<PAGE>
 
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--------------------------------------------------------------------------------
 
                       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 quarterly period ended March 31, 1999
 
                        Commission File Number 333-48821
 
                               IMPAC Group, Inc.
             (Exact name of registrant as specified in its charter)
 
                Delaware                               23-2923682
    (State or other jurisdiction of                 (I.R.S. Employer
     incorporation or organization)               Identification No.)
 
              1950 North Ruby Street, Melrose Park, Illinois 60160
          (Address of principal executive offices including zip code)
 
       Registrant's telephone number, including area code: (708) 344-9100
 
   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. [X] YES  [_] NO
 
   Number of shares of Series A Common Stock, $0.001 par value per share (the
"Series A Common Stock") and Series B Common Stock, $0.001 par value per share
(the "Series B Common Stock" and, together with the Series A Common Stock, the
"Common Stock") outstanding as of the close of business on May 12, 1999:
 
<TABLE>
<CAPTION>
             Class           Number of Shares Outstanding
             -----           ----------------------------
      <S>                    <C>
      Series A Common Stock            161,658
      Series B Common Stock              4,500
</TABLE>
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                        Page
                                                                        ----
 <C>        <S>                                                         <C>  <C>
 PART I--FINANCIAL INFORMATION
    Item 1. Financial Statements
 
            Unaudited Condensed Consolidated Statements of Income for
             the Three Months Ended March 31, 1998 and 1999..........     3
 
            Unaudited Condensed Consolidated Balance Sheets as of
             December 31, 1998 and March 31, 1999....................     4
 
            Unaudited Condensed Consolidated Statement of
             Shareholders' Equity for the Three Months Ended March
             31, 1999................................................     5
 
            Unaudited Condensed Consolidated Statements of Cash Flows
             for the Three Months Ended March 31, 1998 and 1999......     6
 
            Notes to Unaudited Condensed Consolidated Financial
            Statements...............................................     7
 
    Item 2. Management's Discussion and Analysis of Financial
            Condition and Results of Operations......................    13
 
    Item 3. Quantitative and Qualitative Disclosures About Market
            Risk.....................................................    20
 
 PART II--OTHER INFORMATION...........................................   21
</TABLE>
 
                                       2
<PAGE>
 
                         PART I--FINANCIAL INFORMATION
 
ITEM 1: FINANCIAL STATEMENTS
 
                       IMPAC GROUP, INC. AND SUBSIDIARIES
 
             UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
                   Three Months Ended March 31, 1998 and 1999
 
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                                1998     1999
                                                               -------  -------
<S>                                                            <C>      <C>
Net sales....................................................  $15,801  $64,191
Cost of goods sold...........................................   12,418   46,535
                                                               -------  -------
Gross profit.................................................    3,383   17,656
Selling, general and administrative expenses.................    2,530   14,330
                                                               -------  -------
Operating income.............................................      853    3,326
Other income (expense):
  Interest income............................................        6       31
  Interest expense...........................................   (1,222)  (5,625)
  Loss on sale of fixed assets...............................      --       (28)
                                                               -------  -------
Income (loss) before income taxes and extraordinary item.....     (363)  (2,296)
Income (taxes) benefit.......................................      128      502
                                                               -------  -------
Income (loss) before extraordinary item......................     (235)  (1,794)
Extraordinary charge for early retirement of debt, net of tax
 benefit of $368.............................................     (553)     --
                                                               -------  -------
Net income (loss)............................................  $  (788) $(1,794)
                                                               =======  =======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements
 
                                       3
<PAGE>
 
                       IMPAC GROUP, INC. AND SUBSIDIARIES
 
                UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                       December 31,  March 31,
                        ASSETS                             1998        1999
                        ------                         ------------ -----------
                                                                    (unaudited)
<S>                                                    <C>          <C>
Current assets:
  Cash................................................   $  4,239    $  8,358
  Trade accounts receivable, net of allowances of
   $1,517 in 1998 and $1,694 in 1999..................     44,361      42,356
  Other receivables...................................      4,278       3,987
  Inventories.........................................     23,982      23,820
  Deferred income taxes...............................      3,160       4,034
  Prepaids and other current assets...................      1,650       2,552
                                                         --------    --------
    Total current assets..............................     81,670      85,107
Long-term assets:
  Property, plant and equipment, net..................    107,669     105,236
  Goodwill, net.......................................    163,623     159,340
  Deferred financing costs, net.......................     10,449      10,810
  Restricted cash.....................................        426         429
  Other assets........................................      2,498       2,544
                                                         --------    --------
    Total assets......................................   $366,335    $363,466
                                                         ========    ========
<CAPTION>
         LIABILITIES AND SHAREHOLDERS' EQUITY
         ------------------------------------
<S>                                                    <C>          <C>
Current liabilities:
  Bank overdraft......................................   $  4,804    $  4,450
  Current maturities of long-term debt................      5,487       5,267
  Trade payables......................................     20,289      22,248
  Accrued expenses....................................     23,800      21,140
                                                         --------    --------
    Total current liabilities.........................     54,380      53,105
                                                         --------    --------
Long-term debt........................................    235,072     241,563
Deferred income taxes.................................     10,477      10,252
Other noncurrent liabilities..........................        823         799
                                                         --------    --------
    Total liabilities.................................    300,752     305,719
                                                         --------    --------
Mandatorily redeemable preferred stock................        --       15,308
                                                         --------    --------
Shareholders' equity:
  Common stock, series A, $.001 par value; 1,000,000
   shares authorized, 191,746 and 161,658 shares
   issued and outstanding at December 31, 1998 and
   March 31, 1999, respectively.......................          0           0
  Common stock, series B, $.001 par value; 50,000
   shares authorized, 4,500 shares issued and
   outstanding at December 31, 1998 and March 31,
   1999...............................................          0           0
  Paid in capital.....................................     98,625      79,819
  Warrants outstanding................................        --        4,207
  Carryover basis adjustment..........................    (37,143)    (37,143)
  Accumulated other comprehensive income..............       (681)     (6,798)
  Retained earnings...................................      4,782       2,354
                                                         --------    --------
    Total shareholders' equity........................     65,583      42,439
                                                         --------    --------
    Total liabilities & shareholders' equity..........   $366,335    $363,466
                                                         ========    ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements
 
                                       4
<PAGE>
 
                       IMPAC GROUP, INC. AND SUBSIDIARIES
 
       UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
 
                       Three Months ended March 31, 1999
                     (In thousands except number of shares)
 
<TABLE>
<CAPTION>
                            Common Stock                                    Accumulated
                          ----------------                      Carryover      Other
                          Number of        Paid-in   Warrants     Basis    Comprehensive Retained
                           Shares   Amount Capital  Outstanding Adjustment    Income     Earnings  Total
                          --------- ------ -------  ----------- ---------- ------------- -------- -------
<S>                       <C>       <C>    <C>      <C>         <C>        <C>           <C>      <C>
Balance at December 31,
 1998...................   196,246   $--   $98,625    $--        $(37,143)    $  (681)    $4,782  $65,583
Issuance of stock
 warrants...............       --     --       --      4,207          --          --         --     4,207
Repurchase of common
 stock..................   (30,088)   --   (18,806)      --           --          --         --   (18,806)
Accretion of mandatorily
 redeemable preferred
 stock..................       --     --       --        --           --          --        (634)    (634)
Cumulative translation
 adjustment.............       --     --       --        --           --       (6,117)       --    (6,117)
Net income (loss).......       --     --       --        --           --          --      (1,794)  (1,794)
                           -------   ----  -------    ------     --------     -------     ------  -------
Balance at March 31,
 1999...................   161,658   $ --  $79,819    $4,207     $(37,143)    $(6,798)    $2,354  $42,439
                           =======   ====  =======    ======     ========     =======     ======  =======
</TABLE>
 
 
   The accompanying notes are an integral part of these consolidated financial
statements.
 
                                       5
<PAGE>
 
                       IMPAC GROUP, INC. AND SUBSIDIARIES
 
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                   Three Months Ended March 31, 1998 and 1999
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                               1998     1999
                                                              -------  -------
<S>                                                           <C>      <C>
Cash flows from operating activities:
  Net income (loss).......................................... $  (788) $(1,794)
  Adjustments to reconcile net income (loss) to net cash
   provided by (used for) operating activities--
    Extraordinary charge for early retirement of debt........     553      --
    Depreciation and amortization............................     751    4,677
    Amortization of goodwill.................................      42    1,018
    Loss on sale of fixed assets.............................     --        28
    Deferred income taxes....................................    (188)  (1,099)
    Changes in assets and liabilities--
      Trade accounts receivable, net.........................     628    2,005
      Inventories............................................  (1,553)     162
      Trade payables and bank overdraft......................     654    1,605
      Other assets and liabilities...........................  (1,426)  (3,700)
                                                              -------  -------
        Net cash provided by (used for) operating activities.  (1,327)   2,902
                                                              -------  -------
Cash flows from investing activities:
  Capital expenditures.......................................    (814)  (4,735)
  Acquisition of AGI Incorporated, net of cash acquired...... (63,551)     --
                                                              -------  -------
        Net cash used for investing activities............... (64,365)  (4,735)
                                                              -------  -------
Cash flows from financing activities:
  Net change in borrowings under revolving credit line.......     --     8,705
  Repayment of long-term debt................................ (29,850)    (253)
  Proceeds from senior subordinated notes.................... 100,000      --
  Change in capital leases...................................     --    (1,317)
  (Increase) decrease in restricted cash.....................     221       (3)
  Proceeds from issuance of common stock.....................   4,600      --
  Repurchase of common stock.................................     --   (18,806)
  Proceeds from issuance of preferred stock and stock
   warrants..................................................     --    18,881
  Change in deferred financing costs.........................  (4,298)    (771)
                                                              -------  -------
        Net cash provided by financing activities............  70,673    6,436
                                                              -------  -------
Effect of exchange rate differences on cash..................     --      (484)
                                                              -------  -------
Increase (decrease) in cash..................................   4,981    4,119
Cash, beginning of period....................................     194    4,239
                                                              -------  -------
Cash, end of period.......................................... $ 5,175  $ 8,358
                                                              =======  =======
Supplemental Cash Flow Information:
  Interest paid.............................................. $   731  $ 7,764
  Income taxes paid..........................................     161      659
</TABLE>
 
   The accompanying notes are an integral part of these financial statements
 
                                       6
<PAGE>
 
                      IMPAC GROUP, INC. AND SUBSIDIARIES
 
        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
                                (In thousands)
 
Note 1--Basis of Presentation
 
   The interim unaudited condensed consolidated financial statements presented
herein include the accounts of IMPAC Group, Inc. ("IMPAC") and all of its
domestic and foreign wholly-owned subsidiaries (together, the "Company"). All
intercompany transactions have been eliminated in consolidation.
 
   These interim condensed consolidated financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC"). In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements are presented on a basis consistent with audited financial
statements and contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and the changes in cash flows at March 31, 1999 and for all periods
presented.
 
   Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should
be read in conjunction with the audited financial statements as of and for the
year ended December 31, 1998 in the Company's Form 10-K as filed with the SEC.
 
Note 2--Acquisitions
 
 Acquisition of AGI Incorporated--
 
   On March 12, 1998, KFI Holding Corporation ("KFI"), the parent company of
Klearfold, Inc. ("Klearfold"), acquired all of the common stock of AGI
Incorporated ("AGI") for $69.0 million including $54.6 million of cash and
$14.4 million of newly issued common stock, plus acquisition costs.
Concurrently, KFI funded the retirement of $8.3 million of indebtedness
outstanding under AGI's credit facility immediately prior to the transaction.
The acquisition was funded by the proceeds from the issuance of $100.0 million
of 10 1/8% Senior Subordinated Notes due 2008 ("Senior Subordinated Notes")
and $4.6 million of new common stock. Upon consummation of this acquisition,
KFI changed its name to "IMPAC Group, Inc."
 
 Acquisition of Tinsley Robor plc--
 
   On September 11, 1998, the Company acquired the common stock of Tinsley
Robor plc (subsequently renamed IMPAC Europe Limited and referred to
hereinafter as "Tinsley") for $137.7 million plus acquisition costs.
Concurrently, the Company funded the retirement of $18.5 million of
indebtedness outstanding under Tinsley's credit agreements immediately prior
to the transaction. The acquisition was funded through additional borrowings
of $93.7 million under the Company's Amended and Restated Multicurrency Credit
Facility dated as of July 7, 1998 (the "Credit Facility"), $58.6 million in
proceeds from the sale of common stock to the Company's existing stockholders
or their affiliates and the issuance, in aggregate, of $8.5 million of five
year promissory notes to former Tinsley shareholders.
 
 Acquisition of Music Print B.V.--
 
   On November 24, 1998, the Company purchased the outstanding capital stock
of Music Print B.V. ("Music Print"), a Netherlands limited liability company,
for approximately $5.3 million plus acquisition costs. Concurrently, the
Company retired approximately $0.2 million of historical indebtedness of Music
Print and purchased the facility in which Music Print operates for $1.3
million. The acquisition was funded through additional revolver borrowings
under the Credit Facility.
 
                                       7
<PAGE>
 
                      IMPAC GROUP, INC. AND SUBSIDIARIES
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
 Unaudited Pro Forma for Acquisitions--
 
   The acquisitions of AGI, Tinsley and Music Print have been accounted for as
a purchase and, accordingly, their operating results have been included in the
Company's consolidated financial statements from the dates of acquisition. The
following unaudited pro forma information for the three months ended March 31,
1998 presents certain operating data calculated to reflect the acquisitions of
AGI and Tinsley and the additional borrowings incurred to fund those
acquisitions as if they occurred as of January 1, 1998.
 
<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                       -------------------------
                                                               March 31,
                                                               ---------
                                                          1998         1999
                                                       ----------- -------------
                                                       (Pro forma) (As reported)
      <S>                                              <C>         <C>
      Net sales.......................................   $57,817      $64,191
      Net income (loss)...............................    (2,221)      (1,794)
</TABLE>
 
   This pro forma data does not purport to represent what actual operating
results would have been had the acquisitions been consummated on the dates
indicated or what such results will be for any future period.
 
Note 3--Inventories
 
   Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                          December 31, March 31,
                                                          ------------ ---------
                                                              1998       1999
                                                              ----       ----
      <S>                                                 <C>          <C>
      Raw materials......................................   $ 9,597     $ 9,040
      Work in process and finished goods.................    14,385      14,780
                                                            -------     -------
                                                            $23,982     $23,820
                                                            =======     =======
</TABLE>
 
Note 4--Equity
 
 Preferred Stock Issuance and Common Stock Repurchase--
 
   On January 12, 1999, IMPAC issued 20,000 shares of Series A Mandatorily
Redeemable Preferred Stock (the "Preferred Stock") with a face value of $20.0
million together with detachable, ten-year warrants (the "Warrants") to
purchase 6,913 shares of Series A Common Stock at an exercise price of $0.01
per share, for net proceeds of $18.9 million. IMPAC used the net proceeds from
the sale of Preferred Stock to acquire 30,087 shares of outstanding Series A
Common Stock. The Preferred Stock accrues dividends on a cumulative basis at
14% per annum for years 1-5, 15% per annum for year 6, and either 14% or 15%
per annum for years 7-10 depending on whether the dividends are paid in cash
or with additional Preferred Stock, respectively. During the first six years
after issuance, dividends on the Preferred Stock are payable solely by issuing
additional shares of Preferred Stock. The Preferred Stock accrues dividends at
24% per annum if certain events occur, including an event of non-compliance as
defined and certain significant changes in the ownership of IMPAC. IMPAC is
required to redeem all outstanding shares of Preferred Stock on December 31,
2008 at face value plus all accrued and unpaid dividends. IMPAC may redeem
some or all outstanding shares of Preferred Stock at an earlier date,
provided, however, that a premium of up to 10% be paid. The Preferred Stock is
not redeemable at the option of the holders of Preferred Stock. The Preferred
Stock contains covenants, among others, limiting additional indebtedness,
restricted payments, guaranties, advances to affiliates, mergers, asset sales
and dispositions. The Preferred Stock ranks senior to all classes of common
stock with respect to dividend distributions and distributions upon the
liquidation or dissolution of IMPAC.
 
                                       8
<PAGE>
 
                      IMPAC GROUP, INC. AND SUBSIDIARIES
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   Upon issuance of the Preferred Stock, the Warrants were valued at $4.2
million and the shares of Preferred Stock were valued at $14.7 million. The
difference between the carrying value and the face value of the Preferred
Stock, along with dividends accrued, is being accreted using the effective
interest rate method over the period the Preferred Stock is outstanding, and
is recorded directly to retained earnings.
 
 Stock Options--
 
   In connection with the acquisition of Tinsley, the Company offered former
Tinsley optionholders the opportunity to either exercise their existing
options in Tinsley for cash or to convert their options into options of the
Company. Pursuant to this offer, on February 27, 1999, the Company granted
options to purchase approximately 3,457 shares of Series B Common Stock of the
Company at a weighted average exercise price of $303. Additionally, on March
31, 1999, the Company granted options to purchase approximately 8,900 shares
of Series A Common Stock of the Company at an exercise price of $513, the
estimated fair market value at that date, to certain key Tinsley employees.
The options to purchase Series A Common Stock vest over a four-year period.
 
Note 5--Comprehensive Income
 
   Prior to the acquisition of Tinsley, the Company had no amounts to report
as other comprehensive income pursuant to Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." The Company's
comprehensive income consisted of the following:
 
<TABLE>
<CAPTION>
                                                                Three Months
                                                                 Ended March
                                                                     31,
                                                                --------------
                                                                1998    1999
                                                                -----  -------
      <S>                                                       <C>    <C>
      Net income (loss)........................................ $(788) $(1,794)
      Foreign currency translation adjustment..................   --    (6,117)
                                                                -----  -------
      Comprehensive income (loss).............................. $(788) $(7,911)
                                                                =====  =======
</TABLE>
 
Note 6--Segment Information
 
   The Company operates in one business segment, providing specialty packaging
for various consumer products markets. During the third quarter of 1998, the
Company expanded its specialty packaging operations geographically to include
the United Kingdom and Europe. The following table presents sales and other
financial information for each geographic region as of and for the three
months ended March 31, 1999:
 
<TABLE>
<CAPTION>
                                                          Operating Identifiable
      Geographic Regions                           Sales   Income      Assets
      ------------------                          ------- --------- ------------
      <S>                                         <C>     <C>       <C>
      United States.............................. $35,381  $2,592     $141,557
      U.K. and Europe............................  28,810   1,311      211,248
                                                  -------  ------     --------
      Total geographic segments..................  64,191   3,903      352,805
      Unallocated corporate expense..............     --     (577)         --
      Corporate assets...........................     --      --        10,661
                                                  -------  ------     --------
      Consolidated totals........................ $64,191  $3,326     $363,466
                                                  =======  ======     ========
</TABLE>
 
                                       9
<PAGE>
 
                      IMPAC GROUP, INC. AND SUBSIDIARIES
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
Note 7--Guarantors and Financial Information
 
   The following unaudited condensed consolidating financial information is
presented for purposes of complying with the reporting requirements of the
subsidiaries of IMPAC that have guaranteed IMPAC's obligations with respect to
the Senior Subordinated Notes (the "Subsidiary Guarantors"). The Subsidiary
Guarantors are directly or indirectly wholly-owned subsidiaries of the Company
and have fully and unconditionally guaranteed the Senior Subordinated Notes on
a joint and several basis. During the three months ended March 31, 1999,
certain foreign subsidiaries of the Company that were formed or acquired in
connection with the acquisition of Tinsley provided full and unconditional
guarantees on the Senior Subordinated Notes and are included in the unaudited
condensed consolidating financial information below as Subsidiary Guarantors.
Separate financial statements and other disclosures with respect to the
Subsidiary Guarantors are not presented because the Company believes that such
financial statements and other information would not provide additional
information that is material to investors. The unaudited condensed
consolidating financial information presents unaudited condensed consolidating
financial statements as of March 31, 1999 and for the three months ended March
31, 1999 of:
 
     (a) IMPAC on a parent company only basis ("IMPAC Parent"), carrying its
  investments in subsidiaries under the equity method;
 
     (b) the Subsidiary Guarantors, which include IMPAC's domestic
  subsidiaries AGI Incorporated, Klearfold, Inc., KF-International, Inc., and
  KF-Delaware, Inc. and its foreign subsidiaries IMPAC Europe Holdings
  Limited, Levelprompt Limited, IMPAC Europe Limited, James Upton Limited,
  Tinsley Robor Labels Limited, Tinsley Robor Sales Limited, Sonicon Limited,
  Tophurst Properties Limited and Printing Resources Limited, carrying any
  investments in subsidiaries under the equity method;
 
     (c) the subsidiaries of IMPAC that have not guaranteed IMPAC's
  obligations with respect to the Senior Subordinated Notes, which include
  IMPAC's foreign subsidiaries Van de Steeg Packaging B.V., James Upton
  Holding B.V., James Upton B.V., James Upton GmbH and Music Print B.V.
  (together, the "Non-Guarantor Subsidiaries");
 
     (d) elimination entries necessary to consolidate IMPAC Parent and its
  subsidiaries; and
 
     (e) IMPAC on a consolidated basis ("IMPAC Consolidated").
 
             UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF INCOME
                       THREE MONTHS ENDED MARCH 31, 1999
 
<TABLE>
<CAPTION>
                                                  Non-
                           IMPAC   Subsidiary  Guarantor                   IMPAC
                          Parent   Guarantors Subsidiaries Eliminations Consolidated
                          -------  ---------- ------------ ------------ ------------
<S>                       <C>      <C>        <C>          <C>          <C>
Net sales...............  $   --    $51,509     $13,188       $(506)      $64,191
Cost of goods sold......      --     37,043       9,998        (506)       46,535
                          -------   -------     -------       -----       -------
Gross profit............      --     14,466       3,190         --         17,656
Selling, general and
 administrative
 expenses...............      577    11,545       2,208         --         14,330
                          -------   -------     -------       -----       -------
Operating income (loss).     (577)    2,921         982         --          3,326
Equity earnings (losses)
 in subsidiaries........   (1,090)      356         --          734           --
Interest expense, net...     (595)   (4,679)       (348)        --         (5,622)
                          -------   -------     -------       -----       -------
Income (loss) before
 income taxes...........   (2,262)   (1,402)        634         734        (2,296)
Income (taxes) benefit..      468       312        (278)        --            502
                          -------   -------     -------       -----       -------
Net income (loss).......  $(1,794)  $(1,090)    $   356       $ 734       $(1,794)
                          =======   =======     =======       =====       =======
</TABLE>
 
                                      10
<PAGE>
 
                       IMPAC GROUP, INC. AND SUBSIDIARIES
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
                UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
                                 MARCH 31, 1999
 
<TABLE>
<CAPTION>
                                                 Non-
                          IMPAC   Subsidiary  Guarantor                   IMPAC
                          Parent  Guarantors Subsidiaries Eliminations Consolidated
                         -------- ---------- ------------ ------------ ------------
<S>                      <C>      <C>        <C>          <C>          <C>
Current assets:
  Cash.................. $    191  $  3,791    $ 4,376     $     --      $  8,358
  Trade accounts
   receivable, net......      --     35,862      6,494           --        42,356
  Intercompany
   receivables..........   16,346     2,024        --        (18,370)         --
  Inventories...........      --     21,852      1,968           --        23,820
  Other current assets..       91     8,303      2,179           --        10,573
                         --------  --------    -------     ---------     --------
    Total current
     assets.............   16,628    71,832     15,017       (18,370)      85,107
                         --------  --------    -------     ---------     --------
  Property, plant and
   equipment, net.......      --     83,758     21,478           --       105,236
  Goodwill, net.........      --    138,701     20,639           --       159,340
  Intercompany
   receivables..........  165,970    17,191        --       (183,161)         --
  Investment in
   subsidiaries.........   77,042    42,452        --       (119,494)         --
  Other assets..........   10,379     2,508        896           --        13,783
                         --------  --------    -------     ---------     --------
    Total assets........ $270,019  $356,442    $58,030     $(321,025)    $363,466
                         ========  ========    =======     =========     ========
Current liabilities:
  Current maturities of
   long-term debt....... $  1,010  $  3,180    $ 1,077     $     --      $  5,267
  Trade payables........      --     20,453      6,245           --        26,698
  Intercompany payables.      --     15,060     20,179       (35,239)         --
  Accrued expenses......      410    17,289      3,445            (4)      21,140
                         --------  --------    -------     ---------     --------
    Total current
     liabilities........    1,420    55,982     30,946       (35,243)      53,105
                         --------  --------    -------     ---------     --------
Long-term debt..........  210,852    27,703      3,008           --       241,563
Other noncurrent
 liabilities............      --     10,997         54           --        11,051
Intercompany debt.......      --    165,970        --       (165,970)         --
                         --------  --------    -------     ---------     --------
    Total liabilities...  212,272   260,652     34,008      (201,213)     305,719
                         --------  --------    -------     ---------     --------
Mandatorily redeemable
 preferred stock........   15,308       --         --            --        15,308
                         --------  --------    -------     ---------     --------
Total shareholders'
 equity.................   42,439    95,790     24,022      (119,812)      42,439
                         --------  --------    -------     ---------     --------
Total liabilities and
 shareholders' equity... $270,019  $356,442    $58,030     $(321,025)    $363,466
                         ========  ========    =======     =========     ========
</TABLE>
 
                                       11
<PAGE>
 
                       IMPAC GROUP, INC. AND SUBSIDIARIES
 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
           UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                       THREE MONTHS ENDED MARCH 31, 1999
 
<TABLE>
<CAPTION>
                                                  Non-
                          IMPAC    Subsidiary  Guarantor                   IMPAC
                          Parent   Guarantors Subsidiaries Eliminations Consolidated
                         --------  ---------- ------------ ------------ ------------
<S>                      <C>       <C>        <C>          <C>          <C>
Cash flows from
 operating activities:
  Net cash provided by
   (used for) operating
   activities........... $ (2,382)  $ 1,272     $ 4,012        $--        $  2,902
                         --------   -------     -------        ----       --------
Cash flows from
 investing activities:
  Capital expenditures..      --     (2,643)     (2,092)        --          (4,735)
                         --------   -------     -------        ----       --------
Cash flows from
 financing activities:
  Net change in
   borrowings under
   revolving credit
   line.................    8,705       --          --          --           8,705
  Repurchase of common
   stock................  (18,806)      --          --          --         (18,806)
  Proceeds from issuance
   of preferred stock
   and stock warrants...   18,881       --          --          --          18,881
  Loans and advances
   (to) from related
   parties..............   (3,082)    4,972      (1,890)        --             --
  Other financing
   activities...........   (1,024)     (919)       (401)        --          (2,344)
                         --------   -------     -------        ----       --------
Net cash provided by
 financing activities...    4,674     4,053      (2,291)        --           6,436
                         --------   -------     -------        ----       --------
  Effect of exchange
   rate differences on
   cash.................   (2,420)     (278)      2,214         --            (484)
                         --------   -------     -------        ----       --------
Decrease in cash........     (128)    2,404       1,843         --           4,119
Cash, beginning of
 period.................      319     1,387       2,533         --           4,239
                         --------   -------     -------        ----       --------
Cash, end of period..... $    191   $ 3,791     $ 4,376        $--        $  8,358
                         ========   =======     =======        ====       ========
</TABLE>
 
                                       12
<PAGE>
 
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
 
 General
 
   On March 12, 1998, KFI Holding Corporation ("KFI"), the parent company of
Klearfold, Inc. ("Klearfold"), completed both its acquisition of AGI
Incorporated ("AGI") and also the issuance of the Company's 10 1/8% Senior
Subordinated Notes due 2008 ("Senior Subordinated Notes"). Upon consummation
of these transactions KFI changed its corporate name to IMPAC Group, Inc.
("IMPAC" and collectively with its consolidated subsidiaries, the "Company").
On September 11, 1998, IMPAC acquired substantially all of the outstanding
capital stock of Tinsley Robor plc ("Tinsley"). IMPAC funded the acquisition
of Tinsley through borrowings under the Amended and Restated Multicurrency
Credit Facility dated as of July 7, 1998 (the "Credit Facility"), proceeds
from the sale of common stock to IMPAC's existing stockholders or their
affiliates and the issuance of five year promissory notes to former Tinsley
shareholders. References below to the "Company" mean IMPAC Group, Inc. and its
consolidated subsidiaries.
 
   As a result of these transactions, the Company's historical consolidated
financial statements for the three months ended March 31, 1999 and 1998 are
not comparable due to the inclusion in the consolidated financial statements
of AGI's and Tinsley's assets, liabilities and operating results from the
dates of acquisition. Management believes that the pro forma results of
operations for the three months ended March 31, 1998, which assume that the
acquisitions of AGI and Tinsley and the borrowings incurred to fund those
acquisitions occurred as of January 1, 1998, present a more meaningful basis
from which to compare the Company's historical operating results for the three
months ended March 31, 1999. As such, the discussion and analysis of the
historical results of operations and financial position for the three months
ended March 31, 1999 and 1998 are supplemented with the discussion and
analysis of the results of operations and financial position for the
historical three months ended March 31, 1999 compared to the pro forma three
months ended March 31, 1998.
 
   IMPAC is a holding company with no material assets or operations other than
its investments in its wholly-owned subsidiaries. All of the Company's
domestic subsidiaries and certain foreign subsidiaries of the Company have
guaranteed the Senior Subordinated Notes on a full, unconditional, joint and
several basis, subject to the subordination provisions in the related
Indenture (the "Subsidiary Guarantors"). Separate financial statements and
other disclosures of the Subsidiary Guarantors have not been presented in this
Form 10-Q because the Company believes that such financial statements and
other information would not provide additional information that is material to
investors. However, the condensed consolidating financial information of the
parent Company and its Subsidiary Guarantors have been presented in Note 7 of
the Unaudited Condensed Consolidated Financial Statements for purposes of
complying with the reporting requirements.
 
 Overview
 
   The Company is an international designer, manufacturer and marketer of
high-end, value-added specialty packaging for various consumer products
markets including entertainment, cosmetics and personal care. The Company
offers innovative specialty packaging solutions for customers that seek to
differentiate their products in the consumer marketplace. In addition, the
Company utilizes a broad range of paper, paperboard and transparent rigid
plastic materials for its products.
 
Results of Operations
 
 Historical Three Months Ended March 31, 1999 Compared to Pro Forma Three
 Months Ended March 31, 1998
 
   The following table sets forth certain unaudited income statement data
(expressed as a percentage of net sales) for the pro forma three months ended
March 31, 1998 (the "1998 period") and the historical three months ended March
31, 1999 (the "1999 period"). The unaudited income statement data for the
three months ended
 
                                      13
<PAGE>
 
March 31, 1998 are presented on a pro forma basis as if the acquisitions of
AGI and Tinsley and the borrowings incurred to fund those acquisitions
occurred as of January 1, 1998.
 
<TABLE>
<CAPTION>
                                                       Three Months Ended March
                                                                 31,
                                                       ------------------------
                                                          1998         1999
                                                       ----------- ------------
                                                       (Pro forma) (Historical)
      <S>                                              <C>         <C>
      Income Statement Data:
      Net sales.......................................   100.0%       100.0%
      Cost of goods sold..............................    72.2%        72.5%
                                                         ------       ------
      Gross profit....................................    27.8%        27.5%
      Selling, general and administrative expenses....    22.1%        22.3%
                                                         ------       ------
      Operating income................................     5.7%         5.2%
      Interest expense, net...........................     9.2%         8.8%
                                                         ------       ------
      Income (loss) before income taxes and
       extraordinary item.............................   (3.5%)       (3.6%)
      Income taxes (benefit)..........................   (0.7%)       (0.8%)
                                                         ------       ------
      Income (loss) before extraordinary item.........   (2.8%)       (2.8%)
                                                         ======       ======
</TABLE>
 
   Net Sales for the 1999 period were $64.2 million compared to $57.8 million
for the 1998 period, an increase of 11.0%. This increase was due to a $4.4
million increase in entertainment packaging, a $1.2 million increase in
cosmetics packaging and a $0.8 million increase in other consumer products
packaging. The entertainment packaging increase was due primarily to an
increase in music packaging sales resulting from improved market penetration
relating to the start-up of the Company's Grover, North Carolina facility in
April 1998 and the acquisition of Music Print in November 1998. The increase
in cosmetics packaging relates primarily to increased volume to the Company's
existing customers resulting from improved sales and marketing efforts and
favorable market conditions. The increase in other consumer products packaging
resulted primarily from an increase in sales of a hologravure label
application for a customer in the personal computer market.
 
   Gross Profit for the 1999 period was $17.7 million compared to $16.1
million for the 1998 period, an increase of 9.7%. The increase in gross profit
was due predominantly to the sales increase noted above. The decrease in gross
margin from 27.8% to 27.5% was due primarily to the integration of Music Print
into the Company's European operations.
 
   Selling, General and Administrative Expenses for the 1999 period were $14.3
million compared to $12.8 million for the 1998 period, an increase of 12.0%.
SG&A as a percentage of sales increased from 22.1% to 22.3%. The increase in
SG&A was due primarily to increased costs associated with the Company's
integration to a new enterprise resource planning ("ERP") system, increases in
anticipated payouts under various compensation programs tied to sales and
profitability and costs associated with the restructuring of certain of the
Company's European operations.
 
   Operating Income was $3.3 million for both the 1999 and 1998 periods due to
the factors discussed above.
 
   Net Interest Expense for the 1999 period was $5.6 million compared to $5.4
million for the 1998 period, an increase of 3.9%. The increase is due
primarily to an increase in revolver borrowings under the Credit Facility.
 
   Income Taxes for the 1999 period were a benefit of $0.5 million compared to
$0.4 million for the 1998 period. The Company's effective rate of tax benefit
for the periods was less than the U.S. federal statutory rate primarily due to
the effect of non-deductible goodwill amortization of approximately $1.0
million in each period.
 
                                      14
<PAGE>
 
   Net Loss for the 1999 period increased to $1.8 million compared to $1.7
million for the 1998 period due to the factors discussed above. The pro forma
net loss for the 1998 period does not include an extraordinary charge of $0.6
million, net of tax, related to the early extinguishment of debt.
 
 Historical Three Months Ended March 31, 1999 Compared to Historical Three
 Months Ended March 31, 1998
 
   The results of operations for the three months ended March 31, 1998 (the
"1998 period") include the results of AGI from March 13, 1998 and do not
include any results of Tinsley. The results of operations for the three months
ended March 31, 1999 (the "1999 period") include the results of AGI and
Tinsley for the entire period. The Company's growth in net sales, gross profit
and operating income during the 1999 period as compared to the 1998 period
relates primarily to the effect of these acquisitions. Net interest expense
increased from $1.2 million in the 1998 period to $5.6 million in the 1999
period due to the additional borrowings incurred to fund the acquisitions of
AGI and Tinsley. Income taxes for the 1999 period were a benefit of $0.5
million compared to $0.1 million for the 1998 period. The Company's effective
tax rates decreased from a benefit of 35.3% in the 1998 period to 21.9% in the
1999 period primarily due to the effect of an increase in non-deductible
goodwill amortization of approximately $1.0 million. The net loss for the 1999
period increased to $1.8 million compared to $0.8 million during the 1998
period due to the factors discussed above. The net loss for the 1998 period
includes an extraordinary charge of $0.6 million, net of tax, related to the
early extinguishment of debt.
 
Liquidity and Capital Resources
 
   Net cash provided by operating activities for the 1999 period was $2.9
million compared to net cash used for operating activities of $1.3 million for
the 1998 period. Income from operations before non-cash charges increased to
$2.8 million from $0.4 million primarily due to the acquisition of AGI and
Tinsley. In the 1999 period, income from operations before non-cash charges of
$2.8 million, the issuance of Preferred Stock and Warrants, $8.7 million of
revolver borrowings under the Credit Facility and a $0.1 million decrease in
working capital requirements were used to fund the repurchase of common stock,
the repayment of $0.3 million of bank borrowings, $0.8 million of debt
issuance costs, $1.3 million decrease in capital leases and $4.7 million of
capital expenditures. In the 1998 period, income from operations before non-
cash charges of $0.4 million, the issuance of the Senior Subordinated Notes
and Common Stock and $0.2 million of proceeds from the Company's industrial
revenue bonds were used to fund the acquisition of AGI, the repayment of $29.9
million of bank borrowings, $4.3 million of debt issuance costs, $0.8 million
of capital expenditures and a $1.7 million increase in working capital
requirements.
 
   The Company's primary cash requirements historically have related to
capital expenditures, working capital and debt service. The Company has
historically funded these requirements through internally generated cash flow,
borrowings under bank credit arrangements and the issuance of industrial
revenue bonds. The Company currently expects to spend $27.5 million on capital
expenditures in 1999. The Company expects to fund its capital expenditures and
other working capital requirements in 1999 through internally generated cash
flow and borrowings under the Credit Facility.
 
   On January 12, 1999, IMPAC issued 20,000 shares of Series A Mandatorily
Redeemable Preferred Stock (the "Preferred Stock") with a face value of $20.0
million together with detachable, ten-year warrants (the "Warrants") to
purchase 6,913 shares of Common Stock at an exercise price of $0.01 per share,
for net proceeds of $18.9 million. IMPAC used the net proceeds from the sale
of Preferred Stock to acquire 30,088 shares of outstanding Series A Common
Stock. The Preferred Stock accrues dividends on a cumulative basis at 14% per
annum for years 1-5, 15% per annum for year 6, and either 14% or 15% per annum
for years 7-10 depending on whether the dividends are paid in cash or with
additional Preferred Stock, respectively. During the first six years
 
                                      15
<PAGE>
 
after issuance, dividends on the Preferred Stock are payable solely by issuing
additional shares of Preferred Stock. The Preferred Stock accrues dividends at
24% per annum if certain events occur, including an event of non-compliance as
defined and certain significant changes in the ownership of IMPAC. IMPAC is
required to redeem all outstanding shares of Preferred Stock on December 31,
2008 at face value plus all accrued and unpaid dividends. IMPAC may redeem
some or all outstanding shares of Preferred Stock at an earlier date,
provided, however, that a premium of up to 10% be paid. The Preferred Stock is
not redeemable at the option of the holders of Preferred Stock. The Preferred
Stock contains covenants, among others, limiting additional indebtedness,
restricted payments, guaranties, advances to affiliates, mergers, asset sales
and dispositions. The Preferred Stock ranks senior to all classes of Common
Stock with respect to dividend distributions and distributions upon the
liquidation or dissolution of IMPAC.
 
   IMPAC is a holding company with no operations of its own. The Company's
ability to make required interest payments on the Senior Subordinated Notes
depends upon its ability to receive funds from its domestic and foreign
subsidiaries. The Company, at its discretion, controls the receipt of
dividends or other payments from its domestic and foreign subsidiaries,
subject in the case of certain foreign subsidiaries to limitations that may be
imposed under the laws of the applicable jurisdictions of organization. These
limitations are not considered to be material to the Company as a whole. There
are no contractual restrictions, under the Credit Facility or otherwise, upon
the ability of the Subsidiary Guarantors to make distributions or pay
dividends, directly or indirectly, to IMPAC.
 
   Since its acquisition of Tinsley, the Company is exposed to currency
exchange rate risk with respect to its net assets, transactions and the
related net income denominated in U.K. Pounds Sterling, Dutch Guilders, Irish
Punts, Austrian Shillings and the Euro. Business activities in various
currencies expose the Company to the risk that the eventual net dollar cash
inflows resulting from transactions with foreign customers and suppliers
denominated in foreign currencies may be adversely affected by changes in
currency exchange rates. The Company is evaluating these risks and developing
its hedging program.
 
Adoption of New Accounting Standard
 
   In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This statement
is effective for fiscal years beginning after June 15, 1999. Due to the recent
release and complexity of this new standard, an assessment of the impact it
will have on the financial position or results of operations has not been
completed.
 
Year 2000 Issues
 
   The information provided below constitutes "Year 2000 Readiness Disclosure"
as defined in the Year 2000 Information and Readiness Disclosure Act and is
subject to the terms thereof. The following description of the Company's
remediation process is meant for information purposes and not as a form of
covenant, warranty, representation or guarantee of any kind. In addition, many
of the Company's year 2000-related efforts are dependent upon third parties
that are effectively beyond the Company's control.
 
 General
 
   As many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year, they may be unable to
accurately process certain data during or after the year 2000. This is
commonly known as the year 2000 ("Y2K") issue. The Y2K issue can arise at any
point in an entity's supply, manufacturing, processing, distribution and
financial chains.
 
   IMPAC and its wholly owned domestic subsidiaries, AGI and Klearfold, are
undertaking an initiative entitled IMPAC 2000 (the "Domestic Project"). While
addressing the Y2K issue specifically, the Domestic Project is intended to
change the entire business systems infrastructure and make it Y2K compliant.
 
                                      16
<PAGE>
 
   The Company believes that Tinsley has substantially addressed the Y2K
issue, with Tinsley's information technology ("IT") systems currently in
compliance with Y2K. With regard to non-IT issues, Tinsley has contacted
vendors who have provided assurances that the relevant systems are in
compliance.
 
 Projects
 
   The Domestic Project is divided into 4 major areas: (i) Infrastructure
Systems, (ii) Applications Software, (iii) Manufacturing Equipment, and (iv)
External Stakeholders. At the present time, the Infrastructure Systems portion
of the project is believed to be complete in so far as it pertains to Y2K.
This includes personal computers, local and wide area networks and telephony.
In addition, desktop environments have been standardized and all such
applications are now believed to be Y2K compliant. At present, the
Applications Software at AGI and Klearfold are different. These systems will
be harmonized with the implementation of the ORACLE ERP system. The Company
has retained an outside consultant to assist in the integration of the
business and systems processes into an ORACLE ERP solution. With respect to
AGI, this implementation is approximately 70 percent complete with full
implementation expected in mid 1999. With respect to Klearfold, a Y2K
compliant patch has been installed to its Applications Software, allowing for
the ORACLE implementation to take place after the year 2000. A contingency
plan for the AGI Applications Software has been developed and is currently in
the testing process. With respect to the Manufacturing Equipment portion of
the project, a comprehensive review of Manufacturing Equipment has been
completed and the Company believes that substantially all significant
equipment is Y2K compliant. With respect to its External Stakeholders, the
Company is in the process of contacting its material suppliers and Electronic
Data Interfaces with third party customers and vendors are in the process of
review.
 
   Tinsley implemented the SAGE accounting application for its UK subsidiaries
in the second half of 1998. The European subsidiaries operate stand alone
accounting systems which the Company believes are Y2K compliant. In addition,
the Company expects that the IMPRINT management information system, which is
used by Tinsley, will become Y2K compliant during the balance of 1999.
 
 Costs
 
   The total cost associated with required modifications to business systems
is not expected to be material to the financial position of the Company. The
estimated cost of the Domestic Project is $8.3 million, of which $3.3 million
was spent through December 31, 1998 and $1.3 was spent in the first quarter of
1999. The residual amount of $3.7 million is to be spent during the remainder
of 1999. The Company will fund the Domestic Project, along with its other
capital expenditures, with internally generated cash flows along with
additional Revolver borrowings, as necessary.
 
 Risks
 
   The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the results of
operations, liquidity and financial condition of the Company. Due to the
general uncertainty inherent with regards to Y2K issues, resulting in part
from the uncertainty of the Y2K readiness of third-party suppliers and
customers, the Company is unable to predict what consequences any Y2K failures
would have on its results of operations, liquidity or financial condition or
on the most reasonably likely worst case scenario. The domestic and foreign
projects will continue to significantly reduce the level of uncertainty about
the Y2K problem and, in particular, about the Y2K compliance and readiness of
its material suppliers. The Company believes that, with the implementation of
the new business systems and completion of the projects listed above as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
 
Euro
 
   The European Community introduced a common European monetary unit, called
the Euro, effective January 1, 1999. The UK, where Tinsley is headquartered,
has opted not to adopt the Euro. However, certain subsidiary
 
                                      17
<PAGE>
 
operations are in countries such as The Netherlands, the Republic of Ireland
and Austria, which participated in its introduction. The new SAGE system
implemented at Tinsley is capable of handling multicurrency transactions, with
the Euro being a currency in its portfolio. The Company does not believe that
the introduction of the Euro will have a material adverse effect on the
results of its operations. See Liquidity and Capital Resources for further
discussion of currency and exchange rate issues.
 
Cautionary Note
 
   This Form 10-Q may contain "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended, including, but not limited to statements
regarding: the redemption by the Company of the Preferred Stock; the funding
of and the projected amount of capital expenditures in 1999; the development
by the Company of a currency hedging program; the impact of the new FASB
statement; the Company's projects with respect to Y2K issues and the
possibility of interruptions caused therefrom; expectations regarding the
Company's Y2K compliance; the effect of the introduction of the Euro; the
Company's ability to incur substantial additional indebtedness; and, certain
other statements identified or qualified by words such as "likely", "will",
"suggests", "may", "would", "could", "should", "expects", "anticipates",
"estimates", "plans", "projects", "believes", or similar expressions (and
variants of such words or expressions). Investors are cautioned that forward-
looking statements are inherently uncertain. Actual performance and results of
operations may differ materially from those projected or suggested in the
forward-looking statements due to certain risks and uncertainties, including,
without limitation, those described below:
 
  . In connection with the consummation of the acquisitions of AGI and
    Tinsley, the Company incurred a significant amount of indebtedness and,
    as a result, the Company is highly leveraged. Subject to certain
    covenants, the Company is permitted to incur substantial additional
    indebtedness in the future.
 
  . The Company's ability to make scheduled payments of principal of, or to
    pay the interest or liquidated damages, if any, on, or to refinance, its
    indebtedness (including the Senior Subordinated Notes), or to fund
    planned capital expenditures and any acquisitions will depend on its
    future performance, which, to a certain extent, is subject to general
    economic, financial, competitive, legislative, regulatory and other
    factors that are beyond its control.
 
  . The Senior Subordinated Notes and the related subsidiary guarantees (the
    "Subsidiary Guarantees") are subordinated in right of payment to all
    current and future senior debt of the Company and the Subsidiary
    Guarantors. The Senior Subordinated Notes indenture (the "Indenture")
    permits the incurrence of substantial additional indebtedness, including
    senior debt, by the Company and its subsidiaries in the future.
 
  . IMPAC has no operations of its own and derives substantially all of its
    revenue from its subsidiaries. Holders of indebtedness and trade
    creditors of subsidiaries of IMPAC would generally be entitled to payment
    of their claims from the assets of the affected subsidiaries before such
    assets were made available for distribution to IMPAC.
 
  . Several of IMPAC's foreign subsidiaries are not required to deliver a
    guarantee with respect to the Senior Subordinated Notes. Additionally,
    IMPAC is allowed under the Indenture to acquire or create additional
    foreign subsidiaries that may not be required to deliver a guarantee with
    respect to the Senior Subordinated Notes.
 
  . Under applicable provisions of federal bankruptcy law or comparable
    provisions of state fraudulent transfer law, the Senior Subordinated
    Notes or the Subsidiary Guarantees, could be voided, or claims in respect
    of the Senior Subordinated Notes or the Subsidiary Guarantees could be
    subordinated to all other debts of IMPAC or any Subsidiary Guarantor. In
    addition, the payment of interest and principal by IMPAC or any
    Subsidiary Guarantor pursuant to the Senior Subordinated Notes could be
    voided and required to be returned to the person making such payment, or
    to a fund for the benefit of the creditors of IMPAC or any Subsidiary
    Guarantor.
 
                                      18
<PAGE>
 
  . Upon a change of control, as defined in the Indenture, the Company will
    be required to offer to repurchase all outstanding Senior Subordinated
    Notes at 101% of the principal amount thereof plus accrued and unpaid
    interest and liquidated damages, if any, to the date of repurchase.
    However, there can be no assurance that sufficient funds will be
    available at the time of any change of control to make any required
    repurchases of Senior Subordinated Notes tendered or that restrictions in
    the Credit Facility will allow the Company to make such required
    repurchases. Furthermore, upon certain ownership changes, the dividend
    rate on the Preferred Stock will increase to 24%.
 
  . Prior to March 1998, the Company had no prior history as a combined
    entity and its operations had not previously been managed on a combined
    basis. Prior to the combination of AGI and Klearfold in March, 1998 and
    the acquisition of Tinsley in September, 1998, AGI, Klearfold and Tinsley
    were operated as separate entities. The 1998 historical and pro forma
    financial information presented in this Form 10-Q may not necessarily be
    indicative of the results that would have been attained had the Company
    operated on a combined basis.
 
  . A substantial portion of the Company's business is now conducted in
    international markets. Risks inherent in foreign operations, such as
    fluctuations in foreign currency exchange rates and changes in social,
    political and economic conditions, could materially adversely affect the
    Company's business.
 
  . The Company's packaging products are almost entirely targeted to consumer
    products companies. Sales of consumer products are subject to changing
    tastes and technologies that cannot be predicted. In addition to
    technical and new product changes that could affect demand for the
    Company's products in traditional distribution channels, demand for the
    Company's products could also be materially affected by change in retail
    distribution channels, such as the anticipated growth in electronic
    commerce distribution channels in which products are sold directly to
    customers over the Internet. The Company's success will depend, in part,
    upon its continued ability to manufacture products that meet changing
    customer needs and industry-wide shifts, successfully anticipate or
    respond to technological changes in manufacturing processes on a cost-
    effective and timely basis and enhance and expand its existing product
    offerings.
 
  . A significant portion of the Company's business is attributable to
    special projects relating to particular hit movie or music releases. The
    existence and timing of such major releases may cause the Company's
    quarterly and annual revenues to vary significantly.
 
  . The Company may in the future pursue selective acquisitions within the
    specialty packaging industry. In the event that such acquisitions were to
    occur, there can be no assurance that the Company's business, financial
    condition and results of operations would not be materially adversely
    affected.
 
  . Many of the Company's products are sold in highly competitive markets in
    the United States, the U.K. and Europe. Competitive pressures or other
    factors could cause the Company to lose existing business or
    opportunities to generate new business or could result in significant
    price erosion, all of which would have a material adverse effect on the
    Company's business, financial condition and results of operations.
 
  . The past and present operations of the Company and the past and present
    ownership and operations of real property by the Company are subject to
    extensive and changing federal, state and local environmental laws and
    regulations pertaining to the discharge of materials into the
    environment, the handling and disposition of wastes, the recycling,
    composition and recycled content of packaging, or otherwise relating to
    the protection of the environment. In addition to the effects of
    regulation, the Company's business may also be affected by environmental
    concerns of consumers with respect to packaging.
 
  . The Company's majority stockholder or its affiliates and certain members
    of senior management own substantially all of the outstanding voting
    stock of IMPAC, which is the sole stockholder of AGI, Klearfold and
    Tinsley and, by virtue of such ownership, have the power to control all
    matters submitted to stockholders of IMPAC and to elect all directors of
    IMPAC and its subsidiaries, including AGI, Klearfold and Tinsley.
 
  . The Company's ability to successfully address its Y2K issues will depend
    on the availability of resources, the Company's ability to discover and
    correct those potential Y2K problems which could have a serious
 
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<PAGE>
 
   impact on specific Company facilities and the ability of vendors to bring
   their computer systems and other equipment into Y2K compliance.
 
   Risk factors, cautionary statements and other conditions that could cause
actual results to be adversely affected are contained in the Company's filings
with the Securities and Exchange Commission, including the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 (the "1998 Annual
Report") and the foregoing discussion should be read in conjunction with the
Cautionary Note section of Management's Discussion and Analysis of Financial
Condition and Results of Operations of the 1998 Annual Report.
 
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
 
   There have been no material changes in the Company's market risk exposures
since December 31, 1998.
 
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<PAGE>
 
                          PART II--OTHER INFORMATION
 
ITEM 1: Legal Proceedings
 
   None
 
ITEM 2: Changes in Securities and Use of Proceeds
 
   On January 12, 1999, IMPAC Group, Inc. (the "Company" or the "Registrant")
issued to BT Capital Investors, L.P. and Phoenix Home Life Mutual Insurance
Company, for an aggregate consideration of $20,000,000, (i) an aggregate of
20,000 shares of Series A Mandatorily Redeemable Preferred Stock, $0.001 par
value per share (the "Preferred Stock") and (ii) detachable, ten-year Warrants
to purchase an aggregate of 6,913 shares of IMPAC's Series A Common Stock at
an exercise price of $0.01 per share (the "Warrants"). The Company used the
net proceeds from the sale of Preferred Stock to acquire 30,087 shares of
outstanding Series A Common Stock. The Warrants are exercisable at any time
during the ten-year period subsequent to their issuance. The issuances of such
Preferred Stock and Warrants were made by the Company in reliance on the
exemption from registration provided under Regulation D under the Securities
Act of 1933, as amended. See Note 4 of the Unaudited Condensed Consolidated
Financial Statements.
 
ITEM 3: Defaults Upon Senior Securities
 
   None
 
ITEM 4: Submission of Matters to a Vote of Security Holders
 
   On January 8, 1999, the Company's stockholders consented, in lieu of a
meeting, to an additional restatement of the Company's Amended and Restated
Certificate of Incorporation. Such stockholder action was consented to by the
affirmative vote of the holders of approximately 119,586 shares of the
Company's Common Stock. On March 26, 1999, the Company's stockholders
consented, in lieu of a meeting, to the election of M. Shaun Lawson and Lee
Newbon to the Company's Board of Directors with each of Richard Block, Zenas
Block, David H. Horowitz, Melvin B. Herrin, H. Scott Herrin, Michael Gilligan
and Michel Reichert continuing as directors of the Company. Such stockholder
action was consented to by the affirmative vote of the holders of
approximately 132,735 shares of the Company's Common Stock.
 
ITEM 5: Other Information
 
   None
 
ITEM 6: Exhibits and Reports on Form 8-K
 
   (a) Exhibits
 
<TABLE>
<CAPTION>
     Exhibit
     Number                              Description
     -------                             -----------
     <C>     <S>
      3.3    Second Amended and Restated By-laws of the Company.*
 
      3.5    Fourth Amended and Restated Certificate of Incorporation of the
             Company.*
 
      4.5    Second Supplemental Indenture, dated as of January 31, 1999, among
             the Company, State Street Bank and Trust Company, as Trustee and
             the Company's subsidiaries party thereto.
 
     10.61   Second Amended and Restated Stockholder Agreement, dated as of
             January 11, 1999, between the Company and its stockholders.*
 
</TABLE>
 
 
                                      21
<PAGE>
 
<TABLE>
<CAPTION>
     Exhibit
     Number                              Description
     -------                             -----------
     <C>     <S>
     10.62   Securities Purchase Agreement, dated January 11, 1999, between the
             Company, BT Capital Investors, L.P. ("BT") and Phoenix Home Life
             Mutual Insurance Company ("Phoenix").*
 
     10.63   Warrant, dated January 11, 1999, issued to BT for the purchase of
             the Company's common stock.*
 
     10.64   Warrant, dated January 11, 1999, issued to Phoenix for the
             purchase of the Company's common stock.*
 
     10.69   Fifth Amendment to the Credit Facility, dated as of January 11,
             1999, among BofA, the Company, AGI and Klearfold.*
 
     10.83   First Amendment to Employment, Non-Competition and Stock
             Repurchase Agreement , dated asof January 8, 1999, by and between
             the Company and David C. Underwood.*
 
     10.84   First Amendment to Employment, Non-Competition and Stock
             Repurchase Agreement, dated as of January 8, 1999, by and between
             the Company and Dean Henkel.*
 
     10.85   Letter Agreement, dated as of January 7, 1999, between the Company
             and certain employees.*
 
     10.86   First Amendment to Employment, Non-Competition and Stock
             Repurchase Agreement, dated as of January 8, 1999, by and between
             the Company and Richard Oppenheimer.*
 
     10.100  Letter Agreement, dated as of January 11, 1999, between Heritage
             Fund II Investment Corporation and the Company.*
 
     10.103  First Amendment to Employment, Non-Competition and Stock
             Repurchase Agreement, dated as of January 13, 1999, by and between
             the Company and Melvin B. Herrin.
 
     10.104  First Amendment to Employment, Non-Competition and Stock
             Repurchase Agreement, dated as of January 13, 1999, by and between
             the Company and Richard Block.
 
     10.105  First Amendment to Employment, Non-Competition and Stock
             Repurchase Agreement, dated as of January 13, 1999, by and between
             the Company and Jacqueline Barry.
 
     10.106  First Amendment to Agreement Relating to Employment and Stock
             Ownership, dated as of January 13, 1999, by and between the
             Company and Craig Wilson.
 
     10.107  First Amendment to Agreement Relating to Employment and Stock
             Ownership, dated as of January 13, 1999, by and between the
             Company and Richard Mazurek.
 
     10.108  First Amendment to Agreement Relating to Employment and Stock
             Ownership, dated as of January 13, 1999, by and between the
             Company and Steve Frazier.
 
     27.1    Financial Data Schedule.
</TABLE>
--------
*  Incorporated by reference to the same numbered exhibit to the Registrant's
   Form 10-K filed by the
   Registrant for the fiscal year ending December 31, 1998.
 
   (b) Reports on Form 8-K
 
   None
 
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