SECURITIES AND EXCHANGE COMMISSION
                                
                     Washington, D.C. 20549
                                
                            FORM 10-Q
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934
                                
            For the Quarter ended September 30, 1996
                          _____________
                 Commission File Number 0-28208
                                
               APPLIED GRAPHICS TECHNOLOGIES, INC.
     (Exact name of Registrant as specified in its charter)
                                
                            DELAWARE
 (State or other jurisdiction of incorporation or organization)
                                
                           13-3864004
              (I.R.S. Employer 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 Common Stock, $0.01 par value,
outstanding as of November 11, 1996: 13,810,000
<PAGE>

                 Part I - Financial Information
                 ------------------------------
               APPLIED GRAPHICS TECHNOLOGIES, INC.
                         BALANCE SHEETS
             ($ in thousands, except share amounts)
                           (unaudited)
                                         Predecessor
                                         December 31,    September 30,
                                         -----------------------------
                                             1995             1996
                                         -----------------------------
ASSETS                                          
Current assets:                                         
Cash and cash equivalents                 $    567      $   1,216
Short-term investments                          99          1,698
Accounts receivable (net of allowance of                
 $1,431 and $889, respectively)             19,476         26,877
Due from affiliates                          1,841            846
Inventory                                    3,582          3,438
Prepaid expenses                             1,925          1,227
Other current assets                         1,125            939
                                          --------       --------
   Total current assets                     28,615         36,241
                                                        
Property, plant and equipment, net          13,741         18,015
Other assets                                 2,453          1,636
                                          --------       --------
   Total assets                           $ 44,809       $ 55,892
                                          ========       ========
                                                                               
LIABILITIES AND OWNER'S (DEFICIT) /                   
SHAREHOLDERS' EQUITY
Current liabilities:                                                   
Intercompany borrowings                   $ 30,181       $     --
Accounts payable and accrued expenses       20,096         16,096
Applied Printing Note                           --          1,600
Notes payable                                  711            691
Capital leases                               1,576          1,220
Other current liabilities                    1,125          1,818
                                          --------       --------
   Total current liabilities                53,689         21,425
                                          ========       ========
                                                        
Revolving bank line                             --          3,300
Notes payable                                  853            594
Obligations under capital leases             2,415          1,729
Other non-current liabilities                7,233          4,642
                                          --------       --------
   Total liabilities                        64,190         31,690
                                          --------       --------
                                                        
COMMITMENTS AND CONTINGENCIES                           
                                                        
OWNER'S (DEFICIT) AND SHAREHOLDERS'                     
EQUITY
Preferred stock; no par value, 10,000,000                              
 shares authorized, none                  $     --      $      --
  issued and outstanding
Common stock; par value $.01, 40,000,000                
 shares authorized,                              --            138
  13,810,000 issued and outstanding
Additional paid in capital                       --         17,880
Retained earnings                                --          6,184
Owner's deficit                             (19,381)            --
                                           --------       --------
   Total owner's (deficit) /                
    shareholders' equity                    (19,381)        24,202
                                           --------       --------
   Total liabilities and owner's          $  44,809      $  55,892
    (deficit) / shareholders' equity       ========       ========
                                
                                
  The accompanying notes are an integral part of the financial
                           statements
<PAGE>

               APPLIED GRAPHICS TECHNOLOGIES, INC.
                STATEMENT OF OPERATIONS (Note 2)
      ($ in thousands, except share and per share amounts)
                           (unaudited)
                                
                                
                          Three Months              Nine Months
                       Ended September 30,      Ended September 30,
                       -------------------      -------------------
                         1995       1996         1995         1996
                       -------------------      -------------------
                                                                    
Net sales             $ 29,638    $ 35,177     $ 89,489    $ 96,763
Cost of sales           21,608      23,635       65,595      67,600
                       -------     -------      -------     -------
Gross profit             8,030      11,542       23,894      29,163
                                                             
Selling expenses         3,990       4,033       12,187      11,788
General and 
 administrative 
  expenses               4,303       3,220       12,564       9,776
Reorganization charge    3,060          --        3,060          --
                       -------     -------      -------     -------
  Total operating      
   expenses             11,353       7,253       27,811      21,564
                       -------     -------      -------     -------
  Operating income 
   (loss)               (3,323)      4,289       (3,917)      7,599
                                                             
Interest (expense)        (761)       (345)      (2,287)     (1,688)
Other Income
 (expense), net           (843)        272          395         547
                       -------     -------      -------     -------             
Income (loss) before                                         
  income tax provision  (4,927)      4,216       (5,809)      6,458
                                                             
Income tax provision        --         211           --         274
                       -------      -------     -------     -------
Net income (loss)     $ (4,927)   $  4,005      $(5,809)    $ 6,184
                       =======      =======     =======     =======

Net income per share              $    .29                      
                                    ======                                     
Weighted average common                                             
 shares outstanding             13,810,000                  
                                ==========
                                                             
Pro Forma Net Income Data:                                         
Income before taxes, as reported                            $ 6,458
                                                             
Pro forma income taxes                                          303
                                                             ------            
Pro forma net income                                        $ 6,155
                                                             ======
Pro forma net income per share                              $   .50
                                                             ======
Shares used in computing                                               
 pro forma net income per share                          12,225,654
                                                         ==========
                                

  The accompanying notes are an integral part of the financial
                           statements
                                
<PAGE>                                
                                
               APPLIED GRAPHICS TECHNOLOGIES, INC.
  STATEMENTS OF CHANGES IN OWNER'S (DEFICIT) AND SHAREHOLDERS'
                             EQUITY
                        ($ in thousands)
                           (unaudited)





                                                              
                                     Additional   
                            Common    Paid-in     Retained    Owner's    Total
                            Stock     Capital     Earnings    Deficit    Equity
                           ----------------------------------------------------
                                                              
Balance-December 31, 1995  $        $          $          $ (19,381)  $ (19,381)
Add (deduct):                                                 
  Net income                                        6,184                 6,184
  Common stock issued         138       46,188                           46,326
  Distributions                                              (8,927)     (8,927)
  Conveyance                           (28,308)              28,308      
                           ----------------------------------------------------
Balance-September 30, 1996 $  138   $   17,880  $   6,184  $     --   $  24,202
                           ----------------------------------------------------
          
                                

                         

    The accompanying notes are an integral part of the financial statements

<PAGE>                                

               APPLIED GRAPHICS TECHNOLOGIES, INC.
                STATEMENTS OF CASH FLOWS (Note 2)
                        ($ in thousands)
                           (unaudited)
                                                 For the Nine Months Ended
                                                        September 30,
                                                 -------------------------
                                                       1995        1996
                                                 -------------------------
Cash flows from operating activities:                    
Net income (loss)                                  $   (5,809)  $   6,184
Adjustments to reconcile net income (loss) to net        
 cash from operating activities:
   Depreciation and amortization                        4,185       3,571
   Amortization of deferred charges                       525      (1,483)
   Provision for bad debts                                563          62
   Provision for sales adjustments                        150         320
   Gain on insurance settlement                        (1,807)        (18)
   Loss on disposal of fixed assets                       151         110
   Reorganization charges                               3,060          --
Increase (Decrease) from change in:                      
   Accounts receivable                                  3,285      (7,463)
   Due from affiliates                                   (192)        995
   Inventory                                             (417)       (176)
   Other current assets, prepaid                       
    expenses and other assets                           1,966       1,388
   Accounts Payable and other current                
    and non-current liabilities                         2,798      (4,415)
                                                       -------     -------      
Net cash provided by (used in) operating              
activities                                              8,458        (925)
                                                       -------     -------      
Cash provided by (used in) investing                     
 activities:
  Investment in short-term instruments                     --      (1,600)
  Acquisition of building and equipment                (1,271)     (9,269)
  Proceeds from the sale of fixed assets                   --         294
  Net proceeds from insurance claims                     (228)        243
                                                       -------    --------
Net cash (used in) investing activities                (1,499)    (10,332)
                                                       -------    --------  
Cash provided by (used in) financing                     
 activities:
  Proceeds received from the sale of                     
   common stock                                            --      46,326
  Proceeds from bank overdraft                             --       1,690
  Repayment of bank overdraft                              --      (1,690)
  Proceeds from sale/leaseback transactions               558       1,717
  Principal payment on Applied Printing Note               --     (14,400)
  Principal payments on notes and                     
   capital lease obligations                           (4,009)     (1,929)
  Increase in bank borrowings                              --       3,300
  Decrease in intercompany borrowings,net              (3,008)    (18,000)
  Net distributions to Applied Printing                  (473)     (5,108)
                                                       -------     -------
Net cash (used in) provided by financing activities    (6,932)     11,906
                                                       -------     -------  
Net increase in cash and cash equivalents                  27         649
Cash and cash equivalents at beginning of period           90         567
                                                       -------    ------- 
Cash and cash equivalents at end of period            $   117    $  1,216
                                                       =======    =======
Supplemental Disclosures of Cash Flow Information:                    
Cash paid for:                                           
  Taxes                                            $       53    $    765
  Interest                                         $    2,287    $    754
Distribution to Applied Printing in the form of                  
  increased intercompany borrowing                 $       --    $  3,817
Conversion of intercompany borrowing to          
 Applied Printing Note payable                     $       --    $ 16,000
 
                               
  The accompanying notes are an integral part of the financial
                           statements

<PAGE>

               APPLIED GRAPHICS TECHNOLOGIES, INC.
              NOTES TO INTERIM FINANCIAL STATEMENTS
      ($ in thousands, except share and per share amounts)
                           (unaudited)

1.  ORGANIZATION AND BASIS OF PRESENTATION:

      Applied Graphics Technologies, Inc. (the "Company")  is  an
independent  provider  of digital prepress services  to  magazine
publishers,  advertising  agencies, entertainment  companies  and
catalog retailers.  In addition, the Company provides outsourced,
on-site  prepress  and  related services for  third  parties  and
advanced digital imaging services, such as digital archiving  and
distribution services.

     The  Company  was incorporated in Delaware on  December  12,
1995.  On that date, Applied Printing Technologies, L.P. and  its
subsidiaries  ("Applied  Printing") were  issued  100  shares  of
Common Stock and became the Company's sole shareholder.

      The  Company  was formed to acquire substantially  all  the
assets  relating  to the prepress, digital imaging  services  and
related  businesses  of specific divisions  of  Applied  Printing
(collectively, the "Predecessor Group") subject to the assumption
by  the Company of certain specified liabilities relating to  the
Predecessor  Group  in  exchange  for  9,309,900  shares  of  the
Company's  Common  Stock and $37,000 of additional  consideration
("Additional  Consideration"), as defined  below.  On  April  16,
1996, Applied Printing transferred, assigned and conveyed to  the
Company substantially all of the assets of the Predecessor Group.

     The Additional Consideration consisted of (i) the assumption
by  the  Company  on April 16, 1996, of the principal  amount  of
collateralized senior indebtedness to Applied Printing's  primary
institutional lender (the "Institutional Senior Indebtedness") of
$21,000,  and  (ii)  the  issuance of a promissory  note  by  the
Company  to  Applied  Printing (the "Applied Printing  Note")  of
$16,000.  As  per the terms of the note, ninety  percent  of  the
principal  of  the Applied Printing Note ($14,400)  plus  accrued
interest  was paid on September 13, 1996. The remaining principal
($1,600)  plus accrued interest is payable February 1, 1997.  The
Applied  Printing  Note is collateralized by a letter  of  credit
obtained by the Company.

      On April 16, 1996, the Company's Registration Statement  on
Form  S-1  under the Securities Act of 1933, as amended, relating
to  the initial public offering (the "Offering") of the Company's
Common  Stock,  was declared effective.  The Offering  closed  on
April  22, 1996. Accordingly, the financial statements of Applied
Graphics Technologies, Inc. in this Quarterly Report on Form 10-Q
reflect  the  combined results of operations of  the  Predecessor
Group through April 16, 1996 (the effective date of the Offering)
and  the  results  of  the Company from April  17,  1996  through
September  30,  1996  and have been accounted  for  in  a  manner
similar to a pooling of interests (See Note 2).

      The  accompanying  combined  financial  statements  of  the
Predecessor  Group through April 16, 1996 have been  prepared  by
combining the assets, liabilities, results of operations and cash
flows  of  the  specific divisions that comprise the  Predecessor
Group.  Historically, these specific divisions have  operated  as
separate  business  units  and maintained  their  own  books  and
records. Through the effective date, Applied Printing managed the
cash   and   financing  requirements  of  all  of  its  divisions
centrally,   as   such,   the  interest  expense,   and   related
intercompany  borrowing,  represent  an  allocation  of   Applied
Printing's interest expense and the related debt. As discussed in
Note  7,  this allocation of debt is presented as an intercompany
borrowing.  Additionally,  Applied  Printing  and  other  related
parties had historically provided certain corporate, general  and
administrative  services  to  the  Predecessor  Group   including
general  management,  treasury, financial  reporting,  and  legal
services.  Accordingly,  the  financial  statements  include   an
allocation of expenses for such services. The combined  financial
position  and  combined results of operations of the  Predecessor
Group may differ from results that may have been achieved had the
Predecessor   Group   operated   as   an   independent    entity.
Additionally,  future expenses incurred as an independent  entity
may not be comparable to the historical levels.

<PAGE>

               APPLIED GRAPHICS TECHNOLOGIES, INC.
              NOTES TO INTERIM FINANCIAL STATEMENTS
       (in thousands, except share and per share amounts)
                           (unaudited)

      Certain reclassifications have been made to the prior  year
financial statements to conform to the current year presentation.
All  transactions  between  divisions included  in  the  combined
financial statements have been eliminated.

      The combined financial statements have been prepared by the
management  of  the  Company in accordance  with  the  accounting
policies disclosed in the Company's combined financial statements
included  in  the Company's Registration Statement  on  Form  S-1
filed  under  the Securities Act of 1933 and should  be  read  in
conjunction  with the Notes to the combined financial  statements
of   the  Company  appearing  therein.  In  the  opinion  of  the
management  of the Company, all adjustments (consisting  only  of
normal  recurring adjustments) necessary for a fair  presentation
have  been  included  in the combined financial  statements.  The
statements are based in part on approximations and have not  been
audited   by   independent  accountants.  The  annual   financial
statements  will  be  audited  by  independent  accountants.  The
results  of  operations for the nine months ended  September  30,
1996,  are  not  necessarily indicative  of  the  results  to  be
expected for the entire fiscal year.

2.  STATEMENT OF OPERATIONS PRESENTATION:

     The  combined  statement of operations of  Applied  Graphics
Technologies, Inc. in this Quarterly Report on Form 10-Q  reflect
the pro forma combined ("Pro Forma") results of operations of the
Predecessor Group through April 16, 1996 (the effective  date  of
the  Offering) and the results of the Company from April 17, 1996
through  September  30, 1996 and have been  accounted  for  in  a
manner similar to a pooling of interests.  The operations for the
three months ended September 30, 1996 represent actual results of
the Company.

Selected  statement of operations data for the nine months  ended
September 30, 1996 are as follows:

                      --------Nine Months Ended September 30, 1996---------
                                
                          January 1-          April 17-    Nine Months Ended
                        April 16, 1996      Sept. 30, 1996   Sept. 30, 1996
                      (Predecessor Group)    (the Company)     (Pro Forma)   
                      --------------------  ----------------  -------------     

Net sales                  $  35,276         $    61,487      $    96,763
Gross profit                   9,372              19,791           29,163
Operating income               1,060               6,539            7,599
Income (loss) before pro                                 
 forma income taxes             (202)              6,660            6,458
Pro forma income taxes            29                 274              303
Pro forma net income (loss)     (231)              6,386            6,155
Pro forma net income                                         
 (loss) per share              (0.02)                 --               --
Net income per share              --                0.46             0.50
Shares used in calculating                                          
 net income per share and                                    
  pro forma net income                     
   (loss) per share        9,752,889          13,810,000       12,225,654 
                                                         

<PAGE>

               APPLIED GRAPHICS TECHNOLOGIES, INC.
              NOTES TO INTERIM FINANCIAL STATEMENTS
      ($ in thousands, except share and per share amounts)
                           (unaudited)

3.  PRO FORMA NET INCOME PER SHARE

      Pro  forma  net  income  per share,  as  reflected  on  the
statement  of  operations  has  been  determined  based  on   the
methodology  outlined below. However, after April 16,  1996,  the
number of shares utilized in determining net income per share  is
based  on the weighted average number of shares outstanding  and,
accordingly,  exclude  the  number  of  common  shares  that  the
Predecessor Group would have needed to issue in order to fund the
distribution referred to below.

      Pro  forma net income per share is computed using pro forma
net income and is based on the weighted average of (a) the number
of  shares of common stock issued in the formation of the Company
(9,310,000, which is inclusive of 100 shares issued in connection
with the initial incorporation); (b) the number of common shares,
at  that balance sheet date, (464,833 for the three months  ended
March  31, 1996 and 318,083 for the 16 days ended April 16, 1996)
that  the  Predecessor Group would have needed to  issue  at  the
initial   offering  price  ($12.00  per  share)   to   fund   the
distribution  of  $5,578 and $3,817, for the three  months  ended
March   31,   1996  and  the  16  days  ended  April  16,   1996,
respectively, which represent the incremental difference  between
the  debt  assumed  and  the Applied Printing  Note  (aggregating
$37,000)  and  the  intercompany borrowing  amount  ($31,422  and
$33,183  as  of March 31, 1996 and April 16, 1996, respectively),
as  discussed in Note 7 of the financial statements; and (c)  the
4,500,000  shares issued in connection with the  public  offering
for the period April 17, 1996 through September 30, 1996.

     Stock options issued but not exercised have not been used in
the  computation of primary earnings per share because they  have
no material dilutive effect.

4.  INITIAL PUBLIC OFFERING:

The  Company  received  net  offering proceeds  of  approximately
$46,188 from the Offering. Of these proceeds, $21,000 was used to
repay the Institutional Senior Indebtedness to Applied Printing's
primary  institutional  lender which  had  been  assumed  by  the
Company in connection with its formation. In addition, $16,000 of
these  proceeds  was  invested  in  short  term  interest-bearing
investments which collateralize a standby letter of credit which,
in  turn,  collateralizes payment of the Applied  Printing  Note.
The  Company  repaid  $14,400 of the  Applied  Printing  Note  on
September 13, 1996 (see Note 1).  The remaining proceeds  of  the
offering are being used for working capital, capital expenditures
and other general corporate purposes.

5. INCOME TAXES:

     The accompanying statement of operations for the nine months
ended  September 30, 1996 presents a pro forma income tax expense
on  an unaudited pro forma basis as if the Predecessor Group  had
been  a  C  Corporation, subject to applicable federal and  state
income taxes through April 16, 1996 and actual income tax expense
relating  to the Company's results of operations from  April  17,
1996 through September 30, 1996.

      In  determining income tax expense and pro forma income tax
expense,  the  Company has included the tax effect  of  temporary
differences  which will reverse in the future.  For  purposes  of
the  income  tax  calculations, deferred tax benefits  have  been
recognized to the extent of current taxes payable.  The remaining
tax  benefits  have been offset by a valuation  allowance  since,
based on the Predecessor Group's history of losses, it is assumed
more  likely  than not that such benefits may not be  realizable.
Such assumption will be evaluated in the future by the Company.

      Income tax expense and pro forma income tax expense for the
quarter  and  nine months ended September 30, 1996, respectively,
are  lower than that which is customary due primarily to the  tax
effect  of  restructuring charges recognized by  the  Predecessor
Group in prior years, which are deductible by the Company in 1996
and a release of a portion of the valuation allowance established
at  the  time the Company was formed.  The reduction is partially
offset by the tax effect of certain items that are not deductible
for income tax purposes.

<PAGE>

               APPLIED GRAPHICS TECHNOLOGIES, INC.
              NOTES TO INTERIM FINANCIAL STATEMENTS
      ($ in thousands, except share and per share amounts)
                           (unaudited)


6.   INVENTORY:

The components of inventory are as follows:

                            
                            December 31, 1995      September 30, 1996
                            -----------------      ------------------

        Work-in-Process       $    2,518             $    2,620
                                         
        Raw Materials              1,064                    818
                                --------               --------             
                              $    3,582             $    3,438
                                ========               ========                
       
7.  INTERCOMPANY BORROWINGS:

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

      The  accompanying  combined financial statements,  as  they
relate to the Predecessor Group, include an allocation of Applied
Printing's  interest  expense  and  related  Borrowings.  Applied
Printing's  interest expense related to the Borrowings  had  been
allocated  to  the Predecessor Group based on the  ratio  of  net
assets  of  the  Predecessor  Group,  before  an  allocation   of
intercompany  debt,  to  the sum of the  total  consolidated  net
assets of Applied Printing plus the Applied Printing debt that is
not  directly  attributable to specific divisions within  Applied
Printing.  The  intercompany borrowing amounts reflected  in  the
accompanying combined financial statements, as they relate to the
Predecessor  Group,  represent derived amounts  which  have  been
computed by applying Applied Printing's weighted average interest
rate  to  the  allocated interest expense, calculated  using  the
methodology discussed above. Intercompany borrowings are  $30,181
and   $0  as  of  December  31,  1995  and  September  30,  1996,
respectively.

     The  interest expense allocated to the Predecessor Group  is
as follows:

                          Three Months Ended           Nine Months Ended
                             September 30,              September 30,
                          ------------------           -----------------
                            1995      1996               1995       1996
                          -------   --------           ------     ------      
  Interest expense        $  515     $  --            $ 1,754    $   944
                            =====     =====             =====      =====       
  Weighted average                                       
   annual interest rate     10.0%       --               10.0%      10.8%
                            =====     =====             ======     ======      

<PAGE>     

               APPLIED GRAPHICS TECHNOLOGIES, INC.
              NOTES TO INTERIM FINANCIAL STATEMENTS
             ($ in thousands, except share amounts)
                           (unaudited)


8.  REVOLVING BANK LINE:

     On August 22, 1996, the Company obtained a $10,000 revolving
two year credit facility collateralized by the Company's accounts
receivable.   The interest rate on funds borrowed  is  the  prime
lending  rate, however, at its option, the Company may borrow  at
LIBOR  plus 2.25%.  LIBOR borrowings may have maturities  of  30,
90,  or  180 days.  The credit facility requires compliance  with
certain  financial loan covenants related to tangible net  worth,
ratio  of  debt  to tangible net worth and debt service  coverage
ratio.  At September 30, 1996, the Company was in compliance with
all financial covenants.
     
     At  September  30, 1996, no borrowings were made  under  the
LIBOR  provision.  At September 30, 1996, the unused  portion  of
the revolver was $6,700.
9.   RELATED PARTY TRANSACTIONS:

     The following is a summary of transactions between the
Company and related parties:


                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                 ------------------     -----------------
                                  1995        1996       1995       1996
                                 ------------------     -----------------       

Sales to related parties          $ 2,085   $ 2,921    $ 5,623   $  8,172
                                   ======    ======     ======     ======  
                                                       
Purchases from related parties    $    48   $   774    $   371   $  2,197
                                   ======    ======     ======     ======
                                                       
Corporate allocations             $ 1,608   $    --    $ 4,718   $     --   
                                   ======    ======     ======     ====== 
        
Rent                              $    49   $   106    $   147   $    416
                                   ======    ======     ======     ======     

10.  COMMITMENTS AND CONTINGENT LIABILITIES:

      The  Company  is  subject to certain legal proceedings  and
claims   arising   in  connection  with  its  business.   It   is
management's  opinion  that  the  ultimate  resolution   of   the
aforementioned  claims  will not have a material  effect  on  the
Company's  financial position, annual results  of  operations  or
cash flows.

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW.

      On  April  16,  1996, Applied Printing  Technologies,  L.P.
("Applied  Printing")  transferred,  assigned  and  conveyed   to
Applied Graphics Technologies, Inc. (the "Company") substantially
all  of  the  assets  relating to the prepress,  digital  imaging
services  and  related  businesses (the "Predecessor  Group")  of
Applied   Printing.   Also  on  April  16,  1996,  the  Company's
registration  statement on Form S-1 under the Securities  Act  of
1933,  as  amended, relating to the initial public offering  (the
"Offering")   of  the  Company's  common  stock,   was   declared
effective.   The Offering closed on April 22, 1996.  Accordingly,
the  financial statements of Applied Graphics Technologies,  Inc.
in  this  Quarterly  Report  on Form 10-Q  reflect  the  combined
results of operations of the Predecessor Group through April  16,
1996 (the effective date of the Offering) and the results of  the
Company  from April 17, 1996 through September 30, 1996 and  have
been accounted for in a manner similar to a pooling of interests.

      Prior  to the Offering, various expenses, such as  interest
expense  on Applied Printing's debt not directly attributable  to
specific divisions within Applied Printing and corporate expenses
relating  to  services  provided  by  Applied  Printing  to   the
Predecessor   Group,   such  as  general  management,   treasury,
financial reporting and legal services, were allocated among  the
Predecessor  Group  and the other divisions of Applied  Printing.
Corporate allocations were based upon specific identification  of
expenses   attributable   to   the   Predecessor   Group,   where
practicable, and otherwise on a reasonable method for  allocating
such  costs,  such  as  on  a  percentage  of  sales  basis.  The
Predecessor  Group's  interest expense consists  of  interest  on
equipment  notes  and  leases of the  Predecessor  Group  and  an
allocation  of Applied Printing's interest expense based  on  the
ratio  of net assets of the Predecessor Group to the sum  of  the
total  consolidated  net  assets of  Applied  Printing  plus  the
Applied  Printing  debt  that was not  directly  attributable  to
specific  divisions within Applied Printing. Management  believes
the  most  appropriate  methodology for allocating  the  interest
expenses,  and  related  debt, required  to  finance  Predecessor
Group's  business is this net asset methodology. Applied Printing
managed  the cash and financing requirements of all its divisions
centrally  and  accordingly, associating cash flow with  specific
divisions  is  not  practicable. Prior to  April  17,  1996,  the
interest  expense, and related intercompany borrowings, represent
an  allocation  of Applied Printing's interest  expense  and  the
related  debt. The resulting intercompany borrowings are believed
to  have been representative of the external funding required for
the  Predecessor  Group  to finance acquisitions,  investment  in
technology  and all other capital expenditures and the operations
of its business.

      During the fourth quarter of 1994 and the third quarter  of
1995,  the  Predecessor  Group reorganized  its  operations.  The
reorganizations  were  the result of the  operational  impact  of
acquisitions   made   during  the  previous   three   years   and
technological   changes  within  the  industry.   These   efforts
resulted  in the geographical consolidation of several operations
during   1994   and   1995  designed  to  gain  operational   and
administrative efficiencies.

      As  a  partnership,  Applied Printing was  not  subject  to
federal  and  certain  state income  taxes.  The  Company,  as  a
corporation,  is required to pay federal, state and local  income
taxes at the applicable rates. Because the Predecessor Group  was
part  of Applied Printing, which is a partnership for income  tax
reporting purposes, income tax expense for the nine month  period
ended  September 30, 1996, has been calculated  on  a  pro  forma
basis as if the Company was a separate taxable C Corporation  for
the period prior to the Offering.  An actual provision for income
taxes  was  made for the period April 17, 1996 through  September
30, 1996.

<PAGE>

RESULTS OF OPERATIONS

      During  the  third  quarter and  nine  month  period  ended
September  30, 1996, the Company continued its efforts to  expand
the number of on-site arrangements with customers and to increase
sales  of  digital  imaging services. These efforts  resulted  in
three   additional  on-site  services  arrangements  to   provide
prepress  services that began the third quarter of 1996, bringing
the  total  of on-site prepress service arrangements to fourteen,
as of September 30 1996.

      For  the  quarter ended September 30, 1996, net sales  were
$35.2  million  compared  to  $29.6 million  in  the  prior  year
quarter, an increase of approximately $5.6 million or 18.9%.  The
1996  quarterly increase was primarily due to increased sales  at
the  Company's  digital  division,  the  effect  of  new  on-site
facilities  management contracts, new ad management sales  and  a
reduction in sales allowances.  Such items were partially  offset
by a decline in the Company's business with advertising agencies.



      For  the nine months ended September 30, 1996, the  Company
had  net sales of $96.8 million compared to $89.5 million in  the
same period in 1995, an increase of approximately $7.3 million or
8.1%.  The 1996 increase was primarily due to increased sales  at
the  Company's  digital division, the effect of the  new  on-site
facilities  management  contracts,  and  the  Company's  new   Ad
Management  Division sales and a reduction in  sales  allowances.
These  increases were partially offset by the net decline in  the
Company's business with advertising agencies.

     Gross profit as a percentage of sales increased in the third
quarter  of 1996 to 32.8% from 27.1% compared to the same  period
in  1995.   This improvement of 5.7% as a percent  of  sales,  is
primarily  the  result of the increase in sales of higher  margin
digital  imaging services, the introduction of additional on-site
facilities  management  contracts  and  ad  management  services,
continued implementation of improved manufacturing processes  and
benefits of operating efficiencies related to the reorganizations
in 1994 and 1995.

     Gross profit as a percentage of sales increased for the nine
months  ended September 30, 1996 to 30.1% from 26.7% compared  to
the  same period in 1995, an improvement of 3.4% as a percent  of
sales.   The improvement in gross profit is primarily the  result
of  the  increase  in  digital imaging  services,  the  continued
introduction   of   additional  on-site   facilities   management
contracts  and  ad  management  services  which  generate  higher
margins   than  the  Company's  historical  business,   continued
implementation of improved manufacturing processes  and  benefits
of  operating efficiencies related to the reorganization  efforts
mentioned above.

      Selling  expenses  in the third quarter of  1996  represent
11.5%  of net sales, a reduction of 2.0%, as a percent of  sales,
over   the   corresponding  period  of  1995.  The  decrease   is
attributable to a reduction in sales support salaries and  fringe
benefits associated with the reorganization in 1995 coupled  with
the  increase  in  on-site  facilities management  contracts  and
digital business which require fewer sales support people.

      Selling  expenses for the nine month period ended September
30,  1996 decreased to 12.2% as a percent of net sales from 13.6%
of  net sales for the corresponding period in 1995, a decrease of
1.4%.   The  decrease is primarily attributable  to  lower  sales
support   costs  resulting  from  the  reorganization  in   1995,
decreased  sales  support  required for  the  on-site  facilities
management contracts and digital imaging sales, partially  offset
by  an  increase  in commission expense relating to  certain  new
sales.

      General  and administrative expenses for the quarter  ended
September 30, 1996 decreased approximately $1.1 million from  the
corresponding period in 1995. This represents a decrease of 5.4%,
as  a  percent of sales. The primary reasons for the decrease  as
compared  to  the  1995  quarter were a non-recurring  sales  tax
accrual of $525,000 recorded in the 1995 quarter, the reversal of
a  portion  of the accrual ($450,000) as a result of a  favorable
ruling  thereon  in the 1996 quarter, non-recurring  expenses  in
1995  related to facilities closed by the third quarter of  1995,
higher expense for bad debts in 1995, and reductions in occupancy
and   depreciation  resulting  from  the  reorganization  efforts
mentioned   above.   Decreases  in  general  and   administrative
expenses were partially offset by additional payroll incurred  to
support  the  new  on-site  facilities management  contracts  and
expanded operations at existing locations.

<PAGE>

      General  and  administrative expenses for the  nine  months
ended  September 30, 1996, decreased approximately  $2.8  million
from the corresponding period in 1995. This represents a decrease
of 3.9% as a percent of sales.  This decrease is primarily due to
the  items which caused the third quarter decrease plus an amount
related to the non-recurring sales tax accrual recognized in  the
nine  months ended 1995, which was partially reversed  ($450,000)
as  a result of a favorable ruling thereon in 1996.  Decreases in
general  and  administrative expenses were  partially  offset  by
relocation charges incurred in connection with completion of  the
consolidation  of one of the Company's New York  City  facilities
into  other  New York metropolitan area facilities and additional
payroll  to  support new on-site facilities management  contracts
and expanded operations at existing locations.

      The corporate allocations noted in the overview section for
the  periods through April 16, 1996 and actual corporate expenses
for  the  period April 17, 1996 through September 30,  1996  have
been   included   in  the  general  and  administrative   expense
classification.  Subsequent to April 17, 1996, corporate expenses
are actual expenses, not allocations.

      During  the  quarter  ended  September  30,  1995,  charges
relating to fixed asset write-offs and non-operating expenses  of
$  1.1 million were partially offset by an insurance recovery  of
$311,000,  resulting  in a net charge of $0.8  million  to  other
income  (expense).  The major component of other income (expense)
for  the  three months ended September 30, 1996, as  compared  to
1995,   was  interest  earned  on  investments  of  approximately
$227,000.

      The Company recorded an insurance recovery of approximately
$1.6 million as the result of fire and water damage to one of its
New  York  facilities during the nine months ended September  30,
1995.  This  recovery was partially offset by other non-operating
expenses resulting in other income, net being approximately  $0.4
million  for the nine months ended September 30, 1995.  Exclusive
of the recovery relating to the fire damage, the only significant
change  in  other  income and expense in the  nine  months  ended
September  30, 1996, as compared to 1995 was interest  earned  on
investments of approximately $458,000 in 1996.

LIQUIDITY AND CAPITAL RESOURCES.

      Upon the closing of the Offering, the Company received  net
offering  proceeds  of  approximately  $46.2  million.  Of  these
proceeds,  $21.0  million  was  used  to  repay  secured   senior
indebtedness   (the  "Institutional  Senior   Indebtedness")   to
Applied  Printing's primary institutional lender which  had  been
assumed  by  the  Company in connection with  its  formation.  In
addition,  $16.0  million  of  these  proceeds  was  invested  in
short-term  interest-bearing investments  which  collateralize  a
standby  letter of credit which, in turn, collateralizes  payment
of  a $16.0 million promissory note (the "Applied Printing Note")
payable  to  Applied  Printing.  The Applied  Printing  Note  was
executed  in  connection with the formation of the  Company.   In
accordance  with  such note, ninety percent of this  note  ($14.4
million)  was paid on September 13, 1996.  The remaining proceeds
will  be used for working capital, capital expenditures and other
general corporate purposes.

      For  1996,  the Company's capital expenditure  plan  totals
approximately  $6.5  million (exclusive of  capital  expenditures
with  respect  to  new on-site facilities management  contracts),
essentially  all  of  which  is for new manufacturing  equipment.
Approximately  $1.7 million of these expenditures  were  financed
under  a  sale  leaseback arrangement.  The  Company  intends  to
finance a substantial portion of the remaining expenditures under
operating  leases or sale and leaseback arrangements.  On  August
22,  1996,  the  Company acquired for $3.5  million  in  cash,  a
building  to  be  used  to  relocate its  Los  Angeles  facility.
Ultimately,  the Company plans to obtain long term  financing  or
enter  into  a  sale and lease back arrangement  to  finance  the
acquisition of the building.  Approximately $2.1 million and $5.7
million  was  spent  on capital expenditures  (exclusive  of  the
building)  in  the third quarter and nine months ended  September
30, 1996, respectively.

<PAGE>

     Prior to the Offering, the Company has historically financed
its  operations and capital expenditures with cash  generated  by
operations  and  through  intercompany  borrowings  from  Applied
Printing.   On  April  22,  1996,  the  Company  paid   off   all
intercompany  borrowings  except for the  Applied  Printing  Note
mentioned above.  Since April 22, 1996, the Company has  financed
its  operations and capital expenditures with cash generated from
operations, with proceeds of the Offering, operating  leases  and
the revolving bank line.

     In  addition  to the proposed financing of the  Los  Angeles
building  mentioned above, during the third quarter of 1996,  the
Company entered into a $10.0 million working capital facility and
a $2.5 million equipment leasing facility.
     
     The  Company  has  unused equipment  leasing  facilities  of
approximately $6.5 million available to it from various financing
sources.  Such facilities are cancelable at the financing sources
option,  and  funding thereof is contingent  upon  the  financing
sources approval of the equipment to be financed.  The Company is
currently  negotiating  additional equipment  leasing  facilities
with  various financing sources.  As of this filing, the  Company
has not obtained any commitment from any financing source for the
additional  equipment  leasing  facilities,  nor  is  there   any
assurance that any such financing will be consummated.
     
      The  Company  believes  that  the  net  proceeds  from  the
Offering, cash flow from operations, its line of credit  and  its
potential  ability to obtain funding from financing sources  will
be sufficient to fund its cash needs for the foreseeable future.



<PAGE>

PART II. - OTHER INFORMATION
Items 1, 2, 3,4 and 5 are not applicable and have been omitted.

Item 6.

     (a)  Exhibits.

     27 Financial Data Schedule

     (b)  Reports on Form 8-K:

            16 Letter re Change of Certifying Accountant 
             dated October 4, 1996

SIGNATURES

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


APPLIED GRAPHICS TECHNOLOGIES, INC.
(Registrant)


By: /s/ Melvin A. Ettinger
_____________________________      November 13, 1996
           Melvin A. Ettinger
Vice Chairman, Chief Operating Officer and Director
      (Duly authorized officer)


/s/ Louis Salamone, Jr.
_____________________________      November 13, 1996
         Louis Salamone, Jr.
Senior Vice President and Chief Financial Officer
     (Principal Financial Officer)
                                
<PAGE>