<PAGE>
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                                  FORM 10-K/A
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
                            ------------------------
 
(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
 
                                       OR
 
  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
 
                         COMMISSION FILE NUMBER: 0-7513
 
                        ARTISTIC GREETINGS INCORPORATED
 
             (Exact name of Registrant as specified in its charter)
 
<TABLE>
<S>                                            <C>
                  DELAWARE                                      16-0909929
(State or other jurisdiction of incorporation      (I.R.S. Employer Identification No.)
              or organization)
</TABLE>
 
                                ONE KOMER CENTER
                             ELMIRA, NEW YORK 14902
                                 (607) 733-5541
      (Address of principal executive offices, including telephone number)
 
        Securities registered pursuant to Section 12(b) of the Act: none
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                     COMMON STOCK, PAR VALUE $.10 PER SHARE
                                (Title of Class)
 
    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
 
/X/ Yes    / / No
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
 
    The aggregate market value of the Registrant's voting stock held by
non-affiliates was approximately $17,368,103 on March 2, 1998.
 
    As of March 2, 1998, the Registrant had 5,843,406 shares of its common stock
issued and outstanding.
 
    This report on Form 10-K/A constitutes Amendment No. 1 to the registrant's
Form 10-K for the year ended December 31, 1997. The item hereby amended is as
follows:
 
        --  Item 8 is deleted in its entirety and replaced with the following.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ARTISTIC GREETINGS INCORPORATED:
 
    We have audited the accompanying balance sheets of Artistic Greetings
Incorporated (a Delaware corporation) as of December 31, 1997 and 1996, and the
related statements of operations, changes in stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
 
    The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 17 to the
financial statements, the Company experienced a net loss in 1997 and was in
technical default of certain financial convenants in connection with its line of
credit which have been waived by the lender as of December 31, 1997. These
factors among others may indicate that the Company may be unable to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 17. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
 
Rochester, New York
  February 20, 1998, except for
  the matter described in the
  last paragraph of Note 8,
  as to which the date is
  March 20, 1998
 
                                       1
<PAGE>
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                          --------------------
                                                                                            1997       1996
                                                                                          ---------  ---------
<S>                                                                                       <C>        <C>
                                                                                              (DOLLARS IN
                                                                                           THOUSANDS, EXCEPT
                                                                                              SHARE DATA)
                                                    ASSETS
Current Assets:
  Cash and cash equivalents.............................................................  $     160  $      99
  Marketable securities:
    Trading, at market (cost $1,230 in 1997 and $2,699 in 1996).........................      1,403      2,881
    Available for sale, at market (cost $409 in 1997 and $11 in 1996)...................        458         19
  Trade receivables (net of allowance for doubtful accounts of $271 and $112 in 1997 and
    1996, respectively).................................................................      2,343      1,252
  Income taxes receivable...............................................................        420     --
  Inventories...........................................................................      2,518      2,270
  Prepaid advertising...................................................................      3,492      3,064
  Prepaid expenses and other current assets.............................................        384        500
                                                                                          ---------  ---------
      Total current assets..............................................................     11,178     10,085
 
Deferred advertising....................................................................      3,683      2,113
Property, plant and equipment, net......................................................     16,301     16,237
Cash surrender value of life insurance (net of policy loans of $0 and $127 in 1997 and
  1996, respectively)...................................................................        629        433
Other assets............................................................................         67        130
                                                                                          ---------  ---------
      Total assets......................................................................  $  31,858  $  28,998
                                                                                          ---------  ---------
                                                                                          ---------  ---------
                                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Current portion of long-term debt.....................................................  $   4,494  $     153
  Accounts payable, trade (includes checks-in-transit of $2,485 in 1997 and $243 in
    1996)...............................................................................     12,804      9,847
  Accrued liabilities...................................................................      1,521      2,351
  Customer advances.....................................................................        571        451
  Income taxes payable..................................................................     --            113
                                                                                          ---------  ---------
      Total current liabilities.........................................................     19,390     12,915
 
Long-term debt..........................................................................        936      1,069
Other liabilities.......................................................................        283        383
                                                                                          ---------  ---------
      Total liabilities.................................................................  $  20,609  $  14,367
                                                                                          ---------  ---------
Commitments and contingencies
Common stock, subject to put option--500,000 shares.....................................     --          2,343
Stockholders' Equity:
  Common stock, par value $0.10:
    Authorized:10,000,000 shares;
    Issued:6,538,520 shares in 1997 and 6,037,720 in 1996...............................        654        604
  Additional paid-in capital............................................................     11,055     11,042
  Unrealized gains on marketable securities held as available for sale, net of tax
    effect..............................................................................     --              1
  Retained earnings.....................................................................        462      1,526
                                                                                          ---------  ---------
                                                                                             12,171     13,173
  Less: Treasury stock, at cost (695,356 and 200,356 shares in 1997 and 1996,
    respectively).......................................................................       (922)      (885)
                                                                                          ---------  ---------
    Total stockholders' equity..........................................................     11,249     12,288
                                                                                          ---------  ---------
    Total liabilities and stockholders' equity..........................................  $  31,858  $  28,998
                                                                                          ---------  ---------
                                                                                          ---------  ---------
</TABLE>
 
  The accompanying notes to financial statements are an integral part of these
                                balance sheets.
 
                                       2
<PAGE>
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                            ----------------------------------
                                                                               1997        1996        1995
                                                                            ----------  ----------  ----------
<S>                                                                         <C>         <C>         <C>
                                                                              (DOLLARS IN THOUSANDS, EXCEPT
                                                                                       SHARE DATA)
NET SALES.................................................................  $  101,499  $   98,911  $   97,042
Cost of sales.............................................................      45,038      40,665      42,498
                                                                            ----------  ----------  ----------
GROSS PROFIT..............................................................      56,461      58,246      54,544
Selling, advertising, general and administrative expenses.................      56,607      55,474      66,287
                                                                            ----------  ----------  ----------
 
INCOME (LOSS) FROM OPERATIONS.............................................        (146)      2,772     (11,743)
Other income (expense):
  Interest and dividend income............................................          84         158         278
  Net unrealized gains (losses) on trading securities.....................          32         (34)        230
  Net realized gains (losses) on marketable securities....................         340         328        (161)
  Loss on disposition of fixed assets.....................................        (897)     --          --
  Interest expense........................................................        (280)       (536)       (881)
  Other...................................................................          56        (330)       (385)
                                                                            ----------  ----------  ----------
INCOME (LOSS) BEFORE INCOME TAXES.........................................        (811)      2,358     (12,662)
Provision for (benefit from) income taxes.................................         253        (317)     (2,710)
                                                                            ----------  ----------  ----------
NET INCOME (LOSS).........................................................  $   (1,064) $    2,675  $   (9,952)
                                                                            ----------  ----------  ----------
Basic and diluted earnings per share......................................  $    (0.17) $     0.42  $    (1.57)
                                                                            ----------  ----------  ----------
Weighted average number of common and common equivalent shares
  outstanding.............................................................   6,090,023   6,349,318   6,331,688
                                                                            ----------  ----------  ----------
</TABLE>
 
  The accompanying notes to financial statements are an integral part of these
                                  statements.
 
                                       3
<PAGE>
                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                       COMMON STOCK        ADDITIONAL
                                                  -----------------------    PAID-IN     RETAINED     TREASURY
                                                    SHARES      AMOUNT       CAPITAL     EARNINGS       STOCK       OTHER
                                                  ----------  -----------  -----------  -----------  -----------  ---------
<S>                                               <C>         <C>          <C>          <C>          <C>          <C>
                                                                  (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
BALANCE DECEMBER 31, 1994.......................   6,036,820   $     604    $  11,031    $   8,803    $    (945)  $    (185)
Exercise of stock options by employees..........         900      --                2       --           --          --
Stock grants to directors/employees.............      --          --               (5)      --                9      --
Unrealized gains (losses) on marketable
  securities....................................      --          --           --           --           --             186
Net loss........................................      --          --           --           (9,952)      --          --
                                                  ----------       -----   -----------  -----------       -----   ---------
BALANCE DECEMBER 31, 1995.......................   6,037,720         604       11,028       (1,149)        (936)          1
Stock grant to directors/employees..............      --          --               14       --               51      --
Net income......................................      --          --           --            2,675       --          --
                                                  ----------       -----   -----------  -----------       -----   ---------
BALANCE DECEMBER 31, 1996.......................   6,037,720         604       11,042        1,526         (885)          1
Exercise of stock options by employees..........         800      --                3       --           --          --
Stock grant to directors/employees..............      --          --               10       --               13      --
Exercise of put option..........................     500,000          50       --           --              (50)     --
Unrealized gains (losses) on marketable
  securities....................................      --          --           --           --           --              (1)
Net loss........................................      --          --           --           (1,064)      --          --
                                                  ----------       -----   -----------  -----------       -----   ---------
BALANCE DECEMBER 31, 1997.......................   6,538,520   $     654    $  11,055    $     462    $    (922)  $  --
                                                  ----------       -----   -----------  -----------       -----   ---------
 
<CAPTION>
 
                                                    TOTAL
                                                  ---------
<S>                                               <C>
 
BALANCE DECEMBER 31, 1994.......................  $  19,308
Exercise of stock options by employees..........          2
Stock grants to directors/employees.............          4
Unrealized gains (losses) on marketable
  securities....................................        186
Net loss........................................     (9,952)
                                                  ---------
BALANCE DECEMBER 31, 1995.......................      9,548
Stock grant to directors/employees..............         65
Net income......................................      2,675
                                                  ---------
BALANCE DECEMBER 31, 1996.......................     12,288
Exercise of stock options by employees..........          3
Stock grant to directors/employees..............         23
Exercise of put option..........................     --
Unrealized gains (losses) on marketable
  securities....................................         (1)
Net loss........................................     (1,064)
                                                  ---------
BALANCE DECEMBER 31, 1997.......................  $  11,249
                                                  ---------
</TABLE>
 
  The accompanying notes to financial statements are an integral part of these
                                  statements.
 
                                       4
<PAGE>
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                       YEARS ENDED DECEMBER 31,
                                                                                    -------------------------------
                                                                                      1997       1996       1995
                                                                                    ---------  ---------  ---------
<S>                                                                                 <C>        <C>        <C>
                                                                                     (DOLLARS IN THOUSANDS, EXCEPT
                                                                                              SHARE DATA)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................................  $  (1,064) $   2,675  $  (9,952)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
  operating activities:
  Depreciation and amortization...................................................      2,118      2,379      2,544
  Loss on disposal of fixed assets................................................        897     --         --
  Allowance for doubtful accounts.................................................        159         (1)       113
  Net unrealized losses (gains) on trading securities.............................        (33)        40       (230)
  Net realized losses (gains) on marketable securities............................       (340)      (328)       161
  Purchase of trading securities..................................................     (2,278)    (4,891)    (1,922)
  Proceeds from sale of trading securities                                              3,938      4,858      1,268
  Amortization of interest grant..................................................       (100)    --         --
  Accretion of common stock subject to a put option...............................        157        311        157
  Increase in cash surrender value of life insurance..............................       (196)      (125)       (66)
  Decrease (increase) in assets:
      Trade receivables...........................................................     (1,250)       552       (360)
      Income taxes receivable.....................................................       (420)       900         14
      Inventories.................................................................       (248)     3,579        341
      Prepaid advertising, prepaid expenses and other.............................       (721)     3,058     (2,772)
      Deferred advertising........................................................     (1,570)     1,424      3,180
      Deferred income taxes.......................................................        472       (472)    --
  Increase (decrease) in liabilities:
      Checks-in-transit...........................................................      2,242     (1,195)       507
      Accounts payable, trade.....................................................        715     (2,951)     4,895
      Accrued liabilities.........................................................       (830)     1,360       (241)
      Customer advances...........................................................        120        214         54
      Deferred income taxes.......................................................     --         --         (1,966)
      Income taxes payable........................................................       (113)       113     --
                                                                                    ---------  ---------  ---------
          Net cash provided by (used in) operating activities.....................      1,655     11,500     (4,275)
                                                                                    ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment.......................................     (3,079)    (5,388)    (6,101)
  Proceeds from sale of equipment.................................................     --          3,641     --
  Purchase of marketable securities...............................................       (498)    --         (1,595)
  Proceeds from sale of marketable securities.....................................        249     --          7,215
                                                                                    ---------  ---------  ---------
          Net cash used in investing activities...................................     (3,328)    (1,747)      (481)
                                                                                    ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from the line of credit................................................     31,304     20,349     40,757
  Repayment of borrowings from the line of credit.................................    (26,955)   (25,311)   (40,663)
  Proceeds from long-term debt....................................................     --         --          5,036
  Repayment of long-term debt.....................................................       (141)    (5,286)    --
  Proceeds from issuance of common stock, treasury stock and options exercised....         26         65          6
  Payment for exercise of put options.............................................     (2,500)    --         --
                                                                                    ---------  ---------  ---------
          Net cash provided by (used in) financing activities.....................      1,734    (10,183)     5,136
                                                                                    ---------  ---------  ---------
          Net increase (decrease) in cash and cash equivalents....................         61       (430)       380
Cash and cash equivalents at beginning of year....................................         99        529        149
                                                                                    ---------  ---------  ---------
Cash and cash equivalents at end of year..........................................  $     160  $      99  $     529
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
  Interest........................................................................  $     208  $     527  $     735
  Income taxes, net of refunds received...........................................        314       (858)      (771)
</TABLE>
 
  The accompanying notes to financial statements are an integral part of these
                                  statements.
 
                                       5
<PAGE>
                         NOTES TO FINANCIAL STATEMENTS
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
DESCRIPTION OF BUSINESS
 
    The Company is engaged primarily in the direct-mail order marketing and sale
of personalized checks, personalized name and address products, stationery and
gift items, and performing services such as package insertion and mailing list
rental. Artistic sells its products through Sunday newspaper supplements,
magazines, co-operative mailings, direct mailings, its catalogs and through its
retail store. Sales are predominately to individuals throughout the United
States. Corporate headquarters and manufacturing facilities are located in
Elmira, New York. Artistic processes its orders in several locations in Elmira
and the surrounding area.
 
CASH AND CASH EQUIVALENTS
 
    The Company considers liquid investments with a maturity of three months or
less to be cash equivalents, which are reflected at their approximate fair
value.
 
INVENTORIES
 
    Inventories are stated at the lower of first-in, first-out ("FIFO") cost or
market, based upon the lower of replacement cost or estimated realizable value.
 
PROPERTY, PLANT AND EQUIPMENT
 
    Property, plant and equipment is stated at cost. Depreciation and
amortization is provided principally by the straight-line method over the
following estimated useful lives of the assets:
 
<TABLE>
<S>                                                             <C>
Transportation equipment......................................       5 years
Furniture and fixtures........................................     5-7 years
Machinery and equipment.......................................    5-12 years
Buildings.....................................................   18-31 years
</TABLE>
 
    Betterments, renewals and extraordinary repairs that extend the life of the
assets are capitalized. Other repairs and maintenance are expensed. When sold,
the cost and accumulated depreciation applicable to assets retired are removed
from the accounts, and the gain or loss on disposition is recognized in income.
 
    During 1996, the Company adopted Statement of Financial Accounting Standards
No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If such
events or changes in circumstances are present, a loss is recognized to the
extent the carrying value of the asset is in excess of the sum of the
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition.
 
                                       6
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREPAID ADVERTISING AND DEFERRED ADVERTISING
 
    The Company capitalizes costs for direct response advertising and amortizes
the costs over the period of expected future benefit. All other advertising
costs are expensed the first time the advertisement takes place. Direct response
advertising consists of prepaid advertising costs and deferred advertising
costs.
 
    Prepaid advertising costs consist principally of the materials and labor
incurred in developing the advertising materials, including sales literature and
catalogs. These costs are accumulated until the materials are used or
distributed to a customer at which time they are transferred to deferred
advertising costs.
 
    Deferred advertising includes the costs previously described and the costs
associated with distributing advertisements to customers, such as insertion and
mailing costs. Advertising is amortized over a period not to exceed one year
following the date the literature or catalog is mailed or inserted into a
newspaper or co-op mailing. The amortization period corresponds to the expected
sales cycle of the advertising material, based on actual advertising responses.
Check advertising is amortized over a period not to exceed twelve months based
upon the original sales order and one corresponding reorder. These amortization
periods are in compliance with American Institute of Certified Public
Accountants Statement of Position 93-7, "Reporting on Advertising Costs."
 
    At December 31, 1997 and 1996, $7,175 and $5,177, respectively, of
advertising costs, was reported as assets. Advertising expense for the years
ended December 31, 1997, 1996 and 1995 was $37,835, $37,809 and $48,978,
respectively. The expense in 1995 includes a charge of $2,229 to writedown
deferred advertising to its net realizable value. The expense for 1997, 1996 and
1995 includes approximately $13,400, $12,500 and $8,500, respectively, in
advertising placements related to the Advertising Agreement described in Note 13
to the Financial Statements.
 
CASH SURRENDER VALUE OF LIFE INSURANCE
 
    Face value of the policies is approximately $1,841, with $1,341 being key
man life insurance.
 
INCOME TAXES
 
    The Company uses the liability method of accounting for deferred income
taxes. The liability method accounts for deferred income taxes by applying
statutory rates to the difference between the financial reporting and the tax
bases of assets and liabilities. Deferred federal and state income taxes result
from temporary differences in the recognition of revenue and expense for income
tax and financial statement purposes. Such differences arise principally from
depreciation, tax credit carryforwards and promotional costs. Tax credits are
applied as a reduction to the provision for federal and state income taxes using
the flow-through method.
 
REVENUE RECOGNITION
 
    For direct-mail products, the Company recognizes revenue when merchandise is
shipped. Name list rental income is recognized upon delivery, and fulfillment
income upon performance of the service.
 
                                       7
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
 
    Net income or loss per common and common equivalent share is based on the
weighted average number of common and common equivalent shares (stock options
determined under the treasury stock method) outstanding during the period. The
Company accounts for net income per common and common equivalent share in
accordance with the provisions of Accounting Principle Board Opinion No. 15 (APB
No. 15). In March 1997, Statement of Financial Accounting Standards No. 128
(SFAS No. 128), "Earning Per Share" was issued. SFAS No. 128 replaces primary
Earnings Per Share (EPS) with basic EPS. Basic EPS is computed by dividing
reported earnings available to common stockholders by weighted average shares
outstanding. No dilution for common share equivalents is included. Fully diluted
EPS, now called diluted EPS, is required to be presented. The Company adopted
SFAS No. 128 retroactively for all periods presented. Early adoption is not
permitted. Accordingly, the Company has restated its previously presented EPS
amounts. The weighted average number of shares outstanding is computed as
follows:
 
    (The following table reconciles the numerators and denominators of basic and
diluted earnings per share).
 
<TABLE>
<CAPTION>
                                                                             FOR THE YEAR ENDED DECEMBER 31, 1996
                                                                           -----------------------------------------
<S>                                                                        <C>            <C>            <C>
                                                                              INCOME         SHARES       PER SHARE
                                                                            (NUMERATOR)   (DENOMINATOR)    AMOUNT
                                                                           -------------  -------------  -----------
BASIC EPS
Net income applicable to common stock....................................    $   2,675       6,328,207    $    0.42
EFFECT OF DILUTIVE SECURITIES
Stock options............................................................       --              21,111       --
                                                                                ------    -------------       -----
DILUTED EPS
Net income applicable to common stock....................................    $   2,675       6,349,318    $    0.42
                                                                                ------    -------------       -----
                                                                                ------    -------------       -----
</TABLE>
 
    No reconciliation is provided for 1997 and 1995 as the effect would be
anti-dilutive. All share information noted above represents the weighted-average
number of shares during the period.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    Cash and cash equivalents, trade receivables, accounts payable, accrued
liabilities and other current liabilities, other than long-term debt, are
reflected in the financial statements at fair value because of the short-term
maturity of those instruments.
 
    The estimated fair value of the Company's financial instruments is as
follows:
 
<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                       ----------------------------------------------
                                                                1997                    1996
                                                       ----------------------  ----------------------
                                                        CARRYING      FAIR      CARRYING      FAIR
                                                         AMOUNT       VALUE      AMOUNT       VALUE
                                                       -----------  ---------  -----------  ---------
<S>                                                    <C>          <C>        <C>          <C>
Marketable securities................................   $   1,861   $   1,861   $   2,900   $   2,900
Long-term debt, including current portion............   $   5,430   $   5,042   $   1,222   $     812
</TABLE>
 
    The fair values of the Company's financial instruments were determined as
follows:
 
                                       8
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Marketable securities: The fair value is based on quoted market prices for
these or similar instruments. Accordingly, the carrying amount of marketable
securities approximates fair value.
 
    Long-term debt including current portion: The fair value of the long-term
debt is estimated based upon interest rates available to the Company for
issuance of similar debt with similar terms and remaining maturities.
 
MANAGEMENT'S USE OF ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
RECLASSIFICATIONS
 
    Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation.
 
NOTE 2 MARKETABLE SECURITIES
 
    The Company accounts for its investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
 
    The Company has classified its securities into two categories, available for
sale and trading securities. The value of the investment accounts is stated at
market value based on quoted market prices. The cost of investments sold is
determined on a specific identification basis. Gains and losses from these
securities are as follows:
 
<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                                --------------------
<S>                                                                             <C>        <C>
                                                                                  1997       1996
                                                                                ---------  ---------
Securities available for sale
  Realized loss...............................................................  $       6  $  --
  Net unrealized gain.........................................................         49          8
Trading securities
  Realized gain...............................................................        346        358
  Realized loss...............................................................     --             30
  Net unrealized gain.........................................................        173        182
</TABLE>
 
                                       9
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 3 INVENTORIES
 
    Inventories include cost of materials, labor and overhead and are comprised
of the following:
 
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                             --------------------
<S>                                                                          <C>        <C>
                                                                               1997       1996
                                                                             ---------  ---------
Finished goods.............................................................  $     582  $     652
Work-in-process............................................................        100        561
Raw materials and supplies.................................................      1,836      1,057
                                                                             ---------  ---------
Total......................................................................  $   2,518  $   2,270
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
 
    Property, plant and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                          --------------------
<S>                                                                       <C>        <C>
                                                                            1997       1996
                                                                          ---------  ---------
Land....................................................................  $     387  $     385
Buildings...............................................................      9,170      9,160
Machinery and equipment.................................................     12,481     15,203
Furniture and fixtures..................................................      1,301      1,667
Transportation equipment................................................        149        194
                                                                          ---------  ---------
  Subtotal..............................................................     23,488     26,609
Less: Accumulated depreciation and amortization.........................      7,187     10,372
                                                                          ---------  ---------
  Net...................................................................  $  16,301  $  16,237
                                                                          ---------  ---------
                                                                          ---------  ---------
</TABLE>
 
    Depreciation and amortization expense charged to operations amounted to
$2,118, $2,379 and $2,434 for the years ended December 31, 1997, 1996 and 1995,
respectively.
 
NOTE 5 ACCRUED LIABILITIES
 
    Accrued liabilities consist of the following:
 
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                             --------------------
<S>                                                                          <C>        <C>
                                                                               1997       1996
                                                                             ---------  ---------
Accrued executive bonuses..................................................  $      70  $     691
Accrued employee profit sharing............................................     --            301
Accrued and deferred compensation..........................................        220        406
Accrued vacation...........................................................        456        396
Miscellaneous accrued liabilities..........................................        775        557
                                                                             ---------  ---------
Total......................................................................  $   1,521  $   2,351
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
                                       10
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 6 INCOME TAXES
 
    The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." The provision for (benefit from) income taxes is
comprised of the following:
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                    -------------------------------
<S>                                                                 <C>        <C>        <C>
                                                                      1997       1996       1995
                                                                    ---------  ---------  ---------
Currently payable:
  Federal.........................................................  $    (231) $     134  $    (757)
  State...........................................................         12         21         13
                                                                    ---------  ---------  ---------
Total current.....................................................       (219)       155       (744)
                                                                    ---------  ---------  ---------
Deferred:
  Net loss carryforward...........................................       (284)       786       (917)
  Receivable reserve..............................................        (20)       (41)    --
  Depreciation....................................................         43       (108)       293
  Promotional costs...............................................        503       (752)    (1,361)
  Deferred compensation...........................................     --         --             35
  Vacation expense................................................        (14)         2         (3)
  Insurance liability.............................................        (79)      (122)    --
  Investment losses and carryforwards.............................         10        (14)       154
  Contribution carryforward.......................................        440       (281)       172
  Inventory reserve...............................................        (42)       219       (348)
  Investment credits..............................................       (174)    --            270
  Other...........................................................         89       (161)      (261)
                                                                    ---------  ---------  ---------
Total deferred....................................................        472       (472)    (1,966)
                                                                    ---------  ---------  ---------
Total.............................................................  $     253  $    (317) $  (2,710)
                                                                    ---------  ---------  ---------
                                                                    ---------  ---------  ---------
</TABLE>
 
    The following is a reconciliation of the expected federal tax at statutory
rates to the effective rates:
 
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                   -------------------------------
<S>                                                                <C>        <C>        <C>
                                                                     1997       1996       1995
                                                                   ---------  ---------  ---------
Expected tax.....................................................  $    (276) $     802  $  (4,305)
State tax effect.................................................         (4)        19        (30)
Interest and dividend exclusion..................................         (6)        (5)       (49)
Investment credit................................................       (219)    --         --
Nondeductible interest...........................................         53        106     --
Adjustment of prior years' accruals..............................     --             53     --
Contributions....................................................     --           (125)    --
Federal valuation allowance......................................        472     (1,144)     1,381
Merger Costs.....................................................        203     --         --
Other............................................................         18     --         --
                                                                   ---------  ---------  ---------
Federal tax......................................................     --           (261)    (2,798)
State tax........................................................         12        (56)        88
                                                                   ---------  ---------  ---------
Total............................................................  $     253  $    (317) $  (2,710)
                                                                   ---------  ---------  ---------
                                                                   ---------  ---------  ---------
</TABLE>
 
                                       11
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 6 INCOME TAXES (CONTINUED)
    The contribution amount is the tax benefit related to certain inventory
donated to various charities which qualify for a tax deduction in excess of cost
under the Internal Revenue Code.
 
    Deferred tax liabilities (assets) are comprised of the following:
 
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                             --------------------
<S>                                                                          <C>        <C>
                                                                               1997       1996
                                                                             ---------  ---------
Depreciation...............................................................  $     816  $     773
Promotional costs..........................................................      1,290        781
Marketable securities......................................................         78         68
                                                                             ---------  ---------
  Gross deferred tax liabilities...........................................      2,184      1,622
                                                                             ---------  ---------
Promotional costs..........................................................       (416)      (410)
Vacation expense...........................................................       (160)      (146)
Contribution carryforward..................................................       (611)      (579)
Net loss carryforward......................................................       (958)      (674)
Alternate minimum tax credits..............................................       (218)      (307)
Inventory reserve..........................................................        (94)       (52)
Receivable reserve.........................................................        (61)       (41)
Insurance liability........................................................       (201)      (122)
Credit carryforwards.......................................................     (1,176)    (1,002)
                                                                             ---------  ---------
  Gross deferred tax assets................................................     (3,895)    (3,333)
                                                                             ---------  ---------
Deferred tax assets valuation allowance....................................      1,711      1,239
                                                                             ---------  ---------
Total net deferred taxes                                                     $  --      $    (472)
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
    The valuation allowance for deferred tax assets was $1,711 and $1,239, in
1997 and 1996, respectively, and relates primarily to the realizability of the
contribution carryforward and the uncertainty of realizing the tax benefit of
certain state tax credits.
 
    The Company has New York State Investment Tax Credits and Economic
Development Zone Credits that will provide tax benefit in future years. The
Company has available investment tax credits of approximately $100 with varying
expiration dates through 2002. The Company also has available Economic
Development Zone Credits of approximately $900 which may be carried forward
indefinitely.
 
NOTE 7 LEASES
 
    During 1997, the Company leased a portion of its manufacturing and office
space from an officer who is a substantial stockholder of the Company. Rental
expense under these arrangements amounted to $42, $42 and $91 in 1997, 1996 and
1995, respectively. Other rental expense amounted to $70, $90 and $255 in 1997,
1996 and 1995, respectively.
 
                                       12
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 8 DEBT
 
MARINE REVOLVING LINE OF CREDIT
 
    In March 1996, the Company refinanced a demand discretionary line of credit
with Marine Midland Bank ("Marine") under which it can borrow up to $6,500, with
a revolving line of credit that is committed to the Company until January 1,
1999, (the "Revolver"). The Company may borrow and repay at its option, and
issue letters of credit, up to an aggregate of $6,500 under the Revolver at
either Marine's quoted Prime Rate or the Money Market Rate as quoted by Marine
at the time of borrowing. Additionally, Marine has provided letters of credit to
secure workers' compensation obligations of the Company in the amount of
approximately $107, which expire on March 31, 1999. The amount of borrowings
available to the Company under the Revolver is dependent upon the amount of
accounts receivable and inventory, and the value of certain intangibles of the
Company (collectively, the "Collateral"), determined at the time as such
borrowing base is calculated quarterly. The Revolver is secured by the
Collateral. The Revolver contains a restriction on the payment of dividends as
well as financial and operating covenants requiring, among other things, the
maintenance of certain financial ratios, including minimum net worth, leverage
and working capital requirements. Various modifications, including working
capital covenants, maturity date and valuation of collateral were made effective
May 30, 1996; November 30, 1996; December 31, 1996; March 31, 1997 and June 30,
1997. The Revolver can be prepaid by the Company at any time without penalty. As
of March 20, 1998, the Company had requested and received from Marine a waiver
of the covenants pertaining to the minimum tangible net worth and the cash flow
ratio for the period ending December 31, 1997. As of December 31, 1997, the
Company was not in compliance with its minimum tangible net worth and cash flow
ratio covenants. As of March 20, 1998, the Company had requested and received
from Marine a waiver of these covenants as of December 31, 1997.
 
NEW YORK STATE URBAN DEVELOPMENT CORPORATION LOAN
 
    In October 1995, the Company executed a mortgage loan agreement (the "UDC
Mortgage") with the New York State Urban Development Corporation under which it
borrowed $400, the proceeds of which were used to finance expenses incurred in
the purchase and buildout of Artistic Plaza. The UDC Mortgage is secured by
Artistic Plaza, does not incur interest and requires amortization for four years
with the principal amount thereunder due to be repaid in November 1999. The UDC
Mortgage can be prepaid by the Company at any time without penalty.
 
CITY OF ELMIRA MORTGAGE
 
    In April 1991, the Company executed a Sales and Development Agreement with
the City of Elmira (the "City of Elmira Mortgage"). As part of this agreement,
the Company acquired two office buildings located in the City of Elmira. This
agreement provided financing for the purchase of these buildings evidenced by a
promissory note for $920 at one percent per annum using the simple interest
method over 25 years. Both the principal and interest payments were deferred
until May 1996. Interest accrued on the principal balance during this period at
one percent per annum using the simple interest method. After such time, both
the accrued interest and principal were reamortized over the remaining 20 years
by making equal quarterly payments of principal and interest. The note also
provides that the Company will have the right to prepay any part of, or all of,
the outstanding principal and accrued interest at any time without penalty. This
agreement is secured by a first mortgage on these buildings.
 
                                       13
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 8 DEBT (CONTINUED)
LONG-TERM DEBT
 
<TABLE>
<CAPTION>
DECEMBER 31,                                                                   1997       1996
---------------------------------------------------------------------------  ---------  ---------
<S>                                                                          <C>        <C>
Marine Revolver............................................................  $   4,349  $  --
UDC Mortgage...............................................................        192        300
City of Elmira Mortgage....................................................        889        922
                                                                             ---------  ---------
Total long-term debt.......................................................      5,430      1,222
Less: Current portion......................................................      4,494        153
                                                                             ---------  ---------
Total......................................................................  $     936  $   1,069
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
    Minimum debt repayments under long-term obligations for the next five years
and thereafter are as follows:
 
<TABLE>
<S>                                                   <C>
1998................................................  $   4,494
1999................................................        137
2000................................................         46
2001................................................         46
2002................................................         46
Thereafter..........................................        661
</TABLE>
 
    The weighted average interest rate on short-term borrowings outstanding are
as follows:
 
<TABLE>
<CAPTION>
                                                                            1997       1996       1995
                                                                          ---------  ---------  ---------
<S>                                                                       <C>        <C>        <C>
Money-market line.......................................................       7.23%      6.82%      7.36%
Regular line............................................................       8.50       8.25       8.78
</TABLE>
 
NOTE 9 DEFINED CONTRIBUTION SAVINGS PLAN
 
    The Company has a defined contribution savings plan under which employees
with one year of service, who have worked 1,000 hours and attained 21 years of
age, are eligible for participation. In 1997 the Company matched 50% of the
first 4% contributed by each participating employee annually. The Company's
matching contributions were $105, $39 and $35 during 1997, 1996 and 1995,
respectively. Eligible employees enrolled and active at December 31 are eligible
for employer contributions and may make voluntary contributions subject to
certain limitations. Company profit sharing contributions are discretionary. The
profit-sharing contribution was $0, $301 and $0, for 1997, 1996 and 1995,
respectively.
 
NOTE 10 STOCK OPTIONS
 
    The Company has an Employee Long-Term Incentive Plan (the "Plan") under
which Incentive Stock Options ("ISOs") to purchase, and/or Stock Incentive
Rights ("SIRs") to receive, a total of 1,800,000 shares of the Company's Common
Stock may be awarded.
 
    In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". The Statement encourages, but
does not require, a fair value based method of accounting for an employee stock
option or similar equity instrument. The Company accounts for its stock options
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to
 
                                       14
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 10 STOCK OPTIONS (CONTINUED)
Employees". Accordingly, no compensation cost has been recognized for the
options. Had compensation cost for these options been determined based on the
fair value at the grant dates of the awards, consistent with SFAS 123, the
Company's pro forma amounts for net income and earnings per share would have
been as follows:
 
<TABLE>
<CAPTION>
                                                                              1997       1996
                                                                            ---------  ---------
<S>                                                                         <C>        <C>
Net income (loss)
    As reported...........................................................  $  (1,064) $   2,675
    Pro forma.............................................................     (1,153)     2,604
Net income (loss) per common and common equivalent share
    As reported...........................................................      (0.17)      0.42
    Pro forma.............................................................      (0.19)      0.41
</TABLE>
 
    SFAS No. 123 has only been applied to options granted after January 1, 1995.
As a result, the pro forma compensation expense may not be representative of
that to be expected in future years.
 
    The weighted-average assumptions used to estimate the fair value of each
option on the date of grant using the Black-Scholes option pricing model
include:
 
<TABLE>
<CAPTION>
                                                                             1997       1996
                                                                           ---------  ---------
<S>                                                                        <C>        <C>
Risk-free interest rate..................................................       6.59%      6.37%
Expected life............................................................    5 years    5 years
Expected volatility......................................................       48.2%      51.1%
Expected dividends.......................................................         --         --
Weighted average fair value of options granted...........................  $    2.44  $    2.24
</TABLE>
 
    ISOs are granted at not less than fair value on the date of grant, expire no
later than ten years from the date of grant and are exercisable over variable
periods from three to five years. The following table
 
                                       15
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 10 STOCK OPTIONS (CONTINUED)
summarizes the changes in ISOs outstanding and related price ranges for shares
of the Company's common stock under the Plan.
 
<TABLE>
<CAPTION>
                                                         NUMBER OF SHARES             PRICE RANGE
                                                         -----------------  -------------------------------
<S>                                                      <C>                <C>        <C>        <C>
Outstanding at January 1, 1995.........................         635,530     $    3.20     to      $   11.75
  Granted..............................................          15,000          3.12     to           3.50
  Exercised............................................            (900)         2.62     to           2.62
  Canceled.............................................        (148,730)         4.00     to           9.50
                                                               --------
Outstanding at December 31, 1995.......................         500,900          3.12     to          10.31
                                                               --------                   -----------------
Exercisable at December 31, 1995.......................         272,908     $    3.12     to      $   10.31
                                                               --------                   -----------------
Outstanding at January 1, 1996.........................         500,900     $    3.12     to          10.31
  Granted..............................................         147,000          2.62     to           5.00
  Exercised............................................         --             --         to         --
  Canceled.............................................        (259,490)         3.20     to           9.38
                                                               --------
Outstanding at December 31, 1996.......................         388,410          2.62     to          10.31
                                                               --------                   -----------------
Exercisable at December 31, 1996.......................         139,700     $    2.62     to      $   10.31
                                                               --------                   -----------------
Outstanding at January 1, 1997.........................         388,410     $    2.62     to      $   10.31
  Granted..............................................          62,500          4.81     to           4.81
  Exercised............................................            (800)         3.56     to           3.56
  Canceled.............................................         (37,200)         6.06     to           8.12
                                                               --------
Outstanding at December 31, 1997.......................         412,910          2.62     to          10.31
                                                               --------                   -----------------
Exercisable at December 31, 1997.......................         258,410     $    2.62     to      $   10.31
                                                               --------                   -----------------
</TABLE>
 
    SIRs are rights to receive shares of the Company's common stock without any
cash payment to the Company, conditioned only on continued employment with the
Company over a specified four-year incentive period. During that incentive
period, the recipient of a SIR award would receive "dividend-equivalent"
payments on the number of shares covered by his/her SIR award, but would not
have any other rights, e.g., voting rights, etc., with respect to such shares
until they were issued to him/her under the terms of the award. To date, no SIRs
have been granted under the Plan.
 
    The following table represents additional information about stock options
outstanding at December 31, 1997:
 
<TABLE>
<CAPTION>
            OPTIONS OUTSTANDING
                                WEIGHTED-
                                 AVERAGE                   OPTIONS EXERCISABLE
   RANGE OF                     REMAINING        WEIGHTED-                     WEIGHTED-
   EXERCISE       NUMBER       CONTRACTUAL        AVERAGE        NUMBER         AVERAGE
    PRICES      OUTSTANDING       LIFE        EXERCISE PRICE   EXERCISABLE  EXERCISE PRICE
--------------  -----------  ---------------  ---------------  -----------  ---------------
<S>             <C>          <C>              <C>              <C>          <C>
  $2.62-$ 5.00     250,200       3.5 Years       $    4.44        100,700      $    4.42
   5.25-  8.12      99,960       0.6 Years            6.38         94,960           6.42
   9.12- 10.31      62,250       0.3 Years            9.74         62,750           9.74
                -----------  ---------------         -----     -----------         -----
  $2.62-$10.31     412,910       2.3 Years       $    5.71        258,410      $    6.45
                -----------  ---------------         -----     -----------         -----
</TABLE>
 
    The Company had options available for awards amounting to 750,620, 775,920
and 663,430 at December 31, 1997, 1996 and 1995, respectively. The Company is
able to realize an income tax benefit from the exercise and early disposition of
ISOs. For financial reporting purposes, this benefit results in a decrease in
current income taxes payable and an increase in additional paid-in capital.
 
                                       16
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 11 STOCKHOLDERS' EQUITY
 
    In 1997, the Company granted 5,000 shares of its treasury stock to an
officer at a price per share of $4.50, for services rendered. This stock grant
was recorded as compensation expense. In 1996, the Company granted 1,071 shares
of its treasury stock to a director at a price per share of $3.50 for services
rendered. In 1996, the Company granted 10,000 and 5,000 shares of its treasury
stock to two officers at a price per share of $3.88 and $4.69, respectively, for
services rendered. These stock grants were also recorded as compensation
expense. In 1995, the Company granted 1,363 shares of its treasury stock to a
director at a price per share of $2.75 for services rendered.
 
NOTE 12 RELATED PARTY TRANSACTIONS
 
    The son of the Chairman of the Board of Directors of the Company, who is a
licensed stock broker, processes the Company's marketable securities
transactions. Total commissions paid to this individual were approximately $6,
$17 and $21 in 1997, 1996 and 1995, respectively.
 
NOTE 13 COMMITMENTS AND CONTINGENCIES
 
EMPLOYMENT CONTRACTS
 
    In 1997, the Company entered into a three-year employment agreement with its
Chief Operating Officer and Executive Vice President, which provides for a
minimum annual compensation of $146 and for participation in the Company's
executive bonus plan. In 1996, the Company entered into a three-year employment
agreement with its Chief Executive Officer and President of the Company, which
provides for a minimum annual compensation of $200 and for participation in the
Company's executive bonus program. In 1993, the Company entered into a five-year
employment agreement with the Chairman of the Board of Directors of the Company
which provides minimum annual compensation of $225 and an annual bonus based on
net income before taxes.
 
LEGAL MATTERS
 
    The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to any
such litigation cannot be determined, in the opinion of management, such
liability, if any, will not have a material adverse effect on the Company's
financial condition or results of operations.
 
COMMITMENTS
 
    In May 1995, the Company negotiated a contract with a supplier to obtain
right of first refusal for advertising placement at competitive rates. As of
December 31, 1997, the remaining commitment under the contract, which expires
May 2000, was $3,000, payable in annual installments of $2,000 due in May 1998
and the final installment of $1,000 due in May 1999.
 
NOTE 14 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY
 
    During 1995, the Company acquired certain assets of Valcheck Company in
exchange for 500,000 shares of the Company's Common Stock. The Common Stock was
issued at a price of $3.75 per share, or
 
                                       17
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 14 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY
(CONTINUED)
$1,875. The Common Stock is puttable to the Company, at Valcheck's option, two
years from the acquisition date at $5 per share.
 
<TABLE>
<CAPTION>
                                                                                         1995
                                                                                       ---------
<S>                                                                                    <C>
Fair value of assets acquired
  Inventory..........................................................................  $     361
  Property, plant and equipment......................................................      1,481
  Name list..........................................................................         33
                                                                                       ---------
    Total............................................................................  $   1,875
Less: common stock issued............................................................      1,875
                                                                                       ---------
Cash paid............................................................................  $  --
                                                                                       ---------
                                                                                       ---------
</TABLE>
 
NOTE 15 NEW ACCOUNTING PRONOUNCEMENTS
 
    SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income and its components. The standard
is applicable for fiscal years beginning after December 15, 1997. The Company
will adopt this standard in its 1998 financial statements. The Company has not
yet determined the impact of this standard on its financial statements.
 
    SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments in the financial statements. The standard is required to be adopted for
fiscal years beginning after December 15, 1997. The Company will adopt this
standard in its 1998 financial statements. The Company has not yet determined
the impact of this standard on its financial statements.
 
NOTE 16 PROPOSED MERGER
 
    On December 21, 1997, the Company entered into an agreement and plan of
Merger ("Merger Agreement") with MDC Communications Corporation, an Ontario,
Canada corporation, and AGI Acquisition Co., a Delaware corporation and a
wholly-owned subsidiary of MDC ("Newco") whereby Newco will merge with and into
the Company (the "Merger") pursuant to which the Company will become a wholly-
owned subsidiary of MDC and each outstanding share of common stock, par value
$0.10 per share, of the Company (other than stock of the Company owned by the
Company, MDC or any of their respective subsidiaries) will be converted into the
right to receive $5.70 in cash without interest. It is a condition to the
consummation of the Merger Agreement that the Company have completed an asset
distribution as set forth in an agreement ("Asset Purchase Agreement") between
the Company and Artistic Direct Incorporated, ("ADI"), a New York corporation,
for the sale to ADI of certain assets relating to the personalized product and
catalog businesses of the Company (the "P&C" Businesses) for $9 million in cash
and the assumption of certain liabilities related to the P&C Businesses.
 
    In connection with the agreements, the Company has incurred $597 of expenses
on behalf of ADI, such as cash advances and professional fees. This amount has
been recorded as an expense as of December 31, 1997.
 
NOTE 17 GOING CONCERN MATTERS
 
    The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown
 
                                       18
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 17 GOING CONCERN MATTERS (CONTINUED)
in the financial statements for the year ended December 31, 1997, the Company
incurred a net loss of $1,064 and has classified its Revolver as current for the
year ended December 31, 1997. These factors among others may indicate that the
Company may be unable to continue as a going concern.
 
    The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that may be necessary should
the Company be unable to continue as a going concern.
 
    As described in Note 8, the Company was not in compliance with certain of
the financial covenants under its Revolver as of December 31, 1997. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flows to meet its obligations on a timely basis, to
comply with the terms of its Revolver agreement, to obtain additional financing
or refinancing as may be required, and ultimately to attain profitability.
 
    In light of the Company's projected earnings and cash flows, management
believes the Company has sufficient financial resources to maintain its current
level of operations. However, based on projected earnings, the Company may
violate the minimum tangible net worth covenant for the first quarter of 1998.
There can be no assurance that the lender will provide a waiver for any future
covenant violations nor that the company will be able to obtain other financing.
Accordingly, the Company has classified the Revolver as a current liability.
 
    As described in Note 16, the Company has entered into an agreement and plan
of merger with MDC pursuant to which the Company will become a wholly-owned
subsidiary of MDC and the Revolver referred to above will be assumed by MDC. It
is a condition of the merger that the Company have completed the sale of certain
assets and the assumption of certain liabilities relating to the P&C Businesses
of the Company to ADI. ADI has obtained a commitment from a financial
institution to finance the acquisition of the P&C Businesses.
 
    Further, should the plan of merger and asset purchase not occur, the Company
believes that it would be able to obtain other financing to replace the
Revolver. However, there can be no assurances that the Company will be
successful in obtaining such financing.
 
                                       19
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
Dated: April 3, 1998
 
<TABLE>
<S>                             <C>  <C>
                                     ARTISTIC GREETINGS INCORPORATED
 
                                By:  /s/ DAVID A. PREUCIL
                                     -----------------------------------------
                                     Name: David A. Preucil
                                     Title: VICE PRESIDENT FINANCE AND CHIEF
                                          FINANCIAL OFFICER (PRINCIPAL
                                          FINANCIAL & ACCOUNTING OFFICER)
</TABLE>
 
    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 Company,
in the capacities and as of the dates indicated.
 
<TABLE>
  <S>  <C>                                                           <C>
  By:  /s/ JOSEPH A. CALABRO                                                  Date: April 3, 1998
       ----------------------
       Name: Joseph A. Calabro
       Title: Chief Executive Officer, President and a Director
 
  By:  /s/ NORMAN S. EDELCUP                                                  Date: April 3, 1998
       -----------------------
       Name: Norman S. Edelcup
       Title: Director
 
  By   /s/ LYNDON E. GOODRIDGE                                                Date: April 3, 1998
       ------------------------
       Name: Lyndon E. Goodridge
       Title: Director
 
  By:  /s/ STUART KOMER                                                       Date: April 3, 1998
       -----------------
       Name: Stuart Komer
       Title: Chairman and a Director
 
  By:  /s/ DAVID A. PREUCIL                                                   Date: April 3, 1998
       --------------------
       Name: David A. Preucil
       Title: Vice President Finance and Chief Financial Officer
       (Principal Financial & Accounting Officer)
 
  By:  /s/ IRVING I. STONE                                                    Date: April 3, 1998
       ------------------
       Name: Irving I. Stone
       Title: Director
 
  By:  /s/ MORRY WEISS                                                        Date: April 3, 1998
       ----------------
       Name: Morry Weiss
       Title: Director
 
  By:  /s/ THOMAS C. WYCKOFF                                                  Date: April 3, 1998
       -----------------------
       Name: Thomas C. Wyckoff
       Title: Chief Operating Officer & Executive Vice President
</TABLE>
 
                                       20