<PAGE>

                       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 June 30, 1999

                        Commission File Number 333-48821

                               IMPAC Group, Inc.
             (Exact name of registrant as specified in its charter)

                                    Delaware
                        (State or other jurisdiction of
                         incorporation or organization)

                                   23-2923682
                                (I.R.S. Employer
                              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 August 6, 1999:

<TABLE>
<CAPTION>
                 Class       Number of Shares Outstanding
            ---------------- ----------------------------
            <S>              <C>
            Series A Common
             Stock                     161,920
            Series B Common
             Stock                       4,500
</TABLE>
<PAGE>

                                     INDEX

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
 <C>        <S>                                                            <C>
 PART I--FINANCIAL INFORMATION
    Item 1. Financial Statements
            Unaudited Condensed Consolidated Statements of Income for
             the Three Months Ended June 30, 1998 and 1999..............     3
            Unaudited Condensed Consolidated Statements of Income for
             the Six Months Ended June 30, 1998 and 1999................     4
            Unaudited Condensed Consolidated Balance Sheets as of
             December 31, 1998 and June 30, 1999........................     5
            Unaudited Condensed Consolidated Statement of Shareholders'
             Equity for the Six Months Ended June 30, 1999..............     6
            Unaudited Condensed Consolidated Statements of Cash Flows
             for the Six Months Ended June 30, 1998 and 1999............     7
            Notes to Unaudited Condensed Consolidated Financial
             Statements.................................................     8
    Item 2. Management's Discussion and Analysis of Financial Condition
            and Results of  Operations..................................    14
    Item 3. Quantitative and Qualitative Disclosures About Market Risk..    23
 PART II--OTHER INFORMATION..............................................   24
</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 June 30, 1998 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               1998     1999
                                                              -------  -------
<S>                                                           <C>      <C>
Net sales.................................................... $35,734  $66,082
Cost of goods sold...........................................  28,316   46,926
                                                              -------  -------
Gross profit.................................................   7,418   19,156
Selling, general and administrative expenses.................   6,551   14,221
                                                              -------  -------
Operating income.............................................     867    4,935
Other income (expense):
  Interest income............................................      66       27
  Interest expense...........................................  (2,932)  (5,714)
  Loss on sale of fixed assets...............................    (125)    (112)
                                                              -------  -------
Income (loss) before income taxes............................  (2,124)    (864)
Income (taxes) benefit.......................................     755      247
                                                              -------  -------
Net income (loss)............................................ $(1,369) $  (617)
                                                              =======  =======
</TABLE>




   The accompanying notes are an integral part of these financial statements

                                       3
<PAGE>

                       IMPAC GROUP, INC. AND SUBSIDIARIES

             UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                    Six Months Ended June 30, 1998 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                                              1998      1999
                                                             -------  --------
<S>                                                          <C>      <C>
Net sales................................................... $51,535  $130,273
Cost of goods sold..........................................  40,734    93,461
                                                             -------  --------
Gross profit................................................  10,801    36,812
Selling, general and administrative expenses................   9,082    28,551
                                                             -------  --------
Operating income............................................   1,719     8,261
Other income (expense):
  Interest income...........................................      72        58
  Interest expense..........................................  (4,154)  (11,339)
  Loss on sale of fixed assets..............................    (125)     (140)
                                                             -------  --------
Income (loss) before income taxes and extraordinary item....  (2,488)   (3,160)
Income (taxes) benefit......................................     882       749
                                                             -------  --------
Income (loss) before extraordinary item.....................  (1,606)   (2,411)
Extraordinary charge for early retirement of debt,
 net of tax benefit of $368.................................    (552)      --
                                                             -------  --------
Net income (loss)........................................... $(2,158) $ (2,411)
                                                             =======  ========
</TABLE>


   The accompanying notes are an integral part of these financial statements

                                       4
<PAGE>

                       IMPAC GROUP, INC. AND SUBSIDIARIES

                UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

<TABLE>
<CAPTION>
                                                       December 31,  June 30,
                        ASSETS                             1998        1999
                        ------                         ------------ -----------
                                                                    (unaudited)
<S>                                                    <C>          <C>
Current assets:
 Cash.................................................   $  4,239    $  3,137
 Trade accounts receivable, net of allowances of
  $1,517 in 1998 and $1,880 in 1999...................     44,361      44,336
 Other receivables....................................      4,278       3,974
 Inventories..........................................     23,982      25,284
 Deferred income taxes................................      3,160       3,727
 Prepaids and other current assets....................      1,650       3,152
                                                         --------    --------
   Total current assets...............................     81,670      83,610
Long-term assets:
 Property, plant and equipment, net...................    107,669     110,712
 Goodwill, net........................................    163,623     155,779
 Deferred financing costs, net........................     10,449      10,617
 Restricted cash......................................        426         430
 Other assets.........................................      2,498       2,605
                                                         --------    --------
   Total assets.......................................   $366,335    $363,753
                                                         ========    ========
<CAPTION>
         LIABILITIES AND SHAREHOLDERS' EQUITY
         ------------------------------------
<S>                                                    <C>          <C>
Current liabilities:
 Bank overdraft.......................................   $  4,804    $  5,621
 Current maturities of long-term debt.................      5,487       6,502
 Trade payables.......................................     20,289      20,915
 Accrued expenses.....................................     23,800      25,791
                                                         --------    --------
   Total current liabilities..........................     54,380      58,829
                                                         --------    --------
Long-term debt........................................    235,072     240,791
Deferred income taxes.................................     10,477      10,083
Other noncurrent liabilities..........................        823         782
                                                         --------    --------
   Total liabilities..................................    300,752     310,485
                                                         --------    --------
Mandatorily redeemable preferred stock................        --       15,929
                                                         --------    --------
Shareholders' equity:
 Common stock, series A, $.001 par value; 1,000,000
  shares authorized, 191,746 and 161,585 shares
  issued and outstanding at December 31, 1998 and
  June 30, 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 June 30,
  1999................................................          0           0
 Paid in capital......................................     98,625      79,774
 Warrants outstanding.................................        --        4,207
 Carryover basis adjustment...........................    (37,143)    (37,143)
 Accumulated other comprehensive income...............       (681)    (10,576)
 Retained earnings....................................      4,782       1,077
                                                         --------    --------
   Total shareholders' equity.........................     65,583      37,339
                                                         --------    --------
   Total liabilities & shareholders' equity...........   $366,335    $363,753
                                                         ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       5
<PAGE>

                       IMPAC GROUP, INC. AND SUBSIDIARIES

       UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                         Six Months ended June 30, 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..................   (34,661)    --   (18,851)      --           --           --         --     (18,851)
Accretion of mandatorily
 redeemable preferred
 stock..................       --      --       --        --           --           --      (1,294)    (1,294)
Foreign currency
 translation
 adjustment.............       --      --       --        --           --        (9,895)       --      (9,895)
Net income (loss).......       --      --       --        --           --           --      (2,411)    (2,411)
                           -------  ------ --------    ------    ---------     --------    -------   --------
Balance at June 30,
 1999...................   161,585  $  --  $ 79,774    $4,207    $ (37,143)    $(10,576)   $ 1,077   $ 37,339
                           =======  ====== ========    ======    =========     ========    =======   ========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       6
<PAGE>

                       IMPAC GROUP, INC. AND SUBSIDIARIES

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                    Six Months Ended June 30, 1998 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               1998     1999
                                                              -------  -------
<S>                                                           <C>      <C>
Cash flows from operating activities:
  Net income (loss).......................................... $(2,158) $(2,411)
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities--
    Extraordinary charge for early retirement of debt........     552      --
    Depreciation and amortization............................   2,864    9,176
    Amortization of goodwill.................................     300    2,035
    Loss on sale of fixed assets.............................     125      140
    Deferred income taxes....................................    (390)    (961)
    Changes in assets and liabilities--
      Trade accounts receivable, net.........................  (1,318)      25
      Inventories............................................  (4,465)  (1,302)
      Trade payables and bank overdraft......................   4,133    1,443
      Other assets and liabilities...........................   2,454      311
                                                              -------  -------
        Net cash provided by operating activities............   2,097    8,456
                                                              -------  -------
Cash flows from investing activities:
  Capital expenditures.......................................  (4,452) (15,923)
  Acquisition of AGI Incorporated, net of cash acquired...... (64,163)     --
                                                              -------  -------
        Net cash used for investing activities............... (68,615) (15,923)
                                                              -------  -------
Cash flows from financing activities:
  Net change in borrowings under revolving credit line.......     --    11,115
  Repayment of long-term debt................................ (29,850)    (506)
  Proceeds from senior subordinated notes.................... 100,000      --
  Decrease in capital leases.................................     --    (2,684)
  Decrease (increase) in restricted cash.....................     209       (4)
  Proceeds from issuance of common stock.....................   4,600      --
  Repurchase of common stock.................................     --   (18,851)
  Proceeds from issuance of preferred stock and stock
   warrants..................................................     --    18,842
  Change in deferred financing costs.........................  (4,714)    (982)
                                                              -------  -------
        Net cash provided by financing activities............  70,245    6,930
                                                              -------  -------
Effect of exchange rate differences on cash..................     --      (565)
                                                              -------  -------
Increase (decrease) in cash..................................   3,727   (1,102)
Cash, beginning of period....................................     194    4,239
                                                              -------  -------
Cash, end of period.......................................... $ 3,921  $ 3,137
                                                              =======  =======
Supplemental Cash Flow Information:
  Interest paid.............................................. $   963  $10,638
  Income taxes paid..........................................     (19)     667
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       7
<PAGE>

                       IMPAC GROUP, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                        (In thousands except share data)

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 June 30, 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 outstanding 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.

                                       8
<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
purchases 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 and six months ended
June 30, 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        Six Months Ended
                                     June 30,                 June 30,
                             ------------------------  ------------------------
                                1998         1999         1998         1999
                             ----------- ------------  ----------  ------------
                             (Pro forma) (As reported) (Pro forma) (As reported)
   <S>                       <C>         <C>           <C>         <C>
   Net sales................   $61,798     $66,082      $119,615     $130,273
   Net income (loss)........    (2,683)       (617)       (4,351)      (2,411)
</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, June 30,
                                                               1998       1999
                                                           ------------ --------
   <S>                                                     <C>          <C>
   Raw materials..........................................   $ 9,597    $ 8,931
   Work in process and finished goods.....................    14,385     16,353
                                                             -------    -------
                                                             $23,982    $25,284
                                                             =======    =======
</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 $18.8 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 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.


                                       9
<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 $14.6 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 and
April 29, 1999, the Company granted options to purchase approximately 8,900 and
8,299 shares, respectively, 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 employees. The options to purchase Series A Common Stock vest over
a four-year period.

 Other Common Stock Repurchase--

   On June 11, 1999, the Company purchased approximately 73 shares of Series A
Common Stock from a former employee for $37.

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     Six Months Ended
                                          Ended June 30,        June 30,
                                          ----------------  -----------------
                                           1998     1999     1998      1999
                                          -------  -------  -------  --------
   <S>                                    <C>      <C>      <C>      <C>
   Net income (loss)..................... $(1,369) $  (617) $(2,158) $ (2,411)
   Foreign currency translation
    adjustment...........................     --    (3,778)     --     (9,895)
                                          -------  -------  -------  --------
   Comprehensive income (loss)........... $(1,369) $(4,395) $(2,158) $(12,306)
                                          =======  =======  =======  ========
</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 six months
ended June 30, 1999:

<TABLE>
<CAPTION>
                                                          Operating Identifiable
   Geographic Regions                            Sales     Income      Assets
   ------------------                           --------  --------- ------------
   <S>                                          <C>       <C>       <C>
   United States............................... $ 73,994   $6,389     $149,453
   U.K. and Europe.............................   56,295    3,471      203,655
                                                --------   ------     --------
   Total geographic segments...................  130,289    9,860      353,108
   Elimination of sales........................      (16)     --           --
   Unallocated corporate expense...............      --    (1,599)         --
   Corporate assets............................      --       --        10,645
                                                --------   ------     --------
   Consolidated totals......................... $130,273   $8,261     $363,753
                                                ========   ======     ========
</TABLE>


                                       10
<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 IMPAC and
have fully and unconditionally guaranteed the Senior Subordinated Notes on a
joint and several basis. During the first quarter of 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. 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. 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 June 30, 1999 and
for the six months ended June 30, 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 IMPAC's 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 its
  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").

                                       11
<PAGE>

                       IMPAC GROUP, INC. AND SUBSIDIARIES

  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF INCOME
                         SIX MONTHS ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
                                                  Non-
                           IMPAC   Subsidiary  Guarantor                   IMPAC
                          Parent   Guarantors Subsidiaries Eliminations Consolidated
                          -------  ---------- ------------ ------------ ------------
<S>                       <C>      <C>        <C>          <C>          <C>
Net sales...............  $   --    $105,183    $25,781       $(691)      $130,273
Cost of goods sold......      --      74,918     19,234        (691)        93,461
                          -------   --------    -------       -----       --------
Gross profit............      --      30,265      6,547         --          36,812
Selling, general and
 administrative
 expenses...............    1,599     22,803      4,149         --          28,551
                          -------   --------    -------       -----       --------
Operating income
 (loss).................   (1,599)     7,462      2,398         --           8,261
Equity earnings (losses)
 in subsidiaries........     (625)     1,404        --         (779)           --
Interest expense, net...   (1,367)    (9,476)      (578)        --         (11,421)
                          -------   --------    -------       -----       --------
Income (loss) before
 income taxes...........   (3,591)      (610)     1,820        (779)        (3,160)
Income (taxes) benefit..    1,180        (15)      (416)        --             749
                          -------   --------    -------       -----       --------
Net income (loss).......  $(2,411)  $   (625)   $ 1,404       $(779)      $ (2,411)
                          =======   ========    =======       =====       ========
</TABLE>

                                       12
<PAGE>

                       IMPAC GROUP, INC. AND SUBSIDIARIES

  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
                                 JUNE 30, 1999

<TABLE>
<CAPTION>
                                                 Non-
                          IMPAC   Subsidiary  Guarantor                   IMPAC
                          Parent  Guarantors Subsidiaries Eliminations Consolidated
                         -------- ---------- ------------ ------------ ------------
<S>                      <C>      <C>        <C>          <C>          <C>
Current assets:
  Cash.................. $    317  $    367    $ 2,453     $     --      $  3,137
  Trade accounts
   receivable, net......      --     38,829      5,507           --        44,336
  Intercompany
   receivables..........   19,181    40,146      5,096       (64,423)         --
  Inventories...........      --     23,606      1,678           --        25,284
  Other current assets..      136     9,443      1,274           --        10,853
                         --------  --------    -------     ---------     --------
    Total current
     assets.............   19,634   112,391     16,008       (64,423)      83,610
                         --------  --------    -------     ---------     --------
  Property, plant and
   equipment, net.......      --     85,602     25,110           --       110,712
  Goodwill, net.........      --    135,712     20,067           --       155,779
  Intercompany
   receivables..........  164,409    16,568        --       (180,977)         --
  Investment in
   subsidiaries.........   75,946    41,543        --       (117,489)         --
  Other assets..........   10,192     2,597        863           --        13,652
                         --------  --------    -------     ---------     --------
    Total assets........ $270,181  $394,413    $62,048     $(362,889)    $363,753
                         ========  ========    =======     =========     ========
Current liabilities:
  Current maturities of
   long-term debt....... $  2,418  $  3,030    $ 1,054     $     --      $  6,502
  Trade payables........      --     21,381      5,155           --        26,536
  Intercompany
   payables.............      --     32,762     31,661       (64,423)         --
  Accrued expenses......    2,421    20,431      2,939           --        25,791
                         --------  --------    -------     ---------     --------
    Total current
     liabilities........    4,839    77,604     40,809       (64,423)      58,829
                         --------  --------    -------     ---------     --------
Long-term debt..........  212,074    26,099      2,618           --       240,791
Other noncurrent
 liabilities............      --     10,815         50           --        10,865
Intercompany debt.......      --    166,933     14,044      (180,977)         --
                         --------  --------    -------     ---------     --------
  Total liabilities.....  216,913   281,451     57,521      (245,400)     310,485
                         --------  --------    -------     ---------     --------
Mandatorily redeemable
 preferred stock........   15,929       --         --            --        15,929
                         --------  --------    -------     ---------     --------
Total shareholders'
 equity.................   37,339   112,962      4,527      (117,489)      37,339
                         --------  --------    -------     ---------     --------
Total liabilities and
 shareholders' equity... $270,181  $394,413    $62,048     $(362,889)    $363,753
                         ========  ========    =======     =========     ========
</TABLE>

                                       13
<PAGE>

                       IMPAC GROUP, INC. AND SUBSIDIARIES

  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

           UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                         SIX MONTHS ENDED JUNE 30, 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........... $ (1,100)  $ 2,888     $ 6,668       $ --        $  8,456
                         --------   -------     -------       -----       --------
Cash flows from
 investing activities:
  Capital expenditures..      --     (8,464)     (7,459)        --         (15,923)
                         --------   -------     -------       -----       --------
Cash flows from
 financing activities:
  Net change in
   borrowings under
   revolving credit
   line.................   11,115       --          --          --          11,115
  Repurchase of common
   stock................  (18,851)      --          --          --         (18,851)
  Proceeds from issuance
   of preferred stock
   and stock warrants...   18,842       --          --          --          18,842
  Loans and advances
   (to) from related
   parties..............   (4,356)    6,183      (1,827)        --             --
  Other financing
   activities...........   (1,016)   (2,313)       (847)        --          (4,176)
                         --------   -------     -------       -----       --------
  Net cash provided by
   financing
   activities...........    5,734     3,870      (2,674)        --           6,930
                         --------   -------     -------       -----       --------
Effect of exchange rate
 differences on cash....   (4,636)      687       3,384                       (565)
                         --------   -------     -------       -----       --------
Increase (decrease) in
 cash...................       (2)   (1,019)        (81)        --          (1,102)
Cash, beginning of
 period.................      319     1,387       2,533         --           4,239
                         --------   -------     -------       -----       --------
Cash, end of period..... $    317   $   368     $ 2,452       $ --        $  3,137
                         ========   =======     =======       =====       ========
</TABLE>

Note 8--Subsequent Events

   On July 30, 1999, IMPAC issued approximately 1,887 shares of Series A Common
Stock to certain key employees and directors of the Company for net proceeds of
$945. IMPAC used the net proceeds to acquire approximately 1,552 shares of
outstanding Series A Common Stock.

                                       14
<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"). 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 and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 1999. As such, the discussion and analysis
of the historical results of operations and financial position for the three
and six months ended June 30, 1999 and 1998 are supplemented with the
discussion and analysis of the results of operations and financial position for
the historical three and six months ended June 30, 1999 compared to the pro
forma three and six months ended June 30, 1998.

   IMPAC is a holding company with no material assets or operations other than
its investments in its direct and indirect 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 IMPAC,
the Subsidiary Guarantors and the subsidiaries of IMPAC that have not provided
guarantees on the Senior Subordinated Notes 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.

Pro Forma Results of Operations

 Historical Three Months Ended June 30, 1999 Compared to Pro Forma Three Months
 Ended June 30, 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
June 30, 1998 (the "1998 period") and the historical three months

                                       15
<PAGE>

ended June 30, 1999 (the "1999 period"). The unaudited income statement data
for the three months ended June 30, 1998 are presented on a pro forma basis as
if the acquisition of Tinsley and the borrowings incurred to fund that
acquisition occurred as of January 1, 1998.

<TABLE>
<CAPTION>
                                                        Three Months Ended June
                                                                  30,
                                                        ------------------------
                                                           1998         1999
                                                        ----------- ------------
                                                        (Pro forma) (Historical)
   <S>                                                  <C>         <C>
   Income Statement Data:
   Net sales...........................................    100.0%      100.0%
   Cost of goods sold..................................     76.3%       71.0%
                                                           -----       -----
   Gross profit........................................     23.7%       29.0%
   Selling, general and administrative expenses........     20.8%       21.5%
                                                           -----       -----
   Operating income....................................      2.9%        7.5%
   Interest expense, net...............................      8.7%        8.8%
                                                           -----       -----
   Income (loss) before income taxes...................     (5.8%)      (1.3%)
   Income taxes (benefit)..............................     (1.5%)      (0.4%)
                                                           -----       -----
   Net income (loss)...................................     (4.3%)      (0.9%)
                                                           =====       =====
</TABLE>

   Net Sales for the 1999 period were $66.1 million compared to $61.8 million
for the 1998 period, an increase of 6.9%. This increase was due to a $3.7
million increase in entertainment packaging and a $3.9 million increase in
cosmetics packaging, partially offset by a $3.2 million decrease 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, as well as strong growth in the sales of multimedia packaging to the
Company's U.K. and European customers. 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 decrease in other consumer products packaging resulted
primarily from lower volume in personal care packaging and sales to the
commercial print market, partially offset by an increase in food and beverage
packaging sales.

   Gross Profit for the 1999 period was $19.2 million compared to $14.6 million
for the 1998 period, an increase of 31.0%. The increase in gross profit was due
to the sales increase noted above and an increase in gross margin. The increase
in gross margin from 23.7% to 29.0% relates predominantly to the realization of
improved efficiencies as a result of the Company's Grover, North Carolina
facility being fully operational in 1999 as compared to its start-up phase in
1998.

   Selling, General and Administrative Expenses for the 1999 period were $14.2
million compared to $12.8 million for the 1998 period, an increase of 10.7%.
SG&A as a percentage of sales increased from 20.8% to 21.5%. 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 and increases
in anticipated payouts under various compensation programs tied to sales and
profitability.

   Operating Income was $4.9 million for the 1999 period and $1.8 million for
the 1998 period due to the factors discussed above.

   Net Interest Expense for the 1999 period was $5.8 million compared to $5.4
million for the 1998 period, an increase of 7.1%. 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 $0.2 million compared to
$0.9 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.

   Net Loss for the 1999 period was $0.6 million compared to $2.7 million for
the 1998 period due to the factors discussed above.

                                       16
<PAGE>

 Historical Six Months Ended June 30, 1999 Compared to Pro forma Six Months
 Ended June 30, 1998

   The following table sets forth certain unaudited income statement data
(expressed as a percentage of net sales) for the pro forma six months ended
June 30, 1998 (the "1998 period") and the historical six months ended June 30,
1999 (the "1999 period"). The unaudited income statement data for the six
months ended June 30, 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>
                                                           Six Months Ended
                                                               June 30,
                                                        -----------------------
                                                           1998        1999
                                                        ----------  -----------
                                                        (Pro forma) (Historical)
<S>                                                     <C>         <C>
Income Statement Data:
Net sales..............................................   100.0%       100.0%
Cost of goods sold.....................................    74.3%        71.7%
                                                          -----        -----
Gross profit...........................................    25.7%        28.3%
Selling, general and administrative expenses...........    21.4%        21.9%
                                                          -----        -----
Operating income.......................................     4.3%         6.4%
Interest expense, net..................................     9.0%         8.8%
                                                          -----        -----
Income (loss) before income taxes......................    (4.7%)       (2.4%)
Income taxes (benefit).................................    (1.1%)       (0.5%)
                                                          -----        -----
Income (loss) before extraordinary item................    (3.6%)       (1.9%)
                                                          =====        =====
</TABLE>

   Net Sales for the 1999 period were $130.3 million compared to $119.6 million
for the 1998 period, an increase of 8.9%. This increase was due to a $8.1
million increase in entertainment packaging and a $5.0 million increase in
cosmetics packaging, partially offset by a $5.1 million decrease 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, as well as strong growth in the sales of multimedia packaging to the
Company's U.K. and European customers. 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 decrease in other consumer products packaging resulted
primarily from lower volume in personal care packaging and sales to the
commercial print market, partially offset by an increase in sales of a
hologravure label application for a customer in the personal computer market.

   Gross Profit for the 1999 period was $36.8 million compared to $30.7 million
for the 1998 period, an increase of 19.8%. The increase in gross profit was due
to the sales increase noted above and an increase in gross margin. The increase
in gross margin from 25.7% to 28.3% relates predominantly to the realization of
improved efficiencies as a result of the Company's Grover, North Carolina
facility being fully operational in 1999 as compared to its start-up phase in
1998.

   Selling, General and Administrative Expenses for the 1999 period were $28.6
million compared to $25.6 million for the 1998 period, an increase of 11.3%.
SG&A as a percentage of sales increased from 21.4% to 21.9%. 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 $8.3 million for the 1999 period and $5.1 million for
the 1998 period due to the factors discussed above.

                                       17
<PAGE>

   Net Interest Expense for the 1999 period was $11.4 million compared to
$10.8 million for the 1998 period, an increase of 6.2%. 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 $0.7 million compared to
$1.3 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 $2.0
million in each period.

   Net Loss for the 1999 period was $2.4 million compared to $4.4 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 Results of Operations

 Historical Three Months Ended June 30, 1999 Compared to Historical Three
 Months Ended June 30, 1998

   The results of operations for the three months ended June 30, 1998 (the
"1998 period") do not include any results of Tinsley. The results of
operations for the three months ended June 30, 1999 (the "1999 period")
include the results of 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 the Tinsley
acquisition. Net interest expense increased from $3.0 million in the 1998
period to $5.8 million in the 1999 period primarily due to the additional
borrowings incurred to fund the acquisition of Tinsley. Income taxes for the
1999 period were a benefit of $0.2 million compared to $0.8 million for the
1998 period. The Company's effective tax rates decreased from a benefit of
35.5% in the 1998 period to 28.6% in the 1999 period primarily due to the
effect of an increase in non-deductible goodwill amortization of approximately
$0.8 million. The net loss for the 1999 period was $0.6 million compared to
$1.4 million during the 1998 period due to the factors discussed above.

 Historical Six Months Ended June 30, 1999 Compared to Historical Six Months
 Ended June 30, 1998

   The results of operations for the six months ended June 30, 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 six months ended June
30, 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
$4.2 million in the 1998 period to $11.4 million in the 1999 period primarily
due to the additional borrowings incurred to fund the acquisitions of AGI and
Tinsley. Income taxes for the 1999 period were a benefit of $0.6 million
compared to $0.9 million for the 1998 period. The Company's effective tax
rates decreased from a benefit of 35.5% in the 1998 period to 23.7% in the
1999 period primarily due to the effect of an increase in non-deductible
goodwill amortization of approximately $1.7 million. The net loss for the 1999
period was $2.4 million compared to $2.2 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 six months ended June 30,
1999 (the "1999 period") was $8.5 million compared to $2.1 million for the six
months ended June 30, 1998 (the "1998 period"). Income from operations before
non-cash charges increased to $8.0 million from $1.3 million primarily due to
the acquisitions of AGI and Tinsley. In the 1999 period, income from
operations before non-cash charges of $8.0 million, the issuance of 20,000
shares of Series A Mandatorily Redeemable Preferred Stock (the "Preferred
Stock") and detachable, ten-year warrants (the "Warrants") to purchase 6,913
shares of Series A Common Stock, $11.1 million of revolver borrowings under
the Credit Facility and a $0.5 million decrease in

                                      18
<PAGE>

working capital requirements were used to fund the repurchase of Series A
Common Stock, the repayment of $0.5 million of bank borrowings, $1.0 million of
debt issuance costs, a $2.7 million decrease in capital leases and $15.9
million of capital expenditures. In the 1998 period, income from operations
before non-cash charges of $1.3 million, the issuance of the Senior
Subordinated Notes and Series A Common Stock, $0.2 million of proceeds from the
Company's industrial revenue bonds and a $0.8 million decrease in working
capital requirements were used to fund the acquisition of AGI, the repayment of
$29.9 million of bank borrowings, $4.7 million of debt issuance costs and $4.5
million of capital expenditures.

   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 $30.0 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 Preferred Stock with a
face value of $20.0 million together with 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 $18.8 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 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.

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, 2000. 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.

                                       19
<PAGE>

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.

   The Company believes that Tinsley has substantially addressed the Y2K issue,
with Tinsley's information technology ("IT") systems, subject to the
installation of a Y2K compliant patch, being 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, AGI and Klearfold operate
different Applications Software, both of which the Company believes are Y2K
compliant. 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 85 percent
complete with full implementation expected by the end of 1999. The
implementation of ORACLE at Klearfold will take place after the year 2000. 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, except for the Austrian
subsidiary, operate stand-alone accounting systems, which the Company believes
are Y2K compliant. A new Y2K compliant accounting system is currently being
installed in the Austrian subsidiary, the completion of which is expected by
the end of 1999. 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 when a patch is installed.

 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, excluding the costs of the ORACLE
implementation at Klearfold, is $10.0 million, of which $3.3 million was spent
through December 31,

                                       20
<PAGE>

1998 and $3.7 million was spent in the first half of 1999. The residual amount
of $3.0 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 borrowings under the Credit
Facility, 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 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.

                                       21
<PAGE>

  .  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.

  .  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.

                                       22
<PAGE>

  .  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 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.

                                      23
<PAGE>

                           PART II--OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

   None

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

   None

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

   None

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   On April 7, 1999, the Company's stockholders consented, in lieu of a
meeting, to the sale of certain shares of the Company's Series A Common Stock
by each of James Oppenheimer and Dean Henkel to Heritage Fund II Investment
Corporation. Such stockholder action was consented to by the affirmative vote
of the holders of approximately 125,914 shares of the Company's Series A Common
Stock with respect to the sale by Mr. Oppenheimer and approximately 135,911
shares of the Company's Series A Common Stock with respect to the sale by Mr.
Henkel.

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.*
           Fourth Amended and Restated Certificate of Incorporation of the
    3.5    Company.*
   10.109  First Amendment to Agreement Relating to Employment and Stock
           Ownership, dated as of January 13, 1999, by and between the Company
           and James Oppenheimer.
   10.110  First Amendment to Agreement Relating to Employment and Stock
           Ownership, dated as of January 13, 1999, by and between the Company
           and Dennis McGuin.
   10.111  First Amendment to Agreement Relating to Employment and Stock
           Ownership, dated as of January 13, 1999, by and between the Company
           and Robert Eliason.
   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

                                       24
<PAGE>

                                   SIGNATURES

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

                                          IMPAC Group, Inc.

                                                 /s/ David C. Underwood
                                          By: _________________________________
                                                   David C. Underwood
                                                 Chief Financial Officer

Date: August 10, 1999

                                       25