UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

     For fiscal year ended September 30, 1997 Commission File Number 1-8328
                                  ANACOMP, INC.
             (Exact name of registrant as specified in its charter)

                                    Indiana
                                   35-1144230
                     (State of incorporation) (IRS Employer
                              Identification No.)

                  11550 North Meridian Street, P.O. Box 40888
                                  Indianapolis,
                                 Indiana 46240
                  (Address of principal executive offices) (Zip
                                     Code)

        Registrant's telephone number, including area code: 317-844-9666

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


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

Title of each class
Common Stock, $.01 par value
Common Stock Warrants

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,  and (2) has been subject to such filing  requirements
for the past 90 days. Yes X No

Indicate by check mark whether the registrant has filed all reports  required to
be filed by Section 12, 13 or 15(d) of the  Securities  and Exchange Act of 1934
subsequent to the  distribution of Securities under a plan confirmed by a court.
Yes X No

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

The aggregate market value of voting stock held by non-affiliates of the
registrant  as of  December  19,  1997:  Common  stock par value $.01 per share,
$215,202,312.
Common Stock outstanding as of  December 19, 1997 was 13,828,261 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive  Proxy Statement  relating to the  registrant's  1998
Annual  Meeting of  Shareholders  to be held on  February  10,  1998,  have been
incorporated by reference in Part III of this Annual Report on Form 10-K.


<PAGE>


PART I
ITEM 1. BUSINESS


Overview

         Anacomp,  Inc.  ("Anacomp" or the  "Company") is a leading  provider of
products and services that enable  organizations  to effectively and efficiently
manage their  documents.  The Company does  business with  approximately  15,000
customers  in more  than 65  countries.  The  Company  offers  a broad  range of
short-term and long-term solutions for the conversion, storage, and retrieval of
computer  data and images  utilizing  micrographic,  magnetic  media and,  to an
increasing extent, electronic technologies.

         Anacomp  has  built  a  strong   reputation  as  the  world's   leading
full-service  provider  of  film-based  (micrographic)  systems,  services,  and
supplies.  Micrographics  is the conversion of information  stored in electronic
form or on paper to microfilm or microfiche.  Traditionally,  micrographics  has
provided one of the most cost-effective  means of data storage and retrieval for
information-intensive   organizations  such  as  banks,   insurance   companies,
financial  service  companies,  retailers,  healthcare  providers and government
agencies. Anacomp's primary micrographics focus is  Computer-Output-to-Microfilm
("COM")  solutions,  and the Company believes it possesses  worldwide COM market
share in excess of 40%.  COM involves the  high-speed  conversion  of coded data
directly from a computer or magnetic tape to microfilm or microfiche.

         The Company has an extensive  installed  base of COM  equipment,  which
management  estimates  to be in excess of 55% of the  systems in use  worldwide.
This installed base, together with the Company's strong customer  relationships,
provide the Company with what management believes to be a substantial  recurring
revenue  stream from COM  maintenance  and supplies.  For customers  that prefer
outsourcing solutions,  the Company provides COM services through its network of
42 service centers in the United States and six international centers.

         The Company  has  established  itself as a leading  provider of Compact
Disc ("CD") solutions for document management applications through the growth of
its ALVA(TM) CD ("ALVA")  services as well as the Company's  acquisition in 1997
of  Data/Ware  Development,  Inc.  ("Data/Ware"),  a  leading  manufacturer  and
supplier  of CD output  systems.  CD  services  are offered at a majority of the
Company's  service  centers  around the world,  and this  business  has  enjoyed
healthy  growth  over the past two years.  The  Company's  Data/Ware  CD systems
generally are sold to businesses with  high-volume CD output needs.  The Company
believes it can enhance sales of Data/Ware CD systems by leveraging its customer
relationships and capital equipment expertise.

         The Company is a leading provider of half-inch  computer tape (magnetic
media) products for larger computing systems,  with manufacturing  plants in the
United  States and in Europe.  To at least  partially  offset the mature  market
trends for many of the magnetic media  products,  the Company plans to invest in
technology to assemble  newer-generation  metal particle tape  cartridges and to
significantly   increase  the  magnetic  media-related  services  it  offers  to
customers.

         Overall,  the Company  plans to  maintain  its  leadership  position in
traditional  information  management solutions while continuing to capitalize on
its expertise and customer base to add new products and services. This migration
toward  faster  growth  areas  of the  document  management  industry  is  being
accomplished  through  internal  product  development,  strategic  alliances and
acquisitions of companies and technology.



<PAGE>



History & Recent Developments

         Anacomp was  incorporated  in Indiana in 1968.  In the 1970s and 1980s,
Anacomp became the leader in the COM services portion of the document management
industry through  acquisitions and internal growth.  In 1987, the Company became
the world's leading manufacturer of COM systems by acquiring DatagraphiX, Inc.

         In 1988,  Anacomp  acquired  Xidex  Corporation  ("Xidex"),  a  leading
manufacturer  of magnetic media  products,  duplicate  microfilm,  and microfilm
readers and  reader/printers.  Primarily due to  substantial  debt incurred as a
result of the Xidex  acquisition,  the Company filed for  bankruptcy  protection
under  Chapter 11 of the U.S.  Bankruptcy  Code on January 5, 1996.  The Company
emerged  from Chapter 11 under its Plan of  Reorganization  on June 4, 1996 with
significantly  reduced debt, lower interest payments, a new financial structure,
a new Board of Directors and management and a new business strategy.  Subsequent
to the Company's  emergence from Chapter 11, the Company has refinanced both its
senior and subordinated debt, further reducing its annual cash interest payments
and enhancing the Company's liquidity.

         Recently,  in  addition  to  enhancing  its  traditional  micrographics
products and services,  the Company has  significantly  expanded its  electronic
document  management  solutions.  Initiatives  include the  development  of ALVA
services;   the   acquisition   of  CD  businesses,   including   Data/Ware  and
Com-informatic AG ("Com-informatic"), a leading Swiss developer and installer of
Computer Output to Laser Disc ("COLD") and imaging digital  solutions;  reseller
agreements for the  distribution of foldering,  report  distribution,  COLD, and
imaging  solutions;  and the  acquisition of Cambridge  Technology  Group,  Inc.
("Cambridge  Technology"),  developers of a leading software application for the
trust/custody financial market.


Document Management Industry

         Anacomp  operates within the document  management  industry,  which the
Company  believes to be in excess of $8 billion  worldwide.  Industry  suppliers
provide products and services used in the conversion,  storage, and retrieval of
computer  data and images.  Users of these  solutions  must  balance the ease of
accessibility  of  information  with  the cost of  storing  and  accessing  that
information.

         This  balancing  and  the  Company's  industry  strategy  adheres  to a
paradigm  known as the  Information  Delivery  Life Cycle,  which  describes the
relationship between the age of information,  the frequency and speed of access,
and the type of media  upon which the  information  is stored.  In  general,  as
information ages, customer  requirements for frequency of retrieval and speed of
delivery  decline.  To achieve the  greatest  degree of  cost-effectiveness  and
efficiency,  organizations  migrate their  information  across several different
delivery systems over the life of the information.





<PAGE>



     (GRAPH IS NOT AVAILABLE)





















         Generally,  newly created information is the most frequently  accessed,
requiring a high-speed storage media such as magnetic disk (i.e.,  DASD). As the
information  begins to age, it often is first  migrated  to optical  disk or CD,
which offers high storage  capacity and quick access to  information  at a lower
cost than DASD. As the need to access information  becomes more infrequent,  the
information  often is next  migrated to magnetic  tape, an even lower cost media
that provides somewhat slower,  yet readily  accessible,  information  delivery.
Once  information  moves to an  archival  stage in its life  cycle,  it is often
migrated to microfilm  or  microfiche,  which offers very low storage  costs for
both archival and non-archival applications.

         Anacomp's   array  of  products   and  services  is  designed  to  help
organizations  optimize how they store,  deliver,  and migrate their information
across this entire life cycle.  The Company  believes that vendor  consolidation
and a gradual shift toward  integrated  solutions will favor  suppliers that can
provide a broad,  technologically advanced suite of products and services across
the entire  cycle.  The Company also  believes that this market will continue to
favor suppliers with a fully developed domestic and international infrastructure
that allows them to serve  large  customers  and to benefit  from  economies  of
scale.

         Additionally,  competitive pressures on organizations served by Anacomp
have  steadily  increased  the demand for  outsourcing  services.  Concerns over
technology  obsolescence,   the  sometimes  high  capital  cost  of  information
management  systems,  and a  general  recognition  of the  benefits  of  outside
expertise have induced many companies to reduce in-house expenditures on certain
operations  in favor of  third-party  service  providers.  Through  outsourcing,
companies are able to avoid the capital  requirements  of  proprietary  document
management  and  storage  systems  and  maintain  flexibility  to migrate  their
information as new products and technologies become available.  Anacomp believes
this trend  toward  outsourcing  should  have a  positive  impact on many of the
output  services  offered  by  the  Company.  Moreover,  the  Company  seeks  to
differentiate   itself  from  other  service  providers   through   feature-rich
offerings, high levels of customer service, and value-added consulting services.



<PAGE>



         Traditionally,   film-based   imaging  solutions   (micrographics   and
particularly  COM)  have  provided  the most  cost-effective  means of  document
storage and retrieval  for  information-intensive  organizations  such as banks,
insurance  companies,   financial  service  companies,   retailers,   healthcare
providers, and government agencies. However, the continued expansion of computer
technology  to users'  desktops has resulted in the  development  of many viable
electronic  alternatives to  micrographics,  particularly for applications  that
require frequent document access.  The Company believes that many  organizations
will continue to migrate to electronic  solutions for active records management,
but that over the next few years  micrographics  technology  will continue to be
competitive  in a wide range of  applications.  Over a longer term,  the Company
believes micrographics technology will be viewed predominately as a reliable and
cost-effective method for long-term storage.

         The  Company's  primary  business  strategy is to  capitalize  on these
trends by  leveraging  its document  management  expertise  and its  competitive
strengths to provide newer electronic  products and services,  while maintaining
its leading market  position in COM solutions as well as magnetic media products
and  services.  In  addition,  the Company  plans to expand its  consulting  and
professional  services to better  assist its  customers in  developing  tailored
document management and migration strategies.

Competitive Strengths

Strong Customer Relationships

         Since its inception,  Anacomp has developed long-term relationships (in
excess of five years) with many of its  customers.  Among the Company's  current
long-term customers are Aetna Inc., AT&T Corp., Automatic Data Processing, Inc.,
BankAmerica Corporation, Citicorp, Daimler-Benz AG, Deutsche Bank AG, Electronic
Data Systems Corporation, FMR Corp., General Electric Capital Corporation,  IBM,
Eastman Kodak  Company,  and Travelers  Group Inc. The terms of the  contractual
relationships  with these customers vary;  however,  they typically  provide for
minimum quantities, pricing structure, terms of one or more years, and automatic
renewal.  No single customer accounted for 10% or more of the Company's revenues
in fiscal 1997.

         The Company  believes  that the strength of its customer  relationships
results  from  consistently   meeting  or  exceeding  its  customers'   document
management   needs  and   expectations.   The  Company  manages  these  customer
relationships  through a worldwide sales force of approximately  200 individuals
as well as extensive distributor networks.

Leading Market Shares

         Within the document management industry worldwide, the Company believes
that it is the largest  manufacturer and distributor of COM systems; the largest
provider of COM maintenance  services and supplies;  the second largest provider
of COM services;  the largest  manufacturer of half-inch computer tape products;
and the largest provider of CD output  solutions.  The Company believes that its
market  position and customer base provides the necessary  platform to introduce
new and complementary information management products and services.

Installed Base of Equipment

         The Company  believes it has the world's largest  installed base of COM
equipment, with an estimated market share of 55%. In addition, the Company has a
significant  installed  base of Data/Ware  CD systems.  These  installed  bases,
together with the Company's strong customer  relationships,  provide the Company
with what it believes to be  substantial  recurring  revenues  from  maintenance
services and supplies sales.

Broad Product Offering

         In recent times,  the Company has  introduced new products and services
in order to create a broad product  offering across the entire  information life
cycle.  In  addition  to  enhancing  its   traditional  COM  products   (through
innovations such as  DragonCOM(TM),  a modified COM system capable of processing
Asian languages,  and Image  Direct(TM),  a software  enhancement for processing
images),  the  Company  has  become a premier  provider  of CD output  solutions
through the  development of ALVA CD services and the acquisition of Data/Ware CD
systems. The Company also plans to expand and introduce  complementary  services
related to its  existing  offerings,  including  archival  storage  services and
magnetic media-related services.



<PAGE>



Experienced Management Team

         The Company's  relatively new senior management team is led by Ralph W.
Koehrer,  who became the Company's President in January 1997 and Chief Executive
Officer in May 1997. This management team has more than 300 cumulative  years of
experience  in the  document  management  industry  and is highly  committed  to
executing  the  Company's  new business  strategy.  As the Company  evolves,  it
continues to recruit  managers  from other highly  successful  companies  and to
promote from within where appropriate.

Products and Services

         Anacomp  operates  in a single  industry  generally  known as  document
management,  and it offers a wide range of  products  and  services  within this
industry.  These  solutions  can be  grouped  into five major  families:  output
services,  output  systems,  technical  services,  micrographics  supplies,  and
magnetic media.

         The table  below shows  Anacomp's  revenues  for each of these  product
families  for the last three fiscal  years.  The  information  is presented on a
traditional comparative basis for the year ended September 30, 1996 and 1995, to
facilitate a meaningful comparison to fiscal year 1997. Consequently, the fiscal
1996 and 1995  information  presented  below  does not  comply  with  accounting
requirements  for companies  upon  emergence  from  bankruptcy,  which calls for
separate  reporting  for the  newly  reorganized  Company  and  the  predecessor
company.
<TABLE>
<CAPTION>
                                                            Year Ended September 30,
                                           1997                      1996                       1995
                                                                (Dollars in Thousands)
                                ---------------------------------------------------------------------------------
<S>                                <C>            <C>          <C>            <C>        <C>               <C>
Output Services                    $103,595       22%          $103,733       21%        $132,144          22%
Technical Services                   77,123       17             82,105       17           86,175          15
Output Systems                       36,739        8             32,794        7           51,276           9
Micrographics Supplies              131,615       29            150,449       31          190,621          32
Magnetic Media                      102,823       22            112,187       23          128,353          22
Other                                10,615        2              4,872        1            2,620          --
                                   $462,510      100%          $486,140      100%        $591,189         100%
------------------------------- -------------- ------------ -------------- --------- ---------------- -----------
</TABLE>

Output Services


         The principal output services delivered by Anacomp are COM services and
ALVA CD services,  which are delivered  through the Company's 48 service centers
throughout the world.  Output services are sold by Anacomp's direct sales forces
in the United States,  Canada,  and Europe. The Company recently has acquired or
started  several  small COM and CD service  centers as part of its  strategy  to
increase its market share in specific locations and in the maturing COM services
business. The Company also has introduced, on a modest basis, archival and print
& mail services.

         The  Company  has a large base of output  services  customers  that has
proved to be loyal to the Company in the past. Clients include banks,  insurance
companies,  financial service companies,  retailers,  healthcare providers,  and
government  agencies.  No  one  customer  accounted  for  more  than  10% of the
Company's output services  revenues in fiscal 1997. The typical service contract
is  exclusive,  lasts one year with a one-year  automatic  renewal  period,  and
provides for usage-based  monthly fees,  subject to increase on 30 days' notice.
The Company  believes  that  approximately  75% of the  Company's  COM  services
customers are subject to contracts and that approximately 90% of these contracts
are renewed annually.



<PAGE>



         Competition  for  output  services  customers  traditionally  has  been
limited  to  service  companies  with  operations  within a 50-mile  radius of a
customer,  partially because most customers have required that their information
(usually  stored  on  computer  tape) be  physically  picked  up by the  service
provider and partially  because of the desire for rapid turnaround of the output
media.  This  traditional  model may be  changing,  however,  with the advent of
readily  available data  transmission  capabilities  and the increased  usage of
electronic  desktop delivery  solutions for quick turnaround needs.  Anacomp and
First Image  Management  Company ("First Image") (which the Company believes has
approximately  50 output  service  centers  in the  United  States)  are the two
largest  national  output  services  providers.  The  remainder of the market is
served by regional or local output service centers.

         COM Services. COM services,  the delivery of micrographics  outsourcing
services,  represents the largest  component of Anacomp's output  services.  The
Company believes that COM services providers processed over 45 billion images in
1995, generating over $350 million in revenues. The Company believes it holds an
estimated 25% to 30% market share, second only to First Image.

         On a daily  basis,  Anacomp's  service  centers  receive  thousands  of
computer tapes and,  increasingly,  electronic  downloads from  customers.  This
information  (both text and  graphics)  is  converted  to 16mm  microfilm  or to
microfiche,  which is a four by six-inch  film  medium  capable of storing up to
1,000 pages of computer output. Turnaround for a typical COM services job ranges
from  two  hours  to  36  hours,   depending  on  specific   circumstances   and
requirements,  and the centers generally operate 24 hours a day every day of the
year.

         In response to a gradual  decline in the market for COM  services and a
more competitive  market, in fiscal 1995 the Company  completed  installation of
XFP2000 COM systems in all of its service centers,  increasing the efficiency of
COM  production.  Additionally,  the Company has upgraded  many of these systems
with Anacomp-developed emulation software for IBM and Xerox laser print streams,
expanding the potential  market for COM services and resulting in higher average
prices than for other COM output.

         As  an  adjunct  to  COM  services,   Anacomp  also  provides  External
Facilities  Management  ("XFM")  services  to selected  customers.  Under an XFM
arrangement,  Anacomp  operates  and  manages a  customer's  COM  production  at
Anacomp's facilities.

         ALVA CD Services.  Although still a relatively  small percentage of the
Company's revenues, Anacomp quickly has become a significant provider of digital
output services since entering this emerging market in fiscal 1995.  Competition
in this  industry is highly  fragmented,  and Anacomp  believes it is the second
largest U.S. provider of CD output services.

         Anacomp's CD services  provide  customers with a high-capacity  storage
and  delivery   solution  for  applications   requiring   frequent,   high-speed
information retrieval.  Customer documents, such as invoices and statements, are
indexed and stored on recordable  compact discs (known as  CD-Recordable or CD-R
discs.) In  addition  to indexed CD  output,  ALVA also  includes  sophisticated
Windows  NT-based  software  for  accessing  and  retrieving  the data.  ALVA is
available at the majority of the Company's  service centers in the United States
and at selected locations internationally.

         The Company believes that its ALVA solution has significant  advantages
over  competing  products,  primarily  due to the  Company's  network of service
centers,  its extensive  knowledge of applications and indexing  expertise,  and
ALVA's  flexible  and  easy-to-use  user  interface.   In  addition,   Anacomp's
acquisition  of Data/Ware  provides an  opportunity  for the Company to create a
"best-of-breed" product that further extends ALVA's value in the marketplace.

         Archival and Print &Mail Services.  Anacomp  provides  archival storage
services at several of its service  centers in the United States,  providing for
the  long-term  storage of original  microfilmed  records  for its COM  services
customers. The media is stored in a secure vault within the facility,  providing
customers  with a  convenient  and safe method of  off-site  storage of critical
business records. In addition,  Anacomp offers customers the ability to retrieve
their records on an as-needed basis.

         Anacomp  also offers the storage of other  media  (including  paper and
computer  tape)  at  an   underground,   climate-controlled   storage  vault  in
Massachusetts acquired in October 1996 from Archive Storage, Inc. As a result of
this acquisition,  the Company also acquired expertise in records management and
disaster  recovery  consulting  services,  which helps customers ensure they are
storing  the  right  information  on  the  most  cost-effective  media  for  the
appropriate periods of time.

         Anacomp offers limited print & mail services - for paper documents such
as  invoices  and  statements  --  to  its  customers  through  a  Company-owned
print-and-mail  service center in Europe as well as through  relationships  with
third party providers.

         The Company does not believe it has significant market shares in either
archival storage services or Print & Mail services.

Technical Services

         Anacomp   provides   round-the-clock   maintenance   services   through
approximately 400 highly trained service employees in the United States, Canada,
and Europe. Internationally, some of these services may be provided by employees
of the Company's distributors.

         The  Company  believes  that  it  maintains  virtually  all of its  own
installed  base of COM  systems,  as well as a large  percentage  of COM systems
built by other companies. In addition, the Company provides maintenance services
for other  micrographics-related  devices and,  increasingly,  non-micrographics
equipment.  Since many  customers  tend to use the  maintenance  services of the
supplier that installed the system, maintenance revenues traditionally have been
a function of new COM system sales and the size of the installed  base.  Anacomp
believes  that its COM  maintenance  market  share is  approximately  65% in the
United  States,  50% in Europe,  and 15% in the Americas  (excluding  the United
States) and Asia.

         As sales of COM systems mature,  the Company's  strategy is to leverage
its maintenance  infrastructure by expanding the technical  services it provides
for non-micrographics  equipment.  Recent additions to the Company's maintenance
base  include  tape drives and  automated  tape  libraries,  tape  cleaning  and
conversion equipment, and optical storage systems (jukeboxes). The Company added
maintenance of high-speed laser printers to its offering with the acquisition of
a small laser printer maintenance provider in December 1997.

         Recently,  the  Company  has  identified  professional  and  consulting
services as potential  growth areas. The Company's  business  strategy calls for
professional  services to be offered as an adjunct to Company-provided  products
and services and for consulting  services to be a stand-alone  business offering
customers a sophisticated level of guidance about document management strategies
and solutions.

Output Systems

         The  principal  output  systems  products  delivered by Anacomp are COM
systems; CD systems;  and COLD, imaging, and report distribution  software.  The
Company  sells  these  products  through its direct  sales  forces in the United
States,  Canada, and Europe and through  distributors in Latin America,  Europe,
and Asia. No single customer accounted for more than 10% of the Company's output
system sales in fiscal 1997.

         COM  Systems.   Anacomp  is  the  world's  leading   manufacturer   and
distributor  of  COM  systems,  offering  a  complete  line  of  COM  recorders,
duplicators,  sorters,  and related  software.  Anacomp's  installed base of COM
systems,  approximately  55% of those in use  worldwide,  is more than  twice as
large as its nearest competitor,  and related sales of COM services and supplies
to the installed base provide significant recurring revenues.

         The  Company's  XFP2000 is the most advanced COM recorder on the market
and has enabled the Company to capture what it believes to be an  estimated  57%
of all new COM systems sold or leased.  The XFP2000 is faster and more  reliable
than  previous  COM  recorders  and,  through  its  laser  technology,  has  the
capability to generate  precise  reproductions of any image. The Company sold or
leased 135 new and used XFP2000 systems in fiscal 1997,  compared to 122 systems
in fiscal 1996.

         In fiscal 1996, Anacomp introduced DragonCOM,  a version of the XFP2000
for the Asian market, which is capable of processing Chinese, Korean, Taiwanese,
Japanese  and  other  ideographic   languages  utilizing  the  popular  IBM  AFP
architecture. The Company is marketing DragonCOM to customers in Asia through an
agreement with the Asia-Pacific  region of the Eastman Kodak Company  ("Kodak").
Through the end of fiscal 1997, Kodak had purchased 11 DragonCOM systems and had
a remaining commitment to purchase 39 additional DragonCOM systems over the next
three years.

         Anacomp also has  developed  and  currently  markets  several  software
enhancements to the XFP2000, including products that emulate IBM and Xerox laser
print  streams.  AFP software,  developed in conjunction  with IBM,  enables the
XFP2000 to process and image AFP formatted  data streams used by IBM  high-speed
mainframe  laser  printers.  XCF software,  developed in partnership  with Xerox
Corporation,  enables  the XFP2000 to process the same data stream used by Xerox
high-speed, high-volume laser printers. In addition, Anacomp recently introduced
its Image Direct  application  for the XFP2000,  which  enables  users to output
document  images  directly to microfilm from desktop  workstations.  The initial
release of Image Direct supports TIFF images,  the most popular bitmap format in
use today; additional format compatibility is expected in future releases.

         Principal   customers   for   the   Company's   COM   systems   include
information-intensive   organizations  such  as  banks,   insurance   companies,
financial service companies,  retailers,  healthcare  providers,  and government
agencies, as well as non-Anacomp COM service centers.  While the majority of COM
systems are sold outright,  customers are increasingly  selecting  leasing plans
and monthly usage options.

         In international  markets, the Company sells COM systems through wholly
owned  operating  subsidiaries  and, in  countries in which the Company does not
have a  subsidiary,  through  dealers  and  agents.  In 1994,  Kodak  became the
Company's  exclusive  distributor  in Asia (other  than  Japan) and  Australia..
International sales accounted for approximately 52% of the Company's fiscal 1997
COM System  revenues,  with sales in Asia,  Germany  and France  accounting  for
approximately  17%, 10% and 10%,  respectively;  however,  no single country was
responsible for 10% or more of the Company's total revenues in fiscal 1997.

         The  Company's  primary  competitors  in the  sale of COM  systems  are
Agfa-Gevaert AG ("Agfa") and Micrographic  Technology  Corporation.  The Company
believes that it sells  approximately 57% of all new COM systems sold worldwide,
including  those sold through its OEM  arrangement  with Kodak.  Competition  is
based  principally  on product  features,  as well as on such factors as product
quality,  service, and price. The Company's large installed base is an important
competitive advantage in the sale of new COM systems,  because changing from one
manufacturer's COM system to another is difficult due to software conversion and
operator training costs.

         CD Systems.  Anacomp became a leading provider of CD output systems for
mainframe and  client/server  computer  environments  through its acquisition in
fiscal  1997 of  Data/Ware.  The  Company's  flagship  Data/Ware  products,  the
Enterprise Authoring System ("EAS") and the  Server/Enterprise  Authoring System
("S/EAS"),  provide  companies with in-house  solutions for the highly automated
output of documents to CDs.

         The  Company's  CD output  systems  are sold by its direct  sales force
worldwide and also by distributors in Europe,  Latin America,  and Asia. Because
of the  similarity  between the Company's CD and COM systems  relating to target
markets, applications, and sales cycle, the Company believes it can leverage its
extensive  COM  knowledge  and customer  relationships  to increase  sales of CD
systems. In addition,  the Company intends to begin maintenance services for its
Data/Ware CD systems, creating a recurring revenue stream for installed units.

         The Company's primary  competitors in the sale of high-volume CD output
systems are Young Minds,  Inc.,  Rimage  Corporation,  and, to a lesser  extent,
Kodak.  Kodak's product  primarily  competes in mid-range  applications.  In the
high-volume CD system market,  the Company believes that it and Young Minds have
the largest market shares. The Company also has a significant  installed base of
CD output systems.



         Electronic Delivery Solutions.  Anacomp is working actively to bring to
market a wide range of electronic delivery solutions.  The Company provides COLD
and imaging  solutions  through its recent  acquisition of Com-informatic -- the
leading COM services  provider in  Switzerland  and also a developer of advanced
COLD and  imaging  products - as well as through a reseller  arrangement  in the
United States.

         The Company also markets an integrated  system for document  management
which is sourced  from a third party  under the brand names  Folders and EOS (an
acronym for enterprise output systems). Launched by the Company in 1995, Folders
and EOS provide  document  management  solutions  for  mainframe/host  computing
environments  that  allow   organizations   with  significant   document  access
requirements to expedite retrieval regardless of the document's location. As the
name indicates,  Folders is software that creates  electronic  document folders,
allowing users to organize and store electronic documents.  EOS provides for the
storage and distribution of electronically generated reports (often voluminous),
thereby  enabling users to avoid paper storage of such reports and to distribute
all or selected portions of reports throughout an organization.

         In  addition,  the Company  recently  purchased  Cambridge  Technology,
developers of SPAR(TM) (Securities,  Processing,  Accounting and Reporting),  an
advanced   securities-related    accounting   software   application   for   the
international  trust/custody  market.  The Company believes that it can increase
sales of SPAR by leveraging its global sales and support  infrastructure as well
as its extensive experience and contacts with financial  customers.  The Company
plans to  purchase  other  software  applications  synergistic  with its current
business as opportunities arise.

         Although  there  are  numerous  competitors   providing  a  variety  of
electronic delivery solutions, the Company believes it can be among the first to
offer a complete  range of  solutions - both analog and digital that address all
of a customer's document management needs.

Micrographics Supplies

         Anacomp sells the most comprehensive line of micrographics  supplies in
the world,  including original silver halide film, duplicate film, chemicals for
microfilm processing, paper and toners for reader/printers,  micrographics lamps
and bulbs,  and other  consumables.  These  products are sold through  Anacomp's
direct sales forces and through distributor channels.

         The  Company  also  markets  a  complete  line of  microfilm/microfiche
readers. Many of these products have become only marginally profitable in recent
years. To increase  profitability,  the Company signed an agreement to outsource
the  manufacture  of readers  and  reader/printers  beginning  in fiscal 1996 as
demand and margins for these products  continued to decline.  Additionally,  the
Company  ceased  production  of its DS 300  reader/scanner  in fiscal 1996 after
completing a build-out of inventory.  These decisions  resulted in a significant
one-time write-off in fiscal 1995. However, the Company continues to offer these
types of products to its customers on a reseller basis.

         The Company supplies  proprietary wet and dry original halide film used
in its XFP series of COM systems and  proprietary  wet and dry  original  halide
film for its  X-series,  an earlier  generation  of  Anacomp  COM  systems.  All
original microfilm for the Company's COM systems is manufactured for the Company
by Kodak under an exclusive supply agreement in what the Company considers to be
a proprietary  package. The Company believes it can maintain its market share of
XFP2000 film sales going forward because of the complexity of the  manufacturing
process, the Company's patents on its proprietary  canister,  and the industry's
interest in other segments of the film business.

         Anacomp is the world's largest supplier of duplicate  microfilm,  which
is used to create  one or more  additional  copies of  original  microfiche  and
microfilm  masters.  The Company  believes that its share of this  estimated $75
million  worldwide market is approximately  67%, which includes sales to its own
output centers.  Anacomp's primary competitor in the duplicate  microfilm market
is Rexham Graphics Ltd. ("Rexham"), with an estimated 25% share of the worldwide
duplicate  film  market.  For  fiscal  1997,  the  Company  believes  that Kodak
accounted for  approximately 32% and First Image accounted for approximately 12%
of the Company's shipments of duplicate microfilm.

         The Company sells original  microfilm for Anacomp's COM systems and for
other  manufacturers'  COM  systems,   with  film  sold  for  Anacomp's  systems
representing the vast majority of original microfilm sales. The Company competes
in sales of non- proprietary  original COM microfilms with other  manufacturers,
including  Agfa,  Fuji Photo Film  U.S.A.,  Inc.  ("Fuji"),  Kodak,  and Imation
Corporation ("Imation"),  formerly part of 3M. For non-OEM sales of the XFP2000,
the  Company is the  exclusive  supplier of  original  microfilm  because of the
proprietary nature of the canister in which the film is placed. Anacomp believes
that it sells its consumable supplies directly to more than 90% of its worldwide
installed  base. In fiscal 1996,  the Company  acquired the assets of one of its
competitors,  COM  Products,  Inc.  ("CPI"),  providing  the Company with a more
diverse  customer  base.  In fiscal  1997,  the Company  acquired  the assets of
Comstor  Technology,  Inc., a provider of spare parts,  refurbished COM systems,
and supplies for the COM marketplace.

         International  sales in fiscal 1997  accounted for 43% of the Company's
total micrographics  supplies revenues.  In international  markets,  the Company
offers supplies through wholly owned operating subsidiaries and, in countries in
which the Company does not have a subsidiary, through a network of distributors.
Anacomp  believes  that it has an estimated  33% of the  micrographics  supplies
market in Europe and an  estimated  39% of the  supplies  market in the Americas
(excluding  the United  States)  and Asia.  In  Europe,  the  Company's  primary
competitors  for  micrographics  supplies and equipment are the Kalle  Microfilm
Division of Hoechst AG, A. Messerli AG, and Rexham.
Its primary competitors in Japan are Kodak and Fuji.

Magnetic Media

         Anacomp manufactures,  sells, and distributes a broad range of magnetic
media products such as open reel tape;  3480,  3490E,  and 3590 tape cartridges;
DLT tape cartridges;  TK 50/52  CompacTape;  quarter-inch,  4mm, and 8mm back-up
tape cartridges; and voice logging and instrumentation tape.

         The Company is the world's  largest  manufacturer  of chromium  dioxide
half-inch tape products (open reel tape, 3480, 3490E, and TK 50/52), widely used
by organizations  for the near-line and off-line storage of business data. These
products are manufactured at Company  facilities in Graham,  Texas and Brynmawr,
Wales. The Company is developing partnerships to enable it to participate in the
next  generation  of  magnetic  media  products,  particularly  half-inch  metal
particle tape (3590 cartridges), and it plans to make modest investments in this
area.  The Company also plans to expand the magnetic media services it offers to
its customers; such services include labeling, initialization, library planning,
media cleaning and conversion, and disaster recovery.

         Anacomp sells its magnetics  products  through a worldwide  distributor
network and, to a lesser  extent,  through parts of the  Company's  direct sales
force. The Company markets these products under the Memorex,  Dysan, Graham, and
StorageMaster brand names, and it also is a leading OEM for many of the magnetic
media products it manufactures.

         The  Company  has  leading  manufacturing  and  market  shares  for the
products it makes.  The Company has no significant  competitors  with respect to
the  manufacture of open reel tape, and its worldwide  manufacturing  and market
shares for 3480 and 3490E cartridges are estimated at 38% and 35%, respectively.
The Company's  major  competitors  for half-inch tape cartridges are Imation and
Emtech Magnetics GmbH (formerly BASF Magnetics GmbH).

Engineering, Research, and Development

         Anacomp's engineering costs,  including research and development,  were
$4.8  million in fiscal  1997,  compared to $3.7 million in fiscal 1996 and $2.2
million in fiscal 1995. The Company expects its current research and development
efforts to increase as it introduces new electronic and applications  solutions.
Costs  associated  with these efforts will be tempered by the Company's  plan to
acquire the rights to core technologies whenever possible.



         Major  projects in fiscal 1997 included the  substantial  completion of
the Company's  DragonCOM  system,  a version of the XFP2000 for the Asian market
that is capable of  processing  double-byte  ideographic  languages;  efforts to
improve the speed and expand the  functionality  of the  Company's  Image Direct
bitmapping   initiative;   continued  development  of  the  Company's  "Pegasys"
initiative to automate the  Company's  service  centers and to develop  advanced
transmission  capabilities for these centers;  uncompleted  efforts to develop a
customer service  application;  and various  engineering  efforts inherited as a
result  of the  Company's  acquisition  of  Data/Ware  including  research  into
emerging DVD technology as it relates to document storage.

         The Company owns various patents and licenses  covering  aspects of its
product line and its production  processes,  as well as proprietary trade secret
information  relating to its products and services.  While the Company  believes
that  the  protection  provided  by these  patents,  licenses,  and  proprietary
information  is  important,  it also believes  that equally  significant  is the
knowledge and  experience  of its  employees and their  abilities to develop and
market the Company's products and services and to provide  value-added  benefits
to customers.

Raw Materials and Suppliers

         Polyester is the principal raw material used in the manufacture of both
microfilm and magnetic media products.  Costs for polyester  remained  generally
stable in fiscal  1997,  as a result of a relative  balance  between  supply and
demand.  There  can be no  assurance,  however,  that  the  current  trend  will
continue.

           SKC America, Inc. and SKC Limited (collectively,  "SKC") is Anacomp's
sole supplier of duplicate microfilm,  the result of a ten-year supply agreement
between  the  companies  entered  into in 1993 as  part  of  SKC's  purchase  of
Anacomp's  Sunnyvale,   California  duplicate  microfilm  facilities.  SKC  also
provides  Anacomp with  polyester for a large  percentage of its magnetic  media
products.  In connection with the supply  agreement,  SKC also provided  Anacomp
with a $25 million  trade credit  facility,  which was reduced to $15 million in
fiscal 1997, secured by up to $10 million of products sold to Anacomp by SKC. In
addition,  under an amendment to the supply agreement  executed in 1996, Anacomp
agreed to certain price  increases,  retroactive to 1994, and agreed to make the
following  deferred  payments to SKC related to the retroactive price increases:
$400,000 paid in 1997;  $600,000 due in 1998; $800,000 due in 1999; $800,000 due
in 2000; and $1,000,000 due in 2001.

         Pursuant  to the SKC  agreement,  the Company is required to purchase a
substantial  portion  of its  polyester  requirements  for  its  magnetic  media
products.  While the Company could purchase certain of these magnetics polyester
products  from  vendors  other than SKC,  SKC  currently  is the sole source for
polyester  used by the Company to  manufacture  many  magnetic  media  products,
including open reel tape.

         Anacomp's XFP2000 COM system utilizes a proprietary,  patented original
film  canister,  and  the  original  film  used  in that  canister  is  supplied
exclusively by Kodak. Anacomp also purchases from Kodak substantially all of its
requirements  for  original  microfilm  for   earlier-generation  COM  recorders
manufactured  by Anacomp and others,  although the Company has from time to time
purchased  original  microfilm  utilized in those older COM recorders from other
suppliers.

Industry Segments & Foreign Operations

         As  discussed  in  Note 1 to  the  consolidated  financial  statements,
Anacomp operates in a single business segment -- providing equipment,  supplies,
and  services  for  document  management,  including  storage,  processing,  and
retrieval.   Financial  information   concerning  the  Company's  operations  in
different  geographical  areas  is  included  in  Note  21 to  the  consolidated
financial statements.




<PAGE>



ITEM 2.  PROPERTIES

         Anacomp maintains  corporate offices in Carmel,  Indiana  (metropolitan
Indianapolis) and in Poway, California  (metropolitan San Diego).  Micrographics
manufacturing,  engineering, customer service, marketing and product maintenance
facilities   are  all  located  in  Poway,   California.   Anacomp's   magnetics
manufacturing  facilities are located in Graham, Texas and Brynmawr,  Wales. All
of Anacomp's  facilities  have received  international  recognition  for quality
standards,   earning   International   Standards   Organization   ("ISO")   9002
certification.

         The  following   table   indicates  the  square  footage  of  Anacomp's
facilities:
<TABLE>
<CAPTION>

                                    OPERATING              OTHER              CORPORATE
                                   FACILITIES           FACILITIES           FACILITIES              TOTAL
United States:
------------------------------
<S>                                    <C>                   <C>                  <C>                 <C>    
    Leased.................            646,032               90,953               47,127              784,112
------------------------------
    Owned..................            147,420               15,630                ----               163,050
                                       -------               ------           ----------              -------
------------------------------
                                       793,452              106,583               47,127              947,162
                                       -------              -------               ------              -------
------------------------------
International:
------------------------------
    Leased.................            121,870               29,410                 ----              151,280
------------------------------
    Owned..................            137,853                 ----                 ----              137,853
                                       -------           ----------           ----------              -------
------------------------------
                                       259,723               29,410                 ----              289,133
                                       -------               ------           ----------              -------
------------------------------
      Total................          1,053,175              135,993               47,127            1,236,295
                                     =========              =======               ======            =========

</TABLE>

         Other  Facilities  consist  primarily  of  leased  space  of  abandoned
facilities.  Approximately 122,908 square feet of the Other Facilities have been
sublet to others.  Anacomp also leases  standard  office space for its sales and
service  centers in a variety of locations.  Anacomp  considers  its  facilities
adequate for its present needs and does not believe that it would experience any
difficulty  in  replacing  any of its present  facilities  if any of its current
agreements were terminated.

         During October 1997 the Company  re-negotiated a significant  lease for
its Poway, California facility.  Pursuant to the amended lease, the Company will
expand the space it currently  occupies  (approximately  170,000 square feet) to
include the entire facility  (333,485  square feet).  The new lease is effective
January 1, 1998, and has an initial term of ten years,  at the end of which time
it may be renewed for successive five-year terms. As discussed in Note 24 to the
Consolidated  Financial Statements the expanded space will primarily be utilized
for  the   consolidation/relocation  of  the  Company's  Indianapolis,   Indiana
corporate offices.


ITEM  3. LEGAL PROCEEDINGS

         The Company and its  subsidiaries  are potential or named defendants in
several  lawsuits and claims arising in the ordinary  course of business.  While
the outcome of such claims,  lawsuits or other  proceedings  against the Company
cannot be predicted with certainty,  management expects that such liability,  to
the extent not provided  for through  insurance  or  otherwise,  will not have a
material adverse effect on the financial statements of the Company.

         In the section  entitled  Management's  Discussion  and Analysis of the
Results  of  Operations  and  Financial  Condition,  Legal  Proceedings,  of the
Prospectus included in the Company's  Registration  Statement on Form S-4, filed
on April 16, 1997 (file number  333-25281),  the Company  described  three legal
proceedings to which it was then a party:  (1) the "DTSC  Matters,"  pursuant to
which the California  Department of Toxic Substances  Control and the California
Regional  Water Quality  Control Board,  San Francisco Bay Region,  sought civil
penalties and injunctive  relief  against the Company for alleged  environmental
law violations with respect to Anacomp's  Sunnyvale,  California  facility,  and
sought to impose certain  clean-up  obligations upon the Company with respect to
such  facility;  (2) the "Customs  Claim,"  pursuant to which the United  States
Customs Service  ("Customs")  sought the repayment of what Customs believed were
duty  drawback  claims  improperly  refunded to Anacomp;  and (3) the  "Contract
Claim," pursuant to which Smith Barney,  Inc. ("Smith Barney") sought additional
fees from the Company which Smith Barney  allegedly  earned for services that it
provided in connection with Anacomp's financial  restructuring period. All three
of these matters have now been settled to the satisfaction of the Company, which
settlements did not have a material adverse affect on its financial statements.




ITEM 4.  SUBMISSION OF MATTERS TO A  VOTE OF SECURITY HOLDERS

         No matters were submitted  during the three months ended  September 30,
1997,  to a vote of  Anacomp's  security  holders  through the  solicitation  of
proxies or otherwise.

EXECUTIVE OFFICERS OF THE REGISTRANT

         The  current  executive  officers  of the  Company,  their  ages (as of
Decemer 19, 1997) and positions are listed below:
             NAME                   AGE      POSITION
Ralph W. Koehrer                     52      President, Chief Executive Officer
                                              and Director
Donald L. Viles                      51      Executive Vice President and Chief
                                              Financial Officer
William C. Ater                      57      Senior Vice President,
                                              Chief Administrative Officer 
                                              and Secretary
Jeffrey R. Cramer                    44      Senior Vice President and 
                                              General Manager - 
                                              Technical Services Cluster
Ray L. Dicasali                      49      Senior Vice President and 
                                              Chief Technology Officer
George C. Gaskin                     38      Senior Vice President 
                                              and General Counsel
Mary Jane Grinstead                  47      Senior Vice President and 
                                              General Manager - 
                                              North America West
Richard V. Keele                     48      Senior Vice President and 
                                              General Manager - CDS Cluster
Stephen C. Manske                    52      Senior Vice President, COFI Cluster
Kevin M. O'Neill                     43      Senior Vice President, 
                                               Business Development and Strategy
Gary M. Roth                         55      Senior Vice President and 
                                               General Manager - 
                                               Magnetics Cluster
T. Randy Simmons                     50      Senior Vice President and 
                                               General Manager - CED Cluster
Emery E. Skarupa                     45      Senior Vice President, 
                                               Manufacturing and Materials
Donald W. Thurman                    51      Senior Vice President and 
                                               General Manager - 
                                               North America East
Peter Williams                       45      Senior Vice President and 
                                               General Manager - 
                                               International Group
Jeffrey S. Withem                    38      Senior Vice President, 
                                               Communications
Thomas L. Brown                      41      Vice President and Treasurer
K. Gordon Fife                       52      Vice President - Tax

<PAGE>

         The business  experience  of each  executive  officer for the past five
years is described  below.  Each executive  officer is elected for a term of one
year and holds office until his  successor is chosen and  qualified or until his
death, resignation or removal.

         Ralph W.  Koehrer  was elected  Chief  Executive  Officer and  Director
(effective  May 1, 1997) on April 29, 1997 and President  (effective  January 6,
1997) on December 10, 1996.  Prior to joining the Company,  Mr. Koehrer was with
Automatic  Data  Processing,  Inc.  ("ADP") for eleven  years,  most recently as
Corporate  Vice  President  of ADP and as  President  of ADP's  Information  and
Processing Services division.

         Donald  L.  Viles  was  elected  Executive  Vice  President  and  Chief
Financial  Officer  effective March 1, 1996. From October 1985 to March 1996, he
served as Vice President and Controller.

         William C. Ater was elected  Senior Vice  President  on August 13, 1997
and Chief  Administrative  Officer in February  1988. He has served as Secretary
since March 1985.



         Jeffery R. Cramer was elected Senior Vice President and General Manager
- Technical  Services  Cluster on August 13, 1997.  Mr. Cramer joined Anacomp in
July 1996 with the Company's  acquisition  of Com Products,  Inc.  ("CPI"),  and
served as Senior Vice  President-Business  Development  from  February to August
1997.  Prior to joining  Anacomp,  Mr. Cramer had served as President of CPI for
more than the past five years.

         Ray L. Dicasali was elected Senior Vice President and Chief  Technology
Officer on June 3, 1996.  From 1993 to 1996, Mr.  Dicasali served as Senior Vice
President of Technology and Chief  Information  Officer of Flexel.  From 1989 to
1993, Mr.  Dicasali was Senior Vice President and Chief  Information  Officer of
Dun and Bradstreet Software.

         George C. Gaskin was elected Senior Vice President, General Counsel and
Assistant Secretary on November 17, 1997 after serving as Vice President - Legal
and Assistant Secretary since June 1996. From July 1990 to June 1996, Mr. Gaskin
served as Corporate Counsel and Assistant Secretary.

         Mary Jane  Grinstead  was  elected  Senior Vice  President  and General
Manager - North  America  West on  November  17, 1997 after  joining  Anacomp as
Senior  Vice  President  - U.S.  West on August  13,  1997.  Ms.  Grinstead  was
previously  Senior Vice  President of  Distribution  and Operations for Ardis, a
subsidiary of Motorola Corp., for more than the past five years.

     Richard V. Keele was elected  Senior Vice  President and General  Manager -
CDS Cluster on August 13, 1997.  Mr.  Keele joined  Anacomp in January 1997 with
the Company's  acquisition of Data/Ware,  and was elected  President - Data/Ware
Group on February 3, 1997.  Mr.  Keele had  previously  served as  President  of
Data/Ware for more than five years.

         Stephen C. Manske was elected  Senior Vice  President,  COFI Cluster on
November 17, 1997. Mr. Manske had  previously  served as Senior Vice President -
Business  Development  from June 1996 to August 1997.  Prior to that, Mr. Manske
was Vice  President - Emerging  Technologies  from August 1993 to June 1996, and
Director, Advanced Technology Development from July 1989 to August 1993.

         Kevin  M.  O'Neill  was  elected   Senior  Vice   President,   Business
Development  and  Strategy  on August  13,  1997 after  serving  as Senior  Vice
President - Global Marketing since June 1996. Mr. O'Neill had previously  served
as Vice  President - Global  Marketing  from 1995 until June 1996.  From 1994 to
1995, Mr. O'Neill  served as Vice  President of Marketing,  Strategic  Resellers
Group.  Prior to joining the Company,  Mr.  O'Neill  served as Senior  Director,
Marketing & Product Development for Fujitsu-ICL Systems, Inc. from 1982 to 1994.

         Gary M. Roth was elected  Senior Vice  President and General  Manager -
Magnetics   Cluster  on  November   17,  1997  after   serving  as  President  -
International  Group since  October  1995.  Previously,  Mr. Roth served as Vice
President -  Americas/Asia  Division from November 1992 to September  1995. From
October 1991 to October 1992, he served as Manager - LAAP/Canada Operations.

         Thomas R. Simmons was elected Senior Vice President and General Manager
- CED Cluster on August 13, 1997 after  serving as President - U.S.  Group since
October 1995.  Previously,  Mr. Simmons served as Vice  President,  Direct Sales
Division - East from November 1994 to September  1995.  Prior to that, he served
as Vice President  Information  Systems  Division from November 1991 to November
1994.

         Emery  Skarupa was elected  Senior Vice  President,  Manufacturing  and
Materials on August 13, 1997. Mr. Skarupa joined the Company in November 1993 as
Director of Purchasing and was promoted to Vice President of Materials in May of
1996. Prior to joining Anacomp,  Mr. Skarupa served as Director of Materials for
Abex Aerospace, a division of Abex Corp., from January 1991 to November 1993.



         Donald W. Thurman was elected Senior Vice President and General Manager
- North  America East on November 17, 1997.  Mr.  Thurman  served as Senior Vice
President - U.S.  East from August 13, 1997 to November 17, 1997,  and as Region
Vice President - U.S. Group from October 1996 to August 13, 1997.  From November
1993 to October  1995,  Mr.  Thurman was Senior Vice  President of Marketing and
Business  Development  for First  Image.  He served as  General  Manager  of The
Software Factory from January to November 1993 and previously served as a Senior
Vice President of the Company from January 1990 to January 1993.

         Peter Williams was elected Senior Vice President and General  Manager -
International  Group on November 17, 1997 after serving as President - Magnetics
Group since October 1995.  Previously,  he served as General Manager - Magnetics
European Group from 1993 to September  1995.  Prior to that, he served from 1990
to 1993 as Vice President, Wales Operations - Magnetics.

         Jeffrey S. Withem was elected Senior Vice President,  Communications on
August 13, 1997 after serving as Vice President, Planning and Communications and
Chief of Staff since June 1996. Mr. Withem was Vice President Strategic Planning
and Corporate  Communications from October 1995 to June 1996. From 1993 to 1995,
Mr. Withem  served as Vice  President - Marketing,  for the Company's  Magnetics
Group.  Prior to that,  he was  Marketing  Communications  Manager for Worldwide
Marketing for the Company from 1990 to 1992.

         Thomas L. Brown was elected  Vice  President  and  Treasurer on May 19,
1996. From January 1995 to April 1996, Mr. Brown served as Corporate  Controller
of Hurco  Companies,  Inc. Mr.  Brown had  previously  served as Assistant  Vice
President - Financial Reporting and Analysis for the Company from March 1991.

         K. Gordon Fife was elected Vice President - Tax in October 1985.



<PAGE>


PART II

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

         Market, holder and dividend information concerning the Company's common
stock appears on page A-3 of this Annual Report on Form 10-K.

ITEM 6.  SELECTED FINANCIAL DATA

         Selected  financial  data appears on page A-2 of this Annual  Report on
Form 10-K.


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

         Management's discussion and analysis of financial condition and results
of operations appears on pages A-4 to A-10 of this Annual Report on Form 10-K.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Financial statements and supplementary  financial information appear on
pages A-11 to A-43 of this Annual Report on Form 10-K.

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

         There are no changes in or disagreements with accountants on accounting
and financial disclosures.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Company hereby incorporates by reference the information  contained
under the headings "Election of Directors" and "Compliance with Section 16(a) of
the  Securities and Exchange Act of 1934" from its  definitive  Proxy  Statement
(hereinafter,  the "Proxy Statement") to be delivered to the shareholders of the
Company in connection  with the 1998 Annual Meeting of  Shareholders  to be held
February 10, 1998.  Certain  information  relating to executive  officers of the
Company appears on pages 14 through 16 hereof.

ITEM 11.  EXECUTIVE COMPENSATION

         The Company hereby incorporates by reference the information  contained
under the heading "Executive Compensation" in the Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                    MANAGEMENT

         The Company hereby incorporates by reference the information  contained
under the heading "Security Ownership of Management and Other Beneficial Owners"
in the Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         There  are  no  relationships  or  related  transactions  that  require
disclosure.


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

(a)           1. The following financial statements and other information appear
              in Appendix A to this Annual  Report on Form 10-K and are filed as
              a part hereof:


         Selected Financial Data.
         Market Price and Dividend Information.
         Management's Discussion and Analysis of Financial Condition and
              Results of Operations.
         Report of Independent Public Accountants.
         Consolidated Balance Sheets - September 30, 1997 and 1996.
             Consolidated   Statements  of  Operations  -  Twelve  Months  Ended
             September 30, 1997,  Four Months Ended  September  30, 1996,  Eight
             Months Ended May 31, 1996,  Twelve Months Ended September 30, 1995.
             Consolidated  Statements  of  Cash  Flows  -  Twelve  Months  Ended
             September 30, 1997,  Four Months Ended  September  30, 1996,  Eight
             Months Ended May 31, 1996,  Twelve Months Ended September 30, 1995.
             Consolidated  Statements  of  Stockholders'  Equity - Twelve Months
             Ended  September  30, 1997,  Four Months Ended  September 30, 1996,
             Eight Months Ended May 31, 1996,  Twelve Months Ended September 30,
             1995.
         Notes to Consolidated Financial Statements.

      2. Financial  Statement Schedules are not filed with this Annual Report on
         Form 10-K because the Schedules are either inapplicable or the required
         information is represented in the financial
statements or notes thereto.

(b)      Reports on Form 8-K:

         During the quarter ended  September  30, 1997,  and prior to filing its
         Annual Report on Form 10-K, Anacomp filed no reports on Form 8-K.


(c)      The  following  exhibits are filed with this Annual Report on Form 10-K
         or  incorporated  herein by reference to the listed document filed with
         the Securities and Exchange  Commission.  Previously  unfiled documents
         are noted with an asterisk (*):

(2)       Changes in Securities:

         Third Amended Joint Plan of  Reorganization  of the Company and certain
         of its  subsidiaries,  incorporated  by reference to the Company's Form
         8-A filed on May 15, 1996 (File No. 0-7641).



<PAGE>



(3)      Articles of Incorporation and Bylaws:

         a)   The Amended and Restated Articles of  Incorporation,  incorporated
              by  reference  to the  Company's  Form 8-K filed on June 19,  1996
              (File No. 1-8328).

         b)   The Amended and Restated Bylaws,  incorporated by reference to the
              Company's Form 8-K filed on June 19, 1996 (File No. 1-8328).

(4) Instruments defining the rights of security holders, including indentures:

         (a)  Warrant  Agreement,  dated as of June 4, 1996, between the Company
              and  ChaseMellon  Shareholder  Services,  L.L.C.,  incorporated by
              reference to the  Company's  Form 8-K filed on June 19, 1996 (File
              No. 1-8328).

         (b)  Indenture, dated as of March 24, 1997, between the Company and IBJ
              Schroder  Bank  &  Trust  Company,  as  trustee,  relating  to the
              Company's 10 7/8% Senior Subordinated Notes due 2004, incorporated
              by  reference  to the  Company's  Form S-4 filed on April 16, 1997
              (File No. 333-25281).

         (c)  Purchase Agreement,  dated March 19, 1997, between the Company and
              NatWest Capital Markets Limited, relating to the Company's 10 7/8%
              Senior  Subordinated Notes due 2004,  incorporated by reference to
              the  Company's  Form  S-4  filed  on  April  16,  1997  (File  No.
              333-25281).



         (d)  Exchange and Registration Rights Agreement,  dated March 19, 1997,
              between the Company and NatWest Capital Markets Limited,  relating
              to the  Company's  10 7/8%  Senior  Subordinated  Notes  due 2004,
              incorporated by reference to the Company's Form S-4 filed on April
              16, 1997 (File No. 333-25281).

         (e)  Form  Letter of  Transmittal,  relating to the  Company's  10 7/8%
              Senior  Subordinated Notes due 2004,  incorporated by reference to
              the  Company's  Form  S-4  filed  on  April  16,  1997  (File  No.
              333-25281).

(10)     Material Contracts:

         (a)  Employment  Agreement,  effective  January  6, 1997,  between  the
              Company and Ralph W.  Koehrer .  incorporated  by reference to the
              Company's Form S-4 filed on April 16, 1997 (File No. 333-25281).

         (b)  Employment Agreement, effective March 1, 1992, between the Company
              and Thomas R. Simmons  incorporated  by reference to the Company's
              Form 10-K for the year ended September 30, 1993.

         (c)  Employment  Agreement,  effective  February 15, 1996,  between the
              Company  and  Donald L. Viles  incorporated  by  reference  to the
              Company's Form 10-K for the year ended September 30, 1996.

         (d)  *Employment  Agreement,  effective  October 1, 1992,  between  the
Company and Gary M. Roth.

         (e) *Employment agreement,  effective May 15, 1996, between the Company
and Ray L. Dicasali.

         (f)  Common Stock  Registration  Rights Agreement,  dated as of June 4,
              1996 by and among  the  Company  and the  Holders  of  Registrable
              Shares.  Incorporated by reference to the Company's Form 8-K filed
              on June 19, 1996 (File No. 1-8328).

         (g)  Amended and Restated  Master  Supply  Agreement,  dated October 8,
              1993,  among  Anacomp,  Inc.,  SKC  America,  Inc. and SKC Limited
              incorporated  by reference to the Company's Form 10-K for the year
              ended September 30, 1993.

         (h)  Credit and  Guarantee  Agreement,  dated as of February  28, 1997,
              among the  Company,  certain  foreign  subsidiary  borrowers,  the
              several banks and other financial  institutions  from time to time
              parties  thereto,  Lehman  Commercial  Paper Inc., as arranger and
              syndication  agent,  and The First  National  Bank of Chicago,  as
              administrative  agent  incorporated  by reference to the Company's
              Form S-4 filed on April 16, 1997 (File No. 333-25281).

         (i)  Guarantee and Collateral Agreement, dated as of February 28, 1997,
              made by the Company in favor of The First National Bank of Chicago
              incorporated by reference to the Company's Form S-4 filed on April
              16, 1997 (File No. 333-25281).

         (j)  First  Cumulative  Amendment  to the Amended and  Restated  Master
              Supply  Agreement,  dated May 17, 1996,  by and among the Company,
              SKC America, Inc. and SKC Limited incorporated by reference to the
              Company's Form S-4 filed on April 16, 1997 (File No. 333-25281).



(11)*Statement re: computation of per share earnings.

(21)*Subsidiaries of the registrant.

(27)*Financial data schedule (Required for electronic filing only).


<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.
                                  ANACOMP, INC.
                                                 By:  /s/ Ralph W. Koehrer
                                                      Ralph W. Koehrer
                                                      President, Chief Executive
                              Officer and Director
December 29, 1997
Pursuant to the requirement of the Securities  Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
on the dates indicated.

Dated:  December 29, 1997                            By:  /s/ Ralph W. Koehrer
                                                     -------------------------
                                                     Ralph W. Koehrer
                                                     President, Chief Executive
                                                     Officer and Director

Dated:  December 29, 1997                            By: /s/ Donald L. Viles
                                                     -----------------------
                                                     Donald L. Viles,  
                                                     Executive Vice President 
                                                     and Chief Financial Officer

Dated:  December 29, 1997                            By: /s/ Richard D. Jackson
                                                     --------------------------
                                                     Richard D. Jackson,
                                                     Co-Chairman of the Board

Dated:  December 29, 1997                            By:  /s/ Lewis Solomon
                                                     ----------------------
                                                     Lewis Solomon,
                                                     Co-Chairman of the Board

Dated:  December 29, 1997                            By: /s/ Talton R. Embry
                                                     -----------------------
                                                     Talton R. Embry, Director

Dated:  December 29, 1997                            By: /s/ Darius W.Gaskins,Jr
                                                     ---------------------------
                                                     Darius W. Gaskins, Jr.,
                                                     Director

Dated:  December 29, 1997                            By: /s/ Jay P. Gilbertson
                                                     -------------------------
                                                     Jay P. Gilbertson, Director

Dated:  December 29, 1997                            By:/s/ George A. Poole, Jr.
                                                     ---------------------------
                                                     George A. Poole, Jr.,
                                                     Director

<PAGE>
                                   APPENDIX A

Annual Report on Form 10-K
Anacomp, Inc.

                                                                         Page

Selected Financial Data..................................................  A-2

Market Price and Dividend Information....................................  A-3

Management's Discussion and Analysis of Financial Condition 
  and Results of Operations..............................................  A-4

Report of Independent Public Accountants.................................  A-11

Consolidated Balance Sheets -- September 30, 1997 and 1996...............  A-12

Consolidated Statements of Operations - Twelve Months Ended September 30, 1997,
  Four Months Ended September 30, 1996, Eight Months Ended May 31, 1996,
  Twelve Months Ended September 30, 1995.................................  A-13

Consolidated Statements of Cash Flows -- Twelve Months Ended September 30, 1997,
  Four Months Ended September 30, 1996, Eight Months Ended May 31, 1996,  Twelve
  Months Ended September 30, 1995........................................  A-14

Consolidated Statements of Stockholders' Equity (Deficit) -- Twelve Months
  Ended September 30, 1997, Four Months Ended September 30, 1996, 
  Eight Months Ended May 31, 1996, Twelve Months Ended September 30, 1995  A-16

Notes to Consolidated Financial Statements...............................  A-17


<PAGE>



ANACOMP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA

The following Selected Financial Data should be read in conjunction with Item 1,
"Business",  of Part I of this Annual Report on Form 10-K, and with the Notes to
Consolidated Financial Statements:
<TABLE>
<CAPTION>



                                                 Reorganized Company                         Predecessor Company
                                           --------------------------------- ----------------------------------------------------
                                               Fiscal            Four        Eight Months     Fiscal Year Ended September 30,
                                                                                          --------------------------------------
                                            Year Ended           Ended        Ended
                                           September 30,      September 30   May 31,
Dollars in thousands, except per share        1997                1996        1996           1995          1994           1993
amounts                  
------------------------------------------ ------------------ -------------- ------------- ------------- ------------ -----------
<S>                                          <C>                <C>            <C>             <C>        <C>           <C>     
Revenues.............................        $462,510           $151,542       $334,598        $591,189   $592,599      $590,208
Income (loss) before extraordinary items
and cumulative effect of accounting           (56,850)           (22,009)       112,528       (238,326)                   11,691
change...............................                                                                        6,955
Extraordinary items..................         (10,961)                --         52,442                         --         6,900
Cumulative effect on prior years of a              --                 --             --            --        8,000            --
change in accounting for income taxes
Net income (loss)....................         (67,811) (a)       (22,009) (a)   164,970 (b)   (238,326)     14,955        18,591

Earnings (loss) per common and common equivalent share:
Net income (loss)....................         $      (5.05)   $    (2.19)           (C)           (C)           (C)          (C)
Cash dividends per common share......              --                 --             --            --           --            --

</TABLE>

(a) The net loss for the  fiscal  year  ended  September  30,  1997 and the four
    months  ended  September  30,  1996,  includes  $75.8 and $25.7  million  of
    Reorganization Asset amortization, respectively.

(b)  The net income for the eight  months  ended May 31,  1996,  includes  $92.8
     million of Reorganization items and an extraordinary item of $52.4 million
     as  more  fully  discussed  in  Note  3 to  the  accompanying  consolidated
     financial statements.

(c)  Due to the implementation of Fresh Start Reporting,  per share data for the
     Predecessor Company has been excluded as they are not comparable.

<TABLE>
<CAPTION>

                                                Reorganized Company                        Predecessor Company
                                            ----------------------------- -------------------------------------------------------
As of September 30,                              1997            1996          1995          1994           1993        1992
------------------------------------------- ---------------- ------------ ------------- ------------ -------------- -------------
<S>                                           <C>              <C>          <C>            <C>          <C>           <C>     
Current assets.......................         $159,882         $147,530     $175,193       $214,129     $218,011      $244,434
Current liabilities..................          128,084          152,996      578,857        208,313      187,082       198,685
Working Capital......................           31,798           (5,466)    (403,664)         5,816       30,929        45,749
Total assets.........................          391,951          435,421      421,029        658,639      643,548       681,561
Long-term debt, net of current portion         247,889          217,044           --        366,625      404,738       429,140
Redeemable preferred stock...........               --               --       24,574         24,478       24,383        24,287
Stockholders' equity (deficit).......           14,520           58,569     (188,243)        49,756       13,799         8,290
</TABLE>






<PAGE>



MARKET PRICE AND DIVIDEND INFORMATION

Anacomp,  Inc.'s  common stock is traded on The NASDAQ  Stock Market  ("NASDAQ")
under the ticker symbol  "ANCO." The high and low closing prices (as reported by
NASDAQ) for the  Company's  common  stock for each  quarter  during the last two
fiscal years were as follows:


                              Fiscal Year 1997           Fiscal Year 1996
                         ---------------------------- ------------------------
                             High           Low          High         Low

First Quarter               $ 9.50          $ 7.75           (1)          (1)
Second Quarter              12.38              8.25          (1)          (1)
Third Quarter               14.00            10.25           (1)          (1)
Fourth Quarter              16.13            11.25        $11.13        $7.63


(1) Due to the  Reorganization,  common stock prices for the Predecessor Company
have been excluded.

The Company's  borrowing  agreements  prohibit the payment of cash  dividends on
common shares.
The number of stockholders of record as of December 19, 1997 was 157. The number
of beneficial  stockholders of record as of December 19, 1997 was  approximately
1600.


<PAGE>






                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


Results of Operations


         On May 20, 1996 The Company's  Reorganization Plan was confirmed by the
United  States   Bankruptcy  Court  and  the  Company  emerged  from  bankruptcy
reorganization.   The  Plan  of  Reorganization   resulted  in  a  reduction  of
approximately  $174 million in principal  and accrued  interest on the Company's
debt  obligations  and  in  liquidation  amount  and  accrued  dividends  on its
preferred  stock.  As a  result  of the  Reorganization,  the  recording  of the
restructuring  transaction and the implementation of Fresh Start Reporting,  the
Company's  results of  operations  after May 31,  1996 (the cutoff date used for
financial  reporting  purposes) are not comparable to results  reported in prior
periods.  See Note 3 to the accompanying  consolidated  financial statements for
information on consummation of the Plan of Reorganization  and implementation of
Fresh Start Reporting.


         To facilitate a meaningful  comparison  of the Company's  quarterly and
year-to-date  operating  performance  in fiscal years 1997,  1996 and 1995,  the
following  discussion  of  results  of  operations  on a  consolidated  basis is
presented on a traditional comparative basis for all periods.  Consequently, the
prior  years'  information  presented  below  does not  comply  with  accounting
requirements  for companies upon emergence from bankruptcy,  which  requirements
call  for  separate  reporting  for  the  newly  reorganized   company  and  the
predecessor company.



<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED RESULTS OF OPERATIONS
Anacomp, Inc. and Subsidiaries

(Dollars in thousands, except per share amounts)         Year ended September 30,           1997          1996 (a)          1995
Revenues:
<S>                                                                                       <C>             <C>             <C>     
    Services provided.................................................................... $186,590        $189,257        $219,881
    Equipment and supply sales...........................................................  275,920         296,883         371,308
                                                                                           462,510         486,140         591,189
Operating costs and expenses:
    Costs of services provided...........................................................   97,932         104,499         126,493
    Costs of equipment and supplies sold.................................................  206,582         226,623         290,842
    Selling, general and administrative expenses.........................................   90,731          93,514         132,459
    Amortization of reorganization asset.................................................   75,780          25,663            ----
    Special charges......................................................................     ----            ----         136,889
    Restructuring charges................................................................     ----            ----          32,695
                                                                                           471,025         450,299         719,378
Income (loss)  from operations before interest, other income,  reorganization items,
    income taxes and extraordinary items..............................................      (8,515)         35,841        (128,189)
                                                                                            

Interest income..........................................................................    4,346           2,573           2,000
Interest expense and fee amortization....................................................  (35,896)        (39,629)        (70,938)
Financial restructuring costs............................................................     ----            ----          (5,987)
Other income (expense)...................................................................   (1,285)          6,995            (212)
                                                                                           (32,835)        (30,061)        (75,137)
Income (loss) before reorganization items, income taxes and extraordinary items..........  (41,350)          5,780        (203,326)
Reorganization items.....................................................................     ----          92,839            ----
Income (loss) before income taxes and extraordinary items................................  (41,350)         98,619        (203,326)
Provision for income taxes...............................................................   15,500           8,100          35,000
Net income (loss) before extraordinary items.............................................  (56,850)         90,519        (238,326)
Extraordinary items......................................................................  (10,961)         52,442            ----
Net income (loss)........................................................................  (67,811)        142,961        (238,326)
Preferred stock dividends and discount accretion.........................................     ----             540           2,158
Net income (loss) available to common stockholders....................................... ($67,811)       $142,421       $(240,484)

Supplemental:
EBITDA (b)...............................................................................  $83,662         $84,175         $77,393
</TABLE>

(a)  This column  reflects the  combination of historical  results for the eight
     months ended May 31,  1996,  for the  Predecessor  Company and for the four
     months ended September 30, 1996, for the Successor Company.

(b) See definition of EBITDA on Page A-6.



<PAGE>



Results of Operations-Fiscal 1997, 1996 and 1995

         General

         Anacomp  reported  a net  loss of  $67.8  million  for the  year  ended
September  30, 1997 as compared to net income of $143  million and a net loss of
$238.3  million for the years ended  September 30, 1996 and 1995,  respectively.
Included in the fiscal 1997 net loss is non-cash  amortization  of the Company's
reorganization  value asset of $75.8  million and an  extraordinary  loss on the
extinguishment  of debt comprised of a 3% call premium and unamortized  discount
on the Company's  existing 13% subordinated notes totalling $11.0 million net of
income taxes.

         Pursuant to a 1990 OEM  agreement  Kodak was  obligated  to purchase an
additional  151 XFP 2000  systems by October  1997 or pay a cash  penalty to the
Company.  The Company and Kodak  negotiated  an amendment to the OEM  agreement,
whereby the Company  accepted a $3.6 million  cash payment from Kodak,  which is
included in the current period  results,  a commitment to purchase an additional
28 XFP 2000  systems by the end of  calendar  1997,  and a one-time  purchase of
spare parts. As of September 30, 1997, 12 systems remained to be purchased under
this  agreement.  Kodak  purchased all the remaining XFP 2000 systems during the
quarter ended December 31, 1997.

         Net  income  for  fiscal  1996  included   $25.7  million  in  non-cash
amortization  of the  Company's  reorganization  value  asset,  a gain of  $92.8
million for  reorganization  items and an extraordinary  gain resulting from the
discharge of indebtedness of $52.4 million. Included in the fiscal 1995 loss are
special charges of $136.9 million,  representing a write-off of goodwill of $108
million and $28.9 million of costs  associated with software  investments.  Also
included in the fiscal 1995 loss is a $29 million  deferred  tax  provision  and
$32.7 million of restructuring charges.

         Earnings before interest,  other income,  reorganization items, special
and   restructuring   charges,   taxes,   depreciation   and   amortization  and
extraordinary  items ("EBITDA") was $83.7 million,  or 18.1% of revenues for the
year ended  September  30, 1997.  This compares to EBITDA of $84.2  million,  or
17.3% of revenues,  and $77.4 million,  or 13.1% of revenues for the years ended
September 30, 1996 and 1995,  respectively.  Excluding the Kodak payment of $3.6
million  described  above,  EBITDA was $80.1  million for the current  period or
17.5% of revenues.

         Total  revenues  for fiscal  1997 of $462.5  million  represent a $23.6
million  decrease from fiscal 1996, which had experienced a decrease from fiscal
1995 of $105 million.  Approximately $9.8 million of the fiscal 1997 decrease is
due to the  discontinuance  and downsizing of selected product lines,  including
ICS ($1.5 million),  readers and reader/printers ($5.5 million), source document
film ($.5 million) and micrographics  accessories ($2.3 million).  The remaining
$13.8  million  decrease in revenues is due  primarily to the  expected  general
downward trend in both the  micrographics  supplies and magnetics  product lines
offset by revenue contributions from the Company's  acquisitions and new digital
products.  Approximately $60.1 million of the fiscal 1996 decrease is due to the
discontinuance  or  downsizing  of  certain  product  lines  including  ICS ($20
million),  flexible  diskette media ($20.2  million),  reader and reader printer
products ($12.7 million) and source document film ($7.2 million).

         Cost of services  provided as a percentage of services  revenue was 52%
in fiscal 1997, compared to 55% and 58% for fiscal 1996 and 1995,  respectively.
The decrease is due primarily to cost reduction efforts in maintenance  services
initiated by new management. Cost of equipment and supplies sold as a percentage
of equipment and supplies  sales,  excluding  the one-time $3.6 million  payment
noted above, was 76% for fiscal years 1997 and 1996,  compared to 78% for fiscal
1995.

         Selling,  general and  administrative  expenses were 20% of revenues in
fiscal 1997,  excluding the one-time $3.6 million payment noted above,  compared
to 19% in  fiscal  1996.  The  slight  increase  was  primarily  the  result  of
amortization  and transition  costs  associated  with the Company's  fiscal 1997
acquisition activity.  Selling,  general and administrative expenses were 22% of
revenues in fiscal 1995.

         Products and Services

         The  following  table  shows  Anacomp's  revenues  for each of its five
product families for the last three fiscal years:

<TABLE>
<CAPTION>
                                                                           Year ended September 30,
                                                                 1997                1996                 1995
                                                                 ----                ----                 ----
                                                                                              (Dollars in thousands)
<S>                                                           <C>          <C>      <C>          <C>    <C>           <C>
Output Services..........................................     $103,595     22%      $103,733     21%    $132,144      22%
Technical Services.......................................       77,123      17        82,105      15      86,175       17
Output Systems...........................................       36,739       8        32,794       9      51,276        7
Micrographics Supplies...................................      131,615      29       150,449      32     190,621       31
Magnetic Media...........................................      102,823      22       112,187      22     128,353       23
Other....................................................       10,615       2         4,872       1       2,620        1
                                                           ----------------------------------------------------------------

        Total............................................     $462,510    100%      $486,140    100%    $591,189     100%
                                                           =================================================================


</TABLE>

Output Services

         Output  services  revenues  increased  $1.3  million  in  fiscal  1997,
compared  to fiscal  1996  (excluding  the effect of the ICS sale).  COM service
volumes  increased by 9% while  average  selling  prices  decreased by 12%. Data
center  acquisitions  and several large customer gains have  contributed to both
the  increase  in volumes  and the  decrease in average  selling  prices.  Gross
margins as a percentage of revenue  decreased by 3 percentage  points due to the
aforementioned  impact of lower average selling prices. Output services revenues
were down $8.4  million in fiscal 1996  compared to fiscal 1995  (excluding  the
effect of the ICS sale),  primarily due to an 11% decrease in volume.  Decreases
in average  selling  prices during fiscal 1996 also  adversely  affected  output
services gross margins as a percent of revenue,  which  decreased 1% from fiscal
1995 to fiscal  1996.  ALVA CD services  grew by $2.5 million in fiscal 1997 and
now comprise approximately 4% of total output services revenue as compared to 1%
in fiscal 1996.


Technical Services

         Technical  services  (primarily  maintenance)  revenues  decreased $5.0
million in fiscal  1997,  compared to fiscal 1996 and $4.0  million  from fiscal
1995 to fiscal 1996, in part due to the effect of replacing older generation COM
systems with the XFP, which has a significantly  greater capacity than the older
COM  systems.  Gross  margins as a percentage  of revenue  improved 7 percentage
points over the prior year in each of fiscal 1997 and 1996 primarily as a result
of the cost reduction efforts mentioned above.



<PAGE>




Output Systems

         Output  systems  revenues,  which is  comprised of both COM and Digital
output  systems,  increased $3.9 million in fiscal 1997 primarily as a result of
contributions  from the  Company's  acquisition  of Data/Ware  in January  1997.
Output systems gross margins as a percentage of revenues increased by 12% due to
the  change  in  product  mix with a greater  portion  of sales  represented  by
refurbished sytems which have higher margins.

         COM systems  revenues in fiscal 1997 decreased by $5.4 million compared
to fiscal 1996,  which had  experienced  an $18.5  million  decrease from fiscal
1995. Included in COM systems revenues for fiscal 1995 are $3.5 million in sales
of  equipment  for  use  in  Anacomp  data  centers  under  sale  and  leaseback
arrangements.  The  Company  sold or leased  135  XFP2000  units in fiscal  1997
compared to 122 and 156 in fiscal 1996 and 1995,  respectively.  The decrease in
revenue is  attributable  to an increase in 1997 in the number of units  shipped
under  operating  lease  arrangements,  and a decrease  in the number of systems
shipped under  straight  sales  arrangements  along with a change in the mix and
pricing  of new and  used  systems.  Fiscal  1997 and 1996  gross  margins  as a
percentage of revenues  improved several  percentage points due to the change in
product mix.

         Digital  systems  revenues  in fiscal 1997 were $9.3  million  with the
second quarter  acquisition of Data/Ware  contributing $6.4 million in revenues.
There were no digital systems sold during fiscal 1996 or 1995.


Micrographics Supplies

         Micrographics  supplies revenues decreased $18.8 million in fiscal 1997
compared to fiscal 1996 consistent  with the projected  market trends for reader
and  reader/printers,  original COM film,  duplicate film and other accessories.
Gross margins as a percentage of revenue were comparable between periods.

Micrographics supplies revenues decreased $40.2 million from fiscal 1996 to 1995
principally as a result of the  discontinuance  and downsizing of product lines,
as well as the projected market trends noted above. Micrographics supplies gross
margins as a percent of revenue  increased 5% in fiscal 1996  compared to fiscal
1995 as a  result  of  changes  in  product  mix due  primarily  to the sale and
downsizing of product lines.


Magnetic Media

         Magnetic media revenues  decreased $9.4 million in fiscal 1997 compared
to fiscal 1996. The major product categories  experiencing a decrease in revenue
include 3480 tape cartridges  ($5.9 million),  open reel tape ($7.7 million) and
TK 50/52 tape ($2.0 million).  These decreases were partially  offset by the new
contributions  of $5.8 million from metal particle tape products.  Gross margins
as a percentage of revenue in fiscal 1997  increased  slightly from fiscal 1996.
Magnetic  media  revenues  decreased  $16.2  million in fiscal 1996  compared to
fiscal 1995. The decrease was due to the closure of the Omaha, Nebraska factory,
which produced  flexible  diskette  media, as well as reduced unit sales of open
reel tape.  Magnetic media gross margins had remained level in fiscal years 1996
and 1995.





<PAGE>



             Interest Expense

         Interest expense and fee amortization of $35.9 million for fiscal 1997,
decreased  $3.7  million  over the prior year due to the  Company's  refinancing
efforts  in  fiscal  1997 and its  improved  debt  structure  as a result of the
Reorganization  in fiscal 1996.  Interest  expense and fee amortization of $39.6
million for fiscal 1996,  decreased  $31.3 million  compared to fiscal 1995. The
decrease  relates to the  discontinuance  of interest accrued on the Predecessor
Company's old subordinated  debt during the bankruptcy  proceedings,  as well as
reduced interest expense on the new debt instruments.

         Income Taxes

         The  provision for income taxes in fiscal 1997 includes $5.4 million on
earnings of Anacomp's  foreign  subsidiaries  and $4.2 million of domestic taxes
after  considering the impact of the extrordinary  loss. Of the $4.2 million net
domestic tax provision,  approximately  $0.7 million is currently  payable.  See
Note 16 to the consolidated financial statements for further discussion.

         The  provision for income taxes in fiscal 1996 includes $6.1 million on
earnings of Anacomp's  foreign  subsidiaries  and $2 million of domestic  income
taxes  primarily  related to the non-cash charge in lieu of taxes of $1.3 milion
along with the alternative  minimum tax and state and local taxes. The effective
rate as a  percentage  of  income  before  reorganization  items,  extraordinary
credit, and cumulative effect of accounting change (8.2%) is lower than the U.S.
statutory rate because of non-taxable  reorganization income partially offset by
increases resulting from non-deductible amortization.

         Included in the provision for income taxes in fiscal 1995 is a deferred
tax provision of $29 million.  The deferred tax  provision  includes U.S. tax on
undistributed foreign earnings of $9 million and a write-off of net deferred tax
assets of $20 million. This write-off results from the uncertainty regarding the
financial  restructuring that was in progress and, accordingly,  the uncertainty
regarding  the  ultimate   benefit  to  be  derived  from   Anacomp's  tax  loss
carryforwards.  The  remaining  components  of the provision for income taxes in
fiscal  1995  were  taxes of $4.8  million  on  earnings  of  Anacomp's  foreign
subsidiaries and a tax reserve adjustment of $1.2 million.

Liquidity and Capital Resources

         During the period ended  September  30,  1997,  Anacomp  completed  the
refinancing of  substantially  all of its significant debt obligations (see Note
13 to the consolidated  financial  statements).  The refinancings will result in
significant  interest savings to the Company.  Anacomp's cash interest cost will
now  be  at  an  annual  rate  of  approximately  $30  million  as  compared  to
approximately  $40 million upon the  Company's  exit from  bankruptcy on May 31,
1996. The Company's debt amortization has also been  significantly  reduced as a
result of the refinancings.  Anacomp made no principal  payments on the new debt
during fiscal 1997 and now has scheduled  principal  payments of $8.7 million in
fiscal 1998 and $13.8  million in fiscal  1999.  As of September  30, 1997,  the
current  portion of long-term debt was $9.6 million as compared to $31.8 million
at September 30, 1996.

         Anacomp's working capital at September 30, 1997,  excluding the current
portion  of  long-term  debt was $41.4  million,  compared  to $26.4  million at
September 30, 1996. Net cash provided by operating activities increased to $57.8
million for the fiscal year ended September 30, 1997,  compared to $49.8 million
in the comparable prior period. Net cash used in investing  activities was $32.8
million in the  current  period,  compared  to net cash  provided  by  investing
activities  of $3.9  million in the  comparable  prior  period.  This change was
primarily the result of the Company using $22.4 million of cash for acquisitions
in the current period while the Company generated $13.6 million in cash from the
sale of the ICS Division in the prior period.  Also,  the Company  increased its
capital  expenditures  for property,  plant and equipment by $4.6 million during
the current period.

     Net cash used in  financing  activities  decreased  to $5.1 million for the
fiscal  year  ended  September  30,  1997,  compared  to  $35.5  million  in the
comparable   prior  period.   The  Company's   successful   rights  offering  of
approximately  3.6 million shares of common stock provided  approximately  $24.5
million in cash in the current  period and the Company's  debt  refinancing  and
principal  reductions used approximately  $30.1 million in net cash. Fiscal 1996
financing  activities include a $13 million repayment of debt with proceeds from
the sale of the ICS Division and $24.9 million in principal reductions on debt.

         The Company's cash balance (including  restricted cash) as of September
30, 1997 was $65.5 million, compared to $47.8 million at September 30, 1996. The
Company  also has  availability  of $22.6  million on its $25 million  revolving
credit facility at September 30, 1997.

         The Company has significant  debt service  obligations.  The ability of
the Company to meet its debt service and other  obligations will depend upon its
future performance and is subject to financial, economic and other factors, some
of which are beyond its control. However, the Company believes that cash on hand
and cash generated from  operations  will be sufficient to fund its debt service
requirements,  acquisition  strategies and working  capital  requirements in the
foreseeable future.

Accounting Pronouncements

         In February  1997,  the  Financial  Accounting  Standards  Board (FASB)
issued a pronouncement related to the calculation and disclosure of Earnings Per
Share  information.  This  pronouncement  is effective for periods  ending after
December  15,  1997 and,  consequently,  no  adjustments  are  reflected  in the
consolidated  financial  statements  for the period  ended  September  30, 1997.
Adoption  of this  pronouncement  would  not have a  significant  impact  on EPS
reported for the twelve month period ended September 30, 1997.

         In June 1997,  FASB  issued two  additional  pronouncements  related to
reporting comprehensive income and disclosure of segment information.  These two
pronouncements  are effective for periods beginning after December 15, 1997. The
Company has not yet  determined  the  additional  disclosures  specified by this
pronouncement  on the  consolidated  financial  statements  for the period ended
September 30, 1977.











<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Anacomp, Inc.:

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Anacomp, Inc. (an Indiana corporation) and subsidiaries as of September 30, 1997
and 1996, and the related consolidated  statements of operations,  stockholders'
equity (deficit), and cash flows for the twelve months ended September 30, 1997,
the four months ended  September  30, 1996,  the eight months ended May 31, 1996
and the twelve months ended  September 30, 1995.  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 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.

         As  more  fully  described  in  Note  2 to the  consolidated  financial
statements,  effective June 4, 1996, the Company emerged from  protection  under
Chapter 11 of the U.S.  Bankruptcy Code pursuant to a Reorganization  Plan which
was confirmed by the Bankruptcy  Court on May 20, 1996. In accordance with AICPA
Statement of Position 90-7, the Company adopted "Fresh Start Reporting"  whereby
its assets,  liabilities  and new  capital  structure  were  adjusted to reflect
estimated  fair  values  as of May  31,  1996.  As a  result,  the  consolidated
financial  statements  for the periods  subsequent  to May 31, 1996  reflect the
Successor  Company's  new  basis of  accounting  and are not  comparable  to the
Predecessor Company's pre-reorganization consolidated financial statements.

         In our opinion, the consolidated financial statements referred to above
present fairly,  in all material  respects,  the financial  position of Anacomp,
Inc.  and  subsidiaries  as of September  30, 1997 and 1996,  and the results of
their  operations and their cash flows for the twelve months ended September 30,
1997,  the four months ended  September 30, 1996, the eight months ended May 31,
1996 and the twelve months ended September 30, 1995 in conformity with generally
accepted accounting principles.

         As  explained  in  Note 1 to  the  consolidated  financial  statements,
effective  June 30, 1995,  the Company  changed its method of accounting for the
measurement of goodwill impairment.

Arthur Andersen LLP
Indianapolis, Indiana, 
November 14, 1997





<PAGE>






CONSOLIDATED BALANCE SHEETS
Anacomp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
                                                                                                        Reorganized Company
                                                                                                   ---------------------------------
(Dollars in thousands, except per share amounts)                      As of September 30,               1997             1996
                                                                                                   ---------------------------------

ASSETS
Current assets:
<S>                                                                                                    <C>          <C>      
    Cash and cash equivalents ......................................................................   $  58,060    $  38,198
    Restricted cash ................................................................................       7,433        9,597
    Accounts and notes receivable, less allowances for doubtful
        accounts of $5,501  and $6,768,  respectively ..............................................      58,628       58,806
    Current portion of long-term receivables .......................................................       3,647        4,690
    Inventories ....................................................................................      25,261       31,856
    Prepaid expenses and other .....................................................................       6,853        4,383
Total current assets ...............................................................................     159,882      147,530

Property and equipment, at cost less accumulated depreciation and
    amortization of $7,257 and $3,696,  respectively ...............................................      29,063       27,102
Long-term receivables, net of current portion ......................................................       6,587       10,632
Excess of purchase price over net assets of businesses acquired
    and other intangibles, net .....................................................................      17,800        2,285
Reorganization value in excess of identifiable assets, net .........................................     163,856      240,344
Other assets .......................................................................................      14,763        7,528
                                                                                                       $ 391,951    $ 435,421
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Current portion of long-term debt ..............................................................   $   9,595    $  31,848
    Accounts payable ...............................................................................      39,270       48,090
    Accrued compensation, benefits and withholdings ................................................      16,481       13,728
    Accrued income taxes ...........................................................................      13,471       11,930
    Accrued interest ...............................................................................      14,738       10,586
    Other accrued liabilities ......................................................................      34,529       36,814
Total current liabilities ..........................................................................     128,084      152,996

Non current liabilities:
    Long-term debt, net of current portion .........................................................     247,889      217,044
    Other noncurrent liabilities ...................................................................       1,458        6,812
Total noncurrent liabilities .......................................................................     249,347      223,856

Commitments and contingencies (See Note 17) Stockholders' equity :
    Preferred stock, 1,000,000 shares authorized, none issued ......................................        --           --
    Common stock, $.01 par value; 20,000,000 shares authorized; 13,789,764 and 10,099,050 issued and         138          101
        outstanding, respectively
    Capital in excess of par value .................................................................     105,329       80,318
    Cumulative translation adjustment (from May 31, 1996) ..........................................      (1,128)         159
    Accumulated deficit (from May 31, 1996) ........................................................     (89,819)     (22,009)
Total stockholders' equity .........................................................................      14,520       58,569
                                                                                                       $ 391,951    $ 435,421
-----------------------------------------------------------------------------------------------------
See  notes  to   consolidated financial statements.
</TABLE>



<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS
Anacomp, Inc. and Subsidiaries
<TABLE>
<CAPTION>

                                                                                  Reorganized Company      Predecessor Company
                                                                            --------------------------------------------------------
                                                                            Twelve          Four         Eight         Twelve
                                                                          Months Ended   Months Ended  Months Ended  Months Ended
                                                                          September 30,  September 30,   May 31,     September 30
(Amounts in thousands, except per share amount)                                1997           1996         1996         1995
                                                                            
REVENUES:
<S>                                                                         <C>          <C>          <C>          <C>      
    Services provided ...................................................   $ 186,590    $  59,055    $ 130,202    $ 219,881
    Equipment and supply sales ..........................................     275,920       92,487      204,396      371,308
                                                                              462,510      151,542      334,598      591,189
OPERATING COSTS AND EXPENSES:
    Costs of services provided ..........................................      97,932       31,858       72,641      126,493
    Costs of equipment and supplies sold ................................     206,582       70,097      156,526      290,842
    Selling, general and administrative expenses ........................      90,731       29,688       63,826      132,459
    Amortization of reorganization asset ................................      75,780       25,663         --           --
    Special charges .....................................................        --           --           --        136,889
    Restructuring charges ...............................................        --           --           --         32,695
                                                                              471,025      157,306      292,993      719,378
Income (loss) from operations before interest, other income,
    reorganization items, income taxes and extraordinary items ..........      (8,515)      (5,764)      41,605     (128,189)

Interest income .........................................................       4,346          997        1,576        2,000
Interest expense and fee amortization ...................................     (35,896)     (12,869)     (26,760)     (70,938)
Financial restructuring costs ...........................................        --           --           --         (5,987)
Other income (loss) .....................................................      (1,285)          27        6,968         (212)
                                                                              (32,835)     (11,845)     (18,216)     (75,137)
Income (loss) before reorganization items, income taxes and extraordinary
    items ...............................................................        --        (17,609)      23,389     (203,326)
                                                                                                                     (41,350)
Reorganization items ....................................................        --           --         92,839         --
Income (loss) before income taxes and extraordinary items ...............     (41,350)     (17,609)     116,228     (203,326)
Provision for income taxes ..............................................      15,500        4,400        3,700       35,000
Income (loss) before extraordinary items ................................     (56,850)     (22,009)     112,528     (238,326)
Extraordinary items:
    Gain on discharge of indebtedness, net of  income taxes .............        --           --         52,442         --
    Loss on extinguishment of debt, net of income tax benefits ..........     (10,961)        --           --           --
Net income (loss) .......................................................     (67,811)     (22,009)     164,970     (238,326)
Preferred stock dividends and discount accretion ........................        --           --            540        2,158
Net income (loss) available to common stockholders ......................   $ (67,811)   $ (22,009)   $ 164,430    $(240,484)




EARNINGS (LOSS) PER COMMON AND
    COMMON EQUIVALENT SHARE:

Income (loss) available to common stockholders before extraordinary loss............$(4.23)         $(2.19)
Extraordinary loss on extinguishment of debt...........................              (0.82)        ----
Net income (loss ) available to common shareholders....................             $(5.05)         $(2.19)

See  notes  to   consolidated financial statements.
</TABLE>


<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                          Reorganized Company       Predecessor Company
                                                                        ---------------------------------------------------
Anacomp, Inc. and Subsidiaries                                            Twelve       Four          Eight      Twelve
                                                                       Months Ended  Months Ended Months Ended Months Ended
                                                                      September 30,  September 30,  May 31,    September 30
(Dollars in thousands)..............................................      1997          1996         1996         1995
CASH FLOWS FROM OPERATING ACTIVITIES:
      
<S>                                                                    <C>          <C>          <C>          <C>       
    Net income (loss) ..............................................   $ (67,811)   $ (22,009)   $ 164,970    $(238,326)
    Adjustments to reconcile net income (loss) to net
        cash provided by operating activities:
      Extraordinary items ..........................................      10,961         --        (52,442)        --
      Non-cash reorganization items ................................        --           --       (107,352)        --
      Depreciation and amortization ................................      93,552       30,635       18,788       43,375
      Non-cash compensation ........................................       1,012          975         --           --
      Provision (benefit) for losses on accounts receivable ........        (341)         482          110        2,742
      Provision for inventory valuation ............................        --           --           --         10,956
      Non-cash charge in lieu of taxes .............................         700        1,300         --           --
      Deferred taxes ...............................................        --           --           --         29,000
      Special charges (See Note 1) .................................        --           --           --        136,889
      Gain on sale of ICS Division .................................        --           --         (6,202)        --
      Other ........................................................       6,278         (175)         997        6,308
  Restricted cash requirements .....................................       2,164       (2,755)      (6,842)        --
  Change in assets and liabilities net of effects from acquisitions:
        Decrease in accounts and long-term receivables .............       6,687        5,637       24,624       30,948
        Decrease (increase) in inventories and prepaid expenses ....       7,118       10,416       11,174       (1,612)
        Decrease (increase) in other assets ........................        (953)           1        1,094       (8,207)
        Increase (decrease) in accounts payable and accrued expenses       4,970      (17,283)      (5,077)      11,465
        Increase (decrease) in other noncurrent liabilities ........      (6,495)       4,671       (5,899)      (3,626)
         Net cash provided by operating activities .................      57,842       11,895       37,943       19,912
CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from sale of other assets .............................        --           --           --         18,777
    Proceeds from sale of ICS Division .............................        --           --         13,554         --
    Purchases of property, plant and equipment .....................     (10,399)      (2,224)      (3,599)     (14,372)
    Payments to acquire companies and customer rights ..............     (22,443)      (3,844)        --         (1,262)
         Net cash provided by (used in) investing activities .......     (32,842)      (6,068)       9,955        3,143
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock and warrants ............        --           (139)        --            743
    Proceeds from revolving line of credit and long-term borrowing .     253,853         --          2,656       22,529
    Proceeds from exercise of common stock rights ..................      24,548         --           --           --
    Proceeds from exercise of stock options ........................         412         --           --           --
    Principal payments on long-term debt ...........................    (271,288)     (22,646)     (15,332)     (45,859)
    Payments related to the issuance and extinguishment of debt ....     (12,647)        --
                                                                                                              ---------
    Preferred dividends paid .......................................        --           --           --         (1,031)
                                                                                                              ---------
         Net cash used in financing activities .....................      (5,122)     (22,785)     (12,676)     (23,618)
                                                                                                              ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................         (16)        (172)         691          107
                                                                                                              ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................      19,862      (17,130)      35,913         (456)
                                                                                                              ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................      38,198       55,328       19,415       19,871
                                                                                                              ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .........................   $  58,060    $  38,198    $  55,328    $  19,415
                                                                                                              ---------


</TABLE>

<PAGE>


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>


                                                                              Reorganized Company             Predecessor Company
                                                                        ------------------------------------------------------------
                                                                         Months Ended    Months Ended    Months Ended   Months Ended
                                                                         September 30,   September 30,      May 31,    September 30,
(Dollars in thousands).................................................      1997            1996            1996            1995
Cash paid during the period for:
<S>                                                                          <C>          <C>            <C>             <C>     
    Interest...........................................................      $ 15,016     $   5,581      $ 11,613        $ 39,426
    Income taxes.......................................................      $  6,612     $   2,942      $  3,045        $  4,128

</TABLE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

See Note 3 for discussion of non-cash  activity related to Fresh Start Reporting
and the Reorganization.

<TABLE>
<CAPTION>



                                                                              Reorganized Company             Predecessor Company
                                                                        ------------------------------------------------------------
                                                                            Twelve           Four           Eight          Twelve
                                                                         Months Ended    Months Ended   Months Ended    Months Ended
                                                                         September 30,   September 30,    May 31,      September 30,
(Dollars in thousands)                                                       1997            1996          1996            1995
<S>                                                                      <C>             <C>                <C>             <C>   
    Notes payable issued...............................................     ----         $   500            ----            ----
    Assets acquired by assuming liabilities............................  $ 1,553            ----            ----            ----
    Interest on subordinated notes satisfied with additional notes.....  $11,960            ----            ----            ----

See  notes  to   consolidated financial statements.
</TABLE>



<PAGE>


<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Anacomp, Inc. and Subsidiaries

                                                                    Capital in     Cumulative
                                                       Common stock  excess of   translation   Accumulat
(Dollars in thousands)                                               par value     adjustment   Deficit        Total
---------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>          <C>          <C>          <C>          <C>               
BALANCE AT SEPTEMBER 30, 1994 - Predecessor Company   $     457    $ 181,843    $    (269)   $(132,275)   $  49,756
Common stock issued for purchases under the
  Employee Stock Purchase Plan ....................           3          689         --           --            692
Exercise of stock options .........................           1           50         --           --             51
Preferred stock dividends .........................        --           --           --         (2,062)      (2,062)
Accretion of redeemable preferred stock discount ..        --           --           --            (96)         (96)
Translation adjustment for twelve months ..........        --           --          1,598         --          1,598
Graham stock issuance .............................           1          143         --           --            144
Net loss for the twelve months ....................        --           --           --       (238,326)    (238,326)
BALANCE AT SEPTEMBER 30, 1995 - Predecessor Company         462      182,725        1,329     (372,759)    (188,243)
Preferred stock conversion ........................          11        7,893         --           --          7,904
Preferred stock dividends .........................        --           --           --           (516)        (516)
Accretion of redeemable preferred stock discount ..        --           --           --            (24)         (24)
Translation adjustment for eight months ...........        --           --         (1,560)        --         (1,560)
NBS stock issuance ................................          11          (11)        --           --           --
Reorganization ....................................        (484)    (190,607)         231      208,329       17,469
New stock issuance ................................         100       79,666         --           --         79,766
Net income for eight months .......................        --           --           --        164,970      164,970
BALANCE AT  MAY 31, 1996 - Reorganized Company ....         100       79,666         --           --         79,766
Common stock issued for restricted stock award ....           1          791         --           --            792
Fees associated with rights offering ..............        --           (139)        --           --           (139)
Translation adjustment for four months ............        --           --            159         --            159
Net loss for four months ..........................        --           --           --        (22,009)     (22,009)
BALANCE AT SEPTEMBER 30, 1996 - Reorganized Company         101       80,318          159      (22,009)      58,569
Common stock issued for exercise of rights ........          36       24,511         --           --         24,547
Common stock issued for exercise of stock options .           1          500         --           --            501
Translation adjustment for twelve months ..........        --           --         (1,287)        --         (1,287)
Other .............................................        --           --           --              1            1
Net loss for twelve months ........................        --           --           --        (67,811)     (67,811)
                                                                                                          ---------
BALANCE AT SEPTEMBER 30, 1997 - Reorganized Company   $     138    $ 105,329    $  (1,128)   $ (89,819)   $  14,520
                                                                                                          ---------
See notes to consolidated financial statements.

</TABLE>



<PAGE>




NOTES TO CONSOLIDATED
 FINANCIAL STATEMENTS
Anacomp, Inc. and Subsidiaries


NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Consolidation

The  consolidated  financial  statements  include the accounts of Anacomp,  Inc.
("Anacomp"  or  the  "Company")  and  its  wholly-owned  subsidiaries.  Material
intercompany  transactions  have been  eliminated.  Certain amounts in the prior
year consolidated  financial statements have been reclassified to conform to the
current presentation.

Due to the  Reorganization  and  implementation  of Fresh Start  Reporting,  the
consolidated  financial  statements for the Reorganized Company (period starting
May 31,  1996)  are not  comparable  to those of the  Predecessor  Company.  For
financial  reporting  purposes,   the  effective  date  of  the  emergence  from
bankruptcy is considered to be the close of business on May 31, 1996.

A  black  line  has  been  drawn  on  the  accompanying  consolidated  financial
statements to distinguish  between the  Reorganized  Company and the Predecessor
Company.

Foreign Currency Translation

Substantially all assets and liabilities of Anacomp's  international  operations
are  translated  at  the  year-end  exchange  rates;  income  and  expenses  are
translated at the average exchange rates prevailing during the year. Translation
adjustments  are  accumulated  in a separate  section of  stockholders'  equity.
Foreign currency transaction gains and losses are included in net income.

Segment Reporting

Anacomp operates in a single business segment providing equipment,  supplies and
services for document management, including storage, processing and retrieval.

Significant 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 these estimates.

Revenue Recognition

Revenues  from sales of products and  services or from lease of equipment  under
sales-type  leases are recorded  based on shipment of products or performance of
services.  Under sales-type  leases, the present value of all payments due under
the lease  contracts  is recorded as revenue,  cost of sales is charged with the
book value of the equipment plus installation  costs, and future interest income
is deferred and  recognized  over the lease term.  Operating  lease revenues are
recognized  during  the  applicable  period of  customer  usage.  Revenues  from
maintenance  contracts  are  deferred and  recognized  in earnings on a pro rata
basis over the period of the agreements.



<PAGE>



Inventories

Inventories  are  stated  at the  lower  of  cost or  market,  with  cost  being
determined by methods approximating the first-in, first-out basis.

The cost of the inventories is distributed as follows:
<TABLE>
<CAPTION>


                                                                                   Reorganized Company
(Dollars                           in                           thousands)        1997             1996
September 30,
--------------------------------------------------------------------------- ----------------- ----------------
<S>                                                                             <C>               <C>         
Finished goods...........................................................       $     14,887      $     22,557
Work in process..........................................................              3,299             2,748
Raw materials and supplies...............................................              7,075             6,551
                                                                                 $    25,261      $     31,856
---------------------------------------------------------------------------
</TABLE>

Restricted Cash

Restricted  cash  represents  cash reserved as collateral  for letters of credit
issued  by the  Company  or cash  held in escrow  primarily  to  secure  certain
contingent  obligations of the Company. The contingent obligations are primarily
related to environmental liabilities and certain insurance policies.

Property and Equipment

Property and equipment are carried at cost.  Depreciation  and  amortization  of
property and equipment are generally provided under the straight-line method for
financial  reporting  purposes over the shorter of the estimated useful lives or
the lease terms.  Tooling costs are amortized over the total  estimated units of
production, not to exceed three years. In accordance with Fresh Start Reporting,
property and equipment  were  reflected at fair market values as of May 31, 1996
(See Note 3).

Debt Issuance Costs

The Company  capitalizes all costs related to its issuance of debt and amortizes
those costs  using the  effective  interest  method over the life of the related
debt instruments. Unamortized Debt issuance costs were $6.6 million at September
30, 1997 and are  included in "Other  assets" in the  accompanying  Consolidated
Balance  Sheets.  During the twelve months ended  September 30, 1997,  the eight
months ended May 31, 1996 and the twelve months ended  September  30, 1995,  the
Company  amortized $.9 million,  $1 million and $5.7 million,  respectively,  of
debt   issuance   costs  which  are  included  in  "Interest   expense  and  fee
amortization" in the accompanying  Consolidated Statements of Operations.  Also,
in accordance  with AICPA  Statement of Position 90-7,  "Financial  Reporting by
Entities in  Reorganization  Under the Bankruptcy  Code" (SOP 90-7), the Company
wrote off deferred  debt  issuance  costs of $11.1  million upon the date of the
bankruptcy  filing.  These costs are included in  "Reorganization  Items" in the
accompanying  Consolidated  Statements of Operations  for the eight months ended
May 31, 1996.



<PAGE>



Goodwill

Excess of purchase price over net assets of businesses acquired  ("goodwill") is
amortized  on the  straight-line  method  over the  estimated  periods of future
demand for the related  products  acquired.  Goodwill at  September  30, 1997 is
being amortized over periods of three to five years.  Effective with Fresh Start
Reporting, the Company now measures impairment based on future cash flows of the
related products.

For the Predecessor Company,  effective June 30, 1995, Anacomp elected to modify
its method of measuring goodwill impairment to a fair value approach.  If it was
determined that impairment had occurred,  the excess of the unamortized goodwill
over the fair value of the goodwill  applicable to the business unit was charged
to operations.  For purposes of determining  fair value,  the Company valued the
goodwill  using a multiple of cash flow from  operations  based on  consultation
with its  investment  advisors.  Anacomp  concluded that fair value was a better
measurement of goodwill  considering the Company's  highly  leveraged  financial
condition. Anacomp revised its projected operating results in fiscal 1995 which,
along with applying Anacomp's revised goodwill accounting policy,  resulted in a
write-off  of $108 million of goodwill  for the year ended  September  30, 1995.
This   write-off  is  reflected  in  "Special   charges"  in  the   accompanying
Consolidated Statement of Operations.

Reorganization Value in Excess of Amounts Allocated to Identifiable Assets

As more fully  discussed  in Note 3, the  Company has  "reorganization  value in
excess of amounts  allocated to  identifiable  assets" of $163.9  million net of
accumulated  amortization of $101.4 million at September 30, 1997. This asset is
being  amortized  over a 3.5 year period  beginning  May 31, 1996.  The carrying
value of the Reorganization Asset will be periodically reviewed if the facts and
circumstances  suggest  that it may be  impaired.  The Company  will measure the
impairment  based upon  future  cash  flows of the  Company  over the  remaining
amortization period.


Research and Development

The  engineering  costs  associated  specifically  with research and development
programs are expensed as  incurred,  and amounted to $4.8 for the twelve  months
ended  September 30, 1997,  $1.3 million for the four months ended September 30,
1996,  $2.4 million for the eight months ended May 31, 1996 and $2.2 million for
the twelve  months  ended  September  30,  1995.  The Company  supports  several
engineering   processes,   including  basic  technological   research,   product
development   and   sustaining   engineering   support  for  existing   customer
installations.  The majority of the operating costs for engineering  programs in
fiscal year 1995 related to continued software  development for the XFP 2000 COM
recorder, which were recorded as deferred software costs.

Deferred  software costs are the  capitalized  costs of software  products to be
sold in future  periods with COM systems or as stand alone  products for current
COM system users. The unamortized costs are evaluated for impairment each period
by  determining  their net realizable  value.  Such costs are amortized over the
greater of the estimated units of sale or under the straight-line  method not to
exceed five years.  Due to lower than  expected  sales of new software  products
introduced in 1995,  Anacomp  revised its  projected  future sales and operating
results of software  products  through  1999.  As a result,  during 1995 Anacomp
wrote off $20.3 million of deferred  software costs and established a reserve of
$8.6 million for future payments to IBM Pennant Systems for software royalty and
system support  obligations  which were not  recoverable  based on these revised
projections  (See Note 17). These charges are reflected in "Special  charges" in
the accompanying  Consolidated Statement of Operations for the fiscal year ended
September  30,  1995.  Unamortized  deferred  software  costs  remaining  as  of
September 30, 1997 total $2.5 million and are included in "Other  assets" on the
accompanying Consolidated Balance Sheets.

Sale-Leaseback Transactions

Anacomp  entered  into  sale-leaseback  transactions  of $19.3  million  in 1995
relating to COM systems installed in the Company's data service centers. Part of
the  proceeds  were  treated as fixed asset sales and the  remainder as sales of
equipment.  Revenues of $3.5 million were recorded for the year ended  September
30,  1995.  All  profits  were  deferred  and  were  being  recognized  over the
applicable  leaseback  periods.  In  connection  with Fresh Start  Reporting  as
discussed  in  Note  3,  the  deferred   profit  amount  was  reduced  to  zero.
Concurrently,  the Company  established an unfavorable  lease reserve related to
these leases which is being amortized over the applicable lease periods.
At September 30, 1997 $4.4 million of this reserve remained to be amortized.

Accrued Lease Reserves

Other  noncurrent  liabilities  include  reserves  established  for  unfavorable
facility and equipment lease  commitments,  vacant facilities and related future
lease costs. Total obligations  recorded for these unfavorable lease commitments
and future  lease and related  costs at their  estimated  amounts  were $6.2 and
$11.4 million at September 30, 1997 and 1996, respectively.  The current portion
of these  obligations  was $4.9 and $6.8  million as of  September  30, 1997 and
1996, respectively, and is included in "Other accrued liabilities" and "Accounts
payable" in the accompanying Consolidated Balance Sheets.

Income Taxes

Anacomp  accounts for income taxes based on the  liability  method for computing
deferred income taxes. The benefit of certain loss  carryforwards  are estimated
and  recorded as an asset  unless it is "more  likely than not" that the benefit
will not be realized.

During 1995,  the valuation  allowance was increased to reduce the Company's net
deferred tax asset to zero as a result of the Company's  deteriorating financial
condition.

 In general, Anacomp's practice has been to reinvest the earnings of its foreign
subsidiaries in those  operations and to repatriate  those earnings only when it
was  advantageous to do so. In 1995,  Anacomp  changed its practice  whereby the
Company now repatriates these earnings.  As a result,  Anacomp recorded deferred
taxes of $8.8 million on all undistributed foreign earnings in 1995.

Cash and Cash Equivalents

Anacomp  considers  all highly  liquid  investments  purchased  with an original
maturity  of  three  months  or  less to be cash  equivalents.  These  temporary
investments,  primarily repurchase  agreements and other overnight  investments,
are recorded at cost, which approximates market.


<PAGE>


NOTE  2.
FINANCIAL REORGANIZATION:

On May 20, 1996 (the "Confirmation  Date"), the U.S.  Bankruptcy Court confirmed
the Company's Third Amended Joint Plan of Reorganization (the "Reorganization"),
and on June 4, 1996,  the  Company  emerged  from  bankruptcy.  Pursuant  to the
Reorganization, on such date certain indebtedness of the Company was canceled in
exchange  for cash,  new  indebtedness,  and /or new equity  interests,  certain
indebtedness was reinstated,  certain other prepetition  claims were discharged,
certain  claims were settled,  executory  contracts  and  unexpired  leases were
assumed or rejected,  and the members of a new Board of Directors of the Company
were   designated.   The  Company   simultaneously   distributed   to  creditors
approximately  $22  million  in cash,  $112.2  million  principal  amount of its
11-5/8%  Senior  Secured  Notes due 1999 (the "Senior  Secured  Notes") and $160
million  principal  amount of its 13%  Senior  Subordinated  Notes due 2002 (the
"Senior Subordinated Notes"),  equity securities consisting of 10 million shares
of new common  stock and 362,694  warrants,  each of which is  convertible  into
1.0566  shares of new common  stock  during the five year period  ending June 3,
2001 at an exercise price of $11.57 per share.

The process began January 5, 1996,  when Anacomp filed a  Prenegotiated  Plan of
Reorganization  with the U.S.  Bankruptcy  Court in Delaware under Chapter 11 of
the U.S.  Bankruptcy Code. The Company was in default under substantially all of
its  debt  agreements  as a result  of its  failure  to make  $89.7  million  of
principal  payments  scheduled  for April 26,  1995 and  October 26, 1995 on the
senior  secured  credit  facilities  (including  $60  million  relating  to  the
revolving  loan agreement  which expired on October 26, 1995),  $11.4 million of
principal and interest  payments on the 9% Convertible  Subordinated  Debentures
which were due January 15, 1996,  $34.1 million of interest  payments  scheduled
for May 1, 1995 and November 1, 1995 on its Senior  Subordinated Notes, and $3.2
million of interest payments scheduled for July 15, 1995 and January 15, 1996 on
the  13.875%  Subordinated  Debentures,  as well as certain  financial  covenant
violations, and the cross-default provisions of the other debt agreements.

NOTE  3.
FRESH START REPORTING AND BANKRUPTCY REORGANIZATION:

As noted above,  upon emerging from  bankruptcy,  the Company's  Revolving Loan,
Multi-Currency  Revolving  Loan, Term Loans,  Series B Senior Notes,  15% Senior
Subordinated  Notes,   13.875%  Convertible   Subordinated   Debentures  and  9%
Convertible  Subordinated  Debentures were canceled. In addition,  the Company's
8.25% Cumulative  Convertible  Redeemable  Exchangeable  Preferred Stock, Common
Stock, Warrants and Stock Options were canceled.  In connection  therewith,  the
Company issued new debt and equity  securities as mentioned  above and described
in more detail in Notes 13 and 15.


As of May 31, 1996, the Company adopted Fresh Start Reporting in accordance with
the American  Institute of Certified Public  Accountant's  Statement of Position
90-7  "Financial  Reporting by Entities in  Reorganization  under the Bankruptcy
Code" ("SOP 90-7").  Fresh Start Reporting  resulted in material  changes to the
Condensed Consolidated Balance Sheet, including valuation of assets,  intangible
assets  (including  goodwill) and liabilities at fair market value and valuation
of equity based on the appraised  reorganization  value of the ongoing business.
The net result of the  valuation of  identifiable  assets,  the  recognition  of
liabilities at fair market value and the valuation of equity was the Reorganized
Company  recognizing an asset  "Reorganization  Value in excess of  identifiable
assets" totaling $267.5 million as of May 31, 1996.











As a result of the Bankruptcy  Reorganization,  the Predecessor Company recorded
an  extraordinary  gain  resulting from the discharge of  indebtedness  of $52.4
million calculated as follows:
<TABLE>
<CAPTION>

                                                                              May 31, 1996
                                                                         (Dollars in thousands)
                                                                        -----------------------
<S>                                                                           <C>     
Historical carrying value of old debt securities ...............              $379,256
Historical carrying value of related accrued interest...........                48,500
Unamortized portion of old deferred financing costs.............                  (600)
Market value of consideration exchanged for the old debt:
        Plan securities (face value $279,692)...................              (265,948)
        New common stock (10.0 million new shares issued).......               (79,766)
                                                                        -----------------------
                                                                                81,442
           Tax provision........................................               (29,000)
                                                                        -----------------------
           Extraordinary gain ..................................              $ 52,442
                                                                        =======================
</TABLE>

In accordance with SOP 90-7,  expenses of the Predecessor Company resulting from
the Chapter 11 Reorganization are reported separately as reorganization items in
the  accompanying  Consolidated  Statements of  Operations,  and are  summarized
below:

<TABLE>
<CAPTION>

                                                                                     Eight Months
                                                                                            Ended
           (Dollars in thousands)                                                    May 31, 1996
           ---------------------------------------------------------------------- ----------------
<S>                                                                                      <C>      
           Write-off of deferred debt issue costs and discounts............              $(17,551)
           Adjustment of assets and liabilities to fair market value.......               124,903
           Legal and professional fees associated with bankruptcy..........               (14,944)
           Interest earned on accumulated cash.............................                   431
                                                                                  ----------------
                                                                                         $ 92,839
                                                                                  ================

</TABLE>

The following Pro Forma  Condensed  Financial  Information for the twelve months
ended  September 30, 1996 and 1995, have been prepared giving effect to the sale
of the Image Conversion Services ("ICS") Division and the adjustments related to
the consummation of the Reorganization for interest expense and intangible asset
amortization.  The Condensed  Financial  Information  was prepared as if the Pro
Forma  adjustments  had  occurred  on  October  1,  1995 and  October  1,  1994,
respectively.  This information does not purport to be indicative of the results
which would have been obtained had such  transactions  in fact been completed as
of the date hereof and for the periods  presented or that may be obtained in the
future.

Anacomp, Inc. and Subsidiaries
Pro Forma Condensed Financial Information

<TABLE>
<CAPTION>
                                                                     Pro Forma          Pro Forma
                                                                   Twelve Months      Twelve Months
                                                                      Ended              Ended
                                                                September 30, 1996   September 30, 1995
(Dollars in thousands)                                        ------------------------------------------
<S>                                                                  <C>                <C>      
Total Revenues................................................       $484,637           $ 569,668
Operating costs and expenses..................................        493,291             763,514
Loss before interest, other income, reorganization items,
   income taxes and extraordinary credit......................         (8,654)           (193,846)
                                                                       
Interest expense and fee amortization.........................        (41,327)            (44,301)
Net loss available to common stockholders.....................        (53,713)           (277,346)

</TABLE>

NOTE 4.
SALE OF ICS DIVISION:

Effective  November 1, 1995,  Anacomp sold its ICS  Division  for  approximately
$13.5 million,  which resulted in a net gain to the Company of $6.2 million that
is  reflected  in "other  income  (expense)"  in the  accompanying  Consolidated
Statement of  Operations.  The  proceeds  from this sale were used to reduce the
principal  balance on certain  senior debt.  The ICS Division  performed  source
document  microfilm services at several facilities around the country generating
approximately $20 million of revenues per year.

NOTE 5.
RESTRUCTURING CHARGES:

Included in the operating  results for 1995 are  restructuring  charges of $32.7
million.  These  charges were the result of the  Company's  reassessment  of its
strategy for ongoing  financial  improvement  and a decision to downsize or exit
certain  areas of its  business.  Specifically,  the  Company  closed its Omaha,
Nebraska  magnetic  media  manufacturing  facility,  exited the  manufacture  of
readers and reader/printers at its San Diego, California  manufacturing facility
and reduced headcount  worldwide.  The restructuring  charges included severance
costs of $5.9  million,  which  included  personnel  related to magnetics  media
manufacturing,   reader  and  reader/printer  manufacturing  and  other  various
personnel associated with the worldwide headcount  reduction.  Approximately 400
people were terminated  pursuant to these plans.  Also included in restructuring
charges were inventory write downs of $9.1 million,  excess facility reserves of
$7.7 million and other  reserves of $10  million.  The Company  completed  these
restructuring  activities  during fiscal 1996. The actual costs  associated with
the  restructuring  did not  vary  significantly  from the  previously  reported
amounts.


NOTE 6.
FINANCIAL RESTRUCTURING COSTS:

On April 6, 1995,  Anacomp announced that it had withdrawn its proposed offering
of $225 million  Senior  Secured Notes and a related offer to purchase up to $50
million of the  Company's  outstanding  15%  Senior  Subordinated  Notes.  Costs
directly  related to these  activities  of $6 million are included as "Financial
restructuring costs" in the accompanying  Consolidated  Statements of Operations
for fiscal year 1995.


NOTE 7.
EXCESS OF PURCHASE PRICE OVER NET ASSETS
OF BUSINESSES ACQUIRED (GOODWILL):

Goodwill as of September 30 is summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                            Reorganized Company
                                                     -------------------------------
                                                              1997            1996
                                                              ----            ----
<S>                                                         <C>              <C>   
Goodwill...............................................     $20,673          $2,419
Less accumulated amortization..........................      (2,873)           (134)
                                                            $17,800          $2,285
</TABLE>
            





NOTE 8.
FAIR VALUES OF FINANCIAL INSTRUMENTS:

Statement of Financial  Accounting  Standards  No. 107,  Disclosures  About Fair
Value of Financial  Instruments,  requires  disclosure of fair value information
for certain  financial  instruments.  The carrying amounts for trade receivables
and payables are  considered to be their fair values.  The carrying  amounts and
fair values of the Company's other financial  instruments at September 30, 1997,
and 1996, are as follows:

<TABLE>
<CAPTION>
                                                                                Reorganized Company
                                                        --------------------------------------------------------------------
                                                             September 30, 1997                September 30, 1996
                                                        Carrying Amount                   Carrying Amount
(Dollars in thousands)                                                      Fair Value                        Fair Value
-------------------------------------------------------
Long-Term Debt:
-------------------------------------------------------
<S>  <C>  <C>                                           <C>                <C>                <C>               <C>     
     11-5/8% Senior Secured Notes...................... $       ----       $      ----        $ 97,902          $ 97,902
-------------------------------------------------------
     Multicurrency Revolving Loan......................        2,439             2,439            ----              ----
-------------------------------------------------------
     Senior Secured Term Loan..........................       55,000            55,000            ----              ----
-------------------------------------------------------
     10 7/8% Senior Subordinated Notes.................      196,611           210,160            ----              ----
-------------------------------------------------------
     13% Senior Subordinated Notes.....................         ----              ----         147,058           163,829
-------------------------------------------------------
</TABLE>

The September 30, 1997 and 1996 estimated fair value of Long-Term Debt was based
on quoted market values or discounted cash flow.

NOTE 9.
ACQUISITIONS:

During the three years ended September 30, 1997,  Anacomp made the  acquisitions
set  forth  below,  each of which  has been  accounted  for as a  purchase.  The
consolidated financial statements include the operating results of each business
from the date of  acquisition.  Pro forma  results of  operations  have not been
presented because the effects of these acquisitions were not significant.

Fiscal 1997

During fiscal 1997,  Anacomp acquired either the customer bases and other assets
or the stock of nine businesses. Total consideration was $25.5 million, of which
approximately  $18.3  million was assigned to excess of purchase  price over net
assets acquired.  The aggregate purchase prices consisted of $22.4 million cash,
$1.6 million in assumed liabilities and contingent cash and/or stock payments of
up to $10.0  million  based upon future  operating  results over the next two to
five years.

Fiscal 1996

During fiscal 1996,  Anacomp  acquired  certain  assets of one  business.  Total
consideration was $4.3 million, of which approximately $2.4 million was assigned
to excess of  purchase  price  over net  assets  acquired.  The  purchase  price
consisted of $3.8 million in cash and a one-year note payable of $500,000  which
accrues interest at prime.

Fiscal 1995

During fiscal 1995, Anacomp made no significant acquisitions.



<PAGE>


NOTE 10.
SKC AGREEMENT:

Anacomp has entered into a supply  agreement (the "Supply  Agreement")  with SKC
America,  Inc., a New Jersey corporation ("SKCA"),  and SKC Limited ("SKCL"), an
affiliated corporation of SKCA organized pursuant to the laws of the Republic of
Korea. SKCA and SKCL are collectively referred to as "SKC". The Supply Agreement
expires in December 2003.  Pursuant to the Supply  Agreement,  Anacomp purchases
substantially  all of its requirements for coated duplicate  microfilm from SKC.
Pursuant  to  the  Supply  Agreement,  SKC  also  provides  the  Company  with a
substantial  portion  of its  polyester  requirements  for  its  magnetic  media
products.

In connection  with the Supply  Agreement,  SKC also provided the Company with a
$25 million  trade  credit  facility  which was reduced to $15 million in fiscal
1997 (secured by up to $10 million of products sold to the Company by SKC),  all
of which is  outstanding  at September  30, 1997.  The trade credit  arrangement
bears interest at 1.75% over the prime rate of The First National Bank of Boston
(10.25% as of September 30, 1997).

In connection with an amendment to the Supply Agreement as of the effective date
under the Plan of Reorganization, the Company agreed to certain price increases,
retroactive to 1994, and agreed to make the following  deferred payments related
to the retroactive  price increases to SKC (which were accrued in "Other accrued
liabilities" in the accompanying Consolidated Balance Sheets): (a) $400,000 paid
in 1997: (b) $600,000 due in 1998; (c) $800,000 due in 1999; (d) $800,000 due in
2000; and (e) 1,000,000 due in 2001.


<PAGE>



NOTE 11.
PROPERTY AND EQUIPMENT:

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


                                                              Estimated Useful                 Reorganized Company
(Dollars in thousands)                   September 30,         Life in Years              1997                    1996
----------------------------------------------------------- --------------------- ---------------------- -----------------------
<S>                                                               <C>  <C>            <C>                     <C>    
Land and buildings....................................            10 - 40             $  3,286                $ 3,148
Office furniture......................................             3 - 12                2,765                  2,499
Manufacturing equipment and tooling...................             2 - 10                4,442                  4,161
Field support spare parts.............................             4 - 7                 5,875                  5,852
Leasehold improvements................................         Term of Lease               645                    852
Equipment leased to others............................             2 - 4                 2,185                    467
Processing equipment..................................             3 - 12               17,122                 13,819
                                                                                        36,320                 30,798
Less accumulated depreciation and amortization........                                  (7,257)                (3,696)
                                                                                       $29,063                $27,102


</TABLE>
NOTE 12.
LONG-TERM RECEIVABLES:
<TABLE>
<CAPTION>

Long-term receivables consist of the following:

                                                                                               Reorganized Company
(Dollars in thousands)                                          September 30,              1997                   1996
---------------------------------------------------------------------------------- ---------------------- ---------------------
<S>                                                                                   <C>                    <C>      
Lease contracts receivable...................................................         $   8,785              $  12,546
Notes receivable from asset sales............................................             1,279                  2,260
Other........................................................................               170                    516
                                                                                         10,234                 15,322
Less current portion.........................................................            (3,647)                (4,690)
                                                                                      $   6,587              $  10,632
</TABLE>

Lease  contracts  receivable  result  from  customer  leases of  products  under
agreements which qualify as sales-type  leases.  Annual future lease payments to
be received under sales-type leases are as follows:


(Dollars in thousands)  Year Ended September 30,
--------------------------------------------------------------------------------
1998.............................................................    $   4,512
1999.............................................................        3,014
2000.............................................................        1,667
2001.............................................................          738
2002.............................................................          214
                                                                        10,145
Less deferred interest...........................................       (1,360)
                                                                      $  8,785
             

NOTE 13.
LONG-TERM DEBT:
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>

                                                                                            Reorganized Company
(Dollars in thousands)                                          September 30,              1997                   1996
---------------------------------------------------------------------------------- ---------------------- ---------------------
                                                                                                     
                                                                                                         
<S>                                                                                           <C>               <C> 
13% Senior Subordinated Notes (net of unamortized discount of $12,942)                         ----                147,058
Multicurrency Revolving Loan at 6.6%.........................................                 2,439                   ----
Senior Secured Term Loan at 8.7%.............................................                55,000                   ----
10 7/8% Senior Subordinated Notes (net of unamortized discount               of
    $3,389 ..................................................................               196,611                   ----
Non-interest bearing installment note payable due October 30, 1996...........                  ----                    400
Other........................................................................                 3,434                  3,532
                                                                                            257,484                248,892
Less current portion.........................................................                (9,595)               (31,848)
                                                                                           $247,889               $217,044
</TABLE>




Senior Secured Credit Facility

On February 28, 1997, the Company and certain foreign  subsidiaries entered into
a Credit and Guarantee  Agreement  (the "Credit  Facility")  with a syndicate of
banks  and other  financial  institutions  (collectively,  the  "Senior  Secured
Lenders"),  Lehman Commerical Paper Inc., as arranger and syndication agent, and
The  First  National  Bank  of  Chicago  (in  its  individual  capacity,  "First
Chicago"),  as  administrative  agent.  The Credit  Facility  provides for a $55
million term loan facility  ("the Term  Facility")  and a $25 million  revolving
credit  facility (the "Revolving  Facility").  The proceeds of the Term Facility
and available  cash were used to repay the existing 11 5/8% Senior Secured Notes
due 1999 (the "Old Senior Secured Notes"). The balance of the Old Senior Secured
Notes at February 28, 1997, was $83.6 million,  reflecting the prepayment of the
March 31, 1997 installment of $14.3 million made on February 20, 1997.

As of September 30, 1997, $55 million was  outstanding  under the Term Facility,
and $2.4  million  was  outstanding  under the  Revolving  Facility.  The entire
Revolving  Facility  is  available  for loans  denominated  in U.S.  dollars and
certain foreign currencies ("Multicurrency Loans"), and up to $10 million of the
Revolving  Facility is available for letters of credit of which $2.7 million was
outstanding  at September  30, 1997.  The Term Facility is repayable in thirteen
quarterly installments commencing March 31, 1998, with the final installment due
on March 31, 2001. The Revolving Facility terminates on February 28, 2001.

The  Company may elect to have loans  under the Term  Facility or the  Revolving
Facility  bear  interest  at (a)  the  Alternate  Base  Rate  plus 2% or (b) the
Eurodollar Rate, or in the case of Multicurrency  Loans, the Eurocurrency  Rate,
plus 3%. Interest is payable quarterly and at the end of the Interest Period (as
defined in the Credit Facility). The "Alternate Base Rate" for any day means the
higher of (i) the corporate base rate of interest announced by First Chicago and
(ii) the federal funds rate published by the Federal Reserve Bank of New York on
the next business day plus 1/2%. The  "Eurodollar  Rate" for any Interest Period
means (A) the  applicable  London  interbank  offered  rate for deposits in U.S.
dollars two business days prior to the first day of the Interest  Period divided
by (B) one minus the "Eurocurrency  Liabilities" under Regulation D of the Board
of Governors of the Federal  Reserve  System.  The  "Eurocurrency  Rate" for any
Interest  Period means the rate at which First Chicago  offers to place deposits
in the  applicable  foreign  currency  with  first-class  banks  in  the  London
interbank  market  two  business  days  prior to the first  day of the  Interest
Period.



The Term Facility and the Revolving Facility are secured by all of the Company's
tangible and intangible assets (including  intellectual property,  real property
and all of the  capital  stock  of  each of the  Company's  direct  or  indirect
domestic  subsidiaries  and 65% of the  capital  stock of each of the  Company's
material direct foreign  subsidiaries).  All of the Company's  obligations under
the Credit Facility are  unconditionally  guaranteed by the Company's  direct or
indirect domestic subsidiaries.  In addition to customary covenants,  the Credit
Facility requires that the Company:  (a) maintain certain ratios of Consolidated
EBITDA (as defined in the Credit Facility), (b) not incur any indebtedness other
than the 10 7/8% Senior Subordinated Notes due 2004 (the "Notes"),  indebtedness
under the Credit  Facility and certain  other  indebtedness,  (c) not permit any
lien to exist on any of its  property,  assets or revenues,  except the liens in
favor of the Senior Secured Lenders,  existing liens and certain other liens (d)
not to incur any guarantee obligations, except the guarantee obligations related
to the Credit Facility and certain other guarantee obligations and (e) prohibits
payment of dividends to common shareholders.

The  Company  must use 25% of  Consolidated  Excess Cash Flow (as defined in the
Credit  Facility)  in  fiscal  1997 and 50% of  Consolidated  Excess  Cash  Flow
thereafter to repay the Term Facility and reduce Revolving Facility commitments.
Additionally,  100% of the Net Proceeds  (as defined in the Credit  Facility) of
any Asset Sale (as defined in the Credit  Facility) and 75% of proceeds from the
sale of  Capital  Stock  (as  defined  in the  Credit  Facility)  not  used  for
acquisitions  or the repurchase of  subordinated  debt, must be applied to repay
the Term  Facility  and  reduce the  Revolving  Facility  commitments.  The Term
Facility repayment schedule, after considering the terms of the excess cash flow
requirements, is as follows:

                                                   Year ended September 30,
 (Dollars in thousands)                                                        
                   
 1998..........................................           $ 8,740
 1999..........................................             13,780
 2000..........................................             20,669
 2001..........................................             11,811
                                                   ------------------------
                                                          $ 55,000
                                                   ========================


10 7/8% Senior Subordinated Notes

On  March  24,  1997,  the  Company  issued  $200  million  of  10  7/8%  Senior
Subordinated  Notes ("the  Notes").  The Notes were sold at 98.2071% of the face
amount to yield proceeds of $196.4 million.  The proceeds of the Notes were used
to repay the existing  13% Senior  Subordinated  Notes due 2002,  including a 3%
call  premium  and  accrued  interest,  to reduce  the SKC trade  payable by $10
million and associated  accrued interest,  and to pay certain fees and expenses.
As a result of the call premium ($5.2 million) and existing  discount on the 13%
notes  ($11.6  million),  the  Company  recorded  an  extraordinary  loss on the
extinguishment of debt of $11.0 million, net of tax benefits.

The Notes are not  redeemable  at the  option of the  Company  prior to April 1,
2000. On or after such date until April 1, 2003, the Notes will be redeemable at
the option of the Company in whole or in part at prices ranging from 108.156% to
102.710% plus accrued and unpaid interest.  On or after April 1, 2003, the Notes
may be  redeemable at 100% plus accrued and unpaid  interest.  Prior to April 1,
2000,  the Company may, at its option,  use the net cash proceeds of one or more
Public Equity  Offerings (as defined in the  Indenture),  to redeem up to 35% of
the  aggregate  principal  amount at a redemption  price equal to 110.875%  plus
unpaid  interest to the date of redemption,  provided that at least $130 million
of the aggregate principal amount of Notes originally issued remains outstanding
after any such redemption.

Also,  upon a Change of Control  (as defined in the  Indenture),  the Company is
required to make an offer to purchase the Notes then  outstanding  at a purchase
price equal to 101% of the  principal  amount  thereof,  plus accrued and unpaid
interest.  The Notes have no sinking  fund  requirements  and are due in full on
April 1, 2004.

The Notes  are  general  unsecured  obligations  of the  Company  and  expressly
subordinated in right of payment to all existing and future Senior  Indebtedness
(as defined in the  Indenture)  of the  Company.  The Notes will rank pari passu
with any future Senior  Subordinated  Indebtedness (as defined in the Indenture)
and senior to all Subordinated Indebtedness (as defined in the Indenture) of the
Company.

The indenture relating to the Notes contains covenants related to limitations of
indebtedness  of  the  Company  and  restricted  subsidiaries,   limitations  on
restricted   payments,   limitations  on  restrictions  on  distributions   from
restricted subsidiaries, limitations on sale of assets and restricted subsidiary
stock,  limitations  on  liens,  a  prohibition  on  layering,   limitations  on
transactions with affiliates,  limitations on issuance and sale of capital stock
of restricted  subsidiaries,  limitations  of  sale/leaseback  transactions  and
prohibits payment of dividends to common shareholders.


NOTE 14.
RIGHTS OFFERING:

On October 30,  1996,  the Company  completed a rights  offering to its existing
shareholders  that  resulted in the  issuance  of 3.6  million  shares of common
stock.  For each share of Anacomp  common stock held as of the close of business
on  September  18,  1996,  the  Company  distributed  0.36 rights to purchase an
additional  share of common stock at a  subscription  price of $6.875 per share.
The Company is using the  proceeds  of the rights  offering,  approximately  $25
million, for the acquisition of businesses, assets and technologies.

NOTE 15.
CAPITAL STOCK:

Reorganized Company

Preferred Stock

The Board of  Directors of the Company has the ability,  at its  discretion,  to
create  one  or  more  series  of  Preferred   Stock  and  shall  determine  the
preferences,  limitations,  and relative  voting and other rights of one or more
series of Preferred Stock.

Stock Option Plans

On July 22, 1996, the Company's Board of Directors approved the 1996 Restructure
Recognition  Incentive  Plan.  Under this plan,  effective  August 22, 1996, the
Company  awarded to employees  947,500 stock options to acquire new common stock
and 99,050 shares of restricted new common stock.

With regard to the stock options,  the options were granted at an exercise price
of $4.63 per share of new common stock which will result in  approximately  $3.2
million of compensation  expense over the vesting period of the options based on
the  market  value of the stock at August  22,  1996.  75% of the  options  vest
ratably  during  the  period  from June 30,  1997 to June 30,  1999.  25% of the
options vest on September 30, 1999, provided certain performance goals have been
met;  otherwise  the  options  vest on June 30,  2003.  During  1997  and  1996,
approximately  $1  million  and  $200,000,   respectively,   was  recognized  as
compensation expense related to the options and the above noted restricted stock
award.  The options expire 10 years after the date of the grant. As of September
30, 1997, 164,950 options were exercisable.

With  regard to the  restricted  shares of new common  stock,  the  shares  vest
immediately  and thus the  Company  recognized  approximately  $0.8  million  of
compensation  expense  immediately  upon  granting the award based on the market
value of the Company's  stock on August 22, 1996. The shares are restricted from
sale or transfer by the  recipient  employees  until after  September  30, 1997.
Effective  December 6, 1996,  34,650 shares of restricted stock were returned by
employees to the Company.

In addition,  on February 3, 1997 the Company's  shareholders  approved the 1996
Long-Term  Incentive  Plan,  which  provides for the future  issuance of various
forms of stock related awards including options,  stock appreciation  rights and
restricted shares. The Company has reserved 1,400,000 shares of new common stock
for issuance  under this plan.  Awards,  including  the nature of the awards and
related  exercise  prices,  are  to be  determined  at  the  discretion  of  the
Compensation  Committee of the Board of Directors  in  accordance  with the plan
provisions.

The Company  accounts for its Stock Option Plans in accordance  with APB Opinion
No. 25 ("APB 25"),  under which  compensation  expense is recognized only to the
extent the exercise  price of the option is less than the fair market value of a
share of stock at the date of  grant.  During  1995,  the  Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 123,
Accounting for Stock Based  Compensations  (SFAS 123), which considers the stock
options as compensation expense to the Company, based on their fair value at the
date of grant. Under this new standard, the Company has the option of accounting
for employee  stock  option plans as it currently  does or under the new method.
The Company intends to continue to use the APB 25 method for accounting, but has
adopted the  disclosure  requirements  of SFAS 123. Had  compensation  costs for
these plans been  determined  consistant with SFAS 123, the Company's net income
would have been as follows:


                                         Months Ended     Four Months Ended
                                     September 30, 1997   September 30, 1996
                                        
Net loss as reported................    $ (67,811)          $ (22,009)
Pro forma net loss..................    $ (69,940)          $ (22,096)
Pro forma loss per share............    $ (5.21)            $ (2.20)





<PAGE>

<TABLE>
<CAPTION>



                                                                                                     Weighted Ave.
Stock Option activity under the plan was as follows:                               Shares              Exercise Price
--------------------------------------------------------------------------- ------------------- --------------------------
<S>                                                                              <C>                       <C>            
Oustanding at June 1, 1996...........................................               ----                  ----
Granted...............................................................            947,500                  $  4.63
Outstanding at September 30, 1996.....................................            947,500                  $  4.63
Granted...............................................................            939,205                  $ 10.64
Canceled..............................................................           (135,650)                 $  4.86
Exercised.............................................................            (80,000)                 $  5.15
                                                                            ------------------- --------------------------
Outstanding at September 30, 1997.....................................          1,671,055                  $  7.96
                                                                            =================== ==========================

</TABLE>

The  following  information  is  summarized  related to options  outstanding  at
September 30, 1997:
<TABLE>
<CAPTION>

                                                                                             Weighted Ave.
Number of       Range of Exercise     Weighted Ave.      Weighted Ave.       Options         Exercise Price of
   Options      Price Per Share       Exercise Price     Remaining Life      Excercisable    Options Excercisable
<S>                <C>                       <C>             <C>               <C>                   <C>  
   743,725                $4.63                $4.63         8.89 Years        137,500                $4.63
   575,598           $7.95 - $11.13            $9.36         9.22 Years         49,253                $9.66
   351,732         $12.50 - $14.63           $12.74          9.68 Years          2,000               $12.50
 1,671,055

</TABLE>

The fair value of each option  grant is estimated on the date of grant using the
Black Scholes option pricing model.  The weighted  average fair value of options
granted during 1997 and 1996, as well as the weighted  average  assumptions used
to determine the fair values are summarized below:

                                                         1997           1996
                                                      ------------- ------------
Fair Value of Options Granted...................      $ 6.73         $  6.05

Risk-Free Interest Rate.........................        6.22%            6.57%
Expected Dividend Yield.........................           0%             0%
Expected Volatility.............................          40%             40%
Expected Life...................................      10 Years        10 Years


Warrants

In  connection  with the  Reorganization  discussed  in Note 2,  Anacomp  issued
362,694 new  warrants to certain  creditors  and previous  common and  preferred
stockholders.  Each new  warrant  was  convertible  into one share of new common
stock at an exercise  price of $12.23 per share.  In connection  with the rights
offering  discussed in Note 14, each new warrant is now convertible  into 1.0566
shares of new common  stock at an  exercise  price of $11.57 per share.  The new
warrants expire on June 3, 2001.



<PAGE>



Other Items

On February 3, 1997, the Company's  shareholders approved the Anacomp, Inc. 1997
Qualified  Employee Stock Purchase Plan (the "Stock Purchase  Plan").  The Stock
Purchase  Plan allows  qualified  employees to purchase  shares of the Company's
common  stock  at the  lower  of 85% of the  fair  market  value  at the date of
purchase  or 85% of the fair  market  value on the first  day of each  quarterly
offering  period.  A maximum of 500,000  shares of common stock is available for
purchase  under the Stock  Purchase  Plan.  No shares are scheduled to be issued
prior to March 31, 1998.

At September 30, 1997,  approximately  3.3 million  shares of Anacomp new common
stock were  reserved  for  exercise  of stock  options,  exercise  of  warrants,
employee stock purchases and other corporate purposes.

Predecessor Company

Stock Option Plans

Anacomp's  stock option plans provided that the exercise price of the options be
determined by the Board of Directors (the "Board"),  and in no case be less than
100% of fair market value at the time of grant for  qualified  options,  or less
than the par value of the stock for  non-qualified  options.  An option could be
exercised  subject to such  restrictions as the Board may impose at the time the
option was granted. In any event, each option terminated not later than 10 years
after the date on which it was granted.

No shares were available for grant at May 31, 1996.  Shares  available for grant
under the plans were 1,401,328 at September 30, 1995.
Options outstanding were as follows:

<TABLE>
<CAPTION>

                                                                                                      Option Price
                                                                            Shares                      Per Share
--------------------------------------------------------------------------- ------------------- --------------------------
<S>                                                                            <C>                 <C>          <C>  
Outstanding at September 30, 1994.....................................          4,208,259           1.000    -   9.000
Granted...............................................................          1,355,736            .563    -   2.500
Canceled..............................................................         (2,010,753)           .563    -   4.750
Expired...............................................................            (20,484)          2.000    -   4.500
Excercised............................................................            (24,863)           .563    -   2.000
                                                                            ------------------- --------------------------
Outstanding at September 30, 1995.....................................          3,507,895            .563    -   9.000
Granted...............................................................            677,181            .313    -    .313
Canceled..............................................................         (4,182,076)           .313    -   9.000
Expired...............................................................             (3,000)          2.000    -   3.500
                                                                            ------------------- --------------------------
Outstanding at May 31, 1996...........................................               ----         $  ----    -  $ ----
                                                                            =================== ==========================
</TABLE>


All  options  existing  at May 31, 1996 were  canceled  in  connection  with the
Company's Reorganization discussed in Note 2.

Warrants

In October 1990,  Anacomp issued 6,825,940  warrants ("Old Warrants") to holders
of the 15% Senior  Subordinated  Notes.  Each Old Warrant entitled the holder to
purchase  one  common  share at a price of $1.873  and was  exercisable  through
November 11, 2000, the date of expiration. In connection with the Reorganization
discussed in Note 2, the Old Warrants were canceled.



<PAGE>



NOTE 16.


INCOME TAXES:


The  components of income (loss)  before income taxes and  extraordinary  credit
were:

<TABLE>
<CAPTION>
                                                                                            Predecessor Company
                                                                                     -----------------------------------
                                           Twelve Months           Four Months        Eight Months      Twelve Months
                                               Ended                  Ended               Ended             Ended
(Dollars in  thousands)                 September 30, 1997     September 30, 1996     May 31, 1996          1995
-------------------------------------- ---------------------- ---------------------- ---------------- ------------------
<S>                                        <C>                    <C>                     <C>         <C>       
United States.......................       $(53,968)              $(21,602)               $112,100    $(209,151)
Foreign.............................         12,618                  3,993                                  5,825
                                                                                         4,128
                                           $(41,350)              $(17,609)               $116,228      $(203,326)
</TABLE>


The  components of the  consolidated  tax  provision  after  utilization  of net
operating loss  carryforwards  and the adjustment of tax reserves are summarized
below:
<TABLE>
<CAPTION>

                                                                                               Predecessor Company
                                                                                        -----------------------------------
                                              Twelve Months           Four Months        Eight Months      Twelve Months
                                                  Ended                  Ended               Ended             Ended
(Dollars in thousands)                     September 30, 1997     September 30, 1996     May 31, 1996          1995
----------------------------------------- -------------------- ---------------------- ---------------- ------------------
Current:
<S>                                           <C>                     <C>                <C>                 <C>      
    Federal.........................          $     300               $    600           $     ----          $    ----
    Foreign.........................              5,400                  2,400              3,700                4,800
    State...........................                400                    100               ----                 ----
                                               $  6,100                  3,100              3,700                4,800
Tax reserve adjustment..............              2,800                   ----               ----                1,200
Non-cash charge in lieu of taxes ...                700                  1,300             29,000               29,000
                                               $  9,600                $ 4,400            $32,700              $35,000
</TABLE>




The  income  tax  provision  is  included  in  the  Consolidated  Statements  of
Operations as follows:
<TABLE>
<CAPTION>
                                                                                                 Predecessor Company
                                                                                       -----------------------------------------
                                             Twelve Months           Four Months        Eight Months         Twelve Months
                                                 Ended                  Ended               Ended                Ended
(Dollars in thousands)                    September 30, 1997     September 30, 1996     May 31, 1996      September 30, 1995
---------------------------------------- ---------------------- ---------------------- ---------------- ------------------------

Provision   for  income   taxes  before
<S>                                           <C>                    <C>                <C>                  <C>     
extraordinary items.................          $ 15,500               $  4,400           $  3,700             $ 35,000
Extraordinary   gain  on  discharge  of
indebtedness........................              ----                   ----             29,000                 ----
Extraordinary  loss  extinguishment  of
indebtedness........................     ---------------------           ----          -------------  -------------------------
                                                (5,900)                                     ----                 ----
                                              $  9,600                $ 4,400            $32,700              $35,000

</TABLE>




For the reorganized company, the non-cash charge in lieu of taxes represents the
utilization of  pre-organization  tax benefits which are reflected as reductions
in the reorganization asset. For the predecessor company, the non-cash charge in
lieu of taxes represents the utilization of  pre-acquisition  tax benefits which
are reflected as reductions to goodwill.

The  following  is a  reconciliation  of income taxes  calculated  at the United
States federal statutory rate to the provision for income taxes:
<TABLE>
<CAPTION>
                                                                Twelve             Four             Eight           Twelve
                                                             Months Ended      Months Ended     Months Ended    Months Ended
                                                             September 30,    September 30,        May 31,         May 31,
(Dollars in thousands)                                           1997              1996             1996              1995
----------------------------------------------------------- ---------------- ----------------- ---------------- -----------------
<S>                                                           <C>              <C>               <C>              <C>      
Provision for income taxes at U.S. statutory rate........     $(14,203)        $ (6,200)         $ 40,700         $(71,200)
Non taxable reorganization income........................         ----             ----           (43,700)             ---
Increase in deferred tax asset valuation allowance.......         ----             ----              ----           51,400
Nondeductible  amortization  and  write-off of  intangible
assets...................................................       24,359            8,300             2,500           40,500
State and foreign income taxes...........................        2,677            1,200             2,300            2,800
U.S. tax on distributed and undistributed foreign earnings
                                                                  ----             ----              ----           12,300
Tax reserve adjustment...................................        2,800             ----              ----            1,200
Tax effect of  pre-reorganization  loss not  available due
to ownership change .....................................         ----             ----             2,100             ----
Alternative minimum tax..................................          400            1,000              ----             ----
Other....................................................         (533)             100              (200)          (2,000)
                                                              $ 15,500         $  4,400          $  3,700         $ 35,000
-----------------------------------------------------------
</TABLE>



<PAGE>



The components of deferred tax assets and  liabilities at September 30, 1997 and
September 30, 1996 are as follows:
<TABLE>
<CAPTION>

                                                                                    September 30,          September 30,
Net Deferred Tax Asset (Dollars in thousands)                                           1997                   1996
------------------------------------------------------------------------------- ---------------------- ----------------------
Tax effects of future differences related to:
<S>                                                                                      <C>                <C>        
    Inventory reserves.......................................................            $ 9,300            $     7,000
    Depreciation.............................................................              1,900                  1,600
    Building reserves........................................................              1,600                    500
    EPA reserve..............................................................              2,700                  2,500
    Sale/leaseback of assets.................................................               (900)                   700
    Restructuring activities.................................................               (400)                 1,200
    Asset sale...............................................................              1,800                  2,600
    Bad debt reserve.........................................................              1,700                  1,800
                                                                                           1,400                   ----
       Insurance..................................................................................................
    Other....................................................................              4,600                  7,800
    Leases...................................................................             (1,600)                (2,100)
    Capitalized software.....................................................             (2,300)                (2,700)
Net tax effects of future differences........................................             19,800                 20,900
Tax effects of carryforward benefits:
    Federal net operating loss carryforwards.................................             59,900                 47,900
    Federal general business tax credits.....................................              3,200                  3,600
    Foreign tax credits......................................................              3,000                  3,000
Tax effects of carryforwards.................................................             66,100                 64,500
Tax effects of future taxable differences and carryforwards..................             85,900                 85,400
Less deferred tax asset valuation allowance..................................            (85,900)               (85,400)
Net deferred tax asset.......................................................             $ ----          $        ----
</TABLE>




At September 30, 1997, the Reorganized Company has NOLs of approximately  $149.6
million available to offset future taxable income.  This amount will increase to
$199.1 million as certain temporary differences reverse in future periods. Usage
of these NOLs by the Reorganized  Company is limited to approximately $4 million
annually.  However,  the Reorganized  Company may authorize the use of other tax
planning  techniques  to utilize a portion of the  remaining  NOLs  before  they
expire. In any event, the Reorganized  Company expects that substantial  amounts
of the NOLs will expire unused.

The Reorganized  Company has tax credit  carryforwards  of  approximately  $16.9
million.  These tax credits  are  principally  foreign tax credit  carryforwards
resulting  from  inclusion  of  the  accumulated  earnings  and  profits  of the
Reorganized  Company's foreign  subsidiaries in U.S. taxable income in 1996. The
Reorganized Company expects that these credits will expire unused.

The tax benefits of pre-reorganization  net deferred tax assets will be reported
first as a reduction of "Reorganization  value in excess of identifiable assets"
and then as a credit to equity.  These tax benefits  will not reduce  income tax
expense.









<PAGE>



NOTE 17.
COMMITMENTS AND CONTINGENCIES:

Anacomp has  commitments  under  long-term  operating  leases,  principally  for
building space and data service center  equipment.  Lease terms  generally cover
periods from five to twelve years.  The following  summarizes the future minimum
lease payments under all noncancelable  operating lease  obligations,  including
the unfavorable  lease  commitments and vacant  facilities  discussed in Note 1,
which extend beyond one year:

(Dollars in thousands)                   Year ended September 30,
 ------------------------------------------------------------------------------
 1998.............................................................    $15,351
 1999.............................................................      6,180
 2000.............................................................      2,482
 2001.............................................................      1,456
 2002.............................................................      1,032
 2003 and thereafter..............................................      6,909
                                                                       33,410

 Less liabilities recorded as of September 30, 1997 related
  to unfavorable lease commitments and future lease costs      
  for  vacant   facilities  ($4.9  million  reflected  in  current
  liabilities).................................................        (6,197)

                                                                       27,213

The total of future minimum rentals to be received under noncancelable subleases
related to the above  leases is  $752,000.  No material  losses in excess of the
liabilities recorded are expected in the future.

In November 1993,  Anacomp and Pennant Systems,  a division of IBM,  announced a
joint effort to develop  software which will allow Anacomp's XFP 2000 to process
and image IBM  Advanced  Function  Presentation  ("AFP")  formatted  data.  This
program  resulted  in the XFP  2000  being  able to  output  AFP  data  streams,
including  those  containing  fonts,  logos,  signatures and other images,  onto
microfiche.

As consideration  for the development of the AFP, Anacomp paid Pennant Systems a
development  fee of $6.5  million.  Anacomp  was also  required  to pay  Pennant
Systems minimum annual royalty  payments for the licensed  system  installations
for six years and for ongoing  system  support  which began in December 1995 and
continues  for 10 years.  During  1995,  Anacomp  established  a reserve of $8.6
million for future payments to Pennant Systems for software  royalty and systems
support  obligations  which were not recoverable as more fully discussed in Note
1. In connection with the Company's  financial  restructuring  during 1996, this
contract was renegotiated  with Pennant such that the reserve  requirements were
greatly  reduced.  The  renegotiated  contract  requires  Anacomp to make future
license fee payments to Pennant Systems of $625,000 annually through fiscal year
1999, of which $0.6 million is reserved at 9/30/97.

The Company sold $10.5 million of lease  receivables  in the twelve months ended
September 30, 1995. Under the terms of the sale, the purchasers have recourse to
the Company  should the  receivables  prove to be  uncollectable.  The amount of
recourse remaining at September 30, 1997 is $1.2 million.

Anacomp  also is  involved  in various  claims and  lawsuits  incidental  to its
business and  management  believes that the outcome of any of those matters will
not have a material  adverse effect on its  consolidated  financial  position or
results of operations.

NOTE 18.
SUPPLEMENTARY INCOME STATEMENT INFORMATION:
<TABLE>
<CAPTION>

                                                          Twelve              Four              Eight              Twelve
                                                       Months Ended       Months Ended       Months Ended       Months Ended
                                                       September 30,     September 30,         May 31,            May 31,
(Dollars                                         in        1997               1996               1996               1995
thousands)
---------------------------------------------------- ------------------ ----------------- ------------------- -----------------
<S>                                                      <C>               <C>               <C>               <C>     
    Maintenance and repairs........................      $ 10,550          $   3,505         $   7,243         $ 16,609
    Depreciation and amortization:
       Property and equipment......................        10,278              3,696             8,573           19,406
       Deferred software costs.....................         1,730                297             1,883            3,449
       Intangible assets...........................        79,156             25,853             6,841           13,143
    Rent and lease expense.........................        16,641              5,936            13,958           23,755

NOTE 19.
OTHER ACCRUED LIABILITIES:
</TABLE>
<TABLE>
<CAPTION>

Other accrued liabilities consist of the following:
                                                                                 Reorganized Company
                                                                           --------------------------------
(Dollars in thousands)                                                                       1997             1996

September 30,
-------------------------------------------------------------------------- ---------------- ---------------
<S>                                                                             <C>              <C>    
Unfavorable lease commitment related to sale/leaseback transactions......       $ 3,755          $ 4,550
EPA reserve..............................................................         6,779            6,961
Other....................................................................        23,995           25,303
                                                                                $34,529          $36,814
--------------------------------------------------------------------------
</TABLE>

Xidex  Corporation,  a  predecessor  company of Anacomp,  was  designated by the
United  States   Environmental   Protection  Agency  ("EPA")  as  a  potentially
responsible  party for  investigatory  and cleanup  costs  incurred by state and
federal  authorities  involving  locations  included on a list of EPA's priority
sites for  investigation  and remedial  action  under the federal  Comprehensive
Environmental Response,  Compensation,  and Liability Act. The EPA reserve noted
above   relates  to  its   estimated   liability   for  cleanup  costs  for  the
aforementioned  locations  and other sites.  No material  losses are expected in
excess of the liabilities recorded above.

NOTE 20.
EARNINGS (LOSS) PER SHARE:

The computation of earnings (loss) per share is based upon the weighted  average
number of common shares  outstanding during the period plus (in periods in which
they have a dilutive effect) the effect of common shares contingently  issuable,
primarily  from stock options and exercise of warrants.  Fully diluted  earnings
(loss) per share also reflect  additional  dilution related to stock options due
to the use of the market  price at the end of the  period,  when higher than the
average price for the period.  For the twelve  months ended  September 30, 1997,
and the four months ended  September  30, 1996,  earnings per share is presented
based  on  the  weighted  average  shares   outstanding  before  the  effect  of
continently  issuable  shares,  stock  options  or  warrants  due to the  losses
reported for the periods.

The weighted  average number of common shares  outstanding and net income (loss)
per  common  share for  periods  prior to May 31,  1996 have not been  presented
because,  due to the Reorganization and implementation of Fresh Start Reporting,
they are not comparable to subsequent periods.



<PAGE>



The  weighted  average  number of common and common  equivalent  shares  used to
compute earnings per share is:
                                         Twelve Months         Four Months
                                             Ended                Ended
                                           September 30,        September 30,
                                                 1997                1996

                                        =================== ====================
Common and common equivalent share...      13,432,337          10,033,576
                                        =================== ====================



NOTE 21.
INTERNATIONAL OPERATIONS:

Anacomp's   international   operations   are   conducted   principally   through
subsidiaries,  a substantial  portion of whose operations are located in Western
Europe.  Information  as to U.S.  and  international  operations  for the twelve
months ended  September 30, 1997, the four months ended  September 30, 1996, the
eight months ended May 31, 1996 and the twelve  months ended  September 30, 1995
is as follows:
<TABLE>
<CAPTION>


Twelve Months Ended September 30, 1997 - Reorganized Company

(Dollars in thousands)                                    U.S.           International       Elimination        Consolidated
--------------------------------------------------- ------------------ ------------------ ------------------ -------------------
<S>                                                       <C>                <C>                                   <C>    
Customer sales.................................           301,377            161,133               ----            462,510
Inter-geographic...............................            20,366               ----            (20,366)              ----
Total sales....................................           321,743            161,133            (20,366)           462,510
Operating income (loss)........................           (30,067)            21,552               ----             (8,515)
Identifiable assets............................           346,487             45,464               ----            391,951

</TABLE>

Four Months Ended September 30, 1996 - Reorganized Company
<TABLE>
<CAPTION>

(Dollars in thousands)                                    U.S.           International       Elimination        Consolidated
--------------------------------------------------- ------------------ ------------------ ------------------ -------------------
<S>                                                      <C>                <C>           <C>                     <C>     
Customer sales.................................          $102,733           $ 48,809      $         ----          $151,542

Inter-geographic...............................             4,449               ----             (4,449)              ----
Total sales....................................          $107,182           $ 48,809         $   (4,449)          $151,542
Operating income...............................         $ (12,401)         $   6,637      $        ----         $   (5,764)
Identifiable assets............................          $390,088           $ 45,333      $        ----           $435,421
</TABLE>


Eight Months Ended May 31, 1996 - Predecessor Company
<TABLE>
<CAPTION>

(Dollars in thousands)                                    U.S.           International       Elimination        Consolidated
--------------------------------------------------- ------------------ ------------------ ------------------ -------------------
<S>                                                      <C>                <C>           <C>                     <C>     
Customer sales.................................          $227,742           $106,856      $         ----          $334,598

Inter-geographic...............................            12,592               ----            (12,592)              ----
Total sales....................................          $240,334           $106,856         $  (12,592)          $334,598
Operating income...............................         $  34,990         $    6,615      $         ----         $  41,605
</TABLE>


Twelve Months Ended September 30, 1995 - Predecessor Company
<TABLE>
<CAPTION>

(Dollars in thousands)                                    U.S.           International       Elimination        Consolidated
--------------------------------------------------- ------------------ ------------------ ------------------ -------------------
<S>                                                    <C>                 <C>             <C>                  <C>       
Customer sales.................................        $  404,239          $ 186,950       $       ----         $  591,189

Inter-geographic...............................            24,973               ----            (24,973)              ----
Total sales....................................        $  429,212          $ 186,950          $ (24,973)        $  591,189
Operating income (loss)........................        $ (135,811)       $     7,622      $        ----         $ (128,189)
Identifiable assets............................        $  350,310         $   70,719      $        ----         $  421,029
</TABLE>




<PAGE>



 NOTE 22.
QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>

                                                               First           Second           Third         Fourth
(Dollars in thousands, except per share amounts)             Quarter          Quarter         Quarter        Quarter
------------------------------------------------------ ---------------- --------------- -------------- --------------
Fiscal 1997 - Reorganized Company
<S>                                                         <C>              <C>            <C>            <C>      
Revenues.......................................             $116,453         $114,520       $ 114,041      $ 117,496
Gross profit...................................               41,414           38,801          37,782         39,999
Income (loss) before extraordinary loss........              (12,914)         (14,566)        (14,856)       (14,514)
Extraordinary loss on extinguishment
    of debt....................................        ---------------        (12,536)            875            700
                                                                ----
Net loss to common stockholders................             $(12,914)        $(27,102)       $(13,981)      $(13,814)
Earnings (loss) per common share (primarily and
    fully diluted):
Net income (loss) available to common stockholders            $(1.01)          $(1.06)      $(1.08)        $(1.05)
    before extraordinary loss..................
Extraordinary loss on the extinguishment of debt,
    net of income tax benefit..................        ---------------  --------------  -------------  -------------
                                                                ----              (.92))       .06           .05
Net income (loss) available to common
    stockholders...............................        ===============  ==============  =============  =============
                                                                                          $ (1.02)         $ (1.00)
                                                          $(1.01)          $(1.98)

</TABLE>

<TABLE>
<CAPTION>



                                                           Predecessor Company                Reorganized Company
                                                 ----------------------------------------- ---------------------------
                                                                              Two Months     One Month
                                                                                Ended          Ended
(Dollars in thousands,                              First         Second        May          June 30,        Fourth
except                     per share amounts)      Quarter       Quarter         31,           1996         Quarter
                                                                                 1996
------------------------------------------------ ------------- ------------- ------------- -------------- -------------
Fiscal 1996
<S>                                                   <C>           <C>          <C>           <C>            <C>     
Revenues.......................................       $130,265      $125,911     $ 78,422      $ 36,786       $114,756
Gross profit...................................         40,666        40,411       23,903        11,895         37,692
Income (loss) before extraordinary credit......          1,053       (10,731)     122,206        (4,372)       (17,637)
Extraordinary gain on discharge
   of indebtedness.............................           ----          ----       52,442          ----           ----
Net income (loss)..............................          1,053       (10,731)     174,648        (4,372)       (17,637)
Preferred stock dividends and discount
    accretion..................................        
                                                           540          ----         ----          ----
Net income (loss) available to common
    stockholders...............................       
                                                    $      513     $ (10,731)    $174,648       $ (4,372)      $(17,637)
Earnings per common share (primarily and fully diluted):
Net loss available to common
    stockholders...............................                                            =============  ============
                                                                                              $ (.44)         $ (1.75)

</TABLE>




<PAGE>



NOTE 23.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES:

The following is a summary of activity in the Company's valuation and qualifying
accounts  and reserves for the twelve  months ended  September  30, 1997 for the
periods  ended  September  30, 1996 and May 31,  1996 and for the twelve  months
ended September 30, 1995:

<TABLE>
<CAPTION>
                                                     Balance at      Charged to                    Balance at
                                                    beginning of     costs and                    end of period
Description                                            period         expenses     Deductions
--------------------------------------------------- -------------- --------------- -------------- --------------

(Dollars in thousands)

Twelve months ended September 30, 1997 - Reorganized Company


<S>                                                 <C>            <C>             <C>            <C>      
    Allowance for doubtful accounts............     $    6,768     $     (341)     $       926    $   5,501

Four Months ended September 30, 1996 - Reorganized Company
================================================================================================================


    Allowance for doubtful accounts............     $   7,464      $      388      $    1,084[1]  $   6,768

Eight Months ended May 31, 1996 - Predecessor Company
================================================================================================================


    Allowance for doubtful accounts............     $   7,367      $      253      $    156[1]    $   7,464

Twelve months ended September 30, 1995 - Predecessor Company
================================================================================================================


    Allowance for doubtful accounts............     $    3,550     $    4,670      $     853[1]   $    7,367

 [1]     Uncollectable accounts written off, net of recoveries.
</TABLE>

NOTE 24.
SUBSEQUENT EVENTS (Unaudited):

Subsequent  to September  30,  1997,  the Company  acquired  either the stock or
customer  bases and other  specified  assets of five  businesses.  The aggregate
purchase prices consisted of $13.5 million cash at closing, $700,000 in deferred
cash  payments and  contingent  cash  payments of up to $7.7 million  based upon
future operating results over periods up to ten years.

On November  21,  1997,  the Company  announced  that its  corporate  offices in
Indianapolis,  Indiana would be relocated to Poway,  California (near San Diego)
during the next six to seven  months.  The  corporate  functions to be relocated
include finance,  accounting,  tax and management information services. The cost
of the relocation is expected to be $1 - 2 million.