suppliers with normal payment terms. 
   Negotiations were held with certain key vendors who agreed to hold in
   abeyance amounts due and transact future business on a cash on delivery or
   cash in advance basis while a repayment plan was implemented and Bank
   negotiations were completed.  A plan has been developed and implemented,
   with the approval of these vendors, to accomplish the repayment of past
   due amounts over a two-year period while providing for the uninterrupted
   supply of materials for the business.

   The Company has developed a Business Plan to improve performance, meet
   cash requirements including bank and vendor debt, and establish a
   foundation for future operations.  Key elements of the plan include
   management restructuring, facility consolidations, improved working
   capital management, cost containment, and expansion within certain product
   lines.  New management is proactive and is very focused on achieving the
   plan.  Although it is much too soon to predict success, there are many
   marked changes as compared to 1997.  There are risks associated with this
   plan, including but not limited to, general economic and business
   conditions, competitive market pricing, and failure to effectively
   maintain vendor relationships.

   Forward-looking statements in this filing including the above and those in
   the footnotes to the financial statements, are made pursuant to the safe
   harbor provisions of the Private Securities Litigation Reform Act of 1995. 
   Such forward-looking statements are subject to risks and uncertainties,
   and actual results could differ materially.

   Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995

   The following financial discussion does not give effect to the acquisition
   of SHC and Cove on a consolidated basis and includes only those operations
   of Jotan, Inc. prior to such acquisitions.

   Net sales increased to $11.7 million, or 12.5% for the year ended December
   31, 1996 from $10.4 million for the year ended December 31, 1995.  The
   increase in sales resulted from new business at the Company's four
   existing distribution centers, which more than offset the impact of the
   closure of the Chattanooga distribution center during the third quarter of
   1995, and the decline in corrugated prices that occurred during the first
   six months of 1996.  The Company's existing distribution centers
   experienced increased sales in 1996 of $2.2 million, a 23.2% increase
   compared to the year ended December 31, 1995. 

   Cost of sales increased from $8.2 million, or 79.4% of sales, for the year
   ended December 31, 1995 to $8.8 million, or 75.1% of sales, for the year
   ended December 31, 1996.  The decline in cost of goods sold as a
   percentage of sales from 1995 to 1996 reflects the decrease in cost of
   corrugated and packaging products which occurred during the first six
   months of 1996.  While a significant portion of those decreases were
   passed on to customers, the Company was able, through better defined
   product sourcing, increased inventory turns, and the improved financial
   condition of the Company, to improve its gross profit margins.

   Operating expenses declined 3.6% to $2.5 million for the year ended
   December 31, 1996 as compared to $2.6 million for the same period in 1995. 
   Several factors contributed to this decrease including the closure of the
   Chattanooga distribution center and lower expenses related to the
   collection of account receivables.

   As a result of the foregoing factors, the Company had a profit from
   operations of $382,000 for the year ended December 31, 1996 compared to a
   loss from operations of $472,158 for the year ended December 31, 1995.

   Interest expense increased $45,897 to $271,138 for the year ended December
   31, 1996 due principally to an increase in average debt outstanding.  The
   increased borrowings were incurred primarily to fund internal growth of
   the Company.  Other income declined to $63,107 in 1996 from $170,077 for
   the year ended December 31, 1995, reflecting the completion of the vendor
   settlement project in 1995.

   As a result of the foregoing, the Company had net income of $173,658 or
   primary earnings per share of $.03 for the year ended December 31, 1996
   compared to a net loss of $527,322 or $.10 a share for the year ended
   December 31, 1995.

   Liquidity and Capital Resources

   Term and Revolving Loans

   The Company entered into a credit  agreement (the "Credit Agreement") with
   Banque Paribas individually and as agent for other participating banks
   (the "Banks") as of February 28, 1997 to obtain up to $12 million in a
   senior revolving credit facility and $27 million in senior
   term/acquisition credit facilities.  The Company terminated its then
   existing long-term financing arrangement with CIT and paid off other long-
   term credit facilities.

   The Credit Agreement initially required minimum interest coverage, fixed
   charge coverage, and EBITDA.  As of August 31, 1997, the Company failed to
   meet minimum EBITDA requirements.  As of September 30, 1997, the Company
   failed to meet the required interest coverage, fixed charge coverage, and
   EBITDA requirements.  Waivers were obtained from the Banks for defaults
   occurring during August and September and financial covenants were waived
   for October and November.

   On November 14, 1997, the Company amended the Credit Agreement, reducing
   the revolving credit facility from $9 million to $8 million, until April
   1, 1998, when the revolving credit facility was to increase to $12
   million.

   On December 31, 1997, the Company did not make the scheduled principal and
   interest payments required in the Credit Agreement.  As of April 14, 1998,
   the Company and Southland entered into a Fifth Amendment to its Credit
   Agreement with the Banks (the "Fifth Amendment") whereby the Banks agreed
   to defer the payment of accrued but unpaid interest through July 31, 1998
   (and certain additional interest payments through September 30, 1998) by
   execution of interest deferral notes bearing certain fixed and variable
   rates.  The Company agreed to shorten the maturity dates of the loans so
   that all principal and interest under loans from the Banks will be due on
   February 28, 2001.  As a result of the Fifth Amendment, the Company's
   working capital line of credit with the Banks extended and were renewed to
   help meet the Company's financing requirements.

   Subordinated Loans

   In order to obtain financing for the acquisition of Southland and fund
   future expansion, the Company signed an agreement as of February 28, 1997
   with Rice to purchase $7 million of senior subordinated debt and $8
   million of Series B Senior Redeemable Preferred Sock.  F-Southland,
   L.L.C., a North Carolina limited liability company, and FF-Southland,
   L.P., a North Carolina limited partnership, entities affiliated with
   Fairview (and sometimes collectively called the "Southland Purchasers")
   purchased an aggregate amount of $2 million of such senior subordinated
   debt (such debt held by Rice and the Southland Purchasers is herein
   sometimes called, the "Subordinated Debt") and $2 million of such Series B
   Redeemable Preferred Stock.

   The Subordinated Debt is evidenced by notes (the "Subordinated Notes")
   which bear interest at a rate of 12.5% per annum, with a default rate of
   15.5% per annum.  Interest is payable quarterly for eight years, with
   principal due in equal quarterly installments during the seventh and
   eighth years.  Prepayments of the Subordinated Debt are allowed subject to
   premiums ranging from 12.5% during the first year to 0% commencing in the
   sixth year.  The Subordinated Debt is subordinated to the Bank's debt and
   is unsecured.  Rice and the Southland Purchasers were paid pro rata
   portions of a fee of $225,000 for providing the Subordinated Debt
   financing.  The Company agreed to issue to them immediately exercisable 
   warrants for an aggregate purchase of 3,233,833 shares of the Company's 
   common stock.

   As of June 20, 1997, the Company entered into an agreement with Rice and
   Fairview that resulted in Rice purchasing an additional $2,625,000 of
   Series B Redeemable Preferred Stock. These additional funds were used to
   provide the long-term financing of the Cove acquisition.  As a result of
   this agreement, the Banks amended the Credit Agreement waiving the
   Company's compliance with certain covenants, thus allowing the Company to
   temporarily borrow $2,625,000 under its acquisition credit facility of the
   Credit Agreement.  These funds were repaid to the Banks with proceeds from
   the sale of the additional Series B Redeemable Preferred Redeemable Stock
   to Rice in September 1997.

   As of August 19, 1997, the Company amended the Subordinated Debt Agreement
   to allow interest payments due on the last business day of August 1997,
   November 1997 and February 1998 to be satisfied by the issue on or before
   May 30, 1998 of Subordinated Notes (the "PIK Notes") for the amount of
   such interest, on the same terms as the Subordinated Notes.

   As a condition to the most current amendment to the Credit Agreement (the
   "Fifth Amendment"), the Banks required Rice to loan the Company an
   additional $1,250,000.  In exchange for this loan, the Company issued to
   Rice its 12.5% priority senior subordinated notes (the "Priority Note"). 
   Interest payments under the Priority Note is payable with PIK Notes until
   the Bank's debt is repaid.  The Priority Note (and the PIK Notes) are
   junior to the Bank's debt but senior to all the Subordinated Notes
   previously issued to Rice and Fairview in 1997.  The Company also agreed 
   to issue to Rice warrants for the purchase (at a nominal exercise price) 
   of 42,377,173 shares of the Company's common stock.  The Company also 
   agreed to issue to Rice similar warrants to purchase 8,475,638 shares of 
   the Company's common stock as additional consideration for the purchase of 
   the Priority Note and Rice's purchase of $250,000 of Series B Redeemable 
   Preferred Stock in January, 1998. The total number of shares of common 
   stock provided under these warrants may be reduced if a fairness opinion 
   which has been requested from an independent financial advisor indicates 
   that the number of shares issuable under the warrants is not fair to the 
   Company's shareholders.  The exercise of such warrants is also subject to 
   completing certain disclosure requirements and to obtaining certain share-
   holder approvals.  (See "Market for Common Equity and Related Stockholder
   Matters" above and Item 11, footnote 4.) 

   Rice and Fairview also agreed to waive defaults under the Subordinated
   Notes and to allow payment of delinquent and future interest payments by
   the issuance of PIK Notes until the Bank's debt is fully repaid.  Rice and
   the Southland Purchasers also agreed to amendments to financial covenants
   with Southland and the Company in the documents underlying the
   Subordinated Notes consistent with the Fifth Amendment.

   Negotiations were held with certain key vendors to hold in abeyance
   amounts due while a repayment plan was implemented and bank negotiations
   were completed.  A plan has been developed and implemented, with the
   approval of the creditors involved, to accomplish the repayment of past
   due amounts over a two-year period while providing for the uninterrupted
   supply of materials for the business.

   Net Operating Losses

   The Company has accumulated approximately $7.1 million of net operating
   loss carryforwards as of December 31, 1997.  The use of these losses to
   reduce future income taxes will depend on the generation of sufficient
   taxable income prior to the expiration of the net operating loss carry
   forwards.  The carryforwards expire in the year 2012.

   Environmental Matters

   The Company discovered ground water contamination at its Thomasville,
   Georgia facility resulting from the business activities of a former
   property owner.  This contamination was reported as required under Georgia
   law.  The Company has not yet been notified of any remediation
   requirements and thus is unable presently to estimate the potential for
   its liability or cost of cleanup.  The Company believes that any liability
   for remediation is immaterial.

   Year 2000

   The Company utilizes a wholesale distribution and financial software
   (FACTS) which, according to the software vendor, in its current release is
   able to address Year 2000 issues.  The Company plans to update to this
   release by mid-year, 1998.  No significant additional cost beyond that of
   the ongoing software support agreement is anticipated and as such is
   immaterial to the financial statements.

   Item 7.   Financial Statements

   See the financial statements included herein on pages F-1 through F-23.

   Item 8.   Changes in and Disagreements with Accountants on Accounting and
             Financial Disclosure

   Information required by this item number has been omitted because it is
   inapplicable.


                                PART III

   Item 9.   Directors, Executive Officers, Promoters and Control Persons

   (a)  Directors and Executive Officers

   The names and ages of the directors and executive officers of the Company
   and the business experience during the past five years of each of the
   directors and executive officers of the Company are as follows:

   SHEA E. RALPH, age 37, has been a director of the Company since March
   1994.  From March 1994 until February 1997, Mr. Ralph was President and
   Chief Executive Officer of the Company.  He served as Vice President of
   Atlantic Bag & Paper Company (a former subsidiary of the Company) from
   1988 to 1993.

   JEFFREY P. SANGALIS, age 39, has been a director of the Company since
   February 1997.  He is a founding principal of Rice, Sangalis, Toole &
   Wilson, a private investment firm based in Houston, Texas, which manages
   Rice Partners II, L.P., a private investment fund organized to invest in
   subordinated debt and equity securities of middle market companies, and
   has served in that capacity since 1989.  Mr. Sangalis serves as a director
   of Bayou Steel Corporation, a producer of light structural steel products.

   PHILIP A. DAVIDSON, age 33, has been a director of the Company since
   February 1997.  He has been a Managing Director since 1993 of Rice,
   Sangalis, Toole & Wilson, a private investment firm based in Houston,
   Texas, which manages Rice Partners II, L.P., a private investment fund
   organized to invest in subordinated debt and equity securities of middle
   market companies.

   JAMES P. WILSON, age 39, has been a director of the Company since February
   1997.  He is a founding Principal of Rice, Sangalis, Toole & Wilson, a
   private investment firm based in Houston, Texas, which manages Rice
   Partners II, L.P., a private investment fund organized to invest in
   subordinated debt and equity securities of middle market companies, and
   has served in that capacity since 1989.

   JAMES D. LUMSDEN, age 44, has been a director of the Company since March,
   1998 and served as a director of the Company from May, 1996 until
   February, 1997.  Mr. Lumsden is President and Managing Principal of
   Franklin Street/Fairview Capital, L.L.C., a private investment fund. 
   Prior to that time, Mr. Lumsden was President and co-founder of Fairview
   Advisors, Inc., a regional investor in assets held by the Resolution Trust
   Corporation. 

   RALEIGH C. MINOR, age 61, has been President and Chief Executive Officer
   of the Company since April, 1998.  Since 1986, Mr. Minor was a principal
   and Chairman of the Board of Allomet Partners, Ltd., a general management
   consulting firm engaged by the Company and which specializes in
   turnarounds and crisis management.  As a principal of Allomet, Mr. Minor
   served as Interim Chief Executive Officer of the Company from January,
   1998 until his election as President and Chief Executive Officer.

   EDWARD L. LIPSCOMB, age 48, joined the Company in October, 1997.  Prior to
   that time, he was Vice President and Chief Financial Officer of Bancroft
   Bag, Inc.  He has held financial and operating management positions with
   Domtar, Inc. (Vice President Administration) and Stone Container.

   None of the officers, directors, or control persons of the Company have
   been an executive officer or partner of any business which filed or was
   subject to any bankruptcy petition, been convicted in or been the subject
   of any pending criminal proceedings, have been the subject of any order,
   judgement, or decree involving the violation of any state or federal
   securities or commodities laws or limiting his involvement in any type of
   business, securities, or banking activities.


   (b)  Section 16(a) Beneficial Ownership Reporting Compliance

   Section 16(a) of the Securities Exchange Act of 1934, as amended, and
   regulations of the Securities Exchange Commission thereunder require the
   Company's executive officers, directors and persons who own more than 10%
   of the Company's common stock, as well as certain affiliates of such
   persons, to file reports of beneficial ownership of the Company's common
   stock and changes in such ownership with the Securities and Exchange
   Commission.

   The Company is not aware of whether Richard M. Gray, Gert Schumann, Suzi
   Hernandez, William A. Hightower, James D. Lumsden and Jeremiah M.
   Callahan, all of whom resigned as directors of the Company effective
   February 7, 1997 (except Mr. Callahan who resigned effective March 4,
   1998) engaged in any post-termination transactions reportable under SEC
   rules.  In particular, the Company is not aware of whether any of such
   persons reported on a Form 5 between 2700 and 3000 shares of the Company's
   common stock acquired by each of these persons in April, 1997 as
   consideration for services provided to the Company as directors prior to
   February 7, 1997 (see "Director Compensation" below).  The acquisition of
   such shares would have been exempt from immediate reporting under an SEC
   rule permitting the deferred reporting of small acquisitions.

   Edward L. Lipscomb filed a late Form 3 Initial Statement of Beneficial
   Ownership showing that he holds employee stock options to purchase 30,000
   shares of the Company's common stock granted to him pursuant to his
   Employment Agreement with the Company.

   The Company is taking a number of steps to ensure that its directors,
   executive officers and greater than 10% shareholders are aware of and
   comply promptly with the reporting requirements of Section 16(a).


   Item 10.  Executive Compensation

   The following table sets forth the cash and non-cash compensation paid by
   the Company for services rendered for the fiscal years ended December 31,
   1997, 1996 and 1995 to all individuals serving as the Company's Chief
   Executive Officer or President (the "Named Executive Officer").  No other
   executive officer of the Company received a salary in excess of $100,000
   annually for the period depicted.


                           SUMMARY COMPENSATION TABLE
                               ANNUAL COMPENSATION

           Name and                                                All other
       Principal Principal     Year      Salary ($)     Bonus     Compensation
       -------------------     ----      ----------     -----     ------------

    Shea E. Ralph, Chairman    1997       $118,748    $36,500(1)    $7,200(2)
    President and Chief        1996         70,519          0        3,600(2)
    Executive Officer (prior   1995         60,599          0          720(2)
    to 2/28/97)

    Jeffrey P. Sangalis,       1997       $      0    $     0       $    0
    Chief Executive Officer
    (2/28/97 - 6/30/97)

    Jeremiah Callahan,         1997       $      0    $     0       $    0
    Chief Executive
    Officer (6/30/97 -
    10/1/97)

    William H. Ames            1997       $114,478    $     0       $    0
    President
    (6/11/97 - 1/5/98)

   (1) Bonus paid in connection with acquisition of Southland Holding
       Company. 
   (2) Car allowance.


   Director Compensation

   Since February 28, 1997, the Company has not compensated its directors for
   services provided as a director other than reimbursement for expenses
   incurred in connection with board and committee meetings attended.  Prior
   to February 28, 1997 each director received 1,800 shares of the Company's
   common stock annually plus 100 additional shares of common stock for each
   meeting of the Board attended.


   Item 11.  Security Ownership of Certain Beneficial Owners and Management

   The following table sets forth certain information as of April 15, 1998,
   concerning beneficial ownership of voting securities of the Company by (i)
   each person known by the Company to be the owner of more than 5% of each
   outstanding class of the Company's voting securities, (ii) all directors
   and nominees, (iii) the individuals named in the Summary Compensation
   Table elsewhere herein, and (iv) all executive officers and directors as a
   group.  

<TABLE>
<CAPTION>
                                                        Amount and
                                                         Nature of                        Percent of
        Name and Address                                 Beneficial        Percent of      Voting
       of Beneficial Owner          Title of Class      Ownership(1)        Class(2)       Stock(3)
       -------------------          --------------      ------------       ----------     ----------

    <S>                               <C>                <C>                 <C>            <C>
    Rice Partners II, L.P. (4)        Common             66,570,213          92.1%          88.6%
    5847 San Felipe, Suite 4350       B Preferred            54,375          84.5
    Houston, TX  77057

    Jeffrey P. Sangalis (5)           Common             66,570,213          92.1           88.6
    5847 San Felipe, Suite 4350       B Preferred            54,375          84.5
    Houston, TX  77057

    Philip A. Davidson (5)            Common             66,570,213          92.1           88.6
    5847 San Felipe, Suite 4350       B Preferred            54,375          84.5
    Houston, TX  77057

    James P. Wilson (5)               Common             66,570,213          92.1           88.6
    5847 San Felipe, Suite 4350       B Preferred            54,375          84.5
    Houston, TX  77057

    F-Jotan, L.L.C.                   Common              5,985,472          21.9           21.9
    F-Southland, L.L.C. and           A Preferred         1,435,705         100.0
    FF-Southland, L.P.  (6)           B Preferred            10,000          15.5
    702 Oberlin Road, Suite 150
    Raleigh, NC  27605

    Jeremiah Callahan(6)(7)           Common              5,988,072          21.9           21.9
    702 Oberlin Road, Suite 150       A Preferred         1,435,705         100.0
    Raleigh, NC  27605                B Preferred            10,000          15.6

    James D. Lumsden                  Common              5,988,072          21.9           21.9
    702 Oberlin Road, Suite 150       A Preferred         1,435,705         100.0
    Raleigh, NC  27605  (6)(7)        B Preferred            10,000          15.5

    Shea E. Ralph (8)                 Common                983,000           4.6            4.1
    118 West Adams Street
    Jacksonville, FL  32201

    William Ames                      -                           0             0              0

    Raleigh C. Minor                  -                           0             0              0


    All directors and executive       Common             73,538,685          94.0           94.0
    officers as a group               A Preferred         1,435,705         100.0
                                      B Preferred            64,375         100.0

</TABLE>

   (1)  Pursuant to rule 13d-3 under the Securities Exchange Act of 1934, as
        amended (the "Exchange Act"), beneficial ownership of a security
        consists of sole or shared voting power (including the power to vote
        or direct the vote) and/or the sole or shared investment power
        (including the power to dispose or direct the disposition) with
        respect to a security.  The number of shares of Common Stock includes
        the number of shares of Common Stock that are subject to the exercise
        of options or warrants within 60 days of the date of this Proxy
        Statement and the number of shares of Common Stock issuable upon
        conversion of such beneficial owner's shares of Series A Convertible
        Preferred Stock (each of which is immediately convertible into two
        shares of Common Stock), excluding accrued dividends thereon.
   (2)  Percent of Class of Common Stock with respect to each beneficial
        owner of Common Stock was calculated based on the ratio of the number
        of shares of Common Stock beneficially owned by such beneficial owner
        to the sum of (a) the total number of outstanding shares of Common
        Stock as of April 15, 1998, (b) the number of shares of Common Stock
        issuable upon conversion of shares of Series A Convertible Preferred
        Stock (each of which is immediately convertible into two shares of
        Common Stock) held by the applicable beneficial owner and (c) the
        number of shares of Common Stock issuable upon exercise of options or
        warrants held by the applicable beneficial owner exercisable within
        60 days of the date of this Proxy Statement.  Percent of Class of
        Series A Convertible Preferred Stock was calculated based on the
        ratio of the number of shares of Series A Convertible Preferred Stock
        beneficially owned by such beneficial owner to the total number of
        outstanding shares of Series A Convertible Preferred Stock.  Percent
        of Class of Series B Redeemable Preferred Stock was calculated based
        on the ratio of the number of shares of Series B Redeemable Preferred
        Stock beneficially owned by such beneficial owner to the total number
        of outstanding shares of Series B Redeemable Preferred Stock.
   (3)  Percent of Voting Stock with respect to each beneficial owner was
        calculated based on the ratio of the number of shares of Common Stock
        beneficially owned by such beneficial owner to the sum of (a) the
        total number of outstanding shares of Common Stock as of April 15,
        1998, (b) the number of shares of Common Stock issuable upon
        conversion of shares of Series A Convertible Preferred Stock (each of
        which is immediately convertible into two shares of Common Stock) and
        (c) the number of shares of Common Stock issuable upon exercise of
        options or warrants held by the applicable beneficial owner
        exercisable within 60 days of the date of this Proxy Statement.
   (4)  Includes 50,852,811 shares of Common Stock issuable under warrants
        owned by Rice Partners, II, L.P.  The number of shares of Common
        Stock issuable under these warrants may be reduced if a fairness
        opinion which has been requested by the Company indicates that the
        number of shares issuable under the warrants is not fair to the
        Company's shareholders.  The exercise of such warrants is also
        subject to approval by the holders of Voting Stock and the holders of
        Common Stock as described in Proposal 2 below and the filing of
        Articles of Amendment with the Florida Secretary of State.
   (5)  Jeffrey P. Sangalis and James P. Wilson, directors of the Company,
        are principals of Rice, Sangalis, Toole & Wilson, the manager of Rice
        Partners II, L.P.  Philip A. Davidson is a Managing Director of Rice,
        Sangalis, Toole & Wilson, the manager of Rice Partners II, L.P.  The
        shares shown as owned by Messrs. Sangalis, Davidson and Wilson are
        the same shares and consist in each case of the shares owned by Rice
        Partners II, L.P., which are deemed to be beneficially owned by
        Messrs. Sangalis, Davidson, and Wilson due to their ability to
        control Rice Partners II, L.P. with regard to the voting and
        disposition of such shares.
   (6)  Includes (i) 5,000 shares of Series B Redeemable Preferred Stock
        beneficially owned by F-Southland, L.L.C., (ii) 5,000 shares of
        Series B Redeemable Preferred Stock beneficially owned by FF
        Southland, L.P., (iii) 1,557,031 shares of Common Stock issuable
        under warrants owned by F-Southland, L.L.C., (iv) 1,557,031 shares of
        Common Stock issuable under warrants owned by FF-Southland, L.P., and
        (v) 2,871,410 shares of Common Stock issuable to F-Jotan, L.L.C. on
        conversion of 1,435,705 shares of Series A Convertible Preferred
        Stock owned by F-Jotan, L.L.C.  Shares owned by F-Southland, L.L.C.,
        FF-Southland, L.P. and F-Jotan, L.L.C. (the "Fairview Shareholders")
        are deemed to be beneficially owned by all Fairview Shareholders by
        virtue of having a common manager.
   (7)  James D. Lumsden, a director of the Company, and Jeremiah Callahan, a
        former director and former chief executive officer of the Company,
        are each a member of Franklin Street/Fairview Capital, L.L.C., the 
        manager of F-Jotan, F-Southland, L.L.C. and FF-Southland, L.P.  The 
        shares shown as owned by Mr. Lumsden are the same shares and 
        consist in each case of the shares beneficially owned by F-Jotan, 
        F-Southland, L.L.C. and FF-Southland, L.P. over which Mr. Lumsden 
        and Mr. Callahan have shared voting investment power (except for
        2,600 and 2,800 shares of common stock owned directly by Mr. Lumsden
        and Mr. Callahan, respectively, which were received for services
        provided as directors of the Company prior to February 28, 1997).
   (8)  Includes 33,000 shares of Common Stock issuable upon exercise of
        employee stock options.


   Item 12.  Certain Relationships and Related Transactions

   During the Company's last two fiscal years, there have been no
   transactions between the Company and any officer, directors, nominees for
   election as director, or any shareholder owning greater than five percent
   (5%) of any class of the Company's voting securities, nor any member of
   any such person's immediate family, except as set forth below:

   Mr. Sidney Ralph, father of Shea E. Ralph, owns all of the outstanding
   shares of common stock of Total Supply Systems, Inc. ("Total Supply"), a
   private corporation.  Total Supply has made certain financial advances to
   the Company pursuant to an arrangement similar to a line of credit with
   interest charged at prime plus one percent.

    On December 31, 1993, the Company purchased all of the outstanding
   capital stock of Atlantic Bag and Paper Company ("Atlantic Bag") from
   Total Supply in exchange for a $750,000 note payable to Total Supply.  On
   September 8, 1994, the Company refinanced its short-term line of credit
   arrangement and the $750,000 note payable to Total Supply into a
   convertible subordinated debenture.  On February 22, 1995, the Company
   entered into an agreement with Total Supply whereby the previous debt
   agreements were canceled and a new agreement put in their place.  The
   revised agreement converted a portion of the face value ($919,833) into
   shares of Common Stock at fair value (determined to be $3.00) and the
   balance of $750,000 was payable over an 81-week period at $10,000 per week
   including interest at 9.25%.  The balance due under the agreement was paid
   in full during September, 1996.

   The Company also leases a warehouse from Sidney Ralph and another
   warehouse from Total Supply.  These two leases each have a term which
   expires in 2004 and a monthly lease payment of $4,000 and $1,000
   respectively. 

   On May 16, 1996, F-Jotan, L.L.C., a North Carolina limited liability
   company ("F-Jotan"), invested $2,000,000 in the Company in exchange for
   100% of the outstanding Series A Convertible Preferred Stock.  James D.
   Lumsden and Jeremiah M. Callahan are members of Franklin Street/Fairview
   Capital L.L. C. ("Fairview"), the manager of F-Jotan, and were elected to
   the Company's Board of Directors in 1996 in connection with the investment
   by F-Jotan.  James D. Lumsden currently serves as a member of the Board of
   Directors of the Company.

   As of February 28, 1997, the Company issued to Rice Partners II, L.P., a
   Delaware limited partnership ("Rice") and to F-Southland, L.L.C., a North
   Carolina limited liability company, and FF-Southland, L.P., a North
   Carolina limited partnership (collectively, the "Southland Purchasers"),
   entities affiliated with F-Jotan, senior subordinated debt, senior
   preferred stock and warrants to purchase shares of Common Stock in a
   transaction (the "February 1997 Transaction") which resulted in a change
   of control of the Company.  (For additional discussion of the February
   1997 Transaction, see "Recent Sales of Unregistered Securities" included
   in Item 5 above and "Liquidity and Capital Resources" included in Item 6
   above).  In connection with the February 1997 Transaction, Rice was given
   the right to elect a majority of the members of the Company's Board of
   Directors for so long as Rice owned at least 10% of the equity interest in
   the Company that it acquired on February 28, 1997.  In addition, the
   Southland Purchasers were given the right to elect one member of the
   Company's Board of Directors.  The Company's Restated Articles of
   Incorporation were amended to provide that the Series B Redeemable
   Preferred Stock (voting separately as a class) has the right to elect a
   majority of the Board of Directors.

   In the February 1997 Transaction, Rice and the Southland Purchasers were
   paid a pro rata fee of $225,000 for providing the subordinated debt
   financing and a pro rata fee of $225,000 for providing the senior
   redeemable preferred stock financing.

   Two members of the Board of Directors of the Company which approved the
   February 1997 Transaction, James D. Lumsden and Jeremiah M. Callahan, are
   members of Fairview, the controlling entity of each of the Southland
   Purchasers.  Fairview also is the controlling entity of F-Jotan, the
   holder of the Company's Series A Convertible Preferred Stock, the consent
   of which was required and obtained in order to consummate this
   transaction.

   As of September 10, 1997, the Company issued to Rice an additional
   $2,625,000 of Series B Redeemable Preferred Stock and additional warrants
   to acquire 3,620,473 shares of the Company's common stock (the "September
   1997 Transaction").  The funds received by the Company in the September
   1997 Transaction facilitated the Company's acquisition of substantially
   all the assets of Cove Container Corporation.

   As of January 23, 1998 the Company issued to Rice $250,000 of Series B
   Redeemable Preferred Stock for cash the ("January 1998 Transaction").  The
   funds received were used by the Company to make payments to certain
   individuals who previously owned minority interests in certain Southland
   subsidiaries.

   As of April 14, 1998, as a condition to the most current amendment of the
   credit agreement with the Company's senior lenders, Rice loaned the
   Company an additional $1,250,000.  In exchange for this loan, the Company
   issued to Rice its 12.5% priority senior subordinated notes and additional
   warrants for the purchase of 42,377,173 shares of the Company's common
   stock (the "April 1998 Transaction").  The Company also issued to Rice
   additional warrants to purchase 8,475,638 shares of the Company's common
   stock as additional consideration for Rice's purchase of $250,000 of
   Series B Redeemable Preferred Stock in January, 1998.  The total number of
   shares of common stock provided under these warrants may be reduced if a
   fairness opinion which has been requested from an independent financial
   advisor indicates that the number of shares issuable under the warrants is
   not fair to the Company's shareholders.  For additional discussion of the
   September 1997 Transaction, the January 1998 Transaction and the April
   1998 Transaction, see "Recent Sales of Unregistered Securities" included
   in Item 5 above and "Liquidity and Capital Resources" included in Item 6
   above.

   Three members of the Board of Directors of the Company that approved the
   September 1997 Transaction, the January 1998 Transaction and the April
   1998 Transaction are principals of Rice, Sangalis, Toole & Wilson, the
   manager of Rice.

   Item 13.  Exhibits and Reports on Form 8-K

   (a)  Exhibits

        3.   (a)  The Registrant's Restated Articles of Incorporation, as
                  amended.

             (b)  The Registrant's Bylaws, as amended.

        10.  Material Contracts

             (a)  Credit Agreement dated as of February 28, 1997 among the
                  Registrant, Southland Container Packaging Corp. (formerly
                  Southland Holding Company, successor in interest by merger
                  to SHC Acquisition Corp., each of its own subsidiaries and
                  Atlantic Bag & Paper Company), Banque Paribas, individually
                  and as agent for other participating banks (filed as an
                  Exhibit to the Registrant's Current Report on Form 8-K as
                  of March 17, 1997 and incorporated herein by reference).

             (b)  Third Amendment to Credit Agreement dated as of August 19,
                  1997.

             (c)  Fourth Amendment to Credit Agreement dated as of
                  November 6, 1997.

             (d)  Fifth Amendment to Credit Agreement dated as of April 14,
                  1998 among the Registrant, Southland Container Packaging
                  Corp. and Banque Paribas, individually and as agent for
                  other participating banks (filed as an Exhibit to the
                  Registrant's Current Report on Form 8-K filed as of May 4,
                  1998 and incorporated herein by reference).

             (e)  Note Purchase Agreement dated as of February 28, 1997 among
                  the Registrant, Southland Container Packaging Corp., Rice
                  Partners II, L.P. and F-Southland, L.L.C. and FF-Southland,
                  L.P.

             (f)  Amendment No. 1 to Note Purchase Agreement dated as of
                  August 19, 1997 among the Registrant, Southland Container
                  Packaging Corp., Rice Partners II, L.P. and F-Southland,
                  L.L.C. and FF-Southland, L.P.

             (g)  Amendment No. 2 to Note Purchase Agreement dated as of
                  November 6, 1997 among the Registrant, Southland Container
                  Packaging Corp., Rice Partners II, L.P. and F-Southland,
                  L.L.C. and FF-Southland, L.P.

             (h)  Amendment No. 3 to Note Purchase Agreement dated as of
                  April 14, 1998 among the Registrant, Southland Container
                  Packaging Corp., Rice Partners II, L.P. and F-Southland,
                  L.L.C. and FF-Southland, L.P. (filed as an Exhibit to the
                  Registrant's Current Report on Form 8-K filed as of May 4,
                  1998 and incorporated herein by reference).

             (i)  Priority Note Purchase Agreement among the Registrant,
                  Southland Container Packaging Corp. and Rice Partners II,
                  L.P. dated as of April 24, 1998 (filed as an Exhibit to the
                  Registrant's Current Report on Form 8-K filed as of May 4,
                  1998 and incorporated herein by reference).

             (j)  Preferred Stock and Warrant Purchase Agreement dated as of
                  February 28, 1997 among the Registrant, Rice Partners II,
                  L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan,
                  David Freedman and Shea E. Ralph (filed as an Exhibit to
                  the Registrant's Current Report on Form 8-K as of March 17,
                  1997 and incorporated herein by reference).

             (k)  First Supplemental Preferred Stock and Warrant Purchase
                  Agreement dated as of September 10, 1997 among the
                  Registrant, Rice Partners II, L.P., the Southland
                  purchasers, F-Jotan, David Freedman and Shea E. Ralph
                  (filed as an Exhibit to Schedule 13D filed by Rice
                  Partners, II, L.P., as of October 10, 1997 and incorporated
                  herein by reference).

             (l)  Second Supplemental Preferred Stock Purchase Agreement
                  dated as of January 23, 1998, among the Registrant, Rice
                  Partners II, L.P., F-Southland, L.L.C. and FF-Southland,
                  L.P., F-Jotan and Shea E. Ralph

             (m)  Amended and Restated Second Supplemental Preferred Stock
                  and Warrant Purchase Agreement dated as of April 14, 1998
                  among the Registrant, Rice Partners II, L.P., F-Southland,
                  L.L.C. and FF-Southland, L.P., F-Jotan and Shea E. Ralph
                  (filed as an Exhibit to the Registrant's Current Report on
                  Form 8-K filed as of May 4, 1998 and incorporated herein by
                  reference).

             (n)  Priority Warrant Purchase Agreement dated as of April 14,
                  1998 among the Registrant and Rice Partners II, L.P. (filed
                  as an Exhibit to the Registrant's Current Report on Form 8-
                  K filed as of May 4, 1998 and incorporated herein by
                  reference).

             (o)  Shareholder Agreement dated as of February 28, 1997 among
                  the Registrant, Rice Partners II, L.P., F-Southland, L.L.C.
                  and FF-Southland, L.P., F-Jotan, David Freedman and Shea E.
                  Ralph (filed as an Exhibit to the Registrant's Current
                  Report on Form 8-K as of March 17, 1997 and incorporated
                  herein by reference).

             (p)  First Supplemental Shareholder Agreement dated as of
                  September 10, 1997 among the Registrant, Rice Partners II,
                  L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan,
                  David Freedman and Shea E. Ralph (filed as an Exhibit to
                  Schedule 13D filed by Rice Partners, II, L.P., as of
                  October 10, 1997 and incorporated herein by reference).

             (q)  Second Supplemental Shareholder Agreement dated as of
                  January 23, 1998 among the Registrant, Rice Partners II,
                  L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan
                  and Shea E. Ralph.

             (r)  Amended and Restated Second Supplemental Shareholder
                  Agreement dated as of April 14, 1998 among the Registrant,
                  Rice Partners II, L.P., F-Southland, L.L.C. and FF-
                  Southland, L.P., F-Jotan and Shea E. Ralph (filed as an
                  Exhibit to the Registrant's Current Report on Form 8-K
                  filed as of May 4, 1998 and incorporated herein by
                  reference).

             (s)  Priority Shareholder Agreement dated as of April 14, 1998
                  among the Registrant, Rice Partners II, L.P., F-Southland,
                  L.L.C. and FF-Southland, L.P., F-Jotan and Shea E. Ralph
                  (filed as an Exhibit to the Registrant's Current Report on
                  Form 8-K filed as of May 4, 1998 and incorporated herein by
                  reference).

             (t)  Employment Agreement between the Registrant and Shea E.
                  Ralph dated November 22, 1996.

             (u)  Employment Agreement between the Registrant and Edward L.
                  Lipscomb dated October 2, 1997.

             (v)  Management Contract Agreement between the Registrant and
                  Allomet Partners, Ltd. dated December 31, 1997.

             (w)  Jotan, Inc. 1996 Long-Term Incentive Plan.

        21.  Subsidiaries of Registrant.

        27.  Financial Data Schedule

   (b)  Reports on Form 8-K

        None filed during last Quarter of fiscal year ended December 31,
        1997.


   <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.


                                 JOTAN, INC.


   DATE:  May 22, 1998           By:  /s/ Raleigh C. Minor                   
                                      Raleigh C. Minor, President
                                         and Chief Executive Officer


   DATE:  May 22, 1998           By:  /s/ Edward L. Lipscomb             
                                      Edward L. Lipscomb, Vice President, 
                                         Chief Financial Officer and
                                         Principal Accounting Officer




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



   DATE:  May 22, 1998           /s/ Jeffrey P. Sangalis                 
                                 Jeffrey P. Sangalis, Director


   DATE:  May 22, 1998           /s/ Shea E. Ralph                  
                                 Shea E. Ralph, Director


   DATE:  May 22, 1998           /s/ James P. Wilson                  
                                 James P. Wilson, Director

   <PAGE>
                                  EXHIBIT INDEX


        3.   (a)  The Registrant's Restated Articles of Incorporation, as
                  amended.

             (b)  The Registrant's Bylaws, as amended.

        10.  Material Contracts

             (a)  Credit Agreement dated as of February 28, 1997 among the
                  Registrant, Southland Container Packaging Corp. (formerly
                  Southland Holding Company, successor in interest by merger
                  to SHC Acquisition Corp., each of its own subsidiaries and
                  Atlantic Bag & Paper Company), Banque Paribas, individually
                  and as agent for other participating banks (filed as an
                  Exhibit to the Registrant's Current Report on Form 8-K as
                  of March 17, 1997 and incorporated herein by reference).

             (b)  Third Amendment to Credit Agreement dated as of August 19,
                  1997.

             (c)  Fourth Amendment to Credit Agreement dated as of
                  November 6, 1997.

             (d)  Fifth Amendment to Credit Agreement dated as of April 14,
                  1998 among the Registrant, Southland Container Packaging
                  Corp. and Banque Paribas, individually and as agent for
                  other participating banks (filed as an Exhibit to the
                  Registrant's Current Report on Form 8-K filed as of May 4,
                  1998 and incorporated herein by reference).

             (e)  Note Purchase Agreement dated as of February 28, 1997 among
                  the Registrant, Southland Container Packaging Corp., Rice
                  Partners II, L.P. and F-Southland, L.L.C. and FF-Southland,
                  L.P.

             (f)  Amendment No. 1 to Note Purchase Agreement dated as of
                  August 19, 1997 among the Registrant, Southland Container
                  Packaging Corp., Rice Partners II, L.P. and F-Southland,
                  L.L.C. and FF-Southland, L.P.

             (g)  Amendment No. 2 to Note Purchase Agreement dated as of
                  November 6, 1997 among the Registrant, Southland Container
                  Packaging Corp., Rice Partners II, L.P. and F-Southland,
                  L.L.C. and FF-Southland, L.P.

             (h)  Amendment No. 3 to Note Purchase Agreement dated as of
                  April 14, 1998 among the Registrant, Southland Container
                  Packaging Corp., Rice Partners II, L.P. and F-Southland,
                  L.L.C. and FF-Southland, L.P. (filed as an Exhibit to the
                  Registrant's Current Report on Form 8-K filed as of May 4,
                  1998 and incorporated herein by reference).

             (i)  Priority Note Purchase Agreement among the Registrant,
                  Southland Container Packaging Corp. and Rice Partners II,
                  L.P. dated as of April 24, 1998 (filed as an Exhibit to the
                  Registrant's Current Report on Form 8-K filed as of May 4,
                  1998 and incorporated herein by reference).

             (j)  Preferred Stock and Warrant Purchase Agreement dated as of
                  February 28, 1997 among the Registrant, Rice Partners II,
                  L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan,
                  David Freedman and Shea E. Ralph (filed as an Exhibit to
                  the Registrant's Current Report on Form 8-K as of March 17,
                  1997 and incorporated herein by reference).

             (k)  First Supplemental Preferred Stock and Warrant Purchase
                  Agreement dated as of September 10, 1997 among the
                  Registrant, Rice Partners II, L.P., the Southland
                  purchasers, F-Jotan, David Freedman and Shea E. Ralph
                  (filed as an Exhibit to Schedule 13D filed by Rice
                  Partners, II, L.P., as of October 10, 1997 and incorporated
                  herein by reference).

             (l)  Second Supplemental Preferred Stock Purchase Agreement
                  dated as of January 23, 1998, among the Registrant, Rice
                  Partners II, L.P., F-Southland, L.L.C. and FF-Southland,
                  L.P., F-Jotan and Shea E. Ralph

             (m)  Amended and Restated Second Supplemental Preferred Stock
                  and Warrant Purchase Agreement dated as of April 14, 1998
                  among the Registrant, Rice Partners II, L.P., F-Southland,
                  L.L.C. and FF-Southland, L.P., F-Jotan and Shea E. Ralph
                  (filed as an Exhibit to the Registrant's Current Report on
                  Form 8-K filed as of May 4, 1998 and incorporated herein by
                  reference).

             (n)  Priority Warrant Purchase Agreement dated as of April 14,
                  1998 among the Registrant and Rice Partners II, L.P. (filed
                  as an Exhibit to the Registrant's Current Report on Form 8-
                  K filed as of May 4, 1998 and incorporated herein by
                  reference).

             (o)  Shareholder Agreement dated as of February 28, 1997 among
                  the Registrant, Rice Partners II, L.P., F-Southland, L.L.C.
                  and FF-Southland, L.P., F-Jotan, David Freedman and Shea E.
                  Ralph (filed as an Exhibit to the Registrant's Current
                  Report on Form 8-K as of March 17, 1997 and incorporated
                  herein by reference).

             (p)  First Supplemental Shareholder Agreement dated as of
                  September 10, 1997 among the Registrant, Rice Partners II,
                  L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan,
                  David Freedman and Shea E. Ralph (filed as an Exhibit to
                  Schedule 13D filed by Rice Partners, II, L.P., as of
                  October 10, 1997 and incorporated herein by reference).

             (q)  Second Supplemental Shareholder Agreement dated as of
                  January 23, 1998 among the Registrant, Rice Partners II,
                  L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan
                  and Shea E. Ralph

             (r)  Amended and Restated Second Supplemental Shareholder
                  Agreement dated as of April 14, 1998 among the Registrant,
                  Rice Partners II, L.P., F-Southland, L.L.C. and FF-
                  Southland, L.P., F-Jotan and Shea E. Ralph (filed as an
                  Exhibit to the Registrant's Current Report on Form 8-K
                  filed as of May 4, 1998 and incorporated herein by
                  reference).

             (s)  Priority Shareholder Agreement dated as of April 14, 1998
                  among the Registrant, Rice Partners II, L.P., F-Southland,
                  L.L.C. and FF-Southland, L.P., F-Jotan and Shea E. Ralph
                  (filed as an Exhibit to the Registrant's Current Report on
                  Form 8-K filed as of May 4, 1998 and incorporated herein by
                  reference).

             (t)  Employment Agreement between the Registrant and Shea E.
                  Ralph dated November 22, 1996.

             (u)  Employment Agreement between the Registrant and Edward L.
                  Lipscomb dated October 2, 1997.

             (v)  Management Contract Agreement between the Registrant and
                  Allomet Partners, Ltd. dated December 31, 1997.

             (w)  Jotan, Inc. 1996 Long-Term Incentive Plan.

        21.  Subsidiaries of Registrant.

        27.  Financial Data Schedule

   <PAGE>   F-1
                         ANNUAL REPORT ON FORM 10-KSB

                            ITEM 7, ITEM 13(A)(1)

                            FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1997 AND 1996

   <PAGE>
                        Jotan, Inc. and Subsidiaries

                     Consolidated Financial Statements

                  Years ended December 31, 1997 and 1996




   The following financial statements of Jotan, Inc. are included in Item 7:

   Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . .  F-1
   Consolidated Balance Sheets at December 31, 1997 and 1996 . . . . . .  F-2
   Consolidated Statements of Operations for the Years ended 
     December 31, 1997 and 1996  . . . . . . . . . . . . . . . . . . . .  F-3
   Consolidated Statements of Stockholders' Equity (Deficit) for the 
     Years ended December 31, 1997 and 1996  . . . . . . . . . . . . . .  F-4
   Consolidated Statements of Cash Flows for the Years ended 
     December 31, 1997 and 1996  . . . . . . . . . . . . . . . . . . . .  F-5
   Notes to Consolidated Financial Statements  . . . . . . . . . . . . .  F-6

      <PAGE>
                          Report of Independent Auditors

   Board of Directors
   Jotan, Inc. and Subsidiaries

   We have audited the accompanying consolidated balance sheets of Jotan,
   Inc. and subsidiaries (the Company) as of December 31, 1997 and 1996, and
   the related consolidated statements of operations, stockholders' equity
   (deficit), and cash flows for the years then ended. These consolidated
   financial statements are the responsibility of the Company's management.
   Our responsibility is to express an opinion on these consolidated
   financial statements based on our audits.

   We conducted our audits in accordance with generally accepted auditing
   standards. Those standards require that we plan and perform the audit to
   obtain reasonable assurance about whether the consolidated 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 1997 and 1996 consolidated financial statements
   referred to above present fairly, in all material respects, the
   consolidated financial position of Jotan, Inc. and subsidiaries at
   December 31, 1997 and December 31, 1996, and the consolidated results of
   their operations and their cash flows for the years then ended, in
   conformity with generally accepted accounting principles.

   The accompanying financial statements have been prepared assuming that the
   Company will continue as a going concern. As more fully described in Note
   3, the Company acquired an entity in early 1997 which has incurred
   significant losses, utilized substantially all available funding,
   adversely impacted cash flows and created a deficit in working capital and
   stockholder's equity at December 31, 1997. Also, claims have been made by
   both the Company and the sellers which could significantly effect the 
   purchase price of the entity. These conditions raise substantial doubt 
   about the Company's ability to continue as a going concern. The financial 
   statements do not include any adjustments to reflect the possible future 
   effects on the recoverability and classification of assets or the amounts 
   and classification of liabilities that may result from the outcome of this 
   uncertainty.



   Jacksonville, Florida
   April 17, 1998

   <PAGE>
                                 Jotan, Inc.

                         Consolidated Balance Sheets


                                                         December 31
                                                    1997            1996
                                                    ----            ----
   Assets
   Current assets:
    Cash                                        $ 1,389,131     $ 1,403,214
    Accounts receivable, less allowance for
      doubtful accounts of $660,000 in 1997 
      and $33,170 in 1996                         9,556,959       1,553,224
    Inventory                                     7,284,309       1,181,642
    Other current assets                          1,666,500         323,949
                                                 ----------      ---------- 
   Total current assets                          19,896,899       4,462,029
                                                 ----------      ----------

   Property and equipment:
    Land                                            110,000         110,000
    Buildings and leasehold improvements            957,004         502,255
    Vehicles                                        444,269         251,974
    Furniture, fixtures, and equipment              972,841         361,383
    Capitalized building leases                   3,282,216               -
                                                 ----------      ----------
   Total property and equipment                   5,766,330       1,225,612
    Less accumulated depreciation                  (918,447)       (386,858)
                                                 ----------      ----------
   Net property and equipment                     4,847,883         838,754

   Goodwill, net                                  1,983,280               -
   Non-compete agreements, net                    1,918,020               -
   Other assets                                     275,867         697,275
                                                 ----------      ----------
   Total assets                                 $28,921,949     $ 5,998,058
                                                 ==========      ==========

   Liabilities and stockholders' equity
     (deficit)
   Current liabilities:
    Trade payables                              $ 7,428,185     $ 1,525,941
    Accrued expenses                              3,404,952         221,557
    Current portion of long-term debt and
      capital leases                              9,642,997       1,716,332
    Other current liabilities                     1,547,204               -
                                                 ----------      ----------
   Total current liabilities                     22,023,338       3,463,830

   Capitalized lease obligations                  3,857,231               -
   Other liabilities                              2,123,163               -
   Long-term debt, less current portion:
    Related parties                               9,189,596               -
    Others                                       14,600,367         506,097
                                                 ----------      ----------
                                                 29,770,357         506,097
                                                 ----------      ----------

   Series B redeemable preferred stock with
     related parties                             12,682,747               -

   Stockholders' equity (deficit):
    Preferred Stock, Series A and B, 
      authorized shares-10,000,000
      Series A preferred stock, $.01 
        par value:
      Issued and outstanding shares to 
        related party-1,435,705 in 1997 
        and 1,265,823 in 1996                        14,357          12,658
    Voting common stock, $.01 par value:
      Authorized shares-40,000,000
      Issued and outstanding shares-5,696,611 
        in 1997 and 5,679,411 in 1996                56,966          56,794
    Additional paid-in capital                    3,849,385       3,963,983
    Retained earnings (deficit)                 (39,475,201)     (2,005,304)
                                                 ----------      ----------
   Total stockholders' equity (deficit)         (35,554,493)      2,028,131
                                                 ----------      ----------
   Total liabilities and stockholders' equity   $28,921,949     $ 5,998,058
                                                 ==========      ==========



   See notes to consolidated financial statements.

   <PAGE>
                                   Jotan, Inc.

                      Consolidated Statements of Operations


                                                  Year ended December 31
                                                   1997           1996
                                                   ----           ----

   Sales                                       $ 60,257,468    $11,659,754
   Cost of sales                                 43,502,244      8,758,248
                                                -----------     ----------
   Gross profit                                  16,755,224      2,901,506

   Operating expenses                            18,721,607      2,519,506
   Amortization of goodwill and non-compete
     agreements                                   2,951,968              -
   Write down of goodwill and non-compete
     agreements                                  29,980,794              -
                                                -----------     ----------
   Operating (loss) income                      (34,899,145)       382,000

   Other income (expense):
    Interest expense                             (3,560,624)      (271,138)
    Loss on sale of assets                                -           (311)
    Other income                                     64,153         63,107
                                                -----------     ----------
   Total other (expense)                         (3,496,471)      (208,342)
                                                -----------     ----------

   (Loss) income before taxes                   (38,395,616)       173,658
   Income tax benefit                               925,719              -
                                                -----------     ----------
   Net (loss) income                            (37,469,897)       173,658

   Amounts attributable to preferred stock        1,076,651              -
                                                -----------     ----------
   Net (loss) income attributable to 
     common shareholders                       $(38,546,548)   $   173,658
                                                ===========     ==========

   Net (loss) income per share:
    Basic                                      $      (6.77)   $       .03
                                                ===========     ==========
    Diluted                                    $      (6.77)   $       .02
                                                ===========     ==========

   Weighted average number of shares
     outstanding:
    Basic                                         5,692,370      5,676,598
                                                ===========     ==========
    Diluted                                       5,692,370      7,381,306
                                                ===========     ==========




   See notes to consolidated financial statements.

   <PAGE>
<TABLE>
                                Jotan, Inc.

             Consolidated Statements of Stockholders' Equity (Deficit)


                                                                                      Total
<CAPTION>
                                                                                                                       Total
                                                            Series A Convertible      Additional      Retained      Stockholders'
                                     Voting Common Stock       Preferred Stock         Paid-In        Earnings         Equity
                                      Shares     Amount      Shares        Amount      Capital        (Deficit)       (Deficit)
                                      ------     ------      ------        ------     ----------      ---------     -------------

   <S>                              <C>          c>         <C>           <C>         <C>           <C>              <C>
   Balance at December 31, 1995     5,664,311    $56,643            -     $     -     $2,149,166    $ (2,178,962)    $     26,847
   Voting common stock issued          15,100        151            -           -          7,399               -            7,550
   Series A preferred stock
     issued                                 -          -    1,265,823      12,658      1,807,418               -        1,820,076
   Net income                               -          -            -           -              -         173,658          173,658
                                    ---------     ------    ---------      ------      ---------     -----------        ---------

   Balance at December 31, 1996     5,679,411     56,794    1,265,823      12,658      3,963,983      (2,005,304)       2,028,131
   Voting common stock issued          17,200        172            -           -         25,628               -           25,800
   Series A preferred stock 
     dividend                               -          -      169,882       1,699         (1,699)              -                -
   Series B preferred stock 
     dividend                               -          -            -           -       (730,530)              -         (730,530)
   Accretion of Series B 
     preferred stock
     discount                               -          -            -           -        (76,122)              -          (76,122)
   Warrants issued                          -          -            -           -        668,125               -          668,125
   Net loss                                 -          -            -           -              -     (37,469,897)     (37,469,897)
                                    ---------     ------    ---------      ------      ---------     -----------      -----------

   Balance at December 31, 1997     5,696,611    $56,966    1,435,705     $14,357     $3,849,385    $(39,475,201)    $(35,554,493)
                                    =========     ======    =========      ======      =========     ===========      ===========
</TABLE>



   See notes to consolidated financial statements.

   <PAGE>
                                   Jotan, Inc.

                     Consolidated Statements of Cash Flows


                                                    Year ended December 31
                                                   1997               1996
                                                   ----               ----

   Cash flows from operating activities
   Net (loss) income                           $(37,469,897)     $   173,658
   Adjustments to reconcile net (loss) 
     income to net cash (used in) provided 
     by operating activities:
      Loss on sale of assets                              -              311
      Depreciation and amortization expense       3,524,842          161,756
      Write down of goodwill and non-compete 
        agreements                               29,980,794                -
      Stock compensation expense                     25,800            7,550
      Changes in operating assets and
        liabilities:
       Increase in accounts receivable           (1,666,877)        (596,798)
       (Increase) decrease in inventory            (447,822)          80,295
       Increase in other current assets            (479,563)        (144,109)
       Decrease (increase) in other assets          519,427         (626,444)
       Increase in trade payables                 2,726,992          316,921
       Increase in accrued expenses               1,465,977          162,695
       Increase in other current liabilities        298,204                -
       Increase in other liabilities                 58,943                -
                                                -----------       ----------
   Net cash (used in) provided by operating
     activities                                  (1,463,180)         464,165

   Cash flows from investing activities
   Proceeds from disposition of equipment                 -           13,220
   Purchase of property and equipment              (467,464)         (54,689)
   Purchase of business Cove, net of cash 
     acquired                                    (2,625,000)               -
   Purchase of business Southland, net of 
     cash acquired                              (37,992,907)               -
                                                -----------       ----------
   Net cash used in investing activities        (41,085,371)         (41,469)
                                                -----------       ----------

   Cash flows from financing activities
   Proceeds from (payments) on line of 
     credit borrowings                           (1,594,076)         486,698
   Repayments of convertible subordinated
     debenture                                            -         (353,749)
   Principal payments on notes and 
     capitalized leases                          (4,414,550)         (65,948)
   Proceeds from debt                            35,490,542                -
   Increase in notes payable                        508,332                -
   Proceeds from stock issuance                  11,876,095        1,820,076
   Proceeds from issuance of warrants               668,125                -
                                                -----------       ----------
   Net cash provided by financing activities     42,534,468        1,887,077
                                                -----------       ----------

   Net (decrease) increase in cash                  (14,083)       1,381,443
   Cash at beginning of period                    1,403,214           21,771
                                                -----------       ----------
   Cash at end of period                       $  1,389,131      $ 1,403,214
                                                ===========       ==========

   Purchase of business, Cove net of cash
     acquired:
    Inventory                                  $   (383,500)     $         -
    Property and equipment                         (278,750)               -
    Other assets                                     (2,850)               -
    Notes payable and capitalized leases             94,137                -
    Goodwill                                     (2,054,037)               -
                                                -----------       ----------
                                               $ (2,625,000)     $         -
                                                ===========       ==========

   Purchase of business, Southland net 
     of cash acquired:
    Trade receivables                          $ (6,336,858)     $         -
    Inventory                                    (5,271,345)               -
    Other current assets                           (862,988)               -
    Property and equipment                       (2,795,245)               -
    Non-compete agreements                       (6,851,586)               -
    Other assets                                    (95,169)               -
    Trade payables                                3,175,252                -
    Accrued expenses                              1,717,418                -
    Other current liabilities                     1,249,000                -
    Other liabilities                             2,064,220                -
    Notes payable and capitalized leases          3,983,377                -
    Goodwill                                    (27,968,983)               -
                                                -----------       ----------
                                               $(37,992,907)     $         -
                                                ===========       ==========

   Supplementary schedule of non-cash 
     investing activities:
    Acquisition of building by capital 
      lease                                    $  1,000,000      $         -
                                                ===========       ==========
    Conversion of debt to shares of 
      common stock                                        -          919,826
                                                ===========       ==========
    
   Cash paid during the year for:
    Interest                                   $  2,329,291      $   261,123
                                                ===========       ==========


   See notes to consolidated financial statements.


   <PAGE>
   Jotan, Inc. and Subsidiaries
   Notes to Consolidated Financial Statements
   December 31, 1997

   1. Business and Organization

   Jotan, Inc. (the Company) was originally organized on December 5, 1988
   under the laws of the State of Idaho as Antelope Resources, Inc. Following
   the acquisition of Jotan, Inc., a Florida Corporation, in March 1994, the
   Company, through its wholly-owned subsidiary, Jotan-Florida, became
   actively engaged in the business of distributing packaging and shipping
   supplies for industrial customers in the southeastern United States. 

   On May 14, 1996 the stockholders approved a proposal to change the
   Company's state of incorporation from Idaho to Florida and to increase the
   Company's authorized shares of common stock from ten million (10,000,000)
   to forty million (40,000,000) and to authorize a class of blank-check
   preferred stock. The Re-incorporation and the change in authorized shares
   were accomplished by merging the Company into the Company's wholly-owned
   subsidiary, Jotan-Florida.

   On March 4, 1997 the Company completed the acquisition of 100% of the
   stock of Southland Holding Company ("Southland").  Southland is a
   distributor of packaging and shipping supplies with eleven distribution
   centers throughout the United States. Southland served primarily the
   moving and storage industry, but also provided packaging products to the
   air freight and perishable food markets. The acquisition of Southland has
   been accounted for under the purchase method of accounting. Accordingly,
   the purchase price of approximately $39,000,000 was allocated to the
   individual assets acquired and liabilities assumed of Southland based upon
   estimates of their respective fair values at the date of acquisition. The
   more significant assets acquired and liabilities assumed include the
   following: accounts receivable-$6,337,000; inventories-$5,271,000;
   capitalized building leases and equipment-$2,795,000, noncompete
   agreements-$6,852,000; accounts payable-$3,175,000; accrued expenses-
   $1,717,000; capital leases obligations-$3,161,000; taxes and other-
   $4,255,000; and goodwill-$27,969,000. The acquisition was funded primarily
   through the issuance of redeemable preferred stock ($10,000,000) and
   proceeds from long-term debt. The Company and the seller have each filed a
   claim against the other party for certain items which are currently in
   dispute. The ultimate resolution of these items could have a material
   effect on the final purchase price.

   On June 20, 1997 the Company completed the acquisition of the assets of
   Cove Container Corporation (Cove). Cove is a distributor of packaging and
   shipping supplies with a distribution center located in Pontiac, Michigan,
   and a manufacturing facility in West Branch, Michigan. Cove serves both
   the industrial and the moving and storage industries. The acquisition of
   Cove has been accounted for under the purchase method of accounting.
   Accordingly, the purchase price of approximately $2,625,000 was allocated
   to the individual assets acquired and liabilities assumed based upon
   estimates of their respective fair values at the date of acquisition. The
   more significant assets acquired and liabilities assumed include the
   following: inventory-$383,500; property and equipment-$279,000; notes
   payables-$94,000 and goodwill-$2,054,000.


   2. Summary of Significant Accounting Policies

   Consolidation

   The consolidated financial statements include the accounts of Jotan, Inc.
   (the Parent) and its wholly-owned subsidiaries. All material intercompany
   transactions have been eliminated in consolidation.

   Inventory

   Inventory is stated at lower of weighted average cost or market,
   determined by the first-in, first-out method.

   Income Taxes

   The Company accounts for income taxes under Financial Accounting Standards
   Board Statement (Statement) No. 109, Accounting for Income Taxes.
   Statement No. 109 requires income taxes to be recognized using the
   liability method. Specifically, deferred tax assets and liabilities are
   determined based on estimated future tax effects attributable to temporary
   differences in assets and liabilities for income tax purposes.

   Property and Equipment

   Property and equipment are recorded at cost. Depreciation is provided on
   the straight-line method over the estimated useful lives of the respective
   assets. The estimated useful lives of the vehicles, furniture, fixtures
   and equipment vary from five to fifteen years, buildings owned are
   depreciated over forty years and buildings under capital lease and
   leasehold improvements are depreciated over the shorter of the lease term
   or the estimated useful life.

   The Company records impairment of long-lived assets in accordance with
   Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
   for  Long-Lived Assets to Be Disposed Of, which requires impairment losses
   to be recorded on identifiable long-lived assets used in operations and
   related goodwill when indicators of impairment are present and the
   undiscounted cash flows estimated to be generated by those assets are less
   than the assets' carrying amount. If an asset is determined to be
   impaired, a loss is to be recorded based upon the difference between fair
   value of the assets and its carrying value. Fair value is to be estimated
   based on estimated selling prices or discounted future cash flows.
   Statement No. 121 also addresses the accounting for the expected
   disposition of long-lived assets.

   Deferred Acquisition Costs

   The costs incurred related to acquisitions, which consist primarily of
   legal and accounting fees, are deferred until the acquisition is completed
   and then amortized over the estimated useful life. Costs incurred related
   to acquisitions which will not be completed are expensed.

   Revenue Recognition

   The Company recognizes revenue when inventory is delivered to the
   customer. 

   Fair Value of Financial Instruments

   The Company discloses the fair value of financial instruments in
   accordance with Statement No. 107, Disclosures About Value of Financial
   Instruments. The reported amounts in the balance sheets at December 31,
   1997 and 1996 for cash, accounts receivable, trade payables, and long-term
   debt approximates fair value.

   Earnings (Loss) Per Share

   In 1997, the Financial Accounting Standards Board issued Statement No.
   128, Earnings Per Share. Statement 128 replaced the calculation of primary
   and fully diluted earnings per share with basic and diluted earnings per
   share. Unlike primary earnings per share, basic earnings per share exclude
   any dilutive effects of options, warrants and convertible securities.
   Diluted earnings per share are very similar to the previously reported
   fully diluted earnings per share. All earnings per share amounts for all
   periods have been presented, and where appropriate, restated to conform to
   the Statement 128 requirements.

   Stock Compensation

   The Company follows the intrinsic value method of accounting for stock
   based compensation prescribed in Accounting Principles Board Opinion (APB)
   No. 25, Accounting for Stock Issued to Employees. Accordingly, stock
   compensation expense is measured as the excess if any, of the quoted
   market price of the Company's stock at the date of grant over the exercise
   price. Disclosures required with respect to the alternative fair value
   measurement and recognition methods prescribed by Statement No. 123,
   Accounting for Stock-Based Compensation, are presented in Note 11-Employee
   Stock Incentives.

   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 amounts reported in the financial statements
   and accompanying notes. Actual results could differ from those estimates.

   New Accounting Pronouncements

   The FASB has issued Statement No. 130, Reporting Comprehensive Income, and
   Statement No. 131, Disclosures about Segment of an Enterprise and Related
   Information, both of which the Company will adopt in 1998. Statement No.
   130 establishes standards for reporting and display of comprehensive
   income and its components in financial statements. Comprehensive income
   generally represents all changes in shareholders' equity except those
   resulting from investments by or distributions to shareholders. With the
   exception of net earnings, such changes are generally not significant to
   the Company, and the adoption of Statement No. 130, including the required
   comparative presentation for prior periods, is not expected to have a
   material impact on its financial statements. Statement No. 131 requires
   that a publicly held company report financial and descriptive information
   about its operating segments in financial statements issued to
   shareholders for interim and annual periods. The Statement also requires
   additional disclosures with respect to products and services, geographic
   areas of operation and major customers. Management does not anticipate
   that the adoption of Statement No. 131 will have a significant effect on
   the Company's financial statements.

   Going Concern and Impairment of Intangibles Acquired from Southland

   The Company acquired Southland in early 1997 which has incurred
   significant losses, utilized substantially all available funding and
   adversely impacted cash flows. These conditions have resulted in the
   Company having a deficit in working capital and stockholders equity at
   December 31, 1997. The poor operating results were due to, among other
   things, loss of key employees and significant customers and increased
   intense competition. 

   Also, the Company has filed a claim against the sellers of Southland for
   $11,000,000 for various misrepresentations and breach of contract. The
   sellers have filed a claim against the Company for approximately
   $4,000,000 for amounts due under the sales agreement, including
   approximately $2,000,000 held in escrow. The claim is currently in the
   early phases of arbitration and management believes they have adequately
   provided for any amounts due to the sellers.

   As a result of the poor operating results, the Company, under new
   executive management in January 1998, developed a plan to improve
   liquidity and reduce costs. Key elements of the plan include management
   restructuring, facility consolidations, cost containment and expansion
   within certain product lines. The Company also obtained additional debt
   financing in April 1998 and is currently negotiating with its primary
   lender for additional financing under more favorable terms.

   As of December 31, 1997, the Company evaluated the impairment indicators
   described above and determined that the long lived assets acquired from
   Southland were impaired. The Company calculated the amount of the
   impairment based on estimated future discounted cash flows (fair value)
   and determined that the carrying value of the long lived assets exceeded
   the fair value by approximately $29,900,000. Accordingly, the $26,300,000
   carrying value of goodwill was reduced to zero and the carrying value of
   the non compete agreements was reduced by $3,600,000 to $1,900,000.

   4. Goodwill and Non-Compete Agreements

   Goodwill represents the excess of cost over fair value of net assets
   acquired and is being amortized on a straight line basis over 15 years.
   The non-compete agreements relate to the sellers of businesses acquired
   and are amortized on a straight line basis over the term of the agreement,
   generally five years. See Note 3 for discussion of write down of goodwill
   and non-compete agreements during 1997 due to impairment.

   Goodwill and non-compete agreements consist of the following at December
   31:

                                                       1997            1996
                                                       ----            ----

          Goodwill                                  $3,597,911       $      -
          Accumulated amortization                   1,614,631              -
                                                     ---------        -------
                                                     1,983,280              -
          Non-compete agreements                     3,249,686              -
          Accumulated amortization                   1,331,666              -
                                                     ---------        -------
                                                     1,918,020              -
                                                     ---------        -------
                                                    $3,901,300       $      -
                                                     =========        =======
                                                          0



   5. Long-Term Debt

   Long-term debt consist of the following 
     at December 31:

                                                       1997            1996
   Senior Secured Term Loan A with interest at           
    LIBOR plus 2.75% payable quarterly (8.47%            
    at December 31, 1997), with principal                
    payments due quarterly beginning in June
    1997 and ending March 2002, net of discount
    of $387,133.                                   $ 8,112,867               -
                                                         
   Senior Secured Term Loan B with interest at           
    LIBOR plus 3.25% payable quarterly (8.97%            
    at December 31, 1997), with principal                
    payments due quarterly beginning in June  
    1997 and ending March 2004, net of discount
    of $363,780.                                     7,586,220               -
                                                         
   Senior Secured Revolving Line of Credit with          
    interest at LIBOR plus 2.75% payable                 
    quarterly (9.43% at December 31, 1997),
    with principal due March 2002.                   8,080,884               -
                                                         
   Subordinated Debt with related parties,               
    interest of 12.5% payable quarterly                  
    commencing May 30, 1998, with principal
    due in equal quarterly installments 
    during 2002 and 2005, net of discount 
    of $318,738.                                     8,681,262               -
                                                         
   Mortgage note payable with interest at prime          
    plus 2% (8.25%), principal and interest of 
    $5,000 due monthly until March 1999.                     -         504,083
                                                         

   Senior Subordinated PIK notes with related            
    parties evidencing accrued interest due for          
    August 1997 and November 1997 on the                 
    original subordinated debt, interest of 
    12.5%, with principal due in equal
    quarterly installments during 2002 and
    2005.                                              508,334               -
                                                         
   Line of credit up to $2,000,000, amount               
    available based on percentages of accounts           
    receivable and inventory, secured by the 
    Company's assets, interest at prime plus
    3%.                                                      -       1,594,076
                                                         
   Other                                               284,778         124,270
                                                   -----------       ---------
                                                    33,254,345       2,222,429
   Less current maturities                           9,464,382       1,716,332
                                                   -----------       ---------
                                                  $ 23,789,963      $  506,097
                                                   ===========       =========

   The Company entered into an agreement ("the Credit Agreement") with Banque
   Paribas individually and as agent for other participating Banks (the
   "Banks") on February 28, 1997 to obtain up to $12,000,000 in a senior
   revolving credit facility and $27,000,000 in senior term/acquisition
   credit facilities in connection with the acquisition of Southland. The
   Company terminated its long term financing arrangement with CIT and paid
   off other long term credit facilities on February 28, 1997. The Credit
   Agreement is secured by all assets, including inventory, accounts
   receivable, real estate, trademarks, and patents of the Company, as well
   as the common stock and other equity interests of each subsidiary of the
   Company. The Credit Agreement also contains restrictive covenants
   including limitations on the Company's amount of debt, disposition of
   assets, incurrence of liens or encumbrances, payment of dividends,
   investments, executive compensation and requires minimum interest
   coverage, fixed charge coverage and EBITDA.

   On November 14, 1997 the Company amended the Credit Agreement, reducing
   the  revolving credit facility from $9,000,000 to $8,000,000, until April
   1, 1998 when the revolving credit facility increases to $12,000,000.

   On December 31, 1997, the Company did not make the scheduled principal and
   interest payments required in the Credit Agreement. On April 14, 1998 the
   Company and Southland entered into a Fifth Amendment to its Credit
   Agreement with the Banks (the "Fifth Amendment") whereby the Banks waived
   the events of default for nonpayment and agreed to defer delinquent
   interest payments and other scheduled interest payments through July 31,
   1998 by execution of interest deferral notes. Scheduled principal payments
   also were deferred until March 1999. However, the Company agreed that all
   principal and interest under loans from the Banks will be due on February
   28, 2001. The Company agreed to give the Banks tighter controls and liens
   on cash collateral, and the Banks agreed to relax certain financial
   covenants, although the miscellaneous debt restriction was reduced to
   $100,000. One of the new terms was that all collections on customer
   receivables would be used to pay down the revolving line of credit through
   a lockbox arrangement. As a result, the amount outstanding under the
   revolving line of credit of $8,080,884 at December 31, 1997 has been
   classified as a current liability. As a result of the Fifth Amendment, the
   Company's working capital line of credit with the Banks remains available
   to meet the Company's requirements.

   As a condition to the Fifth Amendment, the Banks required Rice Capital
   Partners II L.P.(Rice), a related party by management of Rice being on the
   Board of Directors, to loan the Company an additional $1,250,000. In
   exchange for this loan which was obtained in April 1998, the Company
   issued to Rice its 12.5% priority senior subordinated notes (the "Priority
   Notes"). Interest payments under the Priority Notes are payable with PIK
   notes until the Bank's debt is repaid. The Priority Notes are junior to
   the Bank's debt but senior to the subordinated notes previously issued to
   Rice and Fairview (the "1997 Senior Subordinated Notes"). In connection
   with the purchase of Priority Notes, the Company also agreed to
   issue to Rice warrants for the purchase (at a nominal exercise price) of 
   42,377,173 shares of the Company's common stock. The Company also agreed 
   to issue to Rice similar warrants to purchase 8,475,638 shares of the 
   Company's common stock as additional consideration for Rice's purchase of 
   $250,000 of Series B Preferred Stock in January, 1998. The total number 
   of shares of common stock provided under these warrants is subject to 
   reduction after receipt of a fairness opinion from an independent 
   financial advisor and is subject to approval by the holders of the voting 
   stock increasing its authorized common stock.  The affirmative vote of 
   Rice alone will constitute the vote required for such shareholder approval.

   Subordinated Debt

   In order to obtain financing for the acquisition of Southland and fund
   future expansion, the Company signed an agreement on February 28, 1997
   with Rice to purchase $9,000,000 of senior subordinated debt and
   $10,000,000 of senior redeemable preferred stock. F-Southland, L.L.C., a
   North Carolina limited liability company, and FF-Southland Limited
   Partnership, a North Carolina limited partnership, entities affiliated
   with Franklin Street/Fairview Capital, L.L.C. ("Fairview"), a related
   party by management of Fairview being on the Board of Directors, purchased
   an aggregate amount of $2,000,000 of such senior subordinated debt and
   $2,000,000 of such senior redeemable preferred stock.

   The subordinated debt held by Rice and Fairview (the "Subordinated Notes")
   bears interest at a rate of 12.5% per annum, with a default rate of 15.5%
   per annum. Interest is payable quarterly for eight years, with principal
   due in equal quarterly installments during the seventh and eighth years.
   Prepayments of the Subordinated Debt are allowed subject to premiums
   ranging from 12.5% during the first year to 0% commencing in the sixth
   year. The Subordinated Debt is subordinated to the Bank's debt and is
   unsecured. 

   On August 19, 1997 the Company amended the Subordinated Debt Agreement to
   allow interest payments due on the last business day of August 1997,
   November 1997 and February 1998 to be satisfied by the issue on or before
   May 30, 1998 of Senior Subordinated Notes for the amount of such interest,
   on the same  terms as the Subordinated Notes.

   Rice and Fairview also agreed to waive defaults in interest payments under
   the 1997 Senior Subordinated Notes and to allow payment of delinquent and
   future interest payments by the issuance of PIK Notes until repayment of
   the Bank's debt. The Banks, Rice, and Fairview also agreed to amendments
   to financial covenants in the documents underlying the 1997 Senior
   Subordinated Notes consistent with the Fifth Amendment.

   Interest expense and accrued interest payable to Rice and Fairview totaled
   approximately $949,000 and $156,000, respectively, during 1997. 

   Long-term debt due matures as follows:

                  1998                                     $  9,656,127
                  1999                                        1,757,425
                  2000                                        1,993,910
                  2001                                        2,478,310
                  2002                                        3,179,890
                  Thereafter                                 15,258,334
                                                            -----------
                                                             34,323,996
                  Less discounts                             (1,069,651)
                                                            -----------
                                                            $33,254,345
                                                             ==========

   6. Leases

   Capitalized Leases

   The Company leases certain land and buildings under long term leases which
   are accounted for as capital leases. Included in property and equipment
   are the following assets held under capital leases:

                  Capitalized leases                         $3,282,216
                  Less accumulated amortization                (237,900)
                                                              ---------
                                                             $3,044,316
                                                              =========

   Future minimum lease payments for assets under capital leases at December
   31, 1997 are as follows:

                  1998                                      $   732,504
                  1999                                          732,504
                  2000                                          732,504
                  2001                                          732,504
                  2002                                          732,504
                  Thereafter                                  4,372,932
                                                             ----------
                  Total minimum lease payables                8,035,452
                  Less amount representing interest          (3,999,606)
                                                             ----------
                  Present value of minimum lease payments     4,035,846
                  Less current maturities                      (178,615)
                                                             ----------
                  Long-term obligations                     $ 3,857,231
                                                             ==========


   Amortization expense of $237,900 during 1997 is included in operating
   expenses on the statement of operations.

   Operating Leases

   The Company leases warehouses and office facilities under operating leases
   expiring at various times through 2004. The leases have renewal options
   ranging from one to two years. Rent expense under these leases was
   $1,417,035 and $244,582 for the years ended December 31, 1997 and 1996
   respectively.

   The Company has entered into non-cancelable operating leases for trucks
   and warehouse equipment that expire at various times though 2004. Rent
   expense under these leases was $450,370 and $90,638 for the years ended
   December 31, 1997 and 1996 respectively.

   At December 31, 1997 future minimum lease payments for non-cancelable
   operating leases were as follows:

                  1998                                       $2,110,560
                  1999                                        1,613,480
                  2000                                          950,220
                  2001                                          868,430
                  2002                                          665,435
                  Thereafter                                    538,700
                                                              ---------
                  Total                                      $6,746,825
                                                              =========



   7. Income Taxes

   The components of the income tax provision (benefit) are as follows:

                                                        Year ended December 31
                                                          1997           1996
                                                          ----            --- 
               Current


                   Federal                         $   (558,958)     $       -
                   State                                (86,803)             -
                                                    -----------       --------
                                                       (645,761)             -
                Deferred
                   Federal                               70,144              -
                   State                               (350,102)             -
                                                    -----------       --------
                                                       (279,958)             -
                                                    -----------       --------
                                                   $   (925,719)     $       -
                                                    ===========       ========

                                                                    

   The reconciliation of income tax (benefit) computed at the US federal
   statutory rate to income tax expense (benefit) is as follows:

                                                       Year ended December 31
                                                        1997            1996
                                                        ----            ----

           Tax at US statutory rate                $(13,105,566)     $  59,044
           State taxes, net of federal benefit       (2,035,217)         6,304
           Goodwill                                   9,019,042              -
           Meals and entertainment                       42,255          6,785
           Increase (decrease) in valuation
             allowance                                5,182,008        (72,133)
           Other                                        (28,241)             -
                                                    -----------       --------
                                                   $   (925,719)     $       -
                                                    ===========       ========


   The temporary differences that give rise to significant portions of the
   deferred tax assets at December 31, 1997 and 1996 are as follows:


                                                        1997          1996
                                                        ----          ----

          Allowance for doubtful accounts 
            receivable                              $  259,248     $  12,275
          Inventory                                    588,292        15,086
          Depreciation/amortization                    191,303        15,306
          Non-compete agreements                     1,788,388             -
          Debt costs                                   150,296             -
          Accrued expenses                             236,310             -
          Net operating loss carry forward           3,574,127       637,734
          Other                                         21,603         4,779
                                                     ---------      --------
                                                     6,809,567       685,380
          Valuation allowance                        6,037,610       685,380
                                                     ---------      --------
                                                    $  771,957     $       -
                                                     =========      ========

   Statement No. 109 requires a valuation allowance to reduce the deferred
   tax assets reported if, based on the weight of the evidence, it is more
   likely than not that some portion or all of the deferred tax assets will
   not be realized. After consideration of all the evidence, both positive
   and negative, management has determined that a $6,037,610 valuation
   allowance at December 31, 1997 is necessary to reduce the deferred tax
   assets to the amount that will more likely than not be realized. The
   change in the valuation allowance for the current year is $5,182,008. At
   December 31, 1997, the Company has available net operating loss
   carryforwards of $9,099,100, which expire in the year 2012.

   8. Deferred Compensation Plan

   In June, 1997, the Company established a 401K plan open to all full time
   employees who have met prescribed eligibility requirements. To encourage
   participation, the Company provides a matching contribution of 50% of the
   first 6% of employee contribution. During 1997, the Company expensed
   $89,000 related to this plan.

   9. Employment Agreements

   In order to provide for the mutual protection of the Company and certain
   key employees, the Company has entered into employment agreements with
   these individuals. While tailored to the specific circumstances, these
   agreements provide a defined compensation structure and severance
   agreement in exchange for non-compete agreements.

   10. Redeemable Preferred Stock

   In connection with the Southland acquisition, the Company issued 50,000
   shares of Series B Redeemable Preferred stock for$9,269,220, net of fees
   and discount. The Series B Redeemable Preferred stock are redeemable at
   $200 per share and accrue dividends at a rate of 8.0% per annum, payable
   quarterly, in kind by the issuance of additional shares of Series B
   Preferred stock. The balance at December 31, 1997 includes approximately
   $667,000 related to accrued dividends and approximately $76,000 related to
   accretion of the carrying value to the redemption value. Series B
   Preferred stock has liquidation preference over all other shares of common
   stock and preferred stock, including Series A Preferred stock that is
   currently held by F-Jotan, an affiliate of Fairview. Redemption of the
   Series B Redeemable Preferred stock is mandatory at any time after the
   eighth anniversary of closing at the greater of book value or fair value
   of the common stock (the put value). The Series B Preferred stock may be
   redeemed by the Company commencing in the sixth year at the put value. The
   Series B Redeemable Preferred stock entitles the holders thereof at all
   times that it is outstanding to elect the majority of the Board of
   Directors.

   On June 23, 1997, the Company entered into a commitment agreement with
   Rice and Fairview which resulted in their purchasing an additional 13,125
   shares of Series B Preferred Stock (First Supplemental Series B Redeemable
   Preferred Stock) on September 11, 1997 for $2,606,875, net of discount.
   The 13,125 shares of First Supplemental Series B Redeemable Preferred
   Stock are redeemable at $200 per share and accrue dividends at a rate of
   8.0% per annum payable in-kind by additional shares of Series B Preferred
   Stock and have all the same rights and privileges of the Series B
   Redeemable Preferred Stock described above. The balance at December 31,
   1997 includes approximately $65,000 related to accrued dividends and
   approximately $1,000 related to accretion of the carrying value to the
   redemption value. These additional funds were used to provide the long
   term financing of the Cove acquisition, retiring the acquisition credit
   facility of $2,625,000.

   11. Shareholders' Equity

   In connection with the issuance of the senior subordinated debt on
   February 28, 1997 and the Series B Redeemable Preferred Stock on February
   28, 1997 and First Supplemental Series B Redeemable Preferred Stock on
   September 11, 1997, the Company issued warrants to purchase 3,233,833,
   11,977,158 and 3,620,473 shares, respectively, of the Company's common
   stock. The warrants are each exercisable at any time at an exercise price
   not to exceed $100 and expire in 10 years from date of grant. The warrants
   were valued at fair value at the date of grant which totaled $150,000
   related to the senior subordinated debt and approximately $520,000 related
   to the Series B and First Supplemental Redeemable Preferred Stock.

   On May 16, 1996, the Company signed an agreement to sell up to $6,000,000
   in Series A Convertible Preferred Stock to an affiliate of Fairview
   Capital L.L.C., a Raleigh, N.C. based private investment company. The
   initial funding closed May 16, 1996, and provided the Company $1,820,076,
   net of expenses, through the sale of 1,265,823 shares of Series A
   Convertible Preferred Stock to F-Jotan. Under the terms of the Series A
   Convertible Preferred Stock Purchase Agreement, the Company may sell an
   additional $4,000,000 of Series A Convertible Preferred Stock to the
   investors subject to certain conditions set forth in the Series A
   Convertible Preferred Stock Purchase Agreement. The Series A Convertible
   Preferred Stock is convertible into common stock at any time at the option 
   of the holder on a 2 for 1 basis, has voting rights equivalent to the 
   common stock and carries an 8% annual dividend, which is payable beginning 
   January 1, 1997 in additional shares of preferred stock. If all shares of 
   the Series A convertible preferred stock are issued, this class of stock 
   will represent approximately 15% of the Company's outstanding shares on a 
   fully diluted basis.

   In 1995, the Company issued 5,000 warrants, which expire March 29, 2000,
   to purchase the Company's common stock at a price equaling one hundred ten
   percent (110%) of the fair value of the common stock on March 28, 1995
   ($5.16 per share).

   12. Employee Stock Incentives

   The Company has stock options outstanding to participants under the
   Company's 1996 long-term incentive plan, approved by stockholders on July
   10, 1996 and amended on May 6, 1997. Under the plan, the option price per
   share shall be at least 100 percent of the fair market value of the common
   stock on the date of grant. Accordingly, per APB 25 because the exercise
   price of the Company's employee stock options is equal to or greater than
   the market price of the underlying stock on the date of grant, no
   compensation expense is recognized. 

   The Company's 1996 long term incentive plan has authorized the grant of
   options to employees for up to 2,000,000 shares of the Company's common
   stock. All options granted have 10 year terms and become fully exercisable
   with continued employment as follows:


                     Full Years                       Percentage of
                    Elapsed Since                     Shares Which
                    Date of Grant                   May Be Exercised
                    -------------                   -----------------
                      
                          1                                25%
                          2                                50%
                          3                                75%
                          4                               100%

   Pro forma information regarding net income and earnings per share is
   required by Statement 123, and has been determined as if the Company had
   accounted for its employee stock options under the fair value method of
   that Statement. The fair value for these options was estimated at the date
   of grant using a Black-Scholes option pricing model with the following
   weighted-average assumptions for 1997 and 1996, respectively: risk-free
   interest rates of 11.5%and 7.5%; dividend yields of  0%and 0%; volatility
   factors of the expected market price of the Company's common stock of 0.67
   and 0.34; and a weighted-average expected life of the option of 7 and 5
   years. 

   The Black-Scholes option valuation model was developed for use in
   estimating the fair value of traded options which have no vesting
   restrictions and are fully transferable. In addition, option valuation
   models require the input of highly subjective assumptions including the
   expected stock price volatility. Because the Company's employee stock
   options have characteristics significantly different from those of traded
   options, and because changes in the subjective input assumptions can
   materially affect the fair value estimate, in management's opinion, the
   existing models do not necessarily provide a reliable single measure of
   the fair value of its employee stock options.

   For purposes of pro forma disclosures, the estimated fair value of the
   options is amortized to expense over the options' vesting period. The
   Company's pro forma information follows:

                                             1997               1996
                                             ----               ----

             Pro forma net             $ (38,593,097)       $  142,658
               (loss) income

             Pro forma earnings
               per share:
                Basic                  $       (6.77)       $      .03
                Diluted                $       (6.77)       $      .02


   A summary of the Company's stock option activity, and related information
   for the years ended December 31 follows:
<TABLE>
<CAPTION>
                                       1997                         1996
                                       ----                         ----

                                             Weighted -                    Weighted -
                                              Average                       Average
                                              Exercise                      Exercise
                                Options        Price        Options          Price
                                -------      ----------     -------        ----------

        <S>                     <C>            <C>          <C>              <C>
        Outstanding -
          beginning of year     274,150        $1.0               -
        Granted                 115,000        $1.4         278,550          $1.0
        Exercised                     -                           -
        Forfeited               277,750        $1.0           4,400           1.0
                                -------         ---         -------           ---

        Outstanding -
          end of year           111,400                     274,150
                                =======                     =======

        Exercisable at
          end of year             5,725                           -

        Weighted-average
          fair value of
          options granted
          during the year      $   1.03                    $   0.43
             during the year

</TABLE>


   Exercise prices for options outstanding as of December 31, 1997 ranged
   from $1.00 to $1.43. The weighted-average remaining contractual life of
   those options is 9 years.




   13. Earnings Per Share

   The following table sets forth the computation of shares for purposes of
   the earnings (loss) per share calculation:


                                                          1997         1996
                                                          ----         ----

          Average shares outstanding                    5,692,370    5,676,598
          Net effect of dilutive stock options -                 
            based on the treasury method using 
            average market price                                -      109,424
          Assumed conversion of 8% preferred                  
            convertible stock equivalent to 
            2,531,646 common shares                     5,692,370    1,595,284
                                                        ---------    ---------
          Totals                                        5,692,370    7,381,306
                                                        =========    =========


   The 1997 earnings per share calculation excludes the effect of 111,400
   outstanding options, 2,871,410 shares of preferred convertible stock, and
   warrants to purchase 18,831,464 shares of common stock, as their effect is
   antidilutive. Also, in January 1998 and April 1998 the company issued
   warrants to purchase approximately 50,852,811 shares of common stock.

   14.  Pro Forma Information Related to Southland and Cove Acquisitions

   The following unaudited pro forma financial information presents a summary
   of consolidated results of operations as if the Southland and Cove
   transactions had occurred as of January 1, 1996 after giving effect to
   certain adjustments, including depreciation, amortization of goodwill,
   interest expense on acquisition debt and related income tax effects. The
   net loss of $39,134,000 for 1997 includes the writedown of goodwill and
   noncompete agreements of $29,900,000 due to impairment (see Note 3). The
   pro forma results have been prepared for comparative purposes only and do
   not purport to be indicative of what would have occurred had the
   acquisition been made on that date, nor are they necessarily indicative of
   results which may occur in the future.

                                                   (Pro Forma-Unaudited)
                                                  Years ended December 31
                                                  -----------------------

            Revenues                             $ 72,944,000     $72,060,000
            Net loss attributable to common
              stockholders                        (39,134,000)     (3,431,000)
            Net (loss) per share                        (6.87)           (.60)