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

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FORM 10-K/A

(Amendment No. 1)

|ý                                                        | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the year ended December 31, 2007                    
|OR                                                      
|o                                                        | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                        to

Commission file number: 333-97721

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

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

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

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

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

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

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

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

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

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

Documents Incorporated By Reference: None



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Explanatory Note

This Annual Report on Form 10-K/A (Amendment No. 1) (this "Amendment") is being filed by Vertis, Inc. ("Vertis") to amend Vertis' Annual Report on
Form 10-K for the year ended December 31, 2007 (the "Original Filing"). The audited financial statements and schedules are being refiled solely to correct a typographical error in the
opinion of Deloitte & Touche LLP and are otherwise unchanged from the audited financial statements and schedules included in the Original Filing. This Amendment does not otherwise update
or amend any exhibits to or disclosure set forth in the Original Filing.

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VERTIS, INC.

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

TABLE OF CONTENTS

|Form 10-K/A
Item No.                                           |  | Name of Item                               |  | Page
|-------------------------------------------------------------- |  | ------------------------------------------ |  | ----
|Part IV                                                        |  |                                            |  |     
|Item 15                                                        |  | Exhibits and Financial Statement Schedules |  | 2   
|Signatures                                                     |  | 7                                         
|Index to Financial Statements and Financial Statement Schedule |  | F-1                                       

1

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PART IV

Item 15.    Exhibits and Financial Statement Schedules



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

2

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

3

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

4

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

5

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|31.2 |  | Certification of Barry C. Kohn, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act 0f 2002.(11)
|---- |  | -----------------------------------------------------------------------------------------------------------------------

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6

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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:         

Date:
April 3, 2008

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

|Signatures                            |  | Capacity                                                             |  | Date         
|------------------------------------- |  | -------------------------------------------------------------------- |  | -------------
|                                      |  |                                                                      |  |              
|/s/MICHAEL T. DUBOSEMichael T. DuBose |  | Chairman and Chief Executive Officer (Principal Executive Officer)   |  | April 3, 2008
|/s/BARRY C. KOHNBarry C. Kohn         |  | Chief Financial Officer
(Principal Financial and Accounting Officer) |  | April 3, 2008

7

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VERTIS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

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

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

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

/s/
Deloitte & Touche LLP

Baltimore,
Maryland
March 31, 2008

F-2

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

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

See
Notes to Consolidated Financial Statements.

F-3

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

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

See
Notes to Consolidated Financial Statements.

F-4

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

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

---

See Notes to Consolidated Financial Statements.

F-5

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

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

See Notes to Consolidated Financial Statements.

F-6

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Vertis, Inc. and Subsidiaries    Notes to Consolidated Financial Statements

1.     BASIS OF PRESENTATION

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

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

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

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

2.     GOING CONCERN

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

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

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

F-7

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

3.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

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

F-8

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

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

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

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

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

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

F-9

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

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

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

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



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

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

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

F-10

---



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

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

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

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

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

F-11

---



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

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

4.     DISCONTINUED OPERATIONS

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

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

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

F-12

---



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

2007

2006

2005(in thousands)Revenue




$
26,683

$
40,200Income from operations





1,146


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

$
(251)
(1)

21,443
(2)Income from discontinued operations

$
(251
)
$
22,589

$
5,401


---

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

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

2006

2005(in thousands)Revenue




$
99,982Loss from operations

$
(422)
(1)

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


(567)
(2)

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

$
(989
)
$
(148,790
)


---

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

F-13

---



5.     RESTRUCTURING AND IMPAIRMENT CHARGES

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

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

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

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

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

F-14

---



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

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

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

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

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

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

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

F-15

---



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

The
restructuring charges are comprised of the following:

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

6.     ACQUISITIONS

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

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

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

Twelve months ended
December 31,2006

2005(in thousands)Revenue

$
1,482,806

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


(48,111
)

(25,333
)Net loss


(26,511
)

(170,322
)


F-16

---



7.     ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

2007

2006(in thousands)Tradebilled

$
41,880

$
114,263Tradeunbilled


38,254


20,522Other receivables


7,056


7,50087,190


142,285Allowance for doubtful accounts(1)


(2,923
)

(2,859
)$
84,267

$
139,426


---

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

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

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

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

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

F-17

---



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

8.     INVENTORIES

Inventories consisted of the following:

2007

2006(in thousands)Paper

$
21,614

$
29,858Ink and chemicals


4,246


3,160Work in process


3,214


4,439Finished goods


8,090


5,576Other


5,612


5,194$
42,776

$
48,227


9.     PROPERTY, PLANT AND EQUIPMENT

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

Estimated
Useful Life
(Years)

2007

2006(in thousands)Land



$
6,988

$
8,361Machinery and equipment(1)

3 to 15


672,254


646,960Buildings and leasehold improvements

1 to 40


92,621


91,388Furniture and fixtures

3 to 10


129,858


113,837Internally developed computer software

3 to 5


22,109


21,002Vehicles

3


974


968Construction in progress and deposits on equipment purchases




13,684


23,988938,488


906,504Accumulated depreciation and amortization




(610,462
)

(576,465
)$
328,026

$
330,039


---

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

F-18

---



10.   OTHER INTANGIBLE ASSETS

Other intangible assets consisted of the following:

2007

2006(in thousands)Gross:Customer base

$
3,600

$
3,600Trademarks


3,265


3,265Non-compete agreement


90


90Other intangibles


100


100Total gross other intangibles


7,055


7,055Accumulated amortization:Customer base


(1,345
)

(497
)Trademarks


(2,903
)

(2,256
)Non-compete agreement


(48
)

(18
)Other intangibles


(100
)

(65
)Total accumulated amortization


(4,396
)

(2,836
)$
2,659

$
4,219


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

(in thousands)2008

$
1,2922009


9122010


455$
2,659


11.   LONG-TERM DEBT

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

2007

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

$
115,454

$
112,880Term loan (due December 2008)


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


348,010


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


349,470


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


289,638


287,625Other notes





51,152,572


1,096,041Current portion


(165,454
)

(5
)$
987,118

$
1,096,036


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

F-19

---



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

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

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

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

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

F-20

---



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

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

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

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

(in thousands)2008

$
165,4542009


993,495$
1,158,949


12.   LEASES

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

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

(in thousands)2008

$
24,7422009


19,9552010


17,5772011


14,2832012


11,284Thereafter


6,306$
94,147


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

F-21

---



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

13.   INCOME TAXES

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

2007

2006

2005(in thousands)Current:Federal







$
(8,324
)State and foreign

$
388

$
(1
)

254Total income tax expense (benefit)

$
388

$
(1
)
$
(8,070
)


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

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

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

2007

2006

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

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

(1.8
)Change in valuation allowance

20.6

30.4

29.4Goodwill impairment

15.2Foreign income taxed at other rates

0.0

(2.1
)
(0.1
)Adjustment to contingency reserve

0.0

0.0

(23.0
)Officer's life insurance

0.0

(0.7
)
(0.4
)Other

1.1

7.4

6.8Effective tax rate

0.1
%
0.0
%
(22.3
)%


F-22

---



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

2007

2006(in thousands)Employee benefits

$
16,707

$
14,564Net tax benefit carry forwards


183,387


160,843Accrued expenses and reserves


10,374


7,101Other deductible differences


21,332Deferred tax assets


231,800


182,508Property, plant and equipment


(33,766
)

(44,542
)Other taxable differences


(633
)

(9,382
)Deferred tax liabilities


(34,399
)

(53,924
)Valuation allowance


(197,401
)

(128,584
)Net deferred income tax liability

$
0

$
0


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

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

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

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

F-23

---



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

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

$
380Additions for tax positions related to prior years


781Reductions for tax positions related to prior years


(38
)Balance at December 31, 2007

$
1,123


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

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

14.   RETIREMENT PLANS

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

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

2007

2006

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

$
416

$
481

$
673Interest cost


2,190


2,218


2,271Expected return on assets


(1,359
)

(1,309
)

(1,358
)Net amortization and deferral


711


963


1,155Settlements and curtailments





873


443$
1,958

$
3,226

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

$
38,754

$
40,788Service cost


416


481Interest cost


2,190


2,218Actuarial loss (gain)


(1,514
)

(757
)Benefits paid


(2,663
)

(3,403
)Curtailments


(348
)

(573
)Benefit obligation at end of year

$
36,835

$
38,754Accumulated benefit obligation at end of year

$
36,620

$
38,276


F-24

---



|
|

2007

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

$
18,100

$
16,602Actual return on assets


592


1,765Employer contributions


2,668


3,136Benefits paid


(2,663
)

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

$
18,697

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

$
36,835

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


18,697


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

$
18,138

$
20,654Current liabilities

$
1,343

$
1,086Long-term liabilities


16,795


19,568Net amount recognized

$
18,138

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

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


(672
)

(770
)Net amount recognized

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

$
(1,044
)Recognized actuarial loss


(612
)Recognized prior service cost


(99
)Total recognized in other comprehensive loss

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

$
99

$
99Actuarial loss


425


554Total

$
524

$
653


---

F-25

---



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

2007

2006

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

5.75%

5.50
%
5.75
%Expected return on plan assets

7.50%

7.50
%
8.75
%Annual compensation increase

3.00%

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

6.00%6.25%

5.75
%Annual compensation increase

3.00%

3.00
%


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

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

(in thousands)2008

$
2,7952009


2,7182010


2,3352011


1,8672012


2,15920132017


13,559$
25,433


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

2007

2006Asset category:Equity securities

54
%
56
%Fixed Income

41
%
38
%Cash and cash equivalents

5
%
6
%100
%
100
%


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

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

F-26

---



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

Asset category:

Percent of Total

Expected
Long-term
Rate of ReturnLarge Cap Equities

47
%
9.0
%Small/ Mid Cap Equities

8
%
11.0
%International Equities

5
%
10.2
%Fixed Income

40
%
6.5
%100
%


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

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

15.   STOCKHOLDER'S DEFICIT

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

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

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

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

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

F-27

---



16.   VERTIS HOLDINGS SHARE BASED COMPENSATION

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

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

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

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

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

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

F-28

---



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

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

Retained
Shares

Rights

Restricted
Stock(1)

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

18

31

346

8Granted





20Forfeited/ Cancelled



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

18

15

208

3Nonvested at December 31, 2007





208Exercisable at December 31, 2007







3


---

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

2005(in thousands)Net loss:As reported

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


(7
)Pro forma

$
(173,237
)


F-29

---



17.   INTEREST EXPENSE, NET

Interest expense, net consists of the following:

2007

2006

2005(in thousands)Interest cost

$
125,802

$
123,118

$
119,359Amortization of long-term debt discounts


3,962


3,961


3,961Amortization of deferred financing fees


7,193


6,306


7,265Capitalized interest


(1,667
)

(1,250
)

(929
)Interest income


(646
)

(1,112
)

(835
)$
134,644

$
131,023

$
128,821


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

18.   OTHER, NET

Other, net consists of the following:

2007

2006

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

$
6,752

$
6,529

$
5,163Bank commitment fees


919


804


927Other expenses


14


4


1,563$
7,685

$
7,337

$
7,653


19.   RELATED PARTY TRANSACTIONS

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

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

F-30

---



20.   QUARTERLY FINANCIAL INFORMATIONUNAUDITED

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

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

---

21.   SEGMENT INFORMATION

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



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

F-31

---



Following
is information regarding the Company's segments:

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

---

F-32

---



22.   GUARANTOR/NON-GUARANTOR CONDENSED CONSOLIDATED FINANCIAL INFORMATION

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

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

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

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

F-33

---





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

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

---

F-34

---



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

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

---

F-35

---





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

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

F-36

---



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

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

F-37

---



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

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

F-38

---





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

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

F-39

---



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

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

F-40

---



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

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

F-41

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23.   COMMITMENTS AND CONTINGENCIES

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

*
* * * *

F-42

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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, 2007     |  | $                            | 2,859   |                                         | $ | 463                          |   | $                     
|Year ended December 31, 2006     |  |                              | 1,494   |                                         |   | 942                          |   |                       
|Year ended December 31, 2005     |  |                              | 3,320   |                                         |   | 1,544                        |   |                       
|Deferred Tax Valuation Allowance |  |                              |         |                                         |   |                              |   |                       
|Year ended December 31, 2007     |  | $                            | 128,584 |                                         | $ | 68,817                       |   |                       
|Year ended December 31, 2006     |  |                              | 132,531 |                                         |   | (3,947                       | ) |                       
|Year ended December 31, 2005     |  |                              | 40,490  |                                         |   | 92,041                       |   |                       

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F-43

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