UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-K

|ý                                                        | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the year ended December 31, 2007                    
|OR                                                      
|o                                                        | 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: 333-97721

---

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

|Delaware(State or other jurisdiction of
incorporation or organization)       |  | 13-3768322(I.R.S. Employer Identification)
|---------------------------------------------------------------------------- |  | ------------------------------------------
|250 West Pratt Street, Baltimore, MD(Address of principal executive offices) |  | 21201(Zip Code)                           
|Registrant's telephone number, including area code:(410) 528-9800           
|Securities registered pursuant to Section 12 (b) of the Act:None            
|Securities registered pursuant of Section 12(g) of the Act:None             

---

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ý    No o

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 o    No ý

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
"large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

|Large accelerated filer o |  | Accelerated filer o |  | Non-accelerated filer ý (Do not check if a smaller reporting company) |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The number of shares outstanding of Registrant's common stock as of March 31, 2008 was 1,000 shares.

Documents Incorporated By Reference: None



---





VERTIS, INC.

ANNUAL REPORT ON FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 2007

TABLE OF CONTENTS

|Form 10-K
Item No.                                             |  | Name of Item                                                                                                 |  | Page
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|Part I                                                         |  |                                                                                                              |  |     
|Item 1                                                         |  | Business                                                                                                     |  | 3   
|Item 1A                                                        |  | Risk Factors                                                                                                 |  | 7   
|Item 1B                                                        |  | Unresolved Staff Comments                                                                                    |  | 11  
|Item 2                                                         |  | Properties                                                                                                   |  | 12  
|Item 3                                                         |  | Legal Proceedings                                                                                            |  | 13  
|Item 4                                                         |  | Submission of Matters to Vote of Security Holders                                                            |  | 13  
|Part II                                                        |  |                                                                                                              |  |     
|Item 5                                                         |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 14  
|Item 6                                                         |  | Selected Financial Data                                                                                      |  | 14  
|Item 7                                                         |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 17  
|Item 7A                                                        |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 38  
|Item 8                                                         |  | Financial Statements and Supplementary Data                                                                  |  | 39  
|Item 9                                                         |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 39  
|Item 9A                                                        |  | Controls and Procedures                                                                                      |  | 39  
|Item 9B                                                        |  | Other Information                                                                                            |  | 40  
|Part III                                                       |  |                                                                                                              |  |     
|Item 10                                                        |  | Directors, Executive Officers and Corporate Governance                                                       |  | 41  
|Item 11                                                        |  | Executive Compensation                                                                                       |  | 43  
|Item 12                                                        |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 60  
|Item 13                                                        |  | Certain Relationships and Related Transactions and Director Independence                                     |  | 62  
|Item 14                                                        |  | Principal Accountant Fees and Services                                                                       |  | 63  
|Part IV                                                        |  |                                                                                                              |  |     
|Item 15                                                        |  | Exhibits and Financial Statement Schedules                                                                   |  | 64  
|Signatures                                                     |  | 69                                                                                                          
|Index to Financial Statements and Financial Statement Schedule |  | F-1                                                                                                         

1

---





CAUTIONARY STATEMENTS

We have included in this Annual Report on Form 10-K, and from time to time our management may make statements which may constitute
"forward-looking statements". You may find discussions containing such forward-looking statements in "Business" and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as within this Annual Report generally. In addition, when used in this Annual Report, the words "believes," "anticipates," "expects," "estimates," "plans," "projects," "intends"
and similar expressions are intended to identify forward-looking statements. These forward-looking statements include statements other than historical information or statements of current condition,
but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. It is possible that our actual results may differ,
possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in our specific forward-looking
statements include, but are not limited to, those discussed under "Risk Factors," as well as:



Consequently,
readers of this Annual Report should consider these forward-looking statements only as our current plans, estimates and beliefs. We do not undertake and specifically
decline any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. We undertake no obligation to update or revise any forward-looking statement in this Annual Report to reflect any new events or any
change in conditions or circumstances. All of the forward-looking statements in this Annual Report are expressly qualified by these cautionary statements. Even if these plans, estimates or beliefs
change because of future events or
circumstances after the date of these statements, or because anticipated or unanticipated events occur, we disclaim any obligation to update these forward-looking statements.

2

---





PART I

ITEM 1    BUSINESS

Overview

Vertis, Inc. is one of the leading printers of advertising inserts, newspaper products and direct mail services in the United States. Our world-class
consulting, creative, research, direct mail, media, technology and printing services provide our customers with deep product and service offerings. We offer our clients insert advertising, direct mail
production and distribution, and premedia services. By offering an extensive list of solutions across a broad spectrum of media, we enable our clients to reach target customers with the most effective
message. Customers may employ these services individually or on a combined basis to create an integrated end-to-end targeted marketing solution.

Vertis
has built a strong and longstanding customer base over time by providing high quality, on-time and consistent solutions through its extensive network. For over three
decades, we have provided complex solutions to some of the world's largest companies, including many of today's Fortune 500 companies. Our clients include grocery stores, drug stores and other retail
chains, general merchandise producers and manufacturers, financial and insurance service providers, newspapers, and advertising agencies. We believe that the diversity of our client base limits our
reliance on any individual customer. Our top ten customers in 2007 accounted for 33.4% of our revenue, and no customer accounted for more than 8.2% of our revenue. We have longstanding relationships
with our customers as evidenced by the average length of our relationships with our ten largest customers, which is over 15 years tenure with us.

Vertis, Inc.
is a Delaware corporation incorporated in 1993. In 2007, Vertis had approximately $1.4 billion of revenue and 5,800 employees in North America. Our principal
executive offices are located at 250 West Pratt Street, Baltimore, Maryland 21201. Our Internet address iswww.vertisinc.com. Although we are not
subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we file annual, quarterly and special reports and other information with the Securities
and Exchange Commission, or SEC, pursuant to certain contractual obligations. Our filings are available to the public at the SEC's website at www.sec.govand also at our website, under "investor
relations", at the internet address shown above. You may read and copy any documents we file with
the SEC at its public reference facility in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference facilities.

In
this Annual Report, when we use the terms "Vertis," "we," "our," and the "Company," we mean Vertis, Inc. and its consolidated subsidiaries. The words "Vertis Holdings" refer to
Vertis Holdings, Inc., the parent company of Vertis and its sole stockholder.

Business Segments

We operate through two reportable business segments based on the way management views and manages the Company. These business segments are Advertising Inserts and
Direct Mail. Advertising Inserts provides a full product line of printed targeted advertising products inserted primarily into newspapers. Direct Mail provides personalized direct mail and marketing
products. In addition, we also provide premedia and related services ("Premedia") as well as media planning and placement services ("Media Services"). Premedia and Media Services are included in
"Corporate and Other" within this Annual Report, together with corporate costs incurred by the Company.

Financial
and other information relating to our business segments for each of 2007, 2006 and 2005 can be found in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and Note 21, "Segment Information", to our consolidated financial statements included in this Annual Report.

3

---



Advertising Inserts

General.Advertising Inserts provides a full array of targeted advertising insert products and services. Our products and
services include:



We
are a leading provider of advertising inserts, newspaper TV listing guides and Sunday comics in the United States. In 2007, we produced more than 31 billion advertising
inserts. Advertising inserts are typically produced in color and on better quality paper than run-of-press newspaper advertisements. In addition, advertising inserts allow
marketers to vary layout, artwork, design, trim size, paper type, color and format. Different versions of the same advertising program may be targeted by newspaper zones and by specific customer
demographics. We provide 74 of the top 100 Sunday newspapers in the United States with circulation-building newspaper products and services through production of comics, TV listing guides, Sunday
supplements and special sections. In 2007, we produced 1.3 billion Sunday comics, and approximately 242 million TV listing guides.

Revenue and Customers.Total Advertising Insert revenue for 2007 accounted for 66.7% of Vertis' total 2007 revenue.
Advertising Inserts employs sales representatives to market this segment's specific products and services. Our customers in the advertising inserts space include grocery stores, drug stores, other
retailers, newspapers, and consumer goods manufacturers. Our advertising insert products are distributed in national and local newspapers and, depending on their target audience, through various
complementary forms of distribution including mail, door to door and in-store circulation. Advertising Insert's ten largest customers accounted for approximately 48.8% of the segment's
2007 revenue and the largest customer accounted for approximately 12% of the Advertising Insert's 2007 revenue. We have established and maintained long-standing customer relationships with
our major customers.

Direct Mail

General.Direct Mail provides a full array of targeted direct marketing products and services. Our products and services
include:



We
are one of the largest providers of highly customized direct mail, one-to-one marketing programs, mailing management services, automated digital fulfillment
and specialty advertising products in the United States. We derive the majority of our revenues from the design, production, and execution of personalized advertising mailings rather than traditional,
broad-based direct mailings. Personalized direct mail enables consumer goods retailers and other marketers to communicate with their customers on an individual-by-individual
basis, an approach that provides higher response rates than broad, non-personalized mailings.

We
use sophisticated, data-driven techniques to target prospects and deliver full color, individualized marketing messages. We can process and manipulate databases to enable
our customers to target direct mail recipients based on many attributes, ranging from age, gender, and address to spending habits, type of car owned, whether the recipient is a pet owner, and many
others. These

4

---



highly
individualized marketing campaigns are designed to enhance customer response levels and improve client marketing efficiencies through on-demand workflow automation. The growth in
customer data availability, the increasing sophistication of database marketing tools and the growing use of the Internet for integrated marketing campaigns have significantly increased demand for
these services.

Revenue and Customers.Total Direct Mail revenue for 2007 accounted for 26.4% of Vertis' total 2007 revenue. Direct Mail
employs sales representatives to market this segment's specific products and services. Our customers include consumer goods manufacturers, financial institutions, Internet advertisers,
not-for-profit organizations, retailers and government agencies. While a majority of our sales are made directly to clients, we also sell our products and services through
agencies and brokers. Direct Mail's ten largest customers accounted for approximately 42.5% of the segment's 2007 revenue and the largest customer accounted for approximately 6.2% of Direct Mail's
2007 revenue. We have established and maintained long-standing customer relationships with our major customers.

Corporate and Other

General.Corporate and Other consists of a broad range of Premedia, Media Services and other technologies to assist clients
with their advertising campaigns, including:



We
are a leading provider of digital media production and content management solutions to retailers, consumer and commercial products companies and advertising agencies. Our services and
technologies enable clients to more efficiently create, produce and manage traditional print and advertising content. Additionally, our Media Services division is designed to support our targeted
capabilities and marketing efforts. Corporate and Other employs sales representatives devoted to these specific products and services. Additionally, Corporate and Other includes corporate costs
incurred by the Company.

Seasonality of Business

A large portion of our revenue is generally seasonal in nature, resulting in higher fourth quarter revenue than in the three preceding quarters. This seasonal
impact on revenue has been somewhat mitigated over recent years due to our efforts to expand our product lines, as well as expand the market for our advertising inserts to year-round
customers. Our profitability, however, continues to follow a more seasonal pattern due to the higher margins and efficiencies gained from running at higher capacity during the fourth quarter holiday
production season.

Raw Materials

In 2007, we spent approximately $510 million on raw materials. The primary raw materials required in our operations are paper and ink. We also use other
raw materials, such as chemicals, computer supplies and proofing materials. We believe that there are adequate sources of supply for our primary raw materials and that our relationships with our
suppliers yield improved quality, pricing and overall service to our customers; however, there can be no assurance that we will not be adversely affected by a tight market for our primary raw
materials. In recent years, the number of suppliers of paper has declined, and we have formed stronger commercial relationships with selected suppliers, allowing us to achieve more assured sourcing of
high quality paper that meets our specifications.

5

---



The
cost of paper is a principal factor in our overall pricing to our customers. As a result, changes in paper costs or in the proportion of paper supplied by our customers may have a
significant impact on our reported sales, as we generally pass through to our customers increases or decreases in the cost of paper in the price of our printed products.

Competition

The principal methods of competition in our businesses are pricing, quality, flexibility, customer targeting capabilities, breadth of service, timeliness of
delivery, customer service and other value-added services. Pricing depends in large part on the price of paper, which is our major raw material (see "Raw Materials" above). Pricing is also influenced
by product type, shipping costs, operating efficiencies and the ability to control costs. We believe that the introduction of new technologies, continued excess capacity in this industry,
consolidation in our customers' markets as well as our own, and softness in traditional brand advertising spending, combined with the cost pressures facing customers resulting from other factors,
including the cost of paper, have resulted in margin pressures and increased competition in our core businesses. We expect this trend to continue for the near-term.

Our
major competitors in North America include R.R. Donnelley & Sons Company, Quebecor World, Inc. and American Color Graphics. In addition, we compete with other marketing
service providers such as Valassis Communications, Inc., Harte-Hankes, Inc., Acxiom Corporation, Experian, Inc., and Schawk, Inc. We also compete for advertising dollars
with regional and local printers as well as television, radio, Internet and other forms of electronic media.

Trade Names, Trademarks and Patents

We own certain trade names, trademarks and patents used in our business. The loss of any such trade name, other than "Vertis", or any trademark or patent would
not have a material adverse effect on our consolidated financial condition or results of operations.

Governmental Regulations

Our business is subject to a variety of federal, state and local laws, rules and regulations. Our production facilities are governed by laws and regulations
relating to workplace safety and worker health, primarily the Occupational Safety and Health Act ("OSHA") and the regulations promulgated thereunder. Additionally, the federal and state legislatures
have passed a variety of laws in recent years relating to direct marketing and related areas. Except as described herein, we are not aware of any pending legislation that in our view is likely to
affect significantly the operations of our business. We believe that our operations comply substantially with all applicable governmental rules and regulations.

Environmental Matters

Our operations are subject to a number of federal, state, local and foreign environmental laws and regulations including those regarding the discharge, emission,
storage, treatment, handling and disposal of hazardous or toxic substances as well as remediation of contaminated soil and groundwater. While these laws and regulations could impose significant
capital and operating costs on our business and there are significant penalties for violations, these costs currently are not material.

Certain
environmental laws hold current owners or operators of land or businesses liable for their own and for previous owners' or operators' releases of hazardous or toxic substances.
Because of our operations, the long history of industrial operations at some of our facilities, the operations of predecessor owners or operators of certain of our businesses, and the use, production
and release of hazardous substances at these sites and at surrounding sites, we may be subject to liability under these environmental laws. Various facilities of ours have experienced some level of
regulatory scrutiny in the past and are, or may become, subject to further regulatory inspections, future requests for investigation or liability for past practices.

6

---



The
Comprehensive Environmental Response, Compensation & Liability Act of 1980, as amended ("CERCLA"), provides for strict, and under certain circumstances, joint and several
liability, for among other things, generators of hazardous substances disposed of at contaminated sites. We have received requests for information or notifications of potential liability from the
Environmental Protection Agency under CERCLA for a few off-site locations. We have not incurred any significant costs relating to these matters and we do not believe that we will incur
material costs in the future in responding to conditions at these sites.

The
nature of our operations exposes us to certain risks of liabilities and claims with respect to environmental matters. We believe our operations are currently in material compliance
with applicable environmental laws and regulations. In many jurisdictions, environmental requirements may be expected to become more stringent in the future which could affect our ability to obtain or
maintain necessary authorizations and approvals or result in increased environmental compliance costs.

We
do not believe that environmental compliance requirements are likely to have a material effect on us. We cannot predict what additional environmental legislation or regulations will
be enacted in the future or how existing or future laws or regulations will be administered or interpreted, or the amount of future expenditures that may be required in order to comply with these
laws. There can be no assurance that future environmental compliance obligations or discovery of new conditions will not arise in connection with our operations or facilities and that these would not
have a material adverse effect on our business, financial condition or results of operations.

Employees

As of December 31, 2007, we had approximately 5,800 employees. Most of the hourly employees at our North Brunswick and Newark, New Jersey facilities
(approximately 138 employees) are represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied-Industrial, and Service Workers International Union. We believe we have
satisfactory employee and labor relations.

ITEM 1A    RISK FACTORS

Our highly leveraged status may impair our financial condition and we may incur additional debt.

As of December 31, 2007, our total consolidated debt was $1.2 billion. Our substantial debt could have important consequences for our financial
condition, including:



The
indentures governing our debt instruments, subject to specified limitations, permit us and our subsidiaries to incur additional debt. In addition, as of December 31, 2007, our
senior credit facility would permit us to borrow up to an additional $52.6 million. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we and they now
face could intensify.

7

---





There is substantial doubt about our ability to continue as a going concern.

We are highly leveraged with a history of recording net losses, mainly due to large interest payments on our long-term debt. Additionally, our primary
sources of financing, our senior credit facility and our accounts receivable securitization facility, both mature in December 2008. We will not have sufficient liquidity to make the principal payment
on our senior credit facility upon the maturity date unless we are able to refinance or replace our existing indebtedness. Our ability to continue as a going concern beyond this maturity date is
dependent upon our ability to refinance our senior credit facility and our accounts receivable securitization facility or obtain alternate financing. We have initiated conversations with our
debtholders to explore restructuring opportunities and have retained consultants to help us effectuate a restructuring plan, should we choose to do so. We are exploring several other financing
alternatives in addition to amending our senior credit facility and our accounts receivable securitization facility, however, we cannot assure you that we will be able to amend these facilities or
successfully obtain alternative financing. The refinancing of these facilities will likely require an agreement with our noteholders.

Servicing our debt, including the refinancing of our existing debt, will require a significant amount of cash, and our ability to generate sufficient
cash depends upon many factors, some of which are beyond our control.

Our ability to make payments on and refinance our debt and to fund planned capital expenditures depends on our ability to generate cash flow in the future. To
some extent, this is subject to general economic, financial, competitive and other factors that are beyond our control. We have debt instruments that mature in 2008 and 2009 in the amounts of
$165.5 million and $993.5 million, respectively. See "Contractual Obligations" in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section, included elsewhere in this Annual Report, for a summary of our contractual obligations over the next five years. We cannot assure you that our business
will continue to generate cash flow at or above current levels. If we are unable to generate sufficient cash flows from operations in the future to service our debt, we will have to refinance all or a
portion of our existing debt or obtain additional financing. We are exploring various alternatives, including refinancing our senior credit facility, obtaining new financing, and/or effectuating a
strategic acquisition or merger. Specifically, management has engaged in discussions with debtholders on the terms of a debt exchange, which would restructure a portion of our debt and provide us with
increased liquidity. As an option, a debt exchange may be accomplished on a negotiated basis with our lenders through a pre-packaged or pre-arranged bankruptcy restructuring
plan. Additionally, we have engaged in discussions with our lenders regarding amendments to or replacement of the senior credit facility and our accounts receivable securitization facility. We cannot
assure you
that any debt restructuring or refinancing will be possible or that any additional financing could be obtained, thus the Company is considering all available options. The inability to obtain
additional financing could materially impact our ability to meet our future debt service, capital expenditure and working capital requirements.

Covenant restrictions under our indebtedness may limit our ability to operate our business.

Our indentures and other debt agreements contain, among other things, covenants that may restrict our ability to finance future operations or capital needs or to
engage in other business activities. The indentures and agreements restrict, among other things, our and the subsidiary guarantors' ability to:



8

---





In
addition, our senior credit facility requires us to maintain a minimum Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") amount of $125 million, as
calculated per the credit agreement. Also, as is customary in asset-based agreements, there is a provision for the credit facility agent (the "Agent"), in its reasonable credit judgment, to establish
reserves against availability based on a change in circumstances. The Agent's right to alter existing reserves requires written consent from the borrowers when our minimum EBITDA, as calculated per
the credit agreement, is in excess of $180 million on a quarterly trailing twelve-month basis. The Agent is not required to obtain written consent when our minimum EBITDA on a quarterly
trailing twelve-month basis is less than $180 million. Our trailing twelve-month EBITDA as calculated under the credit agreement was $131.9 million at December 31, 2007. There
were no reserves established by the Agent that would impair our ability to borrow from our senior credit facility in 2007. For more information about the restrictions and requirements under our senior
credit facility, see Note 11 "Long-Term Debt" to our consolidated financial statements included elsewhere in this Annual Report and "Liquidity and Capital Resources" in
Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".

Events
beyond our control, including changes in general economic and business conditions, may affect our ability to meet the minimum EBITDA test. We cannot assure you that we will meet
this test or that the lenders will waive any failure to meet this test. A breach of any of these covenants would result in a default under our indentures and debt agreements. All of our debt
instruments have customary cross-default provisions, including cross-default provisions for failure to pay principal or interest as required. If an event of default under our debt instruments occurs,
the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable and the lenders under our senior credit facility and our
accounts receivable securitization facility could terminate advances to us. In that event, we might not have sufficient assets to pay amounts due on our outstanding debt.

The high level of competition in the advertising and marketing services industry could have a negative impact on our ability to service debt,
particularly in a prolonged economic downturn.

The advertising and marketing services industry is highly competitive in most product categories and geographic regions. Competition is largely based on price,
quality and servicing the specialized needs of customers. Moreover, rapid changes in information technology may result in more intense competition, as existing and new entrants seek to take advantage
of new products, services and technologies that could render our products, services and technologies less competitive or, in some instances, even obsolete. See
"Competition" in the "Business" section. Technological advances in digital transmission of data and advertising creation have resulted in the
in-house production of advertising
content by certain end-users which has had a negative impact on our profitability. In addition, our industry has experienced competitive pricing pressure due to industry
over-capacity which affects the margin on our advertising insert and direct mail products. The competitive pricing pressures have resulted in a decline in our margins. In addition, changes
in product and equipment mix can have an impact on margins.

Any
future periods of economic downturn could result in continuing increased competition and possibly affect our sales and profitability. A decline in sales and profitability may
decrease our cash flow, and make it more difficult for us to service our level of debt.

9

---



Demand for our services may decrease due to a decline in clients' or an industry's financial condition or due to an economic downturn.

We cannot assure you that the demand for our services will continue at current levels. Our clients' demands for our services may change based on their needs and
financial condition. In addition, when economic downturns affect particular clients or industry groups, demand for advertising and marketing services provided to these clients or industry groups is
often adversely affected. For example, a substantial portion of our revenue is generated from customers in various sectors of the retail industry. There can be no assurance that economic conditions or
the level of demand for our services will improve or that they will not deteriorate. If there is a period of economic downturn or stagnation, our results of operations may be adversely affected.

The development of the Internet has had, and may continue to have, a significant impact on the printing business.

Over time newspaper circulation, print advertising, and the use of premedia services has been impacted by technology. Decline in newspaper circulation due to the
Internet has had a significant impact on circulation and subscription rates. Print advertising has been impacted by the Internet and other competing forms of digital media, such as e-mail,
and is expected to continue. Continued decline in newspaper circulation would be likely to adversely affect our results of operations.

Changes in the cost of paper could have a negative impact on our ability to service our indebtedness.

An increase in the cost of paper, a key raw material in our operations, may reduce our production volume and profits. If we are not able to pass paper cost
increases to our customers or if our customers reduce the size of their print advertising programs, our sales and profitability could be negatively affected. A decline in volume may decrease our cash
flow, and make it difficult for us to service our level of debt.

Increases
or decreases in demand for paper have led to corresponding pricing changes and, in periods of high demand, to limitations on the availability of certain grades of paper,
including grades used by us. A loss of the sources of paper supply or a disruption in those sources' business or failure by them to meet our product needs on a timely basis could cause temporary
shortages in needed materials which could have a negative effect on our revenue and profitability.

The expiration of contractual relationships may have a significant effect on Vertis' revenues

While we typically enter into multi-year contracts with our customers to provide for printing advertising, direct mailing, and premedia services,
there is no assurance that contracts coming to expiration will be renewed on favorable terms or at all. The expiration or other termination of those contracts could have a significant impact on our
revenue. We cannot assure you that our customers will renew, extend the term of those contracts or enter into new contracts with us when the terms of such contracts expire.

We have a history of net losses and negative cash flows that may continue into the foreseeable future

We have a history of net losses and negative cash flows, primarily due to our highly leveraged status and the large interest payments we are required to make
under our debt agreements, which reduce the operating income we have achieved. If we fail to execute our strategy to achieve and maintain profitability in the future, it could adversely affect our
ability to meet the financial covenants contained in our credit facility agreement with the financial institutions and to meet our debt service. Further, if we continue to incur net losses and
negative cash flow, we may have to implement significant cost cutting measures, in addition to those measures taken in 2007 and the first two months of 2008, which could include a substantial
reduction in work force, location closures, and/or the sale or

10

---



disposition
of certain subsidiaries. We cannot assure you that any of the cost cutting measures we implement will be effective or result in profitability or positive cash flow. To achieve
profitability, we will also need to increase our revenue base, reduce our cost structure and realize economies of scale.

Regulations and government actions on direct marketing may affect us.

Federal and state legislatures have passed a variety of laws in recent years relating to direct marketing and related areas. This and similar future legislation,
as well as other government actions, could negatively affect direct marketing activities by imposing restrictions on telemarketing and on advertising in certain industries such as tobacco and
sweepstakes, increasing the postal rate and tightening privacy regulations. Therefore, this might have a substantial impact on our direct mail services, which represent approximately 26% of our
consolidated revenues for the twelve months ended December 31, 2007, as we and our customers adjust our behaviors in response to such legislation and government actions.

We rely on key management personnel.

Our success will depend, in part, on the efforts of our executive officers and other key employees, including Mr. Michael DuBose and Mr. Barry Kohn.
Mr. DuBose was appointed chairman and chief executive officer of the Company in November 2006 and Mr. Kohn has been serving as the Company's chief financial officer since May 2007. We
believe Mr. DuBose and Mr. Kohn provide us with the leadership skills and prior experience that will greatly benefit us, as well as our customers and employees. The market for qualified
personnel is competitive and our future success will depend upon, among other factors, our ability to attract and retain key personnel. The loss of the services of any of our key management personnel
or the failure to attract and retain employees could have a material adverse effect on our results of operations and financial condition due to disruptions in leadership and continuity of our business
relationships.

There can be no assurance that Thomas H. Lee Partners L.P. and its affiliates ("THL L.P."), as controlling shareholder, will exercise its
control in our best interests as opposed to its own best interests.

Because of its position as controlling shareholder of Vertis, THL L.P. is able to exercise control over decisions affecting us, including:



There
can be no assurance that THL L.P. will exercise its control in our best interests as opposed to its best interests as controlling shareholder.

In
addition, THL L.P. owns debt securities in Vertis and Vertis Holdings, and may choose to take actions that are in its best interests as a debt holder, rather than a
shareholder.

ITEM 1B    UNRESOLVED STAFF COMMENTS

None.

11

---



ITEM 2    PROPERTIES

Executive Offices

Our principal executive offices are located at 250 West Pratt Street, Baltimore, Maryland, and comprise approximately 33,767 square feet of leased space, pursuant
to a lease agreement expiring on August 31, 2014. We also lease an additional 18,237 square feet under this lease agreement, which are being sub-leased through August 31,
2014.

Production Facilities

As of December 31, 2007, we owned 11 and leased 28 production facilities, with an aggregate area of approximately 3,500,000 square feet. The leased
production facilities have lease terms expiring at various times from 2008 to 2017. We believe that our facilities are suitable and adequate for our business. We continually evaluate our facilities to
ensure they are consistent with our operational needs and business strategy. A summary of production facilities is set forth in the table below:

|Locations                     |  | Square Footage |  | Lease Term Expiration
|----------------------------- |  | -------------- |  | ---------------------
|Advertising Inserts Locations |  |                |  |                      
|Atlanta, GA(1)                |  | 94,700         |  | Fee Ownership        
|Charlotte, NC.                |  | 105,700        |  | April 30, 2013       
|City of Industry, CA(2)       |  | 103,000        |  | September 30, 2011   
|Columbus, OH                  |  | 141,185        |  | December 31, 2014    
|Dallas, TX                    |  | 50,400         |  | September 30, 2012   
|East Longmeadow, MA.          |  | 159,241        |  | February 2, 2016     
|Elk Grove Village, IL.        |  | 80,665         |  | August 31, 2012      
|Greenville, MI                |  | 130,000        |  | Fee Ownership        
|Lenexa, KS                    |  | 89,403         |  | Fee Ownership        
|Manassas, VA                  |  | 108,120        |  | May 31, 2014         
|Niles, MI(2)                  |  | 90,000         |  | Fee Ownership        
|Pomona, CA                    |  | 144,542        |  | May 31, 2011         
|Portland, OR                  |  | 125,250        |  | November 30, 2012    
|Riverside, CA                 |  | 112,500        |  | Fee Ownership        
|Sacramento, CA                |  | 57,483         |  | Fee Ownership        
|Salt Lake City, UT            |  | 103,600        |  | June 14, 2009        
|San Antonio, TX.              |  | 67,900         |  | Fee Ownership        
|San Leandro, CA(3)            |  | 143,852        |  | November 30, 2014    
|Saugerties, NY.               |  | 209,000        |  | Fee Ownership        
|Tampa, FL.                    |  | 72,418         |  | December 31, 2008    
|Direct Mail Locations         |  |                |  |                      
|Bristol, PA.                  |  | 123,000        |  | Fee Ownership        
|Chalfont, PA                  |  | 347,076        |  | Fee Ownership        
|Chicago, IL                   |  | 38,302         |  | July 31, 2009        
|Irvine, CA                    |  | 28,000         |  | September 30, 2009   
|Monroe Township, NJ           |  | 57,987         |  | June 30, 2012        
|Newark, NJ                    |  | 48,692         |  | December 31, 2012    
|Newark, NJ                    |  | 23,000         |  | Fee Ownership        
|North Brunswick, NJ           |  | 119,266        |  | October 31, 2017     
|York, PA                      |  | 203,133        |  | December 31, 2012    

12

---



|Other Locations    |  |        |  |                  
|------------------ |  | ------ |  | -----------------
|Chicago, IL(4)     |  | 52,024 |  | May 31, 2011     
|Earth City, MO     |  | 23,023 |  | June 30, 2012    
|Harrison, NJ(5)    |  | 32,538 |  | May 31, 2010     
|Houston, TX        |  | 14,670 |  | May 31, 2009     
|Irving, TX         |  | 91,649 |  | October 31, 2012 
|Minneapolis, MN(5) |  | 12,577 |  | March 31, 2009   
|North Haven, CT    |  | 31,600 |  | December 27, 2012
|Richmond, VA(5).   |  | 4,600  |  | June 30, 2009    
|San Antonio, TX.   |  | 26,227 |  | April 30, 2011   
|San Antonio, TX.   |  | 6,311  |  | May 31, 2012     

---

Sales Offices and Other Facilities

We maintain a large number of facilities for use as warehouses, sales offices and other administrative purposes. All of the sales offices and other facilities are
leased, with lease terms expiring at various times from 2008 to 2010.

ITEM 3    LEGAL PROCEEDINGS

Certain claims, suits and complaints (including those involving environmental matters) which arise in the ordinary course of our business have been filed or are
pending against us. We believe, based upon the currently available information, that all the results of such proceedings, individually, or in the aggregate would not have a material adverse effect on
our consolidated financial condition or results of operations.

ITEM 4    SUBMISSION OF VOTE TO SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of our fiscal year ended December 31, 2007.

13

---





PART II

ITEM 5    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Vertis is a wholly-owned subsidiary of Vertis Holdings. There is no established public trading market for Vertis Holdings' common stock. As of January 31,
2008, there were approximately 74 shareholders of Vertis Holdings' common stock and an additional 31 shareholders of Vertis Holdings' common stock subject to restriction. We did not make any dividend
payments in 2006 and 2007. We do not intend to pay any dividends except for those necessary for the normal operating expenses of Vertis Holdings, but reserve the right to do so. Our debt instruments
contain customary covenants imposing certain limitations on the payment of dividends or other distributions.

ITEM 6    SELECTED FINANCIAL DATA

The following table sets forth selected historical consolidated financial data for Vertis and its subsidiaries as of and for the years ended December 31,
2007, 2006, 2005, 2004, and 2003. The historical data as of December 31, 2007 and 2006 and for the three-year period ended December 31, 2007 has been derived from our audited
consolidated financial statements included elsewhere in this Annual Report. The historical data as of December 31, 2005, 2004 and 2003, and for the two-year period ended
December 31, 2004 has been derived from our audited consolidated financial statements not included herein. We sold our fragrance business in 2006 and our subsidiaries in Europe (the "European
Subsidiaries") in 2005. The table below presents the operating results of our fragrance business and European Subsidiaries as discontinued operations for all applicable periods.

EBITDA
is included in this Annual Report as it is the primary measure we use to evaluate our performance. EBITDA, as we use it for this purpose, represents income (loss) from continuing
operations before cumulative effect of accounting change, plus:



We
present EBITDA here to provide additional information regarding our performance and because it is the measure by which we gauge the profitability and assess the performance of our
segments. EBITDA is not a measure of financial performance in accordance with accounting principles generally accepted in the United States of America ("GAAP"). You should not consider it an
alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Our calculation of EBITDA may be different from the calculation
used by other companies and therefore comparability may be limited. A full quantitative reconciliation of EBITDA to income (loss) from continuing operations before cumulative effect of accounting
change, is set forth in Note 13 to the following table.

14

---



You
should read the following selected historical consolidated financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations"
and the related historical consolidated financial statements and notes included elsewhere in this Annual Report.

|                                                                                                               |  | Year ended December 31, |           
|-------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----------
|
|
|Operating data:                                                                                                |  |                         |           
|Revenue                                                                                                        |  | $                       | 1,365,154 
|Goodwill impairment                                                                                            |  |                         | 246,527   
|Operating (loss) income                                                                                        |  |                         | (183,777) 
|Interest expense, net(6)                                                                                       |  |                         | 134,644   
|Loss from continuing operations before income tax expense (benefit) and cumulative effect of accounting change |  |                         | (326,106  
|Loss from continuing operations before cumulative effect of accounting change                                  |  |                         | (326,494  
|(Loss) gain from discontinued operations, net(7)                                                               |  |                         | (251      
|Cumulative effect of accounting change, net                                                                    |  |                         |           
|Net loss                                                                                                       |  |                         | (326,745  
|Balance sheet data (at year end):                                                                              |  |                         |           
|Working capital(11)                                                                                            |  | $                       | (217,701) 
|Net property, plant and equipment                                                                              |  |                         | 328,026   
|Total assets(11)                                                                                               |  |                         | 528,166   
|Long-term debt (including current portion)                                                                     |  |                         | 1,152,572 
|Accumulated deficit                                                                                            |  |                         | (1,279,960
|Other stockholder's equity                                                                                     |  |                         | 404,877   
|Total stockholder's deficit                                                                                    |  |                         | (875,083  
|Other data:                                                                                                    |  |                         |           
|Capital expenditures                                                                                           |  | $                       | 65,217    
|Cash flows provided by operating activities                                                                    |  |                         | 17,496    
|Cash flows used in investing activities                                                                        |  |                         | (53,153   
|Cash flows provided by (used in) financing activities                                                          |  |                         | 36,050    
|EBITDA(13)                                                                                                     |  |                         | (134,106  
|Dividends to parent                                                                                            |  |                         |          
|Ratio of earnings to fixed charges                                                                             |  |                         |          

---

15

---



Year ended December 31,2007

2006

2005

2004

2003(in thousands)Loss from continuing operations before cumulative effect of accounting change

$
(326,494)
(1)
$
(47,795
)
$
(28,241
)
$
(4,923
)
$
(99,502
)Interest expense, net


134,644


131,023


128,821


132,809


136,557Income tax expense (benefit)


388


(1
)

(8,070
)

(66,053
)

48,436Depreciation and amortization of intangibles


57,356


58,788


62,829


65,430


72,731EBITDA

$
(134,106
)
$
142,015

$
155,339

$
127,263

$
158,222




16

---





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

This section provides a review of the financial condition and results of operations of Vertis during the three years ended December 31, 2007. The analysis
is based on the consolidated financial statements and related notes that are included elsewhere in this Annual Report, prepared in accordance with GAAP. The consolidated financial statements and
management's discussion and analysis herein are prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

Introductory Overview

Executive Summary

Vertis, Inc. is a premier provider of print advertising, direct marketing solutions and related value added services to America's leading retail and
consumer services companies. We deliver marketing products that create strategic value for clients by using creative advertising, color management technologies, proprietary research, customer
targeting expertise, premedia and media services, combined with its world-class printing expertise.

We
operate through two reportable business segments: Advertising Inserts and Direct Mail. Advertising Inserts provides a full product line of printed targeted advertising products
inserted into newspapers. Direct Mail provides personalized direct mail and marketing products. In addition, we also provide Premedia and Media Services. These services are included in Corporate and
Other, together with corporate costs incurred by the Company.

The
advertising insert business in general has been impacted by excess industry capacity causing industry-wide price pressure and competition for volume. Marketers have
trended toward multi-channel advertising campaigns, which leverage more than one type of medium in addition to advertising inserts to expand their coverage. There has also been consolidation in
end-user groups who traditionally use advertising inserts to convey their messages. Additionally, changes in the cost of paper and changes in the proportion of paper supplied by our
customers is a major contributing factor in the Advertising Inserts revenue fluctuation, and to a lesser extent, fluctuations in Direct Mail revenue. These factors contributed to the revenue decline
at our Advertising Inserts segment. Pricing, including the effects of product, customer and equipment mix, in Advertising Inserts improved largely reflecting normal changes in product and customer mix
as opposed to a change in the competitive pricing environment for advertising inserts. The conditions in Advertising Inserts, specifically the industry-wide dynamics around pricing as well
as the competitive pressure on sales volume, are expected to continue. Direct Mail revenue increased in 2007 due to an increase in volume as well as an increase in revenue related to our acquisition
of USA Direct, Inc. ("USA Direct") and our fulfillment and other businesses. These increases were offset by a decline in price and mix.

Liquidity
continues to be a primary focus. At December 31, 2007, we had approximately $52.6 million available to borrow under our revolving senior credit facility ("Credit
Facility"), our primary source of funds, and $6.2 million of cash on hand. The Credit Facility provides for availability of $250 million until the December 22, 2008 maturity date,
consisting of $200 million available under a revolving credit facility and a $50 million fully drawn term loan. We will not have sufficient liquidity to make the principal payment on the
Credit Facility upon the maturity date unless we are able to refinance, restructure, amend or otherwise replace these facilities. Our ability to continue as a going concern beyond December 2008 is
dependent upon our ability to refinance the Credit Facility, as well as the accounts receivable facility, or obtain alternate financing. We have initiated conversations with our debtholders to explore
restructuring opportunities and have retained consultants to help us effectuate a restructuring plan, should we choose to do so. We are exploring several other financing alternatives in addition to
amending our senior credit facility and our accounts receivable securitization

17

---



facility,
however, we cannot assure you that we will be able to amend these facilities or successfully obtain alternative financing. The refinancing of these facilities will likely require an
agreement with our noteholders, as described below. As part of our strategy to preserve and enhance near-term liquidity, we may elect to forego making the $17.1 million interest
payment on our 93/4% senior secured second lien notes due on April 1, 2008. Under the terms of the indenture governing these notes, we have a thirty-day grace period
in which to make this interest payment before it would be an event of default. If we elect not to make the interest payments, we will be seeking a waiver from the holders of the notes; to the extent
waivers are not received and the interest payments are not made within a thirty-day grace period, it will be an event of default under the indenture. Additionally, our independent auditors
have included an explanatory paragraph in their report expressing substantial doubt about our ability to continue as a going concern.

We
have engaged in discussions with our lenders to amend, extend or replace the Credit Facility and our accounts receivable securitization facility prior to their December 2008 maturity.
Additionally, we have engaged in discussions with the holders of our 93/4% senior secured lien notes, 107/8% senior notes and 131/2% senior subordinated
notes on the terms of a debt exchange, which would restructure a portion
of our debt and provide us with increased liquidity. As an option, a debt exchange may be accomplished on a negotiated basis with our lenders through a pre-packaged or
pre-arranged bankruptcy restructuring plan. There is no assurance that a debt exchange would be agreed to, and we are considering all available options.

Under
the Credit Facility, we are also subject to a minimum EBITDA covenant requiring us to maintain EBITDA, as defined by the Credit Facility, of $125 million on a trailing
twelve-month basis. The Company's trailing twelve-month Compliance EBITDA, as calculated under the credit agreement, was $131.9 million at December 31, 2007. As of December 31,
2007, we were in compliance with all of our covenants, financial or otherwise. While we currently expect to be in compliance in future periods, there can be no assurance that we will continue to meet
the minimum EBITDA required under the covenant. Based upon the latest projections for 2008, including results from January and February, we believe we will be in compliance with this covenant through
the maturity date.

In
the fourth quarter of 2007, we recorded a non-cash charge of $246.5 million to reflect the impairment of goodwill in each of our reporting units due to a combination of factors
including the decline in the fair value of our debt in the fourth quarter of 2007, declines in the market values of the guideline companies used to estimate the fair values of our reporting units and
our operating performance.

Capital
expenditures amounted to approximately $65.2 million, $49.0 million and $42.2 million in 2007, 2006 and 2005, respectively. Capital spending has been
directed toward projects that improve efficiency, maintain our infrastructure, and upgrade our equipment base. We currently expect the level of capital expenditures in 2008 to be between
$35 million and $45 million.

Cost
management continues to be a major focus of ours. Cost reductions have been accomplished through streamlining of shared service and corporate functions, combining operations,
closing unprofitable locations, staff reductions and asset write-offs. Our 2007 restructuring activities yielded year-over-year savings of approximately
$3.7 million.

A
large portion of the Company's revenue is generally seasonal in nature. However, our efforts to expand our other product lines as well as expand the market for our advertising inserts
to year-round customers, have reduced the overall seasonality of our revenues. Of our full year 2007 revenue, 24.2% of revenue was generated in the first quarter, 24.3% in the second,
23.4% in the third and 28.1% in the fourth. Profitability continues to follow a more seasonal pattern due to the higher margins and efficiencies gained from running at higher capacity during the
fourth quarter holiday production season. On the other hand, lower volume negatively impacts margins since we are not able to fully leverage fixed depreciation, amortization, interest and other costs
that are incurred evenly throughout the year.

18

---



Based
on our historical experience and projected operations, we expect our operating results in the near future to be strongest in the fourth quarter and softest in the first. As a result, our overall
yearly performance depends, to a significant degree, on our performance in the second half of the year, particularly in the fourth quarter.

We
use independent third-party source materials to track statistics pertaining to advertising growth. Based on these publications, the estimates for 2007 domestic advertising spending
indicate growth ranging from 1.7% to 5.1%. US advertising growth estimates for 2008 range from 3.7% to 5.6%. These advertising growth percentages include many forms of advertising, not exclusively
print advertising, as most sources do not track these statistics separately. A few of the sources we used to obtain the estimates above do not include direct mail advertising in their estimates,
however, based on estimates by one independent third-party source, domestic direct mail advertising growth for 2008 is estimated to be 4.5%.

Discontinued Operations

On September 8, 2006, we entered into an agreement to sell our fragrance business, which included two presses and our fragrance lab and microencapsulation
facility, all of which were located in one of our Direct Mail facilities, as well as fragrance receivables, inventory and payables, the fragrance business customer list, certain employees and all
intellectual property related to the business. The sale agreement was entered into as the result of a strategic decision to move away from this line of business and focus our resources on the growth
of our other Direct Mail activities.

Included
in the agreement to sell the fragrance business was a transition services agreement (the "Transition Agreement") under which we provided services on a subcontracting basis to
the purchaser of the fragrance business (the "Purchaser"), utilizing certain assets of the business that was sold. These assets remained at our Direct Mail facility during the time of the Transition
Agreement. As of December 31, 2006, we had completed our performance of the subcontracting services under the Transition Agreement and the remaining assets of the fragrance business were
transferred to the Purchaser's facilities. We received proceeds of $42.1 million from the sale, resulting in a $21.2 million gain on the sale, which is included in income (loss) from
discontinued operations on our consolidated statement of operations included elsewhere in this Annual Report.

Revenue
from the fragrance business, which was reported under our Direct Mail segment, was $26.7 million and $40.2 million for the twelve months ended December 31,
2006 and 2005, respectively. The net income from the fragrance business was $1.1 million and $5.4 million for twelve months ended December 31, 2006 and 2005, respectively. The
results of the fragrance business have been accounted for as discontinued operations and, as such, are included in income (loss) from discontinued operations on our consolidated statements of
operations. No taxes were recorded for the fragrance business due to pre-tax losses and tax benefits being offset by deferred tax valuation allowances. Interest was not allocated to
discontinued operations as the divestiture of the fragrance business was on a debt-free basis. Prior year financial statements have been restated to present the operations of our fragrance
business as a discontinued operation. See Note 4 to our consolidated financial statements included elsewhere in this Annual Report for further discussion.

During
the third quarter of 2005, we decided to sell the two divisions in our European segment primarily because each had incurred operating losses and neither was deemed a fit within
the Company's overall strategy. As a result, the Company accounted for the operations of its European segment as a discontinued operation. The direct mail division of this segment was sold on
October 3, 2005 and the premedia division of this segment was sold on December 14, 2005. In 2005, a $1.6 million loss on the sale of our Europe segment was recognized based on net
proceeds of $2.4 million. Additionally, in 2006 we paid $0.6 million to settle a lawsuit brought against us by a customer of our

19

---



European
segment. These amounts are included in income (loss) from discontinued operations on our consolidated income statement included elsewhere in this Annual Report.

The
net operating loss for our European Subsidiaries was $0.4 million and $147.2 million for the years ended December 31, 2006 and 2005, respectively, and is
included in discontinued operations on our consolidated financial statements included elsewhere in this Annual Report. The Europe loss we recorded in 2006 represents a $0.4 million payment made
to a former employee of our European segment in respect of the employee's termination agreement. Included in the 2005 loss are impairment charges of $136.2 million to write off the Europe
goodwill and write-down other Europe long-lived assets. Revenue for Vertis Europe, which is also included in the loss from discontinued operations for the year ended
December 31, 2005 was $100.0 million. Interest was not allocated to discontinued operations as the European business was divested on a debt-free basis. Prior year financial
statements have been restated to present the operations of Vertis Europe as a discontinued operation. See Note 4 to our consolidated financial statements included in this Annual Report for
further discussion.

Restructuring and Impairment Charges

In the fourth quarter of 2007, we recorded a non-cash charge of $246.5 million to reflect the impairment of goodwill in each of our reporting units. The
goodwill impairment was recorded in the
following segments: Advertising Inserts, $187.9 million; Direct Mail, $54.6 million; and Corporate and Other, $4.0 million. Impairment in all reporting units was due to a
combination of factors including the decline in the fair value of our debt in the fourth quarter of 2007, declines in the market values of the guideline companies used to estimate the fair values of
our reporting units and our operating performance. We estimated the fair value of our reporting units using the discounted cash flow and guideline company approaches. Because the fair value of each of
the reporting units, which includes an allocation of our debt, was below its carrying amount including goodwill, we performed an additional fair value measurement calculation to determine the amount
of the goodwill impairment loss noted above. We performed an additional impairment evaluation on the other long-lived assets and determined there was no impairment as the undiscounted cash
flows exceeded the carrying value of these assets.

We
began a restructuring program in the first quarter of 2007 (the "2007 Program") aimed at streamlining operations to capitalize on operating efficiencies and to reduce overhead, thus
reducing our overall cost base, as well as addressing the continuing issue of industry-wide overcapacity. The goal of this restructuring program is to allow us to more effectively compete
in today's highly competitive business environment. The restructuring actions approved under the 2007 Program include reductions in work force of approximately 275 employees, the closure of an Inserts
production facility, the closure of a Direct Mail programming support facility and the vacating of a floor in our corporate office. Costs associated with approved restructuring actions under the 2007
Program were $10.0 million, net of estimated sublease income of $4.1 million, all of which were recorded in 2007. Restructuring actions under the 2007 Program were complete as
December 31, 2007. Cost savings achieved in 2007 as a result of the 2007 Program were approximately $3.7 million, $3.1 million of which were staffing related with the remainder
related to decreased facility costs. These savings impacted both the cost of production and the selling, general and administrative line items on the consolidated statement of operations included
elsewhere in this Annual Report. Annual cost savings expected in future years as a result of the 2007 Program are estimated to be approximately $13.4 million, $12.1 million of which
relate to expected staffing cost savings and $1.3 million related to facility costs savings.

In
the year ended December 31, 2007, under the 2007 Program, the Advertising Inserts segment recorded $1.7 million in severance and related costs associated with the
elimination of approximately 150 positions as well as $2.7 million in facility closure costs and $2.8 million in asset write-downs primarily related to the closure of an inserts
production facility in the City of Industry, California. The decision to close this inserts facility was made based on an analysis conducted to identify areas where

20

---



consolidation
of operations could occur with minimal disruption to our customers. As there are two Advertising Inserts production facilities within close proximity to the facility that was closed,
this decision allows for higher utilization of our other presses in the region and lowers overall costs, which should allow us to more effectively compete with our competitors in this industry.
Advertising Inserts also recorded $0.2 million in additional facility closure costs and $0.3 million in asset write-downs related to the closure of a production facility that took place
in 2006. The Direct Mail segment recorded $0.8 million of severance and related costs associated with the elimination of approximately 98 positions and $0.7 million in facility costs,
$0.4 million of which represents additional restructuring costs for the closure of a fulfillment facility in 2006 and the remainder of which represents costs associated with the closure of a
direct mail programming support facility and an adjustment to the restructuring accrual to reflect the present value of the leases for closed Direct Mail facilities. Corporate and Other recorded
$1.2 million in severance and related costs in 2007 associated with the elimination of 15 positions as well as $0.4 million in facility closure costs and $0.1 million in assets
written off.

Included
in the 2007 segment restructuring expense are approximately $0.2 million of severance costs related to the elimination of 12 shared services positions and
$0.8 million of facilities costs associated with the vacating of a floor in our corporate office, which have been allocated to the segments.

Our
2006 restructuring program (the "2006 Program") included reductions in work force of 537 employees and the closure of one advertising inserts production facility, one inserts sales
office, one direct mail fulfillment facility and two premedia production facilities. All approved restructuring actions under the 2006 Program were complete as of December 31, 2006. Costs
associated with approved restructuring actions under the 2006 Program were $16.0 million, all of which were recorded in 2006.

In
the year ended December 31, 2006, under the 2006 Program, the Advertising Inserts segment recorded $3.7 million in severance and related costs associated with the
elimination of 243 positions and $0.6 million in facility closing costs as well as a $1.4 million write-down of assets associated with the closure of a production facility.
The Direct Mail segment recorded $1.8 million in severance and related costs in 2006 associated with the elimination of 126 positions and the closure of a fulfillment facility. Corporate and
Other recorded $5.6 million in severance and related costs in 2006 associated with the elimination of 137 positions and $2.9 million in facility closure costs, $1.4 million of
which reflects an adjustment to restructuring expense primarily related to a recalculation of facility closure costs expected to be paid based on a revised assumption of estimated sublease income, and
the remainder associated with the closure of two premedia production facilities in 2006.

Included
in the 2006 segment restructuring expense amounts above are $0.9 million of severance costs related to the elimination of 31 shared services positions and facilities
costs which represent accretion expense, which are allocated to the segments.

In
2005, the Advertising Inserts segment recorded $7.0 million in severance and related costs associated with the elimination of approximately 186 positions and
$0.8 million in facility closure costs associated with the closure of two regional offices and one warehouse. The Direct Mail segment recorded $2.0 million in severance and related costs
in 2005 associated with the elimination of approximately 33 positions. Corporate and Other recorded $5.1 million in severance and related costs in 2005 associated with the elimination of
approximately 91 positions and $1.7 million in facility closure costs associated with the closure of six premedia facilities offset by $0.1 million in gains from the sale of assets
related to the closure of one of the premedia facilities. Additionally, $0.7 million in costs were recorded in the first quarter of 2005 related to the amendment of an executive level
employment agreement announced in 2004, as discussed below.

21

---



Included in the 2005 segment severance amounts above are approximately $2.5 million of severance related to the elimination of approximately 50 shared services positions, which
have been allocated to the segments.

In
connection with our restructuring actions discussed above, we recorded $10.9 million, $16.0 million, and $17.1 million of restructuring charges in the years ended
December 31, 2007, 2006 and 2005, respectively. We expect to pay $5.0 million of the accrued restructuring costs in 2008 and the remainder, approximately $3.1 million, by 2014.

We
are continuously evaluating the need to implement restructuring programs to rationalize our costs and improve operating efficiency. In February 2008, we announced the consolidation of
our San Leandro advertising inserts operation into our three remaining California-based regional facilities. This consolidation will include the relocation of San Leandro's printing presses. The
decision to close our San Leandro facility was made with the intent of properly aligning our cost structure with current marketplace conditions by improving the utilization of presses and lowering
overall operating costs which we believe will allow us to more effectively compete in today's highly competitive business environment. It is likely that we will incur additional restructuring costs in
2008 in an on-going effort to achieve these objectives and best position Vertis for growth.

For
more information about our restructuring charges, see Note 5 to our consolidated financial statements included in this Annual Report.

Factors Affecting Comparability

Several factors can affect the comparability of our results from one period to another. Primary among these factors are the cost of paper, changes in business
mix, the timing of restructuring expenses and the realization of the associated benefits.

The
cost of paper is a principal factor in our pricing to certain customers since a substantial portion of revenue includes the cost of paper. Therefore, changes in the cost of paper and
changes in the
proportion of paper supplied by our customers significantly affects our revenue generated from the sale of advertising insert and direct mail products, both of which are products where paper is a
substantial portion of the costs of production. We are generally able to pass on increases in the cost of paper to our customers, subject to a short time lag, while decreases in paper costs generally
result in lower prices to customers.

Variances
in expenses expressed in terms of percentage of revenue can fluctuate based on changes in business mix and are influenced by the change in revenue directly resulting from
changes in paper prices and the proportion of paper supplied by our customers. As our business mix changes, the nature of products sold in a period can lead to offsetting increases and decreases in
different expense categories as a percentage of revenue.

Also
affecting year-over-year comparability is the non-cash impairment charge we recorded in the fourth quarter of 2007 to write-off our goodwill and the
acquisition of USA Direct in May 2006. The financial results of USA Direct are included in our consolidated financial statements within our Direct Mail segment from the date of acquisition. See
Note 6 to our consolidated financial statements included elsewhere in this Annual Report for our proforma results including USA Direct as though the acquisition had occurred at the beginning of
2006.

You
should consider all of these factors in reviewing the discussion of our operating results.

22

---



Results of Operations

The following table presents major components from our consolidated statements of operations and consolidated statements of cash flows.

|                                             |  | Year ended December 31, |           | Percentage of Revenue |  
|-------------------------------------------- |  | ----------------------- | --------- | --------------------- | -
|
|
|Revenue                                      |  | $                       | 1,365,154 |                       | $
|                                             |  |                         |           |                       |  
|Costs of production                          |  |                         | 1,081,612 |                       |  
|Selling, general and administrative          |  |                         | 152,524   |                       |  
|Goodwill impairment                          |  |                         | 246,527   |                       |  
|Restructuring charges                        |  |                         | 10,912    |                       |  
|Depreciation and amortization of intangibles |  |                         | 57,356    |                       |  
|                                             |  |                         |           |                       |  
|Total operating costs                        |  |                         | 1,548,931 |                       |  
|                                             |  |                         |           |                       |  
|Operating (loss) income                      |  | $                       | (183,777  | )                     | $
|                                             |  |                         |           |                       |  
|Other data:                                  |  |                         |           |                       |  
|Cash flows provided by operating activities  |  | $                       | 17,496    |                       | $
|Cash flows used in investing activities      |  |                         | (53,153   | )                     |  
|Cash flows provided by financing activities  |  |                         | 36,050    |                       |  
|EBITDA                                       |  |                         | (134,106  | )                     |  

EBITDA
represents income (loss) from continuing operations before cumulative effect of accounting change, plus



We
present EBITDA here to provide additional information regarding our performance and because it is the measure by which we gauge the profitability and assess the performance of our
segments. EBITDA is not a measure of financial performance in accordance with GAAP. You should not consider it an alternative to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity. Our calculation of EBITDA may be different from the calculation used by other companies and therefore comparability may be limited. A full quantitative
reconciliation of EBITDA to loss from continuing operations before cumulative effect of accounting change, is provided as follows:

Year ended December 31,2007

2006

2005(in thousands)Loss from continuing operations before cumulative effect of accounting change

$
(326,494
)
$
(47,795
)
$
(28,241
)Interest expense, net


134,644


131,023


128,821Income tax expense (benefit)


388


(1
)

(8,070
)Depreciation and amortization of intangibles


57,356


58,788


62,829EBITDA

$
(134,106
)
$
142,015

$
155,339


23

---



Results of Operations2007 compared to 2006



For the year ended December 31, 2007, our consolidated revenue decreased $103.5 million, or 7.0%, from $1,468.7 million in 2006 to
$1,365.2 million in 2007. The decrease in revenue is due to a decline in Advertising Inserts revenue, of which approximately 75% is attributable to a decline in paper, offset by an increase in
revenue for our Direct Mail segment. See the "Segment Performance" section for further discussion.



For the year ended December 31, 2006, our consolidated costs of production decreased $78.8 million, or 6.8%, from $1,160.4 million in 2006 to
$1,081.6 million in 2007. The decrease in costs of production is primarily due to declines in the cost of paper, contract services, freight expense, utilities and other supplies used in the
production process offset by increased labor costs, ink and other materials consumed and repairs and maintenance. Additionally, included in costs of production in 2007, as an offset to expenses, is a
$2.9 million gain on a sale-leaseback transaction we entered into in the fourth quarter of 2007 (see Note 12 to the consolidated financial statements included elsewhere in
this Annual Report). The remainder of the change is due to fluctuations in various miscellaneous costs of production.

Selling,
general and administrative expenses increased $9.6 million, or 6.7%, for the year ended December 31, 2007. We incurred increased staffing costs, professional fees
and travel and entertainment expenses in 2007, offset by declines in telecommunications costs, and bad debt expense. The remainder of the change is due to fluctuations in various miscellaneous
selling, general and administrative expenses. The increase in selling, general and administrative costs reflects an overall company-wide effort begun in the first quarter of 2007 toward
lean and continuous improvement aimed at improved productivity and performance as well as upgrading our quality and customer service. Additionally, we are focusing on improving our sales organization
by adding new sales resources.

Goodwill
impairment and restructuring charges for the year ended December 31, 2007 totaled $257.4 million compared to $16.0 million in 2006. See the
"Restructuring and Impairment Charges" section for a detailed discussion of restructuring charges.



Interest expense, net increased $3.6 million, or 2.8%, for the year ended December 31, 2007, from $131.0 million in 2006 to
$134.6 million in 2007. This increase was due to an increase in average borrowings under the Credit Facility as well as an increase in the interest rates on the Credit Facility.



Loss from continuing operations before cumulative effect of accounting change was $326.5 million for the year ended December 31, 2007, an increase
of $278.7 million compared to a loss of $47.8 million for the year ended December 31, 2006. Goodwill impairment charges of $246.5 million, which we recorded in the fourth
quarter of 2007, represent the majority of this increase in loss. The remaining increase reflects the aforementioned changes in revenue and costs.



Set forth below is a discussion of the performance of our business segments based on revenue and EBITDA, which is the measure reported to our chief operating
decision maker for the purpose of making decisions about allocating resources to the segment and assessing performance of the segment. A tabular reconciliation of segment EBITDA to income (loss) from
continuing operations before cumulative effect of accounting change, in accordance with Financial Accounting Standards Board ("FASB") Statement No. 131, "Disclosure about Segments of an
Enterprise and Related Information", is contained in Note 21 to our consolidated financial statements included elsewhere in this Annual Report.

24

---







Year ended December 31, 2007Revenue

EBITDA(in thousands)2006

$
1,030,471

$
117,884Increase (decrease):Volume


(48,502
)

(23,109
)Price/Mix(1)


18,143


18,143Paper(2)


(89,478
)Variable Costs, rate adjusted(3)





(7,299
)Fixed Costs(4)





(8,429
)Selling, general and administrative(5)





(1,816
)Goodwill impairment (non-cash)





(187,867
)Restructuring charges





(1,953
)Total change


(119,837
)

(212,330
)2007

$
910,634

$
(94,446
)


---

Advertising
Inserts revenue decreased $119.8 million, or 11.6%, in the year ended December 31, 2007 as compared to 2006 and EBITDA decreased $212.3 million in the
same period. The decline in Advertising Inserts volume is indicative of the trend by marketers toward multi-channel advertising campaigns, which leverage more than one type of medium in addition to
advertising inserts as a means to expand their advertising coverage. In addition, 2007 volume, most notably in the first quarter, was negatively impacted by less than optimal execution of certain 2006
cost reductions, reorganizations and order management changes, all resulting in certain customers seeking alternative suppliers, which was disclosed in previous filings.

With
respect to price and mix, excess industry capacity continues to cause overall price pressure in 2007, as compared to 2006. However, the decline in price is more than offset by
normal changes in product and customer mix.

The
decrease in EBITDA of $212.3 million is primarily made up of the $187.9 million non-cash impairment charge. The remaining decline in EBITDA of
$24.4 million was made up of the volume shortfall noted above, offset by favorable price and mix as well as increased expenses. Generally, the year-to-date cost
increases noted in the table above are the result of the overall company wide investment in lean and continuous improvement aimed at improved productivity and performance as well as upgrading our
quality and customer service in an effort to grow our revenue. Additionally, we have added resources to our sales organization with a focus on improved new business capture.

25

---





Year ended December 31, 2007Revenue

EBITDA(in thousands)2006

$
330,794

$
36,565Increase (decrease):Volume


28,714


11,406Price/Mix(1)


(7,646
)

(7,646
)Paper(2)


2,770Variable Costs, rate adjusted(3)





4,053Fixed Costs(4)





(5,160
)Selling, general and Administrative(5)





(2,314
)Goodwill impairment (non-cash)





(54,588
)Restructuring charges





367Other(6)


6,226


(2,533
)Total change


30,064


(56,415
)2007

$
360,858

$
(19,850
)


---

Direct
Mail revenue increased $30.1 million, or 9.1%, in the year ended December 31, 2007 as compared to 2006. EBITDA declined $56.4 million, or
5.0%, in 2007 as compared to 2006. The 2006 Direct Mail revenue and EBITDA amounts include the operations of USA Direct from the date of acquisition, which was May 31, 2006. The increase in
Direct Mail volume of $28.7 million was driven by strength at our Chalfont facility, which produces highly-customized personalized direct mail pieces, and higher non-personalized
pieces at our North Brunswick facility. This growth was offset by lower program work within our digital print business and sales reduction from the shut-down of our Rochester facility.

The
decrease in EBITDA of $56.4 million is primarily made up of the $54.6 million non-cash impairment charge. The remaining decline in EBITDA of
$1.8 million was made up of increases in fixed costs, selling, general and administrative expenses, and the decline in price and mix somewhat offset by the increase in volume and lower variable
costs.



Corporate
and Other revenue decreased $17.0 million, or 14.7%, for the year ended December 31, 2007 compared to 2006. Premedia and Media Services accounted for
$6.9 million and $5.5 million of the decline, respectively. The EBITDA loss at Corporate and Other for the year ended December 31, 2007 increased by $7.4 million, or 59.3%,
compared to 2006. This change is largely due to a $4.0 million non-cash goodwill impairment charge recorded in the fourth quarter of 2007 as well as the

26

---



decline
in Premedia and Media Services revenue, discussed above. as Additionally, labor costs and selling, general and administrative expenses increased offset by declines in contract services and
restructuring costs.

Results of Operations2006 compared to 2005



For the year ended December 31, 2006, our consolidated revenue decreased $1.4 million, or 0.1%, from $1,470.1 million in 2005 to
$1,468.7 million in 2006.



For the year ended December 31, 2006, our consolidated costs of production increased $19.8 million, or 1.7%, from $1,140.6 million in 2005 to
$1,160.4 million in 2006. Included within these cost variances are $16.9 million of USA Direct costs of production, which are included in the Company's 2006 results. The balance of the
change in costs of production is attributable to increases in the cost of paper, other
materials consumed, contract services, repairs and maintenance, freight expense, property taxes and other supplies used in the production process, offset by decreases in labor costs and rent expense.
The remainder of the change is due to fluctuations in various miscellaneous costs of production.

Selling,
general and administrative expenses decreased $6.5 million, or 4.4%, for the year ended December 31, 2006, from $149.4 million in 2005 to
$142.9 million in 2006. Included within these cost variances are $2.7 million of USA Direct costs, which are included in the Company's 2006 results. The balance of the decrease is due to
lower staffing, telecommunications costs and rent expense offset by increases in professional and consulting fees, travel and entertainment expenses, repairs and maintenance, contract services and
sales and property taxes. The remainder of the change is due to fluctuations in various miscellaneous selling and general and administrative expenses.

Restructuring
charges for the year ended December 31, 2006 totaled $16.0 million as compared to $17.1 million in 2005. See the
"Restructuring" section for a detailed discussion of restructuring charges.



Interest expense, net increased $2.2 million, or 1.7%, for the year ended December 31, 2006, from $128.8 million in 2005 to
$131.0 million in 2006. This increase was due to a higher revolver balance and slightly higher interest rates on the revolver in 2006.

Other,
net decreased $0.4 million, or 5.2%, for the year ended December 31, 2006 from $7.7 million in 2005 to $7.3 million in 2006. This increase is primarily
due to a $1.4 million increase in fees associated with our trade receivables facility (see "Off-Balance Sheet Arrangements" section).
For a more detailed discussion of the other miscellaneous components of Other, net see Note 18 to our consolidated financial statements included in this Annual Report.



Loss from continuing operations before cumulative effect of accounting change was $47.8 million for the year ended December 31, 2006, an increase of
$19.6 million compared to a loss of $28.2 million for the year ended December 31, 2005. Included in the 2005 loss is an $8.3 million income tax benefit related to an
agreement with the Internal Revenue Service to settle a tax liability relating to the termination of leasehold interests discussed in the "Sources of
Funds"section (see also the "Other Factors" section below). Excluding this item, loss from continuing operations before cumulative effect of accounting
change increased $27.9 million as compared to 2005. This decrease reflects the aforementioned changes in revenue and costs. See also "Segment
Performance" below.

27

---





Set forth below is a discussion of the performance of our business segments based on revenue and EBITDA, which is the measure reported to our chief operating
decision maker for the purpose of making decisions about allocating resources to the segment and assessing performance of the segment. A tabular reconciliation of segment EBITDA to income (loss) from
continuing operations before cumulative effect of accounting change, in accordance with Financial Accounting Standards Board ("FASB") Statement No. 131, "Disclosure about Segments of an
Enterprise and Related Information", is contained in Note 21 to our consolidated financial statements included elsewhere in this Annual Report.



Year ended December 31, 2006Revenue

EBITDA(in thousands)2005

$
1,048,417

$
125,294Increase (decrease):Volume


(12,738
)

(6,222
)Price/Mix(1)


(9,066
)

(9,066
)Paper(2)


3,858Variable costs, rate adjusted(3)





(2,123
)Fixed costs(4)





1,341Selling, general and administrative(5)





6,593Restructuring charges





2,067Total change


(17,946
)

(7,410
)2006

$
1,030,471

$
117,884


---

Advertising
Inserts revenue decreased $17.9 million, or 1.7%, from $1,048.4 million for the year ended December 31, 2005 to $1,030.5 million
for the year ended December 31, 2006. Inserts EBITDA decreased $7.4 million, or 5.9% when comparing EBITDA of $117.9 million for the year ended December 31, 2006 to
$125.3 million for the same period in 2005. The Advertising Insert business in general has been impacted by excess industry capacity causing industry-wide price pressure and intense
competition for volume. Marketers have trended toward multi-channel advertising campaigns, which leverage more than one type of medium in addition to advertising inserts to expand their coverage.
There has also been consolidation in end-user groups who traditionally use advertising inserts to convey their messages.

The
decline in revenue in Advertising Inserts reflects the continued price pressure, intense competition for volume, and changes in product type. The revenue decline was generally
broad-based and impacted both the retail and the newspaper and publishing end-user groups. These two major end-user groups represented approximately 85% and 13%, respectively,
of total Advertising Inserts revenue.

28

---



The
challenging conditions in Advertising Inserts, specifically the industry-wide dynamics around price and mix as well as the intense competitive pressure to maintain and
grow sales volume, are expected to continue in the near-term.



Year ended December 31, 2006Revenue

EBITDA(in thousands)2005

$
293,814

$
36,652Increase (decrease):Volume


159


(91
)Price/Mix(1)


10,187


10,187Paper(2)


1,361Variable costs, rate adjusted(3)





(8,259
)Fixed costs(4)





(3,535
)Selling, general and administrative(5)





2,262Restructuring charges(6)





228Other


25,273


(879
)Total change


36,980


(87
)2006

$
330,794

$
36,565


---

29

---



Direct Mail revenue increased $37.0 million, or 12.6%, from $293.8 million for the year ended December 31, 2005 to $330.8 million for the year ended
December 31, 2006. Direct Mail EBITDA remained relatively flat when comparing EBITDA for the year ended December 31, 2006 to 2005. The year-over-year increase in
Direct Mail revenue includes $20.1 million for USA Direct which was acquired in May 2006. (See Note 6 to our consolidated financial statements for further discussion of this
acquisition.) The balance of the increase in revenue, approximately $16.9 million, reflects increased volume albeit at lower margins, as well as an increase in price and mix, of which greater
than 100% was the result of a change in product mix which necessitated an increase in contract services. As such, the increase in revenue from price and mix did not result in an increase in EBITDA as
contract services are largely a pass-through.

Corporate
and Other revenue decreased $22.8 million, or 16.4%, from $138.7 million for the year ended December 31, 2005 to $115.9 million for the year ended
December 31, 2006. Premedia accounted for $24.2 million of the decline in revenue in 2006, offset by a $2.5 million increase in Media Services revenue.

Liquidity and Capital Resources

Sources of Funds

We fund our operations, acquisitions and investments with internally generated funds, revolving credit facility borrowings, sales of accounts receivable and
issuances of debt.

The
Company will not have sufficient liquidity to make the principal payment on the Credit Facility at the maturity date unless we are able to refinance or replace our existing
indebtedness. Our ability to continue as a going concern beyond the Credit Facility maturity date is dependent upon our ability to refinance the Credit Facility, as well as the A/R Facility (as
defined in "Off-Balance Sheet Arrangements"), which also expires in December 2008, or obtain alternate financing. We have initiated
conversations with our debtholders to explore restructuring opportunities and have retained
consultants to help us effectuate a restructuring plan, should we choose to do so. We are exploring several other financing alternatives in addition to amending our senior credit facility and our
accounts receivable securitization facility, however, we cannot assure you that we will be able to amend these facilities or successfully obtain alternative financing. The refinancing of these
facilities will likely require an agreement with our noteholders, as described below. As part of the Company's strategy to preserve and enhance near-term liquidity, we may elect to forego
making the $17.1 million interest payment on our 93/4% senior secured second lien notes due on April 1, 2008. Under the terms of the indenture governing these notes, we
have a thirty-day grace period in which to make this interest payment before it would be an event of default. If we elect not to make the interest payments, we will be seeking a waiver
from the holders of the notes; to the extent waivers are not received and the interest payments are not made within a thirty-day grace period, it will be an event of default under the
indenture. Additionally, our independent auditors have included an explanatory paragraph in their report expressing substantial doubt about our ability to continue as a going concern.

We
have engaged in discussions with our debtholders to restructure our outstanding indebtedness and our lenders regarding amendments to or replacements of the Credit Facility and the A/R
Facility, but we have not received any assurance that they will be able to amend these facilities upon reasonable terms, or at all. Additionally, we are exploring other alternatives including taking
advantage of industry consolidation opportunities, such as an acquisition or a merger; seeking to exchange some or all of our 93/4% senior secured second lien notes,
107/8% senior notes or 131/2% senior subordinated notes; or proposing a stand-alone restructuring to the holders of the aforementioned notes. We currently have no plans
for asset sales other than excess real estate or in the normal course of business, nor do we foresee any potential discontinued operations.

30

---



Additional
items that could impact our liquidity are described below.



The following table discloses aggregate information about our contractual obligations as of December 31, 2007 and the periods in which payments are due:

|Contractual Obligations            |  | Total |           | Less than
1 year |   | 1-3 years |  | 3-5 years |           | After
5 years |   | Other 
|---------------------------------- |  | ----- | --------- | ---------------- | - | --------- |  | --------- | --------- | ------------- | - | ------
|
|Long-term debt                     |  | $     | 1,158,949 |                  | $ | 165,454   |  | $         | 993,495   |               |   |       
|Interest payments(1)               |  |       | 189,308   |                  |   | 125,911   |  |           | 63,397    |               |   |       
|Operating leases                   |  |       | 94,147    |                  |   | 24,742    |  |           | 37,532    |               | $ | 25,567
|Restructuring payments(2)          |  |       | 2,466     |                  |   | 2,183     |  |           | 283       |               |   |       
|Pension payments(3)                |  |       | 20,412    |                  |   | 2,343     |  |           | 4,536     |               |   | 4,393 
|Deferred compensation(4)           |  |       | 3,413     |                  |   | 2,812     |  |           |           |               |   |       
|Income tax contingencies(5)        |  |       | 1,766     |                  |   |           |  |           |           |               |   |       
|                                   |  |       |           |                  |   |           |  |           |           |               |   |       
|Total contractual cash obligations |  | $     | 1,470,461 |                  | $ | 323,445   |  | $         | 1,099,243 |               | $ | 29,960
|                                   |  |       |           |                  |   |           |  |           |           |               |   |       

---

As
of December 31, 2007, we do not have any contracts requiring us to purchase any specified minimum quantities. Therefore, we do not have any purchase obligations that require
disclosure in the table above.

On
August 17, 2006, the Pension Protection Act (the "Act") was signed into law. The Act requires that all single employer defined benefit plans are to be fully funded within a
seven-year period, beginning in 2008. The Act replaces the prior funding rules with rules based on a plan's funded status. As of December 31, 2007, the Company's defined benefit
plans are underfunded. Under the funding rules set forth by the Act, our contributions are expected to be fairly level beginning in 2008 through 2015, at which time we expect our qualified defined
benefit plans will be fully funded. We estimate the amount of expected contributions under the Act to be approximately $1.0 million per year for our qualified defined benefit plans.

31

---





Our Credit Facility provides for availability of $250 million until the December 22, 2008 maturity date. Under the amended Credit Facility, up to
$200 million consists of a revolving credit facility and the remaining $50 million represents a fully drawn term loan.

At
December 31, 2007, the maximum availability under the revolving credit facility is limited to a borrowing base calculated as follows: 85% of our eligible receivables; 65% of
the net amount of eligible raw materials, finished goods, maintenance parts, unbilled receivables and the residual interest in our $130 million trade receivables securitization (see
Note 7); the lesser of 55% of the book value of eligible machinery and equipment at owned locations or 100% of the orderly liquidation value-in-place (as defined in the
credit agreement); the lesser of 55% of the book value of eligible machinery and equipment at leased locations or 100% of the net orderly liquidation value (as defined in the credit agreement) and 80%
of the fair market value of owned real estate. The eligibility of such assets included in the calculation is set forth in the credit agreement. At December 31, 2007, our borrowing base was
calculated to be $184.8 million. We had approximately $52.6 million available to borrow under the revolving credit facility and $6.2 million cash on hand at December 31,
2007.

The
Credit Facility requires us to maintain Compliance EBITDA of $125 million on a trailing twelve-month basis as set forth by the March 2007 amendment to the Credit Facility. At
December 31, 2007, our trailing twelve-month Compliance EBITDA as calculated under the credit agreement was $131.9 million. If the Company is unable to maintain this minimum Compliance
EBITDA amount, the bank lenders could require the Company to repay any amounts owing under the Credit Facility. In addition, as is customary in asset-based agreements, there is a provision for the
agent, in its reasonable credit judgment, to establish reserves against availability based on a change in circumstances. The agent's right to alter existing reserves requires written consent from the
borrowers when Compliance EBITDA is in excess of $180 million on a rolling twelve fiscal month basis. The agent is not required to obtain written consent when Compliance EBITDA on a rolling
twelve fiscal month basis is less than
$180 million. There were no reserves established by the agent that would impair our ability to borrow from our senior credit facility in 2007.

Our
Credit Facility, which matures on December 22, 2008, the outstanding 93/4% notes due April 1, 2009, the outstanding 107/8% notes due
June 15, 2009, and the outstanding 131/2% senior subordinated notes due December 7, 2009 all contain customary covenants. In addition, the Credit Facility requires us to
maintain Compliance EBITDA as set forth under the credit agreement. The Compliance EBITDA covenant at December 31, 2007 is $125 million on a trailing twelve-month basis. If we are unable
to maintain this minimum Compliance EBITDA amount, the bank lenders could require us to repay any amounts owing under the Credit Facility. At December 31, 2007, we were in compliance with our
debt covenants. While we currently expect to be in compliance in future periods, there can be no assurance that our financial covenants will continue to be met. Based upon the latest projections for
2008, including actual results for January and February, we believe we will be in compliance through the maturity date of the Credit Facility. For further information on our long-term
debt, see Note 11 to the consolidated financial statements included elsewhere in this Annual Report.



We are party to a three-year agreement, terminating in December 2008 (the "A/R Facility"), to sell substantially all trade accounts receivable
generated by our subsidiaries through the issuance of $130 million variable rate trade receivable backed notes.

Under
the A/R Facility, we sell our trade accounts receivable through a bankruptcy-remote wholly-owned subsidiary. However, we maintain an interest in the receivables and have been
contracted to service the accounts receivable. We received cash proceeds for servicing of $1.2 million and in both 2007 and 2006, respectively. These proceeds are fully offset by servicing
costs.

32

---



The
A/R Facility allows for a maximum of $130.0 million of trade accounts receivable to be advanced at any time based on the level of eligible receivables and limited to a
borrowing base linked to net receivables balances and collections. Additional deductions may be made if we fail to maintain a consolidated Compliance EBITDA of at least $180 million for any
rolling four fiscal quarter period. In addition, the A/R Facility includes certain targets related to its receivables collections and credit experience including a minimum Compliance EBITDA of
$160 million, amended to $125 million effective March 2007 (see "Sources of Funds" for further discussion). There are also covenants
customary for facilities of this type including requirements related to the characterization of receivables transactions, credit and collection policies, deposits of collections, maintenance by each
party of its
separate corporate identity including maintenance of separate records, books, assets and liabilities and disclosures about the transactions in the financial statements of Vertis Holdings and its
consolidated subsidiaries. Failure to meet the targets or the covenants could lead to an acceleration of the obligations under the A/R Facility or the sale of assets securing the A/R Facility. As of
December 31, 2007, we are in compliance with all targets and covenants under the A/R Facility.

At
December 31, 2007 and 2006, we sold accounts receivable in excess of the $130.0 million A/R Facility and as such $130 million was reflected as a reduction
of accounts receivable. At December 31, 2007 and 2006, we retained an interest in the pool of receivables in the form of overcollateralization and cash reserve accounts of $38.6 million
and $92.3 million, respectively, under the A/R Facility, which is included in Accounts receivable, net on the consolidated balance sheet at allocated cost, which approximates fair value. The
proceeds from collections reinvested in securitizations amounted to $1,664.2 million and $1,680.3 million in 2007 and 2006, respectively.

Fees
for the program vary based on the amount of interests sold and the London Inter Bank Offered Rate ("LIBOR") plus an average margin of 50 basis points. We also pay an unused
commitment fee of 37.5 basis points on the difference between $130 million and the amount of any advances. The loss on sale, which approximated the fees, totaled $6.8 million in 2007,
$6.5 million in 2006 and $5.2 million in 2005, and is included in Other, net in the consolidated statement of operations included elsewhere in this Annual Report.

We
have no other off-balance sheet arrangements that may have a material current or future effect on financial condition, changes in financial condition, results of
operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.



Our current liabilities exceeded current assets by $217.7 million at December 31, 2007 and by $40.5 million at December 31, 2006. This
represents a decrease in working capital of $177.2 million for the year ended December 31, 2007. Included in the working capital calculation as of December 31, 2007, is
$165.5 million, which represents the balance owed under our Credit Facility at December 31, 2007, which we have classified as current in the consolidated balance sheet included elsewhere
in this Annual Report. This classification stems from the fact that the maturity date of the Credit Facility is December 22, 2008, and while we have begun discussions with our debtholders to
restructure our outstanding indebtedness and our lenders regarding amendments to or replacements of the Credit Facility, we have not received any assurance that we will be able to do so. At
December 31, 2006, the balance of our Credit Facility was classified as long-term and, as such, is not included as a component of working capital. The ratio of current assets to
current liabilities as of December 31, 2007 was 0.43 to 1 compared to 0.85 to 1 as of December 31, 2006.

In
the year ended December 31, 2007, cash provided by working capital, adjusted for acquisitions and divestitures as well as the reclassification of our Credit Facility in 2007,
was $10.1 million. This was an increase of $47.1 million compared to cash used for working capital in the year ended December 31, 2006. The 2007 increase was primarily driven by
the timing of receivable collections, most notably in our Media Services business.

33

---



Summary of Cash Flows



Net cash provided by continuing operating activities in 2007 increased by $4.5 million from the 2006 level. This increase is primarily the result of
changes in the timing of the settlement of payables and collection of receivables.

Net
cash provided by continuing operating activities in 2006 increased by $7.4 million from the 2005 level. This increase is primarily the result of changes in the timing of the
settlement of payables and collection of receivables.



Net cash used in investing activities in 2007 increased by $25.0 million from the 2006 level, primarily due to a $16.2 million increase in capital
expenditures related to a focus by management in 2007 to re-invest in the business. Offsetting this use of cash in 2007, is $10.7 million in proceeds received, net of fees and
letters of credit, from the sale of three Direct Mail facilities, which we subsequently leased back (see Note 12 to our financial statements included elsewhere within this Annual Report).
Additionally, net cash used in investing activities fluctuated due to the $41.1 million in proceeds received in 2006 related to the sale of our fragrance business. We received the remaining
$1.0 million in proceeds from the sale of our fragrance business in 2008, when the funds were released from escrow.

Net
cash used in investing activities in 2006 decreased by $15.6 million from the 2005 level, primarily due to the $41.1 million in proceeds received in 2006 related to the
sale of our fragrance business. Offsetting these proceeds were $21.0 million of expenditures related to the acquisition of USA Direct (see Note 6 to our financial statements included
elsewhere within this Annual Report) and a $6.8 million increase in capital expenditures. Additionally, impacting the change in cash used for investing activities is a $1.5 million
decrease associated with investing activities of our discontinued operations. Our European segment, which was sold in 2005, had $1.5 million of cash used for investing activities in 2005. There
were no investing activities associated with our fragrance business, which was sold in 2006. See the "Discontinued Operations" section for further
discussion on these transactions.



In 2007, net cash provided by financing activities increased by $15.7 million from the 2006 level. The majority of this change relates to an
$11.1 million increase in funding under our Credit Facility which reflects the relative levels of cash provided by operating activities and capital expenditures in each respective year.
Additionally, $7.5 million relates to a fluctuation in the amount of outstanding checks drawn on controlled disbursement accounts which is primarily due to timing differences.

In
2006, net cash provided by financing activities in 2006 decreased by $19.0 million from the 2005 level. The majority of this change relates to a $36.8 million
fluctuation in the amount of outstanding checks drawn on controlled disbursement accounts which is primarily due to timing differences. Offsetting this change is a $20.3 million fluctuation in
funding under our Credit Facility. Additionally, financing activities of our discontinued operations contributed $1.6 million of this fluctuation.

34

---





Tax Matters

At the end of 2007 our federal net operating loss carryforwards were $323.9 million. The carryforwards expire beginning in 2010 through 2027. The U.S.
capital loss carryforward was $100.4 million as of December 31, 2007 and expires in 2011.

Our
valuation allowance related to our deferred tax asset, which was $128.6 million at the beginning of 2007, was increased by $68.8 million to $197.4 million at the
end of 2007. The valuation allowance reserves all deferred tax assets that will not be offset by reversing taxable temporary differences. This treatment is required under SFAS No. 109,
"Accounting for Income Taxes", when in the judgment of management, it is not more likely than not that sufficient taxable income will be generated in the future to realize the deductible temporary
differences. Our deferred tax assets and tax carryforwards remain available to offset taxable income in future years, thereby lowering any future cash tax obligations. We intend to maintain a
valuation allowance until sufficient positive evidence exists to support its reversal.

On
August 30, 2005, we reached a tentative settlement agreement with the IRS resolving disputes over the tax deductibility of net losses relating to the five leasehold interests
in real estate properties that we entered into in 1998. On January 23, 2006, we signed a closing agreement with the IRS. The closing agreement received final approval from the Congressional
Joint Committee on Taxation on May 16, 2006.

As
a result of the 2005 settlement agreement with the IRS, we reduced our tax reserves related to the IRS examination from $10.3 million to $2.0 million. The reduction
resulted in an $8.3 million tax benefit in 2005. During 2006, the Company paid $1.1 million and received refunds of $0.2 million in settlement.

In
the fourth quarter of 2005, we sold the stock of our Europe direct mail subsidiary which generated a capital loss carryforward in the U.S. of $137.0 million. Also in the fourth
quarter, our Europe premedia subsidiary sold the stock of its subsidiaries generating a U.K. capital loss carryforward of $29.0 million. The U.S. capital loss carryforward expires in 2011. The
U.K. capital loss can be carried forward indefinitely.

New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 establishes a framework for measuring fair
value and expands disclosures about fair value measurements. SFAS 157 clarifies the principle that fair value should be based on the assumption market participants would use when pricing an
asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. This Statement is effective for fiscal years beginning after
November 15, 2007. We do not expect the adoption of this Statement to have a material impact on our results of operations or financial position.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits entities to
choose to measure eligible items at fair value at specified election dates. If an entity chooses this practice, it shall report unrealized gains and losses on the items for which the fair value option
has been elected at each subsequent reporting date. The fair value option may be elected for a single eligible item without electing it for other identical items, with certain exceptions specified in
the Statement. Additional disclosures are required for an entity that chooses to elect the fair value option. The provisions of this Statement are effective for us on January 1, 2008. Early
adoption is permitted under certain circumstances as specified in this Statement. We do not expect the adoption of this Statement to have a material impact on our results of operations or financial
position.

35

---



In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS 141R"). SFAS 141R retains the fundamental requirements of SFAS No. 141 that
the acquisition method of accounting, previously referred to as the purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.
SFAS 141R defines the acquirer, and requires that they recognize the assets acquired, liabilities assumed and any non-controlling interest in the acquiree at fair value as of the
acquisition date. SFAS 141R requires an acquirer to recognize acquisition-related costs and anticipated restructuring costs separately from the business combination. Additionally,
SFAS 141R requires an acquirer to recognize assets acquired and liabilities assumed arising from contractual contingencies as of the acquisition date, measured at their acquisition date fair
value. The provisions of this Statement are effective for us on January 1, 2009. Early adoption is not permitted. We are not able to assess at this time the future impact of this Statement on
our consolidated financial position or results of operations, however if we do not enter into an acquisition in the future, then there is no impact on us related to the provisions of this Statement.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51" ("SFAS 160").
SFAS 160 amends Accounting
Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling interest, or minority interest, in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160
clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements.
SFAS 160 requires consolidated net income be reported to include the amounts attributable to both the parent and the noncontrolling interest. Disclosure of the amounts of consolidated net
income attributable to the parent and to the noncontrolling interest is required on the face of the consolidated statement of income. Additionally, SFAS 160 establishes a single method of
accounting for changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation and requires that a parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. The provisions of this statement are effective for fiscal years beginning after December 15, 2008. Early adoption is not permitted. We do not expect the adoption of this
Statement to have a material impact on our results of operations or financial position.

Application of Critical Accounting Policies

Our significant accounting policies are described in Note 3 to our consolidated financial statements included in this Annual Report. Several accounting
policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an
inherent degree of uncertainty. We base our estimates and judgments on historical experience, terms of existing contracts, observance of trends in the industry, information provided by customers and
outside sources and various other assumptions that we believe to be reasonable under the circumstances. Significant accounting policies that we believe involve the application of significant judgment
and discretion by management and are therefore "critical" accounting policies include:



We provide a wide variety of print and print related services and products for specific customers, primarily under contract. Revenue is not recognized until the
earnings process has been completed in accordance with the terms of the contracts. Print revenue is recognized when the product is shipped. Revenue from premedia operations is recognized upon the
completion of orders. Unbilled receivables are recorded for completed services or products which remain unbilled as of the period end.

In
2005, we revised our revenue recognition policy. Under the new policy, revenue for printed materials is recognized when the product is shipped. Previously, revenue was recorded when
these materials were completed and off press. This revision resulted in a $12.7 million decrease in revenue

36

---



and
a $2.9 million decrease in net income for the year ended December 31, 2005. We charge customers for shipping and handling charges. The amounts billed to customers are recorded as
revenue and actual charges paid by us are included in costs of production in the consolidated statements of operations.

We
bill our customers for sales tax calculated on each sales invoice and record a liability for the sales tax payable, which is included in other current liabilities on our consolidated
balance sheet included elsewhere in this Annual Report. Sales tax billed to a customer is not included in our revenue.



We maintain allowances for doubtful accounts for estimated losses resulting from the failure of our customers to make payments. Our estimates are based on
historical trends and specific customer risks on a customer-by-customer basis. If actual customer payments are less than our estimates, we would need to increase the allowance for doubtful accounts,
which would adversely affect our results of operations. Amounts are charged against the allowance for doubtful accounts reserve when deemed uncollectible. See the Financial Statement Schedule, which
accompanies the financial statements included elsewhere in this Annual Report, for a history of our charges to the allowance for doubtful accounts and write-offs taken over the
three-year period ended December 31, 2007.



We maintain a reserve against certain raw materials that due to age have become obsolete, principally paper and ink. The reserve reduces the cost basis to
approximately scrap value unless specific jobs can be identified to use these materials.



We evaluate the recoverability of our long-lived assets, including property, plant and equipment and intangible assets, when there are changes in
economic circumstances or business objectives that indicate the carrying value may not be recoverable. Our evaluations include estimated future cash flows, profitability and estimated future operating
results and other factors determining fair value. As these assumptions and estimates may change over time, it may or may not be necessary to record impairment charges.

Our
goodwill is tested for impairment on an annual basis at January 1 of each year or if events occur or circumstances change that would likely cause the fair value of goodwill to
be below the carrying value. Each of the our reporting units is tested for impairment by comparing the fair value of the reporting unit with the carrying value of that unit. Fair value is determined
based on a valuation study we perform using the discounted cash flow method and the guideline company approach to estimate the fair values of our reporting units.

Depreciation
on property, plant and equipment is computed using the straight-line method over the assets' estimated useful lives, or when applicable, the terms of the leases,
if shorter. Amortization of capitalized software development costs is recorded based on a useful like of one to five years beginning at the respective release date. Intangible assets other than
goodwill, which include trademarks, a customer base and a non-compete agreement, are amortized over the terms of the related agreements or life of the intangible asset. Deferred financing
costs are amortized over the terms of the related financing instruments.



We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. We estimate future taxable
income in assessing the need for the valuation allowance. In the event we determine that we would not be able to realize all or part of our

37

---



net
deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should we determine that we would be
able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax assets would increase income in the period that determination was made



Accounting for defined benefit pension plans requires various assumptions, including, but not limited to discount rates, expected rates of return on plan assets
and future compensation rates. We evaluate these assumptions at least once each year and make changes as conditions warrant. Changes to these assumptions will increase or decrease our reported income,
which will result in changes to the recorded benefit plan assets and liabilities.

We
determined the discount rates using a measurement date of December 31, 2007. The weighted average discount rate assumed in 2007 was 5.75%. We developed our expected
long-term rate of return assumption based on historical experience and by evaluating input from the trustee managing the plans' assets. Our expected long-term rate of return on
plan assets is based on a target allocation of assets as follows: 60% for equity and 40% for fixed income securities. We assumed returns of 9%-11% for the equity securities and 6.5% for
fixed income securities.



We evaluate our restructuring charges upon a decision to change business strategy, corporate structure or the way we operate in order to improve future
operations. Our typical restructuring charges include severance, facility closure costs, including obligations under facility leases, and asset disposals and impairments, all of which require
assumptions in building estimates. As amounts of severance required, assumptions on sublease income and proceeds for assets to be disposed of may change over time, it may or may not be necessary to
record additional restructuring charges.

Item 7A.    QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Qualitative Information

Our primary exposure to market risks relates to interest rate fluctuations on variable rate debt, which bears interest at the LIBOR rate.

The
objective of our risk management program is to seek a reduction in the potential negative earnings effects from changes in interest rates. To meet this objective, consistent with
past practices, we intend to vary the proportions of fixed-rate and variable-rate debt based on our perception of interest rate trends and the marketplace for various debt
instruments. We currently do not have any derivatives.

Quantitative Information

At December 31, 2007, 14.3% of our long-term debt held a variable interest rate.

Based
on a hypothetical 10% increase in interest rates, the expected effect related to variable-rate debt would be to increase net loss for the twelve months ended
December 31, 2007 by approximately $2.0 million.

For
the purpose of sensitivity analysis, we assumed the same percentage change for all variable-rate debt and held all factors constant. The sensitivity analysis is limited
in that it is based on balances outstanding at December 31, 2007 and does not provide for changes in borrowings that may occur in the future.

38

---



ITEM 8    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the Index to the consolidated financial statements and schedule on Page F-1 for our consolidated financial statements and
notes thereto and supplementary schedule.

ITEM 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as
of December 31, 2007. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this Annual Report on
Form 10-K has been appropriately recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that
such information is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Based
on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Management's Annual Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal controls over financial reporting. The Company's internal control
system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with GAAP
and includes those policies and procedures that:



Internal
control over financial reporting may not prevent or detect misstatements due to its inherent limitations. Management's projections of any evaluation of the effectiveness of
internal controls over financial reporting as to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

The
Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2007, and in making this assessment, used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework in accordance with the standards of the Public Company Accounting
Oversight Board (United States).

39

---



The
Company's management determined that as of December 31, 2007, the Company's internal controls over financial reporting were effective.

This
annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not
subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's
report in this annual report.

Changes in Internal Control Over Financial Reporting

No changes were made in our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2007, that materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B    OTHER INFORMATION

None.

40

---





PART III

ITEM 10    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth certain information regarding the directors and executive officers of Vertis.

|Name                |  | Age |  | Positions                                                    
|------------------- |  | --- |  | -------------------------------------------------------------
|Michael T. DuBose   |  | 54  |  | Chairman and Chief Executive Officer                         
|Barry C. Kohn       |  | 52  |  | Chief Financial Officer                                      
|Douglas L. Mann     |  | 44  |  | Senior Vice President and General ManagerAdvertising Inserts
|Charles Miotke      |  | 54  |  | PresidentDirect Marketing                                   
|Gary L. Sutula      |  | 63  |  | Senior Vice President and General ManagerPremedia           
|John Colarossi      |  | 55  |  | Senior Vice President and General ManagerVertis Media       
|John V. Howard, Jr. |  | 46  |  | Chief Legal Officer and Secretary                            
|Richard Guetzloff   |  | 49  |  | Senior Vice President and Chief Information Officer          
|John T. Dillon      |  | 69  |  | Director                                                     
|Anthony J. DiNovi   |  | 45  |  | Director                                                     
|Soren L. Oberg      |  | 37  |  | Director                                                     
|Donald E. Roland    |  | 65  |  | Director                                                     
|Scott M. Sperling   |  | 50  |  | Director                                                     

Michael T. DuBosewas named Chairman and Chief Executive Officer of Vertis in November 2006. Prior to that he had served as senior advisor
to Aurora Capital and chairman of Anthony International. Mr. DuBose served as chairman, president and chief executive officer of Aftermarket Technology Company from 1998 to 2005. Prior to his
role at Aftermarket, Mr. DuBose was chairman and CEO of Grimes Aerospace Company. Mr. DuBose has also held executive positions at SAIC, General Instrument and General Electric Company.

Barry C. Kohnwas named Chief Financial Officer of Vertis in May 2007. Prior to that, Mr. Kohn served as Chief Financial Officer of
United Plastics Group from 2005 to 2006 and Aftermarket Technology Corporation from 1999 to 2004. Prior to his role at Aftermarket, Mr. Kohn held executive positions, including Chief Financial
Officer at Grimes Aerospace Company.

Douglas L. Mannwas named Senior Vice President and General Manager of the Advertising Inserts segment of Vertis in January 2007. Prior to
that, Mr. Mann was employed by Gannett Company, Inc., where he served a dual role as president of Minneapolis Offset and group vice president of sales and marketing for the Gannett
Offset Group. Prior to joining Gannett in 2001, Mr. Mann held various sales leadership positions at C2 Media, Ariston, and Reynolds & Reynolds.

Charles Miotkewas named President of the Direct Marketing segment of Vertis in January 2008. Prior to that, Mr. Miotke served in
senior leadership roles for over nineteen years for Quebecor World, Inc., including serving as vice president of global technology and president of U.S. magazine groups in the last five years.
Prior to his time at Quebecor World, Inc., Mr. Miotke worked at Brown Printing Company for more than ten years.

Gary L. Sutulatransitioned to the position of Senior Vice President and General ManagerPremedia in January 2008 from the
Chief Information Officer position, which he had held since February 2005. Prior to joining Vertis, Mr. Sutula worked as an independent consultant from 2004 to 2005; served as Chief Operating
Officer and Chief Information Officer of gLimit, Inc. from 2003 to 2004; and served as Corporate Senior Vice President and Chief Information Officer at R.R. Donnelley & Sons, Inc.
from 1997 to 2003. Mr. Sutula has also served as Vice President and Chief Information Officer at Transamerica Financial Services and Senior Vice President and Chief Information Officer at
American Savings Bank (Washington Mutual).

41

---



John Colarossiwas named Senior Vice President and General Manager of Vertis Media in January 2007. Prior to joining Vertis,
Mr. Colarossi served as president of the aftermarket segment of Aftermarket Technology Corporation from January 2003 to October 2006 and as Chief Operating Officer at Cottman Transmission
Systems LLC from February 2000 to November 2002. He has also held management positions at various other companies including Digihut.com and Moran Industries.

John V. Howard, Jr.was named Chief Legal Officer and Secretary of Vertis in February 2005. In January 2008, Mr. Howard assumed the
leadership of the Company's technology business d/b/a the Digital Solutions Group in Boulder, Colorado. In July 2000, Mr. Howard was named Senior Vice PresidentGeneral Counsel of
Vertis, having served as general counsel of several Vertis subsidiaries beginning in 1998. Prior to joining Vertis, Mr. Howard was Counsel and Chief Intellectual Property Counsel for Andersen
Worldwide, S.C. in Chicago, the parent entity of Arthur Andersen and Andersen Consulting, in charge of all worldwide intellectual property matters for the Andersen organization. Before leaving for
Andersen he was Chief Counsel for Quark, Inc., in Denver, a developer of QuarkXPress, in charge of all worldwide legal matters.

Richard Guetzloffwas named Senior Vice President and Chief Information Officer of Vertis in January 2008. From July 2005 to January 2008,
Mr. Guetzloff served as Vice President of Infrastructure Services, Information Technology for Vertis. Prior to joining Vertis, Mr. Guetzloff served as Senior Director of Service Delivery
at AB Electrolux beginning in 2004, as a special consultant to ProSoft Consulting, Inc. from 2003 to 2004 and as Senior Director of IT Infrastructure at R.R. Donnelley and Sons Company from
1999 to 2003. He has also held positions at U.S. Cellular Corporation and TDS Telecommunications Corporation.

John T. Dillonhas been a director of Vertis and Vertis Holdings since April 2005. In March 2005, Mr. Dillon became Vice Chairman
of Evercore Capital Partners, a private equity fund, and a Senior Managing Director of Evercore Partners, an advisory and investment firm. Prior to that, Mr. Dillon served as Chairman and chief
executive officer of paper and forest products company International Paper from April 1996 until October 2003. Following his retirement, Mr. Dillon served, and continues to serve, as a director
of Caterpillar Inc., Kellogg Co. and E.I. DuPont de Nemours, and currently sits on the board of two privately held companies. Mr. Dillon is a past Chairman of the Business
Roundtable.

Anthony J. DiNovihas been a director of Vertis since March 2001 and Vertis Holdings since December 1999. Mr. DiNovi has been
employed by Thomas H. Lee Partners, L.P. and its predecessor Thomas H. Lee Company since 1988 and currently serves as Co-President. Mr. DiNovi is currently a Director of
American Media Operations, Inc., Dunkin' Brands, Inc., Michael Foods, Inc., Nortek, Inc., and West Corporation as well as various other private companies.

Soren L. Oberghas been a director of Vertis and Vertis Holdings since May 2001. Mr. Oberg has been employed by Thomas H. Lee
Partners, L.P., and its predecessor Thomas H. Lee Company since 1993. From 1992 to 1993, Mr. Oberg worked at Morgan Stanley & Co., Inc. in the Merchant Banking
Division. Mr. Oberg also serves on the boards of American Media Operations, Inc., Cumulus Media Partners, Grupo Corporativo Ono, S.A., West Corporation and several other private
companies.

Donald E. Rolandhas served as a director of Vertis and Vertis Holdings since June 2000 and served as Chairman of the Board from April
2001 to November 2006. From March 2006 to November 2006 he served as non-executive Chairman of the Board of Directors. Mr. Roland was Chief Executive Officer of Vertis from June
2000 until February 2006. Prior to June 2000, Mr. Roland was the President beginning in October 1994 and, starting in June 1995, Chief Executive Officer of TC Advertising, a Vertis subsidiary.
Mr. Roland joined TC Advertising in 1983 as Senior Vice President of Operations and became Executive Vice President in 1993. Prior to joining TC Advertising, he was at Times Mirror Press where
he held numerous management positions including Director of Computer Graphics and Vice President of Operations. Mr. Roland also serves on the board of the University of Maryland,

42

---



Baltimore
Foundation, as well as the advisory board of the School of Continuing and Professional Studies, Center for Graphic Communications Management & Technology at New York University, the
board of directors of Hess Printing Solutions, and the Board of Trustees of the Hammond Harwood House Association.

Scott M. Sperlinghas been a director of Vertis since May 2001 and Vertis Holdings since December 1999. Mr. Sperling has been
employed by Thomas H. Lee Partners, L.P. and its predecessor Thomas H. Lee Company since 1994 and currently serves as Co- President. Mr. Sperling is currently a Director of
Thermo Fisher Scientific, Inc., Warner Music Group, ProSiebensat.1 Media AG, as well as several private companies.

The
term of office of each executive officer is until a successor is elected and qualified, or until that officer's resignation or removal.

Each
of our directors was elected to hold office until the next annual meeting of our stockholders and until his successor is elected and qualified and subject to his death, resignation,
retirement, disqualification or removal.

Audit Committee and Audit Committee Financial Expert

The Company has established a separate Audit Committee of the Board of Directors. The Company's Board of Directors has determined that it does not have an audit
committee financial expert as defined under the regulations of the Securities and Exchange Commission serving on its Audit Committee, and it is not required to do so. Our Board of Directors believes
that the current members of the Board of Directors have substantial investment and management experience and significant financial expertise, and as a consequence, are fully capable of discharging
their responsibilities as members of the Company's Board of Directors notwithstanding that no current member of the Audit Committee is an "audit committee financial expert" as so defined.

Code of Ethics

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller
and certain other senior financial personnel. The code of ethics can be viewed on our website atwww.vertisinc.com.

ITEM 11    EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The following discussion relates to the compensation of Michael T. DuBose, Vertis' Chairman and Chief Executive Officer; Barry C. Kohn, Vertis' Chief Financial
Officer; and the other most highly compensated executive officers of Vertis named in the Summary Compensation Table below (collectively, the "Named Executive Officers") who were employed by the
Company at December 31, 2007.

Compensation Philosophy

The general philosophy of the Company's executive compensation program is to attract and retain talented management while ensuring that the Named Executive
Officers are compensated in a way that advances the interests of shareholders. To that end, the compensation program provides the Named Executive Officers with incentives to enhance the growth and
profitability of the Company. The program is designed to reward both individual and collective achievement, with emphasis placed on year-over-year improvement, closely aligning
the interests of management with the interests of shareholders. This is accomplished by emphasizing short-term reward opportunities, which are

43

---



measured
by annual EBITDA improvements and by each Named Executive Officer's individual accomplishments that support EBITDA growth.

Compensation Program Components

The compensation of the Company's Named Executive Officers is comprised of the following primary elements:



Each
of these components is designed to be consistent with the Company's compensation philosophy and to achieve the goals described above. The following is a discussion of each
compensation component and the items considered when determining the level of each component to be provided to each of the Named Executive Officers. See the Summary Compensation Table for the amounts
of compensation by component for each Named Executive Officer.



In reviewing and approving the base salaries of the Named Executive Officers, the Company considers the terms of any employment contract with the executive; the
recommendations of the Chief Executive Officer (except in the case of his own compensation, which is determined by the Board of Directors ("the Board")); a determination of what other companies might
pay the executive for his or her services; the executive's experience; and a subjective assessment of the nature of the executive's performance and contribution to the Company. In 2004, the Company
retained the services of an independent compensation consulting firm to benchmark key positions throughout the company. The survey conducted by the consulting firm considers such variables as
geographic location, annual revenues for each business unit, and standard industry classification. Base pay levels for the Named Executive Officers are reviewed annually to ensure they remain
competitive and appropriate within our industry and various geographic locations. The Company utilizes various independent survey sources when performing its review, comparing its current pay
practices to the survey data. The predominant survey utilized in 2007 was the CompAnalyst survey tool which is published electronically. The survey tool allows data segmentation by industry
classification, geographically, and by annual revenues.



In 2007, key management, including the Named Executive Officers, participated in the Management Incentive Compensation Plan (the "MICP"), formerly known as the
Executive Incentive Plan, or EIP. The purpose of the MICP is to drive superior performance, ensure alignment between management and shareholder objectives and to provide a meaningful reward for
exceptional results. In reviewing and approving the annual cash incentive compensation of the Named Executive Officers, the Board considers the overall Company performance as compared to the prior
fiscal year, the Named Executive Officer's own performance as measured against their individual objectives and the extent to which the Company achieved its overall financial goals. Financial goals are
based upon the Company's EBITDA. For certain of the Named Executive Officers, the goals may also have a component that is based upon a particular segment's EBITDA performance. If performance for the
year is below minimum targeted Company EBITDA levels, no cash incentive is typically awarded. However, the Board may make exceptions in the case of extraordinary individual achievement. If the
Company's or

44

---



the
respective segment's targeted performance for the year is met or exceeded, each Named Executive Officer receives a formula-based payout. The formula is comprised of an individual performance
factor, the Named Executive Officer's target bonus percentage of pay, and a factor reflecting the level of Company achievement against performance goals. The Chief Executive Officer establishes
individual performance goals for each Named Executive Officer other than himself. The Board establishes the individual objectives for the Chief Executive Officer. All goals and awards are subject to
review and approval by the Board.

Under
the MICP the target bonus for each Named Executive Officer, expressed as a percentage of base salary was 75% for Mr. DuBose and 50% for Messers. Kohn, Colatriano, Mann and
Howard. Bonuses are paid at these targets if all plan goals, both individual and company, are achieved. Awards can rise to 200% of the target incentive if the Company exceeds its goals. No payments
were made in 2007 or 2006 under the MICP due to the Company's failure to achieve targeted EBITDA goals. However, in 2007, the Board approved a discretionary bonus for a select group of management,
including several Named Executive Officers. The Board approved the discretionary bonus in recognition of the aggressiveness of the 2007 financial goals, the tremendous effort involved in implementing
the 2007 business strategy to achieve those goals, and the initial successes resulting from that effort. The discretionary bonuses paid to the Named Executive Officers represent 40% to 50% of their
target MICP award. The Board also considered the fact that the Company's failure to pay bonuses for the past several years was affecting the Company's ability to retain and motivate current employees
and also the Company's ability to attract new talent. The total amount spent on the discretionary bonus awards was approximately one-third of the aggregate target payout under the 2007
MICP. In 2006, the Company paid discretionary cash bonuses of $100,000 each to Mr. Howard and Mr. Tremblay in recognition of performance efforts prior to 2006. The Company did not pay
any discretionary cash bonuses to the other Named Executive Officers for performance in 2006.

Base
salary and annual cash incentive compensation are the primary components of the Named Executive Officers' compensation. These components provide the Board the most effective means
to
reward achievement of the near-term goals, which are appropriate for the Company's current ownership and capital structure. Emphasis on annual EBITDA improvement is consistent with the
goals of the Company's debt and equity holders. Differences in the base salary and the MICP target bonus between the CEO and the other Named Executive Officers, as well as between the Named Executive
Officers, is directly related to the scope and responsibility of the position and the experience of the executive. The Company believes the base salary and annual cash incentive targets are
appropriate based upon our review of available survey data and the fact that we have been actively recruiting for several executive positions throughout 2006 and 2007, and consequently have gained
significant insight into the compensation levels paid by companies in similar industries that are faced with challenges similar to Vertis for filling senior management positions.

In
addition, the Named Executive Officers may be provided other forms of compensation, as discussed below, to further align their efforts with those of the shareholders. While these
other forms of compensation provide further enhancement to the executives' total compensation package, they do not, individually and collectively, form a significant portion of the Named
Executive Officer's compensation



The Board may, in its full discretion, choose to grant restricted shares of Vertis Holdings to the Named Executive Officers. The Company does not have an
established program for the award of restricted shares. Awards are made on a case-by-case basis as determined by the Board. Restricted shares are granted subject to such
restrictions as are set forth in the restricted share agreement for each executive. Shares typically do not become vested until immediately prior to a liquidity event ("Liquidity Event"), generally
defined as a public offering of our common stock (where immediately

45

---



following
such offering, the aggregate number of shares of common stock held by the public, not including affiliates of the Company, represents at least 20% of the total number of outstanding shares),
merger or other business combination, or a sale or other disposition of all or substantially all of our assets to another entity for cash and/or publicly traded securities. The number of shares
allocated to the Named Executive Officers is governed by a desire to provide a meaningful award in the event of a liquidity event without significantly impacting the level of ownership or control of
the Company. In 2007, restricted shares were granted to Mr. Mann. In 2006, restricted shares were granted to Mr. Colatriano, Mr. Howard and Mr. Tremblay. These grants are
pursuant to the Restricted Stock Agreements that were entered into as discussed in the "Employment Arrangements with Executive Officers" section.



46

---





The Company provides the Named Executive Officers with perquisites and other personal benefits that the Company believes are reasonable and consistent with its
overall compensation program and are targeted to attract and retain superior employees for key positions in the Company. The following perquisites are generally made available to the Named Executive
Officers: automobile allowance, 401(k) match, relocation benefits and temporary housing expenses. Additionally, per their respective employment agreements (see "Employment
Arrangements with Executive Officers"), Mr. DuBose and Mr. Kohn are compensated for commuting expenses and the taxes associated with this compensation.



The Named Executive Officers each have provisions in their employment agreements providing for severance upon termination or a
change-in-control of the Company. The
Company provides the Named Executive Officers with such severance that it believes is reasonable and consistent with its overall compensation program. The Company makes a
case-by-case determination of the appropriate severance to provide each of the Named Executive Officers and such determination is reflected in the employment agreement
negotiated by the Company with the Named Executive Officer.

Compensation Related Tax and Accounting Implications

The American Jobs Creation Act of 2004, which was enacted on October 22, 2004, changed the tax rules applicable to nonqualified deferred compensation
arrangements, under which certain of the Named Executive Officers participate. While the final regulations have not become effective yet, the Company believes it is operating in good faith compliance
with the provisions that were effective January 1, 2005.

47

---





The following table sets forth the compensation earned by the Named Executive Officers in the year ended December 31, 2007.

Summary Compensation Table

|Name and Principal Position                                                   |  | Year      |  | Salary |                 | Bonus(1) |   | Stock
Awards(2) |  | Change in
Pension Value and Non-
Qualified Deferred Compensation Earnings(3) |  | All Other Compensation Earnings |              | Total
|----------------------------------------------------------------------------- |  | --------- |  | ------ | --------------- | -------- | - | --------------- |  | ---------------------------------------------------------------------------- |  | ------------------------------- | ------------ | -----
|Michael T. DuBose
Chairman and Chief Executive Officer                        |  | 2007
2006 |  | $      | 750,000
69,231  |          | $ | 275,000         |  |                                                                              |  |                                 |              |      
|Barry C. Kohn
Chief Financial Officer(6)                                      |  | 2007      |  |        | 298,269         |          |   | 117,500         |  |                                                                              |  |                                 |              |      
|David P. Colatriano(8)
Senior Vice President and
General ManagerDirect Mail  |  | 2007
2006 |  |        | 328,945
312,692 |          |   | 25,000          |  | 614,400                                                                      |  | $                               | 15,312
8,149 | (9)  
|John V. Howard, Jr.
Chief Legal Officer and Secretary                         |  | 2007
2006 |  |        | 305,580
295,932 |          |   |                 |  | 614,400                                                                      |  |                                 | 1,541
810    |      
|Douglas L. Mann
Senior Vice President and
General ManagerAdvertising Inserts |  | 2007      |  |        | 343,269         |          |   | 155,000         |  | 4,800                                                                        |  |                                 |              |      
|Stephen E. Tremblay
Former Chief Financial Officer(12)                        |  | 2007
2006 |  |        | 288,254
322,308 |          |   |                 |  | 865,812                                                                      |  |                                 | 4,037        |      

---

48

---



The following table summarizes the grants in the year ended December 31, 2007 under our equity based compensation plan (see
"Equity-Based Compensation" section).

Grants of Plan-Based Awards

|                       |  |                   |  |   |         |  |   |         |  | All Other
Stock Awards:
Number of
Shares of
Stock or
Units (#)(2) |           | 
|---------------------- |  | ----------------- |  | - | ------- |  | - | ------- |  | ----------------------------------------------------------------- | --------- | 
|
|
|
|Michael T. DuBose      |  |                   |  | $ | 562,500 |  | $ | 562,500 |  | $                                                                 | 1,125,000 | 
|Barry C. Kohn          |  |                   |  |   | 235,000 |  |   | 235,000 |  |                                                                   | 470,000   | 
|David P. Colatriano(4) |  |                   |  |   | 162,225 |  |   | 162,225 |  |                                                                   | 324,450   | 
|John V. Howard, Jr.    |  |                   |  |   | 153,530 |  |   | 153,530 |  |                                                                   | 307,060   | 
|Douglas L. Mann        |  | February 23, 2007 |  |   |         |  |   |         |  |                                                                   |           | 
|                       |  |                   |  |   | 200,000 |  |   | 200,000 |  |                                                                   | 400,000   | 
|Stephen E. Tremblay(5) |  |                   |  |   |         |  |   |         |  |                                                                   |           | 

---

Employment Arrangements and Other Agreements with Executive Officers

DuBose Employment Agreement.The Company entered into an employment agreement with Michael T. DuBose
effective as of November 28, 2006 (as amended to date, the "DuBose Agreement"), pursuant to which Mr. DuBose currently serves as Chief Executive Officer and Chairman of the Board. The
DuBose Agreement may be terminated by either Mr. DuBose or the Company at any time for any reason. Under the DuBose Agreement, Mr. DuBose receives an annual base salary, as adjusted by
the Board, and various employment benefits. In 2007, Mr. DuBose received an annual base salary of $750,000. The DuBose Agreement also provides that Mr. DuBose will receive an annual
bonus targeted

49

---



at
not less than 75% of his base salary (assuming bonus targets under the MICP, which are based upon the percentages of the achievements of an internally calculated pro forma EBITDA measure, are met)
and which can rise to 200% of the target incentive if the Company exceeds its goals. Additionally, the DuBose Agreement provides that Mr. DuBose receive certain fringe benefits, including an
automobile allowance, relocation reimbursement, temporary housing, commuting expense reimbursements, tax gross-up and insurance. Additionally, the Company shall purchase and maintain
through December 31, 2014, a single-family policy equivalent in all material aspects to the Company's health coverage. This policy shall remain in effect even upon Mr. DuBose's
termination from the Company. The Company entered into a Restricted Stock Agreement with Mr. DuBose effective January 7, 2008 pursuant to which Mr. DuBose received a grant of
600,000 restricted shares of common stock of Vertis Holdings.

Kohn Employment Agreement.The Company entered into an employment agreement with Barry C. Kohn
effective as of December 18, 2007 (as amended to date, the "Kohn Agreement"), pursuant to which Mr. Kohn currently serves as Chief Financial Officer. The Kohn Agreement may be terminated
by either Mr. Kohn or the Company at any time for any reason. Under the Kohn Agreement, Mr. Kohn receives an annual base salary, as adjusted by the Board, and various employment
benefits. In 2007, Mr. Kohn's annual base salary was $470,000, of which he received a pro rated salary of $298,269. The Kohn Agreement also provides that Mr. Kohn will receive an annual
bonus targeted at not less than 50% of his base salary (assuming bonus targets under the MICP, which are based upon the percentages of the achievements of an internally calculated pro forma EBITDA
measure, are met) and which can rise to 200% of the target incentive if the Company exceeds its goals. Additionally, the Kohn Agreement provides that Mr. Kohn receive certain fringe benefits,
including an automobile allowance, relocation reimbursement, temporary housing, commuting expense reimbursements and tax gross-up. The Company entered into a Restricted Stock Agreement
with Mr. Kohn effective February 5, 2008 pursuant to which Mr. Kohn received a grant of 250,000 restricted shares of common stock of Vertis Holdings.

Colatriano Employment Agreement.The Company entered into an employment agreement with David P.
Colatriano, effective August 15, 2003 (the "Colatriano Agreement"), pursuant to which Mr. Colatriano served as Senior Vice President and General Manager for Direct Mail. Under the
Colatriano Agreement, Mr. Colatriano received an annual base salary, as adjusted by the Board, and various employment benefits. In 2007, Mr. Colatriano received a base salary of
$328,945. The Colatriano Agreement also provides an annual bonus targeted at 50% of his base salary (assuming bonus targets under the MICP, which are based upon the percentages of the achievements of
an internally calculated pro forma EBITDA measure, are met) and which can rise to 200% of the target incentive if the Company exceeds its goals. Additionally, the Colatriano Agreement provides that
Mr. Colatriano receive certain fringe benefits, including participation in the SERP. The Company entered into a Restricted Stock Agreement with Mr. Colatriano effective May 20,
2004 pursuant to which Mr. Colatriano exchanged
certain options to purchase shares of the common stock of the Company for 6,683 restricted shares of common stock of Vertis Holdings. Additionally, Mr. Colatriano received a grant of 30,000
restricted shares of common stock of Vertis Holdings pursuant to a Restricted Stock Agreement effective March 6, 2006. Mr. Colatriano terminated his service with the Company on
January 25, 2008 (the "Colatriano Date of Separation"). On the Colatriano Date of Separation, Mr. Colatriano forfeited all of the restricted shares of common stock of Vertis Holdings
previously issued to him.

Howard Employment Agreement.The Company entered into an employment agreement with
John V. Howard, Jr., effective August 31, 2003 (as amended to date, the "Howard Agreement"), pursuant to which Mr. Howard currently serves as Chief Legal Officer and
Secretary. The Howard Agreement may be terminated by either Mr. Howard or the Company at any time for any reason. Under the Howard Agreement, Mr. Howard receives an annual base salary,
as adjusted by the Board, and various employment benefits. In 2007, Mr. Howard received a base salary of $305,580. The Howard

50

---



Agreement
also provides that Mr. Howard receive an annual bonus targeted at not less than 50% of base salary (assuming bonus targets under the MICP, which are based upon the percentages of the
achievements of an internally calculated pro forma EBITDA measure, are met) and which can rise to 200% of the target incentive if the Company exceeds its goals. Additionally, the Howard Agreement
provides that Mr. Howard receive certain fringe benefits, including participation in the SERP. The Company entered into a Restricted Stock Agreement with Mr. Howard effective
May 20, 2004 pursuant to which Mr. Howard exchanged certain options to purchase shares of the common stock of the Company for 6,610 restricted shares of common stock of Vertis Holdings.
Mr. Howard also received a grant of 30,000 restricted shares of common stock of Vertis Holdings pursuant to a Restricted Stock Agreement effective March 6, 2006.

Howard Relocation Agreement.The Company is party to an agreement with an independent relocation
company (the "Buyer") whereby eligible employees receive certain relocation assistance and related services. John V. Howard, Jr. received approximately $0.4 million under a
relocation real estate purchase and sale agreement with the Buyer dated December 26, 2007 (the "Howard Relocation Agreement"). Under the Howard Relocation Agreement, the Buyer paid to
Mr. Howard and his spouse an equity advance for their personal residence in the amount of approximately $0.9 million (the "Purchase Price") plus relocation expenses, funded by the
Company, less an outstanding mortgage of approximately $0.5 million as of December 10, 2007. Based on an independent appraisal, the Company believes that the Purchase Price approximated
the fair market value of the personal residence. The Buyer will then market the property for resale to an unrelated buyer, and the Company will incur the costs associated with or receive the net
proceeds from that resale.

Mann Employment Agreement.The Company entered into an employment agreement with
Douglas L. Mann effective as of January 12, 2007 (the "Mann Agreement") pursuant to which Mr. Mann currently serves as Senior Vice President and General Manager of
Advertising Inserts. The Mann Agreement may be terminated by either Mr. Mann or the Company at any time for any reason. Under the Mann Agreement, Mr. Mann receives an annual base salary,
as adjusted by the Board, and various employment benefits. Per the Mann Agreement, Mr. Mann's starting annual base salary was $350,000, which was increased to $400,000 in September 2007. In
2007, Mr. Mann received a pro rated salary of $343,269. The Mann agreement also provided that Mr. Mann receive a $75,000 signing bonus.
Additionally, the Mann Agreement also provides that Mr. Mann will receive an annual bonus targeted at not less than 50% of his base salary (assuming bonus targets under the MICP, which are
based upon the percentages of the achievements of an internally calculated pro forma EBITDA measure, are met) and which can rise to 200% of the target incentive if the Company exceeds its goals.
Additionally, the Mann Agreement provides that Mr. Mann receive certain fringe benefits including an automobile allowance. The Company entered into a Restricted Stock Agreement with
Mr. Mann effective February 23, 2007 pursuant to which Mr. Mann received a grant of 7,500 restricted shares of common stock of Vertis Holdings.

Tremblay Employment Agreement.The Company entered into an employment agreement with Stephen E.
Tremblay dated April 22, 1997 (as amended to date, the "Tremblay Agreement"), pursuant to which Mr. Tremblay served as Chief Financial Officer. Under the Tremblay Agreement,
Mr. Tremblay received an annual base salary, as adjusted by the Board, and various employment benefits. In 2007, Mr. Tremblay received a base salary of $288,254. The Company entered into
a Restricted Stock Agreement with Mr. Tremblay effective May 20, 2004 pursuant to which Mr. Tremblay exchanged certain options to purchase shares of the common stock of the
Company for 1,167 restricted shares of common stock of Vertis Holdings. Mr. Tremblay also received a grant of 42,276 restricted shares of common stock of Vertis Holdings pursuant to a
Restricted Stock Agreement effective March 6, 2006.

51

---



On
May 21, 2007, Mr. Tremblay transitioned from his position as Chief Financial Officer of the Company to Senior Vice President, Corporate Development. In connection with
Mr. Tremblay's transition, the Company and Mr. Tremblay entered into a transition agreement effective May 31, 2007. See the 'Tremblay Severance
Arrangement" section for a detailed discussion of this transition agreement. Mr. Tremblay terminated his service with the Company on November 16, 2007 ("Tremblay
Date of Separation"). On the Tremblay Date of Separation, Mr. Tremblay forfeited all of the restricted shares of common stock of Vertis Holdings previously issued to him.

The
following table sets forth the number of unvested stock awards outstanding at December 31, 2007 for each Named Executive Officer and the market value of such awards.

Outstanding Equity Awards at Fiscal Year-End

|                       |  | Stock Awards        
|---------------------- |  | --------------------
|
|Michael T. DuBose      |  |                     
|Barry C. Kohn          |  |                     
|David P. Colatriano    |  | Restricted shares(3)
|                       |  | Rights              
|John V. Howard, Jr.    |  | Restricted shares   
|Douglas L. Mann        |  | Restricted shares   
|Stephen E. Tremblay(4) |  |                     

---

52

---





The following table presents detail of the Named Executive Officers' benefits under the Company's defined benefit plans.

Pension Benefits

|Name                 |  | Plan Name                       |  | Number of Years
of Credited
Service (#)(1) |     | Present Value of
Accumulated
Benefit ($) |        | Payments
During Last
Fiscal Year ($) |  
|-------------------- |  | ------------------------------- |  | ------------------------------------------ | --- | ---------------------------------------- | ------ | ------------------------------------ | -
|Michael T. DuBose(2) |  |                                 |  |                                            |     |                                          |        |                                      |  
|Barry C. Kohn(2)     |  |                                 |  |                                            |     |                                          |        |                                      |  
|David P. Colatriano  |  | Webcraft Retirement Income Plan |  | 18.2                                       | (3) | $                                        | 42,072 |                                      |  
|                     |  | SERP                            |  | 21.0                                       |     |                                          | 86,193 |                                      |  
|John V. Howard, Jr.  |  | SERP                            |  | 9.8                                        |     |                                          | 3,200  |                                      |  
|Douglas L. Mann(2)   |  |                                 |  |                                            |     |                                          |        |                                      |  
|Stephen E. Tremblay  |  | SERP                            |  | 10.7                                       |     |                                          |        |                                      | $

---

The Company has two pension plans under which certain of the Named Executive Officers participate: the SERP and the Webcraft RIP. The actuarial
valuation methods used for determining the present value of the accumulated benefit under the SERP and the Webcraft RIP are the projected unit credit cost method and the unit credit cost method,
respectively. See Note 14 to the Company's consolidated financial statements for further discussion of pension plan assumptions.

The
"Frozen Benefit Plans" section discusses the benefit computation under the SERP and the Webcraft RIP. The optional forms of payment
under the SERP are a single life annuity with payments ending upon the death of the Named Executive Officer; a 50% joint and survivor annuity which provides a reduced monthly benefit for the lifetime
of the Named Executive Officer, with continuation of the benefit payable to the Named Executive Officer's beneficiary after his death equal to 50% of the benefit received prior to his death; or a 100%
joint and survivor annuity which provides a reduced monthly benefit for the lifetime of the Named Executive Officer, with continuation of the benefit payable to the Named Executive Officer's
beneficiary after his death equal to 100% of the benefit
received prior to his death. The optional forms of payment under the Webcraft RIP are a single life annuity; a joint and survivor annuity where a certain percentage of the Named Executive Officer's
benefit is payable to their spouse at the death of the Named Executive Officer; a 10 year certain and life annuity which guarantees payments expiring at the later of the end of
120 monthly payments or the death of the Named Executive Officer; or a lump sum calculated as the actuarial equivalent of the accrued monthly benefit payable at the severance from service date.

Participants
in the SERP are eligible for benefits at age 62 if they retire from the Company after age 55 and have completed at least 15 years of service. The SERP also allows for
distribution of benefits upon retirement if the vested value of the participant's benefit is less than $25,000. The Webcraft RIP allows for distribution of benefits upon termination from the Company
whereby the benefit is adjusted for the actuarial difference between the date of termination and retirement.

53

---



Potential Payments upon Termination or Change-in-Control

For purposes of the discussion of the Named Executive Officers' severance arrangements, the terms "Cause", "Good Reason" and "Change in Control" have the
following meanings:

"Cause"
means termination of the Named Executive Officer by Vertis because of:



Unless,
in the case of clauses (i) or (iii), the event constituting Cause is curable and has been cured by the Named Executive Officer within ten business days of his receipt of
written notice from the Company that an event constituting Cause has occurred and specifying in reasonable detail the actions required to effect a cure. Following a Change in Control, as defined
herein, Cause shall only mean clauses (i) or (ii) above.

"Good
Reason" means the occurrence of any of the following events, without the Named Executive Officer's consent (other than in connection with an event constituting Cause):



A
"Change in Control" shall be deemed to have occurred on the first date after the effective date on which:



54

---





For
purposes of the preceding sentence, the term "Person" does not include (1) Vertis Holdings, Thomas H. Lee Partners or Thomas H. Lee Equity Fund IV, L.P., Evercore
Capital Partners L.P. and each of their respective affiliates (the "Designated Investors"), (2) a trustee or other fiduciary holding securities under an employee benefit plan of the
Company or any of its affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities and (4) a corporation owned, directly or indirectly, by the
Designated Investors.

DuBose Severance Arrangement.The DuBose Agreement contains provisions regarding severance (the
"DuBose Severance Arrangement"). If Mr. DuBose leaves the Company absent a Change in Control of the Company, the DuBose Severance Arrangement provides the following payments and benefits:



55

---





Pursuant
to the DuBose Severance Arrangement, if Mr. DuBose's employment is terminated within the 13-month period immediately following a Change in Control by the
Company other than for Cause or by Mr. DuBose for Good Reason, he will receive a cash payment equal to three times the sum of his (i) annual base salary in effect immediately prior to
the date of termination and the Applicable Bonus Amount and (ii) any unpaid portion of his annual base salary and earned annual bonus for completed years prior to the date of termination. In
addition, Mr. DuBose will receive a
pro-rata bonus payment as well as the cost of Mr. DuBose's applicable outplacement services. Mr. DuBose will also continue to be covered by the Secondary Policy and may elect
the Applicable Healthcare Coverage.

Kohn Severance Arrangement.The Kohn Agreement contains provisions regarding severance (the "Kohn
Severance Arrangement"). If Mr. Kohn leaves the Company absent a change of control of the Company, the Kohn Severance Arrangement provides the following payments and benefits:



56

---





If
Mr. Kohn's employment is terminated within the 13-month period immediately following a Change in Control by the Company other than for Cause or by Mr. Kohn
for Good Reason, he will receive (i) a cash payment equal to three times the sum of his annual base salary in effect immediately prior to the date of termination and the Applicable Bonus Amount
and (ii) any unpaid portion of his annual base salary earned through the date of termination and earned annual bonus for completed years prior to the date of termination. The Company shall also
provide to Mr. Kohn and his eligible dependents the Applicable Healthcare Coverage for a period of 36 months following the date of termination, or, if earlier, until the date
Mr. Kohn obtains alternative coverage from a subsequent employer. In addition, Mr. Kohn will receive the Pro-rata Bonus payment as well as the cost of Mr. Kohn's
Applicable Outplacement Services.

Colatriano Severance Arrangement.The Colatriano Agreement contains provisions regarding severance
(the "Colatriano Severance Arrangement"). Pursuant to the Colatriano Severance Arrangement, if Mr. Colatriano's employment is terminated by the Company without Cause or if the Company requires
that he be based at a location which is more than fifty miles from the office at which he is based at the time of the relocation, he will receive severance pay, in the form of payroll continuation of
his annual base salary as of his date of separation for a period of twelve months. If Mr. Colatriano remains unemployed at the end of those payments, he is eligible for a continuation of the
severance pay for each month in which he remains unemployed up to a maximum of six months. Mr. Colatriano resigned from the Company on January 25, 2008. See the
"Triggering Event" table for the amount of severance accrued by the Company in 2008 for Mr. Colatriano upon his departure.

Howard Severance Arrangement.The Howard Agreement contains provisions regarding severance (the
"Howard Severance Arrangement"). Pursuant to the Howard Severance Arrangement, if Mr. Howard's employment is terminated by the Company without Cause or by Mr. Howard for Good Reason
following a Change in Control of the Company, he will receive a lump sum amount equal to three times the sum of (i) his annual base salary in effect immediately prior to the date of termination
and (ii) the greater of his target bonus under the MICP in the year immediately preceding that in which the termination occurs or the annual bonus he would have earned for the fiscal year in
which the date of termination occurs absent such termination. In addition, he will receive a prorated annual bonus equal to the bonus he would have received had he remained employed by the company
through the last day of the fiscal year during which the date of termination occurs. The prorated bonus shall be determined, as near as practicable, based on actual performance achieved for the fiscal
year through the date of termination, expressed as a percentage of targeted performance for that period. Finally, Mr. Howard and his eligible dependents will be entitled to one year of
continued medical, dental, prescription and vision care insurance coverages (the "Continued Coverage"). If Mr. Howard resigns or is terminated for Cause, prior to November 1, 2009, he
will be required to repay the Company a percentage of the relocation expenses incurred by the Company on his behalf.

If
Mr. Howard leaves the Company absent a Change of Control of the Company, the Howard Severance Arrangement provides the following payments and benefits:



57

---





Also,
the Company will (i) provide Mr. Howard and his eligible dependents six months of the Continued Coverage and he will then be eligible for COBRA coverage, and
(ii) credit Mr. Howard with an additional year of vesting for purposes of his then outstanding options, which will remain exercisable in accordance with the terms of the applicable
option grants and equity plan.

Mann Severance Arrangement.The Mann Agreement contains provisions regarding severance. If the
Company terminates Mr. Mann's employment for any reason other than Cause, Mr. Mann will receive severance pay in the form of payroll continuation of Mr. Mann's annual base salary
for a period of 12 months

Tremblay Severance Arrangement.In connection with Mr. Tremblay's transition described in the
"Tremblay Employment Agreement" section, the Company and Mr. Tremblay entered into a transition agreement effective May 31, 2007 (the
"Tremblay Arrangement"). Pursuant to the Tremblay Arrangement, the
Company will provide Mr. Tremblay with eighteen months of severance at his then current salary, a pro-rata portion of his bonus under the MICP based on the number of months in 2007
he was employed by the Company and reimbursement of outplacement services, not to exceed $20,000, if completed within six months of Mr. Tremblay's termination date. Mr. Tremblay resigned
from the Company on November 16, 2007. See the "Triggering Event" table for the amount of severance accrued by the Company for
Mr. Tremblay upon his departure.

58

---



The
following table presents an estimate of severance payments that would be provided to the Named Executive Officers if the applicable triggering event took place on December 31,
2007.

Triggering Event

|Name                 |  | Termination by the
Company Without Cause or Termination by the Executive Officer for Good Reason Following a Change in Control |           | Termination by the
Company Without Cause or Termination by the Executive Officer for Good Reason Absent a Change in Control |   | Termination by the
Company for Cause or by the Executive for Other than Good Reason |     | Termination
Upon Disability |         | Termination
Upon Death
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ | --------- | --------------------------------------------------------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------------- | --- | --------------------------- | ------- | ----------------------
|Michael T. DuBose(1) |  | $                                                                                                                              | 4,087,514 |                                                                                                                             | $ | 2,775,014                                                                           |     | $                           | 112,514 |                       
|Barry C. Kohn        |  |                                                                                                                                | 2,150,992 |                                                                                                                             |   | 1,087,246                                                                           |     |                             |         |                       
|David P. Colatriano  |  |                                                                                                                                |           |                                                                                                                             |   | 346,450                                                                             | (3) |                             |         |                       
|Douglas L. Mann      |  |                                                                                                                                | 400,000   |                                                                                                                             |   | 400,000                                                                             |     |                             |         |                       
|John V. Howard, Jr.  |  |                                                                                                                                | 1,385,932 |                                                                                                                             |   | 692,966                                                                             |     |                             |         |                       
|Stephen E. Tremblay  |  |                                                                                                                                |           |                                                                                                                             |   | 515,000                                                                             | (4) |                             |         |                       

---

Compensation of Directors

Michael T. DuBose was the only director of Vertis at December 31, 2007, who was also an executive officer of the Company. Mr. DuBose did not receive
any additional compensation for service as a member of the Board. Donald E. Roland is a director of Vertis as well as a non-executive employee of the Company. Mr. Roland did not
receive any additional compensation for service as a member of the Board.

All
non-employee directors of Vertis are directly affiliated with either Thomas H. Lee Partners ("THL") or Evercore Capital Partners ("ECP"), two significant
shareholders of Vertis Holdings. None of the non-employee directors individually receive any compensation from Vertis for serving on the Board. Vertis, however, entered into consulting
agreements with Thomas H. Lee Capital, LLC (an affiliate of THL), THL Equity Advisors IV, LLC (an affiliate of THL) and Evercore Advisor Inc. (an affiliate of ECP), pursuant to
which Vertis pays annual fees to these parties in amounts of approximately $220,000, $780,000 and $250,000. In 2007, the payment of these fees was deferred. See "Certain
Relationships and Related Transactions."

Compensation Committee Interlocks and Insider Participation

The Company does not have a compensation committee. Michael T. DuBose, the Company's Chief Executive Officer, serves on the Board and participates in
deliberations with the Board regarding compensation of executive officers, other than his own compensation.

59

---





ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK MATTERS

Vertis is a wholly-owned subsidiary of Vertis Holdings.

The
following table sets forth certain information regarding the beneficial ownership of Vertis Holdings' common stock as of February 29, 2008 for (i) each stockholder who
is known by us to beneficially own more than 5% of Vertis Holdings common stock, (ii) each director and executive officer of Vertis and Vertis Holdings, and (iii) all of the directors
and executive officers of Vertis and Vertis Holdings as a group.

|                                                                                                                  |  | Shares Beneficially Owned | 
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------- | 
|
|Thomas H. Lee Partners L.P. and Affiliates(2)
c/o Thomas H. Lee Partners, L.P., 75 State Street, Boston, MA 02109 |  | 8,844,938                 | 
|Evercore Capital Partners L.P. and Affiliates(3)
65 East 55th Street, 33rd Floor, New York, NY 10022              |  | 2,114,415                 | 
|Michael T. DuBose
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201                                    |  | 600,000                   | 
|Barry C. Kohn
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201                                        |  | 250,000                   | 
|John Colarossi
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201                                       |  | 7,500                     | 
|John V. Howard, Jr.
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201                                  |  | 36,610                    | 
|Douglas L. Mann
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201                                      |  | 7,500                     | 
|Gary L. Sutula
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201                                       |  | 25,668                    | 
|Donald E. Roland(4)
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201                                  |  | 72,469                    | 
|Anthony J. DiNovi(5)
c/o Thomas H. Lee Partners, L.P., 100 Federal Street, 35th Floor, Boston, MA 02110           |  | 7,166,451                 | 
|Scott M. Sperling(6)
c/o Thomas H. Lee Partners, L.P., 100 Federal Street, 35th Floor, Boston, MA 02110           |  | 7,166,451                 | 
|Soren L. Oberg(7)
c/o Thomas H. Lee Partners, L.P., 100 Federal Street, 35th Floor, Boston, MA 02110              |  | 7,146,253                 | 
|John T. Dillon(8)
c/o Evercore Capital Partners, 55 East 52nd Street, 43rd Floor, New York, NY 10055              |  | 2,114,415                 | 
|Neeraj Mital(9)
c/o Evercore Capital Partners, 55 East 52nd Street, 43rd Floor, New York, NY 10055                |  | 2,114,415                 | 
|All Directors and Executive Officers of Vertis and Vertis Holdings as a group (12 persons)(10)                    |  | 1,044,217                 | 

---

60

---





61

---





ITEM 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

On December 7, 1999, we entered into consulting agreements commencing January 1, 2000 with each of Thomas H. Lee Capital, LLC (an affiliate
of Thomas H. Lee Equity Fund IV, LP, a significant stockholder of Vertis Holdings), THL Equity Advisors IV, LLC (an affiliate of Thomas H. Lee Equity Fund IV, LP), and Evercore
Advisors Inc. (an affiliate of Evercore Capital Partners, LP, a significant stockholder of Vertis Holdings). Under each agreement, these parties have agreed to provide us with consulting
services on matters involving corporate finance, strategic corporate planning and other management skills and services. The annual fees payable to these parties under these agreements amount to
approximately $220,000, $780,000 and $250,000, respectively. The payment of these fees was deferred in 2007. Unless otherwise agreed, the consulting agreements with Thomas H. Lee Capital, LLC
and THL Equity Advisors IV, LLC expire when certain persons affiliated with THL cease to own at least one third of the number of Vertis Holdings common shares they collectively held immediately
after December 7, 1999. The consulting agreement with Evercore Advisors Inc. expires when Evercore Capital Partners, LP and certain of its affiliates cease to own at least one
third of the number of Vertis Holdings common shares they collectively held immediately after December 7, 1999. Among our directors of the board, Messrs. DiNovi, Oberg and Sperling are
affiliated with THL and Mr. Dillon is affiliated with ECP. See Item 10, "Directors, Executive Officers and Corporate Governance".

On
December 7, 1999, Vertis Holdings issued to certain of its equity investors $100.0 million aggregate principal amount of 12.0% mezzanine notes as part of a unit
including warrants to purchase common stock of Vertis Holdings at the time of Vertis Holdings' recapitalization. Effective December 2004, interest will continue to be 13% payable in-kind
unless certain conditions set forth in the credit agreement are met. In addition, the Company's indentures include covenants that restrict payments from the Company to Vertis Holdings.

Prior
to Barry Kohn's appointment to Chief Financial Officer in May 2007, Mr. Kohn was engaged by the Company to provide consulting services under a consulting agreement entered
into in 2007. Under
this agreement, the Company paid Mr. Kohn approximately $0.2 million in consulting fees and expenses in 2007.

Our
audit committee charter requires that the audit committee review and approve all related party transactions and discuss such transactions and their appropriate disclosure in our
financial statements with management and the independent auditors.

62

---



ITEM 14    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees for professional audit services rendered by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu,
and their respective affiliates (collectively, the "Deloitte Entities") for the audit of our consolidated annual financial statements for the years ended December 31, 2007 and 2006, and fees
billed for other services rendered by Deloitte Entities.

Year ended December 31,2007

2006(in thousands)Audit fees(1)

$
1,330

$
1,295Audit-related fees(2)


836


175Tax fees(3)


60


143Total fees billed

$
2,226

$
1,613


---

Audit Committee Pre-Approval Policies

The audit committee has established pre-approval policies and procedures pursuant to which the audit committee must approve all audit and
non-audit engagement fees and terms on a case-by-case basis (other than with respect to de minimis exceptions permitted by the Sarbanes-Oxley Act of 2002). The
audit committee is also responsible for considering, to the extent applicable, whether the independent auditors' provision of other non-audit services to the Company is compatible with
maintaining the independence of the independent auditors. In accordance with the pre-approval policies and procedures of the audit committee, the Company's management is authorized to
retain the independent auditors to provide audit related services in addition to the annual audit, including services related to SEC filings, accounting and reporting research and consultations,
internal control reviews, quarterly reviews, benefit plan audits, consultations as to regulatory issues regarding benefit plans, statutory audits of subsidiaries, attest services, acquisition due
diligence services and corporate and subsidiary tax compliance and consulting services. Any additional services must be specifically pre-approved on an individual basis by the audit
committee prior to the engagement of the independent auditor. The authority for such pre-approval may be delegated to one or more designated members of the audit committee with any such
pre-approval reported to the audit committee at its next regularly scheduled meeting.

All
services provided by Deloitte Entities in fiscal 2007 were pre-approved by the audit committee or its designee.

63

---





PART IV

Item 15.    Exhibits and Financial Statement Schedules



|3.1  |  | Restated Certificate of Incorporation of Vertis, Inc.(7)                                                                                                                                                                                                                                                                   
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2  |  | Amended and Restated By-Laws of Vertis, Inc.(1)                                                                                                                                                                                                                                                                            
|4.1  |  | Indenture, dated as of June 24, 2002, among Vertis, Inc, (the "Company"), as Issuer, the Company's subsidiaries listed on the signature pages thereof (the "Subsidiary Guarantors") and the Bank of New York, as trustee(1)                                                                                                
|4.2  |  | Indenture, dated as of June 6, 2003 (the "Indenture"), among the Company as Issuer, the Subsidiary Guarantors and the Bank of New York, as Trustee.(2)                                                                                                                                                                     
|4.3  |  | U.S. Security Agreement, dated December 7, 1999 and amended and restated as of June 6, 2003, among the Company, the Subsidiary Guarantors, Vertis Holdings, Inc. and certain of its subsidiaries listed on the signature page thereto, and
GE Capital, as Collateral Agent(4)                                              
|4.4  |  | Indenture, dated as of February 28, 2003, among the Company as Issuer, the subsidiary guarantors listed on the signature pages thereof and the Bank of New York, as Trustee.(7)                                                                                                                                            
|10.1 |  | $200,000,000 Credit Agreement dated December 22, 2004 by and among Vertis, Vertis Limited, Vertis Digital Services Limited, General Electric Capital Corporation, GECC Capital Markets Group, Inc., Bank of America, N.A. and the other lenders
and credit parties named therein.(5)                                       
|10.2 |  | Limited Consent and Amendment No. 1 to Credit Agreement, dated as of October 3, 2005 by and among Vertis, Vertis Limited and Vertis Digital Services Limited, as Borrowers, the other Credit Parties signatory hereto, General Electric Capital
Corporation, as a Lender and as Agent for Lenders and the other Lenders.(6)
|10.3 |  | Amendment No. 2 to Credit Agreement, dated as of November 22, 2005 by and among Vertis and Vertis Digital Services Limited, as Borrowers, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as
Agent for Lenders, and the other Lenders.(6)                                 
|10.4 |  | Limited Consent and Amendment No. 3 to Credit Agreement, dated as of December 12, 2005 by and among Vertis and Vertis Digital Services Limited, as Borrowers, the other Credit Parties signatory hereto, General Electric Capital Corporation,
as a Lender and as Agent for Lenders, and the other Lenders.(6)             

64

---



|10.5  |  | Amendment No. 4 to Credit Agreement, dated as of May 30, 2006 by and among Vertis as Borrower, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as Agent for Lenders, and the other
Lenders.(7)                                                                                           
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6  |  | Limited Consent and Amendment No. 5 to Credit Agreement, dated as of September 5, 2006 by and among Vertis as Borrower, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as Agent for Lenders,
and the other Lenders.(7)                                                                  
|10.7  |  | Limited Consent and Amendment No. 6 to Credit Agreement, dated as of November 27, 2006 by and among Vertis as Borrower, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as Agent for Lenders,
and the other Lenders.(7)                                                                  
|10.8  |  | Receivables Sale and Servicing Agreement dated November 25, 2005 by and among each of the Entities Party Hereto From Time to Time as Originators, Vertis Receivables II, LLC as Buyer and Vertis, Inc. as Servicer.(6)                                                                                                                    
|10.9  |  | Receivables Funding Administration Agreement dated as of November 25, 2005 by and among Vertis Receivables II, LLC, as Borrower, the Financial Institutions Signatory Hereto From Time to Time, as Lenders, and General Electric Capital
Corporation, as a Lender, as Swing Line Lender and as Administrative Agent.(6)                   
|10.10 |  | Annex X to Receivables Sale and Servicing Agreement and Receivables Funding Administration Agreement dated as of November 25, 2005.(6)                                                                                                                                                                                                    
|10.11 |  | First Amendment to Receivables Funding Administration Agreement dated as of September 5, 2006 by and among Vertis Receivables II, LLC, as Borrower, the Financial Institutions Signatory Hereto From Time to Time, as Lenders, and General
Electric Capital Corporation, as a Lender, as Swing Line Lender and as Administrative Agent.(7)
|10.12 |  | Stock Purchase Agreement dated September 18, 2002 by and among Vertis Holdings and Dean D. Durbin.(3)                                                                                                                                                                                                                                    
|10.13 |  | Stock Purchase Agreement dated September 20, 2002 by and among Vertis Holdings and John V. Howard, Jr.(3)                                                                                                                                                                                                                                
|10.14 |  | Letter Agreement dated March 29, 2006 by and among Vertis, Vertis Holdings and Donald Roland.(7)                                                                                                                                                                                                                                         
|10.15 |  | Employment Agreement dated August 31, 2003 by and among Vertis, Vertis Holdings and Dean D. Durbin.(4)                                                                                                                                                                                                                                   
|10.16 |  | Employment Agreement dated August 31, 2003 by and among Vertis, Vertis Holdings and John Howard.(4)                                                                                                                                                                                                                                      
|10.17 |  | Memo of Understanding dated November 12, 2004 by and between Vertis and Dean D. Durbin amending Mr. Durbin's Employment Agreement dated August 31, 2003.(5)                                                                                                                                                                              
|10.18 |  | Employment Agreement dated January 11, 2005 by and between Vertis and Gary L. Sutula.(5)                                                                                                                                                                                                                                                 
|10.19 |  | Letter Agreement dated March 9, 2006 amending Employment Agreement dated August 31, 2003 by and among Vertis, Vertis Holdings and Dean D. Durbin.(6)                                                                                                                                                                                     

65

---



|10.20 |  | Employment Agreement dated November 28, 2006, by and among Vertis, Vertis Holdings and Michael T. DuBose.(8)                                        
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|10.21 |  | Letter Agreement dated January 2, 2007 by and between Vertis and Dean D. Durbin regarding separation from employment.(7)                            
|10.22 |  | Offer Letter and Business Responsibility Agreement dated January 10, 2007 by and between Vertis and Doug L. Mann.(7)                                
|10.23 |  | Independent Contractor Agreement dated February 12, 2007, by and between Vertis and Barry C. Kohn(10)                                                
|10.24 |  | Letter Agreement dated May 31, 2007 by and between Vertis and Stephen E. Tremblay regarding transition arrangement.(9)                               
|10.25 |  | Letter Agreement dated September 17, 2007 by and among Vertis, Vertis Holdings and John Howard.(10)                                                 
|10.26 |  | Letter Agreement dated November 18, 2007, by and among Vertis, Vertis Holdings and Michael T. DuBose.(10)                                           
|10.27 |  | Employment Agreement dated December 18, 2007, by and among Vertis, Vertis Holdings and Barry C. Kohn.(10)                                           
|10.28 |  | Letter Agreement dated January 31, 2008, by and among Vertis, Vertis Holdings and Michael T. DuBose.(10)                                            
|10.29 |  | Letter Agreement dated February 18, 2008, by and among Vertis, Vertis Holdings and Barry C. Kohn.(10)                                               
|10.30 |  | Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to Dean D. Durbin.(5)                                         
|10.31 |  | Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to John V. Howard, Jr.(5)                                     
|10.32 |  | Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to Donald E. Roland.(5)                                       
|10.33 |  | Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Dean D. Durbin.(5)         
|10.34 |  | Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and John V. Howard, Jr.(5)     
|10.35 |  | Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Donald E. Roland.(5)       
|10.36 |  | Restricted Stock Agreement dated February 23, 2007, by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and John R. Colarossi(10)
|10.37 |  | Restricted Stock Agreement dated February 23, 2007, by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Doug L. Mann(10)     
|10.38 |  | Restricted Stock Agreement dated January 7, 2008, by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Michael T. DuBose(10)  
|10.39 |  | Restricted Stock Agreement dated February 5, 2008, by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Barry C. Kohn (10)    

66

---



|10.40 |  | Relocation Agreement dated December 26, 2007, by and between John V. Howard and American International Relocation Solutions, LLC.(10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.41 |  | Executive Incentive Plan for Vertis Executives dated March 1, 2005.(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.42 |  | Employee Incentive Plan for Vertis Executives dated February 1, 2006.(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.43 |  | Employee Incentive Plan for Vertis Executives dated January 1, 2007.(7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.44 |  | Vertis Holdings, Inc. 1999 Equity Award Plan.(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.45 |  | Unanimous Written Consent of the Board of Directors of Vertis Holdings, Inc. changing the name of the Equity Award Plan to Vertis Holdings, Inc. 1999 Equity Award Plan.(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.46 |  | Management Services Agreement dated December 7, 1999 between Thomas H. Lee Capital, LLC and Big Flower Holdings, Inc., predecessor in interest to Vertis Holdings, Inc.(7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.47 |  | First Amendment to the Management Services Agreement between Thomas H. Lee Capital, LLC and Big Flower Holdings, Inc., predecessor in interest to Vertis Holdings, Inc. dated July 17, 2007(9)                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.48 |  | Management Services Agreement dated December 7, 1999 between THL Equity Advisors IV, LLC and Big Flower Holdings, Inc., predecessor in interest to Vertis Holdings, Inc.(7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.49 |  | First Amendment to the Management Services Agreement between THL Equity Advisors IV, LLC and Big Flower Holdings, Inc., predecessor in interest to Vertis Holdings, Inc. dated April 11, 2007(9)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.50 |  | Management Services Agreement dated December 7, 1999 between Evercore Advisors, Inc. and Big Flower Holdings, Inc., predecessor in interest to Vertis Holdings, Inc.(7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.51 |  | First Amendment to the Management Services Agreement between Evercore Advisors, Inc. and Big Flower Holdings, Inc., predecessor in interest to Vertis Holdings, Inc. dated April 4, 2007(9)                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.52 |  | Limited Consent and Amendment No. 7 to Credit Agreement, dated as of March 30, 2007, by and among Vertis, as Borrower, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as Agent for Lenders,
the other Lenders, and Crystal Capital Fund, L.P, as a Joint-Lead Arranger.(7)                                                                                                                                                                                                                                                                                                                           
|10.53 |  | Second Amendment, dated March 30, 2007, to (i) that certain Receivables Funding and Administration Agreement, dated as of November 25, 2005 (as amended pursuant to that certain First Amendment dated as of September 5, 2006), among
Vertis Receivables II, LLC, as Borrower, the Financial Institutions From Time To Time Party Thereto, as Lenders, and General Electric Capital Corporation, as administrative agent for the Lenders and (ii) that certain Receivables Sale and
Servicing Agreement, dated as of November 25, 2005 among Borrower, Vertis, as Servicer, and each of the Entities Party Hereto From Time to Time as Originators.(7)
|12.1  |  | Statement re computation of ratios of earnings to fixed charges.(10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|21.1  |  | List of subsidiaries of Vertis, Inc.(10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|31.1  |  | Certification of Michael T. DuBose, Chairman and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act 0f 2002.(10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

67

---



|31.2 |  | Certification of Barry C. Kohn, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act 0f 2002.(10)
|---- |  | -----------------------------------------------------------------------------------------------------------------------

---

68

---





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.

| |  | VERTIS, INC.
| |  | ------------
| |  | BY:         

Date:
March 31, 2008

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant and in the capacities and on the dates indicated.

|Signatures                            |  | Capacity                                                             |  | Date          
|------------------------------------- |  | -------------------------------------------------------------------- |  | --------------
|                                      |  |                                                                      |  |               
|/s/MICHAEL T. DUBOSEMichael T. DuBose |  | Chairman and Chief Executive Officer (Principal Executive Officer)   |  | March 31, 2008
|/s/BARRY C. KOHNBarry C. Kohn         |  | Chief Financial Officer
(Principal Financial and Accounting Officer) |  | March 31, 2008
|/s/JOHN T. DILLONJohn T. Dillon       |  | Director                                                             |  | March 31, 2008
|/s/ANTHONY J. DINOVIAnthony J. DiNovi |  | Director                                                             |  | March 31, 2008
|/s/DONALD E. ROLANDDonald E. Roland   |  | Director                                                             |  | March 31, 2008
|/s/SOREN L. OBERGSoren L. Oberg       |  | Director                                                             |  | March 31, 2008
|/s/SCOTT M. SPERLINGScott M. Sperling |  | Director                                                             |  | March 31, 2008

69

---





VERTIS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                      |  | Page
|----------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting Firm                                               |  | F-2 
|Consolidated Balance Sheets at December 31, 2007 and 2006                                             |  | F-3 
|Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005            |  | F-4 
|Consolidated Statements of Stockholder's Deficit for the Years Ended December 31, 2007, 2006 and 2005 |  | F-5 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005            |  | F-6 
|Notes to Consolidated Financial Statements                                                            |  | F-7 

F-1

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholder of
Vertis, Inc. and subsidiaries:
Baltimore, Maryland

We
have audited the accompanying consolidated balance sheets of Vertis, Inc. and subsidiaries (the "Company"), a wholly-owned subsidiary of Vertis Holdings, Inc. as of
December 31, 2007 and 2006, and the related consolidated statements of operations, stockholder's deficit, and cash flows for each of the three years in the period ended December 31,
2007. Our audits also included the financial statement schedule referred to in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Vertis, Inc. and subsidiaries at December 31,
2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally
accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set
forth therein.

The
accompanying financial statements have been prepared assuming that Vertis, Inc. will continue as a going concern. As discussed in Note 2 to the consolidated financial
statements, the Company has incurred recurring net losses and is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations, which raise substantial
doubt about its ability to continue as a going concern. Management's plans concerning these matters are also discussed in Note 2 to the consolidated financial statements. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/
Deloitte & Touche LLP

Baltimore,
Maryland
March 31, 2008

F-2

---





Vertis, Inc. and Subsidiaries        Consolidated Balance Sheets        In thousands, except per share amounts

|As of December 31,                    |                                                                                            | 2007                                        |         | 2006       |          
|------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------- | ------- | ---------- | ---------
|ASSETS                                |                                                                                            |                                             |         |            |          
|Current Assets:                       |                                                                                            |                                             |         |            |          
|                                      | Cash and cash equivalents                                                                  |                                             | $       | 6,217      |          
|                                      | Accounts receivable                                                                        |                                             |         | 84,267     |          
|                                      | Inventories                                                                                |                                             |         | 42,776     |          
|                                      | Maintenance parts, net                                                                     |                                             |         | 20,291     |          
|                                      | Prepaid expenses and other current assets                                                  |                                             |         | 10,366     |          
|                                      |                                                                                            |                                             |         |            |          
|                                      |                                                                                            | Total current assets                        |         |            | 163,917  
|Property, plant and equipment, net    |                                                                                            |                                             | 328,026 |            |          
|Goodwill                              |                                                                                            |                                             |         |            |          
|Deferred financing costs, net         |                                                                                            |                                             | 9,629   |            |          
|Other intangible assets               |                                                                                            |                                             | 2,659   |            |          
|Other assets, net                     |                                                                                            |                                             | 23,935  |            |          
|                                      |                                                                                            |                                             |         |            |          
|                                      |                                                                                            | Total assets                                |         | $          | 528,166  
|                                      |                                                                                            |                                             |         |            |          
|LIABILITIES AND STOCKHOLDER'S DEFICIT |                                                                                            |                                             |         |            |          
|Current Liabilities:                  |                                                                                            |                                             |         |            |          
|                                      | Accounts payable                                                                           |                                             | $       | 136,758    |          
|                                      | Compensation and benefits payable                                                          |                                             |         | 39,733     |          
|                                      | Accrued interest                                                                           |                                             |         | 13,889     |          
|                                      | Current portion of long-term debt                                                          |                                             |         | 165,454    |          
|                                      | Other current liabilities                                                                  |                                             |         | 25,784     |          
|                                      |                                                                                            |                                             |         |            |          
|                                      |                                                                                            | Total current liabilities                   |         |            | 381,618  
|Due to parent                         |                                                                                            |                                             | 3,277   |            |          
|Long-term debt                        |                                                                                            |                                             | 987,118 |            |          
|Other long-term liabilities           |                                                                                            |                                             | 31,236  |            |          
|                                      |                                                                                            |                                             |         |            |          
|                                      |                                                                                            | Total liabilities                           |         |            | 1,403,249
|                                      |                                                                                            |                                             |         |            |          
|Stockholder's deficit:                |                                                                                            |                                             |         |            |          
|                                      | Common stockauthorized 3,000 shares; $0.01 par value; issued and outstanding 1,000 shares |                                             |         |            |          
|                                      | Contributed capital                                                                        |                                             |         | 409,689    |          
|                                      | Accumulated deficit                                                                        |                                             |         | (1,279,960 | )        
|                                      | Accumulated other comprehensive loss                                                       |                                             |         | (4,812     | )        
|                                      |                                                                                            |                                             |         |            |          
|                                      |                                                                                            | Total stockholder's deficit                 |         |            | (875,083 
|                                      |                                                                                            |                                             |         |            |          
|                                      |                                                                                            | Total liabilities and stockholder's deficit |         | $          | 528,166  
|                                      |                                                                                            |                                             |         |            |          

See
Notes to Consolidated Financial Statements.

F-3

---





Vertis, Inc. and Subsidiaries        Consolidated Statements of Operations        In thousands

|Year Ended December 31,                                                                        |                                              | 2007                     |           | 2006      |           | 2005      |          
|---------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------ | --------- | --------- | --------- | --------- | ---------
|Revenue                                                                                        |                                              | $                        | 1,365,154 |           | $         | 1,468,661 |          
|                                                                                               |                                              |                          |           |           |           |           |          
|Operating expenses:                                                                            |                                              |                          |           |           |           |           |          
|                                                                                               | Costs of production                          |                          |           | 1,081,612 |           |           | 1,160,392
|                                                                                               | Selling, general and administrative          |                          |           | 152,524   |           |           | 142,916  
|                                                                                               | Goodwill impairment                          |                          |           | 246,527   |           |           |          
|                                                                                               | Restructuring charges                        |                          |           | 10,912    |           |           | 16,001   
|                                                                                               | Depreciation and amortization of intangibles |                          |           | 57,356    |           |           | 58,788   
|                                                                                               |                                              |                          |           |           |           |           |          
|                                                                                               |                                              | Total operating expenses |           |           | 1,548,931 |           |          
|                                                                                               |                                              |                          |           |           |           |           |          
|Operating (loss) income                                                                        |                                              |                          | (183,777  | )         |           | 90,564    |          
|                                                                                               |                                              |                          |           |           |           |           |          
|Other expenses:                                                                                |                                              |                          |           |           |           |           |          
|                                                                                               | Interest expense, net                        |                          |           | 134,644   |           |           | 131,023  
|                                                                                               | Other, net                                   |                          |           | 7,685     |           |           | 7,337    
|                                                                                               |                                              |                          |           |           |           |           |          
|Total other expenses                                                                           |                                              |                          | 142,329   |           |           | 138,360   |          
|                                                                                               |                                              |                          |           |           |           |           |          
|Loss from continuing operations before income taxes and cumulative effect of accounting change |                                              |                          | (326,106  | )         |           | (47,796   | )        
|Income tax expense (benefit)                                                                   |                                              |                          | 388       |           |           | (1        | )        
|                                                                                               |                                              |                          |           |           |           |           |          
|Loss from continuing operations before cumulative effect of accounting change                  |                                              |                          | (326,494  | )         |           | (47,795   | )        
|Discontinued operations:                                                                       |                                              |                          |           |           |           |           |          
|                                                                                               | (Loss) income from discontinued operations   |                          |           | (251      | )         |           | 21,600   
|                                                                                               |                                              |                          |           |           |           |           |          
|Loss before cumulative effect of accounting change                                             |                                              |                          | (326,745  | )         |           | (26,195   | )        
|Cumulative effect of accounting change                                                         |                                              |                          |          |           |           |          |          
|                                                                                               |                                              |                          |           |           |           |           |          
|Net loss                                                                                       |                                              | $                        | (326,745  | )         | $         | (26,195   | )        
|                                                                                               |                                              |                          |           |           |           |           |          

See
Notes to Consolidated Financial Statements.

F-4

---





Vertis, Inc. and Subsidiaries        Consolidated Statements of Stockholder's Deficit        In thousands, except where otherwise noted

|                                               |                    | Shares |  | Common Stock |   | Contributed Capital |   | Accumulated Deficit |   | Accumulated Other Comprehensive Income (Loss) |            | Total |  
|---------------------------------------------- | ------------------ | ------ |  | ------------ | - | ------------------- | - | ------------------- | - | --------------------------------------------- | ---------- | ----- | -
|Balance at January 1, 2005                     |                    | 1      |  | $            |  |                     | $ | 409,059             |   | $                                             | (753,661   | )     | $
|Net loss(1)                                    |                    |        |  |              |   |                     |   |                     |   |                                               | (173,230   | )     |  
|Currency translation adjustment(1)             |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|Minimum pension liability adjustment           |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|                                               |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|                                               | Comprehensive loss |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|                                               |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|Dividends to parent                            |                    |        |  |              |   |                     |   |                     |   |                                               | (4         | )     |  
|Capital contributions by parent                |                    |        |  |              |   |                     |   | 660                 |   |                                               |            |       |  
|Other                                          |                    |        |  |              |   |                     |   | (30                 | ) |                                               |            |       |  
|                                               |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|Balance at December 31, 2005                   |                    | 1      |  |              |  |                     |   | 409,689             |   |                                               | (926,895   | )     |  
|Net loss                                       |                    |        |  |              |   |                     |   |                     |   |                                               | (26,195    | )     |  
|Currency translation adjustment                |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|Minimum pension liability adjustment           |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|                                               |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|                                               | Comprehensive loss |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|                                               |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|Adjustment related to the adoption of SFAS 158 |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|                                               |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|Balance at December 31, 2006                   |                    | 1      |  |              |   |                     |   | 409,689             |   |                                               | (953,090   | )     |  
|Net loss                                       |                    |        |  |              |   |                     |   |                     |   |                                               | (326,745   | )     |  
|Currency translation adjustment                |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|Defined benefit plan liability adjustment      |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|                                               |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|                                               | Comprehensive loss |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|Adjustment related to the adoption of FIN 48   |                    |        |  |              |   |                     |   |                     |   |                                               | (125       | )     |  
|                                               |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  
|Balance at December 31, 2007                   |                    | 1      |  | $            |  |                     | $ | 409,689             |   | $                                             | (1,279,960 | )     | $
|                                               |                    |        |  |              |   |                     |   |                     |   |                                               |            |       |  

---

See Notes to Consolidated Financial Statements.

F-5

---





Vertis, Inc. and Subsidiaries        Consolidated Statements of Cash Flows        In thousands

|Year Ended December 31,                              |                                                                                                                       | 2007                                                                                             |         | 2006     |         | 2005    |        
|---------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------- | -------- | ------- | ------- | -------
|Cash Flows from Operating Activities:                |                                                                                                                       |                                                                                                  |         |          |         |         |        
|                                                     | Net loss                                                                                                              |                                                                                                  | $       | (326,745 | )       | $       | (26,195
|                                                     | Adjustments for discontinued operations                                                                               |                                                                                                  |         | 251      |         |         | (21,600
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|                                                     | Net loss from continuing operations                                                                                   |                                                                                                  |         | (326,494 | )       |         | (47,795
|                                                     | Adjustments to reconcile net loss from continuing operations to net cash provided by continuing operating activities: |                                                                                                  |         |          |         |         |        
|                                                     |                                                                                                                       | Depreciation and amortization                                                                    |         |          | 57,356  |         |        
|                                                     |                                                                                                                       | Amortization of deferred financing costs                                                         |         |          | 7,193   |         |        
|                                                     |                                                                                                                       | Accretion of long-term debt discounts                                                            |         |          | 3,962   |         |        
|                                                     |                                                                                                                       | Goodwill impairment                                                                              |         |          | 246,527 |         |        
|                                                     |                                                                                                                       | Gain on sale leaseback                                                                           |         |          | (2,940  | )       |        
|                                                     |                                                                                                                       | Cumulative effect of accounting change                                                           |         |          |         |         |        
|                                                     |                                                                                                                       | Provision for doubtful accounts                                                                  |         |          | 463     |         |        
|                                                     |                                                                                                                       | Other, net                                                                                       |         |          | 1,707   |         |        
|                                                     |                                                                                                                       | Changes in operating assets and liabilities (excluding effect of acquisitions and dispositions): |         |          |         |         |        
|                                                     |                                                                                                                       | Decrease (increase) in accounts receivable                                                       |         |          | 54,632  |         |        
|                                                     |                                                                                                                       | Decrease (increase) in inventories                                                               |         |          | 5,451   |         |        
|                                                     |                                                                                                                       | Decrease (increase) in prepaid expenses and other assets                                         |         |          | 441     |         |        
|                                                     |                                                                                                                       | Decrease in accounts payable and other liabilities                                               |         |          | (30,551 | )       |        
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|Net cash provided by continuing operating activities |                                                                                                                       |                                                                                                  | 17,747  |          |         | 13,236  |        
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|                                                     | Net (loss) income from discontinued operations                                                                        |                                                                                                  |         | (251     | )       |         | 21,600 
|                                                     | Change in net assets of discontinued operations held for sale                                                         |                                                                                                  |         |          |         |         | (23,146
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|Net cash used in discontinued operations             |                                                                                                                       |                                                                                                  | (251    | )        |         | (1,546  | )      
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|Net cash provided by operating activities            |                                                                                                                       |                                                                                                  | 17,496  |          |         | 11,690  |        
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|Cash Flows from Investing Activities:                |                                                                                                                       |                                                                                                  |         |          |         |         |        
|                                                     | Capital expenditures                                                                                                  |                                                                                                  |         | (63,914  | )       |         | (46,936
|                                                     | Software development costs capitalized                                                                                |                                                                                                  |         | (1,303   | )       |         | (2,049 
|                                                     | Proceeds from sale of property, plant and equipment                                                                   |                                                                                                  |         | 576      |         |         | 785    
|                                                     | Proceeds from sale leaseback transaction                                                                              |                                                                                                  |         | 10,691   |         |         |        
|                                                     | Acquisition of business, net of cash acquired                                                                         |                                                                                                  |         | (203     | )       |         | (21,017
|                                                     | Proceeds from sale of discontinued operations, net                                                                    |                                                                                                  |         | 1,000    |         |         | 41,071 
|                                                     | Investing activities of discontinued operations                                                                       |                                                                                                  |         |          |         |         |        
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|Net cash used in investing activities                |                                                                                                                       |                                                                                                  | (53,153 | )        |         | (28,146 | )      
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|Cash Flows from Financing Activities:                |                                                                                                                       |                                                                                                  |         |          |         |         |        
|                                                     | Net borrowings under revolving credit facilities                                                                      |                                                                                                  |         | 2,574    |         |         | 41,470 
|                                                     | Borrowing under term loan                                                                                             |                                                                                                  |         | 50,000   |         |         |        
|                                                     | Repayments of long-term debt                                                                                          |                                                                                                  |         |          |         |         | (34    
|                                                     | Deferred financing costs                                                                                              |                                                                                                  |         | (1,982   | )       |         | (388   
|                                                     | (Decrease) increase in outstanding checks drawn on controlled disbursement accounts                                   |                                                                                                  |         | (14,328  | )       |         | (21,807
|                                                     | Dividends to parent                                                                                                   |                                                                                                  |         |          |         |         |        
|                                                     | (Advances to) distributions from parent                                                                               |                                                                                                  |         | (214     | )       |         | (480   
|                                                     | Financing activities of discontinued operations                                                                       |                                                                                                  |         |          |         |         | 1,546  
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|Net cash provided by financing activities            |                                                                                                                       |                                                                                                  | 36,050  |          |         | 20,307  |        
|Effect of exchange rate changes on cash              |                                                                                                                       |                                                                                                  | 114     |          |         | 31      |        
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|Net increase (decrease) in cash and cash equivalents |                                                                                                                       |                                                                                                  | 507     |          |         | 3,882   |        
|Cash and cash equivalents at beginning of year       |                                                                                                                       |                                                                                                  | 5,710   |          |         | 1,828   |        
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        
|Cash and cash equivalents at end of year             |                                                                                                                       | $                                                                                                | 6,217   |          | $       | 5,710   |        
|                                                     |                                                                                                                       |                                                                                                  |         |          |         |         |        

See Notes to Consolidated Financial Statements.

F-6

---





Vertis, Inc. and Subsidiaries    Notes to Consolidated Financial Statements

1.     BASIS OF PRESENTATION

Principles of ConsolidationThe consolidated financial statements include those of Vertis, Inc.
and its subsidiaries (together, the "Company"). All significant intercompany balances and transactions have been eliminated.

OwnershipThe Company is a wholly-owned subsidiary of Vertis Holdings, Inc. ("Vertis
Holdings").

BusinessThe Company is one of the leading printers of advertising inserts, newspaper products and
direct mail services in the United States. The Company operates in two segments: Advertising Inserts and Direct Mail. Additionally, the Company provides other services which will be referred to as
"Corporate and Other" for discussion in these financial statements (see Note 21).

Use of EstimatesThe Company's management must make estimates and assumptions in preparing financial
statements in conformity with accounting principles generally accepted in the United States of America ("generally accepted accounting principles"). These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Actual results could
differ from those estimates.

2.     GOING CONCERN

The Company's ability to continue as a going concern is uncertain. The primary factors contributing to this uncertainty are twofold: the Company is highly
leveraged with a history of recording net losses, mainly due to large interest payments on the Company's long-term debt, and the Company's primary sources of financing, the Credit Facility
(as defined in Note 11) and the A/R Facility (as defined in Note 7), both mature in December 2008. The Company will not have sufficient liquidity to make the principal payment on the
Credit Facility upon the maturity date unless the Company is able to refinance or replace its existing indebtedness. The Company's ability to continue as a going concern is dependent upon the
Company's ability to refinance the Credit Facility and the A/R Facility or obtain alternate financing. The refinancing of these facilities will likely require an agreement with the holders of the
Company's notes, as described below. The Company's consolidated financial statements do not include any adjustments that might result from this uncertainty.

To
preserve the Company as a going concern and strengthen the Company's business, management is exploring various alternatives, including refinancing the Credit Facility, obtaining new
financing, and/or effectuating a strategic acquisition or merger. Further, the Company's management has engaged in discussions with holders of the Company's 93/4% senior secured second
lien notes, 107/8% senior notes and 131/2% senior subordinated notes on the terms of a debt exchange, which would restructure a portion of the Company's debt and provide
the Company with increased liquidity. As an option, the debt exchange may be accomplished on a negotiated basis with our lenders through a pre-packaged or pre-arranged
bankruptcy restructuring plan. There is no assurance that a debt exchange will be agreed to, and the Company is considering all available options. The Company currently has no plans for asset sales
other than excess real estate or in the normal course of business, nor does it foresee any potential discontinued operations.

While
management is committed to pursuing one or more options, due to the factors discussed above, there are doubts about the Company's ability to continue as a going concern, and thus,
the Company's ability to realize its assets or satisfy its liabilities in the normal course of business. As part of the Company's strategy to preserve and enhance near-term liquidity, it
may elect to forego making

F-7

---



the
$17.1 million interest payment on the 93/4% senior secured second lien notes due on April 1, 2008. Under the terms of the indenture governing these notes, the Company
has a thirty-day grace period in which to make this interest payment before it would be an event of default. If the Company elects not to make the interest payments, they will be seeking a
waiver from the holders of the notes; to the extent waivers are not received and the interest payments are not made within a thirty-day grace period, it will be an event of default under
the indenture. A failure to make the interest payment could result in an election by our lenders to accelerate the Company's indebtedness as well as terminate availability under our Credit Facility.
The Company's consolidated financial statements were prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

3.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue RecognitionThe Company provides a wide variety of print and print related services and
products for specific customers, primarily under contract. Revenue is not recognized until the earnings process has been completed. Print revenue is recognized when the product is shipped. Revenue
from premedia operations is recognized upon the completion of orders. Unbilled receivables are recorded for completed services or products which remain unbilled as of the period end.

The
Company charges customers for shipping and handling charges. The amounts billed to customers are recorded as revenue and actual charges paid by the Company are included in costs of
production in the consolidated statements of operations.

The
Company bills its customers for sales tax calculated on each sales invoice and records a liability for the sales tax payable, which is included in other current liabilities on the
Company's consolidated balance sheet. Sales tax billed to a customer is not included in the Company's revenue.

Cash and Cash EquivalentsCash equivalents include all investments with initial maturities of
90 days or less. As the Company's cash management program utilizes zero-balance accounts, book overdrafts in these accounts are reclassified as current liabilities, and the
fluctuation within these accounts is shown as the change in outstanding checks drawn on controlled disbursement accounts in the financing section of the Company's consolidated statements of cash
flows.

Provision for Doubtful AccountsThe Company maintains allowances for doubtful accounts for estimated
losses resulting from the failure of its customers to make payments. The Company estimates the allowance based on historical trends and specific customer risks on a customer-by-customer basis. Amounts
are charged against the allowance for doubtful accounts reserve when deemed uncollectible.

InventoriesInventories are recorded at the lower of cost or market determined primarily on the
first-in, first-out method.

Maintenance PartsThe Company maintains a supply of maintenance parts, primarily cylinders, drive
motors, rollers and gear boxes, which are classified as current assets on the Company's consolidated balance sheets with the long-term portion included in Other assets, net.

Long-lived AssetsProperty, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the assets' estimated useful lives, or when applicable, the terms of the leases, if shorter. Capitalized interest is computed on projects over
$0.5 million, if they extend over a period of time, and is calculated using an estimated rate that approximates the interest rate on the Company's revolving credit facility (see
Note 11). Capitalized interest is included in the machinery and equipment component of property, plant and equipment (see Note 9) as the larger dollar-value projects primarily represent
the rebuilding of press equipment for the Company's internal use.

The
Company evaluates the recoverability of its long-lived assets, including property, plant and equipment and intangible assets, when there are changes in economic
circumstances or business objectives that indicate the carrying value may not be recoverable. The Company's evaluations include

F-8

---



estimated
future cash flows, profitability and estimated future operating results and other factors determining fair value. As these assumptions and estimates may change over time, it may or may not
be necessary to record impairment charges. The Company performed an impairment evaluation on its long-lived assets, excluding goodwill, at December 31, 2007, and determined there
was no impairment on its other long-lived assets as the undiscounted cash flows exceeded the carrying value of these assets. The Company also tested its goodwill for impairment at this
time, the results of which are discussed below and in Note 5.

Certain
direct development costs associated with internal-use software are capitalized, including payroll costs for employees devoting time to the software projects and
external costs of material and services by third-party providers. These costs are included in internally developed computer software on the consolidated balance sheet and are being amortized beginning
when the asset is substantially ready for use. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.

Intangible
assets other than goodwill, which include trademarks, a customer base and a non-compete agreement, are amortized over the terms of the related agreements or life
of the intangible asset. Deferred financing costs are amortized over the terms of the related financing instruments.

GoodwillGoodwill is accounted for under the Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under the provisions of this statement, the Company's goodwill is tested for impairment on an annual basis or if events
occur or circumstances change that would likely cause the fair value of the goodwill to be below the carrying value. The Company elected January 1 of each year as the annual test date. Each of
the Company's reporting units is tested for impairment by comparing the fair value of the reporting unit with the carrying value of that unit. Fair value is determined based on a valuation study
performed by the Company using the discounted cash flow method and the guideline company approach to estimate
the fair value of the reporting units. See Note 5 for discussion of the Company's non-cash goodwill impairment charge recorded in the fourth quarter of 2007. See Note 4 for discussion of
the Europe impairment loss recorded in 2005. There was no goodwill impairment noted in 2006.

Income TaxesIncome taxes are accounted for under the asset and liability method as outlined in SFAS
No. 109 "Accounting for Income Taxes" ("SFAS 109"). Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and operating loss and tax credit carryforwards. The Company records net deferred tax assets to the extent they believe these
assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax
liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company were to determine that it would be able to realize its deferred income
tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

In
July 2006, the FASB issued Financial Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), which clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in accordance with SFAS 109. FIN 48 provides that a tax benefit from an uncertain tax position may be recognized when
it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax
positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent
periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Company adopted the provisions of

F-9

---



FIN 48
on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized approximately a $0.1 million increase in the liability for unrecognized tax
benefits, which was accounted for as an increase to the January 1, 2007, balance of stockholder's deficit.

The
Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of operations. Accrued
interest and penalties are included within the related tax liability line in the consolidated balance sheet.

The
provision for federal income taxes recorded by the Company represents the amount calculated as outlined by SFAS 109 and allocated in accordance with a tax-sharing
arrangement with Vertis Holdings. State and foreign income taxes represent actual amounts paid or payable by the Company.

Fair Value of Financial InstrumentsThe Company determines the fair value of its financial instruments
as follows:



Asset Retirement ObligationsThe Company accounts for asset retirement obligations under
SFAS 143, "Accounting for Asset Retirement Obligations", as interpreted by FIN 47, "Accounting for Conditional Asset Retirement Obligations", whereby the Company recognizes a liability
for the fair value of conditional asset retirement obligations if the fair value of the liability can be reasonably estimated. The Company recorded a $1.6 million cumulative effect of
accounting change for the twelve months ended December 31, 2005 as a result of adopting FIN 47 on December 31, 2005. There were no material changes to the liability recognized for
asset retirement obligations in 2006 or 2007, except for normal accretion expense.

Stock Based CompensationEmployees of the Company participate in Vertis Holdings' 1999 Equity Award
Plan (the "Stock Plan"), which authorizes grants of stock options, restricted stock, performance shares and other stock based awards. The Company has options, restricted shares, retained shares and
rights outstanding under the Stock Plan at December 31, 2007. The Company accounts for these stock based awards under SFAS No. 123 (revised), "Share-Based Payments" ("SFAS 123R"),
which requires all share-based payments to employees, including grants of employee stock options and restricted stock, to be recognized in the Company's financial statements based on their grant date
fair values. The Company adopted SFAS 123R on January 1, 2006, applying the modified prospective transition method outlined in the Statement. The adoption of this Statement did not have
a material impact on the Company's consolidated financial position or results of operations. See Note 16, "Vertis Holdings Share Based Compensation", for further discussion.

Concentration of Credit RiskThe Company provides services to a wide range of clients who operate in
many industry sectors in varied geographic areas. The Company grants credit to all qualified clients and does not believe that it is exposed to undue concentration of credit risk to any significant
degree.

F-10

---



New Accounting PronouncementsIn February 2006, the Financial Accounting Standards Board ("FASB")
issued the Statement of Financial Accounting Standards ("SFAS") No. 155, "Accounting for Certain Hybrid Financial Instrumentsan amendment of Statements No. 133 and 140"
("SFAS 155"), which amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities". SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation,
clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 was effective for the Company for all
financial instruments acquired or issued after January 1, 2007. The adoption of this statement did not have a material impact on the Company's results of operations or financial position.

In
March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assetsan amendment of Statement No. 140" ("SFAS 156").
SFAS 156 requires all separately recognized servicing assets and liabilities to be initially measured at fair value. For subsequent measurements, SFAS 156 permits companies to choose, on
a class-by-class basis, either an amortization method or a fair value measurement method. The provisions of this Statement were effective for the Company beginning
January 1, 2007. The adoption of this Statement did not have a material impact on the Company's results of operations or financial position.

In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS 157 clarifies the principle that fair value should be based on the assumption market participants would use when pricing an asset or liability
and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. This Statement is effective for fiscal years beginning after November 15, 2007. The
Company does not expect the adoption of this Statement to have a material impact on the Company's results of operations or financial position.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits entities to
choose to measure eligible items at fair value at specified election dates. If an entity chooses this practice, it shall report unrealized gains and losses on the items for which the fair value option
has been elected at each subsequent reporting date. The fair value option may be elected for a single eligible item without electing it for other identical items, with certain exceptions specified in
the Statement. Additional disclosures are required for an entity that chooses to elect the fair value option. The provisions of this Statement are effective for the Company on January 1, 2008.
Early adoption is permitted under certain circumstances as specified in this Statement. The Company does not expect the adoption of this Statement to have a material impact on the Company's results of
operations or financial position.

In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS 141R"). SFAS 141R retains the fundamental requirements of SFAS No. 141 that
the acquisition method of accounting, previously referred to as the purchase method, be used for all business combinations and for an acquirer to be identified for each business combination.
SFAS 141R defines the acquirer, and requires that they recognize the assets acquired, liabilities assumed and any non-controlling interest in the acquiree at fair value as of the
acquisition date. SFAS 141R requires an acquirer to recognize acquisition-related costs and anticipated restructuring costs separately from the business combination. Additionally,
SFAS 141R requires an acquirer to recognize assets acquired and liabilities assumed arising from contractual contingencies as of the acquisition date, measured at their acquisition date fair
value. The provisions of this Statement are effective for the Company on January 1, 2009. Early

F-11

---



adoption
is not permitted. The Company is not able to assess at this time the future impact of this Statement on its consolidated financial position or results of operations, however if the Company
does not enter into an acquisition in the future, then there is no impact on the Company related to the provisions of this Statement.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51" ("SFAS 160").
SFAS 160 amends Accounting Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling interest, or minority interest, in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a component of
equity in the consolidated financial statements. SFAS 160 requires consolidated net income be reported to include the amounts attributable to both the parent and the noncontrolling interest.
Disclosure of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest is required on the face of the consolidated statement of income. Additionally,
SFAS 160 establishes a single method of accounting for changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation and requires that a parent recognize a gain
or loss in net income when a subsidiary is deconsolidated. The provisions of this statement are effective for fiscal years beginning after December 15, 2008. Early adoption is not permitted.
The Company does not expect the adoption of this Statement to have a material impact on the Company's results of operations or financial position.

4.     DISCONTINUED OPERATIONS

On September 8, 2006, the Company entered into an agreement to sell its fragrance business, which included two presses and the Company's fragrance lab and
microencapsulation facility, all of which were located in one of the Company's Direct Mail facilities, as well as fragrance receivables, inventory and payables, the fragrance business customer list,
certain employees and all intellectual property related to the business. The sale agreement was entered into as the result of a strategic decision by the Company to move away from this line of
business and focus its resources on the growth of its other Direct Mail activities.

Included
in the agreement to sell the fragrance business was a transition services agreement (the "Transition Agreement") under which the Company provided services on a subcontracting
basis to the purchaser of the fragrance business (the "Purchaser"), utilizing certain assets of the business that was sold. These assets remained at the Company's Direct Mail facility during the time
of the Transition Agreement. As of December 31, 2006, the Company has completed its performance of the subcontracting services under the Transition Agreement and the remaining assets of the
fragrance business were transferred to the Purchaser's facilities.

The
Company received proceeds of $42.1 million from the sale, resulting in a $21.2 million gain on the sale, which is included in income (loss) from discontinued operations
on the consolidated statements of operations. The results of the fragrance business, which had been reported under the Direct Mail segment, have been accounted for as discontinued operations. These
results are included in (loss) income from discontinued operations on the consolidated statements of operations. No taxes were recorded for the fragrance business due to pretax losses and tax benefits
being offset by deferred tax valuation allowances, see Note 13. Interest was not allocated to discontinued operations as the

F-12

---



divestiture
of the fragrance business was on a debt-free basis. Select results of this business, are presented in the following table.

2007

2006

2005(in thousands)Revenue




$
26,683

$
40,200Income from operations





1,146


5,401(Loss) gain on sale of discontinued operations

$
(251)
(1)

21,443
(2)Income from discontinued operations

$
(251
)
$
22,589

$
5,401


---

During
the third quarter of 2005, the Company decided to sell the two divisions in its European segment primarily because each had incurred operating losses and neither was deemed a fit
within the Company's overall strategy. As a result, the Company accounted for the operations of its European segment as a discontinued operation. The direct mail division of this segment was sold on
October 3, 2005 and the premedia division of this segment was sold on December 14, 2005.

The
results of the Company's European segment, which are included in the (loss) income from discontinued operations on the consolidated statements of operations, are presented in the
following table. No taxes were recorded in this segment due to pretax losses and tax benefits being offset by deferred tax valuation allowances, see Note 13. Interest was not allocated to
discontinued operations as the divestiture of the European business was on a debt-free basis. The 2006 discontinued operations amounts presented in the table below represent adjustments
related to the divestiture of the Company's European segment. See the footnotes to the following table for further discussion.

2006

2005(in thousands)Revenue




$
99,982Loss from operations

$
(422)
(1)

(147,238)
(3)Loss on sale of discontinued operations


(567)
(2)

(1,552)
(4)Loss from discontinued operations

$
(989
)
$
(148,790
)


---

As
a result of the Company's impairment testing, the Company recorded an impairment loss of $111.2 million at its Europe segment to reduce the carrying value of goodwill to its
implied fair value. See Note 3 for discussion of the Company's goodwill accounting policy. In addition, as a result of the conclusion of a direct mail contract within our Europe segment,
long-lived assets with a carrying value of $1.2 million were deemed impaired and written off in the second quarter of 2005. The Company also recorded a $23.8 million loss to
write-down the carrying value of the remaining long-lived assets of its discontinued operations to their estimated fair values, less cost to sell. These impairment losses are
shown as discontinued operations for the year ended December 31, 2005.

F-13

---



5.     RESTRUCTURING AND IMPAIRMENT CHARGES

In the fourth quarter of 2007, the Company recorded a non-cash charge of $246.5 million to reflect the impairment of goodwill in each of the Company's
reporting units. The goodwill impairment was recorded in the following segments: Advertising Inserts, $187.9 million; Direct Mail, $54.6 million; and Corporate and Other,
$4.0 million. Impairment in all reporting units was due to a combination of factors including increased uncertainty regarding the Company's liquidity, the decline in the fair value of the
Company's debt in the fourth quarter of 2007 and operating performance. The Company estimated the fair value of its reporting units using the discounted cash flow and guideline company approaches.
Because the fair value of each of the reporting units, which includes an allocation of the Company's debt, was below its carrying amount including goodwill, the Company performed an additional fair
value measurement calculation to determine the amount of the goodwill impairment loss noted above. The Company performed an additional impairment evaluation on the other long-lived assets
and determined there was no impairment.

The
Company began a restructuring program in the first quarter of 2007 (the "2007 Program") aimed at streamlining operations to capitalize on operating efficiencies and to reduce
overhead, thus reducing the Company's overall cost base, as well as addressing the continuing issue of industry-wide overcapacity. The restructuring actions approved under the 2007 Program
include reductions in work force of approximately 275 employees, the closure of an Inserts production facility, the closure of a Direct Mail programming support facility and the vacating of a floor in
the Company's corporate office. Costs associated with approved restructuring actions under the 2007 Program were $10.0 million, net of estimated sublease income of $4.1 million, all of
which were recorded in 2007. Restructuring actions under the 2007 Program were complete as of December 31, 2007.

The
Company is continuously evaluating the need to implement restructuring programs to rationalize its costs and improve operating efficiency. It is likely that the Company will incur
additional restructuring costs in 2008 in an on-going effort to achieve these objectives.

In
the year ended December 31, 2007, under the 2007 Program, the Advertising Inserts segment recorded $1.7 million in severance and related costs associated with the
elimination of approximately 150 positions as well as $2.7 million in facility closure costs and $2.8 million in asset write-downs primarily related to the closure of an inserts
production facility. The decision to close this inserts facility was made based on an analysis done by the Company to identify areas where consolidation of operations could occur with minimal
disruption to Vertis customers. As there are two Advertising
Inserts production facilities within close proximity to the facility that was closed, this decision allows for higher utilization of other Vertis presses in the region and lowers overall costs, which
should allow the Company to more effectively with competitors in this industry. Advertising Inserts also recorded $0.2 million in additional facility closure costs and $0.3 million in
asset write-downs related to the closure of a production facility that took place in 2006. The Direct Mail segment recorded $0.8 million of severance and related costs associated with the
elimination of approximately 98 positions and $0.7 million in facility costs, $0.4 million of which represents additional restructuring costs for the closure of a fulfillment facility in
2006 and the remainder of which represents costs associated with the closure of a direct mail programming support facility and an adjustment to the restructuring accrual to reflect the present value
of the leases for closed Direct Mail facilities. Corporate and Other recorded $1.2 million in severance and related costs in 2007 associated with the elimination of 15 positions as well as
$0.4 million in facility closure costs and $0.1 million in assets written off.

Included
in the 2007 segment restructuring expense are approximately $0.2 million of severance costs related to the elimination of 12 shared services positions and
$0.8 million of facilities costs associated with the vacating of a floor in the Company's corporate office, which have been allocated to the segments.

F-14

---



The
Company's 2006 restructuring program (the "2006 Program") included reductions in work force of 537 employees and the closure of one advertising inserts production facility, one
inserts sales office, one direct mail fulfillment facility and two premedia production facilities. All approved restructuring actions under the 2006 Program were complete as of December 31,
2006. Costs associated with approved restructuring actions under the 2006 Program were $16.0 million, all of which were recorded in 2006.

In
the year ended December 31, 2006, under the 2006 Program, the Advertising Inserts segment recorded $3.7 million in severance and related costs associated with the
elimination of 243 positions and $0.6 million in facility closing costs as well as a $1.4 million write-down of assets associated with the closure of a production facility.
The Direct Mail segment recorded $1.8 million in severance and related costs in 2006 associated with the elimination of 126 positions and the closure of a fulfillment facility. Corporate and
Other recorded $5.6 million in severance and related costs in 2006 associated with the elimination of 137 positions and $2.9 million in facility closure costs, $1.4 million of
which reflects an adjustment to restructuring expense primarily related to a recalculation of facility closure costs expected to be paid based on a revised assumption of estimated sublease income, and
the remainder associated with the closure of two premedia production facilities in 2006.

Included
in the 2006 segment restructuring expense amounts above are $0.9 million of severance costs related to the elimination of 31 shared services positions and facilities
costs which represent accretion expense, which have been allocated to the segments.

In
2005, the Advertising Inserts segment recorded $7.0 million in severance and related costs associated with the elimination of approximately 186 positions and
$0.8 million in facility closure costs associated with the closure of two regional offices and one warehouse. The Direct Mail segment recorded $2.0 million in severance and related costs
in 2005 associated with the elimination of approximately 33 positions. Corporate and Other recorded $5.1 million in severance and related costs in 2005 associated with the elimination of
approximately 91 positions and $1.7 million in facility closure costs associated with the closure of six premedia facilities offset by $0.1 million in gains from the sale of assets
related to the closure of one of the premedia facilities. Additionally, $0.7 million in costs were recorded in the first quarter of 2005 related to the amendment of an executive level
employment agreement announced in 2004, as discussed below.

Included
in the 2005 segment severance amounts above are approximately $2.5 million of severance costs related to the elimination of approximately 50 shared services positions,
which have been allocated to the segments.

The
significant components of the restructuring and asset impairment charges were as follows:

|                                         |  | Severance
and Related
Costs |         | Asset Write
Off & Disposal
Costs |   | Facility
Closing
Costs |   | Other
Costs |        | Total |  
|---------------------------------------- |  | --------------------------- | ------- | -------------------------------- | - | ---------------------- | - | ----------- | ------ | ----- | -
|
|Balance at January 1, 2005               |  | $                           | 744     |                                  | $ |                       |   | $           | 6,872  |       | $
|Restructuring charges in 2005            |  |                             | 14,748  |                                  |   | (109                   | ) |             | 2,480  |       |  
|Restructuring payments and usage in 2005 |  |                             | (12,572 | )                                |   | 109                    |   |             | (3,557 | )     |  
|                                         |  |                             |         |                                  |   |                        |   |             |        |       |  
|Balance at December 31, 2005             |  |                             | 2,920   |                                  |   |                       |   |             | 5,795  |       |  
|Restructuring charges in 2006            |  |                             | 11,128  |                                  |   | 1,354                  |   |             | 3,519  |       |  
|Restructuring payments and usage in 2006 |  |                             | (10,855 | )                                |   | (1,354                 | ) |             | (4,296 | )     |  
|                                         |  |                             |         |                                  |   |                        |   |             |        |       |  
|Balance at December 31, 2006             |  |                             | 3,193   |                                  |   |                       |   |             | 5,018  |       |  
|Restructuring charges in 2007            |  |                             | 3,684   |                                  |   | 3,297                  |   |             | 3,931  |       |  
|Restructuring payments and usage in 2007 |  |                             | (4,412  | )                                |   | (3,297                 | ) |             | (3,319 | )     |  
|                                         |  |                             |         |                                  |   |                        |   |             |        |       |  
|Balance at December 31, 2007             |  | $                           | 2,465   |                                  | $ |                       |   | $           | 5,630  |       | $
|                                         |  |                             |         |                                  |   |                        |   |             |        |       |  

F-15

---



Accrued
restructuring reserves total approximately $8.1 million at December 31, 2007. The Company expects to pay approximately $5.0 million of the accrued
restructuring costs during the next year, and the remainder, approximately $3.1 million, by 2014. The portion of this accrual attributable to facility closing costs is recorded net of estimated
sublease income at its present value. Actual future cash
requirements may differ from the accrual, particularly if actual sublease income differs from current estimates.

The
restructuring charges are comprised of the following:

|                                                   |  | 2007 |        | 2006 |   | 2005   | 
|-------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | 
|
|Charges requiring cash payments                    |  | $    | 7,615  |      | $ | 14,647 | 
|(Gain) loss on asset disposals in closed locations |  |      | 3,297  |      |   | 1,354  | 
|                                                   |  |      |        |      |   |        | 
|                                                   |  | $    | 10,912 |      | $ | 16,001 | 
|                                                   |  |      |        |      |   |        | 

6.     ACQUISITIONS

On May 31, 2006, the Company acquired USA Direct, Inc. ("USA Direct") for $21.2 million in cash. The financial results of USA Direct are
included in the Company's consolidated financial statements, within the Company's Direct Mail segment, from the date of acquisition. USA Direct is a full-service provider of direct
marketing services based in York, Pennsylvania.

Goodwill
arising in connection with the USA Direct acquisition was approximately $8.0 million, calculated as the excess of the purchase price over the fair value of the net assets
acquired. This goodwill was subsequently written off in the fourth quarter of 2007 along with the rest of the Company's goodwill, the total of which was deemed to be impaired (see Note 5 for
further discussion). However, the Company expects to deduct the full amount of this goodwill for tax purposes, the amount of which will increase the Company's net tax benefit carryforwards (See
Note 13). Also purchased in the
USA Direct acquisition was a customer base valued at $3.6 million which is being amortized over a period of four years, a non-compete agreement in the amount of $90,000 which is
being amortized over its three-year useful term and a trademark valued at $40,000.

The
following unaudited pro forma information reflects the Company's results adjusted to include USA Direct as though the acquisition had occurred at the beginning of 2005.

Twelve months ended
December 31,2006

2005(in thousands)Revenue

$
1,482,806

$
1,499,703Loss from continuing operations before cumulative effect of accounting change


(48,111
)

(25,333
)Net loss


(26,511
)

(170,322
)


F-16

---



7.     ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

2007

2006(in thousands)Tradebilled

$
41,880

$
114,263Tradeunbilled


38,254


20,522Other receivables


7,056


7,50087,190


142,285Allowance for doubtful accounts(1)


(2,923
)

(2,859
)$
84,267

$
139,426


---

The
Company is party to a three-year agreement, terminating in December 2008 (the "A/R Facility"), to sell substantially all trade accounts receivable generated by the
Company's subsidiaries through the issuance of $130 million variable rate trade receivable backed notes. Management has begun discussions with its lenders regarding amendment of the A/R
Facility, but has not received any assurance that they will be able to amend this facility.

Under
the A/R Facility the Company sells its trade accounts receivable through a bankruptcy-remote wholly-owned subsidiary. However, the Company maintains an interest in the receivables
and has been contracted to service the accounts receivable. The Company received cash proceeds for servicing of $1.2 million in both 2007 and 2006, respectively. These proceeds are fully offset
by servicing costs.

The
A/R Facility allows for a maximum of $130.0 million of trade accounts receivable to be advanced at any time based on the level of eligible receivables and limited to a
borrowing base linked to net receivables balances and collections. Additional deductions may be made if the Company fails to maintain a consolidated Compliance EBITDA (as defined in Note 11) of
at least $180 million for any rolling twelve fiscal month period. In addition, the A/R Facility includes certain targets related to its receivables collections and credit experience including a
minimum Compliance EBITDA of $125 million on a trailing twelve-month basis. There are also covenants customary for facilities of this type including requirements related to the characterization
of receivables transactions, credit and collection policies, deposits of collections, maintenance by each party of its separate corporate identity including maintenance of separate records, books,
assets and liabilities and disclosures about the transactions in the financial statements of Vertis Holdings and its consolidated subsidiaries. Failure to meet the targets or the covenants could lead
to an acceleration of the obligations under the A/R Facility or the sale of assets securing the A/R Facility. As of December 31, 2007, the Company is in compliance with all targets and
covenants under the A/R Facility.

At
December 31, 2007 and 2006, the Company sold accounts receivable in excess of the $130 million A/R Facility and as such $130 million was excluded from accounts
receivable on the consolidated balance sheet. At December 31, 2007 and 2006, the Company retained an interest in the pool of receivables in the form of overcollateralization and cash reserve
accounts of $38.6 million and $92.3 million, under the A/R Facility, which is included in Accounts receivable, net on the consolidated balance sheet at allocated cost, which approximates
fair value. The proceeds from collections reinvested in securitizations amounted to $1,664.2 million and $1,680.3 million in 2007 and 2006, respectively.

Fees
for the program vary based on the amount of interests sold and LIBOR plus an average margin of 50 basis points. The Company also pays an unused commitment fee of 37.5 basis points
on

F-17

---



the
difference between $130 million and the amount of any advances. The loss on sale, which approximated the fees, totaled $6.8 million in 2007, $6.5 million in 2006 and
$5.2 million in 2005, and is included in Other, net on the consolidated statement of operations.

8.     INVENTORIES

Inventories consisted of the following:

2007

2006(in thousands)Paper

$
21,614

$
29,858Ink and chemicals


4,246


3,160Work in process


3,214


4,439Finished goods


8,090


5,576Other


5,612


5,194$
42,776

$
48,227


9.     PROPERTY, PLANT AND EQUIPMENT

The components and useful lives of property, plant and equipment were:

Estimated
Useful Life
(Years)

2007

2006(in thousands)Land



$
6,988

$
8,361Machinery and equipment(1)

3 to 15


672,254


646,960Buildings and leasehold improvements

1 to 40


92,621


91,388Furniture and fixtures

3 to 10


129,858


113,837Internally developed computer software

3 to 5


22,109


21,002Vehicles

3


974


968Construction in progress and deposits on equipment purchases




13,684


23,988938,488


906,504Accumulated depreciation and amortization




(610,462
)

(576,465
)$
328,026

$
330,039


---

The
Company recorded depreciation of $55.6 million, $57.4 million and $62.0 million in the twelve months ended December 31, 2007, 2006 and 2005, respectively.

F-18

---



10.   OTHER INTANGIBLE ASSETS

Other intangible assets consisted of the following:

2007

2006(in thousands)Gross:Customer base

$
3,600

$
3,600Trademarks


3,265


3,265Non-compete agreement


90


90Other intangibles


100


100Total gross other intangibles


7,055


7,055Accumulated amortization:Customer base


(1,345
)

(497
)Trademarks


(2,903
)

(2,256
)Non-compete agreement


(48
)

(18
)Other intangibles


(100
)

(65
)Total accumulated amortization


(4,396
)

(2,836
)$
2,659

$
4,219


The
Company recorded amortization of $1.8 million, $1.4 million and $0.9 million in the twelve months ended December 31, 2007, 2006 and 2005,
respectively. Scheduled amortization expense for the Company's intangible assets as of December 31, 2007 was:

(in thousands)2008

$
1,2922009


9122010


455$
2,659


11.   LONG-TERM DEBT

Long-term debt consisted of the following in the order of priority:

2007

2006(in thousands)Revolving credit facility (due December 2008)

$
115,454

$
112,880Term loan (due December 2008)


50,000$350 million 93/4% senior secured second lien notes, net of discount (due April 2009)


348,010


346,418$350 million 107/8% senior notes, net of discount (due June 2009)


349,470


349,113$294 million 131/2% senior subordinated notes, net of discount (due December 2009)


289,638


287,625Other notes





51,152,572


1,096,041Current portion


(165,454
)

(5
)$
987,118

$
1,096,036


The
Company entered into a four-year revolving credit agreement (the "Credit Facility") in December 2004. In March 2007, we amended the Credit Facility to
provide for availability of

F-19

---



$250 million
until December 22, 2008, the maturity date. Under the amended Credit Facility, up to $200 million consists of a revolving credit facility and the remaining
$50 million represents a term loan. The Credit Facility also provides for issuances of up to $45 million in letters of credit. There is no repayment of the principal due until maturity.
Management has engaged in discussions with its lenders regarding amendments of the Credit Facility, but has not received any assurance that it will be able to further amend this facility, and as such,
the balances of the revolving credit facility and the term loan have been classified as current in the Company's consolidated balance sheet.

At
December 31, 2007, the maximum availability under the revolving credit facility is limited to a borrowing base calculated as follows: 85% of the Company's eligible receivables;
65% of the net amount of eligible raw materials, finished goods, maintenance parts, unbilled receivables and the
residual interest in the Company's $130 million trade receivables securitization (see Note 7); the lesser of 55% of the book value of eligible machinery and equipment at owned locations
or 100% of the orderly liquidation value-in-place (as defined in the credit agreement); the lesser of 55% of the book value of eligible machinery and equipment at leased
locations or 100% of the net orderly liquidation value (as defined in the credit agreement) and 80% of the fair market value of owned real estate. The eligibility of such assets included in the
calculation is set forth in the credit agreement. At December 31, 2007, the Company's borrowing base was calculated to be $184.8 million. The Company had approximately
$52.6 million available to borrow under the revolving credit facility at December 31, 2007.

The
Credit Facility requires the Company to maintain Compliance EBITDA, as defined below, of $125 million on a trailing twelve-month basis as set forth by the March 2007 amendment
to the Credit Facility. At December 31, 2007, the Company's trailing twelve-month Compliance EBITDA as calculated under the credit agreement was $131.9 million. If the Company is unable
to maintain this minimum Compliance EBITDA amount, the bank lenders could require the Company to repay any amounts owing under the Credit Facility.

In
addition, as is customary in asset-based agreements, there is a provision for the agent, in its reasonable credit judgment, to establish reserves against availability based on a
change in circumstances. The agent's right to alter existing reserves requires written consent from the borrowers when Compliance EBITDA, as defined below, is in excess of $180 million on a
rolling twelve fiscal month basis. The agent is not required to obtain written consent when Compliance EBITDA on a rolling twelve fiscal month basis is less than $180 million. There were no
reserves established by the agent that would impair the Company's ability to borrow from the Credit Facility in 2007.

"Compliance
EBITDA" is the Consolidated EBITDA as reflected in Note 21 to these financial statements adjusted for certain items as defined in the Credit Facility.

F-20

---



The interest rate on the revolving credit facility portion of the Credit Facility is either (a) the US Prime rate, plus a margin which fluctuates based on the Company's senior
secured leverage ratio ("Leverage Ratio"), defined as the ratio of senior secured debt to EBITDA, or (b) the LIBOR rate plus a margin that fluctuates based on the Company's Leverage Ratio. The
EBITDA amount used in this calculation is not equivalent to the amount included in these financial statements, but rather is net of adjustments to exclude certain items as defined in the credit
agreement. The interest rate on the term loan portion of the Credit Facility is the LIBOR rate plus a margin that fluctuates based on the Company's leverage ratio. At December 31, 2007, the
margin was 300 basis points above LIBOR for the revolving credit facility and 475 points above LIBOR for the term loan. The Company also pays an unused commitment fee of 50 basis points on the
difference between $200 million and the amount of loans and letters of credit outstanding.

At
December 31, 2007, the weighted-average interest rates on the revolving credit facility and the term loan were 8.1% and 9.5%, respectively. The weighted average interest rate
on the Credit Facility at December 31, 2006 was 8.3%.

The
Credit Facility, the 93/4% senior secured second lien notes (the "93/4% Notes"), the 107/8% senior notes and the 131/2%
senior subordinated notes contain customary covenants including restrictions on dividends and investments. In particular, these debt instruments all contain customary high-yield debt
covenants imposing limitations on the payment of dividends or other distributions on or in respect of the Company or the capital stock of its restricted subsidiaries. Substantially all of the
Company's assets are pledged as collateral for the outstanding debt under the Credit Facility, and, on a second lien basis, the 93/4% Notes. All of the Company's debt has customary
provisions requiring prepayment in the event of a change in control and from the proceeds of asset sales, as well as cross-default provisions. At December 31, 2007, the Company was in
compliance with its debt covenants.

At
December 31, 2007, the aggregate maturities of long-term debt were:

(in thousands)2008

$
165,4542009


993,495$
1,158,949


12.   LEASES

Facilities and certain equipment are leased under agreements that expire at various dates through 2017. Rental expense for continuing operations under operating
leases for the years ended December 31, 2007, 2006 and 2005, was $26.2 million, $25.6 million, and $25.9 million, respectively.

At
December 31, 2007, minimum annual rentals under non-cancelable operating leases (net of subleases totaling $6.2 million) were:

(in thousands)2008

$
24,7422009


19,9552010


17,5772011


14,2832012


11,284Thereafter


6,306$
94,147


Commitments
under the lease agreements also extend in most instances to property taxes, insurance and maintenance. Certain leases contain escalation clauses and extension options.

F-21

---



On
October 1, 2007, the Company sold three of its Direct Mail facilities, consisting of two production facilities and one maintenance facility, for $10.7 million, net of
fees and letters of credit, and simultaneously leased these facilities back under three separate lease agreements, ranging from less than one year to ten years, with varying lease terms. The Company
has accounted for this transaction as a sale-leaseback. The transaction resulted in a net gain of $7.3 million, $2.7 million of which was recognized up-front and
the remainder of which the Company has deferred and is amortizing over the life of each respective lease term. For the year ended December 31, 2007, a $2.9 million gain on this
sale-leaseback transaction is included in costs of production on the Company's consolidated statement of operations.

13.   INCOME TAXES

Income tax (benefit) expense consisted of the following components:

2007

2006

2005(in thousands)Current:Federal







$
(8,324
)State and foreign

$
388

$
(1
)

254Total income tax expense (benefit)

$
388

$
(1
)
$
(8,070
)


Vertis
Holdings files a consolidated Federal income tax return with all of its subsidiaries, including the Company. The components of income tax disclosed above have been
allocated to the Company as if the Company had filed a separate consolidated tax return.

The
Company's tax allocation arrangement does not provide for remuneration in years in which the Company has a current taxable loss as in 2007, 2006, and 2005. There are no tax related
intercompany balances due to or due from the Company.

The
following is a reconciliation of the U.S. statutory federal income tax rate to the Company's effective tax rates:

2007

2006

2005(percent of pre-tax loss)Statutory income tax rate

(35.0
)%
(35.0
)%
(35.0
)%State income taxes, net of federal income tax benefits

(1.8
)Change in valuation allowance

20.6

30.4

29.4Goodwill impairment

15.2Foreign income taxed at other rates

0.0

(2.1
)
(0.1
)Adjustment to contingency reserve

0.0

0.0

(23.0
)Officer's life insurance

0.0

(0.7
)
(0.4
)Other

1.1

7.4

6.8Effective tax rate

0.1
%
0.0
%
(22.3
)%


F-22

---



The
tax effects of significant items comprising deferred income taxes were:

2007

2006(in thousands)Employee benefits

$
16,707

$
14,564Net tax benefit carry forwards


183,387


160,843Accrued expenses and reserves


10,374


7,101Other deductible differences


21,332Deferred tax assets


231,800


182,508Property, plant and equipment


(33,766
)

(44,542
)Other taxable differences


(633
)

(9,382
)Deferred tax liabilities


(34,399
)

(53,924
)Valuation allowance


(197,401
)

(128,584
)Net deferred income tax liability

$
0

$
0


At
the end of 2007 the Company's federal net operating loss carryforwards were $323.9 million. This amount is included in the consolidated Vertis Holdings net operating loss
carryforward. The carryforwards expire beginning in 2010 through 2027. The U.S. capital loss carryforward was $100.4 million as of December 31, 2007 and expires in 2011.

The
Company's valuation allowance related to its deferred tax asset, which was $128.6 million at the beginning of 2007, was increased by $68.8 million to
$197.4 million at the end of 2007. The valuation allowance reserves all deferred tax assets that will not be offset by reversing taxable temporary differences. This treatment is required under
SFAS 109, when in the judgment of management, it is not more likely than not that sufficient taxable income will be generated in the future to realize the deductible temporary differences. The
Company's deferred tax assets and tax carryforwards remain available to offset taxable income in future years, thereby lowering any future cash tax obligations. The Company intends to maintain a
valuation allowance until sufficient positive evidence exists to support its reversal.

On
January 23, 2006, the Company signed a closing agreement with the IRS for tax years 1998 through 2003. The closing agreement received final approval from the Congressional
Joint Committee on Taxation on May 16, 2006. During 2006, the Company paid out $1.1 million and received refunds of $0.2 million related to the settlement. During 2007, the
Company paid out $0.5 million and received refunds of $0.3 million related to the settlement. The U.S federal return is open for the years 1999 and forward.

FIN 48,
which became effective on January 1, 2007, clarifies the accounting for unrecognized income tax positions. The total amount of unrecognized tax benefits as of the
date of adoption was approximately $0.4 million. In addition, accrued interest and penalties amounted to approximately $0.6 million as of the date of adoption.

F-23

---



A
reconciliation of the change in the unrecognized tax benefits from January 1, 2007 to December 31, 2007 is as follows:

Unrecognized
Income Tax
Benefits(in thousands)Balance at January 1, 2007

$
380Additions for tax positions related to prior years


781Reductions for tax positions related to prior years


(38
)Balance at December 31, 2007

$
1,123


The
Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. As of December 31, 2007, the Company had recognized approximately
$0.7 million, consisting primarily of interest.

The
Company made income tax payments of $0.1 million, $0.7 million and $0.2 million for the years ended December 31, 2007, 2006, and 2005, respectively.

14.   RETIREMENT PLANS

Defined Benefit PlansThe Company maintains defined benefit plans, including pension and supplemental
executive retirement plans. On December 31, 2006, the Company adopted SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment
of FASB Statements No. 87, 88, 106 and 132(R) ("SFAS 158"), which required us to recognize the underfunded status of our defined benefit plans in our consolidated balance sheet and to
recognize as a component of other comprehensive loss, net of tax, the actuarial gains or losses and prior service costs or credits that have arisen during the period but are not included in our net
periodic pension cost.

Information
regarding the defined benefit plans, collectively, is as follows:

2007

2006

2005(in thousands)Components of net periodic pension cost:Service cost

$
416

$
481

$
673Interest cost


2,190


2,218


2,271Expected return on assets


(1,359
)

(1,309
)

(1,358
)Net amortization and deferral


711


963


1,155Settlements and curtailments





873


443$
1,958

$
3,226

$
3,184Changes in benefit obligations:Benefit obligation at beginning of year

$
38,754

$
40,788Service cost


416


481Interest cost


2,190


2,218Actuarial loss (gain)


(1,514
)

(757
)Benefits paid


(2,663
)

(3,403
)Curtailments


(348
)

(573
)Benefit obligation at end of year

$
36,835

$
38,754Accumulated benefit obligation at end of year

$
36,620

$
38,276


F-24

---



|
|

2007

2006(in thousands)Changes in plan assets:Fair value of plan assets at beginning of year

$
18,100

$
16,602Actual return on assets


592


1,765Employer contributions


2,668


3,136Benefits paid


(2,663
)

(3,403
)Fair value of plan assets at end of year

$
18,697

$
18,100Funded status of the plan:Benefit obligation at end of year

$
36,835

$
38,754Fair value of plan assets at end of year


18,697


18,100Unfunded status of the plan at end of year

$
18,138

$
20,654Current liabilities

$
1,343

$
1,086Long-term liabilities


16,795


19,568Net amount recognized

$
18,138

$
20,654Amounts recognized in accumulated other comprehensive loss:Net actuarial loss

$
(9,069
)
$
(10,726
)Prior service cost


(672
)

(770
)Net amount recognized

$
(9,741
)
$
(11,496
)Changes recognized in other comprehensive loss(1):Net actuarial gain during the period

$
(1,044
)Recognized actuarial loss


(612
)Recognized prior service cost


(99
)Total recognized in other comprehensive loss

$
(1,755
)Amounts expected to be recognized in net periodic pension cost in the subsequent year:Prior service cost

$
99

$
99Actuarial loss


425


554Total

$
524

$
653


---

F-25

---



The
weighted-average assumptions used to determine net periodic pension cost and the Company's benefit obligation were as follows:

2007

2006

2005Weighted-average assumptions used to calculate net periodic pension cost:Discount rate

5.75%

5.50
%
5.75
%Expected return on plan assets

7.50%

7.50
%
8.75
%Annual compensation increase

3.00%

3.00
%
3.00
%Weighted-average assumptions used to determine benefit obligation:Discount rate

6.00%6.25%

5.75
%Annual compensation increase

3.00%

3.00
%


The
Company expects to make approximately $3.1 million of cash contributions to its pension plans in 2008.

The
Company expects to make the following benefit payments, which reflect expected future service:

(in thousands)2008

$
2,7952009


2,7182010


2,3352011


1,8672012


2,15920132017


13,559$
25,433


For
the Company's pension plans, the percentage of fair value of plan assets by asset category as of the measurement date are as follows:

2007

2006Asset category:Equity securities

54
%
56
%Fixed Income

41
%
38
%Cash and cash equivalents

5
%
6
%100
%
100
%


The
Company's investment strategy for the pension plans is to maximize the long-term rate of return on plan assets within an acceptable level of risk in order
to minimize the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class. Target allocations for 2007 are shown in the table below.

The
Company developed its expected long-term rate of return assumption based on historical experience and by evaluating input from the trustee managing the plans' assets,
including the trustee's review of asset class return expectations by several consultants and economists as well as long-term inflation assumptions. The Company's expected
long-term rate of return on plan assets is based on a target allocation of assets, which is based on the Company's investment strategy. The plans strive to

F-26

---



have
assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. The target allocation of assets
is as follows:

Asset category:

Percent of Total

Expected
Long-term
Rate of ReturnLarge Cap Equities

47
%
9.0
%Small/ Mid Cap Equities

8
%
11.0
%International Equities

5
%
10.2
%Fixed Income

40
%
6.5
%100
%


Deferred CompensationThe Company also maintains a deferred compensation plan in which
certain members of management may defer up to 100% of their total compensation through the date of their retirement. This plan was frozen in 2008, thus Vertis employees will not be allowed to defer
compensation into this plan for the 2008 plan year. Long-term liabilities on the consolidating balance sheet include balances related to this plan of $3.4 million and
$4.0 million as of December 31, 2007 and 2006, respectively.

Defined Contribution PlansThe Company maintains 401(k) and other investment plans for eligible
employees. The Company recorded expenses related to these plans of $4.2 million, $3.7 million and $5.0 million for the years ended December 31, 2007, 2006 and 2005,
respectively.

15.   STOCKHOLDER'S DEFICIT

Contributed CapitalIn December 2005, in conjunction with the sale of the premedia division of the
Vertis Europe segment (see Note 4), Vertis Holdings assigned its rights to a $0.7 million receivable from the Vertis Europe premedia division to Vertis, Inc. as a contribution of
capital. This receivable was subsequently written off by Vertis, Inc.

Vertis
Holdings has 700,000 warrants outstanding at December 31, 2007. These warrants are held by the lenders of the senior subordinated credit facility which entitle the holders
to purchase one share of Vertis Holdings' stock for $0.01 per share. The warrants are immediately exercisable and expire on June 30, 2011.

Dividends to ParentThe Company paid approximately $4,000 of cash dividends to Vertis Holdings in
2005. No dividends were paid in 2007 and 2006. The Company's debt instruments contain customary covenants imposing certain limitations on the payment of dividends or other distributions.

Accumulated Other Comprehensive LossThe components of accumulated other comprehensive loss at
December 31 were:

|                                     |  | 2007 |        | 2006 |   | 2005   |  
|------------------------------------ |  | ---- | ------ | ---- | - | ------ | -
|
|
|Cumulative translation adjustments   |  | $    | 223    |      |   |        |  
|Minimum pension liability adjustment |  |      |        |      |   |        |  
|Defined benefit plans                |  |      | (9,741 | )    | $ | (4,706 | )
|                                     |  |      |        |      |   |        |  
|                                     |  | $    | (9,518 | )    | $ | (4,706 | )
|                                     |  |      |        |      |   |        |  

F-27

---



16.   VERTIS HOLDINGS SHARE BASED COMPENSATION

Employees of the Company participate in the Vertis Holdings 1999 Equity Award Plan (the "Stock Plan"), which authorizes grants of stock options, restricted stock,
performance shares and other stock based awards up to an aggregate of 10 million shares. Vertis Holdings has options, restricted shares, retained shares and rights outstanding under the Stock
Plan at December 31, 2007. SFAS 123R requires that share based payments for compensation made by Vertis Holdings to employees of the Company be accounted for in the financial statements
of the Company.

Certain
current and former members of the Company's management own shares of common stock subject to retained share agreements (the "Retained Shares"). These retained share agreements
were issued in connection with the Company's recapitalization in 1999 (the "1999 Recapitalization") with the intent to replace previously issued incentive stock options at equivalent economic value.
The retained share agreements restrict transfers of the Retained Shares unless there is a liquidity event, generally defined as a public offering of Vertis Holdings' common stock (where immediately
following such offering, the aggregate number of shares of common stock held by the public, not including affiliates of the Company, represents at least 20% of the total number of outstanding shares),
merger or other business combination, or a sale or other disposition of all or substantially all of our assets to another entity for cash and/or publicly traded securities ("Liquidity Event").
Additionally, included in the retained share agreements, employees (or their estates) have the right to put ("Put Right") the Retained Shares to the Company for the fair market value of the stock
within 90 days of termination due to retirement, disability or death (the "Put Right Period"). Retirement for this purpose is defined as the employee's retirement from the Company at age 65
after at least three years of continuous service. The Retained Shares are considered equity awards under SFAS 123R.

Certain
current and former members of the Company's management own rights (the "Rights") to shares of common stock subject to a management subscription agreement. These management
subscription agreements were issued in connection with the 1999 Recapitalization with the intent to replace previously issued nonqualified stock options at equivalent economic value. The management
subscription agreements are similar to the retained share agreements discussed above, including the Put Right and the restrictions on transfer. As a result, the Rights held by employees are also
considered equity awards under SFAS 123R.

In
2007, employees holding 16,079 Rights with Put Rights attached left the Company. However, the employees' manner of separation from the Company did not fit the criteria, as discussed
above, for them to exercise the Put Right attached to their Rights and therefore the Put Rights were forfeited. As of December 31, 2007, there were 34,018 Retained Shares and Rights that have
the Put Rights Available.

The
Company has the ability to issue restricted stock to certain members of management under the Stock Plan. The restricted stock awards do not vest until immediately prior to a
Liquidity Event or upon death or disability during employment, and they cannot be transferred until vesting occurs. Additionally, if an employee leaves the Company prior to a Liquidity Event, they
forfeit their restricted shares. The probability of each of these events occurring is currently indeterminable, therefore compensation expense will not be recorded by the Company related to the
restricted shares until a Liquidity Event takes place, or is probable of occurring, or in the event of a shareholder's death or disability.

Vertis
Holdings issued 20,000 shares of restricted stock and cancelled 158,128 shares of restricted stock in the year ended December 31, 2007, due to forfeiture and employees
departure from the Company. The Company estimates the fair value of the restricted stock to be $0.64 per share, based on a fair-value calculation conducted in 2007. At December 31,
2007 there were 208,168 shares of restricted stock outstanding under the Stock Plan.

F-28

---



The Company also has the ability to issue options to certain members of management under the Stock Plan. At December 31, 2007, there are 2,956 options outstanding under the Stock
Plan. These options were fully vested at January 1, 2006 therefore no compensation expense is recorded.

A
summary of activity under the Stock Plan for the twelve months ended December 31, 2007 is as follows:

Retained
Shares

Rights

Restricted
Stock(1)

Options(2)(thousands of shares)Outstanding at December 31, 2006

18

31

346

8Granted





20Forfeited/ Cancelled



(16
)
(158
)
(5
)Outstanding at December 31, 2007

18

15

208

3Nonvested at December 31, 2007





208Exercisable at December 31, 2007







3


---

In
2005, the Company accounted for the Stock Plan under the intrinsic value method, which followed the recognition and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." Approximately $0.1 million of employee compensation cost was reflected in net income for 2005. The following table summarizes
the effect of accounting for the awards under the Stock Plan as if the fair value recognition provisions of SFAS No. 123, "Accounting for Stock Based Compensation," as amended by SFAS
No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure, an amendment of FASB Statement No. 123," had been applied.

2005(in thousands)Net loss:As reported

$
(173,230
)Deduct: total stock-based compensation determined under the fair value based method for all awards, net of tax


(7
)Pro forma

$
(173,237
)


F-29

---



17.   INTEREST EXPENSE, NET

Interest expense, net consists of the following:

2007

2006

2005(in thousands)Interest cost

$
125,802

$
123,118

$
119,359Amortization of long-term debt discounts


3,962


3,961


3,961Amortization of deferred financing fees


7,193


6,306


7,265Capitalized interest


(1,667
)

(1,250
)

(929
)Interest income


(646
)

(1,112
)

(835
)$
134,644

$
131,023

$
128,821


The
Company made interest payments of $126.2 million, $122.9 million and $118.8 million in the years ended December 31, 2007, 2006 and 2005, respectively.

18.   OTHER, NET

Other, net consists of the following:

2007

2006

2005(in thousands)A/R Facility fees (see Note 7)

$
6,752

$
6,529

$
5,163Bank commitment fees


919


804


927Other expenses


14


4


1,563$
7,685

$
7,337

$
7,653


19.   RELATED PARTY TRANSACTIONS

The Company has consulting agreements with the owners of Vertis Holdings under which these parties have agreed to provide the Company with consulting services on
matters involving corporate finance, strategic corporate planning and other management skills and services. The payment of these fees was deferred by the owners of Vertis Holdings in 2007 and
therefore a liability for these fees is included in other current liabilities on the consolidated balance sheet. The annual fees payable to these parties under these agreements amount to approximately
$1.3 million. The Company paid approximately $1.3 million in fees under these agreements in 2006 and 2005.

The
Company appointed Barry C. Kohn as its Chief Financial Officer in May 2007. Prior to Mr. Kohn's appointment, he was engaged by the Company to provide consulting services under
a consulting agreement entered into in 2007. Under this agreement, the Company paid Mr. Kohn approximately $0.2 million in consulting fees and expenses in 2007, which are included in
selling, general and administrative expenses on the consolidated statement of operations.

F-30

---



20.   QUARTERLY FINANCIAL INFORMATIONUNAUDITED

The results of operations for the years ended December 31, 2007 and 2006 are presented below.

|                                                  |                                                  | First
Quarter |         | Second
Quarter |   | Third
Quarter |         | Fourth
Quarter |        
|------------------------------------------------- | ------------------------------------------------ | ------------- | ------- | -------------- | - | ------------- | ------- | -------------- | -------
|
|Year Ended December 31, 2007                      |                                                  |               |         |                |   |               |         |                |        
|Revenue                                           |                                                  | $             | 330,666 |                | $ | 332,130       |         | $              | 319,310
|Gross profit                                      |                                                  |               | 49,661  |                |   | 54,930        |         |                | 53,498 
|Loss from continuing operations before            |                                                  |               |         |                |   |               |         |                |        
|                                                  | cumulative effect of accounting change           |               |         | (25,200        | ) |               | (19,727 | )              |        
|Loss from discontinued operations                 |                                                  |               |         |                |   |               |         |                | (251   
|Net loss                                          |                                                  |               | (25,200 | )              |   | (19,727       | )       |                | (24,892
|Year Ended December 31, 2006                      |                                                  |               |         |                |   |               |         |                |        
|Revenue                                           |                                                  | $             | 349,171 |                | $ | 351,167       |         | $              | 352,748
|Gross profit                                      |                                                  |               | 58,153  |                |   | 66,315        |         |                | 58,172 
|Loss from continuing operations before income     |                                                  |               |         |                |   |               |         |                |        
|                                                  | taxes and cumulative effect of accounting change |               |         | (20,866        | ) |               | (4,808  | )              |        
|Loss from continuing operations before cumulative |                                                  |               |         |                |   |               |         |                |        
|                                                  | effect of accounting change                      |               |         | (20,941        | ) |               | (4,872  | )              |        
|Income (loss) from discontinued operations        |                                                  |               | 1,060   |                |   | (170          | )       |                | 302    
|Cumulative effect of accounting change(2)         |                                                  |               | (1,654  | )              |   |               |         |                |        
|Net (loss) income                                 |                                                  |               | (21,535 | )              |   | (5,042        | )       |                | (18,096

---

21.   SEGMENT INFORMATION

The Company operates in two reportable segments. The accounting policies of the business segments are the same as those described in Note 3 to the
consolidated financial statements. The Company uses EBITDA as the measure by which it gauges the profitability and assesses the performance of its segments. The segments are:



In
addition, the Company also provides outsourced digital premedia and image content management, creative services for advertising insert page layout and design, and media planning and
placement services. These services are included in the table below as "Corporate and Other". Corporate and Other also includes the Company's general corporate costs, which reflect costs associated
with the Company's executive officers as well as other transactions that are not allocated to the Company's business segments.

F-31

---



Following
is information regarding the Company's segments:

|                        |                             |                                                                                            |                     | 2007 |           | 2006   |   | 2005      |       
|----------------------- | --------------------------- | ------------------------------------------------------------------------------------------ | ------------------- | ---- | --------- | ------ | - | --------- | ------
|
|External Revenue        |                             | Advertising Inserts                                                                        |                     | $    | 910,301   |        | $ | 1,027,724 |       
|                        |                             | Direct Mail                                                                                |                     |      | 359,433   |        |   | 329,428   |       
|                        |                             | Corporate and Other                                                                        |                     |      | 95,420    |        |   | 111,509   |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|                        |                             | Consolidated                                                                               |                     | $    | 1,365,154 |        | $ | 1,468,661 |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|Intersegment Revenue    |                             | Advertising Inserts                                                                        |                     | $    | 333       |        | $ | 2,747     |       
|                        |                             | Direct Mail                                                                                |                     |      | 1,425     |        |   | 1,366     |       
|                        |                             | Corporate and Other                                                                        |                     |      | 3,433     |        |   | 4,350     |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|                        |                             | Consolidated                                                                               |                     |      | 5,191     |        |   | 8,463     |       
|                        |                             | Elimination of intersegment sales                                                          |                     |      | (5,191    | )      |   | (8,463    | )     
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|                        |                             | Consolidated revenue                                                                       |                     | $    | 1,365,154 |        | $ | 1,468,661 |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|EBITDA                  |                             | Advertising Inserts                                                                        |                     | $    | (94,446)  | (1)    | $ | 117,884   |       
|                        |                             | Direct Mail                                                                                |                     |      | (19,850)  | (2)    |   | 36,565    |       
|                        |                             | Corporate and Other                                                                        |                     |      | (19,810)  | (3)    |   | (12,434   | )     
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|                        |                             | Consolidated EBITDA                                                                        |                     |      | (134,106  | )      |   | 142,015   |       
|                        |                             | Depreciation and amortization                                                              |                     |      |           |        |   |           |       
|                        |                             | of intangibles                                                                             |                     |      | 57,356    |        |   | 58,788    |       
|                        |                             | Interest expense, net                                                                      |                     |      | 134,644   |        |   | 131,023   |       
|                        |                             | Income tax benefit                                                                         |                     |      | 388       |        |   | (1        | )     
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|                        |                             | Consolidated loss from continuing operations before cumulative effect of accounting change |                     | $    | (326,494  | )      | $ | (47,795   | )     
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|Restructuring charges   |                             | Advertising Inserts                                                                        |                     | $    | 7,690     |        | $ | 5,737     |       
|                        |                             | Direct Mail                                                                                |                     |      | 1,462     |        |   | 1,828     |       
|                        |                             | Corporate and Other                                                                        |                     |      | 1,760     |        |   | 8,436     |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|                        |                             | Consolidated                                                                               |                     | $    | 10,912    |        | $ | 16,001    |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|Depreciation and        |                             | Advertising Inserts                                                                        |                     | $    | 37,009    |        | $ | 39,749    |       
|                        | amortization of intangibles |                                                                                            | Direct Mail         |      |           | 15,097 |   |           | 13,550
|                        |                             | Corporate and Other                                                                        |                     |      | 5,250     |        |   | 5,489     |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|                        |                             | Consolidated                                                                               |                     | $    | 57,356    |        | $ | 58,788    |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|Additions to long-lived |                             | Advertising Inserts                                                                        |                     | $    | 24,948    |        | $ | 20,970    |       
|                        | assets (excluding           |                                                                                            | Direct Mail         |      |           | 21,464 |   |           | 12,614
|                        | acquisitions)               |                                                                                            | Corporate and Other |      |           | 18,805 |   |           | 15,401
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|                        |                             | Consolidated                                                                               |                     | $    | 65,217    |        | $ | 48,985    |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|Identifiable Assets     |                             | Advertising Inserts                                                                        |                     | $    | 324,376   |        | $ | 535,510   |       
|                        |                             | Direct Mail                                                                                |                     |      | 151,799   |        |   | 203,341   |       
|                        |                             | Corporate and Other                                                                        |                     |      | 51,991    |        |   | 105,835   |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|                        |                             | Consolidated                                                                               |                     | $    | 528,166   |        | $ | 844,686   |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|Goodwill                |                             | Advertising Inserts                                                                        |                     | $    |          |        | $ | 187,867   |       
|                        |                             | Direct Mail                                                                                |                     |      |          |        |   | 54,320    |       
|                        |                             | Corporate and Other                                                                        |                     |      |          |        |   | 4,073     |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       
|                        |                             | Consolidated                                                                               |                     | $    |          |        | $ | 246,260   |       
|                        |                             |                                                                                            |                     |      |           |        |   |           |       

---

F-32

---



22.   GUARANTOR/NON-GUARANTOR CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The Company has senior notes (see Note 11), which are general unsecured obligations of Vertis, Inc., and guaranteed by certain of
Vertis, Inc.'s domestic subsidiaries. Accordingly, the following condensed consolidated financial information as of December 31, 2007 and 2006, and for the years ended
December 31, 2007, 2006 and 2005 are included for (a) Vertis, Inc. (the "Parent") on a stand-alone basis, (b) the guarantor subsidiaries, (c) the
non-guarantor subsidiaries and (d) the Company on a consolidated basis.

As
of December 31, 2007, the guarantor subsidiaries include Enteron Group LLC, Vertis Mailing LLC, Webcraft LLC, USA Direct LLC and Webcraft
Chemicals LLC, all of which are wholly-owned subsidiaries of Vertis, Inc. The operations of Enteron Group LLC are reported in Corporate and Other elsewhere in the financial
statements, while the operations of Webcraft LLC and Webcraft Chemicals LLC are reported in the Direct Mail segment. The non-guarantor subsidiary is Laser Tech Color
Mexico, S.A. de C.V., which is a wholly-owned subsidiary of Vertis, Inc., and whose operations are included in Corporate and Other elsewhere in the financial statements. The Parent
includes the operations of Advertising Inserts as well as some Direct Mail operations and operations reported under Corporate and Other.

In
2005, the operations of our Europe segment are included in the non-guarantor subsidiaries as discontinued operations.

Investments
in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries eliminate investments in
subsidiaries, intercompany balances and intercompany transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been made because the
subsidiaries are wholly-owned and the guarantees are full and unconditional and joint and several.

F-33

---





Condensed Consolidating Balance Sheet Information at December 31, 2007    In thousands

|                                                     |  | Parent |           | Guarantor
Companies |   | Non-Guarantor
Companies |  | Eliminations |         | Consolidated |  
|---------------------------------------------------- |  | ------ | --------- | ------------------- | - | ----------------------- |  | ------------ | ------- | ------------ | -
|ASSETS                                               |  |        |           |                     |   |                         |  |              |         |              |  
|Current Assets:                                      |  |        |           |                     |   |                         |  |              |         |              |  
|Cash and cash equivalents                            |  | $      | 1,805     |                     | $ | 2,653                   |  | $            | 1,759   |              |  
|Accounts receivable, net                             |  |        | 71,973    |                     |   | 11,969                  |  |              | 325     |              |  
|Inventories                                          |  |        | 30,007    |                     |   | 12,767                  |  |              | 2       |              |  
|Maintenance parts                                    |  |        | 18,489    |                     |   | 1,802                   |  |              |         |              |  
|Prepaid expenses and other current assets            |  |        | 6,341     |                     |   | 4,015                   |  |              | 10      |              |  
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|Total current assets                                 |  |        | 128,615   |                     |   | 33,206                  |  |              | 2,096   |              |  
|Intercompany receivable                              |  |        | 42,231    |                     |   |                         |  |              |         |              | $
|Investments in subsidiaries                          |  |        | 27,214    |                     |   | 850                     |  |              |         |              |  
|Property, plant and equipment, net                   |  |        | 249,341   |                     |   | 78,570                  |  |              | 115     |              |  
|Deferred financing costs, net                        |  |        | 9,629     |                     |   |                         |  |              |         |              |  
|Other assets, net                                    |  |        | 21,473    |                     |   | 5,121                   |  |              |         |              |  
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|Total Assets                                         |  | $      | 478,503   |                     | $ | 117,747                 |  | $            | 2,211   |              | $
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY       |  |        |           |                     |   |                         |  |              |         |              |  
|Current Liabilities:                                 |  |        |           |                     |   |                         |  |              |         |              |  
|Accounts payable                                     |  | $      | 106,789   |                     | $ | 29,958                  |  | $            | 11      |              |  
|Compensation and benefits payable                    |  |        | 33,712    |                     |   | 5,976                   |  |              | 45      |              |  
|Accrued interest                                     |  |        | 13,889    |                     |   |                         |  |              |         |              |  
|Current portion of long-term debt                    |  |        | 165,454   |                     |   |                         |  |              |         |              |  
|Other current liabilities                            |  |        | 20,578    |                     |   | 5,387                   |  |              | (181    | )            |  
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|Total current liabilities                            |  |        | 340,422   |                     |   | 41,321                  |  |              | (125    | )            |  
|Due to parent                                        |  |        | 3,277     |                     |   | 22,211                  |  |              | 20,020  |              | $
|Long-term debt, net of current portion               |  |        | 987,118   |                     |   |                         |  |              |         |              |  
|Other long-term liabilities                          |  |        | 22,769    |                     |   | 8,467                   |  |              |         |              |  
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|Total liabilities                                    |  |        | 1,353,586 |                     |   | 71,999                  |  |              | 19,895  |              |  
|Stockholder's (deficit) equity                       |  |        | (875,083  | )                   |   | 45,748                  |  |              | (17,684 | )            |  
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|Total Liabilities and Stockholder's (Deficit) Equity |  | $      | 478,503   |                     | $ | 117,747                 |  | $            | 2,211   |              | $
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  

---

F-34

---



Condensed Consolidating Balance Sheet Information at December 31, 2006    In thousands

|                                                     |  | Parent |           | Guarantor
Companies |   | Non-Guarantor
Companies |  | Eliminations |         | Consolidated |  
|---------------------------------------------------- |  | ------ | --------- | ------------------- | - | ----------------------- |  | ------------ | ------- | ------------ | -
|ASSETS                                               |  |        |           |                     |   |                         |  |              |         |              |  
|Current Assets:                                      |  |        |           |                     |   |                         |  |              |         |              |  
|Cash and cash equivalents                            |  | $      | 554       |                     | $ | 4,001                   |  | $            | 1,155   |              |  
|Accounts receivable, net                             |  |        | 123,953   |                     |   | 14,830                  |  |              | 643     |              |  
|Inventories                                          |  |        | 35,321    |                     |   | 12,844                  |  |              | 62      |              |  
|Maintenance parts                                    |  |        | 18,572    |                     |   | 3,720                   |  |              |         |              |  
|Prepaid expenses and other current assets            |  |        | 6,921     |                     |   | 1,657                   |  |              |         |              |  
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|Total current assets                                 |  |        | 185,321   |                     |   | 37,052                  |  |              | 1,860   |              |  
|Intercompany receivable                              |  |        | 68,139    |                     |   |                         |  |              |         |              | $
|Investments in subsidiaries                          |  |        | 55,490    |                     |   | 859                     |  |              |         |              |  
|Property, plant and equipment, net                   |  |        | 254,935   |                     |   | 74,958                  |  |              | 146     |              |  
|Goodwill                                             |  |        | 196,828   |                     |   | 49,432                  |  |              |         |              |  
|Deferred financing costs, net                        |  |        | 14,838    |                     |   |                         |  |              |         |              |  
|Other assets, net                                    |  |        | 25,350    |                     |   | 3,966                   |  |              |         |              |  
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|Total Assets                                         |  | $      | 800,901   |                     | $ | 166,267                 |  | $            | 2,006   |              | $
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY       |  |        |           |                     |   |                         |  |              |         |              |  
|Current Liabilities:                                 |  |        |           |                     |   |                         |  |              |         |              |  
|Accounts payable                                     |  | $      | 154,555   |                     | $ | 32,061                  |  | $            | 22      |              |  
|Compensation and benefits payable                    |  |        | 29,564    |                     |   | 5,145                   |  |              | 46      |              |  
|Accrued interest                                     |  |        | 14,300    |                     |   |                         |  |              |         |              |  
|Current portion of long-term debt                    |  |        |           |                     |   | 5                       |  |              |         |              |  
|Other current liabilities                            |  |        | 23,000    |                     |   | 5,898                   |  |              | 164     |              |  
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|Total current liabilities                            |  |        | 221,419   |                     |   | 43,109                  |  |              | 232     |              |  
|Due to parent                                        |  |        | 3,491     |                     |   | 48,522                  |  |              | 19,617  |              | $
|Long-term debt, net of current portion               |  |        | 1,096,036 |                     |   |                         |  |              |         |              |  
|Other long-term liabilities                          |  |        | 30,038    |                     |   | 444                     |  |              |         |              |  
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|Total liabilities                                    |  |        | 1,350,984 |                     |   | 92,075                  |  |              | 19,849  |              |  
|Stockholder's (deficit) equity                       |  |        | (550,083  | )                   |   | 74,192                  |  |              | (17,843 | )            |  
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  
|Total Liabilities and Stockholder's (Deficit) Equity |  | $      | 800,901   |                     | $ | 166,267                 |  | $            | 2,006   |              | $
|                                                     |  |        |           |                     |   |                         |  |              |         |              |  

---

F-35

---





Condensed Consolidating Statement of Operations    Year ended December 31, 2007    In thousands

|                                                             |  | Parent |           | Guarantor
Companies |   | Non-Guarantor
Companies |   | Eliminations |       | Consolidated |  
|------------------------------------------------------------ |  | ------ | --------- | ------------------- | - | ----------------------- | - | ------------ | ----- | ------------ | -
|Revenue                                                      |  | $      | 1,059,932 |                     | $ | 308,161                 |   | $            | 1,884 |              | $
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|Operating expenses:                                          |  |        |           |                     |   |                         |   |              |       |              |  
|Costs of production                                          |  |        | 848,654   |                     |   | 236,190                 |   |              | 1,591 |              |  
|Selling, general and administrative                          |  |        | 114,147   |                     |   | 38,353                  |   |              | 24    |              |  
|Goodwill impairment                                          |  |        | 196,828   |                     |   | 49,699                  |   |              |       |              |  
|Restructuring charges                                        |  |        | 9,837     |                     |   | 1,075                   |   |              |       |              |  
|Depreciation and amortization of intangibles                 |  |        | 45,871    |                     |   | 11,442                  |   |              | 43    |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|                                                             |  |        | 1,215,337 |                     |   | 336,759                 |   |              | 1,658 |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|Operating (loss) income                                      |  |        | (155,405  | )                   |   | (28,598                 | ) |              | 226   |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|Other expenses (income):                                     |  |        |           |                     |   |                         |   |              |       |              |  
|Interest expense, net                                        |  |        | 134,651   |                     |   | 1                       |   |              | (8    | )            |  
|Other, net                                                   |  |        | 7,685     |                     |   |                         |   |              |       |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|                                                             |  |        | 142,336   |                     |   | 1                       |   |              | (8    | )            |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|Equity in net income of subsidiaries                         |  |        | (28,440   | )                   |   | (9                      | ) |              |       |              |  
|(Loss) income from continuing operations before income taxes |  |        | (326,181  | )                   |   | (28,608                 | ) |              | 234   |              |  
|Income tax expense                                           |  |        | 313       |                     |   |                         |   |              | 75    |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|(Loss) income from continuing operations                     |  |        | (326,494  | )                   |   | (28,608                 | ) |              | 159   |              |  
|Loss from discontinued operations                            |  |        | (251      | )                   |   |                         |   |              |       |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|Net (loss) income                                            |  | $      | (326,745  | )                   | $ | (28,608                 | ) | $            | 159   |              | $
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  

F-36

---



Condensed Consolidating Statement of Operations    Year ended December 31, 2006    In thousands

|                                                             |  | Parent |           | Guarantor
Companies |   | Non-Guarantor
Companies |   | Eliminations |       | Consolidated |  
|------------------------------------------------------------ |  | ------ | --------- | ------------------- | - | ----------------------- | - | ------------ | ----- | ------------ | -
|Revenue                                                      |  | $      | 1,201,282 |                     | $ | 272,000                 |   | $            | 1,564 |              | $
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|Operating expenses:                                          |  |        |           |                     |   |                         |   |              |       |              |  
|Costs of production                                          |  |        | 962,523   |                     |   | 203,184                 |   |              | 870   |              |  
|Selling, general and administrative                          |  |        | 111,045   |                     |   | 31,819                  |   |              | 52    |              |  
|Restructuring charges                                        |  |        | 14,662    |                     |   | 1,339                   |   |              |       |              |  
|Depreciation and amortization of intangibles                 |  |        | 48,362    |                     |   | 10,402                  |   |              | 24    |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|                                                             |  |        | 1,136,592 |                     |   | 246,744                 |   |              | 946   |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|Operating income                                             |  |        | 64,690    |                     |   | 25,256                  |   |              | 618   |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|Other expenses (income):                                     |  |        |           |                     |   |                         |   |              |       |              |  
|Interest expense, net                                        |  |        | 131,106   |                     |   | (80                     | ) |              | (3    | )            |  
|Other, net                                                   |  |        | 7,337     |                     |   |                         |   |              |       |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|                                                             |  |        | 138,443   |                     |   | (80                     | ) |              | (3    | )            |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|Equity in net income of subsidiaries                         |  |        | 47,383    |                     |   |                         |   |              |       |              |  
|(Loss) income from continuing operations before income taxes |  |        | (26,370   | )                   |   | 25,336                  |   |              | 621   |              |  
|Income tax (benefit) expense                                 |  |        | (175      | )                   |   |                         |   |              | 174   |              |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|(Loss) income from continuing operations                     |  |        | (26,195   | )                   |   | 25,336                  |   |              | 447   |              |  
|Income (loss) from discontinued operations                   |  |        |           |                     |   | 22,464                  |   |              | (864  | )            |  
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  
|Net (loss) income                                            |  | $      | (26,195   | )                   | $ | 47,800                  |   | $            | (417  | )            | $
|                                                             |  |        |           |                     |   |                         |   |              |       |              |  

F-37

---



Condensed Consolidating Statement of Operations    Year ended December 31, 2005    In thousands

|                                                                                       |  | Parent |           | Guarantor
Companies |   | Non-Guarantor
Companies |   | Eliminations |          | Consolidated |  
|-------------------------------------------------------------------------------------- |  | ------ | --------- | ------------------- | - | ----------------------- | - | ------------ | -------- | ------------ | -
|Revenue                                                                                |  | $      | 1,164,835 |                     | $ | 307,748                 |   | $            | 1,173    |              | $
|                                                                                       |  |        |           |                     |   |                         |   |              |          |              |  
|Operating expenses:                                                                    |  |        |           |                     |   |                         |   |              |          |              |  
|Costs of production                                                                    |  |        | 917,296   |                     |   | 226,569                 |   |              | 385      |              |  
|Selling, general and administrative                                                    |  |        | 116,132   |                     |   | 33,231                  |   |              | 32       |              |  
|Restructuring charges                                                                  |  |        | 13,317    |                     |   | 3,802                   |   |              |          |              |  
|Depreciation and amortization of intangibles                                           |  |        | 49,383    |                     |   | 13,423                  |   |              | 23       |              |  
|                                                                                       |  |        |           |                     |   |                         |   |              |          |              |  
|                                                                                       |  |        | 1,096,128 |                     |   | 277,025                 |   |              | 440      |              |  
|                                                                                       |  |        |           |                     |   |                         |   |              |          |              |  
|Operating income                                                                       |  |        | 68,707    |                     |   | 30,723                  |   |              | 733      |              |  
|                                                                                       |  |        |           |                     |   |                         |   |              |          |              |  
|Other expenses (income):                                                               |  |        |           |                     |   |                         |   |              |          |              |  
|Interest expense, net                                                                  |  |        | 128,807   |                     |   | 15                      |   |              | (1       | )            |  
|Other, net                                                                             |  |        | 7,653     |                     |   |                         |   |              |          |              |  
|                                                                                       |  |        |           |                     |   |                         |   |              |          |              |  
|                                                                                       |  |        | 136,460   |                     |   | 15                      |   |              | (1       | )            |  
|                                                                                       |  |        |           |                     |   |                         |   |              |          |              |  
|Equity in net loss of subsidiaries                                                     |  |        | (112,235  | )                   |   | (96,292                 | ) |              |          |              |  
|(Loss) income before income taxes                                                      |  |        | (179,988  | )                   |   | (65,584                 | ) |              | 734      |              |  
|Income tax (benefit) expense                                                           |  |        | (8,358    | )                   |   | 34                      |   |              | 254      |              |  
|                                                                                       |  |        |           |                     |   |                         |   |              |          |              |  
|(Loss) income from continuing operations before cumulative effect of accounting change |  |        | (171,630  | )                   |   | (65,618                 | ) |              | 480      |              |  
|Income (loss) from discontinued operations                                             |  |        |           |                     |   | 5,256                   |   |              | (148,645 | )            |  
|Cumulative effect of accounting change                                                 |  |        | (1,600    | )                   |   |                         |   |              |          |              |  
|                                                                                       |  |        |           |                     |   |                         |   |              |          |              |  
|Net (loss) income                                                                      |  | $      | (173,230  | )                   | $ | (60,362                 | ) | $            | (148,165 | )            | $
|                                                                                       |  |        |           |                     |   |                         |   |              |          |              |  

F-38

---





Condensed Consolidating Statement of Cash Flows    Twelve months ended December 31, 2007    In thousands

|                                                                         |  | Parent |         | Guarantor
Companies |   | Non-
Guarantor
Companies |   | Consolidated |      
|------------------------------------------------------------------------ |  | ------ | ------- | ------------------- | - | ------------------------ | - | ------------ | -----
|Cash Flows from Operating Activities                                     |  | $      | (27,414 | )                   | $ | 44,701                   |   | $            | 209  
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Cash Flows from Investing Activities:                                    |  |        |         |                     |   |                          |   |              |      
|Capital expenditures                                                     |  |        | (45,035 | )                   |   | (18,871                  | ) |              | (8   
|Software development costs capitalized                                   |  |        | (1,303  | )                   |   |                          |   |              |      
|Proceeds from sale of property, plant and equipment                      |  |        | 537     |                     |   | 39                       |   |              |      
|Proceeds from sale leaseback transactions                                |  |        | 10,691  |                     |   |                          |   |              |      
|Acquisition of business, net of cash acquired                            |  |        |         |                     |   | (203                     | ) |              |      
|Proceeds from sale of discontinued operations, net                       |  |        | 1,000   |                     |   |                          |   |              |      
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Net cash used in investing activities                                    |  |        | (34,110 | )                   |   | (19,035                  | ) |              | (8   
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Cash Flows from Financing Activities:                                    |  |        |         |                     |   |                          |   |              |      
|Net borrowings under revolving credit facilities                         |  |        | 2,574   |                     |   |                          |   |              |      
|Borrowings under term loan                                               |  |        | 50,000  |                     |   |                          |   |              |      
|Deferred financing costs                                                 |  |        | (1,982  | )                   |   |                          |   |              |      
|Decrease in outstanding checks drawn on controlled disbursement accounts |  |        | (13,461 | )                   |   | (867                     | ) |              |      
|Other financing activities                                               |  |        | 25,644  |                     |   | (26,147                  | ) |              | 289  
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Net cash provided by (used in) financing activities                      |  |        | 62,775  |                     |   | (27,014                  | ) |              | 289  
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Effect of exchange rate changes on cash                                  |  |        |         |                     |   |                          |   |              | 114  
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Net increase (decrease) in cash and cash equivalents                     |  |        | 1,251   |                     |   | (1,348                   | ) |              | 604  
|Cash and cash equivalents at beginning of year                           |  |        | 554     |                     |   | 4,001                    |   |              | 1,155
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Cash and cash equivalents at end of period                               |  | $      | 1,805   |                     | $ | 2,653                    |   | $            | 1,759
|                                                                         |  |        |         |                     |   |                          |   |              |      

F-39

---



Condensed Consolidating Statement of Cash Flows    Twelve months ended December 31, 2006    In thousands

|                                                                         |  | Parent |         | Guarantor
Companies |   | Non-
Guarantor
Companies |   | Consolidated |      
|------------------------------------------------------------------------ |  | ------ | ------- | ------------------- | - | ------------------------ | - | ------------ | -----
|Cash Flows from Operating Activities                                     |  | $      | (24,311 | )                   | $ | 36,608                   |   | $            | (607 
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Cash Flows from Investing Activities:                                    |  |        |         |                     |   |                          |   |              |      
|Capital expenditures                                                     |  |        | (36,476 | )                   |   | (10,376                  | ) |              | (84  
|Software development costs capitalized                                   |  |        | (2,049  | )                   |   |                          |   |              |      
|Proceeds from sale of property, plant and equipment                      |  |        | 776     |                     |   | 9                        |   |              |      
|Proceeds from sale of subsidiaries, net                                  |  |        |         |                     |   | 41,071                   |   |              |      
|Acquisition of business, net of cash acquired                            |  |        |         |                     |   | (21,017                  | ) |              |      
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Net cash (used in) provided by investing activities                      |  |        | (37,749 | )                   |   | 9,687                    |   |              | (84  
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Cash Flows from Financing Activities:                                    |  |        |         |                     |   |                          |   |              |      
|Net borrowings under revolving credit facilities                         |  |        | 41,470  |                     |   |                          |   |              |      
|Repayments of long-term debt                                             |  |        |         |                     |   | (34                      | ) |              |      
|Deferred financing costs                                                 |  |        | (388    | )                   |   |                          |   |              |      
|Decrease in outstanding checks drawn on controlled disbursement accounts |  |        | (20,488 | )                   |   | (1,319                   | ) |              |      
|Other financing activities                                               |  |        | 41,716  |                     |   | (41,042                  | ) |              | 392  
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Net cash provided by (used in) financing activities                      |  |        | 62,310  |                     |   | (42,395                  | ) |              | 392  
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Effect of exchange rate changes on cash                                  |  |        |         |                     |   |                          |   |              | 31   
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Net increase (decrease) in cash and cash equivalents                     |  |        | 250     |                     |   | 3,900                    |   |              | (268 
|Cash and cash equivalents at beginning of year                           |  |        | 304     |                     |   | 101                      |   |              | 1,423
|                                                                         |  |        |         |                     |   |                          |   |              |      
|Cash and cash equivalents at end of period                               |  | $      | 554     |                     | $ | 4,001                    |   | $            | 1,155
|                                                                         |  |        |         |                     |   |                          |   |              |      

F-40

---



Condensed Consolidating Statement of Cash Flows    Twelve months ended December 31, 2005    In thousands

|                                                                         |  | Parent |         | Guarantor
Companies |   | Non-
Guarantor
Companies |   | Consolidated |       
|------------------------------------------------------------------------ |  | ------ | ------- | ------------------- | - | ------------------------ | - | ------------ | ------
|Cash Flows from Operating Activities                                     |  | $      | (36,842 | )                   | $ | 48,437                   |   | $            | (5,902
|                                                                         |  |        |         |                     |   |                          |   |              |       
|Cash Flows from Investing Activities:                                    |  |        |         |                     |   |                          |   |              |       
|Capital expenditures                                                     |  |        | (36,238 | )                   |   | (3,927                   | ) |              |       
|Software development costs capitalized                                   |  |        | (2,032  | )                   |   |                          |   |              |       
|Proceeds from sale of property, plant and equipment and divested assets  |  |        | 794     |                     |   | 227                      |   |              |       
|Proceeds from sale of subsidiaries, net                                  |  |        | 2,361   |                     |   |                          |   |              |       
|Acquisition of business, net of cash acquired                            |  |        | (3,430  | )                   |   |                          |   |              |       
|Other investing activities                                               |  |        |         |                     |   | (3                       | ) |              | (1,517
|                                                                         |  |        |         |                     |   |                          |   |              |       
|Net cash used in investing activities                                    |  |        | (38,545 | )                   |   | (3,703                   | ) |              | (1,517
|                                                                         |  |        |         |                     |   |                          |   |              |       
|Cash Flows from Financing Activities:                                    |  |        |         |                     |   |                          |   |              |       
|Net borrowings under revolving credit facilities                         |  |        | 21,197  |                     |   |                          |   |              |       
|Repayments of long-term debt                                             |  |        | (6      | )                   |   |                          |   |              |       
|Deferred financing costs                                                 |  |        | (1,204  | )                   |   |                          |   |              |       
|Increase in outstanding checks drawn on controlled disbursement accounts |  |        | 14,349  |                     |   | 681                      |   |              |       
|Other financing activities                                               |  |        | 41,058  |                     |   | (45,347                  | ) |              | 8,604 
|                                                                         |  |        |         |                     |   |                          |   |              |       
|Net cash provided by (used in) financing activities                      |  |        | 75,394  |                     |   | (44,666                  | ) |              | 8,604 
|                                                                         |  |        |         |                     |   |                          |   |              |       
|Effect of exchange rate changes on cash                                  |  |        |         |                     |   |                          |   |              | (2,070
|                                                                         |  |        |         |                     |   |                          |   |              |       
|Net increase (decrease) in cash and cash equivalents                     |  |        | 7       |                     |   | 68                       |   |              | (885  
|Cash and cash equivalents at beginning of year                           |  |        | 297     |                     |   | 33                       |   |              | 2,308 
|                                                                         |  |        |         |                     |   |                          |   |              |       
|Cash and cash equivalents at end of period                               |  | $      | 304     |                     | $ | 101                      |   | $            | 1,423 
|                                                                         |  |        |         |                     |   |                          |   |              |       

F-41

---



23.   COMMITMENTS AND CONTINGENCIES

Certain claims, suits and allegations that arise in the ordinary course of business and certain environmental claims have been filed or are pending against the
Company. Management believes that all such matters in the aggregate would not have a material effect on the Company's consolidated financial statements.

*
* * * *

F-42

---





VERTIS, INC. AND SUBSIDIARIES        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS        In thousands

|                                 |  | Balance at
Beginning
of Year |         | Charges (Credits)
to Costs
and Expenses |   | Write offs
Net of
Recoveries |   | Balance
at End
of Year
|-------------------------------- |  | ---------------------------- | ------- | --------------------------------------- | - | ---------------------------- | - | ----------------------
|Allowance for Doubtful Accounts  |  |                              |         |                                         |   |                              |   |                       
|Year ended December 31, 2007     |  | $                            | 2,859   |                                         | $ | 463                          |   | $                     
|Year ended December 31, 2006     |  |                              | 1,494   |                                         |   | 942                          |   |                       
|Year ended December 31, 2005     |  |                              | 3,320   |                                         |   | 1,544                        |   |                       
|Deferred Tax Valuation Allowance |  |                              |         |                                         |   |                              |   |                       
|Year ended December 31, 2007     |  | $                            | 128,584 |                                         | $ | 68,817                       |   |                       
|Year ended December 31, 2006     |  |                              | 132,531 |                                         |   | (3,947                       | ) |                       
|Year ended December 31, 2005     |  |                              | 40,490  |                                         |   | 92,041                       |   |                       

---

F-43

---



QuickLinks