<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 September 30, 1998


                       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.  [ ] YES    [X] NO

Number of shares outstanding of common stock as of the close of business on
November 16, 1998:


       Class                     Number of Shares Outstanding
---------------------            ----------------------------
Series A Common Stock                          196,245.5
Series B Common Stock                                0
<PAGE>

                                     INDEX
<TABLE> 
<CAPTION> 

                                                                                   Page
                                                                                   ----
<S>                                                                                <C> 
PART I - FINANCIAL INFORMATION

     Item 1.  Financial Statements

              Unaudited Condensed Consolidated Statements of Income for the 
                Three Months Ended September 30, 1998 and 1997..................     3

              Unaudited Condensed Consolidated Statements of Income for the
                Nine Months Ended September 30, 1998 and 1997...................     4

              Unaudited Condensed Consolidated Balance Sheets as of December 31,
                1997 and September 30, 1998.....................................     5

              Unaudited Condensed Consolidated Statements of Cash Flows for the
                Nine Months Ended September 30, 1998 and 1997...................     6

              Notes to Unaudited Condensed Consolidated Financial Statements....     8

     Item 2.  Management's Discussion and Analysis of Financial Condition and
              Results of Operations.............................................    12

     Item 3.  Quantitative and Qualitative Disclosures About Market Risk........    18

PART II - OTHER INFORMATION                                                         18
</TABLE> 
                                       2
<PAGE>

                        PART I -- FINANCIAL INFORMATION

ITEM 1:  FINANCIAL STATEMENTS


                               IMPAC GROUP, INC.
             UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                (In Thousands)

<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                     September 30,
                                                              ----------------------------
                                                                1997                1998
                                                              --------            --------
<S>                                                           <C>                 <C>
Net sales                                                     $14,800             $53,957
Cost of goods sold                                             10,975              39,831
                                                              --------            --------
Gross profit                                                    3,825              14,126
Selling, general and administrative expenses                    1,986               7,623
                                                              --------            --------
Operating income                                                1,839               6,503
Other income (expense):
      Interest income                                               -                  89
      Interest expense                                           (856)             (3,672)
      Other expense                                                 -                (192)
      Loss on sale of fixed assets                                  -                 (45)
                                                              --------            --------
Income before income taxes                                        983               2,683
Income taxes                                                     (345)             (1,239)
                                                              --------            --------
Net income                                                    $   638             $ 1,444
                                                              ========            ========
</TABLE>

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

                                       3
<PAGE>

                               IMPAC GROUP, INC.
             UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                (In Thousands)
 
<TABLE>
<CAPTION>
 
                                                                         Nine Months Ended
                                                                            September 30,
                                                                --------------------------------------- 
                                                                       1997                  1998
                                                                -----------------     -----------------
<S>                                                               <C>                   <C>
Net sales                                                             $   40,206           $   105,492
Cost of goods sold                                                        29,174                80,565
                                                                -----------------     -----------------
Gross profit                                                              11,032                24,927
Selling, general and administrative expenses                               5,613                16,705
                                                                -----------------     -----------------
Operating income                                                           5,419                 8,222
Other income (expense):
      Interest income                                                          -                   161
      Interest expense                                                    (2,446)               (7,826)
      Other expense                                                            -                  (192)
      Loss on sale of fixed assets                                             -                  (170)
                                                                -----------------     -----------------
Income before income taxes and extraordinary item                          2,973                   195
Income taxes                                                              (1,043)                 (357)
                                                                -----------------     -----------------
Income (loss) before extraordinary item                                    1,930                  (162)
Extraordinary charge for early retirement of debt, net of tax
     benefit of $368                                                           -                  (552)
                                                                -----------------     -----------------
Net income (loss)                                                     $    1,930           $      (714)
                                                                =================     =================
</TABLE>


   The accompanying notes are an integral part of these financial statements

                                       4
<PAGE>

                               IMPAC GROUP, INC.
                UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                                (In Thousands)
 
<TABLE>
<CAPTION>
 
                                                                           December 31,        September 30,
                                                                               1997                 1998
                                                                       -----------------    -----------------
Assets                                                                                          (unaudited)
<S>                                                                      <C>                  <C>
Current assets:
     Cash                                                                      $    194             $  2,419
     Trade accounts receivable, net                                               5,986               50,316
     Other receivables                                                              439                6,017
     Inventories                                                                  6,957               24,479
     Prepaid expenses                                                               510                  677
     Deferred income taxes                                                          661                2,466
     Other current assets                                                           156                  162
                                                                       -----------------    -----------------
Total current assets                                                             14,903               86,536
 
Long-term assets:
     Property, plant and equipment, net                                          11,100              100,860
     Goodwill                                                                         0              168,142
     Deferred financing costs, net                                                1,024                9,468
     Restricted cash                                                                625                  421
     Other assets                                                                   641                2,289
                                                                       -----------------    -----------------
Total assets                                                                   $ 28,293             $367,716
                                                                       =================    =================
 
Liabilities and Shareholders' Equity
Current liabilities:
     Bank overdraft                                                            $      0             $  5,345
     Current maturities of long-term debt                                             0                9,410
     Trade payables                                                               5,098               20,276
     Accrued expenses                                                             1,925               29,583
                                                                       -----------------    -----------------
Total current liabilities                                                         7,023               64,614
                                                                       -----------------    -----------------
 
Long-term debt                                                                   33,850              228,588
Deferred income taxes                                                             1,307                9,009
                                                                       -----------------    -----------------
Total liabilities                                                                42,180              302,211
                                                                       -----------------    -----------------
 
Shareholders' (deficit) equity:
     Common stock, voting, $.001 par value; authorized 135,813 shares,
       90,500 shares issued and outstanding at December 31, 1997                      0                    -
     Common stock, nonvoting, $.001 par value; 9,500 shares authorized,
       issued and outstanding at December 31, 1997                                    0                    -
     Common stock, series A, $.001 par value; 1,000,000 shares
      authorized, 196,245.5 shares issued and outstanding at September
      30, 1998                                                                        -                    0
     Common stock, series B, $.001 par value; 50,000 shares authorized,
       0 shares issued and outstanding at September 30, 1998                          -                    0
     Preferred stock, nonvoting, $.001 par value; 100,000 shares
       authorized, issued and outstanding at December 31, 1997                        0                    -
     Paid in capital                                                             20,000               97,540
     Notes receivable                                                               (35)                   0
     Carryover basis adjustment                                                 (37,142)             (37,142)
     Accumulated other comprehensive income                                           -                2,531
     Retained earnings                                                            3,290                2,576
                                                                       -----------------    -----------------
Total shareholders' (deficit) equity                                            (13,887)              65,505
                                                                       -----------------    -----------------
Total liabilities & shareholders' (deficit) equity                             $ 28,293             $367,716
                                                                       =================    =================
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       5
<PAGE>

                               IMPAC GROUP, INC.
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In Thousands)

<TABLE>
<CAPTION>


                                                                     Nine Months Ended
                                                                       September 30,
                                                                  ------------------------
                                                                   1997           1998
                                                                  ------------------------

Cash flows from operating activities:
<S>                                                               <C>          <C>
  Net income (loss)                                               $ 1,930      $     (714)
  Adjustments to reconcile net income to net cash provided by
   (used for) operating activities -
    Extraordinary charge for early retirement of debt                   -             552
    Depreciation and amortization                                   1,226           6,046
    Loss on sale of fixed assets                                        -             170
    Deferred income taxes                                              57            (472)
    Changes in assets and liabilities -
      Trade accounts receivable, net                                1,079         (13,977)
      Inventories                                                    (544)         (2,681)
      Trade payables and bank overdraft                             1,203           5,386
      Other assets and liabilities                                   (295)          5,761
                                                                  ------------------------
        Net cash provided by operating activities                   4,656              71
                                                                  ------------------------

Cash flows from investing activities:
  Capital expenditures                                             (3,830)         (7,966)
  Acquisition of AGI Incorporated, net of cash acquired                           (64,163)
  Acquisition of Tinsley Robor plc, net of cash acquired                -        (161,194)
                                                                  ------------------------
        Net cash used for investing activities                     (3,830)       (233,323)
                                                                  ------------------------

Cash flows from financing activities:
  Net change in borrowings under revolving credit line             (3,496)          9,600
  Repayment of long term debt                                        (575)        (29,850)
  Proceeds from issuance of long term debt                              -         101,000
  Proceeds from senior subordinated notes                               -         100,000
  Proceeds from issuance of bonds                                   4,000               -
  Change in capital leases                                              -             536
  (Increase) decrease in restricted cash                             (744)            204
  Proceeds from issuance of common stock                                -          63,175
  Change in deferred financing costs                                  (12)         (9,504)
                                                                  ------------------------
        Net cash provided by (used for) financing activities         (827)        235,161
                                                                  ------------------------

Effect of exchange rate differences on cash                             -             316
                                                                  ------------------------
(Decrease) increase in cash                                            (1)          2,225
Cash, beginning of period                                               6             194
                                                                  ------------------------
Cash, end of period                                               $     5      $    2,419
                                                                  ========================
</TABLE>


   The accompanying notes are an integral part of these financial statements

                                       6
<PAGE>

                              IMPAC GROUP, INC.
     UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-(continued)
                                (In Thousands)
<TABLE>
<CAPTION>
                                                                  Nine Months Ended September 30,
                                                                ----------------------------------
Supplemental Cash Flow Information:                                    1997              1998
                                                                ----------------------------------
<S>                                                              <C>                      <C>
  Interest paid                                                            $1,486         $  6,617
  Income taxes paid                                                         2,198              (13)
 
  Acquisition of AGI Incorporated-
    Fair market value of assets acquired                                                  $103,529
    Fair market value of liabilities assumed                                                24,945
    Common stock issued                                                                     14,400
                                                                                          --------
    Cash paid                                                                               64,184
    Cash acquired                                                                               21
                                                                                          --------
          Acquisition of AGI Incorporated, net of cash acquired                           $ 64,163
                                                                                          ========
  Acquisition of Tinsley Robor plc-
    Fair market value of assets acquired                                                  $202,820
    Fair market value of liabilities assumed                                                40,687
                                                                                          --------
    Cash paid                                                                              162,133
    Cash acquired                                                                              939
                                                                                          --------
          Acquisition of Tinsley Robor plc, net of cash acquired                          $161,194
                                                                                          ========
</TABLE>

                                       7
<PAGE>
 
                               IMPAC GROUP, INC.
        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                (In Thousands)
                                        
Note 1 -  Basis of Presentation

In the opinion of IMPAC Group, Inc. ("IMPAC") and its consolidated subsidiaries
(together, the "Company"), the accompanying unaudited condensed consolidated
financial statements 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 September 30, 1998 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, 1997 of KFI Holding and AGI Incorporated ("AGI") and the audited
financial statements as of and for the year ended March 31, 1998 of Tinsley
Robor plc ("Tinsley") in the Company's Form S-4 Registration Statement (File No.
333-48821) as filed with the Securities and Exchange Commission.

Certain amounts appearing in the December 31, 1997 balance sheet of the Company
have been reclassified to conform with the current period reporting and changes
in the Company's debt arrangements described below.

Note 2 -  Acquisitions

Acquisition of AGI Incorporated--

On March 12, 1998, KFI Holding Corporation acquired all of the common stock of
AGI for $69.0 million including $54.6 million of cash and $14.4 million of newly
issued common stock, plus acquisition costs. Upon consummation of this
acquisition, KFI Holding Corporation changed its name to "IMPAC Group, Inc."
Concurrently, the Company 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 and $4.6 million of new common stock.

This acquisition was accounted for as a purchase and, accordingly, the operating
results of AGI have been included in the Company's consolidated financial
statements from the date of acquisition. A summary of the Company's purchase
price allocation follows:

<TABLE>
<CAPTION>

<S>                                              <C>
     Receivables                                 $ 11,555
     Inventories                                    6,998
     Deferred incomes taxes                         1,501
     Property, plant and equipment                 40,550
     Other assets                                   1,723
     Trade payables and accrued expenses          (11,799)
     Long-term debt                                (7,640)
     Deferred income taxes                         (5,505)
                                                 --------
          Net assets acquired                    $ 37,383
                                                 ========
</TABLE>

The excess of the purchase price over the fair market value of the net assets
acquired is being amortized over 40 years.

Acquisition of Tinsley Robor plc--

On September 11, 1998, the Company acquired substantially all of the common
stock of Tinsley for $139.6 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 $99.7 million under the
Company's Amended and Restated Multicurrency Credit Facility described in Note 4
below, $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
(Pound Sterling)5.05 million of five year promissory notes having a dollar 
equivalent value of $8.5 million under current exchange rates ("Loan Notes") to
former Tinsley shareholders. Tinsley is a supplier of printed packaging for the
music and multimedia market and has an established presence in the U.K. and
Europe.

                                       8
<PAGE>

This acquisition was accounted for as a purchase and, accordingly, the operating
results of Tinsley have been included in the Company's consolidated financial
statements from the date of acquisition. A summary of the Company's preliminary
purchase price allocation follows:

<TABLE>
<CAPTION>

<S>                                               <C>
     Receivables                                  $19,395
     Inventories                                    7,843
     Property, plant and equipment                 45,550
     Other assets                                   3,197
     Trade payables and accrued expenses          (23,337)
     Long-term debt                               (14,985)
     Deferred income taxes                         (2,365)
                                                  -------
         Net assets acquired                      $35,298
                                                  =======
</TABLE>

The excess of the purchase price over the fair market value of the net assets
acquired is being amortized over 40 years.

Pro Forma for Acquisitions--

The following pro forma information 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 the beginning of
the periods presented.

<TABLE>
<CAPTION>
                                     Three Months Ended                Nine Months Ended
                                       September 30,                     September 30,
                                 ---------------------------     -----------------------------
                                     1997           1998              1997           1998
                                     ----           ----              ----           ----
<S>                                 <C>            <C>              <C>            <C>
          Net sales                 $81,701        $74,644          $207,563       $192,429
          Net income (loss)           2,173             96               758         (6,232)
</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,  September 30,
                                                  1997          1998
                                              ------------  -------------
<S>                                           <C>           <C>
     Raw materials                               $3,658        $ 8,330
     Work in process and finished goods           1,530         16,149
                                                 ------        -------
                                                 $6,957        $24,479
                                                 ======        =======
</TABLE>

Note 4 -- Long-term Debt

On March 12, 1998, the Company completed the issuance of $100.0 million in
Senior Subordinated Notes (the "Senior Subordinated Notes"). The Senior
Subordinated Notes bear interest at 10 1/8% and mature March 15, 2008. The
Indenture governing the Senior Subordinated Notes contains certain covenants
that, among other things, limit the ability of the Company to incur additional
indebtedness, pay dividends, distributions or make investments or certain
restricted payments, enter into certain transactions with affiliates, dispose of
certain assets, incur liens securing subordinated indebtedness and engage in
mergers and consolidations. The Senior Subordinated Notes are general, unsecured
obligations of IMPAC and are guaranteed by all domestic subsidiaries of the
Company (the "Subsidiary Guarantors") (see Note 5). They will be senior to any
future subordinated debt of the Company. At September 30, 1998, the Company had
no indebtedness outstanding that was subordinated to the Senior Subordinated
Notes. The proceeds of the Senior Subordinated Notes were used to fund the
acquisition of AGI and to retire all outstanding indebtedness under the
Company's prior credit agreement. As a result of the refinancing, the Company
recorded an extraordinary charge of $552 (net of tax), reflecting the write-off
of deferred financing costs.

On March 12, 1998, the Company entered into a new five year credit facility
which provided for a $40.0 million revolving credit facility and a $13.0 million
letter of credit facility. On July 7, 1998, the Company entered into an Amended
and Restated Multicurrency Credit Facility (the "Facility") which

                                       9
<PAGE>

became effective on the initial funding date of the Tinsley acquisition and
replaced the prior credit agreement. The Facility provides for up to $53.0
million of revolving credit borrowings (the "Revolver") with a $20 million
letter of credit subfacility under the Revolver (the "L/C Facility"). The
Facility also provides for $37.0 million of Term Loan A borrowings and $64.0
million of Term Loan B borrowings. The Facility also provides a guarantee to the
holders of the Loan Notes described below. Under the provisions of the Facility,
the aggregate amount of outstanding Term Loan A borrowings is limited by the
amount outstanding under the Loan Notes guarantee. Up to $8.5 million of
drawings under this guarantee to redeem the Loan Notes will be converted to
additional borrowings under Term Loan A and any drawings which, as a consequence
of currency fluctuations, exceed $8.5 million will be converted to additional
borrowings under the Revolver. Borrowings under the Facility rank senior to the
Senior Subordinated Notes and are guaranteed by the Subsidiary Guarantors on a
senior basis and are secured by substantially all of the assets of IMPAC and the
Subsidiary Guarantors. As of September 30, 1998, there were $9.6 million of
borrowings outstanding under the Revolver, $28.5 million of borrowings
outstanding under Term Loan A and $64.0 million of borrowings outstanding under
Term Loan B. The Company currently has $12.6 million in letters of credit
outstanding under the L/C Facility securing its industrial revenue bond ("IRB")
borrowings. The interest rate on the Facility is based on either the IBOR or
Base Rate plus the applicable margin. The interest rate on the L/C Facility is
based on the applicable IBOR margin. The Company currently pays a commitment fee
of 1/2 of 1% per annum on the amount of the available credit on the Revolver
over the amount outstanding, plus any outstanding letters of credit available.
The Revolver has a five and one-half year maturity. The Term Loan A and Term
Loan B provide for quarterly scheduled payments maturing in five and one-half
years and six and one-half years, respectively. The Company is required to make
mandatory prepayments on the term loans beginning in March, 2000 if the Company
generates excess cash flow, as defined.

The credit agreement governing the Facility (the "Credit Agreement") includes
covenants requiring the Company to maintain (i) maximum leverage ratios, (ii)
maximum senior leverage ratios, (iii) minimum interest coverage ratios, and (iv)
minimum fixed charge coverage ratios. The Credit Agreement also contains
covenants, among others, limiting additional indebtedness, liens, dividends,
restricted payments, guaranties, advances to affiliates, investments, mergers,
creation of subsidiaries, asset sales and dispositions.

In connection with the acquisition of Tinsley, the Company issued (Pound 
Sterling)5.05 million of five year promissory notes having a dollar equivalent
value of $8.5 million under current exchange rates ("Loan Notes") to former
Tinsley shareholders. The Loan Notes rank senior to the Senior Subordinated
Notes and are guaranteed by Bank of America. Drawings under this guarantee will
be converted into borrowings under Term Loan A and the Revolver of the Credit
Facility.

In connection with the acquisition of AGI, the Company assumed $7.6 million of
variable rate IRB borrowings which mature on February 1, 2026. In connection
with the acquisition of Tinsley, the Company assumed $15.0 million of capital
leases.

Long-term debt as of December 31, 1997 and September 30, 1998, consisted of the
following:

<TABLE>
<CAPTION>
                                                   December 31, 1997           September 30, 1998
                                                   -----------------           ------------------
<S>                                                <C>                         <C>
     Bank borrowings                                         $29,850                     $102,062
     Senior subordinated notes                                     -                      100,000
     Industrial revenue bonds                                  4,000                       11,640
     Loan notes                                                    -                        8,538
     Capital leases                                                -                       15,758
                                                   ----------------------------------------------
       Total debt                                             33,850                      237,998
       Less-current maturities                                     -                        9,410
                                                   ----------------------------------------------
       Total long-term debt                                  $33,850                     $228,588
                                                   ==============================================
</TABLE>

Note 5 - Non-guaranteeing Subsidiaries

Under the Indenture governing the Senior Subordinated Notes and under the Credit
Agreement governing the Facility, certain foreign subsidiaries of the Company
are not required to guarantee the Senior Subordinated Notes and the Facility.
Currently, none of Tinsley or its subsidiaries have guaranteed the Senior
Subordinated Notes or the Facility. However,the Company anticipates that Tinsley
and certain of its subsidiaries will deliver such guarantees prior to December
10, 1998, in accordance with the requirements of the Credit Agreement. Sales and
net income of Tinsley and its subsidiaries for the period from the date of
acquisition to September 30, 1998 were $6.6 million and $0.4 million,
respectively. The following is unaudited consolidated balance sheet data of
Tinsley and its subsidiaries as of September 30, 1998:

<TABLE> 
<CAPTION> 

                                       September 30,
                                           1998
                                       -------------
<S>                                    <C> 
Cash                                        $  1,320
Trade accounts receivable, net                20,648
Inventories                                    3,530
Other current assets                           7,309
                                       -------------
   Total current assets                       32,807
Property, plant and equipment, net            46,067
Goodwill                                     127,718
Other assets                                     849
                                       -------------
   Total assets                             $207,441
                                       =============
Trade payables and accrued expenses         $ 20,623
Other current liabilities                     12,076
                                       -------------
   Total current liabilities                  32,699
Long-term liabilities                          9,710
                                       -------------
Total liabilities                           $ 42,409
                                       =============
</TABLE> 

Note 6 - New Stock Issuance

In connection with the acquisition of AGI on March 12, 1998, the Company (i)
exchanged 44,118 shares of new Common Stock, Series A for all previously issued
and outstanding shares of non-voting Common Stock, voting Common Stock and
Preferred Stock of KFI Holdings, (ii) issued 13,529 shares of new Common Stock,
Series A for $4.6 million, and (iii) issued 42,353 shares of new Common Stock,
Series A as partial consideration to former shareholders of AGI.

                                      10
<PAGE>

In connection with the acquisition of Tinsley on September 11, 1998, the Company
issued 96,245.5 shares of new Common Stock, Series A to certain of the Company's
existing stockholders or their affiliates for $58.6 million.

Note 7 - 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             Nine Months
                                           Ended September 30,     Ended September 30,
                                                  1998                    1998
                                           -------------------     -------------------
<S>                                        <C>                     <C>
       Net income (loss)                         $1,444                  $ (714)
       Foreign currency translation
         adjustment                               2,531                    2,531
                                               --------                 --------
       Comprehensive income                      $3,975                  $ 1,817
                                               ========                 ========
</TABLE>


                                      11
<PAGE>
 
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

GENERAL

     On March 12, 1998, KFI Holding completed its acquisition of AGI
Incorporated ("AGI") and the issuance of the Company's 10 1/8% Senior
Subordinated Notes due 2008 ("Senior Subordinated Notes"). Upon consummation of
these transactions KFI Holding changed its corporate name to "IMPAC Group, Inc."
("IMPAC"). On September 11, 1998, the Company acquired substantially all of the
outstanding capital stock (the "Tinsley Acquisition") of Tinsley Robor plc, a UK
public limited company ("Tinsley"). The Company funded the Tinsley Acquisition
through borrowings under the Amended and Restated Multicurrency Credit Facility
(the "Facility"), proceeds from the sale of common stock to the Company's
existing stockholders or their affiliates and the issuance of five year
promissory notes ("Loan 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 consolidated financial
statements for the three month and nine month periods ended September 30, 1997
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. As such, the discussion and analysis of the results of
operations and financial condition for the three month and nine month periods
ended September 30, 1997 and 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 the beginning of the periods presented.

     IMPAC is a holding company with no material assets or operations other than
its investments in its subsidiaries. All of Klearfold and AGI and their direct 
and indirect subsidiaries (the "Domestic Subsidiaries") are wholly-owned by 
IMPAC and have guaranteed the Senior Subordinated Notes on a full, 
unconditional, joint and several basis, subject to the subordination provisions 
provided for in the related Indenture. Separate financial statements of the
Domestic Subsidiaries have not been presented in this Form 10-Q because
management has determined that such financial statements would not be material
to investors. Consolidated balance sheet data of Tinsley and its subsidiaries
has been presented in Note 5 to Notes to Unaudited Condensed Consolidated
Financial Statements.

  Overview
     IMPAC is a leading designer, manufacturer and marketer of high-end, value-
added specialty packaging for various consumer products markets including
entertainment, cosmetics and personal care in the United States and Europe.
Through its creative design work, specialized manufacturing techniques and
diverse printing capabilities, the Company offers innovative specialty packaging
solutions for customers that seek to differentiate their products in the
consumer marketplace. In addition, unlike most of its competitors, the Company
utilizes a broad range of paper, paperboard and transparent rigid plastic
materials for its products.

RESULTS OF OPERATIONS

Pro Forma Three Months Ended September 30, 1998 Compared to Pro Forma Three
Months Ended September 30, 1997

The following table sets forth certain unaudited income statement data
(expressed as a percentage of net sales) for the three months ended September
30, 1997 (the "1997 period") and the three months ended September 30, 1998 (the
"1998 period") on a pro forma basis as if the acquisitions of AGI and Tinsley
and the borrowings incurred to fund those acquisitions occurred as of the
beginning of the periods presented.

<TABLE>
<CAPTION>
                                                        Pro Forma Three Months
                                                         Ended September 30,
                                                       ------------------------

                                                          1997         1998
                                                       ----------    ----------
<S>                                                    <C>            <C>
Income Statement Data:
Net sales                                                  100.0%        100.0%
Cost of goods sold                                          68.4%         71.8%
                                                       ----------    ----------
Gross profit                                                31.6%         28.2%
Selling, general and administrative expenses                19.7%         19.4%
                                                       ----------    ----------
Operating income                                            11.9%          8.8%
Interest expense, net                                        6.6%          7.2%
                                                       ----------    ----------
Income before income taxes and extraordinary item            5.3%          1.6%
Income taxes                                                 2.6%          1.2%
                                                       ----------    ----------
Income before extraordinary item                             2.7%          0.4%
                                                       ==========    ==========
</TABLE>

                                      12
<PAGE>
 
Net Sales for the 1998 period were $74.6 million compared to $81.7 million for
the 1997 period, a decrease of 8.6%. This decrease was due largely to a $6.6
million decline in special video packaging due to strong 1997 sales related to
the successful releases of several popular titles by the Company's existing
customers along with a decrease in sales of music packaging to the Company's
European customers in 1998.

Gross Profit for the 1998 period was $21.0 million compared to $25.8 million for
the 1997 period, a decrease of 18.5%. The resulting decline in gross margin from
31.6% to 28.2% was primarily due to the decrease in sales of higher value-added
packaging products to the entertainment industry, as discussed above. Gross
margin was also negatively impacted by the less favorable absorption of fixed
costs due to the lower overall sales volume.

Selling, General and Administrative Expenses for the 1998 period were $14.5
million compared to $16.1 million for the 1997 period, a decrease of 10.1%. The
decrease in SG&A as a percentage of sales from 19.7% to 19.4% was due primarily
to reductions in anticipated payouts under various compensation programs tied to
sales and profitability partially offset by expenses associated with the
anticipated relocation and consolidation of certain of the Company's foreign
operations.

Operating Income for the 1998 period was $6.5 million compared to $9.7 million
for the 1997 period, a decrease of 32.5% due to the factors discussed above.

Net Interest Expense was $5.4 million for both the 1998 and 1997 periods.

Income Taxes for the 1998 period was a provision of $0.9 million compared to
$2.1 million for the 1997 period. The Company's effective tax rates for the
periods are not meaningful due to the effects of non-deductible goodwill
amortization of approximately $1.0 million in each period relative to the
amounts of income before income taxes.

Net Income for the 1998 period was $0.1 million compared to $2.2 million for the
1997 period due to the factors discussed above.

Pro Forma Nine Months Ended September 30, 1998 Compared to Pro Forma Nine Months
Ended September 30, 1997

The following table sets forth certain unaudited income statement data
(expressed as a percentage of net sales) for the nine months ended September 30,
1997 (the "1997 period") and the nine months ended September 30, 1998 (the "1998
period") on a pro forma basis as if the acquisitions of AGI and Tinsley and the
borrowings incurred to fund those acquisitions occurred as of the beginning of
the periods presented.

<TABLE>
<CAPTION>
                                                                 Pro Forma
                                                             Nine Months Ended 
                                                               September 30,
                                                             -----------------
                                                              1997       1998
                                                             ------     ------
<S>                                                          <C>        <C>
Income Statement Data: 
Net sales                                                    100.0%     100.0%
Cost of goods sold                                            70.2%      74.1%
                                                             ------     ------
Gross profit                                                  29.8%      25.9%
Selling, general and administrative expenses                  20.5%      20.0%
                                                             ------     ------
Operating income                                               9.3%       5.9%
Interest expense, net                                          7.7%       8.4%
                                                             ------     ------
Income (loss) before income taxes and extraordinary item       1.6%      (2.5%)
Income taxes                                                   1.2%       0.4%
                                                             ------     ------
Income (loss) before extraordinary item                        0.4%      (2.9%)
                                                             ======     ======
</TABLE>

Net Sales for the 1998 period were $192.4 million compared to $207.6 million for
the 1997 period, a decrease of 7.3%. This decrease was due to a $15.1 million
decline in entertainment packaging and a $3.2 million decline in cosmetics
packaging partially offset by a $3.1 million increase in sales to other markets.
The entertainment packaging reduction was due to a decline in sales of special
video packaging due to


                                      13

<PAGE>
 
strong 1997 sales related to the successful releases of several popular titles
by the Company's existing customers and a decrease in sales of standard music
packaging to the Company's European customers in 1998. This decline was
partially offset by stronger sales of special music packaging. The decrease in
cosmetics sales relates primarily to a decision by one of the Company's
significant cosmetics packaging customers to begin to manufacture certain of its
packaging internally and to softness in retail sales of one product line of
another significant cosmetics customer. Increased sales in other markets have
resulted from increases in sales in the personal care and food and beverage
markets.

Gross Profit for the 1998 period was $49.8 million compared to $61.8 million for
the 1997 period, a decrease of 19.5%. The resulting decline in gross margin from
29.8% to 25.9% was primarily due to the decrease in sales of higher value-added
packaging products to the entertainment industry, as discussed above. Gross
margin was also negatively impacted by the less favorable absorption of fixed
costs due to the lower overall sales volume, the start-up of the Company's
Grover, North Carolina facility, additional expenses associated with the start-
up of a new printing press and start-up costs associated with new packaging for
two significant customers. Additionally, the 1997 period benefited from a supply
contract termination settlement of $0.8 million and a favorable insurance
adjustment of $0.4 million.

Selling, General and Administrative Expenses for the 1998 period were $38.5
million compared to $42.5 million for the 1997 period, a decrease of 9.5%. The
decrease in SG&A as a percentage of sales from 20.5% to 20.0% was due primarily
to reductions in anticipated payouts under various compensation programs tied to
sales and profitability offset by start-up costs associated with the Company's
Grover, North Carolina facility and by expenses associated with the anticipated
relocation and consolidation of certain of the Company's foreign operations.

Operating Income for the 1998 period was $11.2 million compared to $19.2 million
for the 1997 period, a decrease of 41.7% due to the factors discussed above.

Net Interest Expense for the 1998 period was $16.1 million compared to $16.0
million for the 1997 period. The increase was due to the issuance of $4.0
million of Industrial Revenue Bonds in August, 1997.

Income Taxes for the 1998 period was a provision of $0.7 million compared to
$2.5 million for the 1997 period. The Company's effective tax rates for the
periods are not meaningful due to the effects of non-deductible goodwill
amortization of approximately $3.1 million in each period relative to the
amounts of income (loss) before income taxes.

Net Loss for the 1998 period was $6.3 million compared to net income of $0.7
million for the 1997 period due to the factors discussed above. The pro forma
loss for the 1998 period does not include an extraordinary charge of $0.7 
million, net of tax, related to the early extinguishment of debt.

LIQUIDITY AND CAPITAL RESOURCES

On March 12, 1998, KFI Holding acquired all of the common stock of AGI for $69.0
million including $54.6 million of cash and $14.4 million of newly issued common
stock, plus acquisition costs. Concurrently, the Company 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
(net of $4.7 million in debt issuance costs) from the issuance of $100.0 million
of 10 1/8% Senior Subordinated Notes and $4.6 million of new common stock. The
balance of the proceeds of the Senior Subordinated Notes were used to retire all
outstanding indebtedness of $29.9 million under KFI Holding's prior bank credit
agreement. At the same time, KFI Holding entered into a new five year credit
agreement which provided for a $40.0 million revolving credit facility and a
$13.0 million letter of credit facility.

On September 11, 1998, the Company acquired substantially all of the common
stock of Tinsley, for $139.6 million plus acquisition costs. Concurrently, the
Company funded the retirement of $18.5 million of indebtedness outstanding under
Tinsley's credit agreements. The acquisition was funded through borrowings of
$99.7 million under the Amended and Restated Multicurrency Credit Facility,
described below, $58.6 million in proceeds from the sale of common stock to the
Company's existing stockholders or their affiliates (the "New Common Equity")
and the issuance of (Pound Sterling) 5.05 million of five year promissory notes
having a dollar equivalent value of $8.5 million under current exchange rates
("Loan Notes") to former Tinsley shareholders. The Company is considering a new
preferred equity financing to replace a portion of the New Common Equity.

                                       14
<PAGE>
 
On July 7, 1998, the Company entered into an Amended and Restated Multicurrency
Credit Facility (the "Facility") which became effective on the initial funding
date of the Tinsley acquisition and replaced the prior Credit Agreement. The
Facility provides for up to $53.0 million of revolving credit borrowings (the
"Revolver") with a $20 million letter of credit subfacility under the Revolver
(the "L/C Facility"). The Facility also provides for $37.0 million of Term Loan
A borrowings and $64.0 million of Term Loan B borrowings. The Facility also
provides a guarantee to the holders of the Loan Notes. Under the provisions of
the Facility, the aggregate amount of outstanding Term Loan A borrowings is
limited by the amount outstanding under the Loan Note guarantee. Up to $8.5
million of drawings under this guarantee to redeem the Loan Notes will be
converted to additional borrowings under Term Loan A and any drawings which, as
a consequence of currency fluctuations exceed $8.5 million will be converted to
additional borrowings under the Revolver. The Revolver has a five and one-half
year maturity, the Term Loan A has a five and one-half year maturity and the
Term Loan B has a six and one-half year maturity.

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.

Net cash provided by operating activities for the nine months ended September
30, 1998 ("the 1998 period") was $0.1 million compared to $4.7 million for the
nine months ended September 30, 1997 ("the 1997 period"). Income from operations
before non-cash charges increased to $5.6 million from $3.2 million due to
increased depreciation and amortization partially offset by a decrease in income
from operations. In the 1998 period, income from operations before non-cash
charges of $5.6 million, the issuance of senior subordinated notes, a $0.5
million increase in capital leases, the issuance of common stock, $110.6 million
of borrowings under the Company's credit facility and $0.2 million of proceeds
from the Company's industrial revenue bonds were used to fund the acquisitions
of Tinsley Robor, plc and AGI Incorporated, the repayment of $29.9 million of
bank borrowings, $9.5 million of debt issuance costs, $8.0 million of capital
expenditures and a $5.5 million increase in working capital requirements. In the
1997 period, income from operations before non-cash charges of $3.2 million,
$3.3 million of net proceeds of an Industrial Revenue Bond issuance and $1.4
million increase in working capital requirements were used to fund a net
decrease of $4.1 million in outstanding borrowings under the Company's bank
credit facility and $3.8 million of capital expenditures. The Company expects to
spend approximately $6.5 million on capital projects on a combined basis during
the fourth quarter of 1998.

     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.

     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. Pound Sterling, Dutch Guilders, Irish Punts, and 
Austrian Schilings. 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 STANDARDS

In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which is effective for fiscal years
beginning after December 15, 1997. Statement No. 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers in annual financial
statements and interim financial reports. The Company is currently evaluating
Statement No. 131 and plans to adopt the standard during the fourth quarter of
1998.

In March 1998 and April 1998, the AcSEC (Accounting Standards Executive
Committee) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" and SOP 98-5,
"Reporting on the Costs of Start-Up Activities," respectively. Both Statements
are effective for fiscal years beginning after December 15, 1998, and early
adoption is encouraged. SOP 98-1 provides guidance on accounting for the costs
of computer software developed or obtained for internal use. SOP 98-5 requires
that entities expense start-up costs and organization costs as they are
incurred. The Company is currently evaluating the new Statements and does not
expect the adoption of either to have a material effect on the results of
operations.

In February 1998, the FASB issued Statement No. 132, "Employers' Disclosures
about Pensions and other Postretirement Benefits" which is effective for fiscal
years beginning after December 15, 1997. Statement No. 132 revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of these plans. The Company is currently
evaluating this new Statement and plans to adopt the standards during the year
ended December 31, 1998.

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

                                       15
<PAGE>
 
the statement of financial position and measure those instruments at fair value.
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

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 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 Group, Inc. 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 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 -- Infrastructure Systems,
Applications Software, Manufacturing Equipment and 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 Enterprise Resource Planning ("ERP") systems. The Company has retained an
outside consultant to assist in the integration of the business and systems
processes into an ORACLE ERP solution. The project is 50 percent complete, with
Y2K compliance being expected by mid 1999. A Y2K compliant patch of Klearfold's
application software is available and will be installed as a contingency plan in
the event of project delays in the ORACLE environment. A contingency plan for
the AGI Applications Software has not yet been developed. In addition to the
aforementioned, a comprehensive review of Manufacturing Equipment has been
completed and the Company believes that substantially all significant equipment
is Y2K compliant. In regards 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 and updated the IMPRINT
application in the second half of 1998. At present, a subsidiary operation in
Salzburg (Austria) has not implemented SAGE. However, the required time scale
for such an implementation is two calendar months.

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 $6.5 million, of which $0.6 million was spent in
1997 and $2.8 million was spent in the nine months ended September 30, 1998. The
residual amount of $3.1 million is to be spent in the fourth quarter of 1998 and
in 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

                                       16
<PAGE>
 
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 is to introduce 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
are participating 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.

FORWARD-LOOKING STATEMENTS/RISK FACTORS
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 (i) statements regarding
drawings under the Loan Note guarantee, (ii) the Company's intention to adopt
the standards under each of the FASB and the AcSEC statements described above
under "Adoption of New Accounting Standards" (iii) the effect of the Company's
adoption of each of the new AcSEC and FASB statements, (iv) statements regarding
the Company's projects with respect to Y2K issues, (v) statements regarding the
delivery by certain of the Company's subsidiaries of guarantees with respect to
the Senior Subordinated Notes and the Facility, (vi) statements regarding a new
preferred equity financing, and (vii) statements regarding the effect of the
introduction of the Euro; and (viii) 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. The Company is
          permitted to incur substantial additional indebtedness in the future.

     .    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.

     .    The Company has no prior history as a combined entity and its
          operations have 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 historical financial
          statements 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.

     .    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.

     .    The markets for the Company's products may be affected by
          technological change and new product introductions, among other
          things. The Company's success will depend, in part, upon its continued
          ability to manufacture products that meet changing customer needs,
          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.

     .    The Company may in the future pursue selective acquisitions within the
          specialty packaging industry. In the event that any such acquisition
          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.

     .    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,

                                       17
<PAGE>
 
          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.

     .    The Company has entered into supply contracts with three key
          customers. These contracts represented approximately 11% of the
          Company's business in fiscal 1997. The supply contracts are generally
          terminable for any material breach or events of insolvency. Three of
          these contracts expire in 1999 and one expires in 2004. While the
          Company believes that the contracts will be renewed, there can be no
          assurance that these contracts will be renewed or the terms of such
          renewal will be favorable. The loss of any of these contracts or the
          renewal at materially worse terms could have a material adverse
          affect on the Company.

     .    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.

     .    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 the Company or any
          Subsidiary Guarantor. In addition, the payment of interest and
          principal by the Company 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 the Company 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 Facility will allow the Company to make such
          required repurchases.

     .    There can be no assurance regarding the future development of a market
          for any of the Senior Subordinated Notes, or the ability of holders of
          any of the Senior Subordinated Notes to sell their Senior Subordinated
          Notes, or the price at which such holders may be able to sell such
          Senior Subordinated Notes.

     .    Under the terms of the Indenture certain foreign subsidiaries acquired
          or created by the Company, including certain subsidiaries of Tinsley,
          may not be required to deliver a guarantee with respect to the Senior
          Subordinated Notes.

     .    A substantial portion of the Company's business is now conducted in
          international markets. Political changes in international markets
          and/or currency exchange rate fluctuations could materially adversely
          affect the Company's business.

     .    The Company's ability to complete the Domestic Project, and to address
          the Y2K issue in general, 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.

Other risks and uncertainties are described in the Company's Registration
Statement on Form S-4 (File No. 333-48821) under the Securities Act of 1933, and
incorporated herein by reference.

ITEM 3:   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          The disclosure requirements pursuant to Item 305 of Regulation S-K are
not yet effective for the Company. Such disclosures will be included in the 
Company's filings commencing with its Annual Report on Form 10-K for the fiscal 
year ending December 31, 1998, to the extent applicable. For further information
regarding qualitative disclosures about market risk, see Management's 
Discussion and Analysis of Financial Condition and Results of Operations.

PART II - OTHER INFORMATION

ITEM 1:   LEGAL PROCEEDINGS

          NONE

ITEM 2:   CHANGES IN SECURITIES AND USE OF PROCEEDS

          In connection with the acquisition of Tinsley on September 11, 1998, 
the Company issued 96,245.5 shares of new common stock, Series A to certain of 
the Company's existing stockholders or their affiliates, as set forth below. 
Each of such sale was deemed to be exempt from the registration requirements of 
the Securities Act of 1933, as amended, under Section 4(2) thereof as a 
transaction not involving any public offering of such securities.

Heritage Fund I, L.P.
Heritage Fund II, L.P.
Richard Block
Donald W. Kosterka, as Trustee of the Donald Kosterka Trust dated 5/17/92
David Underwood
John McInerney

                                       18
<PAGE>
 
ITEM 3:   DEFAULTS UPON SENIOR SECURITIES

          NONE

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

          On September 9, 1998, the Company's stockholders consented to the
          amendment of the Company's Amended and Restated By-laws. Such
          stockholder action was consented to by the affirmative vote of the
          holders of approximately 70,052 shares of the Company's Common Stock,
          Series A.

ITEM 5:   OTHER INFORMATION

          Exchange of Outstanding Senior Notes

          On September 3, 1998, the Company commenced an offer to exchange
          $100.0 million in aggregate principal amount of its 10 1/8% Senior
          Subordinated Notes due 2008, Series B (the "Exchange Notes") that had
          been registered under the Securities Act of 1933, as amended (the
          "Securities Act"), for a like principal amount of the Company's
          outstanding 10 1/8% Senior Subordinated Notes due 2008 (the "Original
          Notes"). This exchange was commenced in accordance with the terms of
          the Registration Rights Agreement, dated as of March 12, 1998, between
          the Company and the initial purchasers of the Original Notes. The
          Original Notes were issued by the Company on March 12, 1998 in a
          transaction exempt from the registration requirements of the
          Securities Act by virtue of Rule 144A promulgated thereunder. The
          Company completed the exchange offer in November, 1998.

ITEM 6:   EXHIBITS AND REPORTS ON FORM 8-K

          (A)  Exhibits

               2.3   Stock Purchase Agreement, dated as of September 10, 1998,
                     by and among the Company, Heritage Fund I, L.P., Heritage
                     Fund II, L.P., Richard Block and certain other persons.

               3.1   Amended and Restated Certificate of Incorporation of the 
                     Company.*

               3.3   Second Amended and Restated By-laws of the Company.

               3.4   Amendment to Amended and Restated Certificate of 
                     Incorporation of the Company, dated as of July 6, 1998.

              10.60  First Amended and Restated Stockholder Agreement, dated as
                     of September 10, 1998, between the Company, certain Holding
                     stockholders, certain stockholders of AGI and certain other
                     persons.

              27.1   Financial Data Schedule.
           --------
            *Incorporated by reference to the same numbered exhibit to the 
             Company's Registration Statement on Form S-4 (File No. 333-48821).

          (B)  Reports on Form 8-K

               A report on Form 8-K was filed on October 27, 1998 announcing the
          consummation of the acquisition of Tinsley Robor plc on September 11,
          1998.


                                  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.

Date:     November 16, 1998                       By:___________________________
                                                     David C. Underwood
                                                     Chief Financial Officer


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