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

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FORM 10-K

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

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|For the year ended December 31, 2004 |  | 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) 528-9800Securities registered pursuant to Section 12 (b) of the Act:None

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

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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 ý    No o

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 an accelerated filer as defined in Exchange Act
rule 12b-2. Yes o    No ý

The number of shares outstanding of Registrant's common stock as of February 25, 2005 was 1,000 shares.

Documents
Incorporated By Reference:None



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VERTIS, INC.    ANNUAL REPORT ON FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 2004

TABLE OF CONTENTS

|Form 10-K
Item No.                                             |  | Name of Item                                                                          |  | Page
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|Part I                                                         |  |                                                                                       |  |     
|Item 1                                                         |  | Business                                                                              |  | 3   
|Item 2                                                         |  | Properties                                                                            |  | 11  
|Item 3                                                         |  | Legal Proceedings                                                                     |  | 12  
|Item 4                                                         |  | Submission of Matters to Vote of Security Holders                                     |  | 12  
|Part II                                                        |  |                                                                                       |  |     
|Item 5                                                         |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 13  
|Item 6                                                         |  | Selected Financial Data                                                               |  | 13  
|Item 7                                                         |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 16  
|Item 7A                                                        |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 31  
|Item 8                                                         |  | Financial Statements and Supplementary Data                                           |  | 31  
|Item 9                                                         |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 31  
|Item 9A                                                        |  | Controls and Procedures                                                               |  | 31  
|Item 9B                                                        |  | Other Information                                                                     |  | 32  
|Part III                                                       |  |                                                                                       |  |     
|Item 10                                                        |  | Directors and Executive Officers of Vertis                                            |  | 33  
|Item 11                                                        |  | Executive Compensation                                                                |  | 36  
|Item 12                                                        |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 40  
|Item 13                                                        |  | Certain Relationships and Related Transactions                                        |  | 44  
|Item 14                                                        |  | Principal Accounting Fees and Services                                                |  | 45  
|Part IV                                                        |  |                                                                                       |  |     
|Item 15                                                        |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 46  
|Index to Financial Statements and Financial Statement Schedule |  | F-1                                                                                  
|Signatures                                                     |  | II-1                                                                                 

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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" within the meaning of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. 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
"Certain Factors That May Affect Our Business," 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.

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PART I

ITEM 1    BUSINESS

Overview

Vertis, Inc. is a leading provider of targeted advertising, media, and marketing solutions that drive consumers to marketers more effectively. Our
comprehensive products and services range from consumer research, audience targeting, creative services, and workflow management to targeted advertising inserts, direct mail, interactive marketing,
packaging solutions, and digital one-to-one marketing and fulfillment. We deliver a comprehensive range of solutions that simplify, improve, and maximize the effectiveness of
multiple phases of our customers' marketing campaigns, from inception of an advertising concept, through design, production, targeted distribution, and ultimately the measurement of advertising
effectiveness. We believe that our ability to produce cost-effective and measurable results in a relatively short time-frame is critically important to our clients. Our clients
include more than 3,000 grocery stores, drug stores and other retail chains, general merchandise producers and manufacturers, financial and insurance service providers, newspapers, and advertising
agencies.

We
offer an extensive list of solutions across a broad spectrum of media designed to 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. We believe that the breadth of our client base limits our
reliance on any individual customer. Our top ten customers in 2004 accounted for 32.0% of our net sales, and no customer accounted for more than 7.6% of our net sales. We have excellent relationships
with our customers as evidenced by the average length of our relationships with our ten largest customers, which is over 17 years.

Vertis, Inc.
is a Delaware Corporation incorporated in 1993. In 2004, Vertis had approximately $1.6 billion of net sales and 8,000 employees worldwide. 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 specified 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 business segments based on the way management views and manages the Company, which is based on our geographic presence in the advertising
and marketing services industry. These business segments are Vertis North America and Vertis Europe. Vertis North America provides the full array of advertising, media and marketing solutions to
clients, primarily in the United States. Vertis Europe provides both production and direct mail services to clients overseas, principally in the United Kingdom. Financial and other information
relating to our business segments for each of 2004, 2003 and 2002 can be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Note 18,
"Segment Information", to our consolidated financial statements included in this Annual Report.

Vertis North America

General.Vertis North America provides the full array of targeted advertising, media, and marketing services. We enable
advertisers to achieve targeted distribution to large and diverse audiences. These products and services are delivered by means of our nationwide network of digitally connected facilities. Our
products and services include:



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We
are a leading provider of advertising inserts and the largest single producer of newspaper TV listing guides and Sunday comics in the United States. In 2004, we produced more than
30 billion advertising inserts. Advertising inserts are typically produced in color on better quality paper than the reproductions that appear in run-of-press newspaper
advertisements. In addition, advertising inserts allow marketers to vary layout, artwork, design, trim size, paper type, color and format. Versions may be targeted by newspaper zones and by specific
customer demographics.

We
provide 73 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 2004, we produced approximately 1.6 billion Sunday comics, and approximately 1.0 billion TV listing guides.

We
are also 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, broadbase direct mailings. Personalized direct mail enables consumer goods 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 highly individualized marketing campaigns are designed to enhance customer response levels and improve client marketing efficiencies

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through
on-demand workflow automation. In addition, we employ a broad range of technologies to assist clients with their advertising campaigns including digital media production and
content management solutions to retailers, consumer and commercial products companies and advertising agencies. These services and technologies enable clients to more efficiently create, produce and
manage traditional print and advertising content. More importantly, these services and technologies also enable clients to benefit from the influences of digital advertising media such as
CD-ROM and the Internet. Our integrated offering enables advertisers to maintain consistency of appearance of their products and brand names throughout various media forms.

Sales and Customers.Vertis North America employs approximately 140 sales representatives. In late 2004, our sales force was
realigned into one, integrated group, reporting functionally to the Senior Vice President of Sales for Vertis North America, to maximize the development of business across all producing platforms.
Three specialized sales teams focus on selling marketing solutions to financial services and insurance providers, automotive manufacturers/dealer networks, and non-profit organizations.
The Strategic Account Planning group provides market research to assist our customers in effectively designing and implementing targeted advertising and marketing campaigns.

Our
customers include grocery stores, drug stores, other retailers, newspapers, consumer goods manufacturers, financial institutions, Internet advertisers,
not-for-profit organizations, government agencies, advertising agencies, consumer packaging customers, and commercial products manufacturers. While a majority of our net sales
are made directly to clients, we also sell our products and services through agencies and brokers. Our advertising insert products are distributed in national newspapers and, depending on their target
audience, through various forms of mail distribution and in store circulation. Vertis North America's ten largest customers accounted for approximately 35.0% of our 2004 North American net sales, and
no single customer represented more than 8.3% of total net sales of Vertis. We have established and maintained long-standing customer relationships with our major customers.

Vertis Europe

General.Vertis Europe offers our European customers many of the products and services we offer our North American customers.
The products, services and technology offered in Europe include:



We
believe our European production facilities have unique production capabilities to meet demand for shorter run, highly personalized mailing and for transactional and billing
communications.

Sales and Customers.Vertis Europe has 34 sales representatives devoted to this segment's specific products and services.
Vertis Europe serves advertising agencies and corporate marketers. The main categories of direct marketing clients serviced are financial services, agency, publishing, mail order,
non-profit and retail. Vertis Europe's ten largest customers accounted for approximately 35.2% of our 2004 European net sales.

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Raw Materials

In 2004, we spent approximately $600 million on raw materials. The primary raw materials required in our operations are paper and ink. We also use other
raw materials, such as film, 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.

Our
results of operations depend to a large extent on the cost of paper and our ability to pass along to our customers any increases in these costs and remain competitive when there are
decreases. 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.

We
have contracts covering the purchases of ink and press supplies, (i.e. plates, blankets, solutions, etc.) These contracts, which range from 1 to 8 years in length, include
target minimum quantities and prices. All of these agreements allow for shortfalls of purchase minimums to be made up over the life of the contract. In addition, each of the agreements allows for the
reduction in obligations for a decline in volume experienced by Vertis, and all have competitive pricing clauses, whereby suppliers' prices must remain competitive in the market or the purchase
minimums can be adjusted.

In
January 2005, we purchased Elite Mailing and Fulfillment Services, Inc., a supplier with whom we previously had an agreement to purchase all of our requirements for
mailing services (inserting, sorting, tying, bagging and applying postage to direct mail), for $3.4 million. We believe this acquisition may provide additional growth opportunities in our
direct mail platform, especially with financial services and insurance companies.

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 customer's markets, 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.

Our
major competitors in North America are R.R. Donnelley & Sons Company, Quebecor World Inc., American Color Graphics, Valassis Communications, Inc.,
Harte-Hankes, Inc., News America Marketing, ADVO, Inc., Acxiom Corporation, Experian, Applied Graphics Technologies, Inc., Schawk, Inc., and Southern Graphics, a division
of Alcoa. In addition, we compete for advertising dollars with television, radio and other forms of print and electronic media. Vertis Europe's major competitors in premedia are Seven Worldwide, a
division of Applied Graphics Technologies, Inc., and The Adplates Group. The U.K. direct mail market, while also fragmented, has certain key players, including Communisis, St. Ives, Polestar
and Primecom, who collectively dominate the market.

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. Except as described herein, we are not aware of
any pending legislation that in our view is likely to affect

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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. These laws and regulations impose significant capital and
operating costs on our business and there are significant penalties for violations.

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.

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, 2004, we had approximately 8,000 employees. Most of the hourly employees at our North Brunswick and Newark, New Jersey facilities
(approximately 168 employees) are represented by the Paper, Allied Industrial, Chemical and Energy Workers International Union. In addition, approximately 10
employees of our Chicago facilities are represented by the Graphic Communications International Union or the Chicago Typographical Union. We believe we have satisfactory employee and labor relations.

Certain Factors That May Affect Our Business

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

We currently have a substantial amount of debt. As of December 31, 2004, our total consolidated debt was $1,024.0 million, excluding our accounts
receivable securitization facility. Our substantial debt could have important consequences for our financial condition, including:



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The
indentures governing our debt instruments, subject to specified limitations, permit us and our subsidiaries to incur substantial additional debt. In addition, as of
December 31, 2004, our senior credit facility would permit us to borrow up to an additional $113.8 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.

Servicing our 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. Based on the current and anticipated level of operations, we believe that our
cash flow from operations, together with amounts available under our senior credit facility, is adequate to meet our anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments for the next twelve months. We cannot assure you, however, that our business will continue to generate cash flow at or above current levels. If we are unable
to generate sufficient cash flow from operations in the future to service our debt, we may have to refinance all or a portion of our existing debt or obtain additional financing. We cannot assure you
that any refinancing of this kind would be possible or that any additional financing could be obtained. 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:



In
addition, our senior credit facility requires us to maintain a minimum Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") amount, as calculated per the credit
agreement. For more information about the restrictions and requirements under our senior credit facility, see Note 9 "Long-Term Debt" to our consolidated financial statements
included in this Annual Report and "Liquidity and Capital Resources" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".

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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. 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. 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" above. 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 and changes in product mix favoring simpler formats, both
of which primarily affect the margin on our advertising insert and direct mail products. Simpler product formats generally result in increased competition, thereby increasing capacity for our products
and services. The competitive pricing pressures and changes in product mix have resulted in a decline in our 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.

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. In 2002, the advertising industry posted a relatively modest year-over-year growth in spending of approximately 2%, following a
year-over-year decline in advertising spending in 2001, which was the first such decline since WWII. Although 2002 and 2003 represented a partial reversal of the decline in
2001, the rate of year-over-year growth was below historical growth rates dating back to 1990. Advertising growth in 2004 increased by approximately 7% domestically and 6%
worldwide, which represents a shift back to the historical growth rates experienced prior to 2001. A substantial portion of our revenue is generated from customers in various sectors of the retail
industry, which has been particularly impacted by the recent challenging economic environment. 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 another period of economic downturn or stagnation, our results of operations may be adversely affected.

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 (i) we are not able to pass paper
cost increases to our customers, or (ii) our customers reduce the size of their print advertising programs, our sales and profitability could be

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negatively
affected. A decline in volume may decrease our cash flow, and make it difficult for us to service our level of debt.

Capacity
in the paper industry has remained relatively stable in recent years. 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 net sales and profitability.

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, they might have a substantial impact on our direct marketing services, which represent over 17% of our
consolidated revenues for the twelve months ended December 31, 2004, 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. Donald E. Roland and Mr. Dean D.
Durbin. Both Mr. Roland and Mr. Durbin have significant years of service in the advertising and marketing industry, including time spent in senior-level positions at our current
end-user customer groups. We believe each of Messrs. Roland and Durbin provides us with an in-depth understanding of the needs of our customers and are key to delivering
our integrated advertising products and marketing services. In addition, the market for qualified personnel is competitive and our future success will depend upon, among other factors, our ability to
attract and retain these 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 may choose to take actions that are in its best interests as a debt holder, rather than a shareholder.

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ITEM 2    PROPERTIES

Executive Offices

Our principal executive offices are located at 250 West Pratt Street, Baltimore, Maryland, and comprise approximately 56,000 square feet of leased space, pursuant
to a lease agreement expiring on August 31, 2007.

Production Facilities

As of December 31, 2004, we owned 13 and leased 44 production facilities, 49 of which are located in the United States, with an aggregate area of
approximately 3,800,000 square feet. The leased production facilities have lease terms expiring at various times from 2005 to 2016. 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
|----------------------- |  | -------------- |  | ---------------------
|North America Locations |  |                |  |                      
|Atlanta, GA(1)          |  | 94,700         |  | Fee Ownership        
|Atlanta, GA.            |  | 15,588         |  | February 28, 2006    
|Atlanta, GA.            |  | 10,607         |  | March 31, 2008       
|Bristol, PA.            |  | 123,000        |  | Fee Ownership        
|Carlsbad, CA            |  | 17,600         |  | September 30, 2005   
|Chalfont, PA            |  | 320,000        |  | Fee Ownership        
|Charlotte, NC.          |  | 105,400        |  | April 30, 2013       
|Chicago, IL             |  | 38,302         |  | July 31, 2009        
|Chicago, IL             |  | 52,024         |  | May 31, 2011         
|City of Industry, CA    |  | 103,000        |  | September 30, 2006   
|Clifton Park, NY        |  | 9,219          |  | May 31, 2005         
|Columbus, OH            |  | 141,185        |  | December 31, 2014    
|Dallas, TX              |  | 90,000         |  | September 30, 2007   
|Delray Beach, FL        |  | 10,300         |  | May 31, 2005         
|East Longmeadow, MA.    |  | 159,241        |  | February 3, 2006     
|Elk Grove Village, IL.  |  | 80,665         |  | August 31, 2007      
|Greenville, MI          |  | 130,000        |  | Fee Ownership        
|Harrison, NJ            |  | 22,125         |  | May 31, 2010         
|Irvine, CA              |  | 29,825         |  | May 21, 2005         
|Irving, TX              |  | 91,649         |  | November 30, 2012    
|Lenexa, KS              |  | 89,403         |  | Fee Ownership        
|Long Island City, NY    |  | 11,500         |  | August 31, 2006      
|Manassas, VA            |  | 108,120        |  | May 31, 2014         
|Minnetonka, MN          |  | 8,550          |  | August 31, 2006      
|Monroe Township, NJ     |  | 57,987         |  | February 28, 2009    
|Newark, NJ              |  | 22,692         |  | December 31, 2007    
|Newark, NJ              |  | 23,000         |  | Fee Ownership        
|New York, NY            |  | 6,500          |  | July 31, 2006        
|New York, NY            |  | 9,000          |  | September 30, 2005   
|Niles, MI.              |  | 90,000         |  | Fee Ownership        
|North Brunswick, NJ     |  | 173,232        |  | Fee Ownership        
|North Haven, CT         |  | 30,600         |  | December 27, 2007    
|                        |  |                |  |                      

11

---



|Pomona, CA         |  | 144,542 |  | May 31, 2006      
|------------------ |  | ------- |  | ------------------
|Portland, OR       |  | 125,250 |  | October 31, 2007  
|Richmond, VA.      |  | 4,600   |  | June 30, 2009     
|Riverside, CA      |  | 84,000  |  | Fee Ownership     
|Rochester, NY      |  | 80,000  |  | Fee Ownership     
|Sacramento, CA     |  | 57,483  |  | Fee Ownership     
|Salt Lake City, UT |  | 103,600 |  | August 31, 2009   
|San Antonio, TX.   |  | 67,900  |  | Fee Ownership     
|San Antonio, TX.   |  | 7,927   |  | March 31, 2008    
|San Francisco, CA. |  | 30,000  |  | June 14, 2005     
|San Francisco, CA. |  | 3,200   |  | June 14, 2005     
|San Leandro, CA    |  | 143,852 |  | August 31, 2005   
|Saugerties, NY.    |  | 225,000 |  | Fee Ownership     
|Scottsdale, AZ     |  | 7,184   |  | April 30, 2005    
|St. Louis, MO      |  | 38,782  |  | May 30, 2006      
|St. Louis, MO      |  | 30,300  |  | December 31, 2006 
|Tampa, FL.         |  | 72,418  |  | December 31, 2008 
|Europe Locations:  |  |         |  |                   
|Croydon, UK.       |  | 50,004  |  | December 25, 2008 
|Croydon, UK.       |  | 6,223   |  | December 24, 2013 
|Leicester, UK.     |  | 58,105  |  | January 23, 2006  
|Leicester, UK.     |  | 35,115  |  | September 28, 2007
|Leicester, UK.     |  | 34,000  |  | March 11, 2013    
|London, UK.        |  | 17,429  |  | November 29, 2008 
|London, UK.        |  | 12,356  |  | June 20, 2016     
|Swindon, UK.       |  | 180,000 |  | June 25, 2014     

---

Sales Offices and Other Facilities

We maintain a large number of facilities for use as sales offices and other administrative purposes. All but two of the sales offices and other facilities are
leased, with lease terms expiring at various times from 2005 to 2008.

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, 2004.

12

---





PART II

ITEM 5    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Not applicable.

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,
2004, 2003, 2002, 2001 and 2000. The historical data for the three-year period ended December 31, 2004 has been derived from our audited consolidated financial statements included
elsewhere in this Annual Report. The historical data for the two-year period ended December 31, 2001 has been derived from our audited consolidated financial statements not included
herein.

EBITDA
is included in this Annual Report as it is the primary measure we use to evaluate our performance. EBITDA, as we used it for this purpose, represents net (loss) income, 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 its most directly comparable GAAP measure, net (loss) income, is set forth in
footnote (11) below.

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

13

---



related
historical consolidated financial statements and related notes included elsewhere in this Annual Report.

|                                                                                    |  | Year ended December 31, |          
|----------------------------------------------------------------------------------- |  | ----------------------- | ---------
|
|
|Operating data:                                                                     |  |                         |          
|Net sales                                                                           |  | $                       | 1,645,051
|Operating income                                                                    |  |                         | 104,148  
|Interest expense, net(6)                                                            |  |                         | 132,809  
|Loss before income tax expense (benefit) and cumulative effect of accounting change |  |                         | (76,346  
|Loss before cumulative effect of accounting change                                  |  |                         | (11,133  
|Cumulative effect of accounting change, net                                         |  |                         |          
|Net loss                                                                            |  |                         | (11,133  
|Balance sheet data (at year end):                                                   |  |                         |          
|Working capital(9)                                                                  |  | $                       | (72,738  
|Net property, plant and equipment                                                   |  |                         | 379,438  
|Total assets                                                                        |  |                         | 1,049,795
|Long-term debt (including current portion)                                          |  |                         | 1,024,048
|Accumulated deficit                                                                 |  |                         | (753,661 
|Other stockholder's equity                                                          |  |                         | 405,101  
|Common stockholder's (deficit) equity                                               |  |                         | (348,560 
|Other data:                                                                         |  |                         |          
|Capital expenditures                                                                |  | $                       | 51,001   
|Cash flows provided by operating activities                                         |  |                         | 47,545   
|Cash flows used in investing activities                                             |  |                         | 18,992   
|Cash flows (used in) provided by financing activities                               |  |                         | (29,608  
|EBITDA(11)                                                                          |  |                         | 131,488  
|Dividends to parent                                                                 |  |                         |          
|Ratio of earnings to fixed charges                                                  |  |                         |         

---

14

---



(in thousands)

2004

2003

2002

2001

2000Net (loss) income

$
(11,133
)
$
(95,925
)
$
(120,146
)
$
(54,863
)
$
(25,212
)Interest expense, net


132,809


136,557


134,374


132,816


150,032Income tax (benefit) expense


(65,213
)

48,429


(2,479
)

(21,572
)

(6,901
)Depreciation and amortization of intangibles


75,025


83,622


89,241


104,350


97,544EBITDA

$
131,488

$
172,683

$
100,990

$
160,731

$
215,463


15

---





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 operation of Vertis during the three years ended December 31, 2004. The analysis
is based on the consolidated financial statements and related notes that are included elsewhere in this Annual Report, prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP").

Introductory Overview

Executive Summary

Vertis is a leading provider of targeted advertising, media and marketing services. We deliver a comprehensive range of solutions that simplify, improve and
maximize the effectiveness of multiple phases of our customers' marketing campaigns from the inception of an advertising concept, through design, production, targeted distribution, and ultimately to
providing advertising effectiveness measurement.

We
operate through two business segments based on the way management views and manages the Company, which is based on our geographic presence in the advertising and marketing services
industry. These business segments are Vertis North America and Vertis Europe. Vertis North America provides the full array of advertising, media and marketing solutions to clients, primarily in the
United States. Vertis Europe provides both production and direct mail services to clients overseas, principally in the United Kingdom.

In
2002, the advertising industry posted a relatively modest year-over-year growth in spending of approximately 2%, following a
year-over-year
decline in advertising spending in 2001, which was the first such decline since WWII. Although 2002 and 2003 represented a partial reversal of the decline in 2001, the rate of
year-over-year growth was below historical growth rates dating back to 1990. Advertising growth in 2004 increased by approximately 7% domestically and 6% worldwide, which
represents a shift back to the historical growth rates experienced prior to 2001. This improvement in year-over-year advertising spending in 2004 is reflected in the increase
in volume for our inserts and direct mail platforms in 2004 as compared to 2003.

Our
operating results for 2004 were favorably impacted by increased volume for our direct mail and insert products and services in North America, albeit at lower pricing. Pricing
includes the impact on revenue and earnings of product, customer, and equipment mix as well as competitive pricing pressures. Product mix includes format changes to simpler products in an effort by
retailers and other customers to reduce costs. Additionally, over the three year period ended December 31, 2004, we believe that the introduction of new technologies, continued excess capacity
in the industry, consolidation in our customer's markets, and softness in traditional brand advertising spending, combined with the cost pressures facing customers resulting from other factors have
resulted in margin pressures and increased competition in our core businesses. We expect these influences on our operating performance to continue until overall market conditions and capacity
utilization stabilize. We expect some of the market conditions we experienced in the fourth quarter will linger into 2005. As such, we continue to lower our overall operating costs in spite of
increases in energy costs, freight, repairs and maintenance and contract services. To address the issues facing our customers and the impacts on our operating performance, we consolidated the North
America Sales team under the direction of a Senior Vice President of Sales for Vertis North America who joined the Company in the fourth quarter of 2004. We expect the new sales organization will
improve our sales efficiency and deliver top-line growth.

16

---



As
a result of the above, our North America segment posted year-over-year growth, which was partially offset by a decline at Vertis Europe where excess capacity
and lower spending by traditional direct mail users and other advertisers negatively impacted our performance.

Through
the first nine months of 2004, our net sales were $1,196.0 million, a $56.5 million or 5.0% increase over net sales of $1,139.5 million through
September 30, 2003. Excluding the $44.0 million non-cash loss resulting from the termination of real estate leasehold interests in 2004, as discussed below, and the
$10.1 million insurance proceeds in 2003, EBITDA through September 30, 2004 would have been $124.5 million, a $20.8 million or 20.1% over EBITDA of $103.7 million
through September 30, 2003. The EBITDA growth through September 30 was due to improved performance in our North America segment, partially offset by a decline in our European segment. In
the fourth quarter of 2004, net sales and EBITDA amounted to $449.1 million and $50.9 million, respectively, compared to $446.4 million and $58.9 million, respectively, in
the fourth quarter of 2003. The decline in fourth quarter EBITDA of $8.0 million, or 13.6%, was due to continued weak demand in our European business, which negatively impacted EBITDA by
$5.7 million, of which virtually the entire amount was experienced in the direct mail business. The balance of the
quarter-over-quarter decline was the result of lower pricing, including product, customer, and equipment mix changes and, to a lesser extent, lower volume in our direct mail
business partially offset by a modest increase in insert volume and lower costs, including lower restructuring costs.

Cost
reductions have been accomplished through streamlining of shared service and corporate functions, combining operations, closing unprofitable locations, staff reductions and asset
write-offs. These actions have resulted in the Company incurring approximately $108.1 million in restructuring charges since 1999.

On
December 22, 2004, the Company entered into a $200 million, four-year revolving credit agreement (the "Credit Facility"). The Credit Facility replaces the
$250 million revolving credit facility that was to expire in December 2005 (the "Prior Credit Facility"). The Prior Credit Facility was repaid in full and terminated concurrent with the
closing of the Credit Facility.

Liquidity
continues to be a primary focus for the Company. The Company has approximately $113.8 million available to borrow under the Credit Facility, its primary source of funds.
By terminating the Prior Credit Facility and entering into the Credit Facility, the Company has increased its financial flexibility by eliminating leverage and interest rate coverage covenants. Under
the Credit Facility, the Company is subject to a minimum EBITDA covenant requiring the Company to maintain EBITDA, as defined by the Credit Facility, of $160 million on a trailing twelve-month
basis. As of December 31, 2004, the Company was in compliance with all of its 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 2005, including results from January, we believe we will be in compliance
in the upcoming year.

The
Company continues to be highly leveraged. However, as a result of the refinancing of the Company's revolving credit facility and other refinancings over the last few years, no
significant debt repayments are due until 2008 and beyond. This, combined with the elimination of the leverage and interest rate covenants as discussed above, has allowed the Company to restructure
the business and focus on improving operations.

On
September 14, 2004, we entered into a termination and release agreement whereby we terminated our leasehold interest in five real estate properties located in Austria. As a
result of this transaction, we received net proceeds of approximately $31 million, after transaction expenses. These proceeds were applied against our revolving credit facility. As a result of
the transaction, we recorded a non-cash loss related to the termination and release of $44.0 million and a tax benefit of $66.7 million.

17

---



Capital
expenditures amounted to approximately $51.0 million, $44.1 million and $43.9 million in 2004, 2003 and 2002, respectively. Capital spending has been
directed toward projects that improve efficiency, maintain our infrastructure, and upgrade our equipment base. We expect the level of capital expenditures in 2005 to be relatively consistent with the
2004 level of capital expenditures.

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 2004 net sales, 23.6% were generated in the first quarter, 24.1% in the second, 25.0% in the
third and 27.3% in the fourth. Profitability, however, continues to follow a more seasonal pattern due to the higher margins and efficiencies gained from running at full 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 and interest costs that are
incurred evenly throughout the year. 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.

Restructuring

In 2002, the Company planned and implemented two restructuring programs (the "2002 Programs"). In the first quarter of 2002, under the 2002 Programs, two Vertis
Europe facilities were combined and ten employees were terminated resulting in severance of $0.7 million, facility closure costs of $1.6 million and losses on disposition of assets of
$0.2 million. The North America portion of the 2002 Programs resulted in a reduction in work force of approximately 530 employees, which resulted in a severance charge of $8.0 million
and the closure of five facilities, which resulted in a charge of $7.0 million including $4.9 million in losses on the disposition of assets at the closed facilities and an offsetting
adjustment of $1.3 million to adjust the 2001 estimated restructuring accrual. Additionally, the Company recorded $1.6 million of other charges, which are primarily legal fees and the
cost of leased equipment no longer needed due to the North America restructurings.

The
Company began a restructuring program in the U.S. and the U.K. in the third quarter of 2003 (the "2003 Program"), the execution of which was complete as of June 2004. The 2003
Program included the closure of facilities, some of which were associated with the consolidation of operations; transfer of certain positions to the corporate office; reductions in work force of
approximately 260 employees; and the abandonment of assets associated with vacating these premises. As of December 31, 2003, costs associated with the 2003 Program were $19.2 million
(net of estimated sublease income of $7.7 million) of which approximately $3.0 million are non-cash costs. The Vertis Europe portion of the 2003 Program was complete as of
December 31, 2003. The Vertis North America portion of the 2003 Program was complete as of the second quarter of 2004, however an adjustment to restructuring expense of $3.0 million was
made in December 2004 as the amount of facility closure costs expected to be paid was recalculated based on a revised assumption of estimated sublease income.

In
2003 Vertis North America recorded, under the 2003 Program, $4.7 million in severance costs due to headcount reductions of 200 employees, $6.9 million in facility
closure costs and $3.0 million in asset write-offs related to the closure of five facilities. Additionally, Vertis Europe recorded $0.6 million in severance costs in 2003,
under the 2003 Program, due to headcount reductions of 14 employees related to the closure of one facility and the consolidation of several subsidiaries into one entity.

Vertis
Europe began a new restructuring program in the second quarter of 2004 (the "2004 Program") that included planned staffing reductions totaling approximately 184 employees. The
2004 Program was substantially complete as of December 31, 2004. Additionally, in 2004 the Company announced an amendment of an executive level employment agreement at the Vertis corporate
office resulting in an estimated total cost of $1.2 million.

18

---



In
the twelve months ended December 31, 2004, under the 2003 Program, Vertis North America recorded $0.5 million in severance costs due to headcount reductions of
approximately 50 employees, and $3.5 million in facility closure costs. In 2004, Vertis Europe recorded $2.3 million in severance costs under the 2004 Program associated with the
termination of 184 employees and $0.1 million in facility closure costs associated with the 2002 Programs. Additionally, in the fourth quarter of 2004, $0.5 million of costs were
recorded related to the amendment of an executive level employment agreement at the Vertis Corporate office. The remainder of the costs will be recorded in 2005.

In
connection with these actions, we recorded $6.9 million, $15.2 million, and $19.1 million of restructuring charges in the years ended December 31, 2004,
2003 and 2002, respectively. We expect to pay $4.1 million of the accrued restructuring costs in 2005 and the remainder, approximately $5.0 million, by 2011. For more information about
our restructuring charges, see Note 2 of 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 net sales 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. Changes in the cost of paper do not materially impact our
net earnings since we are generally able to pass on increases in the cost of paper to our customers, while decreases in paper costs generally result in lower prices to customers.

Variances
in expenses expressed in terms of percentage of net sales 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.

Also
affecting the comparability of the results from year-to-year are the following items:



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

19

---



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 Sales |  
|-------------------------------------------- |  | ----------------------- | --------- | ------------------- | -
|
|
|Net sales                                    |  | $                       | 1,645,051 |                     | $
|                                             |  |                         |           |                     |  
|Costs of production                          |  |                         | 1,281,952 |                     |  
|Selling, general and administrative          |  |                         | 177,025   |                     |  
|Restructuring charges                        |  |                         | 6,901     |                     |  
|Depreciation and amortization of intangibles |  |                         | 75,025    |                     |  
|                                             |  |                         |           |                     |  
|Total operating costs                        |  |                         | 1,540,903 |                     |  
|                                             |  |                         |           |                     |  
|Operating income                             |  |                         | 104,148   |                     |  
|                                             |  |                         |           |                     |  
|Other data:                                  |  |                         |           |                     |  
|Cash flows provided by operating activities  |  | $                       | 47,545    |                     | $
|Cash flows used in investing activities      |  |                         | 18,992    |                     |  
|Cash flows used in financing activities      |  |                         | 29,608    |                     |  
|EBITDA                                       |  |                         | 131,488   |                     |  

EBITDA
is included in this Annual Report as it is the primary measure we use to evaluate our performance. EBITDA, as we used it for this purpose, represents net (loss) income, 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 its most directly comparable GAAP measure, net (loss) income, is provided as follows:

|                                             |  | Year ended December 31, |        
|-------------------------------------------- |  | ----------------------- | -------
|
|
|Net loss                                     |  | $                       | (11,133
|Interest expense, net                        |  |                         | 132,809
|Income tax (benefit) expense                 |  |                         | (65,213
|Depreciation and amortization of intangibles |  |                         | 75,025 
|                                             |  |                         |        
|EBITDA                                       |  | $                       | 131,488
|                                             |  |                         |        

20

---



Results of Operations2004 compared to 2003



For the year ended December 31, 2004, our consolidated net sales increased $59.2 million, or 3.7%, from $1,585.9 million in 2003 to
$1,645.1 million in 2004.

At
Vertis North America, net sales increased $57.8 million, or 4.0%, from $1,448.5 million for the year ended December 31, 2003 to $1,506.3 million for the
year ended December 31, 2004. The increase in net sales of our North America segment was due to a number of factors, as follows.



At
Vertis Europe, net sales for the year ended December 31, 2004, were $138.7 million, an increase of $1.3 million, or 0.9%, compared to 2003 net sales, which
totaled $137.4 million. Excluding the impact of the foreign exchange rate fluctuation, aggregating $14.9 million, Vertis Europe's net sales were down $13.6 million. Approximately
63% of the decline was the result of competitive pressure and lower volume for premedia products and services, with the balance due to a decline in our European direct mail business.

See
also "Segment Performance" for a discussion of EBITDA by segment.



For the year ended December 31, 2004, our consolidated costs of production increased $55.6 million, or 4.5%, from $1,226.4 million in 2003 to
$1,282.0 million in 2004. The increase in paper and ink consumed represents $53.0 million, or 95% of the increase in costs of production for the year ended December 31, 2004. The
remainder of the increase in costs of production reflects increases in energy costs, freight, repairs and maintenance and contract services offset by decreases in staffing costs, particularly direct
labor, group insurance and the cost of other materials used in the production process.

Restructuring
charges for the year ended December 31, 2004 totaled $6.9 million. The comparable 2003 period included restructuring charges of $15.2 million. The
Vertis North America restructuring charges in 2004 are comprised of $0.5 million in severance costs due to headcount reductions of approximately 50 employees, and $3.5 million in
facility closure costs. In 2004, Vertis Europe recorded $2.3 million in severance costs due to headcount reductions of approximately 184 employees and $0.1 million in facility closure
costs associated with the restructuring program implemented in 2002. Additionally, in the fourth
quarter of 2004, $0.5 million of costs were recorded related to an amendment of an executive level employment agreement at the Vertis Corporate office.

21

---







Interest expense, net decreased $3.7 million in the year ended December 31, 2004 as compared to 2003. Included in the 2003 interest amount was
$11.0 million of deferred financing fees write-off in connection with the retirement of the Term A and B loans, as well as $6.6 million in interest expense recorded on these loans prior
to their write off in June 2003. In 2004, we recorded a full year of interest expense, $34.1 million, on the 93/4% senior secured second lien notes which were issued in
June 2003 as compared to seven months of interest expense, $19.4 million, in 2003. This $14.7 million increase in interest expense was more than offset by the $17.6 million
decrease from the prior year associated with the 2003 amounts discussed above. See Note 9 to our consolidated financial statements included in this Annual Report for further discussion of debt
and related transactions.

The
$53.5 million year-over-year change in other, net from $5.8 million of income in 2003 to $47.7 million of expense in 2004 is primarily
due to the $44.0 million non-cash loss associated with the termination of the Company's leasehold interest in the properties as discussed in the "Executive
Summary" section above, and the $10.1 million recovery recorded in 2003 received from a settlement to the legal proceeding arising from a life insurance policy which
covered the former Chairman of Vertis Holdings, Inc. For a more detailed discussion of the other miscellaneous components of Other, net see Note 16 to our consolidated financial
statements included in this Annual Report.



Net loss for the year ended December 31, 2004 was $11.1 million, a decrease of $84.8 million, or 88.4%, compared to a net loss of
$95.9 million for the year ended December 31, 2003. During 2004, we recorded a tax benefit of $65.2 million of which $66.7 million was the result of the termination of our
leasehold interest in the real estate properties as discussed above. Included in the 2003 net loss is an increase of $67.4 million in the tax valuation allowance on deferred tax assets (see
"Other Factors" below). Loss before income taxes increased from the comparable prior year period by $28.9 million. This increase is a result of the aforementioned changes in net sales and
costs, as discussed above.



Set forth below is a discussion of the performance of our business segments based on EBITDA, which is the measure reported to our chief operating decision makers
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 the directly comparable
consolidated GAAP measure, net (loss) income, in accordance with Financial Accounting Standards Board ("FASB") Statement No. 131, "Disclosure about Segments of an Enterprise and Related
Information", is contained in the notes to our consolidated financial statements included elsewhere herein.

At
Vertis North America, EBITDA amounted to $188.8 million for the year ended December 31, 2004, an increase of $24.5 million, or 14.9%, compared to
$164.3 million in the comparable 2003 period. The increase reflects the increase in direct mail and insert volume of $15.4 million, partially offset by the decline in pricing, including
the impact of product, customer, and equipment mix changes, aggregating $6.9 million. The changes in net sales in our premedia products and services resulted in a decline in EBITDA of
$2.7 million. EBITDA growth includes lower operating and restructuring costs of $8.0 million and $10.4 million, respectively.

At
Vertis Europe, an EBITDA loss of $2.0 million for the year ended December 31, 2004, represents a decline in EBITDA of $10.5 million as compared to EBITDA of
$8.5 million in the comparable prior year. The decline was the result of lower net sales and an increase in restructuring costs of $1.8 million.

22

---



Results of Operations2003 compared to 2002



For the year ended December 31, 2003, our consolidated net sales declined $89.3 million, or 5.3%, from $1,675.2 million in 2002 to
$1,585.9 million in 2003.

At
Vertis North America, net sales declined $88.0 million, or 5.7%, from $1,536.5 million for the year ended December 31, 2002 to $1,448.5 million for the
year ended December 31, 2003. The decline in net sales was the result of:



At
Vertis Europe, net sales for the year ended December 31, 2003, were $137.4 million, a decline of $1.5 million, or 1.1%, compared to 2002 net sales, which totaled
$138.9 million. Excluding the positive impact of the foreign exchange rate fluctuation, aggregating $10.9 million, Vertis Europe's net sales were down $12.4 million due to a 12.7%
decline in sales from direct mail products and services for the year ended December 31, 2003, which was only partially offset by modest growth in net sales arising from our advertising
production capabilities for the same period. The decline in net sales from direct mail products and services reflects subdued business conditions due to industry-wide excess capacity and
changes to simpler product formats, both resulting in lower prices.



For the year ended December 31, 2003, our consolidated costs of production decreased $29.9 million, or 2.4%, from $1,256.3 million in 2002 to
$1,226.4 million in 2003. The cost of paper and ink consumed represents $13.7 million and $3.5 million, respectively, of the decline in costs of production for the year ended
December 31, 2003. The balance of the decline in costs of production reflects the decline commensurate with the noted declines in net sales, cost management of variable and fixed costs and the
ongoing efforts to improve operating efficiencies.

Selling,
general and administrative expenses decreased $9.8 million, or 5.2%, from $187.1 million in 2002 to $177.3 million in 2003. The decline was largely the
result of lower staffing-related costs and includes the benefits of the Company's restructuring activities. Selling, general and administrative expenses were 11.2% of net sales in both 2003 and 2002.

Restructuring
charges for the year ended December 31, 2003 totaled $15.2 million. The comparable 2002 period included restructuring charges of $19.1 million. The
Vertis North America restructuring charges in 2003 are comprised of $4.7 million in severance costs due to headcount reductions of 200 employees, $6.9 million in facility closure costs
and $3.0 million in asset write-offs related to the closure of five facilities. In 2003, Vertis Europe recorded $0.6 million in severance costs due to headcount reductions of
14 employees related to the closure of one facility and the consolidation of several subsidiaries into one entity.

23

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Operating
income amounted to $83.3 million for the year ended December 31, 2003, a decline of $40.2 million, or 32.6% compared to operating income of
$123.5 million in the comparable 2002 period. The reduction in operating income is attributable to the noted declines in net sales, partially offset by reductions in costs of production,
selling, general and administrative costs and restructuring costs as previously discussed. As a percentage of net sales, operating income decreased 2.1 percentage points to 5.3% for the year
ended December 31, 2003 as compared to 7.4% in 2002.



Interest expense, net increased $2.2 million in the year ended December 31, 2003 as compared to 2002, due to the interest associated with the
issuance of the 93/4% notes in June 2003 and the issuance of the
107/8% notes in June and November 2002, offset by the decrease in interest expense due to the payments on the revolver and term loans related to those issuances.

The
year-over-year increase in other, net of $9.1 million is primarily due to a $10.1 million recovery in 2003 from a settlement to the legal
proceeding arising from a life insurance policy which covered the former Chairman of Vertis Holdings, Inc., offset by a $1.1 million adjustment to record the changes in the interest rate
swap agreement (see Note 9 to our consolidated financial statements included in this Annual Report.



Net loss for the year ended December 31, 2003 was $95.9 million, a decrease of $24.2, or 20.1%, compared to a net loss of $120.1 million for
the year ended December 31, 2002. Included in the 2003 net loss is an increase of $67.4 million in the tax valuation allowance on deferred tax assets (see "Other Factors" below).
Included in the 2002 net loss is a $108.4 million charge for the cumulative effect of accounting change resulting from our adoption of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangibles" (see "New Accounting Pronouncements" below). Loss before income tax expense and cumulative effect of accounting change for the year ended
December 31, 2003 increased from the comparable prior year period by $33.2 million. This increase is a result of the aforementioned changes in net sales and costs, as discussed above.



Set forth below is a discussion of the performance of our business segments based on EBITDA, which is the measure reported to our chief operating decision makers
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 the directly comparable
consolidated GAAP measure, net (loss) income, in accordance with Financial Accounting Standards Board ("FASB") Statement No. 131, "Disclosure about Segments of an Enterprise and Related
Information", is contained in the notes to our consolidated financial statements included elsewhere herein.

At
Vertis North America, EBITDA amounted to $164.3 million for the year ended December 31, 2003, an increase of $45.0 million, or 37.7%, compared to
$119.3 million in the comparable 2002 period. The increase in 2003 was largely due to the $86.6 million impairment loss recorded in January 2002 to reduce the carrying value of
Vertis North America goodwill in accordance with SFAS 142 (see "New Accounting Pronouncements" below). Excluding the impact of this adjustment, EBITDA in North America would be
down $41.6 million, or 20.2%, as compared to 2002. The decline was largely a result of competitive pricing pressures including changes in product mix toward simpler
formats, and to a lesser extent reductions in volume, amounting to $27.4 million and $9.2 million, respectively.

At
Vertis Europe, EBITDA of $8.5 million for the year ended December 31, 2003, represents an increase of $17.1 million as compared to an EBITDA loss of
$8.6 million in the comparable prior year. The majority of the increase in 2003, $21.8 million, reflects the impairment loss recorded in

24

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January 2002
to reduce the carrying value of the Vertis Europe goodwill in accordance with SFAS 142 (see" -New Accounting Pronouncements" below). Excluding the impact of this
adjustment, EBITDA in Europe would be down $4.7 million, or 35.6%, as compared to 2002 due to the poor direct mail conditions. In addition, costs were higher in 2003, largely due to increased
selling costs to develop and expand our product offering in response to the sluggish direct mail market, offset by the $1.5 million positive impact of the change in foreign currency exchange
rates.

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.

We
believe that the facilities in place, as well as our cash flows, will be sufficient to meet operational needs (including capital expenditures, restructuring costs and interest
payments) for the next twelve months and beyond. At December 31, 2004, we had approximately $113.8 million available to borrow under our revolving credit facility. There can be no
assurance, however, that our operations will generate sufficient cash flows or that we will always be able to refinance our current debt. In the event we are unable to obtain sufficient financing, we
would pursue other sources of funding such as debt offerings by Vertis Holdings, equity offerings by us and/or Vertis Holdings or asset sales.

On
September 14, 2004, we entered into a termination and release agreement whereby we terminated our leasehold interest in five real estate properties located in Austria. As a
result of this transaction, we received net proceeds of approximately $31 million, after transaction expenses. These proceeds were applied against our revolving credit facility. As a result of
the transaction, we recorded a
non-cash loss related to the termination and release of $44.0 million and a tax benefit of $66.7 million.

During
2002, Vertis received payments from a customer under an order of the bankruptcy court classified as critical vendor payments (the "Payments"). These Payments totaled approximately
$7 million. On February 24, 2004, the United States Court of Appeals for the Seventh Circuit affirmed a lower court ruling reversing the order authorizing these Payments. The Seventh
Circuit did not; however, issue an order for the repayment of these Payments. Rather, and more narrowly, the decision of the Seventh Circuit affirmed the lower court ruling that a proper factual
record proving the need for the Payments had not been established, which may or may not provide a basis for the customer to recover any, some or all of the Payments. Additionally, the Company believes
it has legitimate counterclaims and rights of set-off and currently intends to vigorously resist any such recovery proceedings. However, because of the uncertainties explained above
management is unable to determine at this stage of the litigation the size of any such repayments, if any, or when they would be required to be made.

We
are currently under examination by the Internal Revenue Service in the United States. We believe we have adequate provisions for all open years.

Items
that could impact our liquidity are described below.

25

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The following table discloses aggregate information about our contractual obligations as of December 31, 2004 and the periods in which payments are due:

|Contractual Obligations            |  | Total |           | Less than
1 year |   | 1-3 years |  | 3-5 years |         | After
5 years
|---------------------------------- |  | ----- | --------- | ---------------- | - | --------- |  | --------- | ------- | -------------
|
|Long-term debt                     |  | $     | 1,024,048 |                  | $ | 6         |  | $         | 7       |              
|Interest Payments (1)              |  |       | 510,304   |                  |   | 111,809   |  |           | 223,619 |              
|Operating leases                   |  |       | 146,349   |                  |   | 33,057    |  |           | 52,671  |              
|                                   |  |       |           |                  |   |           |  |           |         |              
|Total contractual cash obligations |  | $     | 1,680,701 |                  | $ | 144,872   |  | $         | 276,297 |              
|                                   |  |       |           |                  |   |           |  |           |         |              

---

The
Company has contracts covering the purchases of paper, ink and press supplies, i.e. plates, blankets solutions. These contracts, which range from 1 to 8 years in length,
include target minimum quantities and prices. All of these agreements allow for shortfalls of purchase minimums to be made up over the life of the contract. In addition, each of the agreements allows
for the reduction in obligations for a decline in volume experienced by Vertis, and all have competitive pricing clauses, whereby suppliers' prices must remain competitive in the market or the
purchase minimums can be adjusted. Because of these variable factors, the amounts are not included in the table above.



On December 22, 2004, we entered into a $200 million, four-year revolving credit agreement (the "Credit Facility") consisting of a
multicurrency revolving credit facility of up to $200 million that provides for issuances of up to $45 million in letters of credit and borrowings of up to $150 million in
alternate currencies. The Credit Facility matures December 22, 2008 with no repayment of principal until maturity. The Credit Facility replaces the $250 million revolving credit facility
that was to expire in December 2005 (the "Prior Credit Facility"). The Prior Credit Facility was terminated on December 22, 2004 and the outstanding balance, totaling
$102.9 million, was repaid in full using funds from the Credit Facility. No early termination penalties were incurred.

In
June 2003, we issued $350.0 million of senior secured second lien notes with an interest rate of 93/4% (the "93/4% notes") and maturity
date of April 1, 2009. After deducting the initial purchasers discount and transaction expenses, the net proceeds received by us from the sale of these notes were $330.3 million. We used
these net proceeds to pay off $267.9 million remaining on the term loans outstanding under our senior credit facility and $62.4 million of our revolving credit facility.

Our
Credit Facility, the 93/4% notes, the outstanding 107/8% notes due June 15, 2009, and the outstanding 131/2% senior subordinated
notes due December 7, 2009 all contain customary high-yield debt covenants imposing limitations on the payment of dividends or other distributions on or in respect of us or the
capital stock of our restricted subsidiaries. Substantially all of our assets are pledged as collateral for the outstanding debt under our senior credit facility. All of our 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. In addition, the Credit Facility includes a minimum
EBITDA covenant requiring the Company to maintain EBITDA of $160 million. The EBITDA amount used in this covenant calculation is not equivalent to the amount included in this Annual Report on
Form 10-K, but rather is net of adjustments to exclude certain items as defined in the credit agreement.

26

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For
the year ended December 31, 2004, our EBITDA as calculated under the credit agreement is $186.0 million. If we are unable to maintain this minimum EBITDA amount, the bank lenders
could require us to repay any amounts owing under the Credit Facility. At December 31, 2004, we were in compliance with its debt covenants.

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 2005, including actual results for January, we believe we will be in compliance in the upcoming year. For further information on our long-term debt, see
Note 9 to the consolidated financial statements included elsewhere in this Annual Report.



In December 2002, we entered into a three-year agreement, expiring in November 2005, to sell substantially all trade accounts receivable
generated by our subsidiaries in the U.S. (the "A/R Facility") through the issuance of $130.0 million variable rate trade receivable backed notes. This agreement replaced a similar previous
agreement that expired in December 2002, whereby the proceeds from the A/R Facility were used to retire the certificates issued under the previous agreement.

The
A/R Facility allows for a maximum of $130.0 million of trade accounts receivable to be sold at any time based on the level of eligible receivables. 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 $3.2 million in both 2004 and 2003. These proceeds are fully offset by servicing costs.

At
December 31, 2004 and 2003, accounts receivable of $130.0 million and $122.5 million, respectively, had been sold under the facilities and, as such, are reflected
as reductions of accounts receivable. At
December 31, 2004 and 2003, we retained an interest in the pool of receivables in the form of overcollateralization and cash reserve accounts of $58.0 million and $53.2 million,
respectively, which is included in Accounts receivable, net on the balance sheet at allocated cost, which approximates fair value. The proceeds from collections reinvested in securitizations amounted
to $1,558.4 million and $1,476.5 million in 2004 and 2003, respectively.

Fees
for the program under the A/R Facility vary based on the amount of interests sold and the London Inter Bank Offered Rate ("LIBOR") plus an average margin of 90 basis points. The
loss on sale, which approximated fees, totaled $3.1 million in 2004, $2.6 million in 2003 and $2.8 million in 2002, and is included in Other, net.

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 $72.7 million at December 31, 2004 and by $60.6 million at December 31, 2003. This
represents a decrease in working capital of $12.1 million for the year ended December 31, 2004. The excess of current liabilities over current assets reflects the impact of accounts
receivable sold under the A/R Facility. We use the proceeds from those accounts receivable sales to reduce long-term borrowings under our revolving credit facility. After the sale of all
trade accounts receivable, however, we still retain an interest in the receivables in the form of over-collateralization and cash reserve accounts, and we have been contracted to service
the receivables. Therefore, if we add back the accounts receivable of $130.0 million and $122.5 million sold under the A/R Facility as of December 31, 2004 and 2003, respectively,
and reflect the offsetting increase in long-term debt as if the A/R Facility were not in place, our working capital at December 31, 2004 and December 31, 2003 would have been
$57.3 million and $61.9 million, respectively. The ratio of current assets to current liabilities as of December 31, 2004 was 0.78 to 1 (1.17 to 1, excluding the

27

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impact
of the A/R Facility) compared to 0.81 to 1 as of December 31, 2003 (1.19 to 1, excluding the impact of the A/R Facility).

The
decrease in working capital was due primarily to fluctuations in operating assets and liabilities, mainly accounts receivable and accounts payable.

Summary of Cash Flows



Net cash provided by operating activities in 2004 decreased by $41.5 million from the 2003 level. Adjusted for the increase (decrease) in outstanding
checks drawn on controlled disbursement accounts, which are classified as a financing activity, net cash provided by operating activities decreased $38.4 million in 2004. This is principally
the result of a use of cash in accounts payable of $19.7 million versus a source of cash of $11.8 million in 2003.

Net
cash provided by operating activities in 2003 decreased by $7.7 million from the 2002 level. Adjusted for the increase (decrease) in outstanding checks drawn on controlled
disbursement accounts, which are classified as a financing activity, net cash provided by operating activities decreased $5.1 million in 2003. This is a result of improved results of operations
offset by the timing of payments and collection of receivables.



Net cash used for investing activities in 2004 decreased by $21.9 million when compared to 2003, primarily due to proceeds of $31.1 million from the
termination of our leasehold interest in real estate properties (see "Sources of Funds" above) offset by a $6.9 million increase in capital
expenditures in 2004 and a $2.4 million decrease in proceeds from the sale of property, plant and equipment.

Net
cash used for investing activities in 2003 remained relatively consistent when compared with 2002. Capital expenditures increased a modest $0.3 million, offset by an increase
in proceeds from sale of property, plant and equipment of $0.9 million.



In December 2004, we entered into a $200 million, four-year revolving credit agreement and terminated the Prior Credit Facility,
repaying the outstanding balance of $102.9 million using funds from the Credit Facility. In connection with the transaction, we wrote-off $1.8 million in unamortized deferred
financing fees associated with the Prior Credit Facility. Net cash used in financing activities decreased in 2004 by $23.6 million as compared to 2003, which included the debt transactions as
discussed below.

In
2003, we issued $350 million of senior secured second lien notes, which after deducting the initial purchasers discount and transaction expenses, netted proceeds of
approximately $330.3 million. In 2002, we issued $350 million of senior unsecured notes, which netted proceeds of approximately $338.0 million after deducting the debt discount
and fees. The proceeds from both issuances were used to repay existing debt. These two transactions, which are the primary financing activities in each respective period, are the primary reasons for
the decline in cash used in financing activities from $68.4 million in 2002 to $53.2 million in 2003.

Other Factors

During 2004, we recorded a tax benefit of $65.2 million of which $66.7 million was the result of the termination of the Company's leasehold interest
in the real estate properties as mentioned above. The activities undertaken in 2004, including this transaction, reduced our federal net operating loss carryforwards by $117.6 million from
$277.3 million to $159.7 million. The remaining carryforwards expire beginning in 2007 through 2025.

28

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Our
valuation allowance was also reduced as a part of the transaction discussed above. The valuation allowance, which was $74.4 million at the beginning of 2004, was reduced by
$33.9 million to $40.5 million at the end of 2004. The valuation allowance reserves the portion of the net operating losses and tax credit carryforwards that will not be offset by
reversing taxable temporary differences. These carryforwards may still be used to offset taxable income in future years, thereby lowering our cash tax obligations. We intend to maintain a valuation
allowance until sufficient positive evidence exists to support its reversal.

New Accounting Pronouncements

In November 2004, the FASB issued SFAS No.151, "Inventory Costsan amendment of ARB No. 43, Chapter 4". SFAS No. 151 amends
Accounting Research Bulletin ("ARB") No. 43, Chapter 4, "Inventory Pricing," to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage)
should be recognized as current period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities. The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this Statement is not
expected to have a material impact on our consolidated financial position or results of operations.

In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary AssetsAn Amendment of APB Opinion No. 29". The guidance in APB Opinion
No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance
in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The provisions of this Statement shall be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date this Statement is issued. The provisions of this Statement
shall be applied prospectively. The adoption of this Statement is not expected to have a material impact on our consolidated financial position or results of operations.

In
December 2004, the FASB issued SFAS No. 123 (revised), "Share-Based Payments" ("SFAS 123R") which replaces SFAS No. 123, "Accounting for Stock-Based
Compensation" and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123R requires all share-based payments to employees, including grants of employee stock
options and restricted stock, to be recognized in the financial statements based on their grant date fair values. The proforma disclosures previously permitted under SFAS No. 123 will no longer
be an alternative to financial statement recognition. Under SFAS 123R, companies must determine the transition method, either retroactive or prospective, to be used at the date of adoption; the
appropriate fair value model to be used for valuing share-based payments; and the amortization method for compensation cost. The provisions of this Statement shall be effective for the Company in the
third quarter of 2005. We are currently evaluating the provisions of this Statement and have not yet determined the impact that this Statement will have 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

29

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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 which 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. 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 net sales and actual charges paid by the Company are included in costs of
production in the consolidated statements of operations.



We maintain allowances for doubtful accounts for estimated losses resulting from the failure of our customers to make payments. 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. See the Financial Statement Schedule, which accompanies
the Financial Statements in this Annual Report on Form 10-K, for a history of our charges to the allowance for doubtful accounts and write-offs taken over the three year period ended
December 31, 2004.



We evaluate the recoverability of our long-lived assets, including property, plant and equipment and intangible assets, periodically or 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.



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 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.

30

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We
determined the discount rate using a measurement date of December 31, 2004. The weighted average discount rate assumed in 2004 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%-10.2% for the equity securities and 6.5% for
fixed income securities.

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 both the US Prime rate and the Britain
Prime rate. Generally, our exposure to foreign currency exchange rate fluctuations is immaterial as foreign operations are a small proportion of the total company and foreign currency borrowings act
as a natural hedge against fluctuations in net asset values.

The
objective of our risk management program is to seek a reduction in the potential negative earnings effects from changes in interest and foreign exchange 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. Except for those used to meet hedging requirements in our credit facility, we generally do not use derivative financial instruments in our risk management
program. This practice may change in the future as market conditions change. We do not use any derivatives for trading purposes.

Quantitative Information

At December 31, 2004, 15.4% of our long-term debt held a variable interest rate (including off-balance sheet debt related to the
accounts receivable securitization facility, the fees on which are variable).

If
interest rates increased 10%, the expected effect related to variable-rate debt would be to increase net loss for the twelve months ended December 31, 2004 by
approximately $1.2 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, 2004 and does not provide for changes in borrowings that may occur in the future.

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

The Company has carried out an evaluation under the supervision and with the participation of Vertis' management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 15d-14(c) under the Securities Exchange Act of
1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were
effective as of December 31, 2004. No changes were

31

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made
in our internal controls or in other factors during the fourth quarter of 2004 that could significantly affect these controls.

ITEM 9B    OTHER INFORMATION

None.

32

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PART III

ITEM 10    DIRECTORS AND EXECUTIVE OFFICERS OF VERTIS

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

|Name                   |  | Age |  | Positions                                       
|---------------------- |  | --- |  | ------------------------------------------------
|Donald E. Roland       |  | 62  |  | Chairman and Chief Executive Officer            
|Dean D. Durbin         |  | 52  |  | President and Chief Financial Officer           
|Herbert W. Moloney III |  | 54  |  | Chief Operating OfficerVertis North America    
|Adriaan Roosen         |  | 53  |  | Managing DirectorVertis Europe                 
|David P. Colatriano    |  | 42  |  | Group President                                 
|Thomas R. Zimmer       |  | 56  |  | Group President                                 
|John V. Howard, Jr.    |  | 43  |  | Chief Legal Officer and Secretary               
|Catherine S. Leggett   |  | 54  |  | Senior Vice PresidentHuman Relations           
|Joe M. Scott           |  | 62  |  | Senior Vice PresidentSalesVertis North America
|Gary L. Sutula         |  | 60  |  | Chief Information Officer                       
|Austin M. Beutner      |  | 44  |  | Director                                        
|Ciara A. Burnham       |  | 38  |  | Director                                        
|Anthony J. DiNovi      |  | 42  |  | Director                                        
|Thomas H. Lee          |  | 60  |  | Director                                        
|Soren L. Oberg         |  | 34  |  | Director                                        
|Michael S. Rawlings    |  | 50  |  | Director                                        
|Scott M. Sperling      |  | 47  |  | Director                                        

Donald E. Rolandhas been Chief Executive Officer of Vertis and a Director of Vertis since June 2000 and has been Chairman since
April 2, 2001. Prior to June 2000, Mr. Roland was the President since October 1994 and, in addition since June 1995, Chief Executive Officer of TC Advertising.
Mr. Roland joined Treasure Chest Advertising Company, Inc. ("TC Advertising"), one of our former operating units, 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, the commercial printing division of the Los Angeles Times. In his 17 years at Times Mirror Press,
Mr. Roland held numerous management positions including Director of Computer Graphics and Vice President of Operations. Mr. Roland is on the Board of Directors of the University of
Maryland, Baltimore Foundation. He is also on the Advisory Board of the School of Education, Center for Graphic Communications & Technology at New York University.

Dean D. Durbinwas named President of Vertis in November of 2004 and has been Chief Financial Officer of Vertis since March 2000.
Mr. Durbin has also been Senior Vice President and Chief Financial Officer of TC Advertising since September 1997. Prior to joining TC Advertising, Mr. Durbin served as Vice
President and Chief Financial Officer at Thomson Professional Publishing, and served for more than 13 years with the McGraw-Hill Companies, beginning as Accounting Supervisor in
1974 and completing his
tenure at McGraw-Hill as Vice President and Group Controller, Construction Information Group. He is on the Board of Directors of the Baltimore Museum of Industry.

Herbert W. Moloney IIIwas named Chief Operating OfficerVertis North America in June 2000. Formerly,
Mr. Moloney was Executive Vice President, Marketing and Sales of TC Advertising. Prior to joining TC Advertising in 1994, he held numerous positions from 1973 to 1994 with Knight
Ridder, Inc., including Senior Vice President of Advertising for The Philadelphia Inquirer / Daily News, Sales Manager for WPRI-TV in Providence, Rhode Island and Retail Advertising
Manager for The Miami Herald. Mr. Moloney is also on the Board of Directors of Lee Enterprises Incorporated. On November 6, 2004, the Company modified Mr. Moloney's employment
agreement to provide that Mr. Moloney's employment with Vertis will terminate on March 31, 2005. See "Moloney Employment Agreement" below for further discussion.

David P. Colatrianowas named Group President of Vertis North America East in August 2003. From June 2000 to
August 2003, Mr. Colatriano served as the Group President of the former Direct Marketing Services segment of Vertis. Prior to June 2000 he held numerous positions at
Webcraft Inc., beginning in January 1987, including Senior Vice President and General Manager, Vice President of Operations and

33

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Division
Director. Prior to joining Webcraft, David worked as an Industrial Engineer with the Boeing Company.

Thomas R. Zimmerwas named Group President of Vertis North America West in September 2003. From June 2000 to
September 2003, Mr. Zimmer served as Group President of the western region of the former Retail and Newspaper Services segment of Vertis. Prior to June 2000, he was Senior Vice
President and General Manager of TC Advertising, where he was employed since 1970.

Adriaan Roosenhas been Managing DirectorVertis Europe in London since November 2000. Prior to joining Vertis,
Mr. Roosen served as a Senior Vice President and Managing Director Europe at Modus Media International, Inc., providing fulfillment and supply chain management solutions to computer
hardware and software companies. From 1995 through 1999, Mr. Roosen was the Director of European Operations at Denver-based Quark, Inc. Prior to that, he was the Managing Director of
R.R. Donnelley Netherlands, BV and held a number of sales and marketing positions at the Netherlands Foreign Investment Agency while based in New York and San Francisco. Mr. Roosen is a Dutch
national and a lawyer by training.

John V. Howard, Jr.was named Chief Legal Officer and Secretary in February 2005. In July 2000, Mr. Howard was named
Senior Vice PresidentGeneral Counsel and Secretary of Vertis. Previously, Mr. Howard was Executive Vice President and General Counsel for Columbine JDS Systems, Inc. and
Executive Vice President and General Counsel for Laser Tech Color, Inc. Prior to joining Columbine JDS Systems, Inc. and Laser Tech Color, 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, developer of Quark XPress, in charge of all worldwide legal matters. Mr. Howard is
also a Trustee on the Board of Trustees of the Hammond-Harwood House.

Catherine S. Leggettwas named Senior Vice PresidentHuman Resources of Vertis in June 2000. She joined TC Advertising
as Senior Vice PresidentHuman Resources in April 2000. Prior to joining us, Ms. Leggett was Senior Vice President of Human Resources at PG&E Generating Company, a subsidiary
of Pacific Gas & Electric, Vice President of Human Resources for Federal Home Loan Mortgage Corporation in McLean, Virginia, and Senior Vice President of Human Resources for Hechinger Company
in Landover, Maryland. She is a professor at the Johns Hopkins University Graduate School and is a member of the Bars for the District of Columbia and Iowa, as well as the U.S. District Court for the
District of Columbia.

Joe M. Scottwas named Senior Vice President- Sales, North America at Vertis on November 1, 2004. Mr. Scott was previously
employed by the IBM Corporation in positions as Director of Sales, Industrial Section, IBM Global Services; and Director, Global Strategic Outsourcing Sales Competency for fifteen years.
Mr. Scott has served in the Vice President of Sales capacity at Mellon Bank NA and Genix Corporation. He has served as National Sales Director at Litton Computer Services and in senior sales
positions at EDS, McDonnell Douglas Automation Company and Martin Marietta Data Systems.

Gary L. Sutulahas been Chief Information Officer since February 2005. Prior to joining Vertis, Mr. Sutula served as Chief
Operating Officer and Chief Information Officer of gLimit, Inc.; Corporate Senior Vice President and Chief Information Officer at R.R. Donnelley; Vice President and Chief Information Officer at
Transamerica Financial Services; and Senior Vice President and Chief Information Officer, at American Savings Bank (Washington Mutual). He is a board member of the Center for Information and
Technology Management, Loyola University Chicago.

Austin M. Beutnerhas been a director of Vertis since May 2001 and Vertis Holdings since December 1999. Mr. Beutner
is President of Evercore, which he co-founded in 1996, Chairman of Evercore Capital Partners and Chairman and CEO of Evercore Ventures. Mr. Beutner serves on the Board of Directors
of American Media, Inc. and Continental Energy Services, Inc. He also serves as a Trustee of the California Institute of the Arts and is a member of the Council on Foreign Relations.

Ciara A. Burnhamhas been a director of Vertis since April 2004. Ms. Burnham is Senior Managing Director of Evercore Group
Holdings, an affiliate or Evercore Partners, Ltd., which she originally joined in 1997 and rejoined in 2003. Prior to joining Evercore, Ms. Burnham was a founding partner of Five Mile
Capital Partners and an equity analyst with Sanford C. Bernstein & Co., Inc. Ms. Burnham spent six years in

34

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consulting,
most recently as an engagement manager at McKinsey & Co., Inc. Ms. Burnham serves on the Board of Directors of Specialty Products & Insulation Co.

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, Inc., Endurance Specialty Insurance, Ltd., Eye Care Centers of America, Inc., Michael Foods, Inc., National Waterworks, Inc., US LEC Corporation,
Nortek, Inc. and various other private corporations.

Thomas H. Leehas been a director of Vertis since May 2001 and Vertis Holdings since December 1999. Mr. Lee founded
Thomas H. Lee Partners, L.P. (formerly the Thomas H. Lee Company) in 1974 and since that time has served as its President. Mr. Lee serves or has served as a Director of numerous public and
private companies in which the Lee Company and its affiliates have invested, including Finlay Enterprises, Inc., General Nutrition Companies, Metris Companies, Inc., Playtex
Products, Inc., Snapple Beverage Corp., The Smith & Wollensky Restaurant Group, Inc., Miller Import Corporation, Warner Music Group, New Refco Group Ltd., LLC and Wyndham
International, Inc. In addition, Mr. Lee is a Member of J.P. Morgan Chase & Co. National Advisory Board.

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, Inc., National Waterworks, Inc. and several other private companies.

Michael S. Rawlingshas been a director of Vertis since January 2003. Mr. Rawlings is also a partner at CIC Partners L.P.
and a Director of ACE Cash Express, Inc. Prior to that, he was the President of Pizza Hut, Inc. from 1997 to 2002.

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
Houghton Mifflin Company, Fisher Scientific International, Inc., Wyndham International, Warner Music Group, ProSiebensat.1 Media AG, as well as several private companies.

The
term of office of each executive officer is until the organizational meeting of our board of directors following the next annual meeting of our stockholders and until a successor is
elected and qualified, or until that officer's death, resignation, retirement, disqualification 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, comprised of three of its members: Ciara A. Burnham, Soren L. Oberg and Scott M.
Sperling. 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 was filed as Exhibit 14.1 to the Annual Report on Form 10-K for the fiscal year ended December 31,
2003 and is incorporated by reference in this Annual Report on Form 10-K. There has been no change to the code of ethics from 2003.

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ITEM 11    EXECUTIVE COMPENSATION

The following table sets forth the compensation paid in respect of the years ended December 31, 2004, 2003 and 2002 to Donald E. Roland, Chairman,
President and Chief Executive Officer of Vertis, and to each of the five other most highly paid executive officers of Vertis (collectively, the "Named Executive Officers").

Summary Compensation Table

|                                                                    |  |                |  | Annual Compensation     |  | Long-Term Compensation Awards |  |                      |          
|------------------------------------------------------------------- |  | -------------- |  | ----------------------- |  | ----------------------------- |  | -------------------- | ---------
|
|Donald E. Roland
Chairman and Chief Executive Officer               |  | 2004
2003
2002 |  | 650,000
650,000
608,577 |  | 357,748                       |  | 24,000
24,000
22,000 | (4)(4)(4)
|Dean D. Durbin
President and Chief Financial Officer                |  | 2004
2003
2002 |  | 421,587
400,000
372,423 |  | 220,153                       |  | 11,880
11,880
10,890 | (4)(4)(4)
|Herbert W. Moloney III
Chief Operating OfficerVertis North America |  | 2004
2003
2002 |  | 480,180
480,180
446,379 |  | 264,282                       |  | 11,880
11,880
10,890 | (4)(4)(4)
|Adriaan Roosen
Managing Director Vertis Europe                     |  | 2004
2003
2002 |  | 339,063
302,575
278,097 |  | 152,069                       |  | 6,268
40,922
40,317  | (7)(7)(7)
|Thomas R. Zimmer
Group President                                    |  | 2004
2003
2002 |  | 390,500
366,401
338,654 |  | 75,871                        |  | 11,880
11,880
10,890 | (4)(4)(4)

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Option Values at End of Fiscal 2004

On April 6, 2004, the Company extended an offer to all eligible U.S.-based employees holding options under the Stock Plan the opportunity to exchange their
outstanding eligible options for restricted common stock on a 4 for 1 basis. Additionally, on June 14, 2004, the Company extended an offer to all eligible U.K.-

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based
employees holding options under the Stock Plan the opportunity to exchange their outstanding eligible options for Nil Cost Options on a 4 for 1 basis. All Named Executive Officers holding stock
options participated in the exchange offers and exchanged their options for either restricted stock or nil cost options as applicable. See "Employment Arrangements with Executive Officers" for further
discussion. Thus, there are no options held by any of the named officers at December 31, 2004. No stock appreciation rights have been granted to any of the Named Executive Officers.

Supplemental Executive Retirement Plan

The following table sets forth annual amounts payable to Messrs. Roland, Durbin, Moloney and Zimmer upon their retirement under Vertis Holdings and
Subsidiaries Supplemental Executive Retirement Plan (the "SERP").

Pension Plan Table

|         |  | Years of Service
|-------- |  | ----------------
|
|
|$150,000 |  | $               
|175,000  |  |                 
|200,000  |  |                 
|225,000  |  |                 
|250,000  |  |                 
|275,000  |  |                 
|300,000  |  |                 
|500,000  |  |                 
|600,000  |  |                 
|700,000  |  |                 
|800,000  |  |                 
|900,000  |  |                 

The
compensation covered by the SERP includes each of the participants entire annual base salary. Messrs. Roland, Durbin, Moloney, and Zimmer currently have 21, 7, 10, and
35 years of service, respectively. See "Employment Arrangements with Executive Officers" below. Benefits under the SERP are computed by multiplying the participant's average salary for the last
five years prior to retirement by a percentage equal to one percent for each year of service up to a maximum of 30 years. Benefits under the SERP are not subject to a deduction for Social
Security. Benefits under the SERP are subject to an offset for amounts paid to participants under the Retirement Income Plan as of June 30, 2002 and for matching contributions under the Vertis
401(k) plan.

Compensation of Directors

Donald E. Roland, the only director of Vertis who is also an executive officer of Vertis, does not receive any additional compensation for service as a member of
the Board of Directors of Vertis (the "Board"). For information relating to compensation of Mr. Roland, see "Employment Arrangements with Executive Officers" below.

All
other directors of Vertis (each a "non-employee director"), except Mr. Rawlings, are directly affiliated with either Thomas H. Lee Partners ("THL")
or ECP, two significant shareholders of Vertis Holdings. Mr. Rawlings was appointed to the Board upon the nomination of THL and ECP pursuant to the Amended and Restated Investors' Agreement
among Vertis Holdings, THL, ECP and others, dated March 23, 2001. With the exception of Mr. Rawlings, as discussed below, 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 $414,000, $586,000 and $250,000.
See "Certain Relationships and Related Transactions."

Mr. Rawlings
receives the following annual compensation for his service:



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Employment Arrangements with Executive Officers

Roland Employment Agreement.The Company has entered into an employment agreement with Donald E.
Roland, effective August 31, 2003 (the "Roland Agreement"), pursuant to which Mr. Roland currently serves as Chairman and Chief Executive Officer. The Roland Agreement may be terminated
by either Mr. Roland or the Company at any time for any reason. Under the Roland Agreement, Mr. Roland receives an annual base salary, as adjusted by the board of directors, and various
employment benefits. In 2004, Mr. Roland received a base salary of $650,000. The Roland Agreement also provides that Mr. Roland receive an annual bonus targeted at not less than 75% of
base salary (assuming bonus targets under the Company's Executive Incentive Plan (the "EIP"), 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, and certain fringe benefits, including participation in the SERP. The Company has entered into a
Restricted Stock Agreement with Mr. Roland, effective May 20, 2004, pursuant to which Mr. Roland exchanged certain options to purchase shares of the common stock of the Company
for 55,177 restricted shares of common stock of the Company.

Durbin Employment Agreement.The Company has entered into an employment agreement with Dean D.
Durbin, effective August 30, 2003 (the "Durbin Agreement"), pursuant to which Mr. Durbin currently serves as President and Chief Financial Officer. The Durbin Agreement may be terminated
by either Mr. Durbin or the Company at any time for any reason. Under the Durbin Agreement, Mr. Durbin receives an annual base salary, as adjusted by the board of directors, and various
employment benefits. In 2004, Mr. Durbin received a base salary of $421,587. The Durbin Agreement also provides that Mr. Durbin receive an annual bonus targeted at not less than 75% of
base salary (assuming bonus targets under the EIP, 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, and certain fringe benefits, including participation in the SERP. On November 12, 2004, the Company amended the Durbin Agreement to
provide that Mr. Durbin will be eligible, at the discretion of the Board of Directors, for a special bonus not to exceed $200,000 based upon his performance and payable at the discretion of the
Board of Directors within 2005 ("Durbin Special Bonus"). The Durbin Special Bonus shall not be includable in any change of control or other severance calculations within the Durbin Employment
Agreement. The Company has entered into a Restricted Stock Agreement with Mr. Durbin, effective May 20, 2004, pursuant to which Mr. Durbin exchanged certain options to purchase
shares of the common stock of the Company for 14,406 restricted shares of common stock of the Company.

Moloney Employment Agreement.The Company has entered into an employment agreement with Herbert W.
Moloney III, effective August 30, 2003 (the "Moloney Agreement"), pursuant to which Mr. Moloney currently serves as Chief Operating Officer of Vertis North America. The Moloney Agreement
may be terminated by either Mr. Moloney or the Company at any time for any reason. Under the Moloney Agreement, Mr. Moloney receives an annual base salary, as adjusted by the board of
directors, and various employment benefits. In 2004, Mr. Moloney received a base salary of $480,180. The Company has entered into a Restricted Stock Agreement with Mr. Moloney, effective
May 20, 2004, pursuant to which Mr. Moloney exchanged certain options to purchase shares of the common stock of the Company for 19,896 restricted shares of common stock of the Company.

On
November 6, 2004, the Company modified the Moloney Agreement to provide that Mr. Moloney's employment will terminate on March 31, 2005 and that he will receive
compensation as set forth in the Moloney Agreement as if his leaving was a termination without cause. Also on November 6, 2004, in a separate amendment, the Company amended the Moloney
Agreement to provide that Mr. Moloney will be eligible at the discretion of the Board of Directors for a special bonus not to exceed $200,000 based upon his performance and payable at the
discretion of the Board of Directors within 2005 ("Moloney Special Bonus"). The Moloney Special Bonus shall not be includable in any change of control or other severance calculations within the
Moloney Agreement.

Roosen Employment Agreement.Vertis Digital Services Limited (formerly Big Flower Digital Services
Limited), a United Kingdom company and the subsidiary of the Company ("VDSL"), has entered into an executive service agreement with Adriaan Roosen, effective August 30, 2003 (as
amended to date, the "Roosen Agreement"), pursuant to which Mr. Roosen currently serves as the Managing Director of Vertis Europe and the director of VDSL. The Roosen Agreement may be
terminated by either Mr. Roosen or VDSL with not less than 18 months prior written notice, or as otherwise provided in the Roosen Agreement.

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VDSL,
however, may at its sole and absolute discretion terminate the Roosen Agreement at any time and with immediate effect by making Mr. Roosen a payment in lieu of the required
18-month notice period (or, the remainder of such notice period) equal to Mr. Roosen's salary as of the date of termination and the cost to VDSL of providing Mr. Roosen with
the contractual benefits for the applicable notice period.

After
the termination of his service at VDSL and the Company, Mr. Roosen will be subject to certain "garden leave" restrictions as provided in the Roosen Agreement. Under the
Roosen Agreement, Mr. Roosen receives an annual base salary, as adjusted by the board of directors, and various employment benefits. In 2004, Mr. Roosen received a base salary of
$339,063, as well as certain expatriate benefits including car allowance. The Roosen Agreement also provides that Mr. Roosen is eligible to participate in the EIP. The Company has entered into
a Nil Cost Option Agreement with Mr. Roosen, effective July 27, 2004, pursuant to which Mr. Roosen received 5,497 nil cost options to purchase shares of the common stock of the
Company.

Zimmer Employment Agreement.The Company has entered into an employment agreement with Thomas R.
Zimmer, effective August 17, 2003 (the "Zimmer Agreement"), pursuant to which Mr. Zimmer currently serves as Group PresidentVertis North America West. The Zimmer Agreement
may be terminated by either Mr. Zimmer or the Company at any time for any reason. Under the Zimmer Agreement, Mr. Zimmer receives a base salary, as adjusted by the board of directors,
and various employment benefits. In 2004, Mr. Zimmer received a base salary of $390,500. The Zimmer Agreement also provides that Mr. Zimmer receive an annual bonus targeted at not less
than 60% of base salary (assuming bonus targets under the Company's EIP, 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, and certain fringe benefits, including participation in the SERP. The Company has entered into a Restricted Stock
Agreement with Mr. Zimmer, effective May 20, 2004, pursuant to which Mr. Zimmer exchanged certain options to purchase shares of the common stock of the Company for 7,337
restricted shares of common stock of the Company.

Severance Arrangements with Certain Executive Officers.The employment agreements of Donald E.
Roland, Dean D. Durbin, Herbert W. Moloney III and Adriaan Roosen, described above, contain provisions regarding executive severance arrangements (the "Severance Arrangements"), with each of these
executive officers. Pursuant to the Severance Arrangements, if an executive officer's employment is terminated by the Company without "cause" or by the executive officer for "good reason" following a
"change in control" of the Company, the executive officer will receive a lump sum amount equal to three times the sum of (x) the executive officer's annual base salary in effect immediately
prior to the date of termination and (y) the greater of the target bonus for the executive officer under the EIP in the year immediately preceding that in which the termination occurs and the
annual bonus the executive officer would have earned for the fiscal year in which the date of termination occurs absent such termination. In addition, (i) the executive officer will receive a
lump sum payment equal to the sum of any awarded but unpaid compensation under the EIP and a pro rata portion to the date of the executive officer's termination of the aggregate value of all
contingent incentive compensation awards to the executive officer for all uncompleted periods under the EIP calculated based on actual performance achieved for the fiscal year through the date of
termination, (ii) all outstanding stock incentive awards (including stock options) other than options that vest upon attainment of performance
goals will immediately vest and remain exercisable until upon the date of termination and shall remain exercisable in accordance with the terms of the option grant; and (iii) the executive
officer will be entitled to one year of continued medical, dental, prescription and vision care insurance coverages (the "Continued Coverage"), except that Mr. Roland is entitled to receive
18 months of the Continued Coverage.

If
an executive officer leaves the Company absent a change of control of the Company, the Severance Arrangements provide the following more limited payments and benefits:



39

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Also,
the Company will (i) provide the executive officer or his or her eligible dependents six months of the Continued Coverage (except that Mr. Roland will receive twelve
months of the Continued Coverage) and
each such executive officer will then be eligible for COBRA coverage, and (ii) credit the executive officer with an additional year of vesting for purposes of the executive officer's then
outstanding options, which will remain exercisable in accordance with the terms of the applicable option grants and equity plan.

On
November 6, 2004, the Company modified Mr. Moloney's employment agreement to provide that Mr. Moloney's employment will terminate on March 31, 2005 and
that he will receive compensation pursuant to the severance arrangements described above as if his termination was without cause.

Zimmer Severance Arrangements.The employment agreement of Thomas R. Zimmer described above also
contains provisions regarding executive severance arrangements (the "Zimmer Severance Arrangements"). Pursuant to the Zimmer Severance Arrangements, if Mr. Zimmer's employment is terminated by
the Company for any reason other than for "cause", disability or death, or by Mr. Zimmer if the Company requires him to be based at a location more than 50 miles from the office at which he is
then based, he will be entitled to receive severance payment in the form of payroll continuation at his base salary for 12 months, with up to an additional six months severance pay if he
remains unemployed after the initial 12 months.

In
addition, pursuant to the Zimmer Severance Arrangements, if Mr. Zimmer's employment is terminated by the Company for death, disability or without "cause" or by
Mr. Zimmer if the Company requires him to be based at a location more than 50 miles from the office at which he is then based, the Company will:



If
Mr. Zimmer's employment is terminated for cause, upon his death or disability, or if Mr. Zimmer voluntarily terminates employment, the Company will pay to
Mr. Zimmer or his estate a lump sum equal to earned annual base salary and earned annual bonus for completed fiscal years.

Compensation Committee Interlocks and Insider Participation

The Company does not have a compensation committee. Donald Ronald, the Company's Chairman and Chief Executive Officer, is also a member of the Company's Board of
Directors and participates in deliberations with the Board of Directors regarding compensation of executive officers.

ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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 January 31, 2005 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.

40

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Shares Beneficially OwnedName and Address of Beneficial Owner

Amount and Nature
of Ownership(1)

Percentage
of ClassThomas 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

65.5
%Evercore Capital Partners L.P. and Affiliates(3)
65 East 55th Street, 33rd Floor, New York, NY 10022

2,114,415

15.7
%Donald E. Roland(4)
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201

127,646

*Dean D. Durbin(5)
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201

20,408

*Herbert W. Moloney III(6)
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201

43,259

*Adriaan Roosen
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201

5,497

*David P. Colatriano
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201

9,018

*Thomas R. Zimmer
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201

16,861

*John V. Howard, Jr.
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201

6,610

*Catherine Leggett
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201

6,520

*Joe M. Scott
c/o Vertis, Inc., 250 West Pratt Street, Baltimore, MD 21201

5,000

*Thomas H. Lee(7)
c/o THL Partners, 75 State Street, Boston, MA 02109

7,262,155

*Anthony J. DiNovi(8)
c/o THL Partners, 75 State Street, Boston, MA 02109

7,166,451

*Scott M. Sperling(9)
c/o THL Partners, 75 State Street, Boston, MA 02109

7,166,451

*Soren L. Oberg(10)
c/o THL Partners, 75 State Street, Boston, MA 02109

7,146,253

*Austin M. Beutner(11)
c/o Evercore Capital Partners, 55 East 52nd Street, 43rd Floor, New York, NY 10055

2,114,415

*Ciara A. Burnham(12)
c/o Evercore Capital Partners, 55 East 52nd Street, 43rd Floor, New York, NY 10055

2,114,415

*Michael Rawlings(13)
c/o CIC Partners LP, 500 Crescent Ct, Suite 250, Dallas, TX 75201

2,500

*All Directors and Executive Officers of Vertis and Vertis Holdings as a group (16 persons)(14)

403,987

2.99
%


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42

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43

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ITEM 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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 $414,000, $586,000 and
$250,000. 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. Di Novi, Lee, Oberg and Sperling are affiliated with THL and Mr. Beutner and Ms. Burnham are affiliated with ECP. See "Management".

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 to certain of the equity investors at the time of Vertis Holdings' recapitalization. From August 2001 to June 24, 2002, the
entire 12% interest on Vertis Holdings Mezzanine debt was payable in-kind. Previously 10% of the interest was payable in cash. Effective June 25, 2002 the interest rate was changed
to 13% payable in-kind through December 31, 2005. Effective May 30, 2003, such 13% interest was further changed to payable in kind through December 7, 2005. Effective
with the closing of the Credit Facility in December 2004, interest will continue to be payable in-kind unless certain conditions set forth in the credit agreement are met. In
addition, the bond indentures include covenants that restrict payments from the Company to Vertis Holdings. In the year ended December 31, 2001, we paid dividends to Vertis Holdings of
$7.7 million to pay interest on the mezzanine notes and Vertis Holdings' former convertible preferred securities.

In
connection with the recapitalization of Vertis Holdings in 1999 and 2000, 44 of our employees, including Messrs. Durbin, Howard, Roosen and Ms. Leggett among the Named
Executive Officers, were granted the option to purchase shares of Vertis Holdings and to finance such purchase through signing full-recourse loans with Vertis Holdings. These loans (the
"Management Loans") bear interest at 8.5% per year and compound quarterly, with the principal and interest due in a lump sum on varying dates up to December 7, 2005. The shares purchased with
the Management Loans are held as security for the Management Loans.

On
September 5, 2002, the Board of Directors of Vertis Holdings adopted a unanimous written consent offering those employees who had an outstanding Management Loan a
one-time option to sell the shares securing the Management Loans back to Vertis Holdings in exchange for the cancellation of the Management Loans. These shares had an assumed fair market
value of $31.50 as of September 5, 2002. In addition, Vertis Holdings would forgive the interest that had accrued on the Management Loans to any employee who sold their stock back to Vertis
Holdings. The tax consequence, if any, of the interest forgiveness was the responsibility of the employee. Employees eligible for the Vertis' Executive Incentive Plan were allowed to offset the tax
consequences by a partial payment of their 2002 bonus. Substantially all
employees holding the Management Loans elected this option. As of December 31, 2003, 111,448 shares of Vertis Holdings had been sold to the Company in exchange for cancellation of the
Management Loans and $0.7 million of interest was forgiven.

44

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ITEM 14    PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table presents fees for professional audit services rendered by Deloitte & Touche LLP, the member firms of Deloitte Touche Toumatsu, and
their respective affiliates (collectively, the "Deloitte Entities") for the audit of our consolidated annual financial statements for the years ended December 31, 2004 and 2003, and fees billed
for other services rendered by Deloitte Entities.

|                      |  | Year ended December 31,
|--------------------- |  | -----------------------
|
|
|Audit fees(1)         |  | $                      
|Audit-related fees(2) |  |                        
|Tax fees(3)           |  |                        
|                      |  |                        
|Total fees billed     |  | $                      
|                      |  |                        

---

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 (other than with respect tode minimisexceptions 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 2004 were pre-approved by the audit committee or its designee.

45

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PART IV

ITEM 15    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K





3.1

Restated Certificate of Incorporation of Vertis, Inc.**3.2

Amended and Restated By-Laws of Vertis, Inc.**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 **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. ***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 #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. ****10.2

Senior Subordinated Credit Agreement, dated as of December 7, 1999 (the Senior Subordinated Credit Agreement"), among Big Flower Press Holdings, Inc., Big Flower Holdings, Inc., the subsidiary guarantors listed on the signature pages
thereto (the "Senior Subordinated Credit Agreement"), the lenders from time to time party thereto (the "Senior Subordinated Lenders"), and Bankers Trust Company, The Chase Manhattan Bank and NationsBridge, L.L.C., as Agents for the Senior
Subordinated Lenders. *10.3

Waiver, Consent and Amendment to the Senior Subordinated Credit Agreement, dated as of December 22, 1999, among Big Flower Press Holdings, Inc, Big Flower Holdings, Inc., the Subsidiary Guarantors, the Senior Subordinated Lenders, and
Bankers Trust Company, The Chase Manhattan Bank and NationsBridge, L.L.C., as Agents for the Senior Subordinated Lenders. *10.4

Amendment No. 2 to the Senior Subordinated Credit Agreement, dated as of December 7, 2000, among Vertis, Inc. (f/k/a Big Flower Press Holdings, Inc.) ("Vertis"), Vertis Holdings, Inc. (f/k/a Big Flower Holdings, Inc.)
("Vertis Holdings"), the Subsidiary Guarantors, the Senior Subordinated Lenders, and Bankers Trust Company, The Chase Manhattan Bank and Banc of America Bridge LLC (f/k/a NationsBridge, L.L.C.), as Agents for the Senior Subordinated Lenders (the
"Agents"). *10.5

Amendment No. 3 to the Senior Subordinated Credit Agreement, dated as of February 22, 2001, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *


46

---



10.6

Amendment No. 4 to the Senior Subordinated Credit Agreement, dated as of June 29, 2001, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.7

Amendment No. 5 to the Senior Subordinated Credit Agreement, dated as of August 15, 2001, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.8

Amendment No. 6 to the Senior Subordinated Credit Agreement, dated as of October 15, 2001, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.9

Amendment No. 7 to the Senior Subordinated Credit Agreement, dated as of December 4, 2001, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.10

Amendment No. 8 to the Senior Subordinated Credit Agreement, dated as of December 7, 2001, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.11

Amendment No. 9 to the Senior Subordinated Credit Agreement, dated as of December 12, 2001, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.12

Amendment No. 10 to the Senior Subordinated Credit Agreement, dated as of December 20, 2001, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.13

Amendment No. 11 to the Senior Subordinated Credit Agreement, dated as of January 11, 2002, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.14

Amendment No. 12 to the Senior Subordinated Credit Agreement, dated as of January 18, 2002, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.15

Waiver, Consent and Amendment to the Senior Subordinated Credit Agreement, dated as of May 30, 2002, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.16

Waiver and Consent to the Senior Subordinated Credit Agreement, dated as of June 12, 2002, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.17

Waiver, Consent and Amendment to the Senior Subordinated Credit Agreement, dated as of November 21, 2002, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.18

Amendment No. 13 to the Senior Subordinated Credit Agreement, dated as of February 20, 2003, among Vertis, Vertis Holdings, the Subsidiary Guarantors, the Senior Subordinated Lenders and the Agents. *10.19

Amended and Restated Receivables Purchase Agreement dated as of December 9, 2002 among Vertis, as initial Servicer, Vertis and its certain subsidiaries, as Sellers and Vertis Receivables, LLC, as Buyer. *10.20

Amended and Restated Indenture and Servicing Agreement dated as of December 9, 2002 among VR, as Issuer, Vertis, as Servicer, and Manufacturers and Traders Trust Company, as Trustee. *10.21

Amended and Restated Guaranty, dated as of December 9, 2002 (this "Guaranty"), is issued by Vertis, as the Guarantor, for the benefit of VR and its successors and assigns.*


47

---



10.22

Stock Purchase Agreement dated September 18, 2002 by and between Vertis Holdings and Dean D. Durbin. * 10.23

Stock Purchase Agreement dated September 20, 2002 by and between Vertis Holdings and John V. Howard, Jr. * 10.24

Stock Purchase Agreement dated September 24, 2002 by and between Vertis Holdings and Catherine S. Leggett. * 10.25

Stock Purchase Agreement dated September 16, 2002 by and between Vertis Holdings and Adriaan Roosen. * 10.26

Employment Agreement dated August 31, 2003 by and between Vertis, Vertis Holdings and Donald Roland. # 10.27

Employment Agreement dated August 31, 2003 by and between Vertis, Vertis Holdings and Dean D. Durbin. # 10.28

Employment Agreement dated August 31, 2003 by and between Vertis, Vertis Holdings and Herbert W. Moloney III. # 10.29

Service Agreement dated August 31, 2003 by and between Vertis Digital Services Limited and Adriaan Roosen. # 10.30

Employment Agreement dated August 31, 2003 by and between Vertis, Vertis Holdings and John Howard. # 10.31

Employment Agreement dated August 31,2003 by and between Vertis, Vertis Holdings and Catherine Leggett  ****10.32

Memo of Understanding dated August 15, 2003 by and between Vertis and Thomas Zimmer. # 10.33

Memo of understanding dated August 15, 2003 by and between Vertis and David Colatriano  ****10.34

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. ****10.35

Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to Dean D. Durbin.  ****10.36

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.. ****10.37

Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to John V. Howard, Jr.  ****10.38

Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Catherine S. Leggett.  ****10.39

Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to Catherine S. Leggett.  ****10.40

Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Herbert W. Moloney III.  ****10.41

Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to Herbert W. Moloney III.  ****10.42

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.  ****


48

---



10.43

Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to Donald E. Roland.  ****10.44

Nil Cost Option Agreement dated July 27, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Adriaan Roosen.  ****10.45

Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to Adriaan Roosen.  ****10.46

Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and David P. Colatriano.  ****10.47

Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to David P. Colatriano.  ****10.48

Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Thomas R. Zimmer.  ****10.49

Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc to Thomas R. Zimmer.  ****10.50

Employment Agreement dated October 13, 2004 by and between Vertis and Joe. M Scott.  ****10.51

Restricted Stock Agreement dated November 1, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Joe M. Scott.  ****10.52

Memo of Understanding dated November 6, 2004 by and between Vertis and Herbert W. Moloney III amending Mr. Moloney's Employment Agreement dated August 31, 2003, and filed as Exhibit 10.44 to Vertis' 2003 Annual Report on
Form 10-K (providing that Mr. Moloney will be eligible, at the discretion of the Board of Directors, to receive a special bonus)..  ****10.53

Memo of Understanding dated November 6, 2004 by and between Vertis and Herbert W. Moloney III amending Mr. Moloney's Employment Agreement dated August 31, 2003 and filed as Exhibit 10.44 to Vertis' 2003 Annual Report on
Form 10-K (providing that Mr. Moloney's employment will terminate on March 31, 2005).  ****10.54

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 and filed as Exhibit 10.43 to Vertis' 2003 Annual Report on Form 10-K
(providing that Mr. Durbin will be eligible, at the discretion of the Board of Directors, to receive a special bonus and recognizing Mr. Durbin's election as President of Vertis).  ****10.55

Employment Agreement dated January 11, 2005 by and between Vertis and Gary L. Sutula.  ****12.1

Statement re computation of ratios of earnings to fixed charges. ****14.1

Code of Ethics #21.1

List of subsidiaries of Vertis, Inc. *31.1

Certification of Donald E. Roland, Chief Executive Officer, dated February 25, 2005, pursuant to Section 302 of the Sarbanes-Oxley Act 0f 200231.2

Certification of Dean D. Durbin, President and Chief Financial Officer, dated February 25, 2005, pursuant to Section 302 of the Sarbanes-Oxley Act 0f 200232.1

Certification of Donald E. Roland, Chief Executive Officer, dated February 25, 2005, pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002


49

---



32.2

Certification of Dean D. Durbin, President and Chief Financial Officer, dated February 25, 2005, pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002


---

On
October 26, 2004, Vertis, Inc. filed a Current Report on Form 8-K reporting its earnings for the three and nine months ended September 31,
2004.

On
November 12, 2004, Vertis, Inc. filed a Current Report on Form 8-K reporting that the Company had amended the employment agreement of Herbert W.
Moloney, Chief Operating Officer.

On
November 12, 2004, Vertis, Inc. filed a Current Report on Form 8-K reporting that the Board of Directors elected Dean D. Durbin President of
Vertis, Inc. and subsequently amended Mr. Durbin's employment agreement.

On
December 28, 2004, Vertis, Inc. filed a Current Report on Form 8-K reporting that the Company had entered into a new revolving credit agreement and
terminated the existing credit agreement.

50

---





VERTIS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

|                                                                                                      |  | Page
|----------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting Firm                                               |  | F-2 
|Consolidated Balance Sheets at December 31, 2004 and 2003                                             |  | F-3 
|Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002            |  | F-4 
|Consolidated Statements of Stockholder's Deficit for the Years Ended December 31, 2004, 2003 and 2002 |  | F-5 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002            |  | F-6 
|Notes to Consolidated Financial Statements                                                            |  | F-7 
|Schedule of Valuation and Qualifying Accounts for the Years Ended December 31, 2004, 2003 and 2002    |  | II-1
|Signatures                                                                                            |  | II-2

F-1

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholder of
    Vertis, Inc. and Subsidiaries:

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, 2004 and 2003 and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 2004.
Our audits also included the financial statement schedule listed 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 the 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. An audit includes 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,
2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, 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, present
fairly in all material respects the information set forth therein.

Deloitte &
Touche LLP
Baltimore, Maryland
February 25, 2005

F-2

---



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

|                                       |                                                                                            | As of December 31,                          |          
|-------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------- | ---------
|
|ASSETS                                 |                                                                                            |                                             |          
|Current Assets:                        |                                                                                            |                                             |          
|                                       | Cash and cash equivalents                                                                  |                                             | $        
|                                       | Accounts receivable, net                                                                   |                                             |          
|                                       | Inventories, net                                                                           |                                             |          
|                                       | Maintenance parts, net                                                                     |                                             |          
|                                       | Prepaid expenses and other current assets                                                  |                                             |          
|                                       |                                                                                            |                                             |          
|                                       |                                                                                            | Total current assets                        |          
|Property, plant and equipment, net     |                                                                                            |                                             | 379,438  
|Goodwill                               |                                                                                            |                                             | 359,865  
|Investments                            |                                                                                            |                                             |          
|Deferred financing costs, net          |                                                                                            |                                             | 26,815   
|Other assets, net                      |                                                                                            |                                             | 24,565   
|                                       |                                                                                            |                                             |          
|                                       |                                                                                            | Total assets                                |          
|                                       |                                                                                            |                                             |          
|LIABILITIES AND STOCKHOLDER'S DEFICIT  |                                                                                            |                                             |          
|Current Liabilities:                   |                                                                                            |                                             |          
|                                       | Accounts payable                                                                           |                                             | $        
|                                       | Compensation and benefits payable                                                          |                                             |          
|                                       | Accrued interest                                                                           |                                             |          
|                                       | Accrued income taxes                                                                       |                                             |          
|                                       | Current portion of long-term debt                                                          |                                             |          
|                                       | Other current liabilities                                                                  |                                             |          
|                                       |                                                                                            |                                             |          
|                                       |                                                                                            | Total current liabilities                   |          
|Due to parent                          |                                                                                            |                                             | 7,410    
|Long-term debt, net of current portion |                                                                                            |                                             | 1,024,042
|Deferred income taxes                  |                                                                                            |                                             |          
|Other long-term liabilities            |                                                                                            |                                             | 35,053   
|                                       |                                                                                            |                                             |          
|                                       |                                                                                            | Total liabilities                           |          
|                                       |                                                                                            |                                             |          
|Stockholder's deficit:                 |                                                                                            |                                             |          
|                                       | Common stockauthorized 3,000 shares; $0.01 par value; issued and outstanding 1,000 shares |                                             |          
|                                       | Contributed capital                                                                        |                                             |          
|                                       | Accumulated deficit                                                                        |                                             |          
|                                       | Accumulated other comprehensive loss                                                       |                                             |          
|                                       |                                                                                            |                                             |          
|                                       |                                                                                            | Total stockholder's deficit                 |          
|                                       |                                                                                            |                                             |          
|                                       |                                                                                            | Total liabilities and stockholder's deficit |          
|                                       |                                                                                            |                                             |          

See
Notes to Consolidated Financial Statements.

F-3

---



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

|                                                                                    |                                              | Year Ended December 31, |          
|----------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------- | ---------
|
|Net sales                                                                           |                                              | $                       | 1,645,051
|                                                                                    |                                              |                         |          
|Operating expenses:                                                                 |                                              |                         |          
|                                                                                    | Costs of production                          |                         |          
|                                                                                    | Selling, general and administrative          |                         |          
|                                                                                    | Restructuring charges                        |                         |          
|                                                                                    | Depreciation and amortization of intangibles |                         |          
|                                                                                    |                                              |                         |          
|                                                                                    |                                              |                         | 1,540,903
|                                                                                    |                                              |                         |          
|Operating income                                                                    |                                              |                         | 104,148  
|                                                                                    |                                              |                         |          
|Other expenses (income):                                                            |                                              |                         |          
|                                                                                    | Interest expense, net                        |                         |          
|                                                                                    | Other, net                                   |                         |          
|                                                                                    |                                              |                         |          
|                                                                                    |                                              |                         | 180,494  
|                                                                                    |                                              |                         |          
|Loss before income tax (benefit) expense and cumulative effect of accounting change |                                              |                         | (76,346  
|Income tax (benefit) expense                                                        |                                              |                         | (65,213  
|                                                                                    |                                              |                         |          
|Loss before cumulative effect of accounting change                                  |                                              |                         | (11,133  
|                                                                                    |                                              |                         |          
|Cumulative effect of accounting change, net of tax                                  |                                              |                         |          
|Net loss                                                                            |                                              | $                       | (11,133  
|                                                                                    |                                              |                         |          

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 |   | Accumu-
lated
Deficit |   | Accumulated
Other
Compre-
hensive
Income (Loss) |          | Total |  
|---------------------------------------------------------------------------------------- | ------------------ | ------ |  | ------------ | - | ------------------- | - | --------------------- | - | ----------------------------------------------- | -------- | ----- | -
|Balance at January 1, 2002                                                               |                    | 1      |  | $            |  |                     | $ | 393,173               |   | $                                               | (526,442 | )     | $
|Net loss                                                                                 |                    |        |  |              |   |                     |   |                       |   |                                                 | (120,146 | )     |  
|Currency translation adjustment                                                          |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Minimum pension liability adjustment, net of income tax benefit of $2.3 million          |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Fair value adjustment of interest rate swap, net of income tax provision of $0.8 million |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|                                                                                         | Comprehensive loss |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Capital contributions by parent                                                          |                    |        |  |              |   |                     |   | 25                    |   |                                                 |          |       |  
|Detachable warrants issued                                                               |                    |        |  |              |   |                     |   | 15,766                |   |                                                 |          |       |  
|Other                                                                                    |                    |        |  |              |   |                     |   | 1                     |   |                                                 | 9        |       |  
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Balance at December 31, 2002                                                             |                    | 1      |  |              |  |                     |   | 408,965               |   |                                                 | (646,579 | )     |  
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Net loss                                                                                 |                    |        |  |              |   |                     |   |                       |   |                                                 | (95,925  | )     |  
|Currency translation adjustment                                                          |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Minimum pension liability adjustment, net of income tax benefit of $1.0 million          |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Fair value adjustment of interest rate swap, net of income tax provision of $1.0 million |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Comprehensive loss                                                                       |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Other                                                                                    |                    |        |  |              |   |                     |   | (1                    | ) |                                                 | (8       | )     |  
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Balance at December 31, 2003                                                             |                    | 1      |  |              |   |                     |   | 408,964               |   |                                                 | (742,512 | )     |  
|Net loss                                                                                 |                    |        |  |              |   |                     |   |                       |   |                                                 | (11,133  | )     |  
|Currency translation adjustment                                                          |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Minimum pension liability adjustment                                                     |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|                                                                                         | Comprehensive loss |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Dividends to parent                                                                      |                    |        |  |              |   |                     |   |                       |   |                                                 | (15      | )     |  
|Capital contributions by parent                                                          |                    |        |  |              |   |                     |   | 95                    |   |                                                 |          |       |  
|Other                                                                                    |                    |        |  |              |   |                     |   |                       |   |                                                 | (1       | )     |  
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  
|Balance at December 31, 2004                                                             |                    | 1      |  | $            |  |                     | $ | 409,059               |   | $                                               | (753,661 | )     | $
|                                                                                         |                    |        |  |              |   |                     |   |                       |   |                                                 |          |       |  

See
Notes to Consolidated Financial Statements.

F-5

---



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

|                                                     |                                                                                 | Year Ended December 31,                                       |        
|---------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------
|
|Cash Flows from Operating Activities:                |                                                                                 |                                                               |        
|                                                     | Net loss                                                                        |                                                               | $      
|                                                     | Adjustments to reconcile net loss to net cash provided by operating activities: |                                                               |        
|                                                     |                                                                                 | Depreciation and amortization                                 |        
|                                                     |                                                                                 | Restructuring charges                                         |        
|                                                     |                                                                                 | Cumulative effect of accounting change                        |        
|                                                     |                                                                                 | Write-off of deferred financing fees                          |        
|                                                     |                                                                                 | Loss on termination of leasehold interest                     |        
|                                                     |                                                                                 | Deferred income taxes                                         |        
|                                                     |                                                                                 | Other non-cash income and expense, net                        |        
|                                                     |                                                                                 | Changes in operating assets and liabilities                   |        
|                                                     |                                                                                 | (excluding effect of acquisitions and dispositions):          |        
|                                                     |                                                                                 | Decrease in accounts receivable                               |        
|                                                     |                                                                                 | (Increase) decrease in inventories                            |        
|                                                     |                                                                                 | Decrease (increase) in prepaid expenses and other assets      |        
|                                                     |                                                                                 | (Decrease) increase in accounts payable and other liabilities |        
|                                                     |                                                                                 |                                                               |        
|Net cash provided by operating activities            |                                                                                 |                                                               | 47,545 
|                                                     |                                                                                 |                                                               |        
|Cash Flows from Investing Activities:                |                                                                                 |                                                               |        
|                                                     | Capital expenditures                                                            |                                                               |        
|                                                     | Software development costs capitalized                                          |                                                               |        
|                                                     | Proceeds from sale of property, plant and equipment and divested assets         |                                                               |        
|                                                     | Proceeds from termination of leasehold interest                                 |                                                               |        
|                                                     | Other investing activities                                                      |                                                               |        
|                                                     |                                                                                 |                                                               |        
|Net cash used in investing activities                |                                                                                 |                                                               | (18,992
|                                                     |                                                                                 |                                                               |        
|Cash Flows from Financing Activities:                |                                                                                 |                                                               |        
|                                                     | Issuance of long-term debt                                                      |                                                               |        
|                                                     | Issuance of long-term debt under new revolving credit facility                  |                                                               |        
|                                                     | Repayment of debt under prior revolving credit facility                         |                                                               |        
|                                                     | Net repayments under revolving credit facilities                                |                                                               |        
|                                                     | Repayments of long-term debt                                                    |                                                               |        
|                                                     | Deferred financing costs                                                        |                                                               |        
|                                                     | Increase in outstanding checks drawn on controlled disbursement accounts        |                                                               |        
|                                                     | Dividends to parent                                                             |                                                               |        
|                                                     | Capital contributions by parent                                                 |                                                               |        
|                                                     | (Advances to) distributions from parent                                         |                                                               |        
|                                                     |                                                                                 |                                                               |        
|Net cash used in financing activities                |                                                                                 |                                                               | (29,608
|Effect of exchange rate changes on cash              |                                                                                 |                                                               | 1,610  
|                                                     |                                                                                 |                                                               |        
|Net increase (decrease) in cash and cash equivalents |                                                                                 |                                                               | 555    
|Cash and cash equivalents at beginning of year       |                                                                                 |                                                               | 2,083  
|                                                     |                                                                                 |                                                               |        
|Cash and cash equivalents at end of year             |                                                                                 | $                                                             | 2,638  
|                                                     |                                                                                 |                                                               |        
|Supplemental Cash Flow Information:                  |                                                                                 |                                                               |        
|Interest paid                                        |                                                                                 | $                                                             | 123,161
|                                                     |                                                                                 |                                                               |        
|Income taxes paid                                    |                                                                                 | $                                                             | 1,003  
|                                                     |                                                                                 |                                                               |        
|Non-cash investing and financing activities:         |                                                                                 |                                                               |        
|Detachable warrants issued                           |                                                                                 |                                                               |        
|                                                     |                                                                                 |                                                               |        

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 a leading provider of targeted advertising, media and marketing services. The Company operates in two
geographic segments: Vertis North America and Vertis Europe (see Note 18).

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.

ReclassificationsCertain amounts for prior periods have been reclassified to conform to the current period presentation.

2.    RESTRUCTURING

In 2002, the Company planned and implemented two restructuring programs (the "2002 Programs"). In the first quarter of 2002, under the 2002 Programs, two Vertis
Europe facilities were combined and ten employees were terminated resulting in severance of $0.7 million, facility closure costs of $1.6 million and losses on disposition of assets of
$0.2 million. The North America portion of the 2002 Programs resulted in a reduction in work force of approximately 530 employees, which resulted in a severance charge of $8.0 million
and the closure of five facilities, which resulted in a charge of $7.0 million including $4.9 million in losses on the disposition of assets at the closed facilities and an offsetting
adjustment of $1.3 million to adjust the 2001 estimated restructuring accrual. Additionally, the Company recorded $1.6 million of other charges, which are primarily legal fees and the
cost of leased equipment no longer needed due to the North America restructurings.

The
Company began a restructuring program in the U.S. and the U.K. in the third quarter of 2003 (the "2003 Program"), the execution of which was complete as of June 2004. The 2003
Program included the closure of facilities, some of which were associated with the consolidation of operations; transfer of certain positions to the corporate office; reductions in work force of
approximately 260 employees; and the abandonment of assets associated with vacating these premises. As of December 31, 2004, costs associated with the 2003 Program were $19.2 million
(net of estimated sublease income of $7.7 million) of which approximately $3.0 million are non-cash costs. The Vertis Europe portion of the 2003 Program was complete as of
December 31, 2003. The Vertis North America portion of the 2003 Program was complete as of the second quarter of 2004, however an adjustment to restructuring expense of $3.0 million was
made in December 2004 as the amount of facility closure costs expected to be paid was recalculated based on a revised assumption of estimated sublease income.

In
2003 Vertis North America recorded, under the 2003 Program, $4.7 million in severance costs due to headcount reductions of 200 employees, $6.9 million in facility
closure costs and $3.0 million in asset write-offs related to the closure of five facilities. Additionally, Vertis Europe recorded $0.6 million

F-7

---



in
severance costs in 2003, under the 2003 Program, due to headcount reductions of 14 employees related to the closure of one facility and the consolidation of several subsidiaries into one entity.

Vertis
Europe began a new restructuring program in the second quarter of 2004 (the "2004 Program") that included planned staffing reductions totaling approximately 184 employees. The
2004 Program was substantially complete as of December 31, 2004. Additionally, in 2004 the Company announced an amendment of an executive level employment agreement at the Vertis corporate
office resulting in an estimated cost of $1.2 million.

In
the twelve months ended December 31, 2004, under the 2003 Program, Vertis North America recorded $0.5 million in severance costs due to headcount reductions of
approximately 50 employees, and $3.5 million in facility closure costs. In 2004, Vertis Europe recorded $2.3 million in severance costs under the 2004 Program associated with the
termination of 184 employees and $0.1 million in facility closure costs associated with the 2002 Programs. Additionally, in the fourth quarter of 2004, $0.5 million of costs were
recorded related to the amendment of an executive level employment agreement at the Vertis Corporate office.

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

(in thousands)

Severance
and Related
Costs

Asset Write
Off & Disposal
Costs

Facility
Closing
Costs

Other
Costs

TotalBalance at January 1, 2002

$
3,807

$


$
8,254

$
84

$
12,145Restructuring charges in 2002


8,680


5,067


3,707


1,637


19,091Restructuring payments and usage in 2002


(10,783
)

(3,048
)

(4,877
)

(848
)

(19,556
)Balance at December 31, 2002


1,704


2,019


7,084


873


11,680Restructuring charges in 2003


5,367


2,965


6,911





15,243Restructuring payments and usage in 2003


(5,615
)

(4,984
)

(4,237
)

(308
)

(15,144
)Balance at December 31, 2003


1,456





9,758


565


11,779Restructuring charges in 2004


3,300


35


3,566





6,901Restructuring payments and usage in 2004


(3,580
)

(35
)

(6,012
)

10


(9,617
)Balance at December 31, 2004

$
1,176

$


$
7,312

$
575

$
9,063


Accrued
restructuring reserves total approximately $9.1 million at December 31, 2004. The balance that will be paid in 2005, totaling approximately $4.1 million, is
included in other current liabilities. Included in other long-term liabilities is approximately $5.0 million, which the Company expects to pay by 2011.

F-8

---



The
charges are comprised of the following:

(in thousands)

2004

2003

2002Charges requiring cash payments

$
6,866

$
12,278

$
14,024Write off of assets in closed locations


35


2,965


5,067$
6,901

$
15,243

$
19,091


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 in accordance with the terms of the contracts. 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 net sales and actual charges paid by the Company are included in costs of
production in the consolidated statements of operations.

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.

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

InvestmentsInvestments in equity securities are classified as available-for-sale and are recorded at
market value, with net unrealized gains and losses recorded in other comprehensive income.

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. These parts play a vital role in the performance of the Company's printing presses.

Long-lived AssetsProperty, plant and equipment are stated at cost. Depreciation and amortization are computed
using the straight-line method over the assets' estimated useful lives, or when applicable, the terms of the leases, if shorter.

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

F-9

---



Software
development costs are expensed until technological feasibility is determined, after which costs are capitalized until the product is ready for general release and sale. These
costs are amortized over three to seven-year lives beginning at the respective release dates.

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 software development 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 are amortized over the terms of the related agreements. Deferred financing costs are amortized over the terms of the related financing instruments.

GoodwillEffective January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under this statement, goodwill and intangible assets with indefinite lives are no longer amortized. Accordingly, the Company
stopped amortizing its existing goodwill as of January 1, 2002. Additionally, under the transitional provisions of SFAS 142, the Company's goodwill was tested for impairment as of
January 1, 2002. Each of the Company's reporting units was tested for impairment by comparing the fair value of the reporting unit with the carrying value of that unit. Fair value was
determined based on a valuation study performed by an independent third party using the discounted cash flow method and the guideline company method. As a result of the Company's impairment test
completed in the third quarter of 2002, the Company recorded an impairment loss of $86.6 million at the Vertis North America segment and $21.8 million at the Vertis Europe segment to
reduce the carrying value of goodwill to its implied fair value, net of tax. Impairment in both cases was due to a combination of factors including operating performance and acquisition price. In
accordance with SFAS 142, the impairment charge was reflected as a cumulative effect of accounting change in the accompanying 2002 consolidated statements of operations. The Company has elected
to test its goodwill in the first quarter of the fiscal year. No impairment of goodwill was noted in 2004 and 2003.

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
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:



F-10

---





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. Up until December 31, 2003, only options had been granted under the Stock Plan. In
2004, employees holding options were given the opportunity to exchange their outstanding eligible options for either restricted stock (U.S.based employees) or Nil Cost Options (U.K.-
based employees) as outlined in the exchange offer. All but approximately 21,904 of the options were exchanged and restricted shares and nil cost options were issued pursuant to the exchange offer.
See Note 14, "Vertis Holdings Stock Award and Incentive Plan", for further discussion.

The
Company accounts for the Stock Plan under the intrinsic value method, which follows the recognition and measurement principles of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees." No stock-based employee compensation cost is reflected in net income. For the 21,904 options not exchanged under both offers, variable
accounting is being applied. There was no expense recorded in 2004.

The
following table summarizes the effect of accounting for these awards 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.

(in thousands)

2004

2003

2002Net loss:As reported

$
(11,133
)
$
(95,925
)
$
(120,146
)Deduct: total stock-based compensation determined under fair value based method for all awards, net of tax


(11
)

(1,100
)

(2,349
)Pro forma

$
(11,144
)
$
(97,025
)
$
(122,495
)


The
weighted-average fair value per option at the date of grant for options granted under the Stock Plan was $17.70 in 2002. There were no options granted in 2004 or 2003. The fair value
of

F-11

---



options
granted during 2002 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

2002Expected volatility

38.20
%Risk-free interest rate

4.00
%Expected option life (years)

10


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.

New Accounting PronouncementsIn November 2004, the FASB issued SFAS No.151, "Inventory Costsan amendment
of ARB No. 43, Chapter 4". SFAS No. 151 amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4, "Inventory Pricing," to clarify that abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage) should be recognized as current period charges. In addition, this Statement requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial position or results of operations.

In
December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary AssetsAn Amendment of APB Opinion No. 29". The guidance in APB Opinion
No. 29,Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the
fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this Statement shall be effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date this Statement
is issued. The provisions of this Statement shall be applied prospectively. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial position or
results of operations.

In
December 2004, the FASB issued SFAS No. 123 (revised), "Share-Based Payments" ("SFAS 123R") which replaces SFAS No. 123, "Accounting for Stock-Based
Compensation" and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123R requires all share-based payments to employees, including grants of employee stock
options and restricted stock, to be recognized in the financial statements based on their grant date fair values. The proforma disclosures previously permitted under SFAS No. 123 will no longer
be an alternative to financial statement recognition. Under SFAS 123R, companies must determine the transition method, either retroactive or prospective, to be used at the date of adoption; the
appropriate fair value model to be used for valuing share-based payments; and the amortization method for compensation cost. The

F-12

---



provisions
of this Statement shall be effective for the Company in the third quarter of 2005. The Company is currently evaluating the provisions of this statement and has not yet determined the impact
that this Statement will have on its results of operations or financial position.

4.    ACQUISITIONS AND DISPOSITIONS

On June 10, 2003, the Company acquired the sales, marketing and media planning assets of The Newspaper Network, Inc. (collectively, "TNN") by
assuming the working capital deficit of approximately $4.3 million. The Newspaper Network, Inc. is a national sales and marketing company that provides a wide variety of print
advertising services specializing in the planning, pricing and placement of newspaper advertising throughout the United States.

Goodwill
arising in connection with this acquisition was approximately $1.1 million, calculated as the excess of the liabilities assumed over the fair value of the net assets
acquired. The financial results of TNN are included in the Company's consolidated financial statements from the date of acquisition.

The
following unaudited pro forma information reflects the Company's results adjusted to include TNN as though the acquisition had occurred at the beginning of 2002.

Twelve months ended December 31,(in thousands)2003

2002Net sales

$
1,591,066

$
1,687,168Net loss


(96,422
)

(120,565
)


5.    ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

(in thousands)

2004

2003Tradebilled

$
146,716

$
150,348Tradeunbilled


28,941


29,201Other receivables


6,381


8,168182,038


187,717Allowance for doubtful accounts


(3,388
)

(3,942
)$
178,650

$
183,775


In
December 2002, the Company entered into a three-year agreement, expiring in November 2005, to sell substantially all trade accounts receivable generated by
subsidiaries in the U.S. (the "A/R Facility") through the issuance of $130.0 million variable rate trade receivable backed notes. This agreement replaced a similar previous agreement that
expired in December 2002, whereby the proceeds from the A/R Facility were used to retire the certificates issued under the previous agreement.

F-13

---





The A/R Facility allows for a maximum of $130.0 million of trade accounts receivable to be sold at any time based on the level of eligible receivables.
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 $3.2 million in both 2004 and 2003. These proceeds are fully offset by servicing costs.

At
December 31, 2004 and 2003, accounts receivable of $130.0 million and $122.5 million, respectively, had been sold under the A/R Facility and, as such, are
reflected as reductions of accounts receivable. At December 31, 2004 and 2003, the Company retained an interest in the pool of receivables in the form of overcollateralization and cash reserve
accounts of $58.0 million and $53.2 million, respectively, 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 $1,558.4 million and $1,476.5 million in 2004 and 2003, respectively.

Fees
for the program under the A/R Facility vary based on the amount of interests sold and the London Inter Bank Offered Rate ("LIBOR") plus an average margin of 90 basis points. The
loss on sale, which approximated the fees, totaled $3.1 million in 2004, $2.6 million in 2003 and $2.8 million in 2002, and is included in Other, net.

6.    INVENTORIES

Inventories consisted of the following:

(in thousands)

2004

2003Paper

$
29,648

$
24,468Work in process


5,707


6,146Ink and chemicals


3,301


3,714Other


5,945


5,312$
44,601

$
39,640


7.    PROPERTY, PLANT AND EQUIPMENT

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

(in thousands)

Estimated
Useful Life
(Years)

2004

2003Land



$
8,491

$
8,480Machinery and equipment

5 to 15


689,381


669,833Buildings and leasehold improvements

1 to 40


94,566


93,671Furniture and fixtures

3 to 10


115,451


107,657Internally developed computer software

3 to 5


16,920


17,989Vehicles

3 to 5


1,717


2,260Construction in progress and deposits on equipment purchases




22,329


20,012948,855


919,902Accumulated depreciation and amortization




(569,417
)

(518,082
)$
379,438

$
401,820


8.    INVESTMENTS

The Company had two subsidiaries which were special purpose limited liability companies ("LLCs") that were the head lessees and sub-lessors in two
lease-leaseback transactions entered into in 1998. Under these transactions, buildings with estimated useful lives of 65 years were leased by the LLCs for terms of 57 years

F-14

---



(the
"Headleases") and subleased by the LLCs to the lessors for terms of 52 years (the "Subleases"). Under the guidelines of SFAS No. 13, "Accounting for Leases," the Headleases
qualified as capital leases and the Subleases qualified as leveraged leases. The Company's investments represented approximately 24% of the buildings' combined leasehold values, while the balance was
furnished by third-party financing in the form of long-term debt that provided no recourse against the LLCs or the Company, but was secured by first liens on the properties.

The
Company's net investment in leveraged leases was composed of the following components:

(in thousands)

2003Rentals receivable

$
113,541Less: unearned income


(39,574
)Investment in leveraged leases included in long-term investments


73,967Less: deferred taxes


(66,733
)Net investment in leveraged leases

$
7,234


On
September 14, 2004, the Company entered into a termination and release agreement with the headlessor/sublessee whereby the Company terminated its leasehold interest in the
properties. The Company received net proceeds of approximately $31 million, after transaction expenses, from one of the third parties that was financing the original arrangement. As a result of
the transaction, the Company recorded a non-cash loss related to the termination and release of $44.0 million, which is included in Other, net in 2004, and a tax benefit of
$66.7 million (see Note 11).

Other,
net includes $1.0 million of income earned on the leveraged lease investments in 2004, prior to the termination of the leasehold interest, $1.5 million in 2003 and
$1.6 million in 2002.

9.    LONG -TERM DEBT

Long-term debt consisted of the following:

(in thousands)

2004

2003Revolving credit facility

$
48,801

$
80,57093/4% senior secured second lien notes, net of discount


343,235


341,643107/8% senior notes, net of discount


348,399


348,042131/2% senior subordinated notes


293,495


210,665131/2% senior subordinated credit facility





82,832Discount131/2% senior subordinated credit facility


(9,895
)

(11,908
)Other notes


13


1061,024,048


1,051,950Current portion


(6
)

(73
)$
1,024,042

$
1,051,877


On
December 22, 2004, the Company entered into a $200 million, four-year revolving credit agreement (the "Credit Facility") consisting of a multicurrency
revolving credit facility of up to $200 million that provides for issuances of up to $45 million in letters of credit and borrowings of up to $150 million in alternate currencies.
The Credit Facility matures December 22, 2008 with no repayment of principal until maturity.

The
maximum availability under the Credit Facility is $200 million, 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

F-15

---



$130 million
trade receivables securitization (see Note 5); and 45% of eligible machinery, equipment and owned real estate. The eligibility of such assets included in the calculation is
set forth in the credit agreement. At December 31, 2004, the Company's borrowing base calculation was $208.2 million.

The
interest rate on the Credit Facility is either (a) the US Prime rate or Britain Prime rate, depending on the currency the Company is borrowing in, 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 US or Britain 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. At December 31, 2004, the margin was 275 basis points above LIBOR.

The
Credit Facility replaces the $250 million revolving credit facility that was to expire in December 2005 (the "Prior Credit Facility"). The Prior Credit Facility was
terminated on December 22, 2004 and the outstanding balance, totaling $102.9 million, was repaid in full using funds from the Credit Facility. No early termination penalties were
incurred.

The
Prior Credit Facility consisted of three components:



At
December 31, 2004, the weighted-average interest rate on the Credit Facility was 7.56% as compared to 7.33% on the Prior Credit Facility at December 31, 2003.

On
May 7, 2003, the Company, in the course of its internal financial review, became aware of a required payment due March 31, 2003, under the Prior Credit Facility to the
holders of the Term A and B loans in the amount of $40.9 million. This past due payment was discovered during a review of the definition of "excess cash flow", as defined in the Prior Credit
Facility agreement, resulting in a revision of the previously calculated "excess cash flow" out of which a prepayment was required to be made. The only period where this re-calculation
resulted in a required prepayment was for the year ended December 31, 2002, which was due on March 31, 2003. On May 8, 2003, the Company received the required waivers for this
technical default and made the payment with borrowings from the Prior Credit Facility.

In
June 2003, the Company issued $350.0 million of senior secured second lien notes with an interest rate of 93/4% and maturity date of April 1, 2009
(the "93/4% notes"). The notes pay interest semi-annually on April 1 and October 1 of each year. After deducting the initial purchasers discount and
transaction expenses, the net proceeds received by the Company were $330.3 million. The Company used these net proceeds to pay off $267.9 million remaining on the Term A and B loans and
$62.4 million of the Prior Credit Facility.

The
107/8% senior notes (the "107/8% notes") were issued in 2002 with an interest rate of 107/8% and maturity date of June 15, 2009.
These senior unsecured notes pay interest semi-annually on June 15 and December 15 of each year.

The
Company had a senior subordinated credit facility (the "Senior Facility"), which was a term loan bearing interest of 131/2% expiring on December 7, 2009.
Pursuant to the Senior Facility, the Company issued an aggregate of $293.5 million of 131/2% senior subordinated notes due December 7, 2009 (the "Exchange

F-16

---



Notes")
in 2003 and 2004 in exchange for the term loans held by the holders requesting the exchange. The Exchange Notes pay interest semi-annually on June 1 and December 1 of
each year. The $293.5 million represents the entire amount of term notes under the Senior Facility. However, at December 31, 2004 there remains a $9.9 million discount associated
with approximately 700,000 detachable warrants issued in February 2002 to the holders of the Senior Facility entitling them to purchase one share of Vertis Holdings stock for $0.01 per share.
These warrants expire on June 30, 2011 and the discount is being amortized over the original life of the Senior Facility.

The
Credit Facility, the 107/8% notes, the 93/4% notes and the Exchange Notes contain customary covenants including restrictions on capital expenditures,
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, as well as the Company's other long-term debt. 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. In addition, the Credit Facility includes a minimum EBITDA covenant requiring the Company to maintain EBITDA of $160 million on a trailing
twelve-month basis. The EBITDA amount used in this covenant calculation is the same as that used in the Leverage Ratio calculation for the purpose of determining the interest rate on the Credit
Facility, as discussed above. At December 31, 2004, the Company's EBITDA as calculated under the credit agreement is $186.0 million. If the Company is unable to maintain this minimum
EBITDA amount, the bank lenders could require the Company to repay any amounts owing under the Credit Facility. At December 31, 2004, the Company was in compliance with its debt covenants.

At
December 31, 2004, the aggregate maturities of long-term debt were:

(in thousands)2005

$
62006


720072008


48,8012009


975,234Thereafter$
1,024,048


The
Company had an interest rate swap agreement, attached to the Term B loans, that converted a portion of variable rate debt to a fixed rate basis. This agreement was designated as a
hedge against changes in future cash flows. On June 6, 2003, in connection with the payoff of the Term A and B loans, this interest rate swap agreement became an ineffective cash flow hedge. At
this date, the remaining fair market value of the agreement, approximately $1.1 million, was expensed and is included in Other, net for the year ended December 31, 2003.

10.    LEASES

Facilities and certain equipment are leased under agreements that expire at various dates through 2016. Rental expense for continuing operations under operating
leases for the years ended December 31, 2004, 2003 and 2002, was $33.0 million, $34.0 million, and $35.0 million, respectively.

F-17

---



At
December 31, 2004, minimum annual rentals under non-cancelable operating leases (net of subleases) were:

(in thousands)2005

$
33,0572006


29,5722007


23,0992008


16,8472009


10,659Thereafter


33,115$
146,349


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

11.    INCOME TAXES

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

(in thousands)

2004

2003

2002Current:Federal

$
1,000

$
1,000

$
(565
)State and foreign


520


944


6181,520


1,944


53Deferred:Federal


(66,733
)

46,485


(2,532
)State and foreign(66,733
)

46,485


(2,532
)Total income tax expense (benefit)

$
(65,213
)
$
48,429

$
(2,479
)


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.

Federal
and state income taxes are subject to a tax allocation arrangement (the "Tax Arrangement") where the Company files as a member of Vertis Holdings' consolidated group. The Tax
Arrangement does not apply to income taxes in jurisdictions in which the Company or its subsidiaries file separate tax returns. The Tax Arrangement does not provide for remuneration in years in which
the Company has a current taxable loss as in 2002, 2003, and 2004.

The
Company's foreign pre-tax income was not a significant component of total pre-tax income or loss. No U.S. income taxes have been provided for unremitted
earnings of foreign subsidiaries as the Company intends to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so.

F-18

---



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

(percent of pre-tax loss)

2004

2003

2002Statutory income tax rate

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

(0.4
)
2.0

7.8Change in valuation allowance

(53.0
)
136.2

0.0Foreign income taxed at other rates

2.1

3.3

(3.1
)Investment related differences

1.3

2.1

7.0Officer's life insurance

0.0

(7.2
)
0.0Other

0.5

1.4

5.9Effective tax rate

(84.5
)%
102.8
%
(17.4
)%


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

(in thousands)

2004

2003Employee benefits

$
15,354

$
13,093Net operating loss and tax credit carry forwards


69,188


102,758Accrued expenses and reserves


8,576


10,412Other deductible differences


2,323


5,95995,441


132,222Property, plant and equipment


(52,832
)

(55,458
)Leveraged lease investments


0


(66,733
)Other taxable differences


(2,119
)

(2,428
)(54,951
)

(124,619
)Valuation allowance


(40,490
)

(74,393
)Net deferred income tax liability

$
0

$
(66,790
)


During
2004, the Company recorded a tax benefit of $65.2 million of which $66.7 million was the result of the termination of the Company's leasehold interest in the real
estate properties as discussed in Note 8. The activities undertaken in 2004, including this transaction, reduced the Company's federal net operating loss carryforwards by $117.6 million
from $277.3 million to $159.7 million. This amount is included in the consolidated Vertis Holdings net operating loss carryforward of $207.9 million. The remaining carryforwards
expire beginning in 2007 through 2025.

The
Company's valuation allowance was also reduced by the transaction discussed above. The valuation allowance, which was $74.4 million at the beginning of 2004, was reduced by
$33.9 million to $40.5 million at the end of 2004. The valuation allowance reserves the portion of the net operating losses and tax credit carryforwards that will not be offset by
reversing taxable temporary differences. This treatment is required under SFAS No. 109, "Accounting for Income Taxes". These carryforwards may still be used to offset taxable income in future
years, thereby lowering our cash tax obligations. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

The
Company is currently under examination by the Internal Revenue Service in the United States. The Company believes it has adequate provisions for all open years.

F-19

---



12.    RETIREMENT PLANS

Defined Benefit PlansThe Company maintains defined benefit plans, including pension and supplemental
executive retirement plans.

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

(in thousands)

2004

2003

2002Components of net periodic pension cost:Service cost

$
686

$
697

$
618Interest cost


2,159


2,216


2,168Expected return on assets


(1,023
)

(1,187
)

(1,611
)Net amortization and deferral


944


721


412Settlement loss





1,212


1,558$
2,766

$
3,659

$
3,145Changes in benefit obligations:Benefit obligation at beginning of year

$
36,748

$
33,694Service cost


686


697Interest cost


2,159


2,216Actuarial loss


2,145


3,453Benefits paid


(1,716
)

(3,848
)Settlements and curtailments





536Benefit obligation at end of year

$
40,022

$
36,748Changes in plan assets:Fair value of plan assets at beginning of year

$
11,707

$
13,152Actual return on assets


1,037


1,597Employer contributions


4,048


806Benefits paid


(1,716
)

(3,848
)Fair value of plan assets at end of year

$
15,076

$
11,707Funded status

$
24,946

$
25,041Unrecognized prior service cost


(1,546
)

(1,778
)Unrecognized actuarial loss


(14,348
)

(12,930
)Net amount recognized

$
9,052

$
10,333Amounts recognized in the consolidated balance sheet:Accrued benefit cost

$
22,086

$
22,097Accumulated other comprehensive loss


(13,034
)

(11,764
)Net amount recognized

$
9,052

$
10,333Weighted-average assumptions:Discount rate


5.75
%

6.25
%

6.75
%Expected return on plan assets


8.16
%

8.16
%

9.00
%Annual compensation increase


3.00
%

3.00
%

3.00
%


The
Company expects to make approximately $2.4 million of cash contributions to its pension plans in 2005.

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

(in thousands)2005

$
1,7442006


1,6202007


2,1712008


1,8642009


2,6912010-2014


9,463$
19,553


F-20

---



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:

Asset category:

2004

2003Equity securities

57
%
57
%Fixed Income

38
%
32
%Cash and cash equivalents

5
%
11
%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 2005 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 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
%
10.2
%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. Long-term liabilities include balances related to this plan of $6.8 million as of December 31,
2004 and $6.9 million as of December 31, 2003.

Defined Contribution PlansThe Company maintains 401(k) and other investment plans for eligible employees. The Company did not
make matching contributions to its 401(k) plan in 2004 and thus did not record any expense for the year ended December 31, 2004. The Company recorded $7.6 million in expenses for the
year ended December 31, 2003 and $6.7 million in 2002.

13.    STOCKHOLDER'S DEFICIT

Contributed CapitalIn February 2002, the Company issued approximately 700,000 warrants, with
an aggregate value of $15.8 million, to 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, which are outstanding as of December 31, 2004, are immediately exercisable and expire on June 30, 2011.

Dividends to ParentIn 2004, the Company paid $15,000 of cash dividends to Vertis Holdings. No dividends were paid in 2003 and
2002.

Management FeesThe Company paid approximately $1.3 million in annual fees to the owners of Vertis Holdings in 2004,
2003 and 2002.

F-21

---



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

|                                            |  | 2004 |         | 2003 |   | 2002   |  
|------------------------------------------- |  | ---- | ------- | ---- | - | ------ | -
|
|
|Cumulative translation adjustments          |  | $    | 4,370   |      |   |        |  
|Minimum pension liability adjustment        |  |      | (13,034 | )    | $ | (4,706 | )
|Fair value adjustment of interest rate swap |  |      |         |      |   |        |  
|                                            |  |      |         |      |   |        |  
|                                            |  | $    | (8,664  | )    | $ | (4,706 | )
|                                            |  |      |         |      |   |        |  

14.    VERTIS HOLDINGS STOCK AWARD AND INCENTIVE PLAN

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. On April 6, 2004, the Company extended an offer to all eligible U.S.-based employees holding options under the Stock Plan the opportunity to
exchange their outstanding eligible options for restricted common stock on a 4 for 1 basis. The restricted stock will vest immediately prior to a liquidity event, generally defined as a public
offering of our 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. Of the 782,484 eligible Vertis Holdings options, 774,866 were exchanged. Pursuant to the exchange offer, on June 7, 2004 Vertis Holdings issued 193,739 restricted
shares of stock. Additionally, 7,500 restricted shares were issued to certain officers and directors of Vertis outside of the exchange offer. Upon issuance, unearned compensation was charged to
stockholders' equity on Vertis Holdings balance sheet for the fair value of the restricted stock as determined by an independent valuation.

On
June 14, 2004, the Company extended an offer to all eligible U.K.-based employees holding options under the Stock Plan the opportunity to exchange their outstanding eligible
options for Nil Cost Options on a 4 for 1 basis. The Nil Cost Options give the holder a right to purchase shares of common stock subject to a nominal fee of £1. The Nil Cost Options will
vest immediately prior to a liquidity event, as defined above. Of the 42,785 Vertis Holdings options eligible to be exchanged, 28,499 were exchanged. Pursuant to the exchange offer, on July 29,
2004 Vertis Holdings granted 7,126 Nil Cost Options.

The
Company accounts for the Stock Plan under the intrinsic value method, which follows the recognition and measurement principles of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees." No stock-based employee compensation cost is reflected in net income. Due to the uncertainty of the timing of a liquidity event, which would
trigger the vesting of the restricted stock and the Nil Cost Options, and the fact that the number of shares that will actually vest is unknown, compensation expense will not be recorded until a
liquidity event takes place, or an event is more probable of occurring. For the 21,904 options not exchanged under both offers, variable accounting will apply. There is no expense recorded in 2004.

Transactions
under the Stock Plan were as follows:

|                                 |  | Year Ended December 31, |  
|-------------------------------- |  | ----------------------- | -
|
|
|Outstanding at beginning of year |  |                         |  
|Granted                          |  | 201                     |  
|Cancelled                        |  | (4                      | )
|                                 |  |                         |  
|Outstanding at end of year       |  | 197                     |  
|                                 |  |                         |  
|Exercisable at end of period     |  |                         |  
|                                 |  |                         |  

F-22

---



Restricted
shares and Nil Cost Options outstanding at December 31, 2004 have an exercise price of $20.48. Options outstanding at December 31, 2004 have an exercise price of
$31.50 per share and ten-year terms. See the Stock Based Compensation section under Note 3 for further discussion.

15.    INTEREST EXPENSE, NET

Interest expense, net consists of the following:

(In thousands)

2004

2003

2002Interest expense

$
123,513

$
117,831

$
112,733Amortization of deferred financing fees


7,831


8,045


10,416Write-off of deferred financing fees


1,788


10,958


11,508Interest income


(323
)

(277
)

(283
)$
132,809

$
136,557

$
134,374


The
Company wrote off deferred financing fees of $1.8 million in December 2004 in connection with the termination of the Prior Credit Facility. In June 2003, the
Company wrote off deferred financing fees of $11.0 million in connection with the retirement of the Term A and B loans. In 2002, the Company wrote off $11.5 million in deferred financing
fees in connection with the repayments of a portion of the Term A and B loans and the senior subordinated credit facility. See Note 9 for further discussion of these debt transactions.

16.    OTHER, NET

Other, net for the year ended December 31, 2004 consists primarily of a $44.0 million loss associated with the termination of the Company's
leasehold interest in the properties as discussed in Note 8, offset by $1.0 million in income earned on investments accounted for as leveraged leases prior to the termination of the
Company's leasehold interest. Additionally, included in Other, net are $3.1 million in fees associated with the A/R Facility (see Note 5), $1.2 million in bank commitment fees and
$0.4 million in losses on the sale of property, plant and equipment.

Other,
net for the year ended December 31, 2003 consists primarily of a $10.1 million recovery from a settlement to the legal proceeding arising from a life insurance
policy which covered the former Chairman of Vertis Holdings, Inc. Additionally, other, net includes $1.5 million in income earned on investments accounted for as leveraged leases (see
Note 8), offset by $2.6 million in fees associated with the A/R Facility (see Note 5), the $1.1 million adjustment to record the change in the interest rate swap agreement
(see Note 9) and $1.2 million in losses on the sale of property, plant and equipment. The remaining $0.9 million in expense consists of miscellaneous charges such as commitment
fees and foreign exchange losses.

Other,
net for the year ended December 31, 2002 consists primarily of $2.8 million in fees associated with the accounts receivable facility in place in 2002 (see
Note 5), $1.5 million in losses on the sale of property, plant and equipment, and $0.3 million in foreign exchange losses offset by $1.6 million in income earned on
investments accounted for as leveraged leases (see Note 8). The remaining $0.4 million in expense consists of miscellaneous charges such as commitment fees.

F-23

---



17.    QUARTERLY FINANCIAL INFORMATIONUNAUDITED

The results of operations for the years ended December 31, 2004 and 2003 are presented below.

|(in thousands)                        |  | First
Quarter |         | Second
Quarter |   | Third
Quarter |   | Fourth
Quarter |        
|------------------------------------- |  | ------------- | ------- | -------------- | - | ------------- | - | -------------- | -------
|Year Ended December 31, 2004          |  |               |         |                |   |               |   |                |        
|Net sales                             |  | $             | 387,486 |                | $ | 396,910       |   | $              | 411,565
|Gross profit                          |  |               | 69,384  |                |   | 72,884        |   |                | 74,620 
|Loss before income taxes (1)          |  |               | (11,030 | )              |   | (11,284       | ) |                | (52,133
|Net (loss) income (1)                 |  |               | (11,253 | )              |   | (11,646       | ) |                | 14,322 
|Year Ended December 31, 2003          |  |               |         |                |   |               |   |                |        
|Net sales                             |  | $             | 371,215 |                | $ | 377,348       |   | $              | 390,943
|Gross profit                          |  |               | 63,701  |                |   | 67,086        |   |                | 68,264 
|(Loss) income before income taxes (2) |  |               | (7,962  | )              |   | (22,899       | ) |                | (22,821
|Net (loss) income (2)                 |  |               | (5,845  | )              |   | (71,911       | ) |                | (24,027
|Year Ended                            |  |               |         |                |   |               |   |                |        

---

18.    SEGMENT INFORMATION

The Company operates in two business segments. The accounting policies of the business segments are the same as those described in Note 3 to the
consolidated financial statements. The segments are:



Additionally,
the Company has a General Corporate segment where costs associated with the Company's excutive officers are recorded as well as higher level transactions, such as the
termination of the Company's leasehold interest (see Note 9), that are not allocated to the Company's business segments.

F-24

---



Following
is information regarding the Company's segments:

|(in thousands)                                          |  |                                              |  | 2004 |           | 2003 |   | 2002      |  
|------------------------------------------------------- |  | -------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|Net sales                                               |  | Vertis North America                         |  | $    | 1,506,347 |      | $ | 1,448,474 |  
|                                                        |  | Vertis Europe                                |  |      | 138,704   |      |   | 137,435   |  
|                                                        |  | Elimination of intersegment sales            |  |      |           |      |   |           |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|                                                        |  | Consolidated                                 |  | $    | 1,645,051 |      | $ | 1,585,909 |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|EBITDA                                                  |  | Vertis North America                         |  | $    | 188,779   |      | $ | 164,273   |  
|                                                        |  | Vertis Europe                                |  |      | (2,012    | )    |   | 8,523     |  
|                                                        |  | General Corporate                            |  |      | (55,279   | )    |   | (113      | )
|                                                        |  |                                              |  |      |           |      |   |           |  
|                                                        |  | Consolidated EBITDA                          |  |      | 131,488   |      |   | 172,683   |  
|                                                        |  | Depreciation and amortization of intangibles |  |      | 75,025    |      |   | 83,622    |  
|                                                        |  | Interest expense, net                        |  |      | 132,809   |      |   | 136,557   |  
|                                                        |  | Income tax (benefit) expense                 |  |      | (65,213   | )    |   | 48,429    |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|                                                        |  | Consolidated Net Loss                        |  | $    | (11,133   | )    | $ | (95,925   | )
|                                                        |  |                                              |  |      |           |      |   |           |  
|Restructuring Charges                                   |  | Vertis North America                         |  | $    | 4,018     |      | $ | 14,649    |  
|                                                        |  | Vertis Europe                                |  |      | 2,400     |      |   | 594       |  
|                                                        |  | General Corporate                            |  |      | 483       |      |   |           |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|                                                        |  | Consolidated                                 |  | $    | 6,901     |      | $ | 15,243    |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|Depreciation and Amortization of Intangibles            |  | Vertis North America                         |  | $    | 67,455    |      | $ | 76,262    |  
|                                                        |  | Vertis Europe                                |  |      | 7,570     |      |   | 7,360     |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|                                                        |  | Consolidated                                 |  | $    | 75,025    |      | $ | 83,622    |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|Additions to Long-Lived Assets (excluding acquisitions) |  | Vertis North America                         |  | $    | 45,636    |      | $ | 40,195    |  
|                                                        |  | Vertis Europe                                |  |      | 5,365     |      |   | 3,916     |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|                                                        |  | Consolidated                                 |  | $    | 51,001    |      | $ | 44,111    |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|Identifiable Assets                                     |  | Vertis North America                         |  | $    | 816,588   |      | $ | 858,851   |  
|                                                        |  | Vertis Europe                                |  |      | 175,058   |      |   | 161,387   |  
|                                                        |  | General Corporate                            |  |      | 58,149    |      |   | 127,260   |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|                                                        |  | Consolidated                                 |  | $    | 1,049,795 |      | $ | 1,147,498 |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|Goodwill                                                |  | Vertis North America                         |  | $    | 246,855   |      | $ | 250,080   |  
|                                                        |  | Vertis Europe                                |  |      | 113,010   |      |   | 103,368   |  
|                                                        |  |                                              |  |      |           |      |   |           |  
|                                                        |  | Consolidated                                 |  | $    | 359,865   |      | $ | 353,448   |  
|                                                        |  |                                              |  |      |           |      |   |           |  

19.    GUARANTOR/NON-GUARANTOR CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The Company has senior notes (see Note 9), 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, 2004 and 2003, and for the years ended
December 31, 2004, 2003 and 2002 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.

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-25

---



Condensed Consolidating Balance Sheet at December 31, 2004

|In thousands                                         |  | Parent |           | Guarantor
Companies |   | Non-Guarantor
Companies |   | Eliminations |         | Consolidated |  
|---------------------------------------------------- |  | ------ | --------- | ------------------- | - | ----------------------- | - | ------------ | ------- | ------------ | -
|ASSETS                                               |  |        |           |                     |   |                         |   |              |         |              |  
|Current Assets:                                      |  |        |           |                     |   |                         |   |              |         |              |  
|Cash and cash equivalents                            |  | $      | 297       |                     | $ | 33                      |   | $            | 2,308   |              |  
|Accounts receivable, net                             |  |        | 123,752   |                     |   | 18,611                  |   |              | 36,287  |              |  
|Inventories                                          |  |        | 31,075    |                     |   | 11,587                  |   |              | 1,939   |              |  
|Maintenance parts                                    |  |        | 17,557    |                     |   | 3,460                   |   |              |         |              |  
|Prepaid expenses and other current assets            |  |        | 8,872     |                     |   | 419                     |   |              | 2,915   |              |  
|                                                     |  |        |           |                     |   |                         |   |              |         |              |  
|Total current assets                                 |  |        | 181,553   |                     |   | 34,110                  |   |              | 43,449  |              |  
|Intercompany receivable                              |  |        | 20,812    |                     |   | 21,268                  |   |              |         |              | $
|Investments in subsidiaries                          |  |        | 171,929   |                     |   | 107,251                 |   |              |         |              |  
|Property, plant and equipment, net                   |  |        | 270,270   |                     |   | 89,120                  |   |              | 20,048  |              |  
|Goodwill                                             |  |        | 198,229   |                     |   | 48,626                  |   |              | 113,010 |              |  
|Deferred financing costs, net                        |  |        | 26,815    |                     |   |                         |   |              |         |              |  
|Other assets, net                                    |  |        | 23,673    |                     |   | 744                     |   |              | 148     |              |  
|                                                     |  |        |           |                     |   |                         |   |              |         |              |  
|Total Assets                                         |  | $      | 893,281   |                     | $ | 301,119                 |   | $            | 176,655 |              | $
|                                                     |  |        |           |                     |   |                         |   |              |         |              |  
|LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY       |  |        |           |                     |   |                         |   |              |         |              |  
|Current Liabilities:                                 |  |        |           |                     |   |                         |   |              |         |              |  
|Accounts payable                                     |  | $      | 197,068   |                     | $ | 30,989                  |   | $            | 15,848  |              |  
|Compensation and benefits payable                    |  |        | 29,089    |                     |   | 7,615                   |   |              | 271     |              |  
|Accrued interest                                     |  |        | 13,413    |                     |   |                         |   |              | 137     |              |  
|Accrued income taxes                                 |  |        | 10,490    |                     |   | (204                    | ) |              | 8       |              |  
|Current portion of long-term debt                    |  |        |           |                     |   |                         |   |              | 6       |              |  
|Other current liabilities                            |  |        | 18,468    |                     |   | (35                     | ) |              | 8,687   |              |  
|                                                     |  |        |           |                     |   |                         |   |              |         |              |  
|Total current liabilities                            |  |        | 268,528   |                     |   | 38,365                  |   |              | 24,957  |              |  
|Due to parent                                        |  |        |           |                     |   |                         |   |              | 49,490  |              | $
|Long-term debt, net of current portion               |  |        | 975,233   |                     |   |                         |   |              | 48,809  |              |  
|Other long-term liabilities                          |  |        | 35,193    |                     |   | (154                    | ) |              | 14      |              |  
|                                                     |  |        |           |                     |   |                         |   |              |         |              |  
|Total liabilities                                    |  |        | 1,278,954 |                     |   | 38,211                  |   |              | 123,270 |              |  
|Stockholder's (deficit) equity                       |  |        | (385,673  | )                   |   | 262,908                 |   |              | 53,385  |              |  
|                                                     |  |        |           |                     |   |                         |   |              |         |              |  
|Total Liabilities and Stockholder's (Deficit) Equity |  | $      | 893,281   |                     | $ | 301,119                 |   | $            | 176,655 |              | $
|                                                     |  |        |           |                     |   |                         |   |              |         |              |  

F-26

---



Condensed Consolidating Balance Sheet at December 31, 2003

|In thousands                                                    |  | Parent |           | Guarantor
Companies |   | Non-Guarantor
Companies |   | Eliminations |         | Consolidated |  
|--------------------------------------------------------------- |  | ------ | --------- | ------------------- | - | ----------------------- | - | ------------ | ------- | ------------ | -
|ASSETS                                                          |  |        |           |                     |   |                         |   |              |         |              |  
|Current Assets:                                                 |  |        |           |                     |   |                         |   |              |         |              |  
|Cash and cash equivalents                                       |  | $      | 389       |                     | $ | 108                     |   | $            | 1,586   |              |  
|Accounts receivable, net                                        |  |        | 132,531   |                     |   | 20,086                  |   |              | 31,158  |              |  
|Inventories                                                     |  |        | 26,227    |                     |   | 11,607                  |   |              | 1,806   |              |  
|Maintenance parts                                               |  |        | 17,456    |                     |   | 3,271                   |   |              |         |              |  
|Deferred income taxes Prepaid expenses and other current assets |  |        | 13,953    |                     |   | 1,131                   |   |              | 5,267   |              |  
|                                                                |  |        |           |                     |   |                         |   |              |         |              |  
|Total current assets                                            |  |        | 190,556   |                     |   | 36,203                  |   |              | 39,817  |              |  
|Intercompany receivable                                         |  |        | 54,216    |                     |   |                         |   |              |         |              | $
|Investments in subsidiaries                                     |  |        | 154,349   |                     |   | 55,199                  |   |              |         |              |  
|Property, plant and equipment, net                              |  |        | 281,275   |                     |   | 99,887                  |   |              | 20,658  |              |  
|Goodwill                                                        |  |        | 201,454   |                     |   | 48,625                  |   |              | 103,369 |              |  
|Investments                                                     |  |        |           |                     |   | 1                       |   |              | 73,966  |              |  
|Deferred financing costs, net                                   |  |        | 30,828    |                     |   | 1                       |   |              | 92      |              |  
|Other assets, net                                               |  |        | 19,948    |                     |   | 770                     |   |              | 48      |              |  
|                                                                |  |        |           |                     |   |                         |   |              |         |              |  
|Total Assets                                                    |  | $      | 932,626   |                     | $ | 240,686                 |   | $            | 237,950 |              | $
|                                                                |  |        |           |                     |   |                         |   |              |         |              |  
|LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY                  |  |        |           |                     |   |                         |   |              |         |              |  
|Current Liabilities:                                            |  |        |           |                     |   |                         |   |              |         |              |  
|Accounts payable                                                |  | $      | 183,511   |                     | $ | 36,137                  |   | $            | 13,788  |              |  
|Compensation and benefits payable                               |  |        | 25,274    |                     |   | 9,288                   |   |              | 369     |              |  
|Accrued interest                                                |  |        | 15,384    |                     |   |                         |   |              | 985     |              |  
|Accrued income taxes                                            |  |        | 7,097     |                     |   | (192                    | ) |              | (1,766  | )            |  
|Current portion of long-term debt                               |  |        | 73        |                     |   |                         |   |              |         |              |  
|Other current liabilities                                       |  |        | 17,263    |                     |   | 7,266                   |   |              | 12,705  |              |  
|                                                                |  |        |           |                     |   |                         |   |              |         |              |  
|Total current liabilities                                       |  |        | 248,602   |                     |   | 52,499                  |   |              | 26,081  |              |  
|Due to parent                                                   |  |        |           |                     |   | 32,989                  |   |              | 28,684  |              | $
|Long-term debt, net of current portion                          |  |        | 979,224   |                     |   |                         |   |              | 72,653  |              |  
|Deferred income taxes                                           |  |        | 69,437    |                     |   | (2,704                  | ) |              | 57      |              |  
|Other long-term liabilities                                     |  |        | 27,392    |                     |   | 8,843                   |   |              | 155     |              |  
|                                                                |  |        |           |                     |   |                         |   |              |         |              |  
|Total liabilities                                               |  |        | 1,324,655 |                     |   | 91,627                  |   |              | 127,630 |              |  
|Stockholder's (deficit) equity                                  |  |        | (392,029  | )                   |   | 149,059                 |   |              | 110,320 |              |  
|                                                                |  |        |           |                     |   |                         |   |              |         |              |  
|Total Liabilities and Stockholder's (Deficit) Equity            |  | $      | 932,626   |                     | $ | 240,686                 |   | $            | 237,950 |              | $
|                                                                |  |        |           |                     |   |                         |   |              |         |              |  

F-27

---



Condensed Consolidating Statement of Operations
Year ended December 31, 2004

|In thousands                                 |  | Parent |           | Guarantor
Companies |   | Non-Guarantor
Companies |   | Elim-
inations |         | Consol-
idated |  
|-------------------------------------------- |  | ------ | --------- | ------------------- | - | ----------------------- | - | -------------- | ------- | -------------- | -
|Net sales                                    |  | $      | 1,161,998 |                     | $ | 352,459                 |   | $              | 142,808 |                | $
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|Operating expenses:                          |  |        |           |                     |   |                         |   |                |         |                |  
|Costs of production                          |  |        | 922,694   |                     |   | 263,189                 |   |                | 108,283 |                |  
|Selling, general and administrative          |  |        | 113,124   |                     |   | 30,801                  |   |                | 33,100  |                |  
|Restructuring charges                        |  |        | 3,904     |                     |   | 597                     |   |                | 2,400   |                |  
|Depreciation and amortization of intangibles |  |        | 49,277    |                     |   | 18,026                  |   |                | 7,722   |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|                                             |  |        | 1,088,999 |                     |   | 312,613                 |   |                | 151,505 |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|Operating income                             |  |        | 72,999    |                     |   | 39,846                  |   |                | (8,697  | )              |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|Other expenses (income):                     |  |        |           |                     |   |                         |   |                |         |                |  
|Interest expense, net                        |  |        | 126,042   |                     |   | 9                       |   |                | 6,758   |                |  
|Other, net                                   |  |        | 4,673     |                     |   | 23                      |   |                | 42,989  |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|                                             |  |        | 130,715   |                     |   | 32                      |   |                | 49,747  |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|Equity in net income (loss) of subsidiaries  |  |        | (19,649   | )                   |   |                         |   |                |         |                |  
|(Loss) income before income taxes            |  |        | (77,365   | )                   |   | 39,814                  |   |                | (58,444 | )              |  
|Income tax (benefit) expense                 |  |        | (66,232   | )                   |   | (12                     | ) |                | 1,031   |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|Net (loss) income                            |  | $      | (11,133   | )                   | $ | 39,826                  |   | $              | (59,475 | )              | $
|                                             |  |        |           |                     |   |                         |   |                |         |                |  

F-28

---



Condensed Consolidating Statement of Operations
Year ended December 31, 2003

|In thousands                                 |  | Parent |           | Guarantor
Companies |   | Non-Guarantor
Companies |   | Elim-
inations |         | Consol-
idated |  
|-------------------------------------------- |  | ------ | --------- | ------------------- | - | ----------------------- | - | -------------- | ------- | -------------- | -
|Net sales                                    |  | $      | 1,107,715 |                     | $ | 356,937                 |   | $              | 141,219 |                | $
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|Operating expenses:                          |  |        |           |                     |   |                         |   |                |         |                |  
|Costs of production                          |  |        | 878,062   |                     |   | 268,858                 |   |                | 99,462  |                |  
|Selling, general and administrative          |  |        | 110,103   |                     |   | 35,328                  |   |                | 31,892  |                |  
|Restructuring charges                        |  |        | 14,495    |                     |   | 154                     |   |                | 594     |                |  
|Depreciation and amortization of intangibles |  |        | 55,294    |                     |   | 20,872                  |   |                | 7,456   |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|                                             |  |        | 1,057,954 |                     |   | 325,212                 |   |                | 139,404 |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|Operating income                             |  |        | 49,761    |                     |   | 31,725                  |   |                | 1,815   |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|Other expenses (income):                     |  |        |           |                     |   |                         |   |                |         |                |  
|Interest expense, net                        |  |        | 130,524   |                     |   | (264                    | ) |                | 6,297   |                |  
|Other, net                                   |  |        | (5,825    | )                   |   | 31                      |   |                | 34      |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|                                             |  |        | 124,699   |                     |   | (233                    | ) |                | 6,331   |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|Equity in net income (loss) of subsidiaries  |  |        | 27,438    |                     |   |                         |   |                |         |                |  
|(Loss) income before income taxes            |  |        | (47,500   | )                   |   | 31,958                  |   |                | (4,516  | )              |  
|Income tax expense (benefit)                 |  |        | 48,425    |                     |   | (12                     | ) |                | 16      |                |  
|                                             |  |        |           |                     |   |                         |   |                |         |                |  
|Net (loss) income                            |  | $      | (95,925   | )                   | $ | 31,970                  |   | $              | (4,532  | )              | $
|                                             |  |        |           |                     |   |                         |   |                |         |                |  

F-29

---



Condensed Consolidating Statement of Operations
Year ended December 31, 2002

|In thousands                                                |  | Parent |           | Guarantor
Companies |   | Non-Guarantor
Companies |   | Elim-
inations |         | Consol-
idated |  
|----------------------------------------------------------- |  | ------ | --------- | ------------------- | - | ----------------------- | - | -------------- | ------- | -------------- | -
|Net sales                                                   |  | $      | 1,160,072 |                     | $ | 398,133                 |   | $              | 142,138 |                | $
|                                                            |  |        |           |                     |   |                         |   |                |         |                |  
|Operating expenses:                                         |  |        |           |                     |   |                         |   |                |         |                |  
|Costs of production                                         |  |        | 893,596   |                     |   | 292,101                 |   |                | 95,731  |                |  
|Selling, general and administrative                         |  |        | 114,775   |                     |   | 42,470                  |   |                | 29,874  |                |  
|Restructuring charges                                       |  |        | 8,662     |                     |   | 7,701                   |   |                | 2,728   |                |  
|Depreciation and amortization of intangibles                |  |        | 58,396    |                     |   | 23,226                  |   |                | 7,619   |                |  
|                                                            |  |        |           |                     |   |                         |   |                |         |                |  
|                                                            |  |        | 1,075,429 |                     |   | 365,498                 |   |                | 135,952 |                |  
|                                                            |  |        |           |                     |   |                         |   |                |         |                |  
|Operating income                                            |  |        | 84,643    |                     |   | 32,635                  |   |                | 6,186   |                |  
|                                                            |  |        |           |                     |   |                         |   |                |         |                |  
|Other expenses (income):                                    |  |        |           |                     |   |                         |   |                |         |                |  
|Interest expense, net                                       |  |        | 126,420   |                     |   | (134                    | ) |                | 8,088   |                |  
|Other, net                                                  |  |        | 3,287     |                     |   | 26                      |   |                | 37      |                |  
|                                                            |  |        |           |                     |   |                         |   |                |         |                |  
|                                                            |  |        | 129,707   |                     |   | (108                    | ) |                | 8,125   |                |  
|                                                            |  |        |           |                     |   |                         |   |                |         |                |  
|Equity in net income (loss) of subsidiaries                 |  |        | (13,166   | )                   |   |                         |   |                |         |                |  
|(Loss) income before income taxes                           |  |        | (58,230   | )                   |   | 32,743                  |   |                | (1,939  | )              |  
|Income tax benefit                                          |  |        | (2,023    | )                   |   | (14                     | ) |                | (442    | )              |  
|                                                            |  |        |           |                     |   |                         |   |                |         |                |  
|(Loss) income before cumulative effect of accounting change |  |        | (56,207   | )                   |   | 32,757                  |   |                | (1,497  | )              |  
|                                                            |  |        |           |                     |   |                         |   |                |         |                |  
|Cumulative effect of accounting change                      |  |        | 63,939    |                     |   | 22,661                  |   |                | 21,765  |                |  
|                                                            |  |        |           |                     |   |                         |   |                |         |                |  
|Net (loss) income                                           |  | $      | (120,146  | )                   | $ | 10,096                  |   | $              | (23,262 | )              | $
|                                                            |  |        |           |                     |   |                         |   |                |         |                |  

F-30

---



Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2004

|In thousands                                                             |  | Parent |         | Guarantor
Companies |   | Non-Guarantor
Companies |   | Consol-
idated |        
|------------------------------------------------------------------------ |  | ------ | ------- | ------------------- | - | ----------------------- | - | -------------- | -------
|Cash Flows from Operating Activities                                     |  | $      | 36,657  |                     | $ | 25,008                  |   | $              | (14,120
|                                                                         |  |        |         |                     |   |                         |   |                |        
|Cash Flows from Investing Activities:                                    |  |        |         |                     |   |                         |   |                |        
|Capital expenditures                                                     |  |        | (36,739 | )                   |   | (6,992                  | ) |                | (5,365 
|Software development costs capitalized                                   |  |        | (1,905  | )                   |   |                         |   |                |        
|Proceeds from sale of property, plant and equipment and divested assets  |  |        | 763     |                     |   | 45                      |   |                | 133    
|Proceeds from termination of leasehold interest                          |  |        |         |                     |   |                         |   |                | 31,068 
|                                                                         |  |        |         |                     |   |                         |   |                |        
|Net cash used in investing activities                                    |  |        | (37,881 | )                   |   | (6,947                  | ) |                | 25,836 
|                                                                         |  |        |         |                     |   |                         |   |                |        
|Cash Flows from Financing Activities:                                    |  |        |         |                     |   |                         |   |                |        
|Net repayments under revolving credit facilities                         |  |        | (7,951  | )                   |   |                         |   |                | (30,861
|Repayments of long-term debt                                             |  |        | (72     | )                   |   | (2                      | ) |                | (22    
|Deferred financing costs                                                 |  |        | (5,605  | )                   |   |                         |   |                |        
|Increase in outstanding checks drawn on controlled disbursement accounts |  |        | 12,187  |                     |   | 1,789                   |   |                | 896    
|Other financing activities                                               |  |        | 2,573   |                     |   | (19,923                 | ) |                | 17,383 
|                                                                         |  |        |         |                     |   |                         |   |                |        
|Net cash (used in) provided by financing activities                      |  |        | 1,132   |                     |   | (18,136                 | ) |                | (12,604
|                                                                         |  |        |         |                     |   |                         |   |                |        
|Effect of exchange rate changes on cash                                  |  |        |         |                     |   |                         |   |                | 1,610  
|                                                                         |  |        |         |                     |   |                         |   |                |        
|Net (decrease) increase in cash and cash equivalents                     |  |        | (92     | )                   |   | (75                     | ) |                | 722    
|Cash and cash equivalents at beginning of year                           |  |        | 389     |                     |   | 108                     |   |                | 1,586  
|                                                                         |  |        |         |                     |   |                         |   |                |        
|Cash and cash equivalents at end of year                                 |  | $      | 297     |                     | $ | 33                      |   | $              | 2,308  
|                                                                         |  |        |         |                     |   |                         |   |                |        

F-31

---



Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2003

|In thousands                                                             |  | Parent |          | Guarantor
Companies |   | Non-Guarantor
Companies |   | Consol-
idated |        
|------------------------------------------------------------------------ |  | ------ | -------- | ------------------- | - | ----------------------- | - | -------------- | -------
|Cash Flows from Operating Activities                                     |  | $      | 29,709   |                     | $ | 61,916                  |   | $              | (2,579 
|                                                                         |  |        |          |                     |   |                         |   |                |        
|Cash Flows from Investing Activities:                                    |  |        |          |                     |   |                         |   |                |        
|Capital expenditures                                                     |  |        | (27,148  | )                   |   | (10,148                 | ) |                | (3,916 
|Software development costs capitalized                                   |  |        | (2,899   | )                   |   |                         |   |                |        
|Proceeds from sale of property, plant and equipment and divested assets  |  |        | 3,128    |                     |   |                         |   |                | 173    
|Acquisition of business, net of cash                                     |  |        | (93      | )                   |   |                         |   |                |        
|                                                                         |  |        |          |                     |   |                         |   |                |        
|Net cash used in investing activities                                    |  |        | (27,012  | )                   |   | (10,148                 | ) |                | (3,743 
|                                                                         |  |        |          |                     |   |                         |   |                |        
|Cash Flows from Financing Activities:                                    |  |        |          |                     |   |                         |   |                |        
|Issuance of long-term debt                                               |  |        | 340,714  |                     |   |                         |   |                |        
|Net repayments under revolving credit facilities                         |  |        | (40,300  | )                   |   |                         |   |                | (41,602
|Repayments of long-term debt                                             |  |        | (310,430 | )                   |   | (43                     | ) |                | (71    
|Deferred financing costs                                                 |  |        | (12,846  | )                   |   |                         |   |                |        
|Increase in outstanding checks drawn on controlled disbursement accounts |  |        | 10,664   |                     |   | 1,113                   |   |                |        
|Other financing activities                                               |  |        | 6,300    |                     |   | (52,829                 | ) |                | 46,154 
|                                                                         |  |        |          |                     |   |                         |   |                |        
|Net cash (used in) provided by financing activities                      |  |        | (5,898   | )                   |   | (51,759                 | ) |                | 4,481  
|                                                                         |  |        |          |                     |   |                         |   |                |        
|Effect of exchange rate changes on cash                                  |  |        |          |                     |   |                         |   |                | 1,381  
|                                                                         |  |        |          |                     |   |                         |   |                |        
|Net (decrease) increase in cash and cash equivalents                     |  |        | (3,201   | )                   |   | 9                       |   |                | (460   
|Cash and cash equivalents at beginning of year                           |  |        | 3,590    |                     |   | 99                      |   |                | 2,046  
|                                                                         |  |        |          |                     |   |                         |   |                |        
|Cash and cash equivalents at end of year                                 |  | $      | 389      |                     | $ | 108                     |   | $              | 1,586  
|                                                                         |  |        |          |                     |   |                         |   |                |        

F-32

---



Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2002

|In thousands                                                             |  | Parent |          | Guarantor
Companies |   | Non-
Guarantor
Companies |   | Consol-
idated |        
|------------------------------------------------------------------------ |  | ------ | -------- | ------------------- | - | ------------------------ | - | -------------- | -------
|Cash Flows from Operating Activities                                     |  | $      | (28,239  | )                   | $ | 91,580                   |   | $              | 33,378 
|                                                                         |  |        |          |                     |   |                          |   |                |        
|Cash Flows from Investing Activities:                                    |  |        |          |                     |   |                          |   |                |        
|Capital expenditures                                                     |  |        | (31,450  | )                   |   | (5,492                   | ) |                | (4,216 
|Software development costs capitalized                                   |  |        | (2,696   | )                   |   |                          |   |                |        
|Proceeds from sale of property, plant and equipment and divested assets  |  |        | 2,039    |                     |   | 312                      |   |                | 91     
|                                                                         |  |        |          |                     |   |                          |   |                |        
|Net cash used in investing activities                                    |  |        | (32,107  | )                   |   | (5,180                   | ) |                | (4,125 
|                                                                         |  |        |          |                     |   |                          |   |                |        
|Cash Flows from Financing Activities:                                    |  |        |          |                     |   |                          |   |                |        
|Issuance of long-term debt                                               |  |        | 347,500  |                     |   |                          |   |                |        
|Net repayments under revolving credit facilities                         |  |        | (60,226  | )                   |   |                          |   |                | (2,965 
|Repayments of long-term debt                                             |  |        | (349,497 | )                   |   | (360                     | ) |                | (54    
|Deferred financing costs                                                 |  |        | (12,838  | )                   |   |                          |   |                |        
|Increase in outstanding checks drawn on controlled disbursement accounts |  |        | 6,821    |                     |   | 1,327                    |   |                | 1,007  
|Other financing activities                                               |  |        | 117,558  |                     |   | (86,910                  | ) |                | (29,739
|                                                                         |  |        |          |                     |   |                          |   |                |        
|Net cash provided by (used in) by financing activities                   |  |        | 49,318   |                     |   | (85,943                  | ) |                | (31,751
|                                                                         |  |        |          |                     |   |                          |   |                |        
|Effect of exchange rate changes on cash                                  |  |        |          |                     |   |                          |   |                | 1,271  
|                                                                         |  |        |          |                     |   |                          |   |                |        
|Net (decrease) increase in cash and cash equivalents                     |  |        | (11,028  | )                   |   | 457                      |   |                | (1,227 
|Cash and cash equivalents at beginning of year                           |  |        | 14,618   |                     |   | (358                     | ) |                | 3,273  
|                                                                         |  |        |          |                     |   |                          |   |                |        
|Cash and cash equivalents at end of year                                 |  | $      | 3,590    |                     | $ | 99                       |   | $              | 2,046  
|                                                                         |  |        |          |                     |   |                          |   |                |        

F-33

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20.    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.

During
2002, Vertis received payments from a customer under a Bankruptcy proceeding classified as critical vendor payments (the "Payments"). These Payments totaled approximately
$7 million. In February 2004, the United States Court of Appeals for the Seventh District upheld a lower court ruling reversing the order authorizing these Payments. The ruling did not
however order the repayment of these Payments. It is currently unclear as to what, if anything, Vertis is likely to pay as a result of this decision. As a consequence of this decision, Vertis may be
required to repay some or all of the Payments it received. Management is unable to determine at this stage the size of any such repayments, if any, or when they would be required to be made.
Management has not made any provision for this possible contingency which ranges from $0 to $7 million.

On
February 24, 2003, the Company received $10.1 million in a settlement to the legal proceeding arising from a life insurance policy, which covered the former Chairman of
Vertis Holdings. In 2003, this amount was recorded in Other, net.

*
* * * *

F-34

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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, 2004     |  | $                            | 3,942  |                                       | $ | 716                          |   | $                     
|Year ended December 31, 2003     |  | $                            | 5,960  |                                       | $ | 1,840                        |   | $                     
|Year ended December 31, 2002     |  | $                            | 8,270  |                                       | $ | 1,577                        |   | $                     
|Deferred Tax Valuation Allowance |  |                              |        |                                       |   |                              |   |                       
|Year ended December 31, 2004     |  | $                            | 74,393 |                                       | $ | (33,903                      | ) |                       
|Year ended December 31, 2003     |  | $                            | 6,968  |                                       | $ | 67,425                       |   |                       
|Year ended December 31, 2002     |  | $                            | 6,968  |                                       |   |                              |   |                       

F-35

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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:         
| |  | Name:       
| |  | Title:      

Date:
February 25, 2005

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/DONALD E. ROLANDDonald E. Roland       |  | Director, Chairman and Chief Executive Officer (Principal Executive Officer)       |  | February 25, 2005
|/s/AUSTIN M. BEUTNERAustin M. Beutner     |  | Director                                                                           |  | February 25, 2005
|/s/CIARA A. BURNHAMCiara A. Burnham       |  | Director                                                                           |  | February 25, 2005
|/s/ANTHONY J. DINOVIAnthony J. DiNovi     |  | Director                                                                           |  | February 25, 2005
|/s/THOMAS H. LEEThomas H. Lee             |  | Director                                                                           |  | February 25, 2005
|/s/SOREN L. OBERGSoren L. Oberg           |  | Director                                                                           |  | February 25, 2005
|/s/MICHAEL S. RAWLINGSMichael S. Rawlings |  | Director                                                                           |  | February 25, 2005
|/s/SCOTT M. SPERLINGScott M. Sperling     |  | Director                                                                           |  | February 25, 2005
|/s/DEAN D. DURBINDean D. Durbin           |  | President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | February 25, 2005

II-1

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