US OFFICE PRODUCTS CO, 8-K, 1998-03-09

US OFFICE PRODUCTS CO
8-K, 1998-03-09
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
JANUARY 12, 1998
--------------------------------------

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
U.S. OFFICE PRODUCTS COMPANY
--------------------------------------

(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)

DELAWARE
--------------------------------------

(STATE OR OTHER JURISDICTION OF INCORPORATION)

0-25372
--------------------------------------

(COMMISSION FILE NO.)

52-1906050
--------------------------------------

(I.R.S. EMPLOYER IDENTIFICATION NUMBER)

1025 THOMAS JEFFERSON STREET, N.W., SUITE 600 EAST, WASHINGTON, D.C. 20007
--------------------------------------

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(202) 339-6700

--------------------------------------

(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE>
ITEM 5--OTHER EVENTS

INTRODUCTION

U.S. Office Products Company ("USOP" or the "Company") has prepared this
Current Report on Form 8-K to provide information regarding the companies that
are proposed to be spun off from USOP as part of the strategic restructuring
plan (the "Strategic Restructuring Plan") that USOP's Board of Directors (the
"USOP Board") adopted on January 12, 1998.

The principal elements of the Strategic Restructuring Plan are as follows:
(1) a self-tender offer by USOP (the "Tender Offer") to purchase 37,037,037
shares of USOP common stock at $27.00 per share and the incurrence of debt to
pay a substantial portion of the purchase price of the shares in the Tender
Offer; (2) after acceptance of shares in the Tender Offer, the pro rata
distribution to USOP stockholders of shares of four companies (the "Spin-Off
Companies") that will conduct USOP's current print management, technology
solutions, educational supplies and corporate travel services businesses (the
"Distributions"); and (3) following acceptance of shares in the Tender Offer and
the record date for the Distributions, the sale to an affiliate of Clayton,
Dubilier & Rice, Inc. ("CD&R") of equity interests in USOP (the "Equity
Investment"). CD&R will not acquire any equity interest in the Spin-Off
Companies. The Company expects the Strategic Restructuring Plan to be completed
in the second calendar quarter of 1998. The transactions are subject to a number
of conditions, including financing, approval of USOP's shareholders and receipt
of regulatory approvals.

This Report includes a summary of the business of each of the four Spin-Off
Companies and historical and pro forma financial information for each of the
Spin-Off Companies.

The information contained in this Report generally assumes that the
Distributions will be completed. There can be no assurance, however, that the
Distributions will be completed on the terms proposed or at all.

THE SPIN-OFF COMPANIES

The following are summary business descriptions of the four Spin-Off
Companies:

PARADIGM CONCEPTS, INC.

Paradigm is a single-source provider of a broad range of Information
Technology ("IT") business solutions. Paradigm currently consists of ten
companies who have been in business for an average of over 15 years, with a
history of superior client service. These companies offer complementary IT
solutions, which allow Paradigm to be a "one-stop" IT solutions provider in the
Northeast region of the United States, while providing personalized services to
its clients on a regional and local basis. Paradigm's clients include middle
market and Fortune 1000 companies in a wide range of industries (including
communications, health care, financial services, government, manufacturing,
pharmaceuticals, professional services, and technology). In 1997, Paradigm,
which employs over 1,000 people (approximately 65% of whom are technical
professionals), provided services to over 2,000 customers. For the fiscal year
ended April 26, 1997, Paradigm had pro forma revenues of $228.9 million and pro
forma net income of $10.7 million.

With the rapid evolution of technology, the market for IT solutions has
grown significantly. According to industry sources, the United States market for
outsourced IT services is expected to grow from $13 billion in 1996 to
approximately $24 billion in 2001. Although companies recognize the importance
of IT services to their business, they are often unable to keep pace with the
rate of technological change without outsourcing their IT needs. This trend
towards outsourcing has been compounded by the scarcity of technical
professionals in the United States, and has driven the growth of the outsourced
IT solutions industry.

1
<PAGE>
Paradigm's broad range of complementary IT business solutions includes: (i)
consulting and engineering services; (ii) systems and network design and
implementation services; (iii) software development and implementation services;
(iv) IT support and operational services; and (v) telephony design and
integration services. Paradigm is currently providing this broad range of
services in the Northeast region of the United States, and certain of these
services in the other regions of the United States. Paradigm intends to extend
its comprehensive services offerings to the other regions of the United States.
Paradigm is dedicated to delivering IT services and support for all the major
technology needs of its clients, which include a variety of operating systems
(NT, Unix, VMS, Netware, SunOS, Digital Open VMS, and OS/2) on a variety of
hardware platforms (Intel, Sun, HP, and Digital). In addition, Paradigm supports
its clients' hardware and software needs related to the World Wide Web and
high-end telephony services.

For risk factor, management and other information regarding Paradigm, see
Paradigm's Registration Statement on Form S-1 (File No. 333-47501) filed with
the Securities and Exchange Commission (the "SEC") on March 6, 1998.

TDOP, INC.

TDOP, Inc. ("TDOP"), one of the five largest providers of corporate travel
management services in the United States based on airline ticket sales, was
formed by USOP through the acquisition of eleven regional corporate travel
agencies. In calendar year 1997, TDOP booked $1.38 billion in airline ticket
sales, or approximately 2.5 million airline tickets. With locations throughout
the United States, in Canada, and in the United Kingdom, TDOP provides its
corporate customers with the full range of corporate travel management services
through several channels, including on-site travel agencies, regional travel
agency offices and satellite ticket printers. TDOP also provides group and
leisure travel services, largely to its corporate customers.

The travel agency industry in the United States is highly fragmented and
characterized by intense competition. There are more than 30,000 travel agencies
producing an estimated $70 billion in annual airline ticket sales. Airline
ticket sales by travel agencies increased at a rate of approximately 10.5% for
calendar year 1997. The business travel agency industry has undergone
significant changes since 1995, due in part to the reduction in commission
revenues from airline carriers, increasing industry reliance on technology and
the concentration of the industry's customer base. TDOP believes that
significant technological and financial resources are required to compete in
today's corporate travel market, and that larger corporate travel agencies may
therefore have a competitive advantage. Accordingly, TDOP believes the business
travel agency industry is undergoing a period of consolidation and that
significant growth opportunities exist.

TDOP's objective is to be a premier provider of corporate travel management
services to middle market and larger companies in North America and,
increasingly, around the world. TDOP intends to pursue this objective by
implementing the following business strategies: (i) focusing on corporate
travel; (ii) maintaining personalized customer service; (iii) operating with a
decentralized management structure; (iv) achieving operating efficiencies; and
(v) utilizing technology to improve service and reduce costs.

For risk factor, management and other information regarding TDOP, see TDOP's
Registration Statement on Form S-1 (File No. 333-47503) filed with the SEC on
March 6, 1998.

SCHOOL SPECIALTY, INC.

School Specialty, Inc. ("School Specialty") is the largest U.S. distributor
focusing on non-textbook educational supplies and furniture for grades
pre-kindergarten through 12 ("pre-K-12"). School Specialty provides a
comprehensive offering of high quality educational supplies and furniture to
school districts, school administrators and teachers through the broad
distribution of its catalogs. School Specialty distributes general school
supplies, including classroom and art supplies, instruction materials, furniture
and equipment. School Specialty also distributes supplies and furniture for
certain educational disciplines,

2
<PAGE>
including early childhood education under the Childcraft name, art supplies
under the Sax Arts & Crafts name and library-related products under the
Gresswell name. In order to broaden its geographic presence and product
offering, School Specialty has acquired 14 companies since May 1996. For the
twelve months ended October 25, 1997, School Specialty's pro forma revenues
aggregated $355.8 million and pro forma net income aggregated $10.2 million,
which represented compound annual increases of 47% and 105%, respectively, over
sales and net income for the year ended December 31, 1994.

With over 32,000 stock keeping units ("SKUs"), School Specialty offers
customers one source for virtually all of their non-textbook school supply and
furniture needs. School Specialty markets its products through an innovative
two-pronged approach, targeting both administrators and teachers to cover the
full spectrum of decision makers. School Specialty's "top down" approach,
utilizing its 290 sales representatives and its School Specialty general supply
and furniture catalog focuses on procurement officials at the state, regional
and local levels, while its "bottom up" approach focuses on curriculum
specialists and teachers. Sales to curriculum specialists and over 2.1 million
teachers are made primarily through the 6.3 million general supply catalogs of
The Re-Print Corp. ("Re-Print") and specialty catalogs that are mailed each
year.

Annual sales of non-textbook educational supplies and equipment to the
school supply market aggregate approximately $6.1 billion, with over $3.6
billion sold to institutions and $2.5 billion sold to consumers, according to
the National School Supply & Equipment Association ("NSSEA"). There are over
3,400 distributors of school supplies, the majority of which are family- or
employee-owned companies with revenues under $20 million that operate in a
single region. School Specialty believes the demand for timely order fulfillment
at competitive prices, combined with the need to invest in automated inventory
and electronic ordering systems, is accelerating the trend toward consolidation
in the industry. School Specialty also believes that it is well positioned to
capitalize on this consolidation as the largest distributor in its industry with
annual revenues which it believes exceed those of its next two largest
competitors combined. Although School Specialty is the largest distributor in
the industry, its share of the $6.1 billion school supply market is less than
6%, giving School Specialty substantial growth opportunities.

For risk factor, management and other information regarding School
Specialty, see School Specialty's Registration Statement on Form S-1 (File No.
333-47509) filed with the SEC on March 6, 1998.

WORKFLOW MANAGEMENT, INC.

Workflow Management, Inc. ("Workflow Management") is an integrated graphic
arts company providing documents, envelopes and commercial printing to more than
22,000 businesses in the United States and Canada. Workflow Management also
offers various print and facilities management services, which allow customers
to realize cost savings by outsourcing non-core operations, as well as design
services and workflow analysis. Drawing on its position in the industry and its
experience in completing acquisitions, Workflow Management seeks to become a
leading consolidator in the highly-fragmented graphic arts industry. In the last
ten years, Workflow Management's senior management team successfully completed
the acquisition of 16 companies for Standard Forms, Inc., the predecessor to
SFI. Since the acquisition of SFI and Hano by the Print Management Division of
USOP in January 1997, that same senior management team has continued its
acquisition strategy by successfully buying six additional companies. As a
result, Workflow Management has grown its revenues and operating income from
approximately $115.1 million and $6.7 million, respectively, for the year ended
December 31, 1996, to annualized revenues and operating income of approximately
$358.1 million and $21.7 million, respectively, for the twelve months ended
October 25, 1997, on a pro forma basis (which is double the six-month revenues
and income for the six months ended October 25, 1997). Workflow Management
currently has over 2,000 employees and has 17 manufacturing facilities in seven
states and five Canadian Provinces, 26 distribution centers, eight print-
on-demand centers and 59 sales offices. Workflow Management intends to continue
to pursue its aggressive acquisition strategy to extend its geographic scope and
market penetration, and to increase sales to existing customers by cross-selling
documents, envelopes and commercial printing.

3
<PAGE>
The document, envelope and commercial printing industries that comprise the
graphic arts businesses are highly fragmented, and Workflow Management believes
they are ripe for consolidation. According to the Document Management Industries
Association, the market for documents was approximately $12.7 billion in 1996,
up from $11.1 billion in 1993. The U.S. market for envelopes, as measured by the
Envelope Manufacturers Association, was approximately $3.0 billion in 1996,
compared to $2.7 billion in 1993. According to the Printing Industries of
America trade association, the general commercial segment of the U.S. printing
industry shipped more than $88 billion of products in 1996, an increase of 8%
over 1995. Workflow Management believes there are 15,000 print distribution
companies operating in the documents industry. Within the envelope industry,
management believes there are approximately 200 envelope manufacturers in the
United States, and a much larger number of regional and local custom and
specialty envelope printers and distributors. The commercial printing industry
is composed of over 25,000 printing plants, 70% of which have fewer than 10
employees.

Workflow Management offers a full range of printed products which are either
manufactured by Workflow Management or procured from one of Workflow
Management's more than 3,500 vendors. Workflow Management's product line
includes: (i) documents, such as custom invoices, purchase orders, checks and
labels; (ii) envelopes, including specialty envelopes for uses such as credit
card solicitations, annual reports, direct mail and airline tickets; and (iii)
commercial printing, such as product and corporate brochures, personalized
direct mail literature, catalogs, directories and digital imaging. Workflow
Management's manufacturing base, combined with its extensive vendor network and
distribution capability, gives Workflow Management broad flexibility to meet
customers' demands for printed products. For the six months ended October 25,
1997, approximately 56.2% of its revenues were derived from products purchased
by Workflow Management for distribution, and 43.8% were derived from products
manufactured by Workflow Management.

For risk factor, management and other information regarding Workflow
Management, please see Workflow Management's Registration Statement on Form S-1
(File No. 333-47505) filed with the SEC on March 6, 1998.

4
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
WORKFLOW MANAGEMENT, INC.
Introduction to Pro Forma Financial Information......................................................... F-2
Pro Forma Combined Balance Sheet as of October 25, 1997 (unaudited)..................................... F-4
Pro Forma Combined Statement of Income for the six months ended October 25, 1997 (unaudited)............ F-5
Pro Forma Combined Statement of Income for the six months ended October 26, 1996 (unaudited)............ F-6
Pro Forma Combined Statement of Income for the fiscal year ended April 26, 1997 (unaudited)............. F-7
Notes to Pro Forma Combined Financial Statements........................................................ F-8
Report of Price Waterhouse LLP, Independent Accountants................................................. F-10
Report of KPMG Peat Marwick LLP, Independent Auditors................................................... F-11
Report of KPMG Peat Marwick LLP, Independent Auditors................................................... F-12
Report of Hertz, Herson & Company, LLP, Independent Auditors............................................ F-13
Report of Hertz, Herson & Company, LLP, Independent Auditors............................................ F-14
Consolidated Balance Sheet as of April 30, 1996, April 26, 1997 and October 25, 1997 (unaudited)........ F-15
Consolidated Statement of Income for the years ended December 31, 1994 and 1995, the four months ended
April 30, 1996, the fiscal year ended April 26, 1997 and the six months ended October 26, 1996
(unaudited) and October 25, 1997 (unaudited).......................................................... F-16
Consolidated Statement of Stockholder's Equity for the years ended December 31, 1994 and 1995, the four
months ended April 30, 1996, the fiscal year ended April 26, 1997 and the six months ended October 25,
1997 (unaudited)...................................................................................... F-17
Consolidated Statement of Cash Flows for the years ended December 31, 1994 and 1995, the four months
ended April 30, 1996, the fiscal year ended April 26, 1997 and the six months ended October 26, 1996
(unaudited) and October 25, 1997 (unaudited).......................................................... F-18
Notes to Consolidated Financial Statements.............................................................. F-20

SCHOOL SPECIALTY, INC.
Introduction to Pro Forma Financial Information......................................................... F-34
Pro Forma Combined Balance Sheet as of October 25, 1997 (unaudited)..................................... F-36
Pro Forma Combined Statement of Income for the fiscal year ended April 26, 1997 (unaudited)............. F-37
Pro Forma Combined Statement of Income for the six months ended October 25, 1997 (unaudited)............ F-38
Pro Forma Combined Statement of Income for the six months ended October 26, 1996 (unaudited)............ F-39
Notes to Pro Forma Combined Financial Statements........................................................ F-40
Report of Price Waterhouse LLP, Independent Accountants................................................. F-41
Report of Ernst & Young LLP, Independent Auditors....................................................... F-42
Report of BDO Seidman, LLP, Independent Auditors........................................................ F-43
Consolidated Balance Sheet as of April 30, 1996, April 26, 1997 and October 25, 1997 (unaudited)........ F-44
Consolidated Statement of Operations for the years ended December 31, 1994 and 1995, the four months
ended April 30, 1996, the fiscal year ended April 26, 1997 and the six months ended October 26, 1996
(unaudited) and October 25, 1997 (unaudited).......................................................... F-45
Consolidated Statement of Stockholder's (Deficit) Equity for the years ended December 31, 1994 and 1995,
the four months ended April 30, 1996, the fiscal year ended April 26, 1997 and the six months ended
October 25, 1997 (unaudited).......................................................................... F-46
Consolidated Statement of Cash Flows for the years ended December 31, 1994 and 1995, the four months
ended April 30, 1996, the fiscal year ended April 26, 1997 and the six months ended October 26, 1996
(unaudited) and October 25, 1997 (unaudited).......................................................... F-47
</TABLE>

F-1
<PAGE>
<TABLE>
<S> <C>
Notes to Consolidated Financial Statements.............................................................. F-49

PARADIGM CONCEPTS, INC.
Introduction to Pro Forma Financial Information......................................................... F-63
Pro Forma Combined Balance Sheet as of October 25, 1997 (unaudited)..................................... F-64
Pro Forma Combined Statement of Income for the six months ended October 25, 1997 (unaudited)............ F-65
Pro Forma Combined Statement of Income for the six months ended October 26, 1996 (unaudited)............ F-66
Pro Forma Combined Statement of Income for the fiscal year ended April 26, 1997 (unaudited)............. F-67
Notes to Pro Forma Combined Financial Statements........................................................ F-68
Report of Price Waterhouse LLP, Independent Accountants................................................. F-69
Report of Rubin, Koehmstedt and Nadler, Independent Auditors............................................ F-70
Consolidated Balance Sheet as of April 30, 1996, April 25, 1997 and October 25, 1997 (unaudited)........ F-71
Consolidated Statement of Income for the years ended March 31, 1995 and 1996, the fiscal year ended
April 26, 1997 and the six months ended October 26, 1996 (unaudited) and October 25, 1997
(unaudited)........................................................................................... F-72
Consolidated Statement of Stockholder's Equity for the years ended March 31, 1995 and 1996, the fiscal
year ended April 26, 1997 and the six months ended October 25, 1997 (unaudited)....................... F-73
Consolidated Statement of Cash Flows for the years ended March 31, 1995 and 1996, the fiscal year ended
April 26, 1997 and the six months ended October 26, 1996 (unaudited) and October 25, 1997
(unaudited)........................................................................................... F-74
Notes to Consolidated Financial Statements.............................................................. F-76

TDOP, INC.
Introduction to Pro Forma Financial Information......................................................... F-88
Pro Forma Combined Balance Sheet as of October 25, 1997 (unaudited)..................................... F-90
Pro Forma Combined Statement of Income for the six months ended October 25, 1997 (unaudited)............ F-91
Pro Forma Combined Statement of Income for the six months ended October 26, 1996 (unaudited)............ F-92
Pro Forma Combined Statement of Income for the fiscal year ended April 26, 1997 (unaudited)............. F-93
Notes to Pro Forma Combined Financial Statements........................................................ F-94
Report of Price Waterhouse LLP, Independent Accountants................................................. F-95
Report of Deloitte & Touche LLP, Independent Auditors................................................... F-96
Consolidated Balance Sheet as of April 30, 1996, April 26, 1997 and October 25, 1997 (unaudited)........ F-97
Consolidated Statement of Income for the years ended December 31, 1994 and 1995, the four months ended
April 30, 1996, the fiscal year ended April 26, 1997 and the six months ended October 26, 1996
(unaudited) and October 25, 1997 (unaudited).......................................................... F-98
Consolidated Statement of Stockholder's Equity for the years ended December 31, 1994 and 1995, the four
months ended April 30, 1996, the fiscal year ended April 26, 1997 and the six months ended October 25,
1997 (unaudited)...................................................................................... F-99
Consolidated Statement of Cash Flows for the years ended December 31, 1994 and 1995, the four months
ended April 30, 1996, the fiscal year ended April 26, 1997 and the six months ended October 26, 1996
(unaudited) and October 25, 1997 (unaudited).......................................................... F-100
Notes to Consolidated Financial Statements.............................................................. F-102
</TABLE>

F-2
<PAGE>
WORKFLOW MANAGEMENT, INC.

PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)

The unaudited pro forma financial statements give effect to the spin-off of
Workflow Management, Inc. (the "Company"), formerly the Print Management
Division of U.S. Office Products Company ("U.S. Office Products"), through the
distribution of shares of the Company to U.S. Office Products shareholders (the
"Distribution") and probable and completed acquisitions through February 13,
1998.

The pro forma combined balance sheet gives effect to the Distribution and
the probable acquisition of Astrid Offset Corporation as if both transactions
had occurred as of the Company's most recent balance sheet date, October 25,
1997. The pro forma combined statements of income for the fiscal year ended
April 26, 1997 and the six months ended October 25, 1997 and October 26, 1996
give effect to the Distribution and the acquisitions of Astrid Offset
Corporation and FMI Graphics, Inc., an individually insignificant company, in
business combinations accounted for under the purchase method which have been
completed or are probable during the fiscal year ending April 25, 1998 (the
"Fiscal 1998 Purchase Acquisition"), as if all such transactions had occurred on
May 1, 1996.

The pro forma combined statement of income for the year ended April 26, 1997
includes the audited financial information of the Company for the year ended
April 26, 1997 and the unaudited financial information of the Fiscal 1998
Purchase Acquisition for the period from May 1, 1996 through April 26, 1997.

The pro forma combined statement of income for the six months ended October
25, 1997 includes the unaudited financial information of the Company and the
Fiscal 1998 Purchase Acquisition for the six months ended October 25, 1997.

The pro forma combined statement of income for the six months ended October
26, 1996 includes the unaudited financial information of the Company and the
Fiscal 1998 Purchase Acquisition for the six months ended October 26, 1996

The historical financial statements of the Company give retroactive effect
to the results of the seven companies acquired by the Company during the fiscal
year ended April 26, 1997 in business combinations accounted for under the
pooling-of-interests method of accounting.

The historical financial statements of the Company also reflect an allocated
portion of general and administrative costs incurred by U.S. Office Products.
The allocated costs include expenses such as: certain corporate executives'
salaries, accounting and legal fees, departmental costs for accounting, finance,
legal, purchasing, marketing and human resources, as well as other general
overhead costs. These corporate overheads have been allocated to the Company
using one of several factors, dependent on the nature of the costs being
allocated, including revenues, number and size of acquisitions and number of
employees.

The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport to
represent what the Company's financial position or results of operations would
have been had the transactions which are the subject of pro forma adjustments
occurred on those dates, as assumed, and are not necessarily representative of
the Company's financial position or results of operations in any future period.
The pro forma combined financial statements should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Current Report on Form 8-K.

F-3
<PAGE>
WORKFLOW MANAGEMENT, INC.

PRO FORMA COMBINED BALANCE SHEET

OCTOBER 25, 1997

(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASTRID
WORKFLOW OFFSET PRO FORMA PRO FORMA
GRAPHICS,INC. CORPORATION ADJUSTMENTS COMBINED
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>

<CAPTION>
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 385 $ 412 $ (797)(b) $
Accounts receivable, net............................... 55,334 1,180 56,514
Inventory.............................................. 28,216 237 28,453
Prepaid and other current assets....................... 2,454 1,006 3,460
------------ ----------- ----------- -----------
Total current assets................................. 86,389 2,835 (797) 88,427

Property and equipment, net.............................. 32,668 1,582 34,250
Intangible assets, net................................... 2,259 11,082(a) 13,341
Other assets............................................. 8,387 8,387
------------ ----------- ----------- -----------
Total assets......................................... $ 129,703 $ 4,417 $ 10,285 $ 144,405
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
<CAPTION>

LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Short-term debt........................................ $ 4,259 $ 329 $ (329)(b) $ 4,259
Short-term payable to U.S. Office Products............. 22,239 (22,239)(b)
Accounts payable....................................... 25,346 163 25,509
Accrued compensation................................... 3,742 3,742
Other accrued liabilities.............................. 8,126 56 8,182
------------ ----------- ----------- -----------
Total current liabilities............................ 63,712 548 (22,568) 41,692

Long-term debt........................................... 5,660 1,606 33,197(b) 40,463
Long-term payable to U.S. Office Products................ 21,955 13,200(a)
(35,155)(b)
Deferred income taxes.................................... 3,638 145 3,783
Other long-term liabilities.............................. 19 19
------------ ----------- ----------- -----------
Total liabilities.................................... 94,984 2,299 (11,326) 85,957
------------ ----------- ----------- -----------

Stockholder's equity:
Divisional equity...................................... 13,425 23,729(b) 37,154
Cumulative translation adjustment...................... 42 42
Retained earnings...................................... 21,252 21,252
Equity in purchased company............................ 2,118 (2,118)(a)
------------ ----------- ----------- -----------
Total stockholder's equity........................... 34,719 2,118 21,611 58,448
------------ ----------- ----------- -----------
Total liabilities and stockholder's equity........... $ 129,703 $ 4,417 $ 10,285 $ 144,405
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-4
<PAGE>
WORKFLOW MANAGEMENT, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED OCTOBER 25, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
WORKFLOW ASTRID
GRAPHICS, OFFSET FMI PRO FORMA PRO FORMA
INC. CORPORATION GRAPHICS, INC. ADJUSTMENTS COMBINED
------------- ------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues........................................ $ 173,347 $ 4,708 $ 1,914 $ (1,883)(c) $ 178,086
Cost of revenues................................ 127,547 2,790 1,258 (1,883)(c) 129,712
------------- ------ ------ ------------- -----------
Gross profit................................ 45,800 1,918 656 48,374

Selling, general and administrative expenses.... 35,884 920 499 (84)(d) 37,219
Amortization expense............................ 99 6 147(f) 252
------------- ------ ------ ------------- -----------
Operating income............................ 9,817 992 157 (63) 10,903
Other (income) expense:
Interest expense.............................. 1,390 2 397(h) 1,789
Interest income............................... (18) 18(h)
Other income.................................. (166) (128) (294)
------------- ------ ------ ------------- -----------
Income before provision for income taxes........ 8,593 1,138 155 (478) 9,408
Provision for income taxes...................... 3,480 4 374(i) 3,858
------------- ------ ------ ------------- -----------
Net income...................................... $ 5,113 $ 1,138 $ 151 $ (852) $ 5,550
------------- ------ ------ ------------- -----------
------------- ------ ------ ------------- -----------
Weighted average shares outstanding............. 95,963(j)
Net income per share............................ $ 0.06
-----------
-----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-5
<PAGE>
WORKFLOW MANAGEMENT, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED OCTOBER 26, 1996

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
WORKFLOW ASTRID
GRAPHICS, OFFSET FMI PRO FORMA PRO FORMA
INC. CORPORATION GRAPHICS, INC. ADJUSTMENTS COMBINED
------------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues........................................ $ 161,798 $ 4,851 $ 4,470 $ (1,940)(c) $ 169,179
Cost of revenues................................ 117,563 2,897 3,064 (1,940)(c) 121,584
------------- ------ ------ ----------- -----------
Gross profit................................ 44,235 1,954 1,406 47,595

Selling, general and administrative expenses.... 33,409 1,032 1,379 (529)(d) 35,753
462(e)
Amortization expense............................ 91 6 157(f) 254
------------- ------ ------ ----------- -----------
Operating income............................ 10,735 916 27 (90) 11,588

Other (income) expense:
Interest expense.............................. 2,250 10 (471)(h) 1,789
Interest income............................... (19) (7) 26(h)
Other......................................... 622 (81) (23) 518
------------- ------ ------ ----------- -----------
Income before provision for income taxes........ 7,863 1,016 47 355 9,281
Provision for income taxes...................... 1,708 2,098(i) 3,806
------------- ------ ------ ----------- -----------
Net income.................................. $ 6,155 $ 1,016 $ 47 $ (1,743) $ 5,475
------------- ------ ------ ----------- -----------
------------- ------ ------ ----------- -----------
Weighted average shares outstanding............. 95,963(j)
Net income per share............................ $ 0.06
-----------
-----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-6
<PAGE>
WORKFLOW MANAGEMENT, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE FISCAL YEAR ENDED APRIL 26, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
WORKFLOW ASTRID
GRAPHICS, OFFSET FMI PRO FORMA
INC. CORPORATE GRAPHICS, INC ADJUSTMENTS
------------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 334,220 $ 9,963 $ 8,976 $ (3,985)(c)
Cost of revenues.............................................. 243,179 5,934 6,186 (3,985)(c)
------------- ----------- ------ -------------
Gross profit.............................................. 91,041 4,029 2,790

Selling, general and administrative expenses.................. 70,745 2,023 2,779 (1,057)(d)
490(e)
Amortization expense.......................................... 204 12 312(f)
Non-recurring acquisition costs............................... 5,006 (5,006)(g)
------------- ----------- ------ -------------
Operating income.......................................... 15,086 1,994 11 5,261

Other (income) expense:
Interest expense............................................ 4,827 10 (1,259)(h)
Interest income............................................. (25) (36) (15) 76(h)
Other....................................................... 632 (209) (15)
------------- ----------- ------ -------------
Income before provision for income taxes and extraordinary
items....................................................... 9,652 2,239 31 6,444
Provision for income taxes.................................... 3,591 3,941(i)
------------- ----------- ------ -------------
Income before extraordinary items............................. $ 6,061 $ 2,239 $ 31 $ 2,503
------------- ----------- ------ -------------
------------- ----------- ------ -------------
Weighted average shares outstanding...........................
Income before extraordinary items per share...................

PRO FORMA
COMBINED
-----------
<S> <C>
Revenues...................................................... $ 349,174
Cost of revenues.............................................. 251,314
-----------
Gross profit.............................................. 97,860
Selling, general and administrative expenses.................. 74,980

Amortization expense.......................................... 528
Non-recurring acquisition costs...............................
-----------
Operating income.......................................... 22,352
Other (income) expense:
Interest expense............................................ 3,578
Interest income.............................................
Other....................................................... 408
-----------
Income before provision for income taxes and extraordinary
items....................................................... 18,366
Provision for income taxes.................................... 7,532
-----------
Income before extraordinary items............................. $ 10,834
-----------
-----------
Weighted average shares outstanding........................... 95,963(j)
Income before extraordinary items per share................... $ 0.11
-----------
-----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-7
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

(UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)

1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS

(a) Adjustment to reflect purchase price adjustments associated with the
acquisition of Astrid Offset Corporation ("Astrid"). The acquisition of Astrid
will be initially funded by U.S. Office Products, accordingly, an adjustment has
been made to increase the long-term payable to U.S. Office Products by $13,200.
The portion of the consideration assigned to goodwill ($11,082) in this
transaction, which was accounted for under the purchase method, represents the
excess of the cost over the fair market value of the net assets acquired. The
Company amortizes goodwill over a period of 40 years. The recoverability of the
unamortized goodwill will be assessed on an ongoing basis by comparing
anticipated undiscounted future cash flows from operations to net book value.

(b) Represents payment of debt of $797 and forgiveness of $23,729 of debt
due to U.S. Office Products as U.S. Office Products agreed to allocate only
$44,722 of the total debt payable to U.S. Office Products by the Company at the
date of the Distribution. The $23,729 of debt forgiven has been reflected as a
contribution of capital to the Company by U.S. Office Products.

2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS

(c) Adjustment to reflect the elimination of revenues and cost of revenues
on transactions between Astrid Offset and the Company.

(d) Adjustment to reflect reductions in executive compensation as a result
of the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions.

(e) Adjustment to reflect additional corporate overhead during the period
prior to the formation of the Print Management division by U.S. Office Products
as if the division had been formed on May 1, 1996.

(f) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1998 Purchase
Acquisitions for the periods prior to the respective dates of acquisition. The
Company has recorded goodwill amortization in the historical financial
statements from the respective dates of acquisition forward. The goodwill is
being amortized over an estimated life of 40 years.

(g) Adjustment to reflect the reduction in non-recurring acquisition costs
related to pooling-of-interests business combinations of $5,006 for the fiscal
year ended April 26, 1997.

(h) Adjustment to reflect the reduction in interest expense and interest
income resulting from the forgiveness of $23,729 of debt by U.S. Office
Products.

(i) Adjustment to calculate the provision for income taxes on the combined
pro forma results at an effective income tax rate of approximately 41%. The
difference between the effective tax rate of 41% and the statutory tax rate of
35% relates primarily to state income taxes and non-deductible goodwill.

(j) The weighted average shares outstanding used to calculate pro forma
earnings per share is based upon 95,963 shares of common stock outstanding for
the periods. This is based upon the most current number of shares of common
stock of U.S. Office Products outstanding of 133,000 less 37,037 shares expected
to be repurchased by U.S. Office Products in the Tender Offer, and assumes a
distribution ratio of one share of Company Common Stock for each share of U.S.
Office Products Common Stock. The

F-8
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)

2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS (CONTINUED)
actual distribution ratio will be determined prior to consummation of the
Distribution, and is expected to be less than one share of Company Common Stock
for every one share of U.S. Office Products Common Stock.

F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
of Workflow Management, Inc.

In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of Workflow Management, Inc. (the
"Company") and its subsidiaries at April 30, 1996 and April 26, 1997, and the
results of their operations and their cash flows for the fiscal year ended
December 31, 1995, the four months ended April 30, 1996 and the fiscal year
ended April 26, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Hano Document Printers, Inc. ("Hano"), United Envelope Co., Inc. and its
affiliate, Rex Envelope Co. Inc. ("United") and Huxley Envelope Corporation
("Huxley"), wholly-owned subsidiaries, which statements reflect total revenues
for the year ended December 31, 1995 of $31,299,000, $81,917,000 and
$18,868,000, respectively. Those statements were audited by other auditors whose
reports thereon have been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Hano, United and Huxley, is
based solely on the reports of the other auditors. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Minneapolis, Minnesota
February 10, 1998

F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Workflow Management, Inc.:

We have audited the accompanying consolidated statements of income,
stockholder's equity and cash flows of Workflow Management, Inc. and
subsidiaries (the "Company") for the year ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the financial
statements of United Envelope Co., Inc. and its affiliate, Rex Envelope Co.,
Inc. ("United"), and Huxley Envelope Corporation ("Huxley"), wholly owned
subsidiaries, which statements reflect total revenues constituting 46.3 percent
of the consolidated totals for the year ended December 31, 1994. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for United
and Huxley, is based solely on the reports of the other auditors.

We conducted our audit 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 audit and the reports of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audit and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of Workflow
Management, Inc. and subsidiaries for the year ended December 31, 1994 in
conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Norfolk, Virginia
February 17, 1998

F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
of Hano Document Printers, Inc.

We have audited the balance sheet of Hano Document Printers, Inc. as of
December 31, 1995 and the related statements of income, stockholders' equity and
cash flows for the year then ended, which are not included herein. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hano Document Printers, Inc.
as of December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Norfolk, Virginia
August 28, 1996

F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Shareholders of
United Envelope Co., Inc.

We have audited the combined balance sheets of United Envelope Co., Inc. and
its affiliate, Rex Envelope Co., Inc., as at December 31, 1995 and 1994, and the
related combined statements of income and retained earnings and cash flows for
the years then ended (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As referred to in Note A on "Principles of Combination," the companies,
whose financial statements are combined, are related through common ownership
and control. In addition, each has pledged certain assets and guaranteed
long-term indebtedness of the other as described in the notes to financial
statements. In view of their close operating and financial relationship, the
preparation of combined financial statements was considered appropriate. The
combined statements, however, do not refer to a legal entity and neither of the
companies guarantees trade obligations of the other.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of United
Envelope Co., Inc. and its affiliates as at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

HERTZ, HERSON & COMPANY, LLP

New York, New York
March 6, 1996

F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Shareholders of
Huxley Envelope Corporation
Industrial Park Blvd.
Mt. Pocono Industrial Park
Mt. Pocono, PA 18344

We have audited the accompanying balance sheets of Huxley Envelope
Corporation as at December 31, 1995 and 1994, and the related statements of
income and retained earnings (accumulated deficit) and cash flows for the years
then ended (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Huxley Envelope Corporation
as at December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.

HERTZ, HERSON & COMPANY LLP

New York, New York
March 4, 1996

F-14
<PAGE>
WORKFLOW MANAGEMENT, INC.

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS)

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
---------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 1,324 $ 2,168 $ 385
Accounts receivable, less allowance for doubtful accounts of $1,993,
$1,831 and $2,808, respectively......................................... 50,942 50,917 55,334
Inventories............................................................... 23,815 26,990 28,216
Prepaid expenses and other current assets................................. 3,314 3,402 2,454
---------- ---------- -----------
Total current assets.................................................. 79,395 83,477 86,389

Property and equipment, net................................................. 31,647 33,119 32,668
Intangible assets, net...................................................... 879 913 2,259
Other assets................................................................ 6,028 7,599 8,387
---------- ---------- -----------
Total assets.......................................................... $ 117,949 $ 125,108 $ 129,703
---------- ---------- -----------
---------- ---------- -----------

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
Short-term debt........................................................... $ 23,515 $ 3,681 $ 4,259
Short-term payable to U.S. Office Products................................ 23,622 22,239
Accounts payable.......................................................... 22,163 27,031 25,346
Accrued compensation...................................................... 4,752 4,173 3,742
Other accrued liabilities................................................. 5,587 7,961 8,126
---------- ---------- -----------
Total current liabilities............................................. 56,017 66,468 63,712

Long-term debt.............................................................. 28,108 6,034 5,660
Long-term payable to U.S. Office Products................................... 20,891 21,955
Deferred income taxes....................................................... 4,704 4,045 3,638
Other long-term liabilities................................................. 121 19
---------- ---------- -----------
Total liabilities..................................................... 88,829 97,559 94,984
---------- ---------- -----------

Commitments and contingencies

Stockholder's equity:
Divisional equity......................................................... 11,790 11,313 13,425
Cumulative translation adjustment......................................... 352 97 42
Retained earnings......................................................... 16,978 16,139 21,252
---------- ---------- -----------
Total stockholder's equity............................................ 29,120 27,549 34,719
---------- ---------- -----------
Total liabilities and stockholder's equity............................ $ 117,949 $ 125,108 $ 129,703
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-15
<PAGE>
WORKFLOW MANAGEMENT, INC.

CONSOLIDATED STATEMENT OF INCOME

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE FOUR FISCAL FOR THE SIX
YEAR ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED
-------------------------- ------------- ------------- ------------------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1994 1995 1996 1997 1996 1997
------------ ------------ ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues............................ $ 154,193 $ 309,426 $ 114,099 $ 334,220 $ 161,798 $ 173,347
Cost of revenues.................... 114,885 234,959 82,998 243,179 117,563 127,547
------------ ------------ ------------- ------------- ----------- -----------
Gross profit.................. 39,308 74,467 31,101 91,041 44,235 45,800

Selling, general and administrative
expenses.......................... 32,020 62,012 22,485 70,949 33,500 35,983
Non-recurring acquisition costs..... 5,006
------------ ------------ ------------- ------------- ----------- -----------
Operating income.............. 7,288 12,455 8,616 15,086 10,735 9,817

Other (income) expense:
Interest expense.................. 2,048 5,370 1,676 4,827 2,250 1,390
Interest income................... (18) (25)
Other............................. 186 62 (151) 632 622 (166)
------------ ------------ ------------- ------------- ----------- -----------
Income before provision for (benefit
from) income taxes and
extraordinary items............... 5,054 7,023 7,109 9,652 7,863 8,593
Provision for (benefit from) income
taxes............................. 379 (33) 1,351 3,591 1,708 3,480
------------ ------------ ------------- ------------- ----------- -----------
Income before extraordinary items... 4,675 7,056 5,758 6,061 6,155 5,113
Extraordinary items--losses on early
terminations of credit facilities,
net of income taxes............... 700 798
------------ ------------ ------------- ------------- ----------- -----------
Net income.......................... $ 4,675 $ 6,356 $ 5,758 $ 5,263 $ 6,155 $ 5,113
------------ ------------ ------------- ------------- ----------- -----------
------------ ------------ ------------- ------------- ----------- -----------
Unaudited pro forma net income
before extraordinary items (see
Note 8)........................... $ 2,906 $ 5,111 $ 4,151 $ 3,687 $ 4,311 $ 5,113
------------ ------------ ------------- ------------- ----------- -----------
------------ ------------ ------------- ------------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-16
<PAGE>
WORKFLOW MANAGEMENT, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
CUMULATIVE TOTAL
DIVISIONAL TRANSLATION RETAINED STOCKHOLDER'S
EQUITY ADJUSTMENT EARNINGS EQUITY
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993................................... $ 4,239 $ $ 7,436 $ 11,675
Cash dividends at Pooled Companies........................... (3,461) (3,461)
Net income................................................... 4,675 4,675
----------- ----- ----------- -------------

Balance at December 31, 1994................................... 4,239 8,650 12,889
Transactions of Pooled Companies:
Issuance of Pooled Company common stock in conjunction with
acquisition.............................................. 7,451 7,451
Capital contributions...................................... 100 100
Cash dividends............................................. (2,465) (2,465)
Cumulative translation adjustment............................ 388 388
Net income................................................... 6,356 6,356
----------- ----- ----------- -------------

Balance at December 31, 1995................................... 11,790 388 12,541 24,719
Cash dividends at Pooled Companies........................... (1,321) (1,321)
Cumulative translation adjustment............................ (36) (36)
Net income................................................... 5,758 5,758
----------- ----- ----------- -------------

Balance at April 30, 1996...................................... 11,790 352 16,978 29,120
Transactions of Pooled Companies:
Retirement of common stock................................. (477) (477)
Cash dividends............................................. (6,102) (6,102)
Cumulative translation adjustment............................ (255) (255)
Net income................................................... 5,263 5,263
----------- ----- ----------- -------------

Balance at April 26, 1997...................................... 11,313 97 16,139 27,549

Unaudited data:
Issuance of U.S. Office Products Company common stock in
conjunction with acquisition............................... 2,112 2,112
Cumulative translation adjustment............................ (55) (55)
Net income................................................... 5,113 5,113
----------- ----- ----------- -------------

Balance at October 25, 1997 (unaudited)........................ $ 13,425 $ 42 $ 21,252 $ 34,719
----------- ----- ----------- -------------
----------- ----- ----------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-17
<PAGE>
WORKFLOW MANAGEMENT, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE SIX
FOR THE FOUR FISCAL MONTHS
FOR THE YEAR ENDED MONTHS ENDED YEAR ENDED ENDED
--------------------------- ------------- ------------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26,
1994 1995 1996 1997 1996
------------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income......................................... $ 4,675 $ 6,356 $ 5,758 $ 5,263 $ 6,155
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense............ 1,921 5,890 3,583 8,147 3,972
Non-recurring acquisition costs.................. 5,006
Deferred income taxes............................ (660)
Extraordinary loss............................... 700 798
Other............................................ 92 122
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable............................ (4,607) (7,039) 3,098 25 649
Inventory...................................... 370 1,884 302 (3,175) (458)
Prepaid expenses and other current assets...... (720) (284) (354) 258 1,401
Accounts payable............................... 4,140 1,541 (339) 4,643 1,729
Accrued liabilities............................ 202 1,942 (930) 1,061 50
------------- ------------ ------------- ------------- -----------
Net cash provided by operating activities.... 6,073 11,112 11,118 21,366 13,498
------------- ------------ ------------- ------------- -----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received.... (37,859)
Payments of non-recurring acquisition costs........ (4,100)
Additions to property and equipment, net of
disposals........................................ (1,716) (5,675) (4,423) (8,938) (5,485)
Cash received on the sale of property and
equipment........................................ 2,033
Other.............................................. (440) 1,147 (2,739) 541
------------- ------------ ------------- ------------- -----------
Net cash used in investing activities........ (123) (42,387) (4,423) (15,777) (4,944)
------------- ------------ ------------- ------------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 1,269 65,218 82 1,178 372
Payments of long-term debt......................... (4,194) (4,710) (23,135) (3,336)
Proceeds from (payments of) short-term debt, net... (134) (24,684) (5,844) (20,343) (3,378)
Payment to terminate credit facility............... (579) (311)
Payments of dividends at Pooled Companies.......... (2,266) (3,909) (1,321) (6,141) (2,847)
Retirement of common stock......................... (477)
Capital contributed by stockholders of Pooled
Company.......................................... 100
Advances from (to) U.S. Office Products............ 44,513
------------- ------------ ------------- ------------- -----------
Net cash provided by (used in) financing
activities................................. (5,325) 31,436 (7,083) (4,716) (9,189)
------------- ------------ ------------- ------------- -----------
Effect of exchange rates on cash and cash
equivalents........................................ 388 (29) (4)
------------- ------------ ------------- ------------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 625 549 (388) 844 (639)
Cash and cash equivalents at beginning of period..... 538 1,163 1,712 1,324 1,324
------------- ------------ ------------- ------------- -----------
Cash and cash equivalents at end of period........... $ 1,163 $ 1,712 $ 1,324 $ 2,168 $ 685
------------- ------------ ------------- ------------- -----------
------------- ------------ ------------- ------------- -----------
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 2,349 $ 2,703 $ 794 $ 2,063 $ 558
Income taxes paid.................................. $ 437 $ 560 $ 674 $ 3,390 $ 1,078

OCTOBER 25,
1997
-----------
<S> <C>

Cash flows from operating activities:
Net income......................................... $ 5,113
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense............ 3,145
Non-recurring acquisition costs..................
Deferred income taxes............................
Extraordinary loss...............................
Other............................................
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable............................ (3,274)
Inventory...................................... (1,147)
Prepaid expenses and other current assets...... 197
Accounts payable............................... (1,682)
Accrued liabilities............................ (775)
-----------
Net cash provided by operating activities.... 1,577
-----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received.... 114
Payments of non-recurring acquisition costs........ (906)
Additions to property and equipment, net of
disposals........................................ (2,456)
Cash received on the sale of property and
equipment........................................
Other..............................................
-----------
Net cash used in investing activities........ (3,248)
-----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 1,709
Payments of long-term debt......................... (1,802)
Proceeds from (payments of) short-term debt, net... 570
Payment to terminate credit facility...............
Payments of dividends at Pooled Companies..........
Retirement of common stock.........................
Capital contributed by stockholders of Pooled
Company..........................................
Advances from (to) U.S. Office Products............ (600)
-----------
Net cash provided by (used in) financing
activities................................. (123)
-----------
Effect of exchange rates on cash and cash
equivalents........................................ 11
-----------
Net increase (decrease) in cash and cash
equivalents........................................ (1,783)
Cash and cash equivalents at beginning of period..... 2,168
-----------
Cash and cash equivalents at end of period........... $ 385
-----------
-----------
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 364
Income taxes paid.................................. $ 2,063
</TABLE>

F-18
<PAGE>
WORKFLOW MANAGEMENT, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

The Company issued common stock and cash in connection with certain business
combinations accounted for under the purchase method in the year ended December
31, 1995 and for the six months ended October 25, 1997. The fair values of the
assets and liabilities of the acquired companies at the dates of the
acquisitions are presented as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE SIX
FOR THE FOUR FISCAL MONTHS
FOR THE YEAR ENDED MONTHS ENDED YEAR ENDED ENDED
---------------------------- ------------- ------------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26,
1994 1995 1996 1997 1996
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Accounts receivable.................................. $ $ 19,106 $ $ $
Inventories.......................................... 17,436
Prepaid expenses and other current assets............ 578
Property and equipment............................... 21,466
Intangible assets....................................
Other assets......................................... 4,499
Accounts payable..................................... (9,651)
Accrued liabilities.................................. (3,700)
Long-term debt.......................................
Other long-term liabilities and minority interest.... (4,424)
------------- ------------- ------------- ------------- -----------
Net assets acquired............................ $ $ 45,310 $ $ $
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
The acquisitions were funded as follows:
Common stock......................................... $ $ 7,451 $ $ $
Cash paid, net of cash received...................... 37,859
------------- ------------- ------------- ------------- -----------
Total............................................ $ $ 45,310 $ $ $
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------

OCTOBER 25,
1997
-----------
<S> <C>

Accounts receivable.................................. $ 1,109
Inventories.......................................... 41
Prepaid expenses and other current assets............ 26
Property and equipment............................... 84
Intangible assets.................................... 1,445
Other assets.........................................
Accounts payable..................................... (332)
Accrued liabilities.................................. (365)
Long-term debt....................................... (10)
Other long-term liabilities and minority interest....
-----------
Net assets acquired............................ $ 1,998
-----------
-----------
The acquisitions were funded as follows:
Common stock......................................... $ 2,112
Cash paid, net of cash received...................... (114)
-----------
Total............................................ $ 1,998
-----------
-----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-19
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

NOTE 1--BACKGROUND

Workflow Management, Inc. (the "Company") is a Delaware corporation which is
a wholly-owned subsidiary of U.S. Office Products Company ("U.S. Office
Products"). On January 13, 1998, U.S. Office Products announced its intention to
spin-off its Print Management Division as an independent publicly owned company.
This transaction is expected to be effected through the distribution of shares
of the Company to U.S. Office Products shareholders effective on or about April
25, 1998 (the "Distribution"). Prior to the Distribution, U.S. Office Products
plans to contribute its equity interests in certain wholly-owned subsidiaries
associated with U.S. Office Products' Print Management Division to the Company.
U.S. Office Products and the Company will enter into a number of agreements to
facilitate the Distribution and the transition of the Company to an independent
business enterprise.

The Print Management Division was created by U.S. Office Products in January
1997 and completed seven business combinations accounted for under the
pooling-of-interests method during the period from January 1997 to April 1997
(the "Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities.

NOTE 2--BASIS OF PRESENTATION

The consolidated financial statements reflect the assets, liabilities,
divisional equity, revenues and expenses that were directly related to the
Company as it was operated within U.S. Office Products. In cases involving
assets and liabilities not specifically identifiable to any particular business
of U.S. Office Products, only those assets and liabilities expected to be
transferred to the Company prior to the Distribution were included in the
Company's separate consolidated balance sheet. With the exception of interest
expense, the Company's statement of income includes all of the related costs of
doing business including an allocation of certain general corporate expenses of
U.S. Office Products which were not directly related to these businesses
including certain corporate executives' salaries, accounting and legal fees,
departmental costs for accounting, finance, legal, purchasing, marketing, human
resources as well as other general overhead costs. These allocations were based
on a variety of factors, dependent upon the nature of the costs being allocated,
including revenues, number and size of acquisitions and number of employees.
Management believes these allocations were made on a reasonable basis.

U.S. Office Products uses a centralized approach to cash management and the
financing of its operations. As a result, minimal amounts of cash and cash
equivalents and an agreed upon amount of debt will be allocated to the Company
at the time of the Distribution. The consolidated statement of income does not
include an allocation of interest expense on all debt allocated to the Company.
See Note 7 for further discussion of interest expense.

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

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

F-20
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CHANGE IN FISCAL YEAR

Prior to their respective dates of acquisition by U.S. Office Products, the
Pooled Companies reported results on years ending on December 31. Upon
acquisition by U.S. Office Products and effective for the fiscal year ended
April 26, 1997 ("fiscal 1997"), the Pooled Companies changed their year-ends
from December 31 to conform to U.S. Office Products' fiscal year, which ends on
the last Saturday in April. A four month fiscal transition period from January
1, 1996 through April 30, 1996 has been presented for the Company to conform its
fiscal year-end.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.

CASH AND CASH EQUIVALENTS

The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss.

INVENTORIES

Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 3 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases is being amortized over the lesser of its useful life or its lease terms.

INTANGIBLE ASSETS

Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method, and non-compete agreements.
Substantially all goodwill is amortized on a straight line basis over an
estimated useful life of 40 years. Management periodically evaluates the
recoverability of goodwill, which would be adjusted for a permanent decline in
value, if any, by comparing anticipated undiscounted future cash flows from

F-21
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
operations to net book value. Intangible assets associated with non-compete
agreements are being amortized over their respective terms.

TRANSLATION OF FOREIGN CURRENCIES

Balance sheet accounts of foreign subsidiaries are translated using the
year-end exchange rate, and statement of income accounts are translated using
the average exchange rate for the year. Translation adjustments are recorded as
a separate component of stockholders' equity.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value.

INCOME TAXES

As a division of U.S. Office Products, the Company does not file separate
federal income tax returns but rather is included in the federal income tax
returns filed by U.S. Office Products and its subsidiaries from the respective
dates that the entities within the Company were acquired by U.S. Office
Products. For purposes of the consolidated financial statements, the Company's
allocated share of U.S. Office Products' income tax provision was based on the
"separate return" method. Certain companies acquired in pooling-of-interests
transactions elected to be taxed as Subchapter S corporations, and accordingly,
no federal income taxes were recorded by those companies for periods prior to
their acquisition by U.S. Office Products.

TAXES ON UNDISTRIBUTED EARNINGS

No provision is made for U.S. income taxes on earnings of the Company's
Canadian subsidiary company which the Company controls but does not include in
the consolidated federal income tax return since it is management's practice and
intent to permanently reinvest the earnings of this subsidiary.

REVENUE RECOGNITION

Revenue is recognized upon the delivery of products or upon the completion
of services provided to customers as no additional obligations to the customers
exist. Returns of the Company's product are considered immaterial.

COST OF REVENUES

Vendor rebates are recognized on an accrual basis in the period earned and
are recorded as a reduction to cost of revenues. Delivery and occupancy costs
are included in cost of revenues.

NON-RECURRING ACQUISITION COSTS

F-22
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the Company to expense all acquisition costs (both those paid by the Company and
those paid by the sellers of the acquired companies) related to business
combinations accounted for under the pooling-of-interests method.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
("EPS"). SFAS 128 simplifies the standards for computing EPS and makes the
presentation comparable to international EPS standards by replacing the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Company intends to adopt SFAS No. 128 in the fiscal year
ended April 25, 1998. The implementation of SFAS No. 128 is not expected to have
a material effect on the Company's earnings per share as determined under
current accounting rules. Historical earnings per share has not been presented
as such amounts are not deemed meaningful due to the significant change in the
Company's capital structure that will occur on the consummation of the
Distribution.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recgonized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company intends to adopt SFAS No. 130 in
fiscal 1999.

UNAUDITED INTERIM FINANCIAL DATA

In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of October 25, 1997 and the results
of operations and of cash flows for the six months ended October 26, 1996 and
October 25, 1997, as presented in the accompanying unaudited consolidated
financial data.

NOTE 4--BUSINESS COMBINATIONS

POOLING-OF-INTERESTS METHOD

In fiscal 1997, the Company issued U.S. Office Products common stock to
acquire the Pooled Companies. The Company's consolidated financial statements
give retroactive effect to the acquisitions of the Pooled Companies for all
periods presented. Prior to being acquired by U.S. Office Products, the Pooled
Companies all reported on years ending on December 31. Upon completion of the
acquisitions of the Pooled Companies, their year-ends were changed to U.S.
Office Products' year-end of the last Saturday in April.

F-23
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The following presents the separate results, in each of the periods
presented, of the Company (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the dates
on which they were acquired:

<TABLE>
<CAPTION>
WORKFLOW
GRAPHICS, POOLED
INC. COMPANIES COMBINED
------------- ----------- ----------
<S> <C> <C> <C>
For the year ended December 31, 1994
Revenues................................................................ $ $ 154,193 $ 154,193
Net income.............................................................. $ $ 4,675 $ 4,675
For the year ended December 31, 1995
Revenues................................................................ $ $ 309,426 $ 309,426
Net income.............................................................. $ $ 6,356 $ 6,356
For the four months ended April 30, 1996
Revenues................................................................ $ $ 114,099 $ 114,099
Net income.............................................................. $ $ 5,758 $ 5,758
For the year ended April 26, 1997
Revenues................................................................ $ 29,373 $ 304,847 $ 334,220
Net income (loss)....................................................... $ (228) $ 5,491 $ 5,263
For the six months ended October 26, 1996 (unaudited):
Revenues................................................................ $ $ 161,798 $ 161,798
Net income.............................................................. $ $ 6,155 $ 6,155
For the six months ended October 25, 1997 (unaudited):
Revenues................................................................ $ 173,347 $ $ 173,347
Net income.............................................................. $ 5,113 $ $ 5,113
</TABLE>

PURCHASE METHOD

In 1995, one of the Pooled Companies made an acquisition accounted for under
the purchase method for an aggregate purchase price of $45,310, consisting of
$37,859 of cash and common stock with a market value of $7,451. The results of
this acquisition have been included in the Company's results from its date of
acquisition.

The following presents the unaudited pro forma results of operations of the
Company for the year ended December 31, 1995 and includes the Company's
consolidated financial statements, which give retroactive effect to the
acquisitions of the Pooled Companies for all periods presented, and the results
of the purchase acquisition completed in 1995 as if it had been made at the
beginning of 1995. The results presented below include certain pro forma
adjustments to reflect the amortization of intangible assets, adjustments in
executive compensation and the inclusion of a federal income tax provision on
all earnings:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Revenues................................................................... $ 319,527
Income before extraordinary items.......................................... 5,303
Net income................................................................. 4,603
</TABLE>

F-24
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of 1995 or the results
which may occur in the future.

NOTE 5--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
---------- ----------
<S> <C> <C>
Land.................................................................. $ 1,589 $ 1,022
Buildings............................................................. 3,144 4,705
Furniture and fixtures................................................ 34,207 42,394
Warehouse equipment................................................... 3,624 1,013
Equipment under capital leases........................................ 589 916
Leasehold improvements................................................ 2,167 2,933
---------- ----------
45,320 52,983
Less: Accumulated depreciation........................................ (13,673) (19,864)
---------- ----------
Net property and equipment............................................ $ 31,647 $ 33,119
---------- ----------
---------- ----------
</TABLE>

Depreciation expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, and the fiscal year ended April 26, 1997 was
$1,904, $4,720, $3,174 and $7,466, respectively.

NOTE 6--INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill.................................................... $ 496 $ 496 $ 1,930
Non-compete agreements...................................... 287 322 322
Other....................................................... 192 507 506
----- ----------- -----------
975 1,325 2,758
Less: Accumulated amortization.............................. (96) (412) (499)
----- ----------- -----------
Net intangible assets................................. $ 879 $ 913 $ 2,259
----- ----------- -----------
----- ----------- -----------
</TABLE>

Amortization expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, fiscal year ended April 26, 1997 and the six
months ended October 25, 1997 was $17, $74, $44, $204 and $99, respectively.

F-25
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 7--CREDIT FACILITIES

SHORT-TERM DEBT

Short-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Credit facilities with banks, average interest rate of 8.4% at
April 30, 1996........................................................ $ 19,201 $
Current maturities of long-term debt.................................... 4,314 3,681
--------- ---------
Total short-term debt............................................. $ 23,515 $ 3,681
--------- ---------
--------- ---------
</TABLE>

LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Notes payable, secured by certain assets of the Company, interest rates
ranging from 7.5% to 13.4%............................................ $ 32,037 $ 9,283
Capital lease obligations............................................... 385 432
--------- ---------
32,422 9,715
Less: Current maturities of long-term debt.............................. (4,314) (3,681)
--------- ---------
Total long-term debt.............................................. $ 28,108 $ 6,034
--------- ---------
--------- ---------
</TABLE>

MATURITIES OF LONG-TERM DEBT

Maturities on long-term debt, including capital lease obligations, are as
follows:

<TABLE>
<S> <C>
1998............................................................... $ 3,681
1999............................................................... 5,953
2000............................................................... 36
2001............................................................... 26
2002............................................................... 19
Thereafter.........................................................
---------
Total maturities of long-term debt........................... $ 9,715
---------
---------
</TABLE>

F-26
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 7--CREDIT FACILITIES (CONTINUED)
PAYABLE TO U.S. OFFICE PRODUCTS

The long-term payable to U.S. Office Products primarily represents payments
made by U.S. Office Products on behalf of the Company and a reasonable
allocation by U.S. Office Products of certain general corporate expenses. No
interest has been allocated to the Company on the outstanding payable. An
analysis of the activity in this account is as follows:

<TABLE>
<S> <C>
Balance at April 30, 1996.......................................... $
Payments of long-term debt of Pooled Companies upon acquisition.... 17,852
Payments of acquisition costs...................................... 2,636
Allocated corporate expenses....................................... 320
Normal operating costs paid by U.S. Office Products................ 83
---------
Balance at April 26, 1997.......................................... $ 20,891
---------
---------
</TABLE>

The average outstanding long-term payable to U.S. Office Products during the
fiscal year ended April 26, 1997 was $1,775.

U.S. Office Products has charged the Company interest on the short-term
payable to U.S. Office Products at the prime rate in effect at the time. The
short-term payable to U.S. Office Products was incurred by the Company primarily
as a result of U.S. Office Products repaying short-term debt outstanding at the
businesses acquired by U.S. Office Products at or soon after the respective
dates of acquisition and through the centralized cash management system, which
involves daily advances or sweeps of cash to keep the cash balance at or near
zero on a daily basis. U.S. Office Products has not charged the Company interest
on the long-term payable to U.S. Office Products. The Company's financial
statements include allocations of interest expense from U.S. Office Products
totaling $266 during the year ended April 26, 1997. If the Company had been
charged interest on all debt allocated by U.S. Office Products during fiscal
1997, interest expense would have totaled $393.

The Company expects that the Distribution Agreement with U.S. Office
Products will call for an allocation of $44.7 million of debt by U.S. Office
Products resulting in the forgiveness of $23.7 million of debt at October 25,
1997, which would be reflected in the financial statements as a contribution of
capital by U.S. Office Products. The Company intends to enter into a credit
facility concurrently with the Distribution which will contain certain financial
and other covenants, including maintenance of certain financial tests and
ratios, limitations on capital expenditures and restrictions on the incurrence
of debt or liens, the sale of assets, the payment of dividends, transactions
with affiliates and other transactions.

F-27
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 8--INCOME TAXES

Domestic and foreign income before provision for income taxes and
extraordinary items consist of the following:

<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED FOR THE FOUR FISCAL
---------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Domestic.............................................. $ 5,054 $ 5,582 $ 4,599 $ 3,740
Foreign............................................... 1,441 2,510 5,912
------ ------ ------ ------
Total............................................. $ 5,054 $ 7,023 $ 7,109 $ 9,652
------ ------ ------ ------
------ ------ ------ ------
</TABLE>

The provision for income taxes consists of:

<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED FOR THE FOUR FISCAL
-------------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Income taxes currently payable:
Federal............................................. $ $ $ $ 97
State............................................... 379 376 460 628
Foreign............................................. (409) 891 3,526
----- --- ------ ------
379 (33) 1,351 4,251
----- --- ------ ------
Deferred income tax expense (benefit)................. (660)
----- --- ------ ------
Total provision for income taxes.................. $ 379 $ (33) $ 1,351 $ 3,591
----- --- ------ ------
----- --- ------ ------
</TABLE>

Deferred taxes are comprised of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Current deferred tax assets:
Inventory.................................................................................. $ $ 145
Allowance for doubtful accounts............................................................ 497
Accrued liabilities........................................................................ 168
--------- ---------
Total current deferred tax assets........................................................ 810
--------- ---------
Long-term deferred tax liabilities:
Property and equipment..................................................................... (1,238)
Intangible assets.......................................................................... 36
Other...................................................................................... (4,704) (3,653)
--------- ---------
Total long-term deferred tax liabilities................................................. (4,704) (4,855)
--------- ---------
Net deferred tax liability............................................................... $ (4,704) $ (4,045)
--------- ---------
--------- ---------
</TABLE>

F-28
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 8--INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOUR FOR THE FISCAL
-------------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. federal statutory rate........................... 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal income tax
benefit............................................. 7.5 5.4 6.5 6.8
Subchapter S corporation income not subject to
corporate level taxation............................ (35.0) (27.7) (22.6) (24.6)
Foreign earnings not subject to U.S. taxes............ (7.3) (12.4) (21.4)
Nondeductible acquisition costs....................... 11.8
Foreign taxes......................................... 12.5 25.6
Other................................................. (5.9) 4.0
----- ----- ----- -----
Effective income tax rate............................. 7.5% (0.5)% 19.0% 37.2%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to these acquisitions by the Company.

The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the specific Pooled Companies had been subject to
federal income taxes for the entire periods presented.

<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED FOR THE FOUR FISCAL
---------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Income before extraordinary items per consolidated
statement of income................................. $ 4,675 $ 7,056 $ 5,758 $ 6,061
Pro forma income tax provision adjustment............. 1,769 1,945 1,607 2,374
------ ------ ------ ------
Pro forma income before extraordinary items........... $ 2,906 $ 5,111 $ 4,151 $ 3,687
------ ------ ------ ------
------ ------ ------ ------
</TABLE>

F-29
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 9--LEASE COMMITMENTS

The Company leases various types of warehouse and office facilities and
equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1998......................................................................................... $ 216 $ 3,915
1999......................................................................................... 150 3,751
2000......................................................................................... 67 3,093
2001......................................................................................... 29 2,612
2002......................................................................................... 22 2,334
Thereafter................................................................................... 3,467
----- -----------
Total minimum lease payments................................................................. 484 $ 19,172
-----------
-----------
Less: Amounts representing interest.......................................................... (52)
-----
Present value of net minimum lease payments.................................................. $ 432
-----
-----
</TABLE>

Rent expense for all operating leases for the years ended December 31, 1994
and 1995, the four months ended April 30, 1996, and the fiscal year ended April
26, 1997 was $2,112, $6,137, $1,844, and $4,928, respectively.

NOTE 10--COMMITMENTS AND CONTINGENCIES

LITIGATION

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

POSTEMPLOYMENT BENEFITS

The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at April 30, 1996 or April
26, 1997 related to these agreements, as no change of control has occurred.

DISTRIBUTION

On or immediately after the Distribution, the Company expects to have a
credit facility in place. The terms of the credit facility are expected to
contain customary covenants including financial covenants. The Company plans to
use a portion of the proceeds from the credit facility to repay certain amounts
payable to U.S. Office Products.

On or before the date of the Distribution, the Company, U.S. Office Products
and the other Spin-Off Companies will enter into the Distribution Agreement, the
Tax Allocation Agreement, and the Employee Benefits Agreement, and the Spin-Off
Companies will enter into the Tax Indemnification Agreement, and

F-30
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
may enter into other agreements, including agreements relating to referral of
customers to one another. These agreements are expected to provide, among other
things, for U.S. Office Products and the Company to indemnify each other from
tax and other liabilities relating to their respective businesses prior to and
following the Workflow Distribution. Certain of the obligations of the Company
and the other Spin-Off Companies to indemnify U.S. Office Products are joint and
several. Therefore, if one of the other Spin-Off Companies fails to satisfy its
indemnification obligations to U.S. Office Products when such a loss occurs, the
Company may be required to reimburse U.S. Office Products for all or a portion
of the losses that otherwise would have been allocated to other Spin-Off
Companies. In addition, the agreements will allocate liabilities, including
general corporate and securities liabilities of U.S. Office Products not
specifically related to the Company's business, between U.S. Office Products and
each Spin-Off Company.

NOTE 11--EMPLOYEE BENEFIT PLANS

Effective September 1, 1996, the Company implemented the U.S. Office
Products 401(k) Retirement Plan (the "401(k) Plan") which allows employee
contributions in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after one year of
service.

Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. For 1994, 1995, the four months ended
April 30, 1996 and fiscal 1997, the subsidiaries incurred expenses totaling
$444, $602, $179 and $481, respectively, related to these plans.

NOTE 12--STOCKHOLDER'S EQUITY

EMPLOYEE STOCK PLANS

Prior to the Distribution, certain employees of the Company participated in
the U.S. Office Products 1994 Long-Term Incentive Plan covering employees of
U.S. Office Products. U.S. Office Products, as the sole stockholder of the
Company prior to distribution, has approved a new stock option plan for the
Company. Upon Distribution, the Company expects to replace the options to
purchase shares of common stock of U.S. Office Products held by employees with
options to purchase shares of common stock of the Company. At April 26, 1997,
there were approximately 402,290 options to purchase shares of U.S. Office
Products common stock held by Company employees.

Under the Ledecky Services Agreement, the Board of Directors of U.S. Office
Products has agreed that Mr. Ledecky will receive a stock option for Company
Common Stock from the Company as of the date of the Distribution. The Board
intends the option to be compensation for Mr. Ledecky's services as a director
of the Company, and certain services as an employee of the Company. The option
will cover up to 7.5% of the outstanding Company Common Stock determined as of
the date of the Distribution, with no anti-dilution provisions in the event of
issuance of additional shares of Common Stock (other than with respect to stock
splits or reverse stock splits). The option will have a per share exercise price
equal to the price of the first trade on the day the Company's Common Stock is
first publicly traded.

F-31
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 13--SEGMENT REPORTING

GEOGRAPHIC SEGMENTS

The following table sets forth information as to the Company's operations in
its different geographic segments:

<TABLE>
<CAPTION>
UNITED
STATES CANADA TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
For the year ended December 31, 1994:
Revenues................................................................... $ 154,193 $ $ 154,193
Operating income........................................................... 7,288 7,288
Identifiable assets at year-end............................................ 51,357 51,357

For the year ended December 31, 1995:
Revenues................................................................... $ 196,922 $ 112,504 $ 309,426
Operating income........................................................... 7,859 4,596 12,455
Identifiable assets at year-end............................................ 64,301 56,329 120,630

For the four months ended April 30, 1996:
Revenues................................................................... $ 73,047 $ 41,052 $ 114,099
Operating income........................................................... 3,435 5,181 8,616
Identifiable assets at period end.......................................... 66,255 51,694 117,949

For the fiscal year ended April 26, 1997:
Revenues................................................................... $ 212,749 $ 121,471 $ 334,220
Operating income........................................................... 7,010 8,076 15,086
Identifiable assets at year-end............................................ 72,854 52,254 125,108
</TABLE>

F-32
<PAGE>
WORKFLOW MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)

The following presents certain unaudited quarterly financial data for the
year ended December 31, 1995 and the fiscal year ended April 26, 1997.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
Revenues.................................................. $ 65,497 $ 80,595 $ 79,815 $ 83,519 $ 309,426
Gross profit.............................................. 15,770 19,361 19,229 20,107 74,467
Operating income.......................................... 2,681 3,296 3,306 3,172 12,455
Net income................................................ 1,789 1,529 1,744 1,294 6,356
Pro forma income before extraordinary item (see Note 8)... 1,439 1,229 1,402 1,041 5,111
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 26, 1997
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
Revenues.................................................. $ 79,798 $ 82,000 $ 82,966 $ 89,456 $ 334,220
Gross profit.............................................. 21,717 22,518 22,647 24,159 91,041
Operating income.......................................... 4,650 6,085 4,015 336 15,086
Net income (loss)......................................... 2,974 3,181 1,847 (2,739) 5,263
Pro forma income (loss) before extraordinary item
(see Note 8)............................................ 2,083 2,228 1,294 (1,918) 3,687
</TABLE>

NOTE 15--SUBSEQUENT EVENTS

On January 13, 1998, U.S. Office Products announced its intention to
complete the Distribution described in Note 1. In addition, subsequent to April
26, 1997, the Company has completed one business combination accounted for under
the purchase method in exchange for U.S. Office Products common stock with a
market value on the date of acquisition of approximately $2,112. The results of
operations for the six months ended October 25, 1997 include the results of the
acquired company from its date of acquisition.

The following presents the unaudited pro forma results of operations of the
Company for fiscal 1997 as if the Distribution and acquisition described above
and one probable purchase acquisition had been consummated as of the beginning
of fiscal 1997. The results presented below include certain pro forma
adjustments to reflect the amortization of intangible assets, adjustments in
executive compensation and the inclusion of a federal income tax provision on
all earnings:

<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
APRIL 26, 1997
----------------
<S> <C>
Revenues........................................................................................ $ 349,174
Income before extraordinary items............................................................... 10,834
</TABLE>

The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1997 or the
results which may occur in the future.

F-33
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED FINANCIAL STATEMENTS

(UNAUDITED)

The unaudited pro forma financial statements give effect to the spin-off of
School Specialty, Inc., a Delaware corporation (the "Company"), formerly the
Educational Supplies and Products Division of U.S. Office Products Company
("U.S. Office Products"), through the distribution of shares of the Company to
U.S. Office Products shareholders (the "Distribution) and acquisitions completed
through March 5, 1998.

The pro forma combined balance sheet gives effect to the Distribution and
the acquisition of American Academic Suppliers Holding Corporation and
Subsidiary ("American Academic") by the Company after October 25, 1997, as if
both transactions had occurred as of the Company's most recent balance sheet
date, October 25, 1997.

The pro forma combined statement of income for the fiscal year ended April
26, 1997 gives effect to (i) the Distribution; (ii) the acquisitions of six
individually insignificant companies in business combinations accounted for
under the purchase method completed during the fiscal year ended April 26, 1997
(the "Fiscal 1997 Purchase Acquisitions"); and (iii) the acquisitions of
Childcraft Education Corp., Sax Arts & Crafts, Inc. ("Sax Arts & Crafts"),
American Academic and four other individually insignificant companies in
business combinations accounted for under the purchase method completed during
the fiscal year ending April 25, 1998 (the "Fiscal 1998 Purchase Acquisitions"),
as if all such transactions had occurred on May 1, 1996. The pro forma combined
statement of income for the year ended April 26, 1997 includes (i) the audited
financial information of the Company for the year ended April 26, 1997; (ii) the
unaudited financial information of the Fiscal 1997 Purchase Acquisitions for the
period from May 1, 1996 through their respective dates of acquisitions; and
(iii) the unaudited financial information of the Fiscal 1998 Purchase
Acquisitions for the period from May 1, 1996 through April 26, 1997.

The pro forma combined statement of income for the six months ended October
25, 1997 gives effect to the Distribution and the Fiscal 1998 Purchase
Acquisitions, as if all such transactions had occurred on April 27, 1997. The
pro forma combined statement of income for the six months ended October 25, 1997
includes the unaudited financial information of the Company for the six months
ended October 25, 1997 and the unaudited financial information of the Fiscal
1998 Purchase Acquisitions for the period from April 27, 1997 through the
earlier of their respective dates of acquisition or October 25, 1997.

The pro forma combined statement of income for the six months ended October
26, 1996 gives effect to (i) the Distribution; (ii) the Fiscal 1997 Purchase
Acquisitions; and (iii) the Fiscal 1998 Purchase Acquisitions, as if all such
transactions had occurred on May 1, 1996. The pro forma combined statement of
income for the six months ended October 26, 1996 includes (i) the unaudited
financial information of the Company for the six months ended October 26, 1996;
(ii) the unaudited financial information of the Fiscal 1997 Purchase
Acquisitions for the period from May 1, 1996 through the earlier of their
respective dates of acquisition or October 26, 1996; and (iii) the unaudited
financial information of the Fiscal 1998 Purchase Acquisitions for the period
from May 1, 1996 through October 26, 1996.

The historical financial statements of the Company give retroactive effect
to the results of School Specialty, Inc., a Wisconsin corporation, and The
Re-Print Corporation which were acquired by the Education Division during the
fiscal year ended April 26, 1997 in business combinations accounted for under
the pooling-of-interests method of accounting.

F-34
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

the costs being allocated, including, revenues, number and size of acquisitions
and number of employees. Although the Company expects that it will incur some
additional corporate management and other costs in connection with being an
independent public company, management does not expect such costs to exceed the
allocated corporate overheads reflected in the historical financial statements.
Accordingly, neither the elimination of the allocated corporate overheads nor
the anticipated costs have been included in the pro forma combined financial
information of the Company.

F-35
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED BALANCE SHEET

OCTOBER 25, 1997

(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
SCHOOL
SPECIALTY, AMERICAN PRO FORMA PRO FORMA
INC. ACADEMIC ADJUSTMENTS COMBINED
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ $ 10 $ (10)(b) $
Accounts receivable, net................................ 71,410 9,037 80,447
Inventory............................................... 29,118 1,985 31,103
Prepaid and other current assets........................ 7,842 267 8,109
------------- ----------- ----------- -----------
Total current assets................................ 108,370 11,299 (10) 119,659

Property and equipment, net............................... 19,377 2,830 22,207
Intangible assets, net.................................... 71,525 4,024 18,325(a) 93,874
Other assets.............................................. 2,032 2,032
------------- ----------- ----------- -----------
Total assets........................................ $ 201,304 $ 18,153 $ 18,315 $ 237,772
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short term debt......................................... $ 273 $ 7,543 $ (7,553)(b) $ 263
Short-term Payable to U.S. Office Products.............. 31,356 (31,356)(b)
Accounts payable........................................ 19,555 2,993 22,548
Accrued compensation.................................... 4,276 4,276
Other accrued liabilities............................... 8,972 2,142 11,114
------------- ----------- ----------- -----------
Total current liabilities........................... 64,432 12,678 (38,909) 38,201

Long-term debt............................................ 457 79,280(b) 79,737
Long-term Payable to U.S. Office Products................. 103,306 23,800(a)
(127,106)(b)
------------- ----------- ----------- -----------
Total liabilities................................... 168,195 12,678 (62,935) 117,938

Stockholder's equity:
Divisional equity....................................... 23,551 86,725(b) 110,276
Retained earnings....................................... 9,558 9,558
Equity in Purchased Company............................. 5,475 (5,475)(a)
------------- ----------- ----------- -----------
Total stockholder's equity.......................... 33,109 5,475 81,250 119,834
------------- ----------- ----------- -----------
Total liabilities and stockholder's equity.......... $ 201,304 $ 18,153 $ 18,315 $ 237,772
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-36
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE FISCAL YEAR ENDED APRIL 26, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
INDIVIDUALLY INDIVIDUALLY
INSIGNIFICANT INSIGNIFICANT
SAX FISCAL 1998 FISCAL 1997 PRO
SCHOOL ARTS & AMERICAN PURCHASE PURCHASE PRO FORMA FORMA
SPECIALTY, INC. CRAFTS ACADEMIC ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED
--------------- ------- -------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $191,746 $34,542 $40,563 $57,875 $14,820 $ $339,546
Cost of revenues.............. 136,577 20,067 29,608 37,707 11,368 235,327
--------------- ------- -------- ------------ ------------ ----------- --------
Gross profit.............. 55,169 14,475 10,955 20,168 3,452 104,219

Selling, general and
administrative expenses..... 42,896 9,698 8,102 16,949 3,313 (124)(c) 80,834
Amortization expense.......... 566 1,839(d) 2,405
Non-recurring acquisition
costs....................... 1,792 (1,792)(e)
Restructuring costs........... 194 194
--------------- ------- -------- ------------ ------------ ----------- --------
Operating income.......... 9,721 4,777 2,853 3,219 139 77 20,786

Other (income) expense:
Interest expense............ 2,550 474 850 234 176 2,756(f) 7,040
Interest income............. (45) 45(f)
Other....................... (196) (33) 81 (11) (159 )
--------------- ------- -------- ------------ ------------ ----------- --------
Income (Loss) before provision
for income taxes............ 7,367 4,336 2,003 2,949 (26) (2,724) 13,905
Provision for income taxes.... (1,572) 1,664 681 140 111 5,372(g) 6,396
--------------- ------- -------- ------------ ------------ ----------- --------
Net (Loss) income............. $ 8,939 $ 2,672 $ 1,322 $ 2,809 $ (137) $(8,096) $ 7,509
--------------- ------- -------- ------------ ------------ ----------- --------
--------------- ------- -------- ------------ ------------ ----------- --------

Pro forma weighted average
shares outstanding.......... 95,963 (h)
Pro forma net income per
share....................... $ 0.08
--------
--------
</TABLE>

See accompanying notes for pro forma combined financial statements.

F-37
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED OCTOBER 25, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
INDIVIDUALLY
INSIGNIFICANT
SCHOOL SAX FISCAL 1998
SPECIALTY, ARTS & AMERICAN PURCHASE
INC. CRAFTS ACADEMIC ACQUISITIONS
-------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues............................................................ $ 198,490 $ 7,764 $ 34,076 $ 10,789
Cost of revenues.................................................... 138,781 4,494 24,610 7,489
-------------- ----------- ----------- -------------
Gross profit.................................................... 59,709 3,270 9,466 3,300

Selling, general and administrative expenses........................ 34,911 1,779 6,023 2,339
Amortization expense................................................ 771
-------------- ----------- ----------- -------------
Operating income................................................ 24,027 1,491 3,443 961

Other (income) expense:
Interest expense.................................................. 1,570 100 400 38
Interest income................................................... (104) (5)
Other............................................................. 3 (2) 58
-------------- ----------- ----------- -------------
Income before provision for income taxes............................ 22,558 1,393 3,043 870
Provision for income taxes.......................................... 10,151 539 974 29
-------------- ----------- ----------- -------------
Net income.......................................................... $ 12,407 $ 854 $ 2,069 $ 841
-------------- ----------- ----------- -------------
-------------- ----------- ----------- -------------

Pro forma weighted average shares outstanding.......................
Pro forma net income per share......................................

PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------- -----------
<S> <C> <C>
Revenues............................................................ $ $ 251,119
Cost of revenues.................................................... 175,374
------------- -----------
Gross profit.................................................... 75,745
Selling, general and administrative expenses........................ 45,052
Amortization expense................................................ 446(d) 1,217
------------- -----------
Operating income................................................ (446) 29,476
Other (income) expense:
Interest expense.................................................. 1,772(f) 3,880
Interest income................................................... 109(f)
Other............................................................. 59
------------- -----------
Income before provision for income taxes............................ (2,327) 25,537
Provision for income taxes.......................................... 54(g) 11,747
------------- -----------
Net income.......................................................... $ (2,381) $ 13,790
------------- -----------
------------- -----------
Pro forma weighted average shares outstanding....................... 95,963(h)
Pro forma net income per share...................................... $ 0.14
-----------
-----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-38
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED OCTOBER 26, 1996

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)
<TABLE>
<CAPTION>
INDIVIDUALLY INDIVIDUALLY
INSIGNIFICANT INSIGNIFICANT
SCHOOL SAX FISCAL 1998 FISCAL 1997
SPECIALTY, ARTS & AMERICAN PURCHASE PURCHASE
INC. CRAFTS ACADEMIC ACQUISITIONS ACQUISITIONS
------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues........................................................ $ 130,673 $ 23,293 $ 28,499 $ 37,536 $ 14,820
Cost of revenues................................................ 92,740 13,482 20,615 23,953 11,368
------------- --------- ----------- ----------- -----------
Gross profit.................................................... 37,933 9,811 7,884 13,583 3,452
Selling, general and administrative expenses.................... 23,983 5,339 5,074 9,406 3,312
Amortization expense............................................ 229
Non-recurring acquisition costs................................. 1,792
------------- --------- ----------- ----------- -----------
Operating income................................................ 11,929 4,472 2,810 4,177 140
Other (income) expense:
Interest expense................................................ 1,725 300 400 69 176
Interest income................................................. (24) (27)
Other........................................................... 40 (8) 51 (10)
------------- --------- ----------- ----------- -----------
Income before provision for income taxes........................ 10,188 4,180 2,410 4,084 (26)
Provision for income taxes...................................... (2,170) 1,618 87 111
------------- --------- ----------- ----------- -----------
Net income...................................................... $ 12,358 $ 2,562 $ 2,410 $ 3,997 $ (137)
------------- --------- ----------- ----------- -----------
------------- --------- ----------- ----------- -----------
Pro forma weighted average shares outstanding...................
Pro forma net income per share..................................

PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- -----------
<S> <C> <C>
Revenues........................................................ $ $ 234,821
Cost of revenues................................................ 162,158
----------- -----------
Gross profit.................................................... 72,663
Selling, general and administrative expenses.................... (124)(c) 46,990
Amortization expense............................................ 975(d) 1,204
Non-recurring acquisition costs................................. (1,792)(e)
----------- -----------
Operating income................................................ 941 24,469
Other (income) expense:
Interest expense................................................ 1,210(f) 3,880
Interest income................................................. 51(f)
Other........................................................... 73
----------- -----------
Income before provision for income taxes........................ (320) 20,516
Provision for income taxes...................................... 9,791(g) 9,437
----------- -----------
Net income...................................................... $ (10,111) $ 11,079
----------- -----------
----------- -----------
Pro forma weighted average shares outstanding................... 95,963(h)
Pro forma net income per share.................................. $ 0.12
-----------
-----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-39
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

(UNAUDITED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)

1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS

(a) Adjustment to reflect purchase price adjustments associated with
acquisitions of American Academic. The portion of the consideration assigned
to goodwill ($18,325) in the transaction accounted for under the purchase
method represents the excess of the cost over the fair market value of the
net assets acquired. The Company amortizes goodwill over a period of 40
years. The recoverability of the unamortized goodwill will be assessed on an
ongoing basis by comparing anticipated undiscounted future cash flows from
operations to net book value.

(b) Represents payment of debt of $10 and forgiveness of $86,725 of debt due to
U.S. Office Products as U.S. Office Products agreed to allocate only $80,000
of debt to the Company at the date of the Distribution. The $86,725 of net
debt forgiven has been reflected as a contribution of capital to the Company
by U.S. Office Products.

2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS

(c) Adjustment to reflect reductions in executive compensation as a result of
the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions.

(d) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1997 and
Fiscal 1998 Purchase Acquisitions for the periods prior to the respective
dates of acquisition. The Company has recorded goodwill amortization in the
historical financial statements from the respective dates of acquisition
forward. The goodwill is being amortized over an estimated life of 40 years.

(e) Adjustment to reflect the reduction in non-recurring acquisition costs
related to pooling-of-interests business combinations of $1,792 for the
fiscal year ended April 26, 1997 and $1,792 for the six months ended October
26, 1996.

(f) Adjustment to reflect the increase in interest expense as a result of U.S.
Office Products allocating $80,000 of debt to the Company. Although U.S.
Office Products forgave $86,725 of debt due from the Company, U.S. Office
Products had not historically charged the Company interest on any portion of
the long-term debt payable to U.S. Office Products.

(g) Adjustment to calculate the provision for income taxes on the combined pro
forma results at an effective income tax rate of approximately 46%. The
difference between the effective tax rate of 46% and the statutory tax rate
of 35% relates primarily to state income taxes and non-deductible goodwill.

(h) The weighted average shares outstanding used to calculate pro forma earnings
per share is based upon 95,963 shares of common stock outstanding for the
periods. This is based upon the most current number of shares of common
stock of U.S. Office Products outstanding of 133,000 less 37,037 shares
expected to be repurchased by U.S. Office Products in the Tender Offer, and
assumes a distribution ratio of one share of School Specialty Common Stock
for each share of U.S. Office Products Common Stock. The actual distribution
ratio will be determined prior to consummation of the Distribution, and is
expected to be less than one share of School Specialty Common Stock for
every one share of U.S. Office Products Common Stock.

F-40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS
OF SCHOOL SPECIALTY, INC.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of School
Specialty, Inc. (the "Company") and its subsidiaries at April 30, 1996 and April
26, 1997, and the results of their operations and their cash flows for the four
months ended April 30, 1996 and the fiscal year ended April 26, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Minneapolis, Minnesota
January 13, 1998

F-41
<PAGE>
REPORT OF INDEPENDENT AUDITORS

BOARD OF DIRECTORS
SCHOOL SPECIALTY, INC.

We have audited the accompanying consolidated statements of operations and
cash flows of School Specialty, Inc. (the Company) for the years ended December
31, 1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Re-Print Corporation, a wholly owned subsidiary, which statements
reflect total revenues of $30,798,000 and $24,140,000 for the years ended
December 31, 1995 and 1994, respectively. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Re-Print Corporation, is based solely on the report
of the other auditors.

In our opinion, based on our audits and report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the results of the Company's operations and its cash flows for the years
December 31, 1995 and 1994, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP
Milwaukee, Wisconsin
February 2, 1996

F-42
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors
The Re-Print Corporation
Birmingham, Alabama

We have audited the accompanying balance sheets of the Re-Print Corporation
as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for the years then ended (not presented
separately herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Re-Print Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.

BDO Seidman, LLP

Atlanta, Georgia
February 8, 1996

F-43
<PAGE>
SCHOOL SPECIALTY, INC.

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS)

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 46 $ $
Accounts receivable, less allowance for doubtful accounts of $202, $471 and
$732, respectively......................................................... 13,129 17,232 71,410
Inventories.................................................................. 20,276 24,461 29,118
Prepaid expenses and other current assets.................................... 5,556 10,331 7,842
--------- --------- -----------
Total current assets..................................................... 39,007 52,024 108,370

Property and equipment, net.................................................... 7,647 14,478 19,377
Intangible assets, net......................................................... 7,142 20,824 71,525
Other assets................................................................... 777 359 2,032
--------- --------- -----------
Total assets............................................................. $ 54,573 $ 87,685 $ 201,304
--------- --------- -----------
--------- --------- -----------

LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Short-term debt.............................................................. $ 25,887 $ 262 $ 273
Short-term payable to U.S. Office Products................................... 26,692 31,356
Accounts payable............................................................. 11,933 9,091 19,555
Accrued compensation......................................................... 785 860 4,276
Other accrued liabilities.................................................... 4,065 1,500 8,972
--------- --------- -----------
Total current liabilities................................................ 42,670 38,405 64,432

Long-term debt................................................................. 15,031 565 457
Long-term payable to U.S. Office Products...................................... 31,579 103,306
Deferred income taxes.......................................................... 1,139
--------- --------- -----------
Total liabilities........................................................ 58,840 70,549 168,195
--------- --------- -----------
Commitments and contingencies

Stockholder's (deficit) equity:
Divisional equity............................................................ 7,487 19,985 23,551
Retained (deficit) earnings.................................................. (11,754) (2,849) 9,558
--------- --------- -----------
Total stockholder's (deficit) equity..................................... (4,267) 17,136 33,109
--------- --------- -----------
Total liabilities and stockholder's (deficit) equity..................... $ 54,573 $ 87,685 $ 201,304
--------- --------- -----------
--------- --------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-44
<PAGE>
SCHOOL SPECIALTY, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE FOUR FISCAL FOR THE SIX
YEAR ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED
-------------------------- ------------- ------------- ------------------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1994 1995 1996 1997 1996 1997
------------ ------------ ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues............................ $ 119,510 $ 150,482 $ 28,616 $ 191,746 $ 130,673 $ 198,490
Cost of revenues.................... 87,750 105,757 20,201 136,577 92,740 138,781
------------ ------------ ------------- ------------- ----------- -----------
Gross profit.................. 31,760 44,725 8,415 55,169 37,933 59,709

Selling, general and administrative
expenses.......................... 27,281 39,869 10,307 43,462 24,212 35,682
Non-recurring acquisition costs..... 1,122 1,792 1,792
Restructuring costs................. 2,532 194
------------ ------------ ------------- ------------- ----------- -----------
Operating income (loss)....... 4,479 2,324 (3,014) 9,721 11,929 24,027

Other (income) expense:
Interest expense................ 3,007 5,536 1,461 2,550 1,725 1,570
Interest income................. (6) (24) (104)
Other........................... (86) (18) 67 (196) 40 3
------------ ------------ ------------- ------------- ----------- -----------
Income (loss) before provision for
(benefit from) income taxes....... 1,558 (3,194) (4,536) 7,367 10,188 22,558
Provision for (benefit from) income
taxes............................. 218 173 139 (1,572) (2,170) 10,151
------------ ------------ ------------- ------------- ----------- -----------
Net income (loss)................... $ 1,340 $ (3,367) $ (4,675) $ 8,939 $ 12,358 $ 12,407
------------ ------------ ------------- ------------- ----------- -----------
------------ ------------ ------------- ------------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-45
<PAGE>
SCHOOL SPECIALTY, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
RETAINED STOCKHOLDER'S
DIVISIONAL (DEFICIT) (DEFICIT)
EQUITY EARNINGS EQUITY
----------- ---------- ------------
<S> <C> <C> <C>
Balance at December 31, 1993................................................ 5,247 $ (4,780) $ 467
Issuance of Pooled Company common stock for cash.......................... 80 80
Cash dividends declared at Pooled Companies............................... (60) (60)
Net income................................................................ 1,340 1,340
----------- ---------- ------------

Balance at December 31, 1994................................................ 5,327 (3,500) 1,827
Transactions of Pooled Companies:
Issuance of warrants.................................................... 672 672
Issuance of Pooled Company common stock for cash........................ 500 500
Repurchase of treasury stock............................................ (92) (92)
Cash dividends declared and paid........................................ (160) (160)
Net loss.................................................................. (3,367) (3,367)
----------- ---------- ------------

Balance at December 31, 1995................................................ 6,407 (7,027) (620)
Transactions of Pooled Companies:
Exercise of warrants.................................................... 1,080 1,080
Cash dividends declared and paid........................................ (52) (52)
Net loss.................................................................. (4,675) (4,675)
----------- ---------- ------------

Balance at April 30, 1996................................................... 7,487 (11,754) (4,267)
Transactions of Pooled Companies:
Exercise of warrants and stock options.................................. 1,979 1,979
Retirement of treasury stock............................................ 34 (34)
Issuances of U.S. Office Products Company common stock in conjunction with
acquisitions............................................................ 10,485 10,485
Net income................................................................ 8,939 8,939
----------- ---------- ------------

Balance at April 26, 1997................................................... 19,985 (2,849) 17,136
Unaudited data:
Issuances of U.S. Office Products Company common stock in conjunction with
acquisitions............................................................ 3,566 3,566
Net income................................................................ 12,407 12,407
----------- ---------- ------------
Balance at October 25, 1997 (unaudited)..................................... $ 23,551 $ 9,558 $ 33,109
----------- ---------- ------------
----------- ---------- ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-46
<PAGE>
SCHOOL SPECIALTY, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOUR FOR THE FOR THE SIX
MONTHS FISCAL MONTHS
FOR THE YEAR ENDED ENDED YEAR ENDED ENDED
---------------------------- ------------ ------------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26,
1994 1995 1996 1997 1996
------------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)............................... $ 1,340 $ (3,367) $ (4,675) $ 8,939 $ 12,358
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization expense....... 1,719 2,927 674 2,106 990
Non-recurring acquisition costs............. 1,122 1,792 1,792
Other....................................... 231 277 118 115 86
Changes in current assets and liabilities
(net of assets acquired and liabilities
assumed in business combinations accounted
for under the purchase method):
Accounts receivable..................... (2,226) 2,666 3,727 1,277 (24,164)
Inventory............................... 4,365 (2,523) (4,376) 2,737 10,051
Prepaid expenses and other current
assets................................ (989) (338) (443) (2,361) (384)
Accounts payable........................ (4,367) 2,642 3,459 (6,969) (6,891)
Accrued liabilities..................... (341) 2,544 (784) (5,070) (1,535)
------------- ------------- ------------ ------------- -----------
Net cash provided by (used in)
operating activities.............. (268) 4,828 (1,178) 2,566 (7,697)
------------- ------------- ------------ ------------- -----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash
received...................................... (2,106) (5,389) (7,734) (7,171)
Additions to property and equipment............. (630) (881) (120) (7,216) (5,743)
Payments of non-recurring acquisition costs..... (1,122) (1,792) (1,632)
Other........................................... (120) 178 414
------------- ------------- ------------ ------------- -----------
Net cash used in investing
activities........................ (2,856) (6,092) (828) (16,742) (14,546)
------------- ------------- ------------ ------------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.......... 80 500 1,080 1,979 1,979
Proceeds from issuance of long-term debt........ 1,850 1,715 750 750
Payments of long-term debt...................... (2,023) (1,488) (194) (16,962) (16,788)
Proceeds from (payments of) short-term debt,
net........................................... 3,295 655 1,263 (29,908) (28,778)
Advances from U.S. Office Products Company...... 58,271 65,034
Payments of dividends at Pooled Companies....... (134) (138)
Purchase of treasury stock at Pooled Company.... (92)
------------- ------------- ------------ ------------- -----------
Net cash provided by financing
activities........................ 3,202 1,156 2,011 14,130 22,197
------------- ------------- ------------ ------------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... 78 (108) 5 (46) (46)
Cash and cash equivalents at beginning of
period.......................................... 71 149 41 46 46
------------- ------------- ------------ ------------- -----------
Cash and cash equivalents at end of period........ $ 149 $ 41 $ 46 $ $
------------- ------------- ------------ ------------- -----------
------------- ------------- ------------ ------------- -----------
Supplemental disclosures of cash flow information:
Interest paid............................... $ 2,850 $ 5,564 $ 1,461 $ 456 $ 420
Income taxes paid (refunded)................ $ 236 $ 9 $ (3) $ (132) $ (45)

OCTOBER 25,
1997
-----------
<S> <C>

Cash flows from operating activities:
Net income (loss)............................... $ 12,407
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization expense....... 1,968
Non-recurring acquisition costs.............
Other....................................... 74
Changes in current assets and liabilities
(net of assets acquired and liabilities
assumed in business combinations accounted
for under the purchase method):
Accounts receivable..................... (42,271)
Inventory............................... 11,697
Prepaid expenses and other current
assets................................ 4,929
Accounts payable........................ 2,458
Accrued liabilities..................... 5,768
-----------
Net cash provided by (used in)
operating activities.............. (2,970)
-----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash
received...................................... (68,099)
Additions to property and equipment............. (3,373)
Payments of non-recurring acquisition costs.....
Other...........................................
-----------
Net cash used in investing
activities........................ (71,472)
-----------
Cash flows from financing activities:
Proceeds from issuance of common stock..........
Proceeds from issuance of long-term debt........
Payments of long-term debt...................... (108)
Proceeds from (payments of) short-term debt,
net........................................... (1,840)
Advances from U.S. Office Products Company...... 76,390
Payments of dividends at Pooled Companies.......
Purchase of treasury stock at Pooled Company....
-----------
Net cash provided by financing
activities........................ 74,442
-----------
Net increase (decrease) in cash and cash
equivalents.....................................
Cash and cash equivalents at beginning of
period..........................................
-----------
Cash and cash equivalents at end of period........ $
-----------
-----------
Supplemental disclosures of cash flow information:
Interest paid............................... $ 18
Income taxes paid (refunded)................ $
</TABLE>

F-47
<PAGE>
SCHOOL SPECIALTY, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

The Company issued common stock and cash in connection with certain business
combinations accounted for under the purchase method in the years ended December
31, 1994 and 1995, the fiscal year ended April 26, 1997, and the six months
ended October 26, 1996 and October 25, 1997. The fair values of the assets and
liabilities of the acquired companies at the dates of the acquisitions are
presented as follows:
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE MONTHS
FOR THE YEAR ENDED FOR THE FOUR FISCAL ENDED
---------------------------- MONTHS ENDED YEAR ENDED -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26,
1994 1995 1996 1997 1996
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Accounts receivable............................... $ 8,112 $ 1,589 $ $ 5,381 $ 3,958
Inventories....................................... 9,743 1,823 6,922 6,513
Prepaid expenses and other current assets......... 823 502 2,371 2,337
Property and equipment............................ 2,211 4,536 1,155 1,153
Intangible assets................................. 3,268 14,248 11,386
Other assets...................................... 1,488 156 29 29
Short-term debt................................... (6,785) (191) (4,283) (3,383)
Accounts payable.................................. (6,447) (274) (4,012) (3,525)
Accrued liabilities............................... (1,661) (225) (1,846) (1,466)
Long-term debt.................................... (5,378) (5,795) (1,746) (1,746)
------------- ------------- ------------- ------------- -----------
Net assets acquired................. $ 2,106 $ 5,389 $ $ 18,219 $ 15,256
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
The acquisitions were funded as follows:
U.S. Office Products common stock................. $ $ $ $ 10,485 $ 8,085
Cash paid, net of cash acquired................... 2,106 5,389 7,734 7,171
------------- ------------- ------------- ------------- -----------
Total............................... $ 2,106 $ 5,389 $ $ 18,219 $ 15,256
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------

OCTOBER 25,
1997
-----------
<S> <C>

Accounts receivable............................... $ 11,907
Inventories....................................... 16,354
Prepaid expenses and other current assets......... 2,229
Property and equipment............................ 4,408
Intangible assets................................. 51,471
Other assets...................................... 210
Short-term debt................................... (1,850)
Accounts payable.................................. (7,933)
Accrued liabilities............................... (5,131)
Long-term debt....................................
-----------
Net assets acquired................. $ 71,665
-----------
-----------
The acquisitions were funded as follows:
U.S. Office Products common stock................. $ 3,566
Cash paid, net of cash acquired................... 68,099
-----------
Total............................... $ 71,665
-----------
-----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-48
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

NOTE 1--BACKGROUND

School Specialty, Inc. (the "Company") is a Delaware corporation which is a
wholly-owned subsidiary of U.S. Office Products Company ("U.S. Office
Products"). On January 13, 1998, U.S. Office Products announced its intention to
spin-off its Educational Supplies and Products Division as an independent
publicly owned company. This transaction is expected to be effected through the
distribution of shares of the Company to U.S. Office Products' shareholders
effective on or about April 25, 1998 (the "Distribution"). Prior to the
Distribution, U.S. Office Products plans to contribute its equity interests in
certain wholly-owned subsidiaries associated with the Education Division to the
Company. U.S. Office Products and the Company will enter into a number of
agreements to facilitate the Distribution and the transition of the Company to
an independent business enterprise.

The Education Division was created by U.S. Office Products in May 1996 in
connection with the acquisition of School Specialty, Inc., a Wisconsin
corporation ("Old School"). This business combination and the acquisition in
July 1996 of the Re-Print Corp. ("Re-Print") were accounted for under the
pooling-of-interests method (Old School and Re-Print are herein referred to as
the "Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities.

NOTE 2--BASIS OF PRESENTATION

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

F-49
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

CHANGE IN FISCAL YEAR

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.

CASH AND CASH EQUIVALENTS

The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.

CONCENTRATION OF CREDIT RISK

INVENTORIES

Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.

PROPERTY AND EQUIPMENT

F-50
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS

Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method, franchise agreements and non-compete
agreements. Substantially all goodwill is amortized on a straight line basis
over an estimated useful life of 40 years. Management periodically evaluates the
recoverability of goodwill, which would be adjusted for a permanent decline in
value, if any, by comparing anticipated undiscounted future cash flows from
operations to net book value. Intangible assets associated with non-compete
agreements are being amortized over their respective terms.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value.

INCOME TAXES

REVENUE RECOGNITION

COST OF REVENUES

Vendor rebates are recognized on an accrual basis in the period earned and
are recorded as a reduction to cost of revenues. Delivery and occupancy costs
are included in cost of revenues.

NON-RECURRING ACQUISITION COSTS

Non-recurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include accounting, legal, and investment banking fees, real
estate and environmental assessments and appraisals, various regulatory fees and
recognition of transaction related obligations. Generally accepted accounting
principles require the Company to expense all acquisition costs (both those paid
by the Company and those paid by the sellers of the acquired companies) related
to business combinations accounted for under the pooling-of-interests method.

F-51
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESTRUCTURING COSTS

The Company records the costs of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs related to the
Company's employees in accordance with EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in Restructuring)."

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS"). SFAS 128 simplifies the standards for computing EPS
and makes the presentation comparable to international EPS standards by
replacing the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company intends to adopt SFAS 128
in the fiscal year ended April 25, 1998. The implementation of SFAS 128 is not
expected to have a material effect on the Company's earnings per share as
determined under current accounting rules. Historical earnings per share has not
been presented as such amounts are not deemed meaningful due to the significant
change in the Company's capital structure that will occur on the consummation of
the Distribution.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company intends to adopt SFAS No. 130 in
fiscal 1999.

UNAUDITED INTERIM FINANCIAL DATA

NOTE 4--BUSINESS COMBINATIONS

POOLING-OF-INTERESTS METHOD

In fiscal 1997, U.S. Office Products issued common stock to acquire the
Pooled Companies. The Company's consolidated financial statements give
retroactive effect to the acquisitions of the Pooled

F-52
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
Companies for all periods presented. Prior to being acquired by U.S. Office
Products, the Pooled Companies reported on years ending on December 31. Upon
completion of the acquisitions of the Pooled Companies, their year-ends were
changed to U.S. Office Products' year-end of the last Saturday in April.

The following presents the separate results, in each of the periods
presented, of the Company (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the dates
on which they were acquired:

<TABLE>
<CAPTION>
SCHOOL POOLED
SPECIALTY COMPANIES COMBINED
---------- ----------- ----------
<S> <C> <C> <C>
For the year ended December 31, 1994
Revenues................................................................... $ $ 119,510 $ 119,510
Net income................................................................. $ $ 1,340 $ 1,340
For the year ended December 31, 1995
Revenues................................................................... $ $ 150,482 $ 150,482
Net income (loss).......................................................... $ $ (3,367) $ (3,367)
For the four months ended April 30, 1996
Revenues................................................................... $ $ 28,616 $ 28,616
Net income (loss).......................................................... $ $ (4,675) $ (4,675)
For the year ended April 26, 1997
Revenues................................................................... $ 181,420 $ 10,326 $ 191,746
Net income................................................................. $ 8,598 $ 341 $ 8,939
For the six months ended October 26, 1996 (unaudited):
Revenues................................................................... $ 120,347 $ 10,326 $ 130,673
Net income................................................................. $ 12,177 $ 181 $ 12,358
For the six months ended October 25, 1997 (unaudited):
Revenues................................................................... $ 198,490 $ $ 198,490
Net income................................................................. $ 12,407 $ $ 12,407
</TABLE>

PURCHASE METHOD

In 1994, one of the Pooled Companies made one acquisition accounted for
under the purchase method for an aggregate cash purchase price of $2,106. The
total assets related to the acquisition were $22,377. The results of the
acquisition have been included in the Company's results from its date of
acquisition.

In 1995, one of the Pooled Companies made one acquisition accounted for
under the purchase method for an aggregate cash purchase price of $5,389. The
total assets related to the acquisition were $11,874, including goodwill of
$3,268. The results of the acquisition have been included in the Company's
results from its date of acquisition.

In fiscal 1997, the Company made six acquisitions accounted for under the
purchase method for an aggregate purchase price of $18,219 consisting of $7,734
of cash and U.S. Office Products common stock with a market value of $10,485.
The total assets related to these six acquisitions were $30,106, including
goodwill of $14,248. The results of these acquisitions have been included in the
Company's results from their respective dates of acquisition.

F-53
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The following presents the unaudited pro forma results of operations of the
Company for the year ended December 31, 1995 and the fiscal year ended April 26,
1997 and includes the Company's consolidated financial statements, which give
retroactive effect to the acquisitions of the Pooled Companies for all periods
presented, and the results of the companies acquired in purchase acquisitions as
if all such purchase acquisitions had been made at the beginning of 1995. The
results presented below include certain pro forma adjustments to reflect the
amortization of intangible assets, adjustments in executive compensation and the
inclusion of a federal income tax provision on all earnings:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED
------------------------
<S> <C> <C>
DECEMBER 31, APRIL 26,
1995 1997
------------ ----------
Revenues............................................................................... $ 206,329 $ 206,566
Net income (loss)...................................................................... (1,199) 2,939
</TABLE>

NOTE 5--RESTRUCTURING COSTS

The Company records the costs of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs related to the
Company's employees. The following table sets forth the Company's accrued
restructuring costs:

<TABLE>
<CAPTION>
FACILITY SEVERANCE OTHER ASSET
CLOSURE AND AND WRITE-DOWNS
CONSOLIDATION TERMINATIONS AND COSTS TOTAL
--------------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at April 30 1996.................................... $ 641 $ 469 $ 1422 $ 2,532
Additions................................................. 194 194
Utilizations.............................................. (641) (469) (1,465) (2,575)
----- ----- ------------ ---------
Balance at April 26, 1997................................... 151 151
Utilizations..............................................
----- ----- ------------ ---------
Balance at October 25, 1997 (unaudited)..................... $ $ $ 151 $ 151
----- ----- ------------ ---------
----- ----- ------------ ---------
</TABLE>

F-54
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 6--PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- ---------
<S> <C> <C>
Prepaid catalog fees......................................................................... $ 4,387 $ 5,740
Deferred income taxes........................................................................ 1,184
Other........................................................................................ 1,169 3,407
----------- ---------
Total prepaid expenses and other current assets............................................ $ 5,556 $ 10,331
----------- ---------
----------- ---------
</TABLE>

Prepaid catalog fees represent costs which have been paid to produce Company
catalogs which will be used in future periods. These prepaid catalog fees will
be expensed in the periods the catalogs are used.

NOTE 7--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Land........................................................................................ $ 58 $ 729
Buildings................................................................................... 2,042 6,488
Furniture and fixtures...................................................................... 882 6,502
Warehouse Equipment......................................................................... 8,767 3,163
Leasehold improvements...................................................................... 631 2,185
--------- ---------
12,380 19,067
Less: Accumulated depreciation.............................................................. (4,733) (4,589)
--------- ---------
Net property and equipment.................................................................. $ 7,647 $ 14,478
--------- ---------
--------- ---------
</TABLE>

Depreciation expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996 and the fiscal year ended April 26, 1997 was
$888, $1,645, $470 and $1,540, respectively.

NOTE 8--INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
--------- --------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill...................................................................... $ 4,510 $ 18,456 $ 69,398
Other......................................................................... 6,000 5,692 6,159
--------- --------- ------------
10,510 24,148 75,557
Less: Accumulated amortization................................................ (3,368) (3,324) (4,032)
--------- --------- ------------
Net intangible assets.................................................... $ 7,142 $ 20,824 $ 71,525
--------- --------- ------------
--------- --------- ------------
</TABLE>

F-55
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 8--INTANGIBLE ASSETS (CONTINUED)
Amortization expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, the fiscal year ended April 26, 1997 and the
six months ended October 25, 1997 was $757, $1,098, $204, $566 and $771,
respectively.

NOTE 9--CREDIT FACILITIES

SHORT-TERM DEBT

Short-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Credit facilities with banks, average interest rates ranging from 10% to 10.75% at April 30,
1996...................................................................................... $ 21,898 $
Subordinated debt, interest at 8% at April 30, 1996......................................... 1,000
Other....................................................................................... 441 30
Current maturities of long-term debt........................................................ 2,548 232
--------- ---------
Total short-term debt....................................................................... $ 25,887 $ 262
--------- ---------
--------- ---------
</TABLE>

LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Subordinated notes, at 12.5% at April 30, 1996.............................................. $ 13,325 $
Note payable to former shareholder, interest at 10% at April 30, 1996....................... 2,717
Other....................................................................................... 953 483
Capital lease obligations................................................................... 584 314
--------- ---------
17,579 797
Less: Current maturities of long-term debt.................................................. (2,548) (232)
--------- ---------
Total long-term debt.................................................................... $ 15,031 $ 565
--------- ---------
--------- ---------
</TABLE>

The agreement related to the subordinated notes provided for the bank and
its agents to receive 12,551 and 14,941 detachable warrants for Pooled Company
common stock in June 1994 and January 1995, respectively. The warrants were
valued at $45 per share with such amount deducted from the face value of the
subordinated notes. In conjunction with the acquisition of the Pooled Company by
U.S. Office Products, the outstanding subordinated debt balance was paid in full
and all of the outstanding warrants were exercised and subsequently converted to
U.S. Office Products common stock.

F-56
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 9--CREDIT FACILITIES (CONTINUED)
MATURITIES OF LONG-TERM DEBT

Maturities on long-term debt, including capital lease obligations, are as
follows:

<TABLE>
<S> <C>
1998............................................................................... $ 232
1999............................................................................... 216
2000............................................................................... 204
2001............................................................................... 41
2002............................................................................... 36
Thereafter......................................................................... 68
---------
Total maturities of long-term debt............................................... $ 797
---------
---------
</TABLE>

PAYABLE TO U.S. OFFICE PRODUCTS

<TABLE>
<S> <C>
Balance at April 30, 1996.......................................................... $
Payments of long-term debt of acquired companies................................... 21,379
Funding of acquisitions and payment of acquisition costs........................... 8,203
Allocated corporate expenses....................................................... 574
Normal operating costs paid by U.S. Office Products................................ 1,423
---------
Balance at April 26, 1997.......................................................... $ 31,579
---------
---------
</TABLE>

The average outstanding long-term payable to U.S. Office Products during the
fiscal year ended April 26, 1997 was $27,269.

U.S. Office Products has charged the Company interest on the short-term
payable to U.S. Office Products at the prime rate in effect at the time. The
short-term payable to U.S. Office Products was incurred by the Company primarily
as a result of U.S. Office Products repaying short-term debt outstanding at the
businesses acquired by U.S. Office Products at or soon after the respective
dates of acquisition and through the centralized cash management system, which
involves daily advances or sweeps of cash to keep the cash balance at or near
zero on a daily basis. U.S Office Products has not charged the Company interest
on the long-term payable to U.S. Office Products. The Company's financial
statements include allocations of interest expense from U.S. Office Products
totaling $2,232 during the year ended April 26, 1997. If the Company had been
charged interest on all debt allocated by U.S. Office Products during fiscal
1997, interest expense would have totaled $4,554.

The Company expects that the Distribution Agreement with U.S. Office
Products will call for an allocation of $80.0 million of debt by U.S. Office
Products resulting in the forgiveness of $86.7 million at October 25, 1997,
which would be reflected in the financial statements as a contribution of
capital by U.S. Office Products. The Company intends to enter into a credit
facility concurrently with the Distribution which will contain certain financial
and other covenants, including maintenance of certain financial tests

F-57
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 9--CREDIT FACILITIES (CONTINUED)
and ratios, limitations on capital expenditures and restrictions on the
incurrence of debt or liens, the sale of assets, the payment of dividends,
transactions with affiliates and other transactions.

NOTE 10--INCOME TAXES

The provision for income taxes consists of:

<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED FOR THE FOUR FISCAL
--------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Income taxes currently payable:
Federal............................................. $ (165) $ (66) $ $ 71
State............................................... 149 99
------ ------------ ------------- -------------
(16) (66) 170
------ ------------ ------------- -------------
Deferred income tax expense (benefit)................. 234 239 139 (1,742)
------ ------------ ------------- -------------
Total provision for income taxes.................. $ 218 $ 173 $ 139 $ (1,572)
------ ------------ ------------- -------------
------ ------------ ------------- -------------
</TABLE>

Deferred taxes are comprised of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Current deferred tax assets:
Inventory.................................................................................. $ (349) $ 265
Allowance for doubtful accounts............................................................ 106 193
Net operating loss carryforward............................................................ 3,536 2,229
Accrued liabilities........................................................................ 332 421
Prepaid catalog advertising/restructuring.................................................. (205) (1,893)
--------- ---------
Total current deferred tax assets........................................................ 3,420 1,215
--------- ---------
Long-term deferred tax liabilities:
Property and equipment..................................................................... (126) (289)
Intangible assets.......................................................................... 622 258
--------- ---------
Total long-term deferred tax asset (liabilities)......................................... 496 (31)
--------- ---------
Subtotal................................................................................. 3,916 1,184
--------- ---------
Valuation allowance........................................................................ (5,055)
--------- ---------
Net deferred tax asset (liability)....................................................... $ (1,139) $ 1,184
--------- ---------
--------- ---------
</TABLE>

At April 30, 1996, a valuation allowance had been recorded, related to
deferred tax assets of a Pooled Company, including net operating loss
carryforwards. Based upon the improved profitability of this Pooled Company
during fiscal 1997, the valuation allowance was reversed resulting in a benefit
from income taxes.

F-58
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 10--INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOUR FOR THE FISCAL
-------------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. federal statutory rate........................... 34.0% 34.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit
for fiscal 1997..................................... 9.6 1.0
Net operating loss utilized........................... (33.0)
No benefit for current year net operating loss........ (34.0) (32.8)
Reversal of valuation allowance....................... (63.9)
Nondeductible goodwill................................ (2.2) 1.6
Nondeductible acquisition costs....................... 5.0
Tax on separate company income not offset against
other company's loss................................ (5.4) (3.0)
Other................................................. 3.4
----- ----- ----- -----
Effective income tax rate............................. 14.0% (5.4)% (3.0 )% (21.3 )%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

NOTE 11--LEASE COMMITMENTS

The Company leases various types of retail, warehouse and office facilities
and equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1998......................................................................................... $ 232 $ 871
1999......................................................................................... 118 806
2000......................................................................................... 6 599
2001......................................................................................... 517
2002......................................................................................... 496
Thereafter................................................................................... 1,057
----- -----------
Total minimum lease payments................................................................. 356 $ 4,346
-----------
-----------
Less: Amounts representing interest (42)
-----
Present value of net minimum lease payments.................................................. $ 314
-----
-----
</TABLE>

Rent expense for the years ended December 31, 1994 and 1995, the four months
ended April 30, 1996 and the fiscal year ended April 26, 1997 was $1,486,
$1,947, $600 and $1,817, respectively.

F-59
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 12--COMMITMENTS AND CONTINGENCIES

LITIGATION

POSTEMPLOYMENT BENEFITS

DISTRIBUTION

On or immediately after the Distribution, the Company expects to have a
credit facility in place. The terms of the credit facility is expected to
contain customary covenants including financial covenants. The Company plans to
use a portion of the proceeds from the credit facility to repay certain amounts
payable to U.S. Office Products.

On or before the date of the Distribution, School Specialty, U.S. Office
Products and the other Spin-Off Companies will enter into the Distribution
Agreement, the Tax Allocation Agreement, and the Employee Benefits Agreement and
the Spin-Off Companies will enter into the Tax Indemnification Agreement and may
enter into other agreements, including agreements relating to referral of
customers to one another. These agreements are expected to provide, among other
things, for U.S. Office Products and School Specialty to indemnify each other
from tax and other liabilities relating to their respective businesses prior to
and following the Distribution. Certain of the obligations of School Specialty
and the other Spin-Off Companies to indemnify U.S. Office Products are joint and
several. Therefore, if one of the other spin-off companies fails to satisfy its
indemnification obligations to U.S. Office Products when such a loss occurs,
School Specialty may be required to reimburse U.S. Office Products for all or a
portion of the losses that otherwise would have been allocated to other spin-off
companies. In addition, the agreements will allocate liabilities, including
general corporate and securities liabilities of U.S. Office Products not
specifically related to the school supplies business, between U.S. Office
Products and the Company and the other Spin-Off Companies. The terms of the
agreements that will govern the relationship between School Specialty and U.S.
Office Products will be established by U.S. Office Products in consultation with
School Specialty's management prior to the Distribution while School Specialty
is a wholly-owned subsidiary of U.S. Office Products.

NOTE 13--EMPLOYEE BENEFIT PLANS

Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the

F-60
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 13--EMPLOYEE BENEFIT PLANS (CONTINUED)
employees. The subsidiaries paid all general and administrative expenses of the
plans and in some cases made matching contributions on behalf of the employees.
For the years ended December 31, 1994 and 1995 and the four months ended April
30, 1996, the subsidiaries incurred expenses totaling $175, $105 and $6,
respectively, related to these plans.

NOTE 14--STOCKHOLDER'S EQUITY

EMPLOYEE STOCK PLANS

Prior to the Distribution, certain employees of the Company participated in
the U.S. Office Products 1994 Long-Term Incentive Plan covering employees of
U.S. Office Products. The Company expects to adopt an employee stock option plan
at approximately the time of the Distribution. The Company expects to replace
the options to purchase shares of common stock of U.S. Office Products held by
employees with options to purchase shares of common stock of the Company. At
April 26, 1997, there were approximately 249,600 options to purchase shares of
U.S. Office Products common stock held by Company employees.

Under a services agreement entered into with Jonathan J. Ledecky, the Board
of Directors of U.S. Office Products has agreed that Jonathan J. Ledecky will
receive a stock option for School Specialty Common Stock from School Specialty
as of the date of the Distribution. The U.S. Office Products Board intends the
option to be compensation for Mr. Ledecky's services as a director of the
Company, and certain services as an employee of the Company. The option will
cover up to 7.5% of the outstanding Company common stock determined as of the
date of the Distribution, with no anti-dilution provisions in the event of
issuance of additional shares of common stock (other than with respect to stock
splits or reverse stock splits). The option will have a per share exercise price
equal to the price of the first trade on the day the Company's common stock is
first publicly traded.

F-61
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 15--QUARTERLY FINANCIAL DATA (UNAUDITED)

The following presents certain unaudited quarterly financial data for the
year ended December 31, 1995 and the fiscal year ended April 26, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- ---------- --------- --------- ----------
Revenues................................................ $ 18,760 $ 36,702 $ 69,192 $ 25,828 $ 150,482
Gross profit............................................ 4,960 11,130 20,795 7,840 44,725
Operating income (loss)................................. (3,014) 1,196 8,934 (4,792) 2,324
Net income (loss)....................................... (3,711) (252) 4,309 (3,713) (3,367)

YEAR ENDED APRIL 26, 1997
-------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................................................ $ 58,991 $ 71,682 $ 29,304 $ 31,769 $ 191,746
Gross profit............................................ 18,110 19,823 7,664 9,572 55,169
Operating income (loss)................................. 5,197 6,732 (1,520) (688) 9,721
Net income (loss)....................................... 5,345 7,013 (787) (2,632) 8,939
</TABLE>

NOTE 16--SUBSEQUENT EVENTS

On January 13, 1998, U.S. Office Products announced its intention to
complete the Distribution described in Note 1. In addition, subsequent to April
26, 1997, the Company has completed six business combinations accounted for
under the purchase method for an aggregate purchase price of $71,665 consisting
of $68,099 of cash and U.S. Office Products Common Stock with a market value of
$3,566. The results of operations for the six months ended October 25, 1997
include the results of the acquired company's from their respective dates of
acquisition.

The following presents the unaudited pro forma results of operations of the
Company for fiscal 1997 as if the acquisitions described above had been
consummated as of the beginning of fiscal 1997. The results presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, adjustments in executive compensation and the inclusion of a federal
income tax provision on all earnings:

<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
APRIL 26, 1997
----------------
<S> <C>
Revenues........................................................................................ $ 339,546
Net income...................................................................................... 7,509
</TABLE>

F-62
<PAGE>
PARADIGM CONCEPTS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)

The unaudited pro forma financial statements give effect to the spin-off of
Paradigm Concepts, Inc. (the "Company"), formerly the Technology Solutions
division of U.S. Office Products Company ("U.S. Office Products"), through the
distribution of shares of the Company to U.S. Office Products stockholders (the
"Distribution") and to acquisitions completed through February 13, 1998.

The pro forma combined balance sheet gives effect to the Technology
Distribution as if such transaction had occurred as of the Company's most recent
balance sheet date, October 25, 1997.

The pro forma combined statements of income for the fiscal year ended April
26, 1997 and the six month periods ended October 25, 1997 and October 26, 1996
give effect to the Technology Distribution and the acquisitions of Compel
Corporation, Aztec East, Inc. and Affiliates ("Aztec East, Inc.") and three
other individually insignificant companies in business combinations accounted
for under the purchase method which have been completed during the fiscal year
ending April 25, 1998 (the "Fiscal 1998 Purchase Acquisitions"), as if all such
transactions had occurred on May 1, 1996.

The pro forma combined statement of income for the year ended April 26, 1997
includes the audited financial information of the Company for the year ended
April 26, 1997 and the unaudited financial information of the Fiscal 1998
Purchase Acquisitions for the period from May 1, 1996 through April 26, 1997.

The pro forma combined statements of income for the six months ended October
25, 1997 includes the unaudited financial information of the Company for the six
months ended October 25, 1997 and the unaudited financial information of the
Fiscal 1998 Purchase Acquisitions for the period from April 27, 1997 through the
earlier of their respective dates of acquisition or October 25, 1997.

The historical financial statements of the Company give retroactive effect
to the results of the five companies acquired by the Company during the fiscal
year ended April 26, 1997 in business combinations accounted for under the
pooling-of-interests method of accounting.

The historical financial statements of the Company also reflect an allocated
portion of general and administrative costs incurred by U.S. Office Products.
The allocated costs include expenses such as: certain corporate executives'
salaries, accounting and legal fees, departmental costs for accounting, finance,
legal, purchasing, marketing and human resources, as well as other general
overhead costs. These corporate overhead costs have been allocated to the
Company using one of several factors, dependent on the nature of the costs being
allocated, including, revenues, number and size of acquisitions and number of
employees.

F-63
<PAGE>
PARADIGM CONCEPTS, INC.

PRO FORMA COMBINED BALANCE SHEET

OCTOBER 25, 1997

(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
PARADIGM
CONCEPTS, PRO FORMA PRO FORMA
INC. ADJUSTMENTS COMBINED
------------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 579 $ (579)(a) $
Accounts receivable, net............................................ 42,406 42,406
Inventories......................................................... 10,169 10,169
Receivable from U.S. Office Products................................ 10,799 (10,799)(a)
Prepaid and other current assets.................................... 6,343 6,343
------------- ----------- ----------
Total current assets............................................ 70,296 (11,378) 58,918

Property and equipment, net........................................... 4,968 4,968
Goodwill, net......................................................... 62,204 62,204
Other assets.......................................................... 433 433
------------- ----------- ----------
Total assets.................................................... $ 137,901 $ (11,378) $ 126,523
------------- ----------- ----------
------------- ----------- ----------

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term debt..................................................... $ 1,306 $ $ 1,306
Accounts payable.................................................... 24,612 24,612
Accrued compensation................................................ 4,799 4,799
Other accrued liabilities........................................... 10,044 10,044
------------- ----------- ----------
Total current liabilities....................................... 40,761 40,761

Long-term debt........................................................ 1,527 2,167(a) 3,694
Long-term payable to U.S. Office Products............................. 7,224 (7,224)(a)
Deferred income taxes................................................. 857 857
------------- ----------- ----------
Total liabilities............................................... 50,369 (5,057) 45,312
------------- ----------- ----------

Stockholder's equity:
Divisional equity................................................... 72,069 (6,321)(a) 65,748
Retained earnings................................................... 15,463 15,463
------------- ----------- ----------
Total stockholder's equity...................................... 87,532 (6,321) 81,211
------------- ----------- ----------
Total liabilities and stockholder's equity...................... $ 137,901 $ (11,378) $ 126,523
------------- ----------- ----------
------------- ----------- ----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-64
<PAGE>
PARADIGM CONCEPTS, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED OCTOBER 25, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
FISCAL 1998
PARADIGM INDIVIDUALLY
CONCEPTS, AZTEC COMPEL INSIGNIFICANT PRO FORMA PRO FORMA
INC. EAST, INC. CORPORATION ACQUISITIONS ADJUSTMENTS COMBINED
------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $ 79,605 $ 9,808 $ 20,545 $ 18,209 $ $ 128,167
Cost of revenues.................... 60,840 6,056 14,452 13,228 94,576
------------- ----------- ----------- ----------- ----------- ----------
Gross profit.................. 18,765 3,752 6,093 4,981 33,591

Selling, general and administrative
expenses.......................... 12,292 2,407 2,914 3,311 (312)(b) 20,612
Amortization expense................ 37 12 789(d) 838
------------- ----------- ----------- ----------- ----------- ----------
Operating income.............. 6,436 1,333 3,179 1,670 (477) 12,141

Other (income) expense:
Interest expense.................. 50 87 71 127 (135)(f) 200
Interest income................... (267) (39) (20) 326(f)
Other............................. 11 (117) (30) (90) (226)
------------- ----------- ----------- ----------- ----------- ----------
Income before provision for income
taxes............................. 6,642 1,402 3,158 1,633 (668) 12,167
Provision for income taxes.......... 2,657 55 49 339 2,253(g) 5,353
------------- ----------- ----------- ----------- ----------- ----------
Net income.......................... $ 3,985 $ 1,347 $ 3,109 $ 1,294 $ (2,921) $ 6,814
------------- ----------- ----------- ----------- ----------- ----------
------------- ----------- ----------- ----------- ----------- ----------
Weighted average shares
outstanding....................... 95,963(h)
Net income per share................ $ 0.07
----------
----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-65
<PAGE>
PARADIGM CONCEPTS, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED OCTOBER 26, 1996

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
FISCAL 1998
PARADIGM INDIVIDUALLY
CONCEPTS, AZTEC COMPEL INSIGNIFICANT PRO FORMA PRO FORMA
INC. EAST, INC. CORPORATION ACQUISITIONS ADJUSTMENTS COMBINED
------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $ 66,161 $ 12,906 $ 16,832 $ 17,701 $ $ 113,600
Cost of revenues.................... 50,571 8,843 12,525 12,879 84,818
------------- ----------- ----------- ----------- ----------- ----------
Gross profit.................. 15,590 4,063 4,307 4,822 28,782

Selling, general and administrative
expenses.......................... 10,011 3,156 2,378 3,887 (1,460)(b) 18,507
535(c)
Amortization expense................ 10 815(d) 825
Non-recurring acquisition costs..... 1,105 (1,105)(e)
------------- ----------- ----------- ----------- ----------- ----------
Operating income.............. 4,474 897 1,929 935 1,215 9,450

Other (income) expense:
Interest expense.................. 226 80 85 104 (295)(f) 200
Interest income................... (128) (60) (10) 198(f)
Other............................. (58) (153) (50) (68) (329)
------------- ----------- ----------- ----------- ----------- ----------
Income before provision for income
taxes............................. 4,434 1,030 1,904 899 1,312 9,579
Provision for income taxes.......... 502 42 38 220 3,413(g) 4,215
------------- ----------- ----------- ----------- ----------- ----------
Net income.......................... $ 3,932 $ 988 $ 1,866 $ 679 $ (2,101) $ 5,364
------------- ----------- ----------- ----------- ----------- ----------
------------- ----------- ----------- ----------- ----------- ----------
Weighted average shares
outstanding....................... 95,963(h)
Net income per share................ $ 0.06
----------
----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-66
<PAGE>
PARADIGM CONCEPTS, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE FISCAL YEAR ENDED APRIL 26, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
FISCAL 1998
PARADIGM INDIVIDUALLY
CONCEPTS, AZTEC COMPEL INSIGNIFICANT PRO FORMA PRO FORMA
INC. EAST INC. CORPORATION ACQUISITIONS ADJUSTMENTS COMBINED
------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 136,278 $ 23,626 $ 33,630 $ 35,378 $ $ 228,912
Cost of revenues........................ 102,129 15,553 25,407 26,061 169,150
------------- ----------- ----------- ----------- ----------- ----------
Gross profit...................... 34,149 8,073 8,223 9,317 59,762

Selling, general and administrative
expenses.............................. 21,525 6,063 4,961 8,138 (2,172)(b) 39,197
682(c)
Amortization expense.................... 22 1,629(d) 1,651
Non-recurring acquisition costs......... 2,274 (2,274)(e)
------------- ----------- ----------- ----------- ----------- ----------
Operating income.................. 10,350 1,988 3,262 1,179 2,135 18,914

Other (income) expense:
Interest expense...................... 324 174 124 210 (432)(f) 400
Interest income....................... (168) (111) (27) (3) 309(f)
Other................................... (53) (323) (67) (136) (579)
------------- ----------- ----------- ----------- ----------- ----------
Income before provision for income
taxes................................. 10,247 2,248 3,232 1,108 2,258 19,093
Provision for income taxes.............. 3,524 173 39 245 4,420(g) 8,401
------------- ----------- ----------- ----------- ----------- ----------
Net income.............................. $ 6,723 $ 2,075 $ 3,193 $ 863 $ (2,162) $ 10,692
------------- ----------- ----------- ----------- ----------- ----------
------------- ----------- ----------- ----------- ----------- ----------
Weighted average shares outstanding..... 95,963(h)
Net income per share.................... $ 0.11
----------
----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-67
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

(UNAUDITED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)

1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS

(a) Represents payment of debt with available cash, the forgiveness of the
receivable from U.S. Office Products and the allocation of a total of $5,000
of debt to the Company at the date of the Distribution. The forgiveness of
the receivable and the incremental debt allocated to the Company have been
reflected as a reduction of capital of $6,321.

2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS

(b) Adjustment to reflect reductions in executive compensation as a result of
the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions.

(c) Adjustment to reflect additional corporate overhead during the period prior
to the formation of the Technology Solutions division by U.S. Office
Products as if the division had been formed at May 1, 1996.

(d) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1998 Purchase
Acquisitions for the periods prior to the respective dates of acquisition.
The Company has recorded goodwill amortization in the historical financial
statements from the respective dates of acquisition forward. The goodwill is
being amortized over periods ranging from 25-40 years.

(e) Adjustment to reflect the reduction in non-recurring acquisition costs
related to pooling-of-interests business combinations of $2,274 for the
fiscal year ended April 26, 1997 and $1,105 for the six months ended October
26, 1996.

(f) Adjustment to reflect the increase in interest expense and reduction in
interest income resulting from the forgiveness of the receivable from U.S.
Office Products and the net allocation of $6,321 of debt by U.S. Office
Products.

(g) Adjustment to calculate the provision for income taxes on the combined pro
forma results at an effective income tax rate of approximately 44%. The
difference between the effective tax rate of 44% and the statutory tax rate
of 35% relates primarily to state income taxes and non-deductible goodwill.

(h) The weighted average shares outstanding used to calculate pro forma earnings
per share is based upon 95,963 shares of common stock outstanding for the
periods. This is based upon the most current number of shares of common
stock of U.S. Office Products outstanding of 133,000 less 37,037 shares
expected to be repurchased by U.S. Office Products in the Tender Offer, and
assumes a distribution ratio of one share of Paradigm Common Stock for each
share of U.S. Office Products Common Stock. The actual distribution ratio
will be determined prior to consummation of the Distribution and is expected
to be less than one share of Paradigm Common Stock for every one share of
U.S. Office Products Common Stock.

F-68
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
of Paradigm Concepts, Inc.

In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of Paradigm Concepts, Inc.
("Paradigm") and its subsidiaries at April 30, 1996 and April 26, 1997, and the
results of their operations and their cash flows for the fiscal years ended
March 31, 1995, March 31, 1996 and April 26, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Paradigm's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Fortran Corp., a wholly-owned subsidiary, which
statements reflect total revenues of $20,243,000 and $20,775,000 for the fiscal
years ended March 31, 1995 and 1996, respectively. Those statements were audited
by other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for Fortran
Corp., is based solely on the report of the other auditors. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.

PRICE WATERHOUSE LLP

Minneapolis, Minnesota
February 4, 1998

F-69
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors
Fortran Corp.
Newington, Virginia

We have audited the accompanying balance sheet of Fortran Corp. as of March
31, 1996, and 1995 and the related statements of earnings, changes in
stockholders' equity, and cash flows for the years ended March 31, 1996, 1995,
and 1994 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to and above present
fairly, in all material respects, the financial position of Fortran Corp. as of
March 31, 1996, and 1995 and the results of its operations and its cash flows
for three years ended March 31, 1996, 1995 and 1994 in conformity with generally
accepted accounting principles.

As described in Note 9 to the financial statements, on August 21, 1996, the
Company entered into a letter of intent to exchange all of its issued and
outstanding shares of common stock for shares of U.S. Office Products Company
common stock.

RUBIN, KOEHMSTEDT AND NADLER

Springfield, Virginia

June 7, 1996, except for Note 9,
as to which the date is
October 24, 1996

F-70
<PAGE>
PARADIGM CONCEPTS, INC.

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
ASSETS 1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents.................................... $ 5,609 $ 1,106 $ 579
Accounts receivable, less allowance for doubtful accounts of
$123, $351 and $790, respectively.......................... 19,966 22,342 42,406
Inventories.................................................. 4,451 3,904 10,169
Receivable from U.S. Office Products......................... 1,216 10,799
Prepaid expenses and other current assets.................... 1,287 4,575 6,343
--------- --------- -----------
Total current assets..................................... 31,313 33,143 70,296

Property and equipment, net.................................... 1,755 2,163 4,968
Goodwill, net.................................................. 62,204
Other assets................................................... 877 2,005 433
--------- --------- -----------
Total assets............................................. $ 33,945 $ 37,311 $ 137,901
--------- --------- -----------
--------- --------- -----------

LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C> <C>
Current liabilities:
Short-term debt.............................................. $ 5,580 $ 76 $ 1,306
Accounts payable............................................. 10,805 11,803 24,612
Accrued compensation......................................... 1,857 1,651 4,799
Other accrued liabilities.................................... 4,407 6,345 10,044
--------- --------- -----------
Total current liabilities................................ 22,649 19,875 40,761

Long-term debt................................................. 799 167 1,527
Long-term payable to U.S. Office Products...................... 4,786 7,224
Deferred income taxes.......................................... 857 857
--------- --------- -----------
Total liabilities........................................ 23,448 25,685 50,369
--------- --------- -----------

Commitments and contingencies

Stockholder's equity:
Divisional equity............................................ 148 148 72,069
Retained earnings............................................ 10,349 11,478 15,463
--------- --------- -----------
Total stockholder's equity............................... 10,497 11,626 87,532
--------- --------- -----------
Total liabilities and stockholder's equity............... $ 33,945 $ 37,311 $ 137,901
--------- --------- -----------
--------- --------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-71
<PAGE>
PARADIGM CONCEPTS, INC.

CONSOLIDATED STATEMENT OF INCOME

(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, MARCH 31, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
----------- ----------- ---------- ----------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Products.......................................... $ 74,645 $ 97,567 $ 111,746 $ 54,569 $ 64,541
Services.......................................... 14,354 16,488 24,532 11,592 15,064
----------- ----------- ---------- ----------- -----------
Total revenues.................................. 88,999 114,055 136,278 66,161 79,605
----------- ----------- ---------- ----------- -----------
Cost of revenues:
Products.......................................... 58,351 76,640 91,148 45,521 53,426
Services.......................................... 7,507 7,473 10,981 5,050 7,414
----------- ----------- ---------- ----------- -----------
Total cost of revenues.......................... 65,858 84,113 102,129 50,571 60,840
----------- ----------- ---------- ----------- -----------
Gross profit.................................... 23,141 29,942 34,149 15,590 18,765
Selling, general and administrative expenses........ 14,942 20,510 21,525 10,011 12,329
Non-recurring acquisition costs..................... 2,274 1,105
----------- ----------- ---------- ----------- -----------
Operating income................................ 8,199 9,432 10,350 4,474 6,436
Other (income) expense:
Interest expense.................................. 331 420 324 226 50
Interest income................................... (118) (416) (168) (128) (267)
Other............................................. (111) (964) (53) (58) 11
----------- ----------- ---------- ----------- -----------
Income before provision for income taxes............ 8,097 10,392 10,247 4,434 6,642
Provision for income taxes.......................... 401 750 3,524 502 2,657
----------- ----------- ---------- ----------- -----------
Net income.......................................... $ 7,696 $ 9,642 $ 6,723 $ 3,932 $ 3,985
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------

Unaudited pro forma net income (see Note 9)......... $ 5,081 $ 6,441 $ 4,592 $ 3,010 $ 3,985
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-72
<PAGE>
PARADIGM CONCEPTS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
DIVISIONAL RETAINED STOCKHOLDER'S
EQUITY EARNINGS EQUITY
----------- --------- -------------
<S> <C> <C> <C>
Balance at March 31, 1994................................................... $ 440 $ 6,305 $ 6,745
Transactions of Pooled Companies:
Capital distribution.................................................... (292) (292)
Cash dividends.......................................................... (3,087) (3,087)
Net income................................................................ 7,696 7,696
----------- --------- -------------
Balance at March 31, 1995................................................... 148 10,914 11,062
Cash dividends at Pooled Companies........................................ (7,389) (7,389)
Adjustments to conform the fiscal year-ends of Pooled Companies........... (2,818) (2,818)
Net income................................................................ 9,642 9,642
----------- --------- -------------
Balance at April 30, 1996................................................... 148 10,349 10,497
Cash dividends paid and declared at Pooled Companies...................... (5,594) (5,594)
Net income................................................................ 6,723 6,723
----------- --------- -------------
Balance at April 26, 1997................................................... 148 11,478 11,626
Unaudited data:
Issuance of U.S. Office Products common stock in conjunction with
acquisitions............................................................ 71,921 71,921
Net income................................................................ 3,985 3,985
----------- --------- -------------
Balance at October 25, 1997 (unaudited)..................................... $ 72,069 $ 15,463 $ 87,532
----------- --------- -------------
----------- --------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-73
<PAGE>
PARADIGM CONCEPTS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, MARCH 31, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 7,696 $ 9,642 $ 6,723 $ 3,932 $ 3,985
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense............. 454 494 541 217 416
Non-recurring acquisition costs................... 2,274 1,105
Gain on sale of division at Pooled Company........ (761)
Deferred taxes.................................... (66) 645
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable............................. (5,963) (5,441) (2,376) (1,889) (3,607)
Inventory....................................... (2,162) 595 547 1,324 237
Prepaid expenses and other current assets....... 140 (585) (3,120) 198 2,588
Accounts payable................................ 4,272 (475) 997 (1,532) 4,159
Accrued liabilities............................. 1,652 867 20 563 3,084
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities..... 6,089 4,270 6,251 3,918 10,862
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment, net of
disposals......................................... (888) (552) (949) (518) (838)
Payments of non-recurring acquisition costs......... (1,814) (317) (460)
Deposits............................................ (83) (421) (1,312) (1,287)
Cash received in sale of division at Pooled
Company........................................... 1,275
Cash received in acquisitions....................... 320
Other............................................... 12 4 161
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities.................................. (959) 306 (3,914) (2,122) (978)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from (payments of) short-term debt, net.... (491) 3,683 (5,504) (1,299) (1,103)
Proceeds from issuance of long-term debt............ 2,126 1,196 305 17
Payments of long-term debt.......................... (698) (937) (32) (843)
Payments of dividends at Pooled Companies........... (3,087) (7,389) (4,274) (2,243) (1,320)
Advances from (payments to) U.S. Office Products
Company........................................... 3,570 1,400 (7,145)
Capital distributed to stockholders of Pooled
Company........................................... (292)
Net change in cash due to conforming fiscal year-
ends of certain Pooled Companies.................. 176
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities......... (1,744) (3,032) (6,840) (2,157) (10,411)
----------- ----------- ----------- ----------- -----------

Net increase (decrease) in cash and cash equivalents.. 3,386 1,544 (4,503) (361) (527)
Cash and cash equivalents at beginning of period...... 679 4,065 5,609 5,609 1,106
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period............ $ 4,065 $ 5,609 $ 1,106 $ 5,248 $ 579
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

F-74
<PAGE>
PARADIGM CONCEPTS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
----------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, MARCH 31, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
------------- ------------- ----------- ------------- -------------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid....................................... $ 335 $ 526 $ 282 $ 139 $ 64
Income taxes paid................................... $ 422 $ 452 $ 2,460 $ 491 $ 704
</TABLE>

The Company issued common stock in connection with certain business
combinations during the six months ended October 25, 1997. The fair values of
the assets and liabilities of the acquired companies at the dates of the
acquisitions are presented as follows:
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
----------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
---------- ---------- ----------- ----------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accounts receivable.................................. $ $ $ $ $ 16,457
Inventories.......................................... 6,503
Prepaid expenses and other current assets............ 2,608
Property and equipment............................... 2,347
Goodwill............................................. 62,241
Other assets......................................... 174
Short-term debt...................................... (2,332)
Accounts payable..................................... (8,651)
Accrued liabilities.................................. (5,543)
Long-term debt....................................... (2,203)
---------- ---------- ----------- ----------- -----------
Net assets acquired.............................. $ $ $ $ $ 71,601
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
The acquisitions were funded as follows:
Common stock......................................... $ $ $ $ $ 71,921
Cash received........................................ (320)
---------- ---------- ----------- ----------- -----------
Total............................................ $ $ $ $ $ 71,601
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-75
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

NOTE 1--BACKGROUND

Paradigm Concepts, Inc. (the "Company") is a Delaware corporation which is a
wholly-owned subsidiary of U.S. Office Products Company ("U.S. Office
Products"). On January 13, 1998, U.S. Office Products announced its intention to
spin-off its Technology Solutions division as an independent publicly owned
company. This transaction is expected to be effected through the distribution of
shares of the Company to U.S. Office Products shareholders effective on or about
April 25, 1998 (the "Distribution"). Prior to the Distribution, U.S. Office
Products plans to contribute its equity interests in certain wholly-owned
subsidiaries associated with U.S. Office Products' Technology Solutions division
to the Company. U.S. Office Products and the Company will enter into a number of
agreements to facilitate the Distribution and the transition of the Company to
an independent business enterprise.

The Technology Solutions division was created by U.S. Office Products in
January 1997 and completed five business combinations accounted for under the
pooling-of-interests method during the period from October 1996 to April 1997
("the Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities.

NOTE 2--BASIS OF PRESENTATION

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

F-76
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

CHANGE IN FISCAL YEAR

Prior to their respective dates of acquisition by U.S. Office Products, the
Pooled Companies reported results on years ending on March 31 and December 31.
Upon acquisition by U.S. Office Products and effective for the fiscal year ended
April 26, 1997 ("fiscal 1997"), the Pooled Companies changed their year-ends
from March 31 and December 31 to conform to U.S. Office Products' fiscal year,
which ends on the last Saturday in April.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.

CASH AND CASH EQUIVALENTS

The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.

CONCENTRATION OF CREDIT RISK

INVENTORIES

Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.

PROPERTY AND EQUIPMENT

GOODWILL

Goodwill represents the excess of cost over the fair value of assets
acquired in business combinations accounted for under the purchase method.
Substantially all goodwill is amortized on a straight line basis over estimated
useful lives of 25-40 years. Management periodically evaluates the
recoverability of

F-77
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
goodwill, which would be adjusted for a permanent decline in value, if any, by
comparing anticipated undiscounted future cash flows from operations to net book
value.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value.

INCOME TAXES

REVENUE RECOGNITION

Product revenue is recognized upon the delivery of products to customers as
no additional obligations to the customers exist. Returns of the Company's
product are considered immaterial. Service revenue is recognized as the services
are performed and is derived from professional services which are generally
provided to clients on a "time and expenses" basis. Payments received in advance
of services performed are recorded as deferred revenue. The Company also
performs a limited number of fixed-price engagements under which revenue is
recognized using the percentage-of-completion method (based on the ratio of
costs incurred to total estimated costs). Provision for estimated losses on
engagement is made during the period in which the loss becomes probable and can
be reasonably estimated. To date, such losses have been insignificant. The
Company reports revenue net of reimbursable expenses which are billed to and
collected from clients.

The American Institute of Public Accountants has approved a new Statement of
Position ("SOP"), SOP 97-2 which will supersede SOP 91-1, "Software Revenue
Recognition." Management has assessed this new statement and believes that its
adoption will not have a material effect on the timing of the Company's revenue
recognition or cause changes to its revenue recognition policies.

NON-RECURRING ACQUISITION COSTS

F-78
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS"). SFAS 128 simplifies the standards for computing EPS
and makes the presentation comparable to international EPS standards by
replacing the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company intends to adopt SFAS No.
128 in the fiscal year ended April 25, 1998. The implementation of SFAS No. 128
is not expected to have a material effect on the Company's earnings per share as
determined under current accounting rules. Historical earnings per share has not
been presented as such amounts are not deemed meaningful due to the significant
change in the Company's capital structure that will occur on the consummation of
the Distribution.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. SFAS No. 130 requires
that all items required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company intends to adopt SFAS No. 130 in
the fiscal year ended April 24, 1999.

UNAUDITED INTERIM FINANCIAL DATA

NOTE 4--BUSINESS COMBINATIONS

POOLING-OF-INTERESTS METHOD

In fiscal 1997, the Company issued U.S. Office Products common stock to
acquire the Pooled Companies. The Company's consolidated financial statements
give retroactive effect to the acquisitions of the Pooled Companies for all
periods presented. All of the Pooled Companies previously reported on fiscal
years ending other than April 30, 1996 and April 26, 1997. Upon completion of
the acquisitions of the Pooled Companies, their year-ends were changed to U.S.
Office Products' year-end of the last Saturday in April.

Commencing on May 1, 1996, the year-ends of the Pooled Companies were
changed to April 26, 1997, resulting in an adjustment to retained earnings of
$(2,818) during the fiscal year ended April 30, 1996. This adjustment consisted
of revenues, costs and expenses, and dividends of $17,294, $15,026 and $5,086,

F-79
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
respectively, during the period of time between the Pooled Companies most
recently completed year-end and April 30, 1996.

<TABLE>
<CAPTION>
PARADIGM
CONCEPTS, POOLED
INC. COMPANIES COMBINED
------------- ----------- ----------
<S> <C> <C> <C>
For the fiscal year ended March 31, 1995
Revenues................................................................ $ $ 88,999 $ 88,999
Net income.............................................................. $ $ 7,696 $ 7,696
For the fiscal year ended March 31, 1996
Revenues................................................................ $ $ 114,055 $ 114,055
Net income.............................................................. $ $ 9,642 $ 9,642
For the fiscal year ended April 26, 1997
Revenues................................................................ $ 57,656 $ 78,622 $ 136,278
Net income.............................................................. $ 2,109 $ 4,614 $ 6,723
For the six months ended October 26, 1996 (unaudited):
Revenues................................................................ $ 2,868 $ 63,293 $ 66,161
Net income.............................................................. $ 264 $ 3,668 $ 3,932
For the six months ended October 25, 1997 (unaudited):
Revenues................................................................ $ 79,605 $ $ 79,605
Net income.............................................................. $ 3,985 $ $ 3,985
</TABLE>

NOTE 5--PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Unbilled percentage-of-completion revenues............................... $ 725 $ 2,871
Other.................................................................... 562 1,704
----------- -----------
Total prepaid expenses and other current assets...................... $ 1,287 $ 4,575
----------- -----------
----------- -----------
</TABLE>

F-80
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 6--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Land..................................................................... $ 143 $ 143
Buildings................................................................ 374 374
Furniture and fixtures................................................... 2,277 3,184
Warehouse equipment...................................................... 323 272
Equipment under capital leases........................................... 169 252
Leasehold improvements................................................... 211 155
--------- ---------
3,497 4,380
Less: Accumulated depreciation........................................... (1,742) (2,217)
--------- ---------
Net property and equipment............................................... $ 1,755 $ 2,163
--------- ---------
--------- ---------
</TABLE>

Depreciation expense for the fiscal years ended March 31, 1995 and 1996 and
April 26, 1997 was $454, $494 and $541, respectively.

NOTE 7--GOODWILL

Goodwill consists of the following:

<TABLE>
<CAPTION>
OCTOBER 25,
1997
-----------
<S> <C>
(UNAUDITED)
Goodwill......................................................................... $ 62,241
Less: Accumulated amortization................................................... (37)
-----------
Net goodwill................................................................... $ 62,204
-----------
-----------
</TABLE>

Amortization expense for the six months ended October 25, 1997 was $37.

NOTE 8--CREDIT FACILITIES

SHORT-TERM DEBT

Short-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Credit facility with bank, average interest rate of 8.5% at April 30,
1996. ................................................................. $ 4,080 $
Payable to Pooled Company shareholder.................................... 1,208
Current maturities of long-term debt..................................... 292 76
----------- ---
Total short-term debt.................................................... $ 5,580 $ 76
----------- ---
----------- ---
</TABLE>

F-81
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 8--CREDIT FACILITIES (CONTINUED)
LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Notes payable, secured by certain assets of the Company, interest rates
ranging from 7.8% to 8.4%. ............................................ $ 1,002 $ 111
Capital lease obligations................................................ 89 132
----------- -----------
1,091 243
Less: Current maturities of long-term debt............................... (292) (76)
----------- -----------
Total long-term debt............................................... $ 799 $ 167
----------- -----------
----------- -----------
</TABLE>

MATURITIES OF LONG-TERM DEBT

Maturities on long-term debt, including capital lease obligations, are as
follows:

<TABLE>
<S> <C>
1998................................................................ $ 76
1999................................................................ 124
2000................................................................ 43
---------
Total maturities of long-term debt $ 243
---------
---------
</TABLE>

PAYABLE TO U.S. OFFICE PRODUCTS

<TABLE>
<S> <C>
Balance at April 30, 1996........................................... $
Payments of long-term debt of Pooled Companies upon acquisition..... 1,710
Payments of acquisition costs....................................... 1,362
Allocated corporate expenses........................................ 388
Operating costs paid by U.S. Office Products........................ 1,326
---------
Balance at April 26, 1997........................................... $ 4,786
---------
---------
</TABLE>

The average outstanding long-term payable to U.S. Office Products during the
fiscal year ended April 26, 1997 was $1,321.

The Company has earned interest on the receivable from U.S. Office Products
at the prime rate in effect at the time. The receivable from U.S. Office
Products was generated by the Company primarily as a result of U.S. Office
Products sweeping the Company's excess cash through the centralized cash
management system, which involves daily advances or sweeps of cash to keep the
cash balance at or near zero on a

F-82
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 8--CREDIT FACILITIES (CONTINUED)
daily basis. U.S. Office Products has not charged the Company interest on the
long-term payable to U.S. Office Products. The Company's financial statements
include allocations of interest income from U.S. Office Products totaling $146
during the year ended April 26, 1997. If the Company had been charged interest
on the long-term payable to U.S. Office Products during fiscal 1997, interest
income would have totaled $51.

The Company expects that the Distribution Agreement with U.S. Office
Products will call for an allocation of $5.0 million of debt by U.S. Office
Products resulting in incremental debt of approximately $6.3 million at October
25, 1997, which would be reflected in the financial statements as a reduction in
stockholder's equity. The Company intends to enter into a credit facility
concurrently with the Distribution which will contain certain financial and
other covenants, including maintenance of certain financial tests and ratios,
limitations on capital expenditures and restrictions on the incurrence of debt
or liens, the sale of assets, the payment of dividends, transactions with
affiliates and other transactions.

NOTE 9--INCOME TAXES

The provision for income taxes consists of:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 26,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income taxes currently payable:
Federal................................................... $ 211 $ 485 $ 2,102
State..................................................... 190 331 777
----- ----- -----------
401 816 2,879
----- ----- -----------
Deferred income tax expense (benefit)....................... (66) 645
----- ----- -----------
Total provision for income taxes...................... $ 401 $ 750 $ 3,524
----- ----- -----------
----- ----- -----------
</TABLE>

Deferred taxes are comprised of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Current deferred tax assets:
Inventory.............................................................. $ 50 $ 105
Allowance for doubtful accounts........................................ 16 49
Accrued liabilities.................................................... 124
--- -----
Total current deferred tax assets.................................. 66 278
--- -----
Long-term deferred tax liabilities:
Property and equipment................................................. 24
Other.................................................................. (881)
--- -----
Total long-term deferred tax liabilities........................... (857)
--- -----
Net deferred tax asset (liability)................................. $ 66 $ (579)
--- -----
--- -----
</TABLE>

F-83
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 9--INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 26,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
U.S. federal statutory rate................................. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit....... 2.2 3.0 5.9
Subchapter S corporation income not subject to corporate
level taxation............................................ (32.3) (30.8) (20.8)
Nondeductible acquisition costs............................. 7.8
Other....................................................... 6.5
----- ----- -----
Effective income tax rate................................... 4.9% 7.2% 34.4%
----- ----- -----
----- ----- -----
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 26,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income per consolidated statement of income............. $ 7,696 $ 9,642 $ 6,723
Pro forma income tax provision adjustment................... 2,615 3,201 2,131
----------- ----------- -----------
Pro forma net income........................................ $ 5,081 $ 6,441 $ 4,592
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

F-84
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 10--LEASE COMMITMENTS

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1998..................................................................... $ 76 $ 653
1999..................................................................... 58 598
2000..................................................................... 19 496
2001..................................................................... 479
2002..................................................................... 192
Thereafter............................................................... 431
----- -----------
Total minimum lease payments............................................. 153 $ 2,849
-----------
-----------
Less: Amounts representing interest...................................... (21)
-----
Present value of net minimum lease payments.............................. $ 132
-----
-----
</TABLE>

Rent expense for all operating leases for the fiscal years ended March 31,
1995 and 1996 and April 26, 1997 was $724, $778 and $871, respectively.

NOTE 11--COMMITMENTS AND CONTINGENCIES

LITIGATION

POSTEMPLOYMENT BENEFITS

DISTRIBUTION

On or before the date of the Distribution, the Company, U.S. Office Products
and the other Spin-Off Companies, will enter into a Distribution Agreement, Tax
Allocation Agreement, and Employee Benefits Agreement, and the Spin-Off
Companies will enter into the Tax Indemnification Agreement. These agreements
are expected to provide, among other things, for U.S. Office Products and the
Company to

F-85
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
indemnify each other from tax and other liabilities relating to their respective
businesses prior to and following the Distribution. Certain of the obligations
of the Company and the other Spin-Off Companies to indemnify U.S. Office
Products are joint and several. Therefore, if one of the other Spin-Off
Companies fails to satisfy its indemnification obligations to U.S. Office
Products when such a loss occurs, the Company may be required to reimburse U.S.
Office Products for all or a portion of the losses that otherwise would have
been allocated to other Spin-Off Companies. In addition, the agreements will
allocate liabilities, including general corporate and securities liabilities of
U.S. Office Products not specifically related to the technology business,
between U.S. Office Products and the Company and the other Spin-Off Companies.

NOTE 12--EMPLOYEE BENEFIT PLANS

Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. For the fiscal years ended March 31,
1995 and 1996 and April 26, 1997, the subsidiaries incurred expenses totaling
$314, $367 and $390, respectively, related to these plans.

NOTE 13--STOCKHOLDERS' EQUITY

EMPLOYEE STOCK PLANS

Prior to the Distribution, certain employees of the Company participated in
the U.S. Office Products 1994 Long-Term Incentive Plan covering employees of
U.S. Office Products. The Company expects to adopt an employee stock option plan
at approximately the time of the Distribution. Upon the Distribution, the
Company expects to replace the options to purchase shares of common stock of
U.S. Office Products held by employees with options to purchase shares of common
stock of the Company. At April 26, 1997, there were approximately 580,027
options to purchase shares of U.S. Office Products common stock held by Company
employees.

Under a services agreement entered into with Jonathan J. Ledecky ("the
Ledecky Services Agreement"), the Board of Directors of U.S. Office Products has
agreed that Jonathan J. Ledecky will receive a stock option for Company Common
Stock from the Company as of the date of the Distribution. The U.S. Office
Products Board intends the option to be compensation for Mr. Ledecky's services
as a director of the Company, and certain services as an employee of the
Company. The option will cover up to 7.5% of the outstanding Company Common
Stock determined as of the date of the Distribution, with no anti-dilution
provisions in the event of issuance of additional shares of Common Stock (other
than with respect to stock splits or reverse stock splits). The option will have
a per share exercise price equal to the price of the first trade on the day the
Company's Common Stock is first publicly traded.

F-86
<PAGE>
PARADIGM CONCEPTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)

The following presents certain unaudited quarterly financial data for the
fiscal years ended March 31, 1996 and April 26, 1997 and the fiscal year ending.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1996
------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 30,536 $ 27,653 $ 27,173 $ 28,693 $ 114,055
Gross profit.............................................. 9,490 7,462 6,249 6,741 29,942
Operating income (loss)................................... 5,296 3,036 1,222 (122) 9,432
Net income................................................ 5,315 2,936 1,103 288 9,642
Pro forma income (see Note 9)............................. 3,550 1,961 737 193 6,441
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 26, 1997
------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 34,263 $ 31,898 $ 35,133 $ 34,984 $ 136,278
Gross profit.............................................. 7,982 7,608 9,655 8,904 34,149
Operating income.......................................... 2,695 1,779 3,056 2,820 10,350
Net income................................................ 2,617 1,315 1,708 1,083 6,723
Pro forma income (see Note 9)............................. 1,787 898 1,167 740 4,592
</TABLE>

NOTE 15--SUBSEQUENT EVENTS

On January 13, 1998, U.S. Office Products announced its intention to
complete the Distribution described in Note 1. In addition, subsequent to April
26, 1997, the Company has completed five business combinations accounted for
under the purchase method in exchange for U.S. Office Products common stock with
a market value on their respective dates of acquisition of approximately $71.9
million. The results of operations for the six months ended October 25, 1997
include the results of the acquired companies from their respective dates of
acquisition.

The following presents the unaudited pro forma results of operations of the
Company for fiscal 1997 as if the Distribution and acquisitions described above
had been consummated as of the beginning of fiscal 1997. The results presented
below include certain pro forma adjustments to reflect the amortization of
intangible assets, adjustments in executive compensation and the inclusion of a
federal income tax provision on all earnings:

<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
APRIL 26, 1997
----------------
<S> <C>
Revenues.................................................................... $ 228,912
Net income.................................................................. 10,692
</TABLE>

F-87
<PAGE>
TDOP, INC.

PRO FORMA COMBINED FINANCIAL STATEMENTS

(UNAUDITED)

The unaudited pro forma financial statements give effect to the spin-off of
TDOP, Inc. (the "Company"), formerly the Corporate Travel Services division of
U.S. Office Products Company ("U.S. Office Products"), through the distribution
of shares of the Company to U.S. Office Products shareholders (the
"Distribution") and acquisitions completed through February 13, 1998.

The pro forma combined balance sheet gives effect to the Distribution and
the acquisition of an individually insignificant company after October 25, 1997
(the "Post October 25, 1997 Purchase Acquisition"), as if all such transactions
had occurred as of the Company's most recent balance sheet date, October 25,
1997.

The pro forma combined statement of income for the fiscal year ended April
26, 1997 gives effect to (i) the Distribution; (ii) the acquisition of one
individually insignificant company acquired in a business combination accounted
for under the purchase method completed during the fiscal year ended April 26,
1997 (the "Fiscal 1997 Purchase Acquisition"); and (iii) the acquisitions of
Associated Travel Services, Inc. ("Associated Travel"), Evans Travel Group, Inc.
and Evans Consulting Services, Inc. ("Evans Travel"), McGregor Travel
Management, Inc. ("McGregor Travel"), Omni Travel Service, Inc. ("Omni Travel"),
Travel Consultants, Inc. and Envisions Vacations, Inc. ("Travel Consultants")
and two other individually insignificant companies in business combinations
accounted for under the purchase method and completed during the fiscal year
ending April 25, 1998 (the "Fiscal 1998 Purchase Acquisitions"), as if all such
transactions had occurred on May 1, 1996. The pro forma combined statement of
income for the year ended April 26, 1997 includes (i) the audited financial
information of the Company for the year ended April 26, 1997; (ii) the unaudited
financial information of the Fiscal 1997 Purchase Acquisitions for the period
May 1, 1996 through their respective dates of acquisition; and (iii) the
unaudited financial information of the Fiscal 1998 Purchase Acquisitions for the
period from May 1, 1996 through April 26, 1997.

The pro forma combined statement of income for the six months ended October
26, 1996 gives effect to (i) the Distribution; (ii) the fiscal 1997 Purchase
Acquisition; and (iii) the Fiscal 1998 Purchase Acquisitions, as if all such
transactions had occurred on May 1, 1996. The pro forma combined statement of
income for the six months ended October 26, 1996 includes (i) the unaudited
financial information of the Company for the six months ended October 26, 1996;
(ii) the unaudited financial information of the fiscal 1997 Purchase Acquisition
for the six months ended October 26, 1996; and (iii) the unaudited financial
information of the Fiscal 1998 Purchase Acquisitions for the six months ended
October 26, 1996.

The historical financial statements of the Company give retroactive effect
to the results of the four companies acquired by the Company during the year
ended April 26, 1997 in business combinations accounted for under the
pooling-of-interests method of accounting.

F-88
<PAGE>
TDOP, INC.

PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

overheads have been allocated to the Company using one of several factors,
dependent on the nature of the costs being allocated, including, revenues,
number and size of acquisitions and number of employees.

F-89
<PAGE>
TDOP, INC.

PRO FORMA COMBINED BALANCE SHEET

OCTOBER 25, 1997

(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
POST OCTOBER
25,
1997 PURCHASE PRO FORMA PRO FORMA
TDOP, INC. ACQUISITION ADJUSTMENTS COMBINED
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 4,492 $ 695 $ (5,187)(b) $
Accounts receivable, net............................. 21,422 319 21,741
Receivable from U.S. Office Products................. 1,779 (1,779)(b)
Prepaid and other current assets..................... 1,524 23 1,547
----------- ------- ----------- -----------
Total current assets............................. 29,217 1,037 (6,966) 23,288

Property and equipment, net............................ 18,545 214 18,759
Intangible assets, net................................. 83,966 604 1,058(a) 85,628
Other assets........................................... 1,717 9 1,726
----------- ------- ----------- -----------
Total assets..................................... $ 133,445 $ 1,864 $ (5,908) $ 129,401
----------- ------- ----------- -----------
----------- ------- ----------- -----------

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short term debt...................................... $ 3,005 $ $ (2,076)(b) $ 929
Accounts payable..................................... 5,658 640 6,298
Accrued compensation................................. 4,408 14 4,422
Other accrued liabilities............................ 7,360 7,360
----------- ------- ----------- -----------
Total current liabilities........................ 20,431 654 (2,076) 19,009

Long-term debt......................................... 6,070 787 7,214(b) 14,071
Long-term payable to U.S. Office Products.............. 6,753 (6,753)(b)
Deferred income taxes.................................. 155 155
Other long-term liabilities............................ 1,652 1,652
----------- ------- ----------- -----------
Total liabilities................................ 35,061 1,441 (1,615) 34,887

Stockholder's equity:
Divisional equity.................................... 88,388 1,481(a) 84,518
(5,351)(b)
Cumulative translation adjustment.................... (2) (2)
Retained earnings.................................... 9,998 423 (423)(a) 9,998
----------- ------- ----------- -----------
Total stockholder's equity....................... 98,384 423 (4,293) 94,514
----------- ------- ----------- -----------
Total liabilities and stockholder's equity....... $ 133,445 $ 1,864 $ (5,908) $ 129,401
----------- ------- ----------- -----------
----------- ------- ----------- -----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-90
<PAGE>
TDOP, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 25, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
INDIVIDUALLY
INSIGNIFICANT
FISCAL 1998
TDOP, ASSOCIATED EVANS MCGREGOR OMNI TRAVEL PURCHASE
INC. TRAVEL TRAVEL TRAVEL TRAVEL CONSULTANTS ACQUISITIONS
--------- ----------- --------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $ 46,557 $ 7,146 $ 1,524 $ 13,134 $ 2,983 $ 7,052 $ 4,180
Operating expenses................ 26,215 4,034 669 7,887 1,259 3,955 1,163
--------- ----------- --------- ----------- --------- ------ ------
Gross profit.................... 20,342 3,112 855 5,247 1,724 3,097 3,017

General and administrative
expenses........................ 14,990 1,989 401 3,148 1,132 2,138 2,744
Amortization Expense.............. 649 197 15 87 47
--------- ----------- --------- ----------- --------- ------ ------
Operating income................ 4,703 926 439 2,012 592 912 273
Other (income) expense:
Interest expense................ 207 32 4 63 1 41 14
Interest income................. (216) (35) (61) (28) (6)
Other........................... (38) (47)
--------- ----------- --------- ----------- --------- ------ ------
Income before provision for income
taxes........................... 4,750 976 435 2,010 619 871 265
Provision for income taxes........ 2,185 252 7 44
--------- ----------- --------- ----------- --------- ------ ------
Net income........................ $ 2,565 $ 724 $ 435 $ 2,003 $ 619 $ 871 $ 221
--------- ----------- --------- ----------- --------- ------ ------
--------- ----------- --------- ----------- --------- ------ ------
Pro forma weighted average shares
outstanding.....................
Pro forma net income per share....

PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------- -----------
<S> <C> <C>
Revenues.......................... $ $ 82,576
Operating expenses................ 45,182
------------- -----------
Gross profit.................... 37,394
General and administrative
expenses........................ (265)(c) 26,277
Amortization Expense.............. 782(e) 1,777
------------- -----------
Operating income................ (517) 9,340
Other (income) expense:
Interest expense................ 238(g) 600
Interest income................. 346(g)
Other........................... (85)
------------- -----------
Income before provision for income
taxes........................... (1,101) 8,825
Provision for income taxes........ 1,571(h) 4,059
------------- -----------
Net income........................ $ (2,672) $ 4,766
------------- -----------
------------- -----------
Pro forma weighted average shares
outstanding..................... 95,963(i)
Pro forma net income per share.... $ 0.05
-----------
-----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-91
<PAGE>
TDOP, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED OCTOBER 26, 1996

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
INDIVIDUALLY INDIVIDUALLY
INSIGNIFICANT INSIGNIFICANT
FISCAL 1998 FISCAL 1997
TDOP, ASSOCIATED EVANS MCGREGOR OMNI TRAVEL PURCHASE PURCHASE
INC. TRAVEL TRAVEL TRAVEL TRAVEL CONSULTANTS ACQUISITION ACQUISITIONS
--------- ----------- --------- ----------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $ 29,013 $ 14,473 $ 2,270 $ 11,324 $ 3,171 $ 5,851 $ 2,988 $ 2,119
Operating expenses... 15,100 8,472 1,174 6,400 1,175 3,658 1,086 1,530
--------- ----------- --------- ----------- --------- ------ ------ ------
Gross profit....... 13,913 6,001 1,096 4,924 1,996 2,193 1,902 589

General and
administrative
expenses........... 10,231 4,859 964 4,325 1,386 1,793 1,755 1,142
Amortization
Expense............ 365 140 9 59 18 4
--------- ----------- --------- ----------- --------- ------ ------ ------
Operating income
(loss)........... 3,317 1,002 123 540 610 382 143 (553)

Other (income)
expense:
Interest expense... 190 60 7 53 2 44 16
Interest income.... (159) (49) 0 (25) (33) (4)
Other.............. 30
--------- ----------- --------- ----------- --------- ------ ------ ------
Income (loss) before
provision for
income taxes....... 3,256 991 116 512 641 338 131 (553)
Provision for income
taxes.............. 566 624 22 19
--------- ----------- --------- ----------- --------- ------ ------ ------
Net income (loss).... $ 2,690 $ 367 $ 94 $ 512 $ 641 $ 338 $ 112 $ (553)
--------- ----------- --------- ----------- --------- ------ ------ ------
--------- ----------- --------- ----------- --------- ------ ------ ------
Pro forma weighted
average shares
outstanding........
Pro forma net income
per share..........

PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------- -----------
<S> <C> <C>
Revenues............. $ $ 71,209
Operating expenses... 38,595
------------- -----------
Gross profit....... 32,614
General and
administrative
expenses........... (3,560)(c) 23,383
488(d)
Amortization
Expense............ 1,002(e) 1,597
------------- -----------
Operating income
(loss)........... 2,070 7,634
Other (income)
expense:
Interest expense... 228(g) 600
Interest income.... 270(g)
Other.............. 30
------------- -----------
Income (loss) before
provision for
income taxes....... 1,572 7,004
Provision for income
taxes.............. 1,991(h) 3,222
------------- -----------
Net income (loss).... $ (419) $ 3,782
------------- -----------
------------- -----------
Pro forma weighted
average shares
outstanding........ 95,963(i)
Pro forma net income
per share.......... $ 0.04
-----------
-----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-92
<PAGE>
TDOP, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE FISCAL YEAR ENDED APRIL 26, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
INDIVIDUALLY INDIVIDUALLY
INSIGNIFICANT INSIGNIFICANT
FISCAL 1998 FISCAL 1997
TDOP, ASSOCIATED EVANS MCGREGOR OMNI TRAVEL PURCHASE PURCHASE
INC. TRAVEL TRAVEL TRAVEL TRAVEL CONSULTANTS ACQUISITIONS ACQUISITION
--------- ----------- --------- ----------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $ 57,677 $ 31,289 $ 5,662 $ 22,445 $ 6,351 $ 11,850 $ 6,490 $ 2,630
Operating expenses... 31,541 18,098 2,948 12,443 2,346 7,347 2,287 2,005
--------- ----------- --------- ----------- --------- ----------- ------ ------
Gross profit....... 26,136 13,191 2,714 10,002 4,005 4,503 4,203 625

General and
administrative
expenses........... 19,684 10,999 2,007 8,103 2,792 3,650 3,840 1,454
Amortization
Expense............ 548 213 18 120 63 8
Non-recurring
acquisition
costs.............. 1,156
--------- ----------- --------- ----------- --------- ----------- ------ ------
Operating income
(loss)........... 4,748 1,979 689 1,779 1,213 790 355 (829)

Other (income)
expense:
Interest expense... 587 95 14 127 4 105 27
Interest income.... (445) (62) (1) (45) (66) (9)
Other.............. 118 194
--------- ----------- --------- ----------- --------- ----------- ------ ------
Income (loss) before
provision for
income taxes....... 4,488 1,752 676 1,697 1,275 685 337 (829)
Provision for income
taxes.............. 1,145 1,048 (50) 79
--------- ----------- --------- ----------- --------- ----------- ------ ------
Net income (loss).... $ 3,343 $ 704 $ 676 $ 1,697 $ 1,325 $ 685 $ 258 $ (829)
--------- ----------- --------- ----------- --------- ----------- ------ ------
--------- ----------- --------- ----------- --------- ----------- ------ ------
Pro forma weighted
average shares
outstanding........
Pro forma net income
per share..........

PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------- -----------
<S> <C> <C>
Revenues............. $ 144,394
Operating expenses... 79,015
------------- -----------
Gross profit....... 65,379
General and
administrative
expenses........... (7,119)(c) 46,278
868(d)
Amortization
Expense............ 2,004(e) 2,974
Non-recurring
acquisition
costs.............. (1,156)(f)
------------- -----------
Operating income
(loss)........... 5,403 16,127
Other (income)
expense:
Interest expense... 241(g) 1,200
Interest income.... 628(g)
Other.............. 312
------------- -----------
Income (loss) before
provision for
income taxes....... 4,534 14,615
Provision for income
taxes.............. 4,501(h) 6,723
------------- -----------
Net income (loss).... $ 33 $ 7,892
------------- -----------
------------- -----------
Pro forma weighted
average shares
outstanding........ 95,963(i)
Pro forma net income
per share.......... $ 0.08
-----------
-----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-93
<PAGE>
TDOP, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)

1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS

(a) Adjustment to reflect purchase price adjustments associated with the
Post October 25, 1997 Purchase Acquisition. The portion of the consideration
assigned to goodwill ($1,058) in the transaction accounted for under the
purchase method represents the excess of the cost over the fair market value of
the net assets acquired. The Company amortizes goodwill over a period of 35
years. The recoverability of the unamortized goodwill will be assessed on an
ongoing basis by comparing anticipated undiscounted future cash flows from
operations to net book value.

(b) Represents payment of debt with available cash, the forgiveness of the
receivable from U.S. Office Products by the Company and the allocation of a
total of $15,000 of debt to the Company at the date of the Distribution. The
forgiveness of the receivable and the incremental debt allocated to the Company
has been reflected as a reduction of capital of $5,351.

2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS

(c) Adjustment to reflect reductions in executive compensation as a result
of the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions.

(d) Adjustment to reflect additional corporate overhead during the period
prior to the formation of the Corporate Travel Services division by U.S. Office
Products as if the division had been formed at May 1, 1996.

(e) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1998 Purchase
Acquisitions for the periods prior to the respective dates of acquisition. The
Company has recorded goodwill amortization in the historical financial
statements from the respective dates of acquisition forward. The goodwill is
being amortized over an estimated life of 35 years.

(f) Adjustment to reflect the reduction in non-recurring acquisition costs
related to pooling-of-interests business combinations of $1,156 for the fiscal
year ended April 26, 1997.

(g) Adjustment to reflect the increase in interest expense and reduction in
interest income resulting from the net allocation of $5,351 of debt by U.S.
Office Products.

(h) Adjustment to calculate the provision for income taxes on the combined
pro forma results at an effective income tax rate of approximately 46%. The
difference between the effective tax rate of 46% and the statutory tax rate of
35% relates primarily to state income taxes and non-deductible goodwill.

(i) The pro forma weighted average shares outstanding used to calculate pro
forma earnings per share is based upon 95,963 shares of common stock outstanding
for the periods. This is based upon the most current number of shares of common
stock of U.S. Office Products outstanding of 133,000 less 37,037 shares expected
to be repurchased by U.S. Office Products in the Tender Offer, and assumes a
distribution ratio of one share of Company Common Stock for each share of U.S.
Office Products Common Stock. The actual distribution ratio will be determined
prior to consummation of the Distribution and is expected to be less than one
share of Company Common Stock for every one share of U.S. Office Products Common
Stock.

F-94
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholder of

TDOP, Inc.

In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of TDOP, Inc. (the "Company") and its
subsidiaries at April 30, 1996 and April 26, 1997, and the results of their
operations and their cash flows for the fiscal years ended December 31, 1994 and
1995, the four months ended April 30, 1996 and the fiscal year ended April 26,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of MTA, Inc., a
wholly-owned subsidiary, which statements reflect total revenues of $11,418,751
for the period from January 25, 1995 (date of incorporation) to December 31,
1995. Those statements were audited by other auditors whose report thereon has
been furnished to us, and our opinion expressed herein, insofar as it relates to
the amounts included for MTA, Inc., is based solely on the report of the other
auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Denver, Colorado
February 6, 1998

F-95
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
MTA, Inc.

We have audited the consolidated balance sheet of MTA, Inc. (the Company) as
of December 31, 1995 and the related statements of income and retained earnings
and of cash flows for the period from January 25, 1995 (date of incorporation)
to December 31, 1995 (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MTA, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the period from January 25, 1995 (date of incorporation) to December 31, 1995,
in conformity with generally accepted accounting principles.

Deloitte & Touche LLP
Seattle, Washington

September 23, 1996

F-96
<PAGE>
TDOP, INC.

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS)

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 5,646 $ 6,952 $ 4,492
Accounts receivable, less allowance for doubtful accounts of $96, $271 and
$340, respectively......................................................... 5,449 5,965 21,422
Receivable from U.S. Office Products......................................... 1,779
Prepaid expenses and other current assets.................................... 655 775 1,524
--------- --------- -----------
Total current assets..................................................... 11,750 13,692 29,217

Property and equipment, net.................................................... 7,947 7,954 18,545
Intangible assets, net......................................................... 5,456 7,112 83,966
Other assets................................................................... 539 581 1,717
--------- --------- -----------
Total assets............................................................. $ 25,692 $ 29,339 $ 133,445
--------- --------- -----------
--------- --------- -----------

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
Short-term debt.............................................................. $ 2,059 $ 456 $ 3,005
Short-term payable to U.S. Office Products................................... 4,221
Accounts payable............................................................. 2,385 3,226 5,658
Accrued compensation......................................................... 1,508 1,085 4,408
Other accrued liabilities.................................................... 1,460 3,423 7,360
--------- --------- -----------
Total current liabilities................................................ 7,412 12,411 20,431

Long-term debt................................................................. 6,366 2,012 6,070
Long-term payable to U.S. Office Products...................................... 787 6,753
Deferred income taxes.......................................................... 190 196 155
Other long-term liabilities.................................................... 503 450 1,652
--------- --------- -----------
Total liabilities........................................................ 14,471 15,856 35,061
--------- --------- -----------

Commitments and contingencies

Stockholder's equity:
Divisional equity............................................................ 4,093 6,050 88,388
Cumulative translation adjustment............................................ (2)
Retained earnings............................................................ 7,128 7,433 9,998
--------- --------- -----------
Total stockholder's equity............................................... 11,221 13,483 98,384
--------- --------- -----------
Total liabilities and stockholder's equity............................... $ 25,692 $ 29,339 $ 133,445
--------- --------- -----------
--------- --------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-97
<PAGE>
TDOP, INC.

CONSOLIDATED STATEMENT OF INCOME

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE FOR THE SIX
FOR THE YEAR ENDED FOR THE FOUR FISCAL MONTHS ENDED
-------------------------- MONTHS ENDED YEAR ENDED ------------------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1994 1995 1996 1997 1996 1997
------------ ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues.............................. $ 34,569 $ 45,267 $ 18,009 $ 57,677 $ 29,013 $ 46,557
Operating expenses.................... 19,692 25,836 9,491 31,541 15,100 26,215
------------ ------------ ------------ ------------- ----------- -----------
Gross profit.................... 14,877 19,431 8,518 26,136 13,913 20,342

General and administrative expenses... 11,872 15,563 6,788 20,232 10,596 15,639
Non-recurring acquisition costs....... 1,156
------------ ------------ ------------ ------------- ----------- -----------
Operating income................ 3,005 3,868 1,730 4,748 3,317 4,703

Other (income) expense:
Interest expense.................. 118 515 173 587 190 207
Interest income................... (253) (352) (109) (445) (159) (216)
Other............................. 48 42 20 118 30 (38)
------------ ------------ ------------ ------------- ----------- -----------
Income before provision for income
taxes............................... 3,092 3,663 1,646 4,488 3,256 4,750
Provision for income taxes............ 18 565 255 1,145 566 2,185
------------ ------------ ------------ ------------- ----------- -----------
Net income............................ $ 3,074 $ 3,098 $ 1,391 $ 3,343 $ 2,690 $ 2,565
------------ ------------ ------------ ------------- ----------- -----------
------------ ------------ ------------ ------------- ----------- -----------

Unaudited pro forma net income (see
Note 9)............................. $ 1,992 $ 2,314 $ 1,043 $ 2,235 $ 804 $ 2,565
------------ ------------ ------------ ------------- ----------- -----------
------------ ------------ ------------ ------------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-98
<PAGE>
TDOP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
CUMULATIVE TOTAL
DIVISIONAL TRANSLATION RETAINED STOCKHOLDER'S
EQUITY ADJUSTMENT EARNINGS EQUITY
----------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993................................... $ 1,668 $ $ 6,246 $ 7,914
Cash dividends of Pooled Companies........................... (3,252) (3,252)
Net income................................................... 3,074 3,074
----------- ----------- --------- -------------

Balance at December 31, 1994................................... 1,668 6,068 7,736
Transactions of Pooled Companies:
Issuance of Pooled Company common stock for cash........... 800 800
Cash dividends............................................. (2,447) (2,447)
Net income................................................... 3,098 3,098
----------- ----------- --------- -------------

Balance at December 31, 1995................................... 2,468 6,719 9,187
Transactions of Pooled Companies:
Issuance of Pooled Company common stock for cash........... 1,625 1,625
Cash dividends............................................. (982) (982)
Net income................................................... 1,391 1,391
----------- ----------- --------- -------------

Balance at April 30, 1996...................................... 4,093 7,128 11,221
Transactions of Pooled Companies:
Issuance of Pooled Company common stock for cash........... 142 142
Capital contribution....................................... 43 43
Cash dividends............................................. (3,038) (3,038)
Issuance of U.S. Office Products common stock for repayment
of debt.................................................... 1,772 1,772
Net income................................................... 3,343 3,343
----------- ----------- --------- -------------

Balance at April 26, 1997...................................... 6,050 7,433 13,483
Unaudited data:
Issuance of U. S. Office Products common stock in conjunction
with acquisitions.......................................... 82,338 82,338
Cumulative translation adjustment............................ (2) (2)
Net income................................................... 2,565 2,565
----------- ----------- --------- -------------
Balance at October 25, 1997 (unaudited)........................ $ 88,388 $ (2) $ 9,998 $ 98,384
----------- ----------- --------- -------------
----------- ----------- --------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-99
<PAGE>
TDOP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE SIX
FOR THE FOUR FISCAL MONTHS
FOR THE YEAR ENDED MONTHS ENDED YEAR ENDED ENDED
---------------------------- ------------- ------------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26,
1994 1995 1996 1997 1996
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income....................................... $ 3,074 $ 3,098 $ 1,391 $ 3,343 $ 2,690
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense.......... 679 986 452 1,660 910
Non-recurring acquisition costs................ 1,156
Other.......................................... (82) 137 (27) 6 50
Changes in current assets and liabilities (net
of assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable.......................... (772) 679 (361) (106) 234
Prepaid expenses and other current assets.... 12 46 (43) 6 347
Accounts payable............................. 464 124 453 755 (690)
Accrued liabilities.......................... (380) (909) (985) (323) (722)
------------- ------------- ------------- ------------- -----------
Net cash provided by (used in) operating
activities............................... 2,995 4,161 880 6,497 2,819
------------- ------------- ------------- ------------- -----------
Cash flows from investing activities:
Additions to property and equipment, net of
disposals...................................... (804) (1,858) (486) (769) (590)
Cash paid in acquisitions, net of cash received.. 2,293 (1,758)
Payments of non-recurring acquisition costs...... (539)
Other............................................ 128 126 (129)
------------- ------------- ------------- ------------- -----------
Net cash (used in) provided by investing
activities............................... (676) 561 (615) (3,066) (590)
------------- ------------- ------------- ------------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt......... 72 3,800 362 258
Payments of long-term debt....................... (518) (1,968) (5,594) (3,039) (730)
Proceeds from (payments of) short-term
debt, net...................................... (189) 424 801 (1,603) (240)
Payments of dividends of Pooled Companies........ (3,252) (2,447) (982) (3,038) (1,036)
Proceeds from issuance of common stock........... 800 1,625 142
Capital contributed by stockholders of Pooled
Company........................................ 43
Net advances from U.S. Office Products Company... 5,008
------------- ------------- ------------- ------------- -----------
Net cash used in financing activities...... (3,959) (3,119) (350) (2,125) (1,748)
------------- ------------- ------------- ------------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... (1,640) 1,603 (85) 1,306 481
Cash and cash equivalents at beginning of period... 5,768 4,128 5,731 5,646 5,646
------------- ------------- ------------- ------------- -----------
Cash and cash equivalents at end of period......... $ 4,128 $ 5,731 $ 5,646 $ 6,952 $ 6,127
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
Supplemental disclosures of cash flow information:
Interest paid.................................... $ 161 $ 562 $ 189 $ 579 $ 253
Income taxes paid................................ $ 9 $ 361 $ 364 $ 453 $ 136

OCTOBER 25,
1997
-----------
<S> <C>

Cash flows from operating activities:
Net income....................................... $ 2,565
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense.......... 1,610
Non-recurring acquisition costs................
Other.......................................... (145)
Changes in current assets and liabilities (net
of assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable.......................... (4,241)
Prepaid expenses and other current assets.... 464
Accounts payable............................. 22
Accrued liabilities.......................... (1,752)
-----------
Net cash provided by (used in) operating
activities............................... (1,477)
-----------
Cash flows from investing activities:
Additions to property and equipment, net of
disposals...................................... (990)
Cash paid in acquisitions, net of cash received.. 1,699
Payments of non-recurring acquisition costs...... (618)
Other............................................ 174
-----------
Net cash (used in) provided by investing
activities............................... 265
-----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt......... 55
Payments of long-term debt....................... (1,225)
Proceeds from (payments of) short-term
debt, net...................................... (44)
Payments of dividends of Pooled Companies........
Proceeds from issuance of common stock...........
Capital contributed by stockholders of Pooled
Company........................................
Net advances from U.S. Office Products Company... (34)
-----------
Net cash used in financing activities...... (1,248)
-----------
Net increase (decrease) in cash and cash
equivalents...................................... (2,460)
Cash and cash equivalents at beginning of period... 6,952
-----------
Cash and cash equivalents at end of period......... $ 4,492
-----------
-----------
Supplemental disclosures of cash flow information:
Interest paid.................................... $ 113
Income taxes paid................................ $ 17
</TABLE>

The Company issued common stock, notes payable and cash in connection with
certain business combinations accounted for under the purchase method in the
year ended December 31, 1995, the fiscal

F-100
<PAGE>
TDOP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

year ended April 26, 1997 and the six months ended October 25, 1997. The fair
values of the assets and liabilities of the acquired companies at the dates of
the acquisitions are presented as follows:

<TABLE>
<CAPTION>
FOR THE FOR THE SIX
FOR THE YEAR ENDED FOR THE FOUR FISCAL MONTHS ENDED
---------------------------- MONTHS ENDED YEAR ENDED ------------------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1994 1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Accounts receivable........................... $ $ 2,406 $ $ 410 $ $ 11,016
Prepaid expenses and other current assets..... 248 99 1,266
Property and equipment........................ 928 348 10,525
Intangible assets............................. 5,109 2,127 77,501
Other assets.................................. 176 70 1,538
Short-term debt............................... (859) (2,593)
Accounts payable.............................. (817) (86) (3,405)
Accrued liabilities........................... (1,610) (1,167) (8,414)
Long-term debt................................ (43) (5,099)
Other long-term liabilities................... (520) (1,696)
------------- ------------- ------------- ------------- ----------- -----------
Net assets acquired....................... $ $ 5,061 $ $ 1,758 $ $ 80,639
------------- ------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ------------- ----------- -----------
The acquisitions were funded as follows:
U.S. Office Products common stock............. $ $ $ $ $ $ 82,338
Notes payable................................. 7,354
Cash paid, net of cash received............... (2,293) 1,758 (1,699)
------------- ------------- ------------- ------------- ----------- -----------
Total..................................... $ $ 5,061 $ $ 1,758 $ $ 80,639
------------- ------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ------------- ----------- -----------
</TABLE>

Noncash transactions:

- - During the fiscal year ended April 26, 1997, the Company used U.S. Office
Products common stock to repay $1,772 of indebtedness.

F-101
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

NOTE 1--BACKGROUND

TDOP, Inc. (the "Company") is a Delaware Corporation which is a wholly-owned
subsidiary of U.S. Office Products Company ("U.S. Office Products"). On January
13, 1998, U.S. Office Products announced its intention to spin-off its Corporate
Travel Services division as an independent publicly owned company. This
transaction is expected to be effected through the distribution of shares of the
Company to U.S. Office Products shareholders effective on or about April 25,
1998 (the "Distribution"). Prior to the Distribution, U.S. Office Products plans
to contribute its equity interests in certain wholly-owned subsidiaries
associated with U.S. Office Products' Corporate Travel Services division to the
Company. U.S. Office Products and the Company will enter into a number of
agreements to facilitate the Distribution and the transition of the Company to
an independent business enterprise.

The Corporate Travel Services division was created by U.S. Office Products
in January 1997 and completed four business combinations accounted for under the
pooling-of-interests method during the period from January 1997 to April 1997
(the "Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities.

The Company's operations are primarily concentrated in one market segment -
airline travel - and the customers are geographically diverse with no single
customer base concentrated in a single industry. Management considers a downturn
in this market segment to be unlikely. The Company's operations are seasonal,
with the November and December periods having the lowest airline bookings.

NOTE 2--BASIS OF PRESENTATION

F-102
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

CHANGE IN FISCAL YEAR

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.

CASH AND CASH EQUIVALENTS

The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.

CONCENTRATION OF CREDIT RISK

PROPERTY AND EQUIPMENT

INTANGIBLE ASSETS

F-103
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
goodwill is amortized on a straight line basis over an estimated useful life of
35 years. Management periodically evaluates the recoverability of goodwill,
which would be adjusted for a permanent decline in value, if any, by comparing
anticipated undiscounted future cash flows from operations to net book value.

TRANSLATION OF FOREIGN CURRENCIES

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate fair value.

INCOME TAXES

REVENUE RECOGNITION

The Company records revenues from air reservations and hotel and car
reservations when earned, which is at the time a reservation is booked and
ticketed. The Company provides a reserve for cancellations and reservation
changes, and provisions for such amounts are reflected in net revenues. The
reserves that have been netted against net revenues are not material in the
periods reflected. The Company estimates and records accruals for cancellations
and changes to reservation revenues booked. However, such estimates could vary
significantly based upon changes in economic and political conditions that
impact corporate travel patterns. Cruise revenues are recorded when the customer
is no longer entitled to a full refund of the cost of the cruise. Revenues
consist of commissions on travel services and year-end volume bonuses from
travel service providers.

OPERATING EXPENSES

Operating expenses include travel agent commissions, salaries,
communications and other costs associated with the selling and processing of
travel reservations.

NON-RECURRING ACQUISITION COSTS

F-104
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and investment banking fees, real estate and environmental assessments and
appraisals, various regulatory fees and recognition of transaction related
obligations. Generally accepted accounting principles require the Company to
expense all acquisition costs (both those paid by the Company and those paid by
the sellers of the acquired companies) related to business combinations
accounted for under the pooling-of-interests method.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS"). SFAS No. 128 simplifies the standards for computing
EPS and makes the presentation comparable to international EPS standards by
replacing the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company intends to adopt SFAS No.
128 in the fiscal year ending April 25, 1998. The implementation of SFAS No. 128
is not expected to have a material effect on the Company's earnings per share as
determined under current accounting rules. Historical earnings per share has not
been presented as such amounts are not deemed meaningful due to the significant
change in the Company's capital structure that will occur on the consummation of
the Distribution.

In June 1997, the FASB issued SFAS No. 130. "Reporting Comprehensive
income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company intends to adopt SFAS No. 130 in
fiscal 1999.

UNAUDITED INTERIM FINANCIAL DATA

NOTE 4--BUSINESS COMBINATIONS

POOLING-OF-INTERESTS METHOD

F-105
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
Pooled Companies all reported on years ending on December 31. Upon completion of
the acquisitions of the Pooled Companies, their year-ends were changed to U.S.
Office Products' year-end of the last Saturday in April.

<TABLE>
<CAPTION>
POOLED
TDOP, INC. COMPANIES COMBINED
----------- ----------- -----------
<S> <C> <C> <C>
For the year ended December 31, 1994
Revenues................................................................... $ $ 34,569 $ 34,569
Net income................................................................. $ $ 3,074 $ 3,074
For the year ended December 31, 1995
Revenues................................................................... $ $ 45,267 $ 45,267
Net income................................................................. $ $ 3,098 $ 3,098
For the four months ended April 30, 1996
Revenues................................................................... $ $ 18,009 $ 18,009
Net income................................................................. $ $ 1,391 $ 1,391
For the fiscal year ended April 26, 1997
Revenues................................................................... $ 6,135 $ 51,542 $ 57,677
Net income................................................................. $ 231 $ 3,112 $ 3,343
For the six months ended October 26, 1996 (unaudited):
Revenues................................................................... $ $ 29,013 $ 29,013
Net income................................................................. $ $ 2,690 $ 2,690
For the six months ended October 25, 1997 (unaudited):
Revenues................................................................... $ 46,557 $ 46,557
Net income................................................................. $ 2,565 $ 2,565
</TABLE>

PURCHASE METHOD

During 1995, the Company made one acquisition accounted for under the
purchase method for an aggregate purchase price of $5,061, consisting of $7,354
of notes payable and net of $2,293 of cash acquired. The total assets related to
the acquisition were $8,867, including goodwill of $5,109. The results of the
acquisition have been included in the Company's results from the date of
acquisition.

In fiscal 1997, the Company made one acquisition accounted for under the
purchase method for an aggregate cash purchase price of $1,758. The total assets
related to the acquisition were $3,054, including goodwill of $2,127. The
results of the acquisition have been included in the Company's results from the
date of acquisition.

The following presents the unaudited pro forma results of operations of the
Company for the year ended December 31, 1995 and the fiscal year ended April 26,
1997 and includes the Company's consolidated financial statements, which give
retroactive effect to the acquisitions of the Pooled Companies for all periods
presented, and the results of the companies acquired in purchase acquisitions as
if all such purchase acquisitions had been made at the beginning of 1995. The
results presented below include

F-106
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
certain pro forma adjustments to reflect the amortization of intangible assets,
adjustments in executive compensation and the inclusion of a federal income tax
provision on all earnings:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED
-----------------------
<S> <C> <C>
DECEMBER 31, APRIL 26,
1995 1997
------------ ---------

<CAPTION>
(UNAUDITED)
<S> <C> <C>
Revenues............................................................. $ 50,015 $ 60,307
Net income........................................................... 4,263 4,099
</TABLE>

NOTE 5--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Land..................................................................... $ 325 $ 325
Buildings................................................................ 3,605 3,088
Furniture and fixtures................................................... 7,013 7,934
Leasehold improvements................................................... 667 1,273
----------- -----------
11,610 12,620
Less: Accumulated depreciation........................................... (3,663) (4,666)
----------- -----------
Net property and equipment............................................... $ 7,947 $ 7,954
----------- -----------
----------- -----------
</TABLE>

Depreciation expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996 and the fiscal year ended April 26, 1997 was
$458, $644, $324, and $1,112, respectively.

NOTE 6--INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill.................................................... $ 4,966 $ 7,016 $ 81,993
Other....................................................... 1,137 1,122 3,651
----------- ----------- -----------
6,103 8,138 85,644
Less: Accumulated amortization.............................. (647) (1,026) (1,678)
----------- ----------- -----------
Net intangible assets....................................... $ 5,456 $ 7,112 $ 83,966
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

F-107
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 6--INTANGIBLE ASSETS (CONTINUED)
Amortization expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, the fiscal year ended April 26, 1997 and the
six months ended October 25, 1997 was $221, $342, $128, $548, and $648
respectively.

NOTE 7--OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Customer deposits........................................................ $ 142 $ 1,198
Accrued income taxes..................................................... 314 917
Accrued acquisition costs................................................ 618
Other.................................................................... 1,004 690
----------- -----------
Total other accrued liabilities...................................... $ 1,460 $ 3,423
----------- -----------
----------- -----------
</TABLE>

NOTE 8--CREDIT FACILITIES

SHORT-TERM DEBT

Short-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Other.................................................................... $ 705 $
Current maturities of long-term debt..................................... 1,354 456
----------- -----------
Total short-term debt................................................ $ 2,059 $ 456
----------- -----------
----------- -----------
</TABLE>

LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Notes payable, secured by certain assets of the Company, interest rates
ranging from 9.04% to 9.4%, maturities from October 1997 through
2015................................................................... $ 7,720 $ 2,393
Capital lease obligations................................................ 75
----------- -----------
7,720 2,468
Less: Current maturities of long-term debt............................... (1,354) (456)
----------- -----------
Total long-term debt................................................. $ 6,366 $ 2,012
----------- -----------
----------- -----------
</TABLE>

F-108
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 8--CREDIT FACILITIES (CONTINUED)
MATURITIES OF LONG-TERM DEBT

Maturities on long-term debt, including capital lease obligations, are as
follows:

<TABLE>
<S> <C>
1998................................................................ $ 456
1999................................................................ 451
2000................................................................ 55
2001................................................................ 54
2002................................................................ 59
Thereafter.......................................................... 1,393
---------
Total maturities of long-term debt $ 2,468
---------
---------
</TABLE>

PAYABLE TO U.S. OFFICE PRODUCTS

<TABLE>
<S> <C>
Balance at April 30, 1996............................................ $
Payments of long-term debt of Pooled Companies upon acquisition...... 394
Payments of acquisition costs........................................ 263
Allocated corporate expenses......................................... 107
Normal operating costs paid by U.S. Office Products.................. 23
---------
Balance at April 26, 1997............................................ $ 787
---------
---------
</TABLE>

The average outstanding long-term payable to U.S. Office Products during the
fiscal year ended April 26, 1997 was $43.

U.S. Office Products has charged the Company interest on the short-term
payable to U.S. Office Products at the prime rate in effect at the time. The
short-term payable to U.S. Office Products was incurred by the Company primarily
as a result of U.S. Office Products repaying short-term debt outstanding at the
businesses acquired by U.S. Office Products at or soon after the respective
dates of acquisition and through the centralized cash management system, which
involves daily advances or sweeps of cash to keep the cash balance at or near
zero on a daily basis. U.S. Office Products has not charged the Company interest
on the long-term payable to U.S. Office Products. The Company's financial
statements include allocations of interest expense from U.S. Office Products
totaling $21 during the year ended April 26, 1997. If the Company had been
charged interest on all debt allocated by U.S. Office Products during fiscal
1997, interest expense would have totaled $590.

The Company expects that the Distribution Agreement with U.S. Office
Products will call for an allocation of $15.0 million of debt by U.S. Office
Products resulting in incremental debt of $5.4 million at October 25, 1997,
which would be reflected in the financial statements as a reduction in
stockholder's equity. The Company intends to enter into a credit facility
concurrently with the Distribution which will contain certain financial and
other covenants, including maintenance of certain financial tests and ratios,

F-109
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 8--CREDIT FACILITIES (CONTINUED)
limitations on capital expenditures and restrictions on the incurrence of debt
or liens, the sale of assets, the payment of dividends, transactions with
affiliates and other transactions.

NOTE 9--INCOME TAXES

The provision for income taxes consists of:

<TABLE>
<CAPTION>
FOR THE
FOUR FOR THE
MONTHS FISCAL
FOR THE YEAR ENDED ENDED YEAR ENDED
-------------------------------- ----------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Income taxes currently payable:
Federal................................... $ $ 435 $ 348 $ 991
State..................................... 18 75 43 159
----- ----- ----- -----------
18 510 391 1,150
----- ----- ----- -----------
Deferred income tax expense (benefit)....... 55 (136) (5)
----- ----- ----- -----------
Total provision for income taxes........ $ 18 $ 565 $ 255 $ 1,145
----- ----- ----- -----------
----- ----- ----- -----------
</TABLE>

Deferred taxes are comprised of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts........................................ $ 28 $ 36
Accrued liabilities.................................................... 191 229
----- -----
Total current deferred tax assets.................................... 219 265
----- -----
Long-term deferred tax liabilities:
Property and equipment................................................. (409) (680)
Intangible assets...................................................... (3)
Other.................................................................. 222
----- -----
Total long-term deferred tax liabilities............................. (409) (461)
----- -----
Net deferred tax liability $ (190) $ (196)
----- -----
----- -----
</TABLE>

F-110
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 9--INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:

<TABLE>
<CAPTION>
FOR THE
FOUR FOR THE
MONTHS FISCAL
FOR THE YEAR ENDED ENDED YEAR ENDED
-------------------------------- ----------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. federal statutory rate..................................... 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit........... 0.6 1.8 1.7 2.3
Subchapter S corporation income not subject to corporate level
taxation...................................................... (35.0) (21.4) (21.2) (24.7)
Nondeductible acquisition costs................................. 6.8
Other........................................................... 6.1
----- ----- ----- -----
Effective income tax rate....................................... 0.6% 15.4% 15.5% 25.5%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

<TABLE>
<CAPTION>
FOR THE
FOUR FOR THE
MONTHS FISCAL
FOR THE YEAR ENDED ENDED YEAR ENDED
---------------------------- ----------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Net income...................................................... $ 3,074 $ 3,098 $ 1,391 $ 3,343
Pro forma income tax provision adjustment....................... 1,082 784 348 1,108
------ ------ ----------- -----------
Pro forma net income............................................ $ 1,992 $ 2,314 $ 1,043 $ 2,235
------ ------ ----------- -----------
------ ------ ----------- -----------
</TABLE>

F-111
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 10--LEASE COMMITMENTS

The Company leases various types of office facilities, equipment, and
furniture and fixtures under noncancelable lease agreements, which expire at
various dates. Future minimum lease payments under noncancelable capital and
operating leases are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1998..................................................................... $ 69 $ 1,113
1999..................................................................... 12 1,051
2000..................................................................... 985
2001..................................................................... 872
2002..................................................................... 438
Thereafter............................................................... 27
--- -----------
Total minimum lease payments............................................. 81 $ 4,486
-----------
-----------
Less: Amounts representing interest...................................... (6)
---
Present value of net minimum lease payments.............................. $ 75
---
---
</TABLE>

Rent expense for all operating leases for the years ended December 31, 1994
and 1995, the four months ended April 30, 1996 and the fiscal year ended April
26, 1997 was $1,791, $1,811, $573, and $1,903, respectively.

NOTE 11--COMMITMENTS AND CONTINGENCIES

LITIGATION

POSTEMPLOYMENT BENEFITS

DISTRIBUTION

On or before the date of the distribution, the Company, U.S. Office Products
and the other Spin-Off Companies will enter into the Distribution Agreement, the
Tax Allocation Agreement and the Employee Benefits Agreement, and the Spin-Off
Companies will enter into the Tax Indemnification Agreement and

F-112
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
may enter into other agreements, including agreements related to referral of
customers to one another. These agreements are expected to provide, among other
things, for U.S. Office Products and the Company to indemnify each other from
tax and other liabilities relating to their respective businesses prior to and
following the Distribution. Certain of the obligations of the Company and the
other spin-off companies to indemnify U.S. Office Products are joint and
several. Therefore, if one of the other spin-off companies fails to indemnify
U.S. Office Products when such a loss occurs, the Company may be required to
reimburse U.S. Office Products for all or a portion of the losses that otherwise
would have been allocated to other spin-off companies. In addition, the
agreements will allocate liabilities, including general corporate and securities
liabilities of U.S. Office Products not specifically related to the business
travel agency business, between U.S. Office Products and each spin-off company.

NOTE 12--EMPLOYEE BENEFIT PLANS

Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. For the years ended December 31, 1994
and 1995, the four months ended April 30, 1996 and the fiscal year ended April
26, 1997 the subsidiaries incurred expenses totaling $194, $204, $73 and $249,
respectively, related to these plans.

NOTE 13--STOCKHOLDER'S EQUITY

EMPLOYEE STOCK PLANS

Prior to the Distribution, certain employees of the Company participated in
the U.S. Office Products 1994 Long-Term Incentive Plan covering employees of
U.S. Office Products. The Company intends to adopt an employee stock option plan
at approximately the time of the Distribution. The Company expects to replace
the options to purchase shares of common stock of U.S. Office Products held by
employees with options to purchase shares of common stock of the Company. At
April 26, 1997, there were approximately 114,116 options to purchase shares of
U.S. Office Products common stock held by Company employees.

Under a service agreement entered into with Jonathan J. Ledecky, the Board
of Directors of U.S. Office Products has agreed that Jonathan J. Ledecky will
receive a stock option for Company common stock from the Company as of the date
of the Distribution. The Board intends the option to be compensation for Mr.
Ledecky's services as a director of the Company, and certain services as an
employee of the Company. The option will cover up to 7.5% of the outstanding
Company common stock determined as of the date of the Distribution, with no
anti-dilution provisions in the event of issuance of additional shares of common
stock (other than with respect to stock splits or reverse stock splits). The
option will have a per share exercise price equal to the price of the first
trade on the day the Company's common stock is first publicly traded.

F-113
<PAGE>
TDOP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)

The following presents certain unaudited quarterly financial data for the
year ended December 31, 1995 and the fiscal year ended April 26, 1997:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
Revenues.................................................... $ 8,486 $ 13,241 $ 12,005 $ 11,535 $ 45,267
Gross profit................................................ 3,142 6,305 5,093 4,891 19,431
Operating income............................................ 188 2,091 1,000 589 3,868
Net income.................................................. 217 1,558 792 531 3,098
Pro forma net income (see Note 9)........................... 162 1,163 592 397 2,314
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 26, 1997
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
Revenues................................................... $ 15,243 $ 13,770 $ 12,514 $ 16,150 $ 57,677
Gross profit............................................... 7,637 6,276 4,957 7,266 26,136
Operating income (loss).................................... 2,186 1,131 (407) 1,838 4,748
Net income (loss).......................................... 1,753 937 (367) 1,020 3,343
Pro forma net income (loss) (see Note 9)................... 1,198 616 (276) 697 2,235
</TABLE>

NOTE 15--SUBSEQUENT EVENTS

On January 13, 1998, U.S. Office Products announced its intention to
complete the Distribution described in Note 1. In addition, subsequent to April
26, 1997, the Company has completed six business combinations accounted for
under the purchase method for an aggregate purchase price of $80,639 consisting
of $1,699 of net cash acquired and the issuance of U.S. Office Products' common
stock with a market value of $82,338. The results of operations for the six
months ended October 25, 1997 include the results of the acquired companies from
their respective dates of acquisition.

<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
APRIL 26, 1997
----------------
<S> <C>
(UNAUDITED)
Revenues.................................................................... $ 144,394
Net income.................................................................. 7,892
</TABLE>

F-114
<PAGE>
ITEM 7--FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

<TABLE>
<C> <S>
23.1 Consent of Price Waterhouse LLP

23.2 Consent of Price Waterhouse LLP

23.3 Consent of Ernst & Young LLP

23.4 Consent of Hertz, Herson & Co. LLP

23.5 Consent of KPMG Peat Marwick LLP

23.6 Consent of KPMG Peat Marwick LLP

23.7 Consent of KPMG Peat Marwick LLP

23.8 Consent of BDO Seidman LLP

23.9 Consent of Rubin, Koehmstedt & Nadler, PLC

23.10 Consent of Deloitte & Touche LLP
</TABLE>

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

U.S. OFFICE PRODUCTS COMPANY

By: /s/ MARK D. DIRECTOR
-----------------------------------------
Mark D. Director
CHIEF ADMINISTRATIVE OFFICER,
Dated: March 9, 1998 GENERAL COUNSEL AND SECRETARY
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>

23.1 Consent of Price Waterhouse LLP

23.2 Consent of Price Waterhouse LLP

23.3 Consent of Ernst & Young LLP

23.4 Consent of Hertz, Herson & Co. LLP

23.5 Consent of KPMG Peat Marwick LLP

23.6 Consent of KPMG Peat Marwick LLP

23.7 Consent of KPMG Peat Marwick LLP

23.8 Consent of BDO Seidman LLP

23.9 Consent of Rubin, Koehmstedt & Nadler, PLC

23.10 Consent of Deloitte & Touche LLP
</TABLE>

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (333-10383
and 333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form
S-4 on Form S-8 (333-36463) of our reports as of the dates and for the entities
indicated below pertaining to the related financial statements which appear in
this Current Report on Form 8-K of U.S. Office Products Company.

<TABLE>
<CAPTION>
COMPANY DATE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Workflow Graphics, Inc.................................. February 10, 1998
School Specialty, Inc................................... January 13, 1998
Paradigm Concepts, Inc.................................. February 4, 1998
</TABLE>

PRICE WATERHOUSE LLP
Minneapolis, Minnesota
March 9, 1998

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (333-10383
and 333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form
S-4 on Form S-8 (333-36463) of our report dated February 6, 1998 pertaining to
the related financial statements of TDOP, Inc. which appear in this Current
Report on Form 8-K of U.S. Office Products Company.

PRICE WATERHOUSE LLP
Denver, Colorado
March 9, 1998

<PAGE>
EXHIBIT 23.3

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574, 333-12789, and 333-24581); Form S-3 (333-10383 and
333-14025); Form S-4 (333-13133); and Post Effective Amendment No. 1 to Form S-4
on Form S-8 (333-36463) of our report dated February 2, 1996, with respect to
the financial statements of School Specialty, Inc. for the years ended December
31, 1995 and 1994 included in the current report on Form 8-K of U.S. Office
Products Company.

ERNST & YOUNG LLP

Milwaukee, Wisconsin

March 9, 1998

<PAGE>
EXHIBIT 23.4

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574, 333-12789, and 333-24581); Form S-3 (333-10383 and
333-14025); Form S-4 (333-13133); and Post Effective Amendment No. 1 to Form S-4
on Form S-8 (333-36463) of our report dated March 6, 1996, relating to the
financial statements of United Envelope Co., Inc. and its affiliate, Rex
Envelope Co., Inc., and our report dated March 4, 1996, relating to the
financial statements of Huxley Envelope Corporation, which reports appear in the
Current Report on Form 8-K of U.S. Office Products Company.

HERTZ, HERSON & COMPANY, LLP
New York, New York
March 9, 1998

<PAGE>
EXHIBIT 23.5

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Workflow Management, Inc.:

We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (333-10383 and
333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form S-4
on Form S-8 (333-36463) and inclusion in this Current Report on Form 8-K of U.S.
Office Products Company of our report dated February 17, 1998, with respect to
the consolidated statements of income, stockholder's equity and cash flows of
Workflow Management, Inc. and subsidiaries for the year ended December 31, 1994.

KPMG PEAT MARWICK LLP
Norfolk, Virginia
March 6, 1998

<PAGE>
EXHIBIT 23.6

INDEPENDENT AUDITORS' CONSENT

The Board of Directors and Stockholders
SFI Corp. and Hano Document Printers, Inc.:

We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574, 333-12789, and 333-24581); Form S-3 (333-10383 and
333-14025); Form S-4 (333-13133); and Post Effective Amendment No. 1 to Form S-4
on Form S-8 (333-36463) and inclusion in this Current Report on Form 8-K of U.S.
Office Products Company of our report dated August 28, 1996, with respect to the
combined balance sheet of SFI Corp. and Hano Document Printers, Inc. as of
December 31, 1994 and the related combined statements of income, stockholders'
equity and cash flows for each of the years in the two-year period then ended.

KPMG PEAT MARWICK LLP
Norfolk, Virginia
March 9, 1998

<PAGE>
EXHIBIT 23.7

INDEPENDENT AUDITORS' CONSENT

The Board of Directors and Stockholders

Hano Document Printers, Inc.:

We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574, 333-12789, and 333-24581); Form S-3 (333-10383 and
333-14025); Form S-4 (333-13133); and Post Effective Amendment No. 1 to Form S-4
on Form S-8 (333-36463) and inclusion in this Current Report on Form 8-K of U.S.
Office Products Company of our report dated August 28, 1996, with respect to the
balance sheet of Hano Document Printers, Inc. as of December 31, 1995 and the
related statements of income, stockholders' equity and cash flows for the years
then ended.

KPMG Peat Marwick LLP
Norfolk, Virginia
March 9, 1998

<PAGE>
EXHIBIT 23.8

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574, 333-12789, and 333-24581); Form S-3 (333-10383 and
333-14025); Form S-4 (333-13133); and Post Effective Amendment No. 1 to Form S-4
on Form S-8 (333-36463) of our report dated February 8, 1996, relating to the
financial statements of The Re-Print Corporation, which appears in the Current
Report on Form 8-K of U.S. Office Products Company.

BDO SEIDMAN, LLP

Atlanta, Georgia
March 9, 1998

<PAGE>
EXHIBIT 23.9

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574, 333-12789, and 333-24581); Form S-3 (333-10383 and
333-14025); Form S-4 (333-13133); and Post Effective Amendment No. 1 to Form S-4
on Form S-8 (333-36463) of our report dated June 7, 1996, except for Note 9, as
to which the date is October 24, 1996, relating to the financial statements of
Fortran Corp. which appears in the Current Report on Form 8-K of U.S. Office
Products Company.

Gary A. Koehmstedt, CPA
RUBIN, KOEHMSTEDT & NADLER, PLC
Springfield, Virginia
March 9, 1998

<PAGE>
EXHIBIT 23.10

INDEPENDENT AUDITORS' CONSENT

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574, 333-12789, and 333-24581): Form S-3
(333-10383 and 333-14025); Form S-4 (333-13133); and Post Effective Amendment
No. 1 to Form S-4 on Form S-8 (333-36463) of our report dated September 23, 1996
relating to the financial statements of MTA, Inc. (not presented separately
herein) as of December 31, 1995, and for the period from January 25, 1995 (date
of incorpoation) to December 31, 1995 appearing in this Current Report on Form
8-K of U.S. Office Products Company dated January 13, 1998.

DELOITTE & TOUCHE LLP
Seattle, Washington

March 6, 1998