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 June 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
July 21, 1997, was 14,355,683.


<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

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

                                                         June 30,   December 31,
                                                           1997        1996
                                                         ---------  ------------
ASSETS
Current assets:
Cash and cash equivalents ..........................       $ 2,039     $ 2,567
Marketable securities at cost ......................                     1,600
Trade accounts receivable (net of
   allowances of $526 in 1997 and $472 in 1996) ....        34,824      29,584
Due from affiliates ................................         3,837
Inventory ..........................................         6,194       4,639
Deferred income taxes ..............................           811         705
Prepaid expenses and other current assets ..........         4,077       2,485
                                                           -------     -------
          Total current assets .....................        51,782      41,580

Property, plant, and equipment - net ...............        20,274      20,544
Goodwill ...........................................        10,364       7,121
Deferred income taxes ..............................         2,023       1,644
Other assets .......................................         1,712       1,258
                                                           -------     -------

          Total assets .............................       $86,155     $72,147
                                                           =======     =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ..............       $19,328     $19,630
Applied Printing Note ..............................                     1,600
Current portion of long-term debt ..................           435         507
Current portion of obligations under
   capital leases ..................................         1,018       1,354
Due to affiliates ..................................           893         354
Other current liabilities ..........................         2,123       2,407
                                                           -------     -------
          Total current liabilities ................        23,797      25,852

Long-term debt .....................................        16,482       6,005
Obligations under capital leases ...................           921       1,265
Other liabilities ..................................         2,741       3,142
                                                           -------     -------
          Total liabilities ........................        43,941      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:  14,355,683 in 1997 and 14,349,683
   in 1996)  .......................................           144         143
Additional paid-in capital .........................        26,033      25,584
Retained earnings ..................................        16,037      10,156
                                                           -------     -------
   Total stockholders' equity ......................        42,214      35,883
                                                           -------     -------

   Total liabilities and stockholders' equity ......       $86,155     $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 Six Months Ended          For the Three Months Ended
                                                                                June 30,                           June 30,
                                                                        -------------------------         -------------------------
                                                                          1997             1996             1997             1996
                                                                        --------         --------         --------         --------
<S>                                                                     <C>              <C>              <C>              <C>
Revenues .......................................................        $ 81,072         $ 61,586         $ 41,311         $ 30,988
Cost of revenues ...............................................          52,871           43,965           26,050           21,636
                                                                        --------         --------         --------         --------

Gross profit ...................................................          28,201           17,621           15,261            9,352
Selling, general, and
    administrative expenses ....................................          18,123           14,311            9,521            7,255
                                                                        --------         --------         --------         --------

Operating income ...............................................          10,078            3,310            5,740            2,097
Interest expense ...............................................            (508)          (1,343)            (298)            (439)
Other income (expense) - net ...................................              71              275              (60)             438
                                                                        --------         --------         --------         --------

Income before provision for
    income taxes ...............................................           9,641            2,242            5,382            2,096

Provision for income taxes .....................................           3,760               63            2,099               63
                                                                        --------         --------         --------         --------

Net income .....................................................        $  5,881         $  2,179         $  3,283         $  2,033
                                                                        ========         ========         ========         ========

Earnings per common share (pro forma in 1996):
     Primary ...................................................        $   0.39         $   0.19         $   0.21         $   0.16
     Fully Diluted .............................................        $   0.38         $   0.19         $   0.21         $   0.16

Weighted average number of
    common shares (pro forma
    in 1996):
    Primary ....................................................          15,244           11,425           15,305           13,075
    Fully Diluted ..............................................          15,374           11,425           15,375           13,075
</TABLE>
















                    See Notes to Interim Financial Statements
<PAGE>
                       APPLIED GRAPHICS TECHNOLOGIES, INC.
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                            (In thousands of dollars)

                                                        For the Six Months Ended
                                                                June 30,
                                                         ----------------------
                                                         ----------  ----------
                                                            1997        1996
                                                         ----------  ----------
Cash flows from operating activities:
Net income ...........................................   $  5,881    $  2,179
Adjustments to reconcile net income to net cash from
   operating activities:
      Depreciation and amortization ..................      2,962       2,690
      Deferred taxes .................................       (437)
      Other ..........................................         (6)        124
Management  of Changes in Operating  Assets and
   Liabilities,  net of effects of acquisitions:
      Trade accounts receivable ......................     (5,234)     (2,538)
      Due from/to affiliates .........................     (3,298)        180
      Inventory ......................................     (1,441)        235
      Other assets ...................................     (2,068)      1,134
      Accounts payable and accrued expenses ..........     (1,999)     (2,108)
      Other liabilities ..............................       (830)       (970)
                                                         --------    --------
Net cash provided by (used in) operating activities ..     (6,470)        926
                                                         --------    --------

Cash flows from investing activities:
      Proceeds from the sale of marketable securities       1,600
      Investment in marketable securities ............                (16,244)
      Property, plant, and equipment expenditures ....     (3,902)     (3,591)
      Entities purchased, net of cash acquired .......     (1,179)
      Other investing activities .....................         12         537
                                                         --------    --------
Net cash used in investing activities ................     (3,469)    (19,298)
                                                         --------    --------

Cash flows from financing activities:
      Proceeds from sale of common stock .............                 46,659
      Borrowings under revolving credit line .........      9,877
      Proceeds from sale/leaseback transactions ......      2,140
      Repayment of Applied Printing Note .............     (1,600)
      Repayment of notes and capital lease obligations     (1,078)     (1,355)
      Proceeds from exercise of stock options ........         72
      Repayment of intercompany borrowings - net .....                (18,000)
      Net distributions to Applied Printing ..........                 (4,653)
                                                         --------    --------
Net cash provided by financing activities ............      9,411      22,651
                                                         --------    --------

Net increase (decrease) in cash and cash equivalents .       (528)      4,279
Cash and cash equivalents at beginning of period .....      2,567         666
                                                         --------    --------

Cash and cash equivalents at end of period ...........   $  2,039    $  4,945
                                                         ========    ========








                    See Notes to Interim Financial Statements
<PAGE>
                       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. 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  "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  "Offering") of the Company's Common Stock, was
declared  effective.  Upon the 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
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  Offering  Date and the  results  of the  Company  thereafter.  The
statements  of  operations  and the  statement  of cash flows  covering  periods
through  the  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  Offering  Date,  these  divisions  operated as separate
business units and maintained their own books and records.  Through the 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 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  Offering  Date  include  an  allocation  of
expenses for such  services.  The results of  operations  and cash flows for the
periods ended June 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 Northern California. In June 1997,
the Company  acquired  certain  assets of Digital  Imagination,  Inc., a digital
events  photography  business.  Also in June 1997, the Company  acquired certain
rights from a former joint venture partner, including the right to terminate the
original  arrangement and relocate  certain print  operations to its Los Angeles
facility.  For such acquisitions,  the Company paid an aggregate of $1.2 million
from  amounts  borrowed  under  its line of  credit,  assumed  $2.7  million  of
liabilities,  and granted rights to a minimum of 19,000 warrants to purchase its
Common Stock with an approximate value of $0.3 million.  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 $3.2 million and has been  recorded as goodwill.
The effects on revenues,  income before  provision for income taxes, net income,
and earnings per share from these  acquisitions,  either  individually or in the
aggregate, are not material.

    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.

3.  INVENTORY

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

                             June 30,   December 31,
                              1997         1996
                             ------       ------
          Work-in-process    $3,688       $2,596
          Raw materials ..    2,506        2,043
                             ------       ------

          Total ..........   $6,194       $4,639
                             ======       ======

4.  INCOME TAXES

     The Prepress  Business was treated as a  partnership  for Federal and state
income  tax  purposes  prior to the  Offering  Date and was not  subject to tax.
Concurrently with the acquisition,  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 Offering  Date.  Had the Company been subject to income taxes
prior to the Offering  Date,  the provision for income  taxes,  net income,  and
earnings  per share for the six  months  ended  June 30,  1996,  would have been
$92,000, $2,150,000, and $0.19, respectively. There would have been no change to
the  provision  for income taxes for the three  months ended June 30, 1996.  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.

5.  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 1996 periods,  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
Offering Date.








6.  RELATED PARTY TRANSACTIONS

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


                         Six months ended    Three months ended
                             June 30,              June 30,
                         ---------------     ------------------
                          1997     1996         1997     1996
                         ------   ------       ------   ------

Affiliate sales ......   $6,326   $5,502       $2,679   $2,482
Affiliate purchases ..   $2,306   $1,410       $1,144   $  919
Administrative charges   $  532   $1,849       $  267   $  547




    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 six and three months ended
June 30, 1996,  also include $1.5  million and $0.3  million,  respectively,  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.


7.   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

     Payments of  interest  and income  taxes for the six months  ended June 30,
1997 and 1996, were as follows:

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

Interest paid .......   $  496     $  444
Income taxes paid....   $4,044

     Noncash  investing and financing  activities  for the six months ended June
30, 1997 and 1996, were as follows:

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

Notes payable issued in connection with an acquisition   $    488
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 ........................   $  4,253
Cash paid ............................................     (1,185)
Value of stock warrants issued .......................       (330)
                                                         --------

Liabilities assumed ..................................   $  2,738
                                                         ========



<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; or obtaining additional credit or financing sources.

    On April 16, 1996 (the "Offering  Date"),  the Company commenced the initial
public  offering  (the  "Offering")  of its Common  Stock.  Concurrent  with the
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. (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 Offering Date and the results of the Company thereafter.

Results of Operations
Six months ended June 30, 1997, compared with 1996

    Revenues in the first six months of 1997 were $19.5  million or 31.6% higher
than in the comparable  period in 1996.  This increase was primarily due to $7.1
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,  $3.3  million of revenues  from the
SpotLink  division whose dub and ship operations were acquired in December 1996,
increased revenues of $1.6 million in the digital imaging services division from
equipment  sales and  archiving  services,  $6.8 million of  additional  revenue
generated in certain divisions of the traditional  prepress business,  primarily
from  increased  business at the  Carlstadt,  NJ,  facility  and a New York City
facility,  and receipt of a nonrefundable  payment of $2.0 million related to an
agreement with one of the Company's  major  suppliers.  These revenue  increases
were  slightly  offset by a  decrease  in  revenues  of $1.3  million at the Los
Angeles and Burbank  facilities  as a result of combining  these  operations  as
discussed below.

    In March 1997, the Company  signed a contract to be the primary  provider of
digital prepress  production  services and distribution and storage of radio and
television commercials for General Motors. Under this long-term contract,  which
initially  runs through August 2000 and is renewable for an additional two years
at General Motors' option, the Company will consolidate all activities  relating
to the use of General Motors' visual content,  including photographic images and
audio and video commercials.  The Company expects to begin providing significant
services under this contract in the second half of 1997.

    The gross  profit  percentage  in the first six  months of 1997 was 34.8% as
compared to 28.6% in the 1996 period.  Gross profit  increased  $10.6 million or
60.0% in the first six months of 1997 as a result of the additional revenues for
the  period  as  discussed  above and from  reduced  costs  resulting  from more
favorable pricing negotiated with certain suppliers. This increase was partially
offset by the lower  gross  profit at the Los  Angeles  and  Burbank  facilities
resulting  from  decreased  traditional  prepress  business  along with expenses
incurred and inefficiencies  encountered during the transition period to combine
the Burbank  facility into the Los Angeles  facility.  The Company  expects that
combining these two facilities will provide greater  capacity and more efficient
operating results in the future.

    Selling,  general,  and  administrative  expenses in the first six months of
1997 were $3.8  million  higher  than in the first six months of 1996,  but as a
percent of revenue  decreased to 22.4% in the 1997 period from 23.2% in the 1996
period.  This improvement is primarily due to 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 partially offset by additional  corporate  expenses  incurred
related to being a publicly-traded company and from expanded business at certain
operations  as well as expenses  incurred to combine the  operations  of the Los
Angeles and Burbank facilities.

    Interest  expense in the first six 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 Offering.

    The  Prepress  Business was treated as a  partnership  for Federal and state
income  tax  purposes  prior to the  Offering  Date and was not  subject to tax.
Concurrently with the acquisition,  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 Statements of Operations only for the periods
subsequent  to the Offering  Date.  Had the Company been subject to income taxes
prior to the Offering Date, there would have been no change to the provision for
income taxes for the three months ended June 30, 1996.  The provision for income
taxes,  net income,  and  earnings  per share for the six months  ended June 30,
1996,  would  have  been  $92,000,  $2,150,000,  and  $0.19,  respectively.  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 June 30, 1997, compared with 1996

    Revenues in the second  quarter of 1997 were $10.3  million or 33.3%  higher
than in the comparable  period in 1996.  This increase was primarily due to $4.3
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,  $1.7 million of revenues
from the  SpotLink  division  whose dub and ship  operations  were  acquired  in
December  1996,  increased  revenues  of $1.0  million  in the  digital  imaging
services  division  from  archiving  services,  and $3.3  million of  additional
revenue  generated in certain  divisions of the traditional  prepress  business,
primarily from increased business at the Carlstadt,  NJ, facility and a New York
City facility and from  additional  revenues at the San  Francisco  metropolitan
area facility resulting from a nonmaterial acquisition.

    The gross  profit  percentage  in the  second  quarter  of 1997 was 36.9% as
compared to 30.2% in the 1996  period.  Gross profit  increased  $5.9 million or
63.2% in the second quarter of 1997 as a result of the  additional  revenues for
the  period  as  discussed  above and from  reduced  costs  resulting  from more
favorable pricing negotiated with certain suppliers.

    Selling,  general, and administrative expenses in the second quarter of 1997
were $2.3 million higher than in the second quarter of 1996, but as a percent of
revenue  decreased  slightly  to 23.0% in the 1997 period from 23.4% in the 1996
period.  This improvement is primarily due to 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 partially offset by additional  corporate  expenses  incurred
related to being a publicly-traded company 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.



Financial Condition

    During the first six months of 1997,  the Company  repaid the remaining $1.6
million  of the  Applied  Printing  Note  with  the  proceeds  from  the sale of
marketable  securities.  In March 1997 and June 1997,  the Company  entered into
sale and leaseback arrangements that generated proceeds of $1.0 million and $1.1
million, respectively.  Such arrangements resulted in immaterial gains that have
been  deferred and are being  recognized  in income as a credit  against  future
rental  expense.  In May 1997,  the  Company  renegotiated  the terms  under its
revolving  line  of  credit.  The  revised  line  of  credit  is a  $25  million
variable-rate facility with a term that runs through May 2000. Under the revised
facility,  interest on funds  borrowed is either  prime less 0.75% or LIBOR plus
1.50%.  As of June 30,  1997,  $15.5  million were  borrowed  under this line of
credit.

    In July 1997, the Company filed a  Registration  Statement on Form S-3 under
the Securities Act of 1933 relating to an offering of 5,000,000 shares of Common
Stock, of which 3,000,000 are to be offered by the Company.

     Cash flows from  operating  activities  during the first six months of 1997
decreased  by $7.4  million as  compared  to the  comparable  period in 1996 due
primarily to increased accounts  receivable  resulting from additional  business
and  increased  inventory  levels  associated  with  timing  of  purchases  from
suppliers.  In addition to funding such working capital needs,  during the first
six months of 1997 the Company  invested  $3.9 million in  equipment,  paid $1.2
million related to nonmaterial acquisitions, and repaid $0.7 million of debt and
lease obligations with the proceeds from two sale and leaseback transactions and
additional borrowings under its line of credit.

    Working capital  increased $12.3 million during the first six months of 1997
primarily from increased  receivables,  including  amounts due from  affiliates,
resulting  from  additional  business at existing  facilities  and from acquired
operations,  including SpotLink and other nonmaterial acquisitions. The increase
in working capital was also partially attributable to an increase in amounts for
rebates due from  suppliers.  Goodwill  increased  $3.2 million due primarily to
several nonmaterial  acquisitions during the first six months of 1997. Long-term
debt increased  $10.5 million due primarily to additional  borrowings  under the
Company's revised line of credit.

    At June 30, 1997, capital  commitments,  which the Company expects to expend
over the course of the next eighteen  months,  amounted to  approximately  $14.8
million,  essentially all of which is for modernization and growth, including an
$8.8 million  capital  investment the Company expects to make in connection with
the  General  Motors  contract.  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 sale of
additional shares of Common Stock.

    The Company believes that the cash flow from  operations,  proceeds from the
sale of additional  shares of Common Stock, 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.



<PAGE>



                          PART II. - OTHER INFORMATION

Item 2.   Changes in Securities

          In June  1997,  the  Registrant  acquired  certain  assets of  Digital
          Imagination,  Inc., a digital  events  photography  company  ("Digital
          Imagination").  As part of the consideration for the transaction,  the
          Registrant  issued  warrants to purchase 10,000 shares of Common Stock
          (the "Warrants") to a former stockholder of Digital  Imagination.  The
          warrants are exercisable beginning June 6, 1999, for a period of three
          years at an exercise price of $39.25 per share.  The sale and issuance
          of such  securities by the  Registrant  were effected in reliance upon
          the  exemption  from  registration  provided  by  Section  4(2) of the
          Securities Act.

Item 4.   Submission of Matters to a Vote of Security Holders.

          The annual meeting of stockholders of Applied  Graphics  Technologies,
          Inc.,  was held on May 19, 1997.  The  stockholders  elected the eight
          directors  set forth  below for a one-year  term to expire at the 1998
          annual meeting of stockholders  and until their successors are elected
          and  qualified  or until their  earlier  resignation  or removal.  The
          numbers of shares voted for or withheld were as follows:


         Name                         Shares Voted For         Shares Withheld
         -----------------------      ----------------         ---------------

         Mortimer B. Zuckerman              13,081,505                  10,750
         Fred Drasner                       13,081,205                  11,050
         Melvin A. Ettinger                 13,081,505                  10,750
         Martin D. Krall                    13,081,505                  10,750
         John R. Harris                     13,091,905                     350
         Edward H. Linde                    13,091,905                     350
         Howard Stringer                    13,091,905                     350
         Linda J. Wachner                   13,091,905                     350


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.

            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 June 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: August 1, 1997
------------------------
                                                             Melvin A. Ettinger
                            Vice Chairman, Chief Operating Officer and Director
                                                      (Duly authorized officer)


                                                        /s/ Louis Salamone, Jr.
Date: August 1, 1997
------------------------
                                                            Louis Salamone, Jr.
                              Senior Vice President and Chief Financial Officer
                                                  (Principal Financial Officer)