<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-K/A

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

                   For the Fiscal Year Ended December 31, 1996

                                       OR

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

              For the transition period from _________ to _________

                         Commission File Number 0-28208
                                 --------------

                       APPLIED GRAPHICS TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter)

            DELAWARE                                     13-3864004
(State or other jurisdiction of 
 incorporation or organization)             (I.R.S. Employer Identification No.)
                                            

28 WEST 23RD STREET, NEW YORK, NY                                       10010
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code:   212-929-4111

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

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

  Title of each class                  Name of each exchange on which registered
  -------------------                  -----------------------------------------
Common Stock, par value                          Nasdaq National Market
    $.01 per share

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

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

The aggregate market value of registrant's voting stock held by non-affiliates
as of March 10, 1997, was $139,851,203.

The number of shares of the registrant's Common Stock outstanding as of March
10, 1997, was 14,349,683 shares.

The following documents are hereby incorporated by reference into this Form
10-K:
         (1) Portions of the Registrant's 1997 Proxy Statement to be filed with
             the Securities and Exchange Commission (Part III).
         (2) Form 8-K filed with the Securities and Exchange Commission on
             October 4, 1996 (Part II).
<PAGE>   2
This amendment is being filed to reflect the pro forma net income data on the
face of the Statements of Operations.
<PAGE>   3
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                                       15
<PAGE>   4
INDEPENDENT AUDITORS' REPORT




To the Board of Directors and Stockholders
   of Applied Graphics Technologies, Inc.


We have audited the accompanying balance sheet of Applied Graphics Technologies,
Inc. (a majority-owned subsidiary of Applied Printing Technologies L.P.) (the
"Company") as of December 31, 1996, and the related statements of operations,
stockholders' equity and owner's equity (deficit), and cash flows for the year
then ended. 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.

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 provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1996 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.



/s/
DELOITTE & TOUCHE LLP
MARCH 12, 1997
NEW YORK, NEW YORK


                                       16
<PAGE>   5
                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Owners of the Predecessor Group:


      We have audited the accompanying combined balance sheet of the Predecessor
Group to Applied Graphics Technologies, Inc. as of December 31, 1995, and the
related combined statements of operations, cash flows and changes in owners'
equity (deficit) for each of the two years in the period ended December 31,
1995. These financial statements are the responsibility of the Predecessor
Group's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.

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

      In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of the
Predecessor Group as of December 31, 1995 and the combined results of their
operations and cash flows for each of the two years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.


                                    /s/
                                    Coopers & Lybrand L.L.P.





New York, New York
March 8, 1996


                                       17
<PAGE>   6
                       APPLIED GRAPHICS TECHNOLOGIES, INC.
                                 BALANCE SHEETS
              (In thousands of dollars, except per-share amounts)

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                          -----------------------------
                                                                              1996             1995
                                                                          ------------     ------------
<S>                                                                       <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                              $      2,567     $        666
   Marketable securities at cost                                                 1,600
   Accounts receivable - trade (net of allowances of $472 in 1996 and
     $1,431 in 1995)                                                            29,584           19,476
   Due from affiliates                                                                            1,841
   Inventory                                                                     4,639            3,582
   Prepaid expenses and other current assets                                     2,485            3,050
   Deferred income taxes                                                           705
                                                                          ------------     ------------
          Total current assets                                                  41,580           28,615

Property, plant and equipment, net                                              20,544           13,741
Goodwill (net of amortization of $552 in 1996 and $405 in 1995)                  7,121              551
Deferred income taxes                                                            1,644
Other assets                                                                     1,258            1,902
                                                                          ------------     ------------
                                                                                           
          Total assets                                                    $     72,147     $     44,809
                                                                          ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY/OWNERS' DEFICIT
Current liabilities:
   Accounts payable and accrued expenses                                   $    19,630     $     20,096      
   applied Printing Note                                                         1,600
   Current portion of long-term debt                                               507              711
   Current portion of obligations under capital leases                           1,354            1,576
   Intercompany borrowings                                                                       30,181
   Due to affiliates                                                               354
   Other current liabilities                                                     2,407            1,125
                                                                          ------------     ------------
          Total current liabilities                                             25,852           53,689

Long-term debt                                                                   6,005              853
Obligations under capital leases                                                 1,265            2,415
Other liabilities                                                                3,142            7,233
                                                                          ------------     ------------
          Total liabilities                                                     36,264           64,190
                                                                          ------------     ------------
Commitments and contingencies 
Stockholders' Equity/Owners' Deficit:
   Preferred stock (no par value, 10,000,000 shares authorized; no
      shares outstanding)
   Common stock ($0.01 par value, 40,000,000 shares authorized;
      shares issued and outstanding: 14,349,683)                                   143
   Additional paid-in capital                                                   25,584
   Retained earnings                                                            10,156
   Owners' deficit                                                                              (19,381)
                                                                          ------------     ------------
      Total stockholders' equity/owners' deficit                                35,883          (19,381)
                                                                          ------------     ------------
           Total liabilities and stockholders' equity /owners' deficit    $     72,147     $     44,809
                                                                          ============     ============
</TABLE>

                        See Notes to Financial Statements


                                       18
<PAGE>   7
                       APPLIED GRAPHICS TECHNOLOGIES, INC.
                            STATEMENTS OF OPERATIONS
                    (In thousands, except per-share amounts)


<TABLE>
<CAPTION>
For the years ended December 31,                     1996          1995          1994
                                                   ---------     ---------     ---------
<S>                                                <C>           <C>           <C>      
Revenues                                           $ 132,725     $ 117,802     $ 115,986
Cost of revenues                                      92,242        86,296        85,297
                                                   ---------     ---------     ---------

Gross profit                                          40,483        31,506        30,689
                                                   ---------     ---------     ---------

Selling expenses                                      15,486        16,156        15,746
General and administrative expenses                   13,068        17,373        16,341
Reorganization charge                                                3,060         6,668
                                                   ---------     ---------     ---------
  Total operating expenses                            28,554        36,589        38,755
                                                   ---------     ---------     ---------

  Operating income (loss)                             11,929        (5,083)       (8,066)

Interest expense                                      (1,833)       (3,332)       (2,807)
Other income, net                                        724           603         2,116
                                                   ---------     ---------     ---------

Income (loss) before provision for income taxes       10,820        (7,812)       (8,757)

Provision for income taxes                               865
                                                   ---------     ---------     ---------                       
Net income (loss)                                  $   9,955     $  (7,812)    $  (8,757)
                                                   =========     =========     =========

Earnings per common share:
  Primary                                          $    0.78
  Fully diluted                                    $    0.74

Weighted average number of common shares:
  Primary                                             12,797
  Fully diluted                                       13,506

Pro Forma Net Income Data:
  Income (loss) before provision for income
    taxes, as reported                             $  10,820     $  (7,812)
  Pro forma provision for income taxes                   785           115
                                                   ---------     ---------   
  Pro forma net income (loss)                      $  10,035     $  (7,927)
                                                   =========     =========     

Pro forma earnings (loss) per common share:
  Primary                                          $    0.78     $   (0.80)
  Fully diluted                                    $    0.74     $   (0.80)

Pro forma weighted average number of common 
   shares:
  Primary                                             12,797         9,930
  Fully diluted                                       13,506         9,930
</TABLE>

                        See Notes to Financial Statements


                                       19
<PAGE>   8
                       APPLIED GRAPHICS TECHNOLOGIES, INC.
                            STATEMENTS OF CASH FLOWS
                            (In thousands of dollars)


<TABLE>
<CAPTION>
For the years ended December 31,                                       1996         1995         1994
                                                                     --------     --------     --------
<S>                                                                  <C>          <C>          <C>
Cash flows from operating activities:
Net income (loss)                                                    $  9,955     $ (7,812)    $ (8,757)
Adjustments to reconcile net income (loss) to
  net cash from operating activities:
      Depreciation and amortization                                     4,932        5,359        7,405
      Deferred taxes                                                   (2,349)
      Gain on insurance settlement                                        (18)      (2,023)      (1,908)
      Reorganization charges                                                         3,060        6,668
      Other                                                               (40)       1,012          747
Management of Changes in Operating Assets and Liabilities, net of
  effects of acquisitions:
      Accounts receivable                                             (11,442)       3,772       (2,550)
      Due from affiliates                                               1,917         (981)       2,110
      Inventory                                                          (937)        (422)        (426)
      Other assets                                                      2,452        1,401         (148)
      Accounts payable and accrued expenses                              (413)       1,387        2,513
      Other liabilities                                                (2,591)         204         (275)
                                                                     --------     --------     --------
Net cash provided by operating activities                               1,466        4,957        5,379
                                                                     --------     --------     --------

Cash flows from investing activities:
      Investment in marketable securities                              (1,600)
      Property, plant and equipment expenditures                      (14,851)      (3,455)      (4,296)
      Proceeds from the sale of fixed assets                            1,099        1,483
      Net proceeds from insurance claims                                  243        1,782        1,189
      Entities purchased, net of cash acquired                            350          (69)      (1,000)
                                                                     --------     --------     --------
Net cash used in investing activities                                 (14,759)        (259)      (4,107)
                                                                     --------     --------     --------

Cash flows from financing activities:
      Proceeds received from the sale of common stock                  46,103
      Borrowings under revolving credit line                            5,628
      Proceeds from sale/leaseback transactions                         4,093          558          945
      Repayment of Applied Printing Note                              (14,400)
      Repayment of notes and capital lease obligations                 (2,662)      (4,020)      (4,875)
      Increase in (repayments of) intercompany borrowings, net        (18,000)       3,789       10,367
      Net distributions to Applied Printing                            (5,568)      (4,449)      (8,422)
                                                                     --------     --------     --------
Net cash provided by (used in) financing activities                    15,194       (4,122)      (1,985)
                                                                     --------     --------     --------

Net increase (decrease) in cash and cash equivalents                    1,901          576         (713)
Cash and cash equivalents at beginning of year                            666           90          803
                                                                     ========     ========     ========
Cash and cash equivalents at end of year                             $  2,567     $    666     $     90
                                                                     ========     ========     ========
</TABLE>

                        See Notes to Financial Statements


                                       20
<PAGE>   9
                       APPLIED GRAPHICS TECHNOLOGIES, INC.
        STATEMENTS OF STOCKHOLDERS' EQUITY AND OWNERS' EQUITY/(DEFICIT)
              (In thousands of dollars, except per-share amounts)


<TABLE>
<CAPTION>
                                                            Additional                 Owners'
                                                 Common      Paid-in     Retained      Equity/
                                                 Stock       Capital      Earnings    (Deficit)
                                                --------     --------     --------    --------
<S>                                             <C>          <C>          <C>         <C>
Balance at January 1, 1994                                                            $ 10,059
Net loss for the year                                                                   (8,757)
Distribution for the year                                                               (8,422)
                                                                                      --------

Balance at December 31, 1994                                                            (7,120)
Net loss for the year                                                                   (7,812)
Distribution for the year                                                               (4,449)
                                                                                      --------

Balance at December 31, 1995                                                           (19,381)
Issuance of 9,309,900 common shares in
   exchange for assets of Prepress Business     $     93
Issuance of 4,500,000 common shares in
   a public offering at $12.00 per share              45     $ 46,058
Issuance of 539,683 shares in an acquisition
   at $15.75 per share                                 5        8,495
Net income (loss) for the period                                          $ 10,156        (201)
Distribution for the year                                                               (9,387)
Conveyance                                                    (28,969)                  28,969
                                                --------     --------     --------    --------


Balance at December 31, 1996                    $    143     $ 25,584     $ 10,156    $      0
                                                ========     ========     ========    ========
</TABLE>

                        See Notes to Financial Statements


                                       21
<PAGE>   10
                       APPLIED GRAPHICS TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
               (In thousands of dollars, except per-share amounts)


1. ORGANIZATION AND BASIS OF PRESENTATION

      Applied Graphics Technologies, Inc. (the "Company") is a provider of
digital prepress services to magazine publishers, advertising agencies,
entertainment companies and catalog retailers. In addition, the Company provides
outsourced, on-site prepress and related services to third parties and advanced
digital imaging services, such as digital archiving and distribution services,
and commencing in December 1996, duplication and distribution services of
advertising content for the broadcast industry. The Company was incorporated in
Delaware on December 12, 1995. Applied Printing Technologies, L.P. ("Applied
Printing"), an entity beneficially owned by the Chairman of the Board of
Directors of the Company (the "Chairman") and the Chief Executive Officer of the
Company (the "CEO"), was issued 100 shares of common stock and became the
Company's sole stockholder.

      On April 16, 1996 (the "Offering Date"), the Company's Registration
Statement on Form S-1 under the Securities Act of 1933, as amended, relating to
the initial public offering (the "Offering") of the Company's Common Stock, was
declared effective. Upon the offering being declared effective, the Company
acquired substantially all of the assets and certain related liabilities
relating to the prepress, digital imaging services and related businesses of
Applied Printing (collectively, the "Prepress Business") in exchange for
9,309,900 shares of the Company's Common Stock and $37,000 of additional
consideration ("Additional Consideration") comprised of (i) the assumption by
the Company of the principal amount of collateralized senior indebtedness to
Applied Printing's primary institutional lender (the "Institutional Senior
Indebtedness") of $21,000 and (ii) the issuance of a promissory note by the
Company to Applied Printing (the "Applied Printing Note") of $16,000. The
Company received net proceeds of $46,103 from the Offering, of which
$21,000 was used to repay Institutional Senior Indebtedness and $16,000
was used to invest in short-term investments to support a standby letter of
credit that collateralized the Applied Printing Note. At December 31, 1996,
Applied Printing owned approximately 60% of the Company's outstanding common
stock.

      The acquisition of the Prepress Business has been accounted for in a
manner similar to a pooling of interests. Accordingly, the financial statements
of the Company reflect the combined results of operations of the Prepress
Business through April 16, 1996, and the results of the Company from April 17,
1996, through December 31, 1996. The financial statements through the Offering
Date have been prepared by combining the assets, liabilities, results of
operations and cash flows of the specific divisions that comprise the Prepress
Business. Historically, these specific divisions have operated as separate
business units and maintained their own books and records. Through the effective
date, Applied Printing managed the cash and financing requirements of all of its
divisions centrally; as such, the interest expense, and related intercompany
borrowing, represent an allocation of Applied Printing's interest expense and
the related debt. As discussed in Note 9, this allocation of debt is presented
as an intercompany borrowing. Additionally, Applied Printing and other related
parties had historically provided certain corporate, general and administrative
services to the Prepress Business including general management, treasury,
financial reporting, and legal services. Accordingly, the financial statements
include an allocation of expenses for such services. The combined financial
position and combined results of operations of the Prepress Business may differ
from results that may have been achieved had the Prepress Business operated as
an independent entity.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      CASH EQUIVALENTS: Cash equivalents include highly liquid investments with
a maturity of less than three months at the time of acquisition.

      MARKETABLE SECURITIES: Marketable securities consist of United States
government obligations that mature in January 1997. These securities support a
letter of credit that collateralizes the Applied Printing Note. In accordance
with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", these securities have been
classified as held to maturity and are recorded at amortized cost, which
approximates fair value due to their short-term maturity.


                                       22
<PAGE>   11
      INVENTORY: Raw materials are valued at the lower of cost (cost being
determined on a weighted average basis) or market. Work-in-process, consisting
of labor and materials on partially completed projects, is recorded at cost
(specific identification) but not in excess of net realizable value.

      PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at
cost. Depreciation is computed principally on the straight-line method over the
estimated useful lives of the assets, which generally range from 30 years for
buildings to three years for computer software and vehicles. Leasehold
improvements and amounts recorded under capital leases are amortized on the
straight-line method over the terms of the leases or their estimated useful
lives.

      REVENUE RECOGNITION: Revenue is recognized at the time projects are
shipped or transmitted to the customer. Revenue for digital archiving services
is recognized on a per-image basis as items are scanned.

      GOODWILL: Goodwill is being amortized on the straight-line method over
periods ranging from 7 to 20 years. The Company continually evaluates the
carrying value of goodwill by comparing it to the undiscounted expected future
cash flows to be generated. Goodwill is written off when there has been a loss
of value.

      INCOME TAXES: The Prepress Business was treated as a partnership for
Federal and state income tax purposes prior to the Offering Date and was not
subject to tax. A provision for income taxes is included in the Company's
Statement of Operations only for the period subsequent to the Offering Date.

      EARNINGS PER SHARE OF COMMON STOCK: Earnings per share of common stock are
computed by dividing net income by the weighted average of the number of shares
of common stock and common stock equivalents, where dilutive, outstanding.

      LONG-LIVED ASSETS: In accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of", the Company
reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of such assets may not be
recoverable.

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

      RECLASSIFICATION OF PRIOR YEARS' FINANCIAL STATEMENTS: Certain prior-year
amounts in the accompanying financial statements have been reclassified to
conform with the 1996 presentation.


3. ACQUISITION

      On December 3, 1996, the Company acquired the assets of SpotLink, Inc.
("SpotLink"), a company that reproduces and distributes commercials to broadcast
and cable media, for a purchase price of approximately $8,500. The assets,
consisting primarily of duplication equipment, were acquired for 539,683 shares
of the Company's common stock.

      The acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities of SpotLink have been recorded at their
estimated fair values at the date of acquisition.. The excess of the purchase
price over the fair value of the net assets acquired was $6,716 and has been
recorded as goodwill, which is being amortized on the straight-line method over
20 years. The results of operations of SpotLink have been included in the
Statement of Operations since the date of the acquisition.


                                       23
<PAGE>   12
      The following unaudited pro forma information combines the results of
operations of the Company and SpotLink for the years ended December 31, 1996 and
1995, calculated as if the acquisition had occurred on January 1, 1995. The pro
forma information has been prepared for comparative purposes only and does not
purport to be indicative of the results of operations that would have occurred
had the acquisition been consummated at the beginning of 1996 and 1995 or of
results which may occur in the future.


<TABLE>
<CAPTION>
Unaudited                                                 1996          1995
                                                        ---------     ---------
<S>                                                     <C>           <C>      
Total revenues                                          $ 139,867     $ 123,765
Income (loss) before provision for income taxes         $  10,614     $  (7,216)
Net income                                              $   9,933     $  (7,216)
Earnings per common share:
  Primary                                               $    0.78
  Fully diluted                                         $    0.74
</TABLE>


4. INVENTORY

    The components of inventory at December 31 were as follows:

<TABLE>
<CAPTION>
                                                       1996                1995
                                                      ------              ------
<S>                                                   <C>                 <C>   
Work-in-Process                                       $2,596              $2,518
Raw Materials                                          2,043               1,064
                                                      ------              ------
Total                                                 $4,639              $3,582
                                                      ======              ======
</TABLE>


5. PROPERTY, PLANT, AND EQUIPMENT

   Property, plant, and equipment at December 31 consisted of the following:

<TABLE>
<CAPTION>
                                                             1996         1995
                                                            -------      -------
<S>                                                         <C>          <C>    
Machinery and equipment                                     $23,422      $19,279
Leasehold improvements                                        4,643        4,212
Buildings and improvements                                   11,050        4,768
Computer software                                             1,651        1,163
Furniture and fixtures                                        1,531        1,448
Construction in progress                                        203          538
                                                            -------      -------

Total                                                        42,500       31,408
Less accumulated depreciation and amortization               21,956       17,667
                                                            -------      -------

Net                                                         $20,544      $13,741
                                                            =======      =======
</TABLE>

      Interest capitalized on construction of buildings and improvements during
1996 was $130. Depreciation and amortization of property, plant, and equipment
charged to expense for the years ended December 31, 1996, 1995, and 1994 were
$4,785, $5,106, and $5,997, respectively.


                                       24
<PAGE>   13
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

      Accounts payable and accrued expenses at December 31 consisted of the
following:

<TABLE>
<CAPTION>
                                                       1996               1995
                                                      -------            -------
<S>                                                   <C>                <C>    
Accounts payable                                      $ 7,694            $ 9,513
Salaries and benefits                                   4,329              4,499
Income taxes                                            2,449
Commissions                                             1,374              1,153
Other                                                   3,784              4,931
                                                      -------            -------

Total                                                 $19,630            $20,096
                                                      =======            =======
</TABLE>


7. APPLIED PRINTING NOTE

      On April 16, 1996, as part of the acquisition of the assets of the
Prepress Business, the Company issued a promissory note to Applied Printing in
the amount of $16,000. A principal payment in the amount of $14,400 was made
during 1996. The remaining balance of $1,600 was repaid in February 1997. This
obligation, which bore interest at the rate of 4.145% per annum, was
collateralized by a letter of credit. The Company incurred interest charges of
$295 during the 1996 period.


8. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                               1996        1995
                                                              ------      ------
<C>                                                           <C>         <C>   
3.62% - 8% notes payable due 1997 through 2000                $  377      $  853
Variable rate revolving credit line due 1998                   5,628
                                                              ------      ------

Total                                                         $6,005      $  853
                                                              ======      ======
</TABLE>

      In August 1996 the Company obtained a $10,000 revolving credit facility
that is collateralized by the Company's trade receivables. The credit facility
is a two-year variable-rate facility with a major financial institution. Under
the terms of the facility, the Company must comply with certain covenants
related to tangible net worth, ratio of debt to tangible net worth, and debt
service coverage ratio. At December 31, 1996, the Company was in compliance with
all covenants. Interest on funds borrowed is the prime lending rate, which at
December 31, 1996, was 8.25%. The Company also has the option to borrow at LIBOR
plus 2.25%. Borrowings under this LIBOR provision may have maturities of 30, 90,
or 180 days. At December 31, 1996, there were no outstanding borrowings under
the LIBOR provision. The average variable rate on this revolving credit facility
during the period in 1996 was 8.25%. As of December 31, 1996, under the most
restrictive covenant of the revolving credit facility, approximately $10,000    
were available for the payment of dividends.


                                       25
<PAGE>   14
    Principal payments on the long-term debt are as follows:

<TABLE>
<C>                                                                       <C>   
1997                                                                      $  507
1998                                                                       5,781
1999                                                                         166
2000                                                                          58
                                                                          ------

Total                                                                      6,512
Less current portion                                                         507
                                                                          ------

Total long-term debt                                                      $6,005
                                                                          ======
</TABLE>


9. INTERCOMPANY BORROWINGS

      The Prepress Business had been financed principally through advances from
Applied Printing. Historically, Applied Printing had financed all of its
operations, including those of the Prepress Business, with Institutional Senior
Indebtedness, borrowings from the Daily News, L.P. (the "Daily News") (see Note
13), and borrowings from the majority limited partner (collectively,
"Borrowings").

      Prior to the Offering Date the financial statements include an allocation
of Applied Printing's interest expense and related Borrowings. Applied
Printing's interest expense related to the Borrowings had been allocated to the
Prepress Business based on the ratio of net assets of the Prepress Business,
before an allocation of intercompany debt, to the sum of the total consolidated
net assets of Applied Printing plus the Applied Printing debt that is not
directly attributable to specific divisions within Applied Printing. The
intercompany borrowing amounts reflected in the financial statements represent
derived amounts which have been computed by applying Applied Printing's weighted
average interest rate to the allocated interest expense, calculated using the
methodology discussed above. The weighted average interest rates during the
period ended April 16, 1996, and the year ended December 1995, were 10.8% and
8.9%, respectively The Company incurred interest charges of $944, $2,683, and
$1,992 for the period ended April 16, 1996, and the years ended December 31,
1995 and 1994, respectively.


10. LEASES

      The Company leases certain property and equipment used in its operations
under agreements that are classified as both capital and operating leases. Such
agreements generally include provisions for inflation-based rate adjustments
and, in the case of leases for buildings and office space, payments of certain
operating expenses and property taxes.


                                       26
<PAGE>   15
      Future minimum rental payments required under capital leases and operating
leases that have initial or remaining noncancelable lease terms in excess of one
year are as follows:

<TABLE>
<CAPTION>
                                                           Capital     Operating
                                                           Leases       Leases
                                                           -------      -------
<C>                                                        <C>          <C>    
1997                                                       $ 1,537      $ 7,904
1998                                                           783        3,825
1999                                                           595        3,242
2000                                                                      1,782
2001                                                                      1,152
Later years                                                               5,057
                                                           -------      -------

Total minimum lease payments                                 2,915      $22,962
                                                                        =======
Less amount representing interest                              296
                                                           -------

Present value of minimum lease payments                      2,619
Less current portion                                         1,354
                                                           -------

Long-term obligation under capital leases                  $ 1,265
                                                           =======
</TABLE>

      Assets recorded under capital leases are included in property, plant and
equipment as follows:

<TABLE>
<CAPTION>
                                                         1996             1995
                                                        -------          -------
<S>                                                     <C>              <C>
Buildings                                               $ 4,768          $ 4,768
Machinery and equipment                                  11,431           11,172
                                                        -------          -------

Total                                                    16,199           15,940
Less accumulated depreciation                             8,660            7,609
                                                        -------          -------

Net                                                     $ 7,539          $ 8,331
                                                        =======          =======
</TABLE>

      Total rental expense under operating leases amounted to $7,578, $12,106,
and $9,241 for the years ended December 31, 1996, 1995, and 1994, respectively.

      In 1996, the Company entered into sale and leaseback arrangements that are
recorded as operating leases. The gain from these sale and leaseback
arrangements has been deferred and is being recognized in income as a credit
against future rental expenses. At December 31, 1996, the remaining balance of
the deferred gain totaling $233 is included in "Other Liabilities" in the
accompanying Balance Sheets.


11. INCOME TAXES

      The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
which requires the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred taxes are recognized based on the
expected future tax consequences of events that have been included in the
financial statements or tax returns by applying currently enacted statutory tax
rates applicable to future years to differences between the financial statement
and tax bases of assets and liabilities.


                                       27
<PAGE>   16
      The Prepress Business was treated as a partnership for Federal and state
income tax purposes prior to the Offering Date and was not subject to tax. At
the date of the Offering, the Company recorded the applicable deferred tax
assets related to the differences between financial statement and tax basis of
the assets and liabilities of the Prepress Business. These deferred tax assets
were entirely offset by a valuation allowance. A provision for income taxes is
included in the Company's Statement of Operations only for the period subsequent
to the Offering Date.

      The components of the provision for income taxes were as follows:

<TABLE>
<CAPTION>
                                                                         1996
                                                                        -------
<S>                                                                     <C>
Current:
Federal                                                                 $ 2,287
State                                                                       927
                                                                        -------

Total current                                                             3,214
                                                                        -------

Deferred:
Federal                                                                  (2,349)
                                                                        -------

Total provision for income taxes                                        $   865
                                                                        =======
</TABLE>

      The provision for income taxes varied from the Federal statutory income
tax rate due to the following:

<TABLE>
<CAPTION>
                                                                        1996
                                                                       -------
<S>                                                                    <C>    
Taxes at statutory rate                                                $ 3,679
State income taxes, net of Federal tax benefit                             612
Change in valuation allowance for Federal deferred tax assets           (3,870)
Meals and entertainment expenses                                           252
Other - net                                                                192
                                                                       -------

Provision for income taxes                                             $   865
                                                                       =======

Statutory rate                                                              34%
Effective rate                                                               8%
</TABLE>

      The components of the net deferred tax asset at December 31, 1996, and
April 16, 1996, were as follows:

<TABLE>
<CAPTION>
                                                     December 31,      April 16,
                                                        1996             1996
                                                       -------          -------
<S>                                                    <C>              <C>
Deferred tax assets:
Obligations under capital leases                       $   639          $   734
Property, plant, and equipment                             679              220
Accrued expenses                                         1,414            2,092
Other liabilities                                          300            1,615
Other assets                                               198              290
                                                       -------          -------

Total deferred tax assets                                3,230            4,951
Valuation allowance                                       (881)          (4,951)
                                                       -------          -------

Net deferred tax asset                                 $ 2,349          $     0
                                                       =======          =======
</TABLE>


                                       28
<PAGE>   17
      There were no deferred tax liabilities at December 31, 1996, and April 16,
1996. A valuation allowance was established at the date of initially recording
the deferred tax assets associated with the acquisition of the Prepress
Business. Due to the Prepress Business having historically incurred losses, the
valuation allowance was deemed necessary due to the uncertainty relating to the
Company's ability to utilize these benefits in the future. During the period
ended December 31, 1996, the Company reduced the valuation allowance by $3,870
for Federal and $200 for state deferred tax assets. Based on operating earnings
during 1996 and the Company's expectations of future earnings from established
contracts and relationships, the Company believes that it is more likely than
not that the benefit associated with Federal deferred tax assets will be
realized in the future and therefore has not established a valuation allowance
for Federal deferred tax assets at December 31, 1996. Based on the uncertainty
associated with the ability to utilize state benefits, the Company believes it
is not more likely than not that these benefits will be realized in the future
and therefore has established a valuation allowance.


12. STOCK OPTIONS

      In 1996, the Board of Directors and stockholders approved a Stock Option
Plan. Under such plan, options are granted to key employees of the Company to
purchase common stock of the Company. Options granted under the plan, which have
a term of ten years, become exercisable over a five year period in varying
amounts, but in no event less than 5% or more than 25% in any year for any
individual optionee. On the date of the Offering, 2,375,000 options were granted
with an exercise price of $12.00 per share. Additional grants were made in 1996
for 14,000 shares and 40,000 shares with an exercise price of $16.63 and $15.25,
respectively. Also in 1996, the Board of Directors approved a Non-employee
Directors' Nonqualified Stock Option Plan. Under such plan, options are granted
to members of the Board of Directors who are not employees of the Company.
Options granted under the plan become exercisable over a two year period and
have a term of ten years. On the date of the Offering, 100,000 options were
granted with an exercise price of $12.00. The plan also provides for an
additional 5,000 options to be granted to non-employee directors on each
subsequent anniversary date of having first become a member of the Board of
Directors. Such future option grants will have an exercise price equal to the
fair market value of the common stock on the date of grant and are fully vested
at grant.

      The two plans call for a combined maximum of 4,200,000 shares of the
Company's common stock to be available for issuance upon exercise of options.
During 1996, 35,000 and 3,000 options with an exercise price of $12.00 and
$16.63, respectively, were forfeited and became available for future issuance.
The weighted average exercise price of options outstanding at the end of the
year, options granted during the year, and options forfeited during the year was
$12.07, $12.07, and $12.37, respectively. No options were exercisable as of
December 31, 1996, and none expired or were exercised during 1996.

      The Company accounts for the issuance of stock options under the
provisions of Accounting Principles Board Opinion (APB) No. 25, "Accounting for
Stock Issued to Employees", which requires compensation cost to be measured at
the date of grant based on the intrinsic value of the options granted. The
intrinsic value of an option is equal to the difference between the market price
of the common stock on the date of grant and the exercise price of the option.
There was no compensation cost recognized by the Company on the options granted
in 1996.

      In 1995, Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", was issued. SFAS No. 123 provides for
an alternative measurement of compensation cost based on the fair value of the
options granted. The fair value of an option is based on the intrinsic value as
well as the time value of the option. The fair value of stock options granted
was estimated on the grant dates using the Black-Scholes option-pricing model
and the following assumptions: a risk-free interest rate of 6.75%; an expected
life of 6 years; expected volatility of 53.94%; and no expected dividends. The
weighted-average fair value of the options issued by the Company in 1996 was
$17,985. Had the Company elected to account for the issuance of stock options
under SFAS No. 123, the compensation cost would have been $2,511 for the year
ended December 31, 1996. The pro forma net income, primary earnings per share,
and fully diluted earnings per share for the year ended December 31, 1996,
calculated as if the Company had elected to account for the issuance of stock
options under SFAS No. 123, were $8,298, $0.66, and $0.63, respectively.


                                       29
<PAGE>   18
13. RELATED PARTY TRANSACTIONS

      In addition to the business it transacts with Applied Printing, the
Company also does business and shares services with entities beneficially owned
by the Chairman and the CEO, including the Daily News and U.S. News. The Company
also utilizes the travel-related services of ZWA, Inc., which is owned by the
Chairman.

      DUE TO/FROM AFFILIATES - Affiliates owed the Company $46 and $1,841 at
December 31, 1996 and 1995, respectively. The Company owed affiliates $400 at
December 31, 1996.

      AFFILIATE SALES AND PURCHASES - The Company has entered into Production
Services Agreements with U.S. News and the Daily News pursuant to which it will
provide prepress services. The agreement with U.S. News, which expires on
December 31, 2000, is renewable annually thereafter by mutual agreement of the
parties. The agreement with the Daily News commenced in October 1995 and is
renewable annually by mutual agreement of the parties. In 1995, the Company
entered into a two-year agreement to digitize the entire library of photographs
of an affiliate. In addition, the Company occasionally provides services to and
purchases services from related parties that are negotiated on an arms-length
basis. Sales to and purchases from related parties for the years ended December
31, 1996, 1995, and 1994 were as follows:

<TABLE>
<CAPTION>
                                          1996            1995            1994
                                         -------         -------         -------
<S>                                      <C>             <C>             <C>    
Affiliate sales                          $11,610         $ 7,901         $ 7,301
Affiliate purchases                      $ 3,097         $   421         $   710
</TABLE>

      ALLOCATED COSTS - Prior to the Offering Date, Applied Printing and other
related parties provided to the Company certain administrative services that
included cash management, financial reporting, legal, and other similar
services. The costs allocated to the Company were based on either specific
identification of expenses attributable to the Prepress Business, where
practicable, or an allocation of the total costs incurred. For such services,
the Company incurred charges of $1,534, $6,645, and $6,128 for the period ended
April 16, 1996, and for the years ended December 31, 1995 and 1994,
respectively.

      In the opinion of management, such allocated costs have been made on a
basis that is considered to be reasonable; however, these costs are not
necessarily indicative of the total costs that the Company would have incurred
had it operated on a stand-alone basis.

      SHARED COSTS - Pursuant to shared services agreements, the Company
receives certain legal and computer services from the Daily News and U.S. News.
For such services, the Company incurred charges of $303, $150, and $198 for the
years ended December 31, 1996, 1995, and 1994, respectively. In 1995 and 1994,
the shared costs are included as part of the allocated costs.

      TECHNOLOGY DEVELOPMENT AGREEMENT - Under an arrangement with the Daily
News, the Company is reimbursed for the costs incurred in the development of
certain digital technologies. Such reimbursements totaled $100, $1,184, and
$1,956 in the years ended December 31, 1996, 1995, and 1994, respectively.

      LEASES - The Company leases office space in Washington, D.C. from U.S.
News. The charges incurred for the lease were $293, $281,and $281 for the years
ended December 31, 1996, 1995, and 1994, respectively. In addition, the Company
leases office space in New York City from Applied Printing and incurred charges
of $289 for the year ended December 31, 1996. The Company also leases a facility
from the Daily News and incurred charges of $53 for the year ended December 31,
1996.


                                       30
<PAGE>   19
      VENDOR AGREEMENT - The Company is a party to an agreement originally
entered into in January 1992 by Applied Printing with a vendor and its
affiliate. Pursuant to such agreement, the Company and Applied Printing are
obligated to purchase a specified cumulative annual minimum amount of the
vendor's products provided that the prices are market competitive and that the
products meet technological and customer specifications. The Company receives a
significant rebate from the vendor that varies based on the volume of products
purchased. In addition, in 1995, the vendor prepaid to the Company $2,745 of the
rebate expected to be earned in 1997 and 1998. If the Company does not earn the
full amount of the prepaid rebate in 1997 and 1998, it would be required to
repay the difference to the vendor along with interest accrued since 1995. The
Chairman is a guarantor of the Company's contingent repayment obligation. The
Company also received prepaid rebates in March 1996 aggregating approximately
$900, all of which was earned in 1996.

      In connection with the agreement, the vendor's affiliate loaned $15,000 to
the Chairman. The loan, which matures on December 31, 1998, bears interest at
the lender's commercial paper rate. If the Company and Applied Printing do not
jointly satisfy the cumulative minimum purchase obligations specified in the
agreement, the Chairman must repay the loan balance in full at that time. These
minimum purchase obligations have been satisfied to date, and the Company
expects, through its normal purchasing requirements, to continue to exceed such
minimum obligation through December 31, 1998. The Company believes that the
terms for its purchases of the products covered by this agreement are no less
favorable to the Company than those that could be obtained from another vendor.


14. RETIREMENT PLANS

      The Company has a defined contribution plan in which employees are
eligible to participate upon the completion of six months of service and the
attainment of 21 years of age. Participants can contribute into the plan on both
a pre-tax and after-tax basis. In addition, the Company can make discretionary
contributions into the plan. Participants vest 100% in the Company's
discretionary contribution upon the completion of five years of service. The
Company did not make any discretionary contributions for the years ended
December 31, 1996, 1995, and 1994.


15. COMMITMENTS AND CONTINGENT LIABILITIES

      The Company is contingently liable as a result of transactions arising in
the ordinary course of business and is involved in certain legal proceedings in
which damages and other remedies are sought. In the opinion of Company
management, after review with counsel, the ultimate resolution of these matters
will not have a material effect on the Company's Financial Statements.

      Applied Printing and its corporate general partner are defendants in
litigation arising out of Applied Printing's business. The Company is not a
defendant in any of such litigation, and does not believe there is a sustainable
basis for the Company to be named as a defendant in any of such litigation. If
the Company were to be named or held responsible in connection with any of such
litigation, the Company is indemnified by Applied Printing.


16. CONCENTRATION OF CREDIT RISK

      Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and trade
receivables. The Company maintains cash balances and cash equivalents with high
credit quality financial institutions and limits the amount of credit exposure
to any one financial institution.

      The Company provides credit to customers on an uncollateralized basis
after evaluating customer credit worthiness. The Company's customers are not
concentrated in any specific geographic region, but are concentrated in the
publishing, advertising agency, entertainment company, and catalog retailing
businesses. The Company's five largest customers, excluding related parties,
comprise 35%, 37%, and 34% of sales for the years ended December 31, 1996, 1995,
and 1994, respectively. In addition, amounts due from these customers represent
29% and 31% of trade accounts receivable as of December 31, 1996 and 1995,
respectively. Any termination or significant disruption of the Company's
relationships with any of its principal customers could have a material adverse
effect on the Company's business, financial condition, results of operations,
and cash flows.


                                       31
<PAGE>   20
17. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    Payments of interest and income taxes were as follows:

<TABLE>
<CAPTION>
                                                                   1996         1995        1994
                                                                 --------     --------    --------
<S>                                                              <C>          <C>         <C> 
Interest paid (net of amounts capitalized)                       $    702     $    905    $    815
Income taxes paid                                                $    766

  Noncash investing and financing activities were as follows:

                                                                   1996         1995        1994
                                                                 --------     --------    --------

Conversion of intercompany borrowing into
  Applied Printing Note                                          $ 16,000
Distribution to Applied Printing in the form
  of increased intercompany borrowing                            $  3,819
Common stock issued in exchange for
  the Prepress Business                                          $     93
Common stock issued for acquisition                              $  8,500
Acquisition of property, plant, and equipment
  in exchange for obligations under capital leases                            $    480     $    562
Acquisition of property, plant, and equipment
  in exchange for notes payable                                                            $  1,088
Additions to goodwill for contingent
  purchase price adjustments                                                  $     69     $    108

Acquisitions:
Fair value of assets acquired                                    $  8,600                  $  1,020
Cash paid                                                                                    (1,000)
Value of common stock issued                                       (8,500)
                                                                 --------                  --------

Liabilities assumed                                              $    100                  $     20
                                                                 ========                  ========
</TABLE>


18. FAIR VALUE OF FINANCIAL INSTRUMENTS

      The estimated fair values of financial instruments have been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.


                                       32
<PAGE>   21
      The carrying amount and estimated fair values of financial instruments at
December 31, 1996 and 1995, are summarized as follows:

<TABLE>
<CAPTION>
                                                   1996                    1995
                                            ------------------      ------------------
                                           Carrying   Estimated    Carrying   Estimated
                                            Amount    Fair Value    Amount    Fair Value
                                            ------      ------      ------      ------
<S>                                         <C>         <C>         <C>         <C>
ASSETS:                                                                      
Cash and cash equivalents                   $2,567      $2,567      $  666      $  666
Marketable securities                       $1,600      $1,600               
Other assets                                $1,470      $1,470      $1,125      $1,125
                                                                             
LIABILITIES:                                                                 
Applied Printing Note                       $1,600      $1,600               
Long-term debt                              $6,512      $6,400      $1,564      $1,335
Obligations under capital leases            $2,619      $2,557      $3,991      $3,281
</TABLE>
                                                                           
      The following methods and assumptions were used to estimate the fair value
of financial instruments presented above:

      CASH AND CASH EQUIVALENTS - the carrying amount is a reasonable
approximation of fair value.

      MARKETABLE SECURITIES - due to the short-term maturity of the investments,
the carrying amount is a reasonable approximation of fair value.

      OTHER ASSETS - the carrying amount of non-trade accounts receivables is 
a reasonable approximation of fair value.

      APPLIED PRINTING NOTE - due to the short-term nature of the obligation,
the carrying amount is a reasonable approximation of fair value.

      LONG-TERM DEBT - the fair value of notes payable, including the current
portion, is estimated by discounting the future streams of payments using the
rate at which the Company can currently obtain funds under its revolving credit
line. The carrying amount of the revolving credit line is a reasonable
approximation of fair value since it is a variable-rate obligation.

      OBLIGATIONS UNDER CAPITAL LEASES - the fair value of obligations under
capital leases, including the current portion, is estimated by discounting the
future streams of payments using the rate at which the Company can currently
obtain funds under its revolving credit line.


19. RESTRUCTURING CHARGES

      During 1994 and 1995, the Company restructured its operations in response
to the operational impact of acquisitions and the technological changes within
the industry. As part of the restructuring, the Company consolidated several
operations during 1994 and 1995 in an effort to gain operational and
administrative efficiencies. The Statements of Operations include restructuring
charges of $3,060 and $6,668 for the years ended December 31, 1995 and 1994,
respectively. Such charges were comprised primarily of the write off of assets,
including leasehold improvements, that are no longer utilized in the Company's
business and contractual lease obligations for facilities and equipment that
provide no further benefit to the Company. The Company utilized a discount rate
of 10% to determine the present value of the contractual lease payments. The
remaining balance of the restructuring liability as of December 31, 1996, was
$409, which the Company expects to be paid during 1997.


                                       33
<PAGE>   22
20. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

      Prior to the date of the Offering, the Company was treated as a
partnership for Federal and state income tax purposes and was not subject to
tax. Had the Company been treated as a C Corporation for the periods prior to
the date of the offering, the provision for income taxes, net income, and
earnings per common share for the year ended December 31, 1996, would have been
as follows:


<TABLE>
<CAPTION>
                                                                         1996
                                                                      ----------
<S>                                                                   <C>       
Provision for income taxes                                            $      785
Net income                                                            $   10,035
Earnings per common share:
  Primary                                                             $     0.78
  Fully diluted                                                       $     0.74
</TABLE>


21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
1996 Quarter Ended                 March 31      June 30     September 30   December 31
                                   --------      --------      --------       --------
(In thousands of dollars, except                                            
per-share amounts)                                                          
<S>                                <C>           <C>           <C>            <C>
Net sales                          $ 30,598      $ 30,988      $ 35,177       $ 35,962
Gross profit                       $  8,269      $  9,352      $ 11,542       $ 11,320
Income before provision for                                                
  income taxes                     $    146      $  2,096      $  4,216       $  4,362
Net income                         $    146      $  2,033      $  4,005       $  3,771
Earnings per common share:                                                  
  Primary                          $   0.01      $   0.16      $   0.29       $   0.26
  Fully Diluted                    $   0.01      $   0.16      $   0.29       $   0.25
                                                                            
                                                                            
<CAPTION>
1995 Quarter Ended                 March 31      June 30     September 30   December 31
                                   --------      --------      --------       --------
(In thousands of dollars)                                                   
<S>                                <C>           <C>           <C>            <C>
Net sales                          $ 30,140      $ 29,711      $ 29,638       $ 28,313
Gross profit                       $  7,614      $  8,250      $  8,030       $  7,612
Net income (loss)                  $   (964)     $     82      $ (4,927)      $ (2,003)
</TABLE>
                                                                      

                                       34
<PAGE>   23
                                     PART IV

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

      (a) Listed below are the documents filed as a part of this report:

            1. Financial Statements and the Independent Auditors' Reports:

                  Independent Auditors' Reports.

                  Balance Sheets.

                  Statements of Operations for the Years Ended December 31,
                  1996, 1995 and 1994. 

                  Statements of Cash Flows for the Years Ended December 31, 
                  1996, 1995 and 1994. 

                  Statements of Stockholders' Equity and Owners' Equity
                  (Deficit) for the Years Ended December 31, 1996, 1995 
                  and 1994. 
                  
                  Notes to Financial Statements.

            2. Financial Statement Schedules:

                  Not applicable.

            3. Exhibits:

                  3.1      Certification of Incorporation (Incorporated by
                           reference to Exhibit No. 3.1 forming part of the
                           Registrant's Registration Statement on Form S-1 (File
                           No. 333-00478) filed with the Securities and Exchange
                           Commission under the Securities Act of 1933, as
                           amended).

                  3.2      Amended and Restated By-Laws of Applied Graphics
                           Technologies, Inc. (Incorporated by reference to
                           Exhibit No. 3.2 forming part of Amendment No. 3 to
                           the Registrant's Registration Statement on Form S-1
                           (File No. 333-00478) filed with the Securities and
                           Exchange Commission under the Securities Act of 1933,
                           as amended).

                  4        Specimen Stock Certificate (Incorporated by reference
                           to Exhibit No. 4 forming part of Amendment No. 3 to
                           the Registrant's Registration Statement on Form S-1
                           (File No. 333-00478) filed with the Securities and
                           Exchange Commission under the Securities Act of 1933,
                           as amended).

                  10.2     Applied Graphics Technologies, Inc. 1996 Stock Option
                           Plan (Incorporated by reference to Exhibit No. 10.2
                           forming part of Amendment No. 3 to the Registrant's
                           Registration Statement on Form S-1 (File No.
                           333-00478) filed with the Securities and Exchange
                           Commission under the Securities Act of 1933, as
                           amended).

                  10.3     Applied Graphics Technologies, Inc. Non-Employee
                           Directors Nonqualified Stock Option Plan
                           (Incorporated by reference to Exhibit No. 10.3
                           forming part of Amendment No. 3 to the Registrant's
                           Registration Statement on Form S-1 (File No.
                           333-00478) filed with the Securities and Exchange
                           Commission under the Securities Act of 1933, as
                           amended).


                                       37
<PAGE>   24
                  10.4*    Vendor Agreement, dated January 8, 1992, as amended
                           (Incorporated by reference to Exhibit No. 10.1
                           forming part of the Registrant's Report on Form
                           10-Q/A (File No. 0-28208) filed with the Securities
                           and Exchange Commission under the Securities Exchange
                           Act of 1934, as amended, for the quarterly period
                           ended March 31, 1996).

                  10.5     Agreement, dated May 1, 1979, between WAMM Associates
                           and Publisher Phototype International, L.P., as
                           amended (Incorporated by reference to Exhibit No.
                           10.5 forming part of Amendment No. 1 to the
                           Registrant's Registration Statement on Form S-1 (File
                           No. 333-00478) filed with the Securities and Exchange
                           Commission under the Securities Act of 1933, as
                           amended).

                  10.6 (a) Employment Agreement, effective as of April 1,
                           1996, between the Company and Diane Romano
                           (Incorporated by reference to Exhibit No. 10.6
                           forming part of Amendment No. 3 to the Registrant's
                           Registration Statement on Form S-1 (File No.
                           333-00478) filed with the Securities and Exchange
                           Commission under the Securities Act of 1933, as
                           amended).
                                     
                       (b) Employment Agreement, effective as of April 1, 1996,
                           between the Company and Georgia L. McCabe
                           (Incorporated by reference to Exhibit No. 10.6
                           forming part of Amendment No. 3 to the Registrant's
                           Registration Statement on Form S-1 (File No.
                           333-00478) filed with the Securities and Exchange
                           Commission under the Securities Act of 1933, as
                           amended).
                                     
                       (c) Employment Agreement, effective as of March 13, 1996,
                           between the Company and Melvin A. Ettinger
                           (Incorporated by reference to Exhibit No. 10.6
                           forming part of Amendment No. 3 to the Registrant's
                           Registration Statement on Form S-1 (File No.
                           333-00478) filed with the Securities and Exchange
                           Commission under the Securities Act of 1933, as
                           amended).
                                    
                       (d) Employment Agreement, effective as of April 1, 1996,
                           between the Company and Scott A. Brownstein
                           (Incorporated by reference to Exhibit No. 10.6
                           forming part of Amendment No. 3 to the Registrant's
                           Registration Statement on Form S-1 (File No.
                           333-00478) filed with the Securities and Exchange
                           Commission under the Securities Act of 1933, as
                           amended).
                                     
                       (e) Employment Agreement, effective as of June 1, 1996,
                           between the Company and Louis Salamone, Jr.
                           (previously filed)
                                     
                  10.7     Form of Registration Rights Agreement (Incorporated
                           by reference to Exhibit No. 10.7 forming part of
                           Amendment No. 3 to the Registrant's Registration
                           Statement on Form S-1 (File No. 333-00478) filed with
                           the Securities and Exchange Commission under the
                           Securities Act of 1933, as amended).

                  16       Letter regarding Change in Certifying Accountant
                           (Incorporated by reference to the Registrant's Report
                           on Form 8-K (File No. 0-28208) filed with the
                           Securities and Exchange Commission under the
                           Securities Exchange Act of 1934, as amended, on
                           October 4, 1996.


                  23 (a)   Consent of Deloitte & Touche LLP.

                  23 (b)   Consent of Coopers & Lybrand L.L.P.



                                       38
<PAGE>   25
                  27       Financial Data Schedule (EDGAR filing only)
                           (previously filed).

                  99       Form 8-K filed October 4, 1996.
                           (previously filed).
----------
  * Omitted portions pursuant to a confidential treatment request filed
    separately with the Securities and Exchange Commission.
    
(b) The Company filed the following reports on Form 8-K during the quarter
    ended December 31, 1996: 

    Form 8-K filed October 4, 1996, regarding change in certifying accountants. 
    Form 8-K filed December 17, 1996, regarding the acquisition of SpotLink.


                                       39
<PAGE>   26
                                   SIGNATURES

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


APPLIED GRAPHICS TECHNOLOGIES, INC.
(Registrant)


By: /s/ Fred Drasner
-----------------------------      August 29, 1997
Fred Drasner
Director, Chairman, and Chief Executive Officer
      (Duly authorized officer)

Date:  August 29, 1997


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities indicated on August 29, 1997.

      Signature                  Title
      ---------                  -----

/s/ Fred Drasner                 Director, Chairman, and Chief Executive Officer
-------------------------        (Principal Executive Officer)
Fred Drasner                     


/s/ Melvin A. Ettinger           Vice Chairman, Chief Operating
-------------------------        Officer, and Director
Melvin A. Ettinger

/s/ Diane Romano                 President
-------------------------    
Diane Romano

/s/ Louis Salamone, Jr.          Senior Vice President and Chief Financial
-------------------------        Officer (Principal Financial and Accounting
Louis Salamone, Jr.              Officer)

/s/ Martin D. Krall              Executive Vice President, Chief Legal
-------------------------        Officer, Secretary and Director
Martin D. Krall

/s/ Mortimer B. Zuckerman        Chairman of the Board of Directors
-------------------------    
Mortimer B. Zuckerman

/s/ John R. Harris               Director
-------------------------    
John R. Harris

/s/ Edward H. Linde              Director
-------------------------    
Edward H. Linde

/s/ Howard Stringer              Director
-------------------------    
Howard Stringer

/s/ Linda J. Wachner             Director
-------------------------    
Linda J. Wachner


                                       40
<PAGE>   27
                                EXHIBIT INDEX
                                -------------

            Exhibit No.                        Description
            -----------                        -----------

               23 (a)      Consent of Deloitte & Touche LLP.

               23 (b)      Consent of Coopers & Lybrand L.L.P.