UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q



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

For the quarterly period ended September 30, 1997

                                       OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
For the transition period from _____ to_____


Commission File Number 0-28208

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


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



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

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

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                         if changed since last report)


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


     The number of shares of the  registrant's  common stock  outstanding  as of
October 31, 1997, was 17,819,383.




<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                       APPLIED GRAPHICS TECHNOLOGIES, INC.
                                 BALANCE SHEETS
                                   (Unaudited)
                 (In thousands of dollars, except share amounts)

                                                      September 30, December 31,
                                                           1997        1996
                                                         ---------  ------------
ASSETS
Current assets:
Cash and cash equivalents ..........................       $ 8,719     $ 2,567
Marketable securities  .............................        99,419       1,600
Trade accounts receivable (net of
   allowances of $738 in 1997 and $472 in 1996) ....        45,248      29,584
Due from affiliates ................................         2,556
Inventory ..........................................         6,013       4,639
Deferred income taxes ..............................           958         705
Prepaid expenses and other current assets ..........         7,946       2,485
                                                           -------     -------
          Total current assets .....................       170,859      41,580

Property, plant, and equipment - net ...............        25,388      20,544
Goodwill ...........................................        12,501       7,121
Deferred income taxes ..............................         1,899       1,644
Other assets .......................................         1,987       1,258
                                                           -------     -------

          Total assets .............................      $212,634     $72,147
                                                          ========     =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ..............       $23,665     $19,630
Applied Printing Note ..............................                     1,600
Current portion of long-term debt ..................           267         507
Current portion of obligations under
   capital leases ..................................           945       1,354
Due to affiliates ..................................         1,051         354
Other current liabilities ..........................         2,100       2,407
                                                           -------     -------
          Total current liabilities ................        28,028      25,852

Long-term debt .....................................         1,164       6,005
Obligations under capital leases ...................         1,246       1,265
Other liabilities ..................................         2,687       3,142
                                                           -------     -------
          Total liabilities ........................        33,125      36,264
                                                           -------     -------
Commitments and contingencies
Stockholders' equity:
Preferred stock  (no par value,
   10,000,000 shares authorized; no shares
   issued and outstanding)
Common stock (par value $0.01; 40,000,000
   shares authorized; shares issued and
   outstanding:  17,819,383 in 1997 and 14,349,683
   in 1996)  .......................................           178         143
Additional paid-in capital .........................       159,148      25,584
Unrealized investment gain .........................             4
Retained earnings ..................................        20,179      10,156
                                                           -------     -------
   Total stockholders' equity ......................       179,509      35,883
                                                           -------     -------

   Total liabilities and stockholders' equity ......      $212,634     $72,147
                                                           =======     =======

                    See Notes to Interim Financial Statements
<PAGE>
<TABLE>
                       APPLIED GRAPHICS TECHNOLOGIES, INC.
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
                    (In thousands, except per-share amounts)

<CAPTION>

                                                                        For the Nine Months Ended         For the Three Months Ended
                                                                               September 30,                      September 30,
                                                                        -------------------------         -------------------------
                                                                          1997             1996             1997             1996
                                                                        --------         --------         --------         --------
<S>                                                                    <C>               <C>              <C>              <C>
Revenues .......................................................       $ 131,488         $ 96,763         $ 50,416         $ 35,177
Cost of revenues ...............................................          84,653           67,600           31,782           23,635
                                                                        --------         --------         --------         --------

Gross profit ...................................................          46,835           29,163           18,634           11,542
Selling, general, and
    administrative expenses ....................................          29,164           21,564           11,041            7,253
                                                                        --------         --------         --------         --------

Operating income ...............................................          17,671            7,599            7,593            4,289
Interest expense ...............................................            (921)          (1,688)            (413)            (345)
Interest income ................................................             345              458              328              227
Other income (expense) - net ...................................            (459)              89             (513)              45
                                                                        --------         --------         --------         --------

Income before provision for
    income taxes ...............................................          16,636            6,458            6,995            4,216

Provision for income taxes .....................................           6,613              274            2,853              211
                                                                        --------         --------         --------         --------

Net income .....................................................        $ 10,023         $  6,184         $  4,142         $  4,005
                                                                        ========         ========         ========         ========

Earnings per common share (pro forma for the nine month
  period in 1996):
     Primary ...................................................        $   0.64         $   0.51         $   0.25         $   0.29
     Fully Diluted .............................................        $   0.63         $   0.51         $   0.25         $   0.29

Weighted average number of
    common shares (pro forma for the nine month
    period in 1996):
    Primary ....................................................          15,645           12,226           16,448           13,810
    Fully Diluted ..............................................          15,941           12,226           16,555           13,810


Pro Forma Net Income Data:
Income before provision
    for income taxes, as reported ................................       $ 6,458
Pro forma provision for income taxes .............................           303
                                                                         -------
Pro forma net income .............................................       $ 6,155
                                                                         =======

Pro forma earnings per common share:
     Primary .....................................................       $  0.50
     Fully Diluted ...............................................       $  0.50

Pro  forma weighted average number of common shares:
     Primary .....................................................        12,226
     Fully Diluted ...............................................        12,226

                    See Notes to Interim Financial Statements

</TABLE>
<PAGE>



                       APPLIED GRAPHICS TECHNOLOGIES, INC.
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                            (In thousands of dollars)

                                                      For the Nine Months Ended
                                                            September 30,
                                                     ---------------------------
                                                     -------------  ------------
                                                          1997          1996
                                                     -------------  ------------
Cash flows from operating activities:
Net income .........................................   $  10,023    $   6,184
Adjustments to reconcile net income to net cash from
   operating activities:
      Depreciation and amortization ................       4,533        2,088
      Deferred taxes ...............................        (395)
      Other ........................................         392          474
Management of Changes in  Operating  Assets and
  Liabilities,  net of effects of acquisitions:
      Trade accounts receivable ....................     (13,634)      (7,463)
      Due from/to affiliates .......................      (1,859)         995
      Inventory ....................................      (1,101)        (176)
      Other assets .................................      (2,155)       1,388
      Accounts payable and accrued expenses ........       3,112       (4,000)
      Other liabilities ............................      (1,049)        (415)
                                                       ---------    ---------
Net cash used in operating activities ..............      (2,133)        (925)
                                                       ---------    ---------

Cash flows from investing activities:
      Proceeds from sale of
       available-for-sale securities ...............      36,499
      Proceeds from maturities of
       held-to-maturity securities .................       1,600
      Investments in available-for-sale securities .    (135,808)
      Investments in held-to-maturity securities ...                   (1,600)
      Property, plant, and equipment expenditures ..      (7,642)      (9,269)
      Entities purchased, net of cash acquired .....      (5,561)
      Other investing activities ...................          12          537
                                                       ---------    ---------
Net cash used in investing activities ..............    (110,900)     (10,332)
                                                       ---------    ---------

Cash flows from financing activities:
      Proceeds from sale of common stock ...........     121,700       46,326
      Borrowings (repayments) under revolving
       credit line - net ...........................      (5,628)       3,300
      Proceeds from sale/leaseback transactions ....       2,897        1,717
      Repayment of Applied Printing Note ...........      (1,600)     (14,400)
      Repayment of notes and capital
        lease obligations ..........................      (3,628)      (1,929)
      Proceeds from exercise of stock options ......       5,444
      Repayment of intercompany borrowings - net ...                  (18,000)
      Distributions to Applied Printing - net ......                   (5,108)
                                                       ---------    ---------
Net cash provided by financing activities ..........     119,185       11,906
                                                       ---------    ---------

Net increase in cash and cash equivalents ..........       6,152          649
Cash and cash equivalents at beginning of period ...       2,567          567
                                                       ---------    ---------

Cash and cash equivalents at end of period .........   $   8,719    $   1,216
                                                       =========    =========



                    See Notes to Interim Financial Statements

<PAGE>

<TABLE>
                       APPLIED GRAPHICS TECHNOLOGIES, INC.
                       STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Unaudited)
               (In thousands of dollars except share and per-share amounts)




                                             For the nine months ended September 30, 1997

<CAPTION>

                                                        Additional     Unrealized
                                             Common      Paid-in       Investment    Retained
                                              Stock      Capital         Gain        Earnings
                                             ---------  -----------    ----------    ---------
<S>                                         <C>          <C>            <C>           <C>

Balance at January 1, 1997 .............   $    143     $  25,584                    $  10,156

Issuance of 3,000,000 common
shares in a public offering ............         30       121,670

Warrants granted to
  purchase common shares                                      330

Issuance of 469,700 common
shares upon exercise of stock options ..          5         5,439

Income tax benefit associated with
   exercise of stock options ...........                    6,125

Unrealized gain on investments in
   available-for-sale securities ......                                $      4

Net Income ............................                                                 10,023
                                             --------   ---------      ---------     ---------

Balance at September 30, 1997 .........      $   178    $ 159,148      $      4      $  20,179
                                             ========   =========      =========     =========

</TABLE>

















                    See Notes to Interim Financial Statements
                       APPLIED GRAPHICS TECHNOLOGIES, INC.
                      NOTES TO INTERIM FINANCIAL STATEMENTS


1.  BASIS OF PRESENTATION

    The  accompanying   unaudited  condensed  financial  statements  of  Applied
Graphics  Technologies,  Inc.  (the  "Company"),  which  have been  prepared  in
accordance with the instructions to Form 10-Q and, therefore, do not include all
information  and  footnotes  necessary  for a  fair  presentation  of  financial
position,  results of  operations,  and cash flows in conformity  with generally
accepted accounting principles,  should be read in conjunction with the notes to
financial  statements  contained in the Company's 1996 Form 10-K, as amended. In
the  opinion of the  management  of the  Company,  all  adjustments  (consisting
primarily of normal recurring  accruals)  necessary for a fair presentation have
been included in the financial statements.  The operating results of any quarter
are not necessarily indicative of results for any future period.

    On April 16, 1996 (the "Initial Offering Date"), the Company's  Registration
Statement on Form S-1 under the Securities Act of 1933, as amended,  relating to
the initial  public  offering (the "Initial  Offering") of the Company's  Common
Stock,  was  declared  effective.  Upon  the  Initial  Offering  being  declared
effective,  the  Company  acquired  substantially  all of the assets and certain
related  liabilities  relating to the prepress,  digital imaging  services,  and
related businesses  (collectively,  the "Prepress Business") of Applied Printing
Technologies,  L.P. ("Applied  Printing"),  an entity  beneficially owned by the
Chairman  of the Board of  Directors  of the  Company  and the  Chief  Executive
Officer of the  Company.  The  Prepress  Business  was  acquired in exchange for
9,309,900  shares of the Company's  Common Stock and $37.0 million of additional
consideration  comprised of (i) the  assumption  by the Company of the principal
amount of  collateralized  senior  indebtedness  to Applied  Printing's  primary
institutional lender (the "Institutional  Senior Indebtedness") of $21.0 million
and (ii) the  issuance of a promissory  note by the Company to Applied  Printing
(the  "Applied  Printing  Note") of $16.0  million.  The  Company  received  net
proceeds of $46.1 million from the Initial Offering,  of which $21.0 million was
used to repay  Institutional  Senior  Indebtedness and $16.0 million was used to
invest in  short-term  investments  to support a standby  letter of credit  that
collateralized the Applied Printing Note.

    The  acquisition  of the  Prepress  Business was  accounted  for in a manner
similar to a pooling of interests.  Accordingly, the financial statements of the
Company  reflect the combined  results of  operations  of the Prepress  Business
through the Initial Offering Date and the results of the Company thereafter. The
statement of operations and the statement of cash flows covering periods through
the  Initial  Offering  Date have been  prepared  by  combining  the  results of
operations and cash flows of the specific  divisions that comprised the Prepress
Business.  Prior to the  Initial  Offering  Date,  these  divisions  operated as
separate business units and maintained their own books and records.  Through the
Initial  Offering  Date,   Applied  Printing  managed  the  cash  and  financing
requirements  of all of its  divisions  centrally  and,  as such,  the  interest
expense and related  intercompany  borrowing  up until that date  represents  an
allocation  of  Applied  Printing's  interest  expense  and  the  related  debt.
Additionally,  prior to the Initial  Offering Date,  Applied  Printing and other
related parties had provided  certain  corporate,  general,  and  administrative
services  to the  Prepress  Business  including  general  management,  treasury,
financial reporting, and legal services.  Accordingly,  the financial statements
prior to the Initial  Offering  Date include an  allocation of expenses for such
services.  The results of  operations  and cash flows for the nine month  period
ended  September  30, 1996,  may have  differed  had the Company  operated as an
independent entity during the entire period.

    In May 1997,  the Company  completed the purchase of certain  assets of Star
Graphic Arts Co., Inc., a prepress  company.  In June 1997, the Company acquired
certain  assets of  Digital  Imagination,  Inc.,  a digital  events  photography
business,  and also acquired certain rights from a former joint venture partner.
In July 1997,  the  Company  acquired  all of the assets of MBA  Graphics,  Inc.
("MBA"),  a provider  of  prepress  production,  direct  mailing,  and  brokered
commercial  printing  services.  In September 1997, the Company acquired certain
assets of the broadcast media distribution business of Winkler Video Associates,
Inc. For such  acquisitions,  the Company paid an aggregate of $5.7 million from
amounts borrowed under its line of credit,  assumed $7.1 million of liabilities,
and granted  warrants to purchase a minimum of 19,000 shares of its Common Stock
with an  approximate  value of $0.3  million.  In  addition,  the Company may be
obligated  to make  payments  or issue  shares  of  Common  Stock as  additional
consideration  for certain of the  acquisitions.  Such additional  consideration
will be determined based upon the future  financial  performance of the acquired
operations.  These  acquisitions were accounted for using the purchase method of
accounting.  Accordingly, the assets and liabilities acquired have been recorded
at their  estimated fair values at the dates of  acquisition.  The excess of the
purchase  price over the fair value of the net assets  acquired was $5.5 million
and has been  recorded as  goodwill.  The  effects on  revenues,  income  before
provision for income taxes, net income, and earnings per common share from these
acquisitions, either individually or in the aggregate, are not material.

    On September 3, 1997, the Company's Registration Statement on Form S-3 under
the Securities Act of 1933, as amended, relating to an offering of the Company's
Common Stock (the "Offering"),  was declared effective. As part of the Offering,
the Company sold 3,000,000 shares of Common Stock,  generating proceeds,  net of
underwriters' discount and transaction expenses, of $121.7 million. Also as part
of  the  Offering,   an  additional   3,900,000  shares  were  sold  by  certain
stockholders  of the  Company,  of which  3,650,000  shares were sold by Applied
Printing.

    Certain prior-period  amounts in the accompanying  financial statements have
been reclassified to conform with the 1997 presentation.


2.  ACCOUNTING PRONOUNCEMENTS

    Statement of Financial  Accounting  Standards (SFAS) No. 128,  "Earnings per
Share,"  was issued in  February  1997 and is  effective  for interim and annual
periods  ending after  December  15,  1997.  This  statement,  which  supersedes
Accounting  Principles Board Opinion No. 15,  "Earnings per Share,"  establishes
standards for computing and  presenting  earnings per share and will require the
restatement of all prior-period  earnings per share data. The  implementation of
SFAS No. 128 will not have a material impact on the Company's earnings per share
data.

    Statement of Financial  Accounting  Standards (SFAS) No. 129, "Disclosure of
Information  about  Capital  Structure,"  was  issued  in  February  1997 and is
effective for periods ending after December 15, 1997. This statement establishes
standards for  disclosing  information  about an entity's  capital  structure by
superseding  and  consolidating  previously  issued  accounting  standards.  The
financial  statements  of the  Company  are  prepared  in  accordance  with  the
requirements of SFAS No. 129.

    Statement of Financial  Accounting  Standards  (SFAS) No. 131,  "Disclosures
about  Segments of an Enterprise  and Related  Information,"  was issued in June
1997 and is effective  for  financial  statements  for periods  beginning  after
December 15,  1997.  This  statement  establishes  standards  for the way public
companies  report  information  about  operating  segments in annual and interim
financial  statements.  The Company believes its current  reporting systems will
enable it to comply with the implementation of SFAS No. 131.


3.  MARKETABLE SECURITIES

     In accordance with Statement of Financial  Accounting  Standards (SFAS) No.
115,  "Accounting for Certain  Investments in Debt and Equity  Securities,"  the
Company has classified its investments in marketable securities at September 30,
1997,  as  "available  for sale" and has  recorded  them at fair  market  value.
Marketable  securities  at  December  31,  1996,  were  classified  as  "held to
maturity"  and  were  recorded  at  amortized  cost.  Marketable  securities  at
September 30, 1997,  and December 31, 1996  (expressed in thousands of dollars),
consisted of the following:


<PAGE>



                                      September 30, 1997      December 31, 1996
                                     ---------------------   -------------------
                                      Market     Amortized   Market    Amortized
                                      Value      Cost        Value     Cost
                                     --------    ---------   --------  ---------
Debt issued by municipalities
  and their subdivisions:
   Maturing within 1 year ........   $13,500     $13,500
   Maturing after 15 years .......     5,000       5,000
Corporate debt securities maturing
   within 1 year .................    66,918      66,914
U.S. Government Treasury fund ....    14,001      14,001
U.S. Government Securities .......                           $ 1,600     $ 1,600
                                     -------     -------     -------     -------

Total ............................   $99,419     $99,415     $ 1,600     $ 1,600
                                     =======     =======     =======     =======


At September 30, 1997, and December 31, 1996, all securities  were available for
current operations and are therefore classified in the Balance Sheets as current
assets.  Unrealized holding gains and losses on  available-for-sale  securities,
which were not  material at  September  30,  1997,  are  reflected as a separate
component of  Stockholders'  Equity.  Proceeds from sales of  available-for-sale
securities  during both the nine and three month  periods  ended  September  30,
1997,  totaled $36.5 million and resulted in no realized gain or loss.  Realized
gains and losses are determined based on a specific identification basis.


4.  INVENTORY

    The components of inventory (in thousands of dollars) were as follows:

                                               September 30,    December 31,
                                                  1997             1996

Work-in-process ..............................   $3,712           $2,596
Raw materials ................................    2,301            2,043
                                                 ------           ------

Total ........................................   $6,013           $4,639
                                                 ======           ======


5.  INCOME TAXES

    The  Prepress  Business was treated as a  partnership  for Federal and state
income tax purposes  prior to the Initial  Offering  Date and was not subject to
tax.  Concurrently  with the acquisition of the Prepress  Business,  the Company
recorded the applicable  deferred tax assets related to the differences  between
financial  statement and tax basis of the assets and liabilities of the Prepress
Business.  These  deferred  tax  assets  were  entirely  offset  by a  valuation
allowance.  A provision for income taxes is included in the Company's  Statement
of Operations only for the periods  subsequent to the Initial Offering Date. The
effective  rate of the  provision  for income taxes in 1996 was lower than would
ordinarily  be expected due  primarily to the reversal of both Federal and state
deferred tax asset valuation allowances.


6.  EARNINGS PER SHARE

     Earnings  per share of common  stock are computed by dividing net income by
the  weighted  average of the number of shares of common  stock and common stock
equivalents,  where  dilutive,  outstanding.  For the nine month period in 1996,
earnings per share of common stock represent a pro forma calculation and include
the number of shares of common  stock  issued and  issuable to Applied  Printing
prior to the Initial Offering Date.



<PAGE>



7.  RELATED PARTY TRANSACTIONS

    Sales to, purchases from, and  administrative  charges incurred with related
parties (in thousands of dollars) were as follows:


                                         Nine months            Three months
                                     ended September 30,     ended September 30,
                                     -------------------     -------------------

                                      1997        1996        1997        1996
                                     -------     -------     -------     -------

Affiliate sales ................     $10,665     $ 8,172     $ 4,337     $ 2,291
Affiliate purchases ............     $ 3,125     $ 2,197     $   835     $   774
Administrative charges .........     $   798     $ 1,907     $   267     $   169


     Administrative  charges  include  charges  for certain  legal and  computer
services   provided  by  affiliates  and  for  rent  incurred  for  leases  with
affiliates.  Administrative charges incurred for the nine months ended September
30, 1996, also include $1.5 million of costs allocated from Applied Printing for
general management,  treasury,  financial  reporting,  and legal services.  Such
administrative  charges are included in selling and  administrative  expenses in
the Statements of Operations.


8.   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

     Payments of interest and income  taxes for the nine months ended  September
30, 1997 and 1996 (in thousands of dollars), were as follows:

                                        1997              1996
                                        ----              ----

     Interest paid                 $     928         $     754
     Income taxes paid             $   4,757         $     765


     Noncash  investing  and  financing  activities  for the nine  months  ended
September 30, 1997 and 1996 (in thousands of dollars), were as follows:

                                                           1997           1996
                                                         --------       --------

Notes payable issued in connection
 with an acquisition ..............................      $    488
Increase in additional paid-in
 capital from income tax benefit
 associated with exercise of stock options ........      $  6,125
Reduction of goodwill from amortization
 of excess tax deductible goodwill ................      $    113
Conversion of intercompany borrowing into
 Applied Printing Note ............................                     $ 16,000
Distribution to Applied Printing in the
 form of increased intercompany borrowing .........                     $  3,819
Common stock issued in exchange for the
 Prepress Business ................................                     $     93

Acquisitions:
Fair value of assets acquired .....................      $ 13,119
Cash paid .........................................        (5,699)
Value of stock warrants issued ....................          (330)
                                                          --------

Liabilities assumed ...............................      $  7,090
                                                          ========


<PAGE>


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

    Certain   statements  made  in  this  Quarterly  Report  on  Form  10-Q  are
"forward-looking"  statements  (within  the  meaning of the  Private  Securities
Litigation Reform Act of 1995). Such statements involve known and unknown risks,
uncertainties,  and other factors that may cause actual results, performance, or
achievements of the Company to be materially  different from any future results,
performance,  or  achievements  expressed  or  implied  by such  forward-looking
statements.  Although the Company  believes that the  expectations  reflected in
such  forward-looking  statements  are based upon  reasonable  assumptions,  the
Company's  actual  results could differ  materially  from those set forth in the
forward-looking  statements.  Certain factors that might cause such a difference
include the following:  the securing of additional,  or the renewal of existing,
on-site arrangements;  the rate of expansion of services under the new agreement
with General Motors;  an expansion of services provided by the digital division;
obtaining efficiencies from combining certain facilities;  the rate and level of
capital   expenditures;   the  ability  to  identify  and  consummate   suitable
acquisitions; or obtaining additional credit or financing sources.

    On April 16, 1996 (the "Initial  Offering Date"),  the Company commenced the
initial public offering (the "Initial Offering") of its Common Stock. Concurrent
with the Initial Offering,  the Company acquired substantially all of the assets
and certain liabilities relating to the prepress,  digital imaging services, and
related businesses of Applied Printing  Technologies,  L.P. ("Applied Printing")
(collectively,  the  "Prepress  Business").  The  acquisition  of  the  Prepress
Business has been  accounted for in a manner  similar to a pooling of interests.
Accordingly,  the  financial  statements  of the Company  reflect  the  combined
results of operations of the Prepress Business through the Initial Offering Date
and the results of the Company thereafter.

    On September 3, 1997, the Company's Registration Statement on Form S-3 under
the Securities Act of 1933, as amended, relating to an offering of the Company's
Common Stock (the "Offering"),  was declared effective. As part of the Offering,
the Company sold 3,000,000 shares of Common Stock,  generating proceeds,  net of
underwriters' discount and transaction expenses, of $121.7 million. Also as part
of  the  Offering,   an  additional   3,900,000  shares  were  sold  by  certain
stockholders  of the  Company,  of which  3,650,000  shares were sold by Applied
Printing.

Results of Operations
Nine months ended September 30, 1997, compared with 1996

    Revenues in the first nine months of 1997 were $34.7 million or 35.9% higher
than in the comparable  period in 1996. This increase was primarily due to $10.4
million  of  revenues  generated  from  the  operations  of  additional  on-site
facilities  management  contracts during the 1997 period that were in effect for
none or only a  portion  of the 1996  period,  $5.6  million  of  revenues  from
broadcast media  distribution  operations that have been acquired since the 1996
period,  increased  revenues  of $3.6  million in the digital  imaging  services
division from  equipment  sales,  archiving  services,  and digital  photography
operations,  $13.1  million of additional  traditional  prepress  business,  and
receipt of a nonrefundable  payment of $2.0 million related to an agreement with
one of the Company's major suppliers.  Traditional  prepress revenues  increased
primarily from the results of MBA Graphics,  Inc. ("MBA"), whose operations were
acquired in July 1997,  increased business at the Foster City facility resulting
from the  acquisition of the  operations of Star Graphics Arts Co., Inc.  ("Star
Graphics"), in May 1997, additional revenue generated at the Detroit facility as
a result of the new contract  entered into with General  Motors,  and an overall
increase  in  business  at the  Carlstadt,  NJ,  facility,  and a New York  City
facility.

    The gross  profit  percentage  in the first nine months of 1997 was 35.6% as
compared to 30.1% in the 1996 period.  Gross profit  increased  $17.7 million or
60.6% in the first nine  months of 1997 as a result of the  additional  revenues
for the period as  discussed  above and the  reduction of costs due to favorable
pricing negotiated with certain suppliers.

    Selling,  general,  and administrative  expenses in the first nine months of
1997 were $7.6  million  higher than in the first nine months of 1996,  but as a
percent of revenue decreased  slightly to 22.2% in the 1997 period from 22.3% in
the 1996  period.  Improvements  were  achieved  primarily  from the increase in
revenues   discussed  above  and  increased  business  from  on-site  facilities
management  contracts,  which  require less sales  support than the  traditional
prepress  business.  Such  improvements  were  offset  by  additional  corporate
expenses  incurred  related  to  being  a  publicly-traded  company,  additional
expenses  incurred  as part of the  Company's  expansion  and  development  of a
national sales force to better market its services,  and from expanded  business
at certain operations.

    Interest expense in the first nine months of 1997 was $0.8 million less than
in the 1996 period primarily due to the repayment of debt in April 1996 with the
proceeds from the Initial  Offering and the  repayment of  borrowings  under the
line of credit in September 1997 with the proceeds from the Offering.

    The effective  rate of the provision for income taxes in 1996 was lower than
would  ordinarily  be expected due primarily to the reversal of both Federal and
state deferred tax asset valuation allowances.

Three  months ended September 30, 1997, compared with 1996

    Revenues  in the third  quarter of 1997 were $15.2  million or 43.3%  higher
than in the comparable  period in 1996.  This increase was primarily due to $3.5
million  of  additional  revenues  generated  from  the  operations  of  on-site
facilities  management  contracts  principally related to contracts that were in
effect for none or only a portion of the 1996  period,  $2.3 million of revenues
from the  broadcast  media  distribution  operations  that  have  been  acquired
subsequent to the 1996 period, increased revenues of $1.9 million in the digital
imaging  services  division  from  archiving  services  and digital  photography
operations,  and $7.5 million of additional revenue generated in the traditional
prepress business.  Traditional  prepress revenues increased  primarily from the
results of MBA, whose operations were acquired in July 1997,  increased business
at the Foster City facility  resulting from the acquisition of the operations of
Star Graphics in May 1997, incremental revenue generated at the Detroit facility
as a result of the new contract entered into with General Motors, and an overall
increase  in  business  at the  Carlstadt,  NJ,  facility,  and a New York  City
facility.

    The  gross  profit  percentage  in the  third  quarter  of 1997 was 37.0% as
compared to 32.8% in the 1996  period.  Gross profit  increased  $7.1 million or
61.4% in the third  quarter of 1997 as a result of the  additional  revenues for
the period as discussed above, including revenues from higher margin operations,
and from reduced costs  resulting from more favorable  pricing  negotiated  with
certain suppliers.

    Selling,  general, and administrative  expenses in the third quarter of 1997
were $3.8 million  higher than in the third quarter of 1996, and as a percent of
revenue  increased  slightly  to 21.9% in the 1997 period from 20.6% in the 1996
period. This is primarily due to additional  corporate expenses incurred related
to being a publicly-traded company,  additional expenses incurred as part of the
Company's  expansion and  development of a national sales force to better market
its services, and from expanded business at certain operations.

    The effective  rate of the provision for income taxes in 1996 was lower than
would  ordinarily  be expected due primarily to the reversal of both Federal and
state deferred tax asset valuation allowances.

    Statement of Financial  Accounting  Standards (SFAS) No. 128,  "Earnings per
Share,"  was issued in  February  1997 and is  effective  for interim and annual
periods  ending after  December  15,  1997.  This  statement,  which  supersedes
Accounting  Principles Board Opinion No. 15,  "Earnings per Share,"  establishes
standards for computing and  presenting  earnings per share and will require the
restatement of all prior-period  earnings per share data. The  implementation of
SFAS No. 128 will not have a material impact on the Company's earnings per share
data.

    Statement of Financial  Accounting  Standards (SFAS) No. 129, "Disclosure of
Information  about  Capital  Structure,"  was  issued  in  February  1997 and is
effective for periods ending after December 15, 1997. This statement establishes
standards for  disclosing  information  about an entity's  capital  structure by
superseding  and  consolidating  previously  issued  accounting  standards.  The
financial  statements  of the  Company  are  prepared  in  accordance  with  the
requirements of SFAS No. 129.

    Statement of Financial  Accounting  Standards  (SFAS) No. 131,  "Disclosures
about  Segments of an Enterprise  and Related  Information,"  was issued in June
1997 and is effective  for  financial  statements  for periods  beginning  after
December 15,  1997.  This  statement  establishes  standards  for the way public
companies  report  information  about  operating  segments in annual and interim
financial  statements.  The Company believes its current  reporting systems will
enable it to comply with the implementation of SFAS No. 131.

Financial Condition

    In September 1997, the Company  received $121.7 million in proceeds,  net of
underwriters'  discount and  transaction  expenses,  from the Offering.  Of such
proceeds, $22.7 million were used to repay the amount then outstanding under the
Company's  revolving line of credit. The remaining proceeds of approximately $99
million  were  invested in  marketable  securities.  The Company  plans to use a
significant  portion of the  proceeds  from the  Offering to further  expand its
business  through  acquisitions.  Although  the  Company  continues  to evaluate
acquisition  opportunities  on an ongoing basis,  there is no assurance that the
Company will successfully  complete  additional  acquisitions.  The Company also
received $5.4 million from the exercise of 469,700 employee stock options in the
first nine months of 1997.

     During the first nine months of 1997, the Company repaid the remaining $1.6
million of the Applied  Printing  Note with the  proceeds  from the  maturity of
marketable  securities.  In the first nine months of 1997,  the Company  entered
into three separate sale and leaseback  arrangements that generated  proceeds of
$2.9 million.  Such  arrangements  resulted in  immaterial  gains that have been
deferred and are being  recognized in income as a credit  against  future rental
expense. In November 1997, the Company  renegotiated its existing revolving line
of credit,  increasing  its  borrowing  capacity to an aggregate of $60 million,
consisting of a $35 million  revolving line of credit (the "Revolver") and a $25
million  acquisition line of credit (the "Acquisition  Line").  The Revolver and
the Acquisition  Line have repayment  terms that run through  November 13, 2000,
and December 1, 2003,  respectively.  Interest rates on funds borrowed under the
Revolver  and the  Acquisition  Line vary from the lower of prime  less 1.00% or
Libor plus  0.50%,  to the  greater of prime plus  0.125% or Libor plus  1.375%.
There are no borrowings currently outstanding under either of these facilities.

    Cash flows from  operating  activities  during the first nine months of 1997
decreased  by $1.2  million as  compared  to the  comparable  period in 1996 due
primarily to increased accounts receivable  resulting from additional  business,
increased  inventory levels  associated with timing of purchases from suppliers,
and additional tax payments offset by cash generated from additional  income and
the timing of vendor  payments.  In addition to the cash  generated  and used as
part of the capital  transactions  described above, during the first nine months
of 1997 the  Company  invested  $7.6  million in  equipment,  paid $5.7  million
related to acquisitions,  and repaid $3.6 million of debt and lease  obligations
with  the  proceeds  from the  three  sale and  leaseback  transactions  and the
proceeds from the exercise of stock options.

    Working  capital  increased  $127.1  million during the first nine months of
1997  primarily  from the proceeds  from the  Offering,  increased  receivables,
including  amounts due from  affiliates,  resulting from additional  business at
existing  facilities and from acquired  operations.  The Company also recorded a
tax  benefit in the  amount of $6.1  million  associated  with the  exercise  of
employee  stock  options  that  reduced the cash  requirement  for taxes for the
remainder of 1997.  Long-term  debt  decreased $4.7 million due primarily to the
repayment  of amounts  borrowed  under the line of credit  with a portion of the
proceeds of the Offering.

    At September 30, 1997,  capital  commitments,  which the Company  expects to
expend over the course of the next  fifteen  months,  amounted to  approximately
$13.7  million,  essentially  all of  which  is for  modernization  and  growth,
including a $8.2  million  capital  investment  the  Company  expects to make in
connection  with the General  Motors  contract and $1.8 million for expansion to
handle additional business from The Home Depot. The Company intends to finance a
substantial  portion of these  expenditures  under  operating  leases,  sale and
leaseback arrangements, or with working capital, including the proceeds from the
Offering.

    The Company believes that the cash flow from  operations,  proceeds from the
Offering,  its revolving  credit facility,  and its potential  ability to obtain
funding from other  financing  sources will be sufficient to fund its cash needs
for the foreseeable future.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.


    Not applicable.


Item 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits:


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

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

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

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

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

            10.4*       Loan and Purchase  Agreement,  dated January 8, 1992, as
                        amended  (Incorporated  by reference to Exhibit No. 10.4
                        forming  part of  Amendment  No.  3 to the  Registrant's
                        Registration  Statement on Form S-1 (File No. 333-00478)
                        filed with the Securities and Exchange  Commission under
                        the Securities Act of 1933, as amended).

            10.4(a)*    Second  Amendment to Loan and Purchase  Agreement  dated
                        April 19, 1996 (Incorporated by reference to Exhibit No.
                        10.1  forming  part of the  Registrant's  Report on Form
                        10-Q/A (File No.  0-28208) filed with the Securities and
                        Exchange Commission under the Securities Exchange Act of
                        1934, as amended,  for the quarterly  period ended March
                        31, 1996).

            10.4(b)*    Third  Amendment  to Loan and Purchase  Agreement  dated
                        June 30, 1997  (Incorporated by reference to Exhibit No.
                        10.4(b) forming part of the Registrant's  Report on Form
                        10-Q/A (File No.  0-28208) filed with the Securities and
                        Exchange Commission under the Securities Exchange Act of
                        1934, as amended,  for the  quarterly  period ended June
                        30, 1997).

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

            10.6(a)     Employment  Agreement,  effective  as of April 1,  1996,
                        between the Company and Diane  Romano  (Incorporated  by
                        reference  to Exhibit No. 10.6 forming part of Amendment
                        No. 3 to the Registrant's Registration Statement on Form
                        S-1 (File No.  333-00478)  filed with the Securities and
                        Exchange Commission under the Securities Act of 1933, as
                        amended).

            10.6(b)     Employment  Agreement,  effective  as of April 1,  1996,
                        between the Company and Georgia L. McCabe  (Incorporated
                        by  reference  to  Exhibit  No.  10.6  forming  part  of
                        Amendment  No.  3  to  the   Registrant's   Registration
                        Statement  on Form S-1 (File No.  333-00478)  filed with
                        the  Securities  and  Exchange   Commission   under  the
                        Securities Act of 1933, as amended).

            10.6(c)     Employment  Agreement,  effective  as of March 13, 1996,
                        between the Company and Melvin A. Ettinger (Incorporated
                        by  reference  to  Exhibit  No.  10.6  forming  part  of
                        Amendment  No.  3  to  the   Registrant's   Registration
                        Statement  on Form S-1 (File No.  333-00478)  filed with
                        the  Securities  and  Exchange   Commission   under  the
                        Securities Act of 1933, as amended).

            10.6(d)     Employment  Agreement,  effective  as of April 1,  1996,
                        between   the   Company   and   Scott   A.    Brownstein
                        (Incorporated  by  reference to Exhibit No. 10.6 forming
                        part of Amendment No. 3 to the Registrant's Registration
                        Statement  on Form S-1 (File No.  333-00478)  filed with
                        the  Securities  and  Exchange   Commission   under  the
                        Securities Act of 1933, as amended).

            10.6(e)(i)  Employment  Agreement,  effective  as of June  1,  1996,
                        between   the   Company   and   Louis   Salamone,    Jr.
                        (Incorporated   by  reference  to  Exhibit  No.  10.6(e)
                        forming  part of the  Registrant's  Report  on Form 10-Q
                        (File  No.   0-28208)  filed  with  the  Securities  and
                        Exchange Commission under the Securities Exchange Act of
                        1934, as amended,  for the quarterly  period ended March
                        31, 1997).

            10.6(e)(ii) Noncompetition,   Nonsolicitation,  and  Confidentiality
                        Agreement,  effective  as of June 1, 1996,  between  the
                        Company  and  Louis  Salamone,   Jr.   (Incorporated  by
                        reference  to Exhibit No.  10.6(e)  forming  part of the
                        Registrant's  Report  on Form 10-K  (File  No.  0-28208)
                        filed with the Securities and Exchange  Commission under
                        the Securities Exchange Act of 1934, as amended, for the
                        fiscal year ended December 31, 1996).

            10.7        Form of Registration  Rights Agreement  (Incorporated by
                        reference  to Exhibit No. 10.7 forming part of Amendment
                        No. 3 to the Registrant's Registration Statement on Form
                        S-1 (File No.  333-00478)  filed with the Securities and
                        Exchange Commission under the Securities Act of 1933, as
                        amended).

            27          Financial Data Schedule (EDGAR filing only).
---------------------------------------

* Confidential  portions  omitted and supplied  separately to the Securities and
Exchange Commission.

  (b) The  Registrant did not file any reports on Form 8-K during the quarter
ended September 30, 1997.


<PAGE>


                                   SIGNATURES

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


                                            APPLIED GRAPHICS TECHNOLOGIES, INC.
                                                                   (Registrant)


                                                     By: /s/ Melvin A. Ettinger
Date: November 13, 1997
------------------------
                                                             Melvin A. Ettinger
                            Vice Chairman, Chief Operating Officer and Director
                                                      (Duly authorized officer)


                                                        /s/ Louis Salamone, Jr.
Date: November 13, 1997
------------------------
                                                            Louis Salamone, Jr.
                              Senior Vice President and Chief Financial Officer
                                                  (Principal Financial Officer)