SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
[ X ]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2001
	For the quarterly period ended June 30, 2002
	OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-22696

DISC GRAPHICS, INC.
(Exact name of registrant as specified in its charter)


Delaware		13-3678012
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

10 Gilpin Avenue, Hauppauge, New York		11788-8831
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (631) 234 -1400

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and 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 [ ]

As of ~~November~~August 25, ~~2001~~2002, 5,518,242 shares of the Registrant's Common Stock, par value $.01, were outstanding.

DISC GRAPHICS, INC. FORM 10-1-Q Quarter Ended June 30, 2002

DISC GRAPHICS, INC. FORM 10-Q Quarter Ended September 30, 2001

INDEX

				Page
PART I - FINANCIAL INFORMATION
Item 1	Financial Statements
		Consolidated Balance Sheets as of September 30, 2001 (unaudited)
			and December 31, 2000	3
		Consolidated Statements of Operations (unaudited) for the
			Three and Nine Months ended September 30, 2001 and 2000	4
		Consolidated Statements of Cash Flows (unaudited) for the
			Nine Months ended September 30, 2001 and 2000	5
		Notes to Unaudited Consolidated Financial Statements		6
Item 2	Management's Discussion and Analysis of Financial Condition
		and Results of Operations		9
Item 3	Quantitative and Qualitative Disclosures About Market Risk			13
PART II - OTHER INFORMATION
Item 1	Legal Proceedings			14
Item 2	Changes in Securities and Use of Proceeds			14
Item 3	Defaults Upon Senior Securities			14
Item 4	Submission of Matters to a Vote of Security Holders			14
Item 5	Other Information			14
Item 6(a)	Exhibits			15
Item 6(b)	Reports on Form 8-K			15
Signatures				16

Page

PART I - FINANCIAL INFORMATION



Item 1	Financial Statements
		Unaudited Consolidated Balance Sheets as of June 30, 2002
			and December 31, 2001	3
		Unaudited Consolidated Statements of Operations for the
			Three and Six Months ended June 30, 2002 and 2001	4
		Unaudited Consolidated Statements of Cash Flows for the
			Six Months ended June 30, 2002 and 2001	5
		Notes to Unaudited Consolidated Financial Statements		6

Item 2	Management's Discussion and Analysis of Financial Condition
			and Results of Operations	8

Item 3	Quantitative and Qualitative Disclosures About Market Risk			12

PART II - OTHER INFORMATION

Item 1	Legal Proceedings			13

Item 2	Changes in Securities and Use of Proceeds			13

Item 3	Defaults Upon Senior Securities			13

Item 4	Submission of Matters to a Vote of Security Holders			13

Item 5	Other Information			13

Item 6(a)	Exhibits			13

Item 6(b)	Reports on Form 8-K			13

Signatures				14

Exhibit Index				15

-2-

DISC GRAPHICS, INC. ~~Consolidated Balance Sheets As of September 30, 2001 (unaudited) and December 31, 2000~~

					September 30, 2001 (unaudited)			December 31, 2000
Assets
Current assets:
	Cash			$	59,899		$	59,489
	Accounts receivable, net of allowance for doubtful accounts
		of $1,600,000 and $1,498,000, respectively			10,885,980			12,343,062
	Inventories				1,825,504			2,695,377
	Prepaid expenses and other current assets				295,483			355,626
	Income taxes receivable				---			1,281,284
	Deferred income taxes				2,037,000			2,037,000
			Total current assets		15,103,866			18,771,838
Plant and equipment, net (including $5,054,000
		of assets held for sale)			15,082,799			16,782,729
Goodwill, net of amortization of $1,230,000
		and $946,000, respectively			3,876,111			5,293,688
Covenants not to compete, net of amortization
		of $529,000 and $364,000, respectively			571,236			736,236
Security deposits and other assets					325,561			334,168
Investment in joint venture					597,947			225,000
			Total assets	$	35,557,520—————		$	42,143,659—————
Liabilities and Stockholders' Equity
Current liabilities:
	Current maturities of long term debt			$	1,272,373		$	2,808,290
	Current maturities of capitalized lease obligations				524,140			710,485
	Accounts payable and accrued expenses				6,082,323			6,083,982
			Total current liabilities		7,878,836			9,602,757
Long term debt, less current maturities					15,779,799			19,159,060
Capitalized lease obligations, less current maturities					31,935			416,634
Deferred income taxes					1,439,884			1,247,000
			Total liabilities		25,130,454			30,425,451
Stockholders' equity:
	Preferred stock:
		$.01 par value; authorized 5,000 shares; no shares issued and outstanding			----			----
	Common stock:
		$.01 par value; authorized 20,000,000 shares; issued 5,548,761 shares			55,488			55,488
	Additional paid-in capital				5,009,671			5,009,671
	Retained earnings				5,393,870			6,685,012
					10,459,029			11,750,171
	Less:
		Treasury stock, at cost, 30,519 shares			(31,963	)		(31,963	)
		Total stockholders' equity			10,427,066			11,718,208
		Total liabilities and stockholders' equity		$	35,557,520—————		$	42,143,659—————

Consolidated Balance Sheets
As of June 30, 2002 and December 31, 2001
(unaudited)


						June 30, 2002		December 31, 2001

Assets
Current assets:
	Cash				$	22,269		$	52,780
	Accounts receivable, net of allowances of
		$1,986,000 and $1,280,000, respectively				9,151,298			9,484,793
	Inventories					1,534,797			1,430,316
	Prepaid expenses and other current assets					426,175			341,850
	Income taxes receivable					----			1,072,551
	Deferred income taxes					1,819,000			2,990,000

				Total current assets		12,953,539			15,372,290

Plant and equipment, net						13,128,095			14,380,367
Goodwill						695,431			695,431
Security deposits and other assets						323,851			324,806
Investment in joint venture						353,668			472,947

				Total assets	$	27,454,584 —————		$	31,245,841 —————

Liabilities and Stockholders' Equity
Current liabilities:
	Current maturities of long term debt				$	1,330,222		$	1,279,761
	Current maturities of capitalized lease obligations payable					15,424		$	131,759
	Accounts payable and accrued expenses					5,101,710			5,416,077
	Income taxes payable					62,877			----

				Total current liabilities		6,510,233			6,827,597

Long term debt, less current maturities						10,227,657			13,813,929
Deferred income taxes						2,024,595			2,024,595

				Total liabilities		18,762,485			22,666,121

Commitments and Contingencies

Stockholders' equity:
	Preferred stock:
			$.01 par value; authorized 5,000 shares; no shares issued and outstanding			----			----
	Common stock:
			$.01 par value; authorized 20,000,000 shares; issued 5,548,761 shares			55,488			55,488
	Additional paid-in capital					5,009,671			5,009,671
	Retained earnings					3,684,857			3,577,535
						8,750,016			8,642,694

	Less:
		Treasury stock, at cost, 30,519 shares				(31,963	)		(31,963	)
		Other comprehensive income				(25,954	)		(31,011	)
				Total stockholders' equity		8,692,099			8,579,720

				Total liabilities and stockholders' equity	$	27,454,584 —————		$	31,245,841 —————

See accompanying notes to unaudited Consolidated Financial Statements

-3-

DISC GRAPHICS, INC. Consolidated Statements of Operations For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2001~~2002 and ~~2000~~ 2001 (unaudited)

				Three Months Ended September 30,					Nine Months Ended September 30,
				Three Months Ended June 30,					Six Months Ended June 30,
				2001		2000			2001			2000
				2002		2001			2002			2001
Net sales			$	1312,~~448~~105,~~022~~546	$	1712,~~803~~778,~~868~~798		$	3923,~~771~~107,~~136~~794		$	4926,~~971~~323,~~782~~114
Cost of sales				109,~~170~~697,~~089~~841		1410,~~504~~501,~~812~~071			3118,~~634~~537,~~898~~606			4121,~~934~~464,~~302~~809
	~~Gross profit~~	Gross profit		32,~~277~~407,~~933~~705		32,~~299~~277,~~056~~727			84,~~136~~570,~~238~~188			84,~~037~~858,~~480~~305
Operating Expenses:
	Selling and shipping			1905,~~010,493~~521		1,~~749~~362,~~559~~991			31,~~973~~842,~~370~~212			52,~~339~~962,~~296~~877
	General and administrative			1,~~178~~062,~~670~~221		1,~~661~~387,~~526~~435			41,~~115~~892,~~438~~493			42,~~983~~936,~~637~~770
	~~Operating income (loss)~~	Operating income (loss)		1439,~~088,770~~963		(~~112~~472,~~029~~699	)		47835,~~430~~483			(21,~~285~~041,~~453~~342	)
Interest expense, net				~~360~~256,~~249~~162		~~432~~454,~~542~~607			1544,~~279,181~~893			1918,~~149,926~~931
Loss on disposal of equipment				105,338		----			105,338			----
Equity in loss of joint venture				54,279		128,880			119,279			128,880
Equity in loss of joint venture				123,173		----			252,053			----
Income (loss) before income taxes				129,522		(1,056,186	)		171,311			(2,089,153	)
Income (loss) before income taxes				500,010		(544,571	)		(1,589,142	)		(3,435,379	)
Provision (benefit) from income taxes				48,000		(187,000	)		64,000			(476,000	)
Provision (benefit)from income taxes				178,000		(185,000	)		(298,000	)		(1,239,000	)
	Net Income (loss)		$	81,522————	$	(869,186————	)	$	107,311————		$	(1,613,153————	)
	Net Income (loss)		$	322,010	$	(359,571	)	$	(1,291,142	)	$	(2,196,379	)
	Net income (loss) per share:
				—————		—————			—————			—————
		Basic	$	0.01————	$	(0.16————	)	$	0.02————		$	(0.29————	)
	Net Income (loss) per share:
		Diluted	$	0.01————	$	(0.16————	)	$	0.02————		$	(0.29————	)
		Basic	$	0.06	$	(0.07	)	$	(0.23	)	$	(0.40	)
	Weighted average number of shares outstanding
				—————		—————			—————			—————
		Basic		5,518,242		5,518,248			5,518,242			5,518,248
		Diluted	$	~~0.06~~5,533,402	$	~~(0.07~~5,518,248	)	$	~~(0.23~~5,530,275	)	$	~~(0.40~~5,518,248	)
				—————		—————			—————			—————
	Weighted average number of shares outstanding
		Basic		5,518,242		5,518,262			5,518,242			5,518,277
		Diluted		5,518,242		5,518,262			5,518,242			5,518,277

See accompanying notes to unaudited Consolidated Financial Statements -4-

~~-4-~~DISC GRAPHICS, INC. Consolidated Statements of Cash Flows For the Six Months ended June 30, 2002 and 2001 (unaudited)

DISC GRAPHICS, INC.


						June 30, 2002			June 30, 2001

Cash flows from operating activities:
	Net income (loss)				$	107,311		$	(1,613,153	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization				1,273,886			1,409,645
		Deferred income tax expense				1,171,000			----
		Provision for doubtful accounts				287,021			412,138
		Equity in loss of equity investment				119,279			128,880
		Loss/(Gain) on disposition of assets				(4,319	)		----
		Changes in assets and liabilities:
			Accounts receivable			46,474			1,673,393
			Inventory			(104,481	)		1,009,276
			Prepaid expenses and other current assets			(84,325	)		(71,470	)
			Accounts payable and accrued expenses			(309,300	)		(340,328	)
			Income taxes receivable			1,135,428			202,787
			Security deposits and other assets			(552	)		(386,000	)

				Net cash provided by operating activities		3,637,422			2,425,168

Cash flows from investing activities:
	Capital expenditures					(100,899	)		(336,384	)
	Investment in joint venture					----			(625,000	)
	Proceeds from sale of equipment					85,112			----

				Net cash used in investing activities		(15,787	)		(961,384	)

Cash flows from financing activities:
	(Repayments) proceeds of long-term debt					(3,535,811	)		(1,025,496	)
	Principal payments of capital lease obligations					(116,335	)		(412,316	)

				Net cash used in financing activities		(3,652,146	)		(1,437,812	)
Net (decrease) increase in cash						(30,511	)		25,972

Cash at December 31						52,780			59,489
Cash at June 30					$	22,269 —————		$	85,461 —————

Cash paid during the year for:
	Interest				$	478,483		$	827,467

	Income taxes				$	42,700		$	60,445

~~Consolidated~~See ~~Statements~~accompanying ofnotes ~~Cash~~to ~~Flows For~~unaudited ~~the~~Consolidated ~~Nine Months Ended September 30, 2001 and 2000~~Financial ~~(unaudited)~~Statements

					September 30, 2001			September 30, 2000
Cash flows from operating activities:
	Net loss			$	(1,291,142	)	$	(2,196,379	)
	Adjustments to reconcile net loss to net cashprovided by operating activities:
		Depreciation and amortization			2,038,211			2,624,512
		Deferred income taxes			192,884			---
		Provision for doubtful accounts			580,389			100,185
		Loss on sale of assets related to consolidation of facilities			----			258,770
		Equity in loss of joint venture			252,053			----
		Loss on disposal of equipment			105,338			----
		Changes in assets and liabilities:
			Accounts receivable		876,693			(1,385,472	)
			Inventories		869,873			1,598,500
			Prepaid expenses and other assets		60,143			(84,752	)
			Accounts payable and accrued expenses		(1,659	)		805,356
			Income taxes payable/receivable		1,281,284			(1,816,968	)
			Security deposits and other assets		6,347			583,046
			Net cash provided by operating activities		4,970,414			486,798
Cash flows from investing activities:
	Capital expenditures				(412,437	)		(8,148,049	)
	Investment in joint venture				(625,000	)		----
	Purchase of net assets of business acquired				----			(7,500	)
	Proceeds from sale of equipment				420,435			549,747
			Net cash used in investing activities		(617,002	)		(7,605,802	)
Cash flows from financing activities:
	Net proceeds from (repayments of) long-term debt				(3,781,958	)		9,669,885
	Principal payments of capital lease obligations				(571,044	)		(2,506,842	)
	Purchase of treasury stock				----			(322	)
			Net cash (used in) provided by financing activities		(4,353,002	)		7,162,721
Net increase in cash					410			43,717
Cash at beginning of year					59,489			142,531
Cash at end of period				$	59,899		$	186,248
					—————			—————
Cash paid during the year for:
	Interest			$	1,141,985		$	1,029,558
	Income taxes			$	69,959		$	577,968

-5-

~~See~~DISC ~~accompanying~~GRAPHICS, ~~notes to unaudited Consolidated Financial Statements~~INC.

~~-5-~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DISC GRAPHICS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


1.		Principals of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of Disc Graphics, Inc. and its wholly-owned subsidiaries (collectively "the Company"). All inter-company accounts and transactions have been eliminated. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company, the unaudited consolidated financial statements contain all adjustments necessary to present fairly its financial position as of June 30, 2002 and its results of operations for the three and six months ended June 30, 2002 and 2001 and statements of cash flows for the six months ended June 30, 2002 and 2001. The consolidated balance sheet as of December 31, 2001 has been derived from the audited balance sheet as of that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The results of operations for the three and six months ended June 30, 2002 and statements of cash flows for the six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. This report should be read in conjunction with the Company's annual report filed on Form 10-K for the fiscal year ended December 31, 2001.

		Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates include the valuation of inventories, the allowance for doubtful accounts receivable and the recoverability of long-lived assets. Actual results could differ from those estimates.

		New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating the pooling-of-interests methods of accounting. SFAS No. 141 also addresses the recognition and measurement of goodwill and other intangible assets acquired in a business combination. The Company adopted the provisions of SFAS No. 141 on January 1, 2002. The adoption of SFAS No. 141 has not had an impact on the Company's consolidated financial position or results of operations for the six months ended June 30, 2002. In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, Goodwill and Other Intangible Assets." Upon adoption of SFAS No. 142, goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Other intangible assets will continue to be amortized over their estimated useful lives. The Company adopted the provisions of SFAS No. 142 on January 1, 2002. See note 3 for further discussion. In August 2001, the SFAS issued SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144 supersedes FASB Statement No. 121 and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company is required to adopt SFAS No. 143 on January 1, 2003 and does not expect SFAS 143 to have a material impact on the Company's consolidated financial position or results of operations. The Company has adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 has not had an impact on the Company's consolidated financial position or results of operations for the six months ended June 30, 2002.

~~General~~-6-

~~The accompanying unaudited interim consolidated financial statements of Disc Graphics, Inc~~2. ~~and~~Inventories ~~subsidiaries (the "Company") reflect all adjustments (consisting of normal recurring accruals) which are~~Inventories, innet ~~the opinion~~ of ~~management,~~ ~~necessary~~reserves ~~for~~consist ~~a fair presentation~~ of ~~its consolidated financial position as of September 30, 2001 and~~ the results of its operations for the three and nine month periods ended September 30, 2001 and 2000. These consolidated financial statements should be read in conjunction with the summary of significant accounting policies and other notes to the Company's consolidated financial statements included in its Annual Report on Form 10-K for the period ended December 31, 2000. Results for the three and nine month periods ended September 30, 2001 are not necessarily indicative of results which could be expected for the entire year. Certain reclassifications have been made to the prior period presentation to conform with September 30, 2001.following:

Inventories


	June 30, 2002	December 31, 2001

Raw materials	$1,015,999	$922,331
Work-in-process	309,460	270,249
Finished goods	209,338	237,736

	$1,534,797 ————	$1,430,316 ————

	Inventories consist of the following:
3.		Goodwill On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Intangible Assets." SFAS No. 142 includes requirements to annually test goodwill and indefinite lived intangible assets for impairment rather than amortize them; accordingly, the Company no longer amortizes goodwill. As a result, for the six months ended June 30, 2002, amortization expense decreased $314,297 compared to the six months ended June 30, 2001. As of June 30, 2002 and December 31, 2001, the Company had unamortized goodwill of $695,000 remaining from its acquisition of Pointille, Inc. In connection with its adoption of SFAS No. 142, the Company did not record any goodwill impairment loss.
			September 30, 2001		December 31, 2000
4.		Investment in Joint Venture The Company is party to a joint venture named GraphCorr, LLC along with several other companies, for the purpose of developing and operating a facility to produce reinforced folding cartons. The Company is accounting for its investment in the joint venture under the equity method of accounting. Accordingly, the Company recorded approximately $119,279, which represents its share of the estimated joint venture losses in the six months ended June 30, 2002.
	Raw materials	$	1,319,843	$	1,517,370
	Work-in-process		253,482		844,808
	Finished goods		252,179		333,199
		$	1,825,504	$	2,695,377
			—————		—————

~~Asset Impairment Charge~~-7-

AsDISC ~~a result of weakening sales in the fourth quarter of 2000 and first quarter of 2001~~GRAPHICS, ~~the Company approved a plan in March 2001 to close its Indiana facility in the second quarter of 2001 and sell certain manufacturing equipment and a building~~INC. In connection with this plan, the Company recorded a non-cash charge of $3,458,000 during the fourth quarter of 2000, which consisted of the write-off of the remaining goodwill relating to the acquisition of the Indiana operations of $295,000 and an estimated loss of $3,163,000 in connection with the sale of certain manufacturing equipment and a building. The amount of the loss was estimated based on information received from equipment manufacturers and brokers and is subject to change based on the proceeds the Company realizes upon the actual sale of the related equipment and the building. The closure of the Indiana facility commenced in April 2001 and the Company has sold $381,000 of the related assets held for sale, resulting in a loss of $105,000, which is reflected in the financial statements for the quarter ended September 30, 2001.

~~Contemporary~~Special ~~Color~~Note ~~Graphics,~~on ~~Inc.~~Forward ~~Acquisition~~Looking Statements

On This ~~July~~Form 1,10-Q ~~1999~~contains predictions, projections and other statements about the ~~Company~~future ~~acquired~~that ~~substantially~~are ~~all~~intended to be "forward-looking statements" within the meaning of the ~~assets and~~Private ~~certain~~Securities Litigation ~~liabilities~~Reform Act of ~~Contemporary~~1995. ~~Color~~Such forward-looking ~~Graphics,~~statements ~~Inc.~~involve ~~("CCG")~~known and unknown risks, uncertainties, and aother ~~New~~important ~~York based~~factors ~~commercial~~that ~~printer.~~could cause ~~The~~the ~~purchase~~actual ~~price~~results, performance ~~consisted~~or achievements of $3the Company,~~500~~ or industry results,~~000~~ to indiffer ~~cash~~materially from those expressed or implied by such statements. Such risks, uncertainties, and aother important factors ~~promissory~~include, among ~~note~~others: in the ~~amount~~Company's ofability ~~$1,000,000,~~to afulfill ~~supplemental~~its ~~note~~stated business strategies; the Company's ability to improve its revenue margin; the Company's ability to improve its position in current or new markets; the Company's ~~amount~~ability to identify and consummate strategic business opportunities; the Company's ability to identify ofand ~~$1,000,000,~~develop ~~convertible~~additional ~~debentures~~product innovations; the Company's ability to achieve growth in ~~the~~net ~~amount~~sales of ~~$600,000~~its products; the effects of recent equipment purchases and ~~assumed~~leases ~~debt~~for additional space on the Company's operations; the ofCompany's ~~approximately~~ability ~~$1,200,000,~~to ~~subject~~continue to ~~adjustment.~~achieve efficiencies through ~~Because~~the ~~certain contingencies~~purchase ~~required~~or ~~under~~lease of equipment; the ~~asset~~effects ~~purchase~~of the ~~agreement~~Company's consolidation efforts; ~~were~~the ~~not~~effects ~~achieved,~~of the Company's ISO certification efforts; the amounts required ~~CCG~~for ~~purchase~~capital expenditures ~~price~~in ~~was~~future ~~reduced~~periods; bythe ~~$404,000~~availability ~~during~~and ~~fiscal~~cost ~~2000~~of materials; and $1continuing industry-wide pricing pressures and other industry conditions,~~133~~ as well as other risks and uncertainties,~~220~~ including without ~~during~~limitation those ~~the~~set ~~third~~forth ~~quarter~~in other sections of ~~fiscal~~this ~~2001.~~Form ~~This~~10-Q, ~~adjustment~~in ~~was~~the Company's Annual ~~reflected~~Report ason aForm 10-K for ~~reduction~~the byyear ended December 31, 2001, and/or in the Company's other documents offiled with the ~~principal~~Securities ~~amount~~and ~~due~~Exchange Commission, whether onor ~~the~~not ~~promissory~~such documents are incorporated herein ~~note~~by ~~and~~reference. In assessing forward-looking ~~convertible~~statements, readers ~~debentures~~are urged to read carefully all such cautionary statements. Such forward-looking statements speak only as of the date of this Report, and athe ~~corresponding~~Company disclaims ~~reduction~~any obligation inor ~~goodwill~~undertaking to update such statements.

~~-6-~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

OnSignificant orAccounting about July 16, 2001, CCG and its owners commenced an action against the Company for principal and interest payments allegedly due since August 1, 2000 under terms of a $1 million dollar note and a $600,000 convertible debenture given by the Company as partial payment of the purchase price in the CCG acquisition. The Company believes that no payments are due to CCG under the terms of the CCG asset purchase agreement and intends to vigorously defend itself in this action. Under the terms of a subordination agreement executed by CCG in favor of the Dime Savings Bank in connection with the CCG acquisition, CCG may not pursue its claim without the consent of the Dime Savings Bank, which consent has been refused.Policies

~~Net~~ For discussion see ~~Loss~~Item ~~Per~~7. Management's Discussion and ~~Common~~Analysis ~~Share~~of Financial Condition included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 as filed with the Securities and Exchange Commission (the "2001 Form 10-K").

Employee stock options covering 404,279 shares of common stock for the three months ended September 30, 2000 were not included in the net loss per share calculation as their effect would have been anti-dilutive. Employee stock options covering 404,279 and 320,089 shares of common stock for the nine months ended September 30, 2000 and 2001, respectively, were not included in the net loss per share calculation as their effect would have been anti-dilutive.General

~~Accounting~~ The following discussion and analysis of the financial condition and results of operations of Disc Graphics, Inc. and its subsidiaries (collectively "Disc Graphics" or the "Company") for ~~Derivative~~the ~~Instruments~~three and ~~Hedging~~six-month periods ~~Activities~~ended June 30, 2002 should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes thereto included elsewhere in this Report, and the 2001 Form 10-K for its fiscal year ended December 31, 2001. Results for the periods reported herein are not necessarily indicative of results that may be expected for the full year or in future periods.

OnResults ~~January 1, 2001, the Company adopted Statement~~ of ~~Financial~~Operations ~~Accounting Standard ("SFAS") No. 133, "Accounting~~ for ~~Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and requires~~ the ~~recognition~~Three ofMonths ~~all~~Ended ~~derivative instruments~~June as30, ~~either~~2002 assets or liabilities in the statement of financial position based on their fair values. Changes in fair value are required to be reported in earnings or other comprehensive income depending on the use of the derivative and ~~whether it qualifies for hedge accounting. Derivatives designated~~ as effective cash flow hedges qualify for hedge accounting and, therefore, changes in fair values are recognized in other comprehensive income. Changes in fair values related to the ineffective portion of cash flow hedges, as well as fair value hedges, must be recognized immediately in earnings. The Company's derivative financial instruments consist of interest rate swap agreements. Adoption of SFAS No. 133 did not have a significant impact on the Company's financial position or results of operations.2001

~~Investment~~Net ~~in Joint Venture~~sales

OnNet ~~September~~sales ~~22,~~for ~~2000,~~ the ~~Company~~three months ~~entered~~ended ~~into~~June a30, ~~joint~~2002 ~~venture named Graph-Corr~~were $12,106,000 compared ~~LLC with two other companies~~ to $12,779,000 for the ~~purpose of developing and~~same ~~operating~~period ain ~~facility to produce reinforced folding cartons. Through September 30,~~ 2001, representing a ~~the Company has invested~~ decrease of $~~850~~673,000 or ~~in cash, representing a 45~~5.3% ~~interest in the venture~~. The closure of ~~Company is accounting for its investment in~~ the Indiana facility and ~~joint venture under~~ the ~~equity method~~ abandonment of ~~accounting. Accordingly,~~ the ~~Company recorded approximately $123~~ Contemporary Color Graphics,~~000~~ Inc. ("CCG") acquisition accounted ~~and~~for ~~$252,000~~virtually ~~representing~~all ~~its share~~ of the ~~estimated~~ ~~joint~~decline ~~venture losses~~ in ~~the quarter ended and for the nine months ended September 30, 2001~~sales. ~~Such losses reflect start up expenses incurred by the venture.~~

~~Subsequent~~Gross ~~Events~~Profit

On The ~~November 5, 2001 the~~ Company recognized gross ~~and~~profit ~~its~~of ~~primary~~$2,408,000 ~~lender signed~~ (a ~~proposal with the intention to amend the Credit Agreement~~19.9% ~~The~~gross ~~proposal~~profit margin) ~~establishes~~for ~~revised covenants, and includes~~ the ~~following~~three ~~changes~~months ~~to the Credit~~ended ~~Agreement:~~June ~~(i)~~30, ~~reduction~~2002, compared ~~in maximum borrowing amount~~ to $112,~~000~~278,000~~, subject to~~ (a ~~borrowing~~17.8% ~~base~~gross ~~formula~~profit margin) ~~based~~for onthe ~~eligible~~same ~~accounts~~period ~~receivable~~in ~~and inventory,~~2001 representing a ~~(ii)~~gross ~~change~~profit ofmargin ~~maturity~~increase toof a2.1 ~~three~~percentage points. The ~~year~~Company's gross ~~term~~profit increased ~~with~~by up$130,000 toor ~~seven year amortization~~5.7% ~~against~~despite ~~machinery~~a &sales ~~equipment~~decline ~~and~~of ~~real estate~~$673,000 ~~(iii)~~or ~~refinancing~~5.3% ofreflecting ~~two~~the ~~term loans~~reduction ~~currently~~of ~~financed~~outside processing costs ~~with~~through aimproved deployment ~~bank,~~of ~~one~~available production resources ~~secured by machinery~~ and ~~equipment~~lower ~~and the~~labor ~~other~~costs relative ~~secured~~to ~~by real estate~~production volume, ~~with its primary lender.~~ ~~The~~primarily ~~proposed amendment~~in ~~is subject to~~ the area ~~completion by the Company's primary lender~~ of indirect labor. Although there has been ~~an investigation of~~ a decline in sales, the Company's aggressive cost ~~eligible~~containment ~~collateral~~has ~~and~~resulted ~~the~~in ~~execution~~an ~~and~~improvement ~~delivery~~in ofgross ~~definitive~~profit ~~documents which shall be mutually agreed upon by all parties~~margin.

~~Recent Accounting Pronouncements~~-8-

~~In July 2001~~Selling, ~~the~~General ~~FASB issued SFAS No. 141, Business Combinations,~~ and ~~SFAS~~ ~~No.~~Administrative 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations. Statement 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported separately from goodwill. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.Expenses

~~-7-~~ Selling, general and administrative ("SG&A") expenses for the three months ended June 30, 2002 were $1,968,000 (16.3% of net sales) compared to $2,750,000 (21.5% of net sales) for the same period a year ago, a decrease of $782,000 or 28.4%. The decrease is primarily due to the closure of the Company's Indiana facility, and the elimination of goodwill amortization and lower payroll related costs.

~~The~~Net ~~Company~~Interest adopted the provisions of Statement 141 effective July 1, 2001. The adoption of Statement 141 had no effect on the financial position or results of operations of the Company. Statement 142 is effective for the Company beginning January 1, 2002. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.Expense

AsNet interest expense offor ~~January 1, 2002,~~ the ~~date~~three months ended ofJune ~~adoption~~30, ~~the~~2002 ~~Company~~was $256,000 compared ~~expects~~ to ~~have unamortized goodwill in the amount of~~ $3455,~~624,858~~000 ~~and~~for ~~unamortized identifiable~~the ~~assets~~same inperiod ~~the amount~~ of ~~$687,429, all of which will be subject to~~ the ~~transition provisions~~prior ~~of Statements 141 and 142~~year. ~~Amortization~~ Interest expense ~~related~~includes interest payable tounder ~~goodwill was $272,626 and $403,927 for~~ the ~~nine~~Company's revolving ~~months ended September 30~~credit facility, its ~~2001~~ notes, and ~~the year~~capital lease obligations on equipment. The ~~ended December 31~~$199, ~~2000, respectively~~000 decrease (43.7%) ~~Because~~in ~~of the extensive effort~~interest ~~needed~~expense toreflects ~~comply~~a ~~with~~decrease ~~adopting~~in ~~Statements~~debt ~~141 and 142~~obligations, primarily ~~it is presently not practicable to reasonably estimate~~ the ~~impact~~revolving ofcredit ~~adopting~~facility, and ~~these Statements on~~ the ~~Company's~~lower ~~financial statements as of January 1, 2002, including whether any~~effective ~~transitional~~interest ~~impairment~~rates ~~losses~~on ~~will be required to be recognized as~~ the ~~cumulative~~ ~~effect~~revolving ofcredit ~~a change in accounting principle~~loan.

~~-8-~~Equity in Loss of Joint Venture

~~DISC~~ For ~~GRAPHICS~~the three months ended June 30, 2002, the Company recorded $54,000 ~~INC~~as its share of losses from its equity method investment in a joint venture compared to $129,000 as its share of losses during the second quarter of 2001.

~~This~~Income Form 10-Q contains predictions, projections and other statements about the future that are intended to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from those expressed or implied by such statements. Such risks, uncertainties, and other important factors include, among others: the Company's ability to fulfill its stated business strategies; the Company's ability to improve its revenue margin; the Company's ability to improve its position in current or new markets; the Company's ability to identify and consummate strategic business opportunities; the Company's ability to identify and develop additional product innovations; the Company's ability to achieve growth in net sales of its products; the effects of recent equipment purchases and leases for additional space on the Company's operations; the Company's ability to continue to achieve efficiencies through the purchase or lease of equipment; the effects of the Company's planned consolidation efforts, including the proceeds to be received from sales of equipment and a building in connection with the closing of the Company's Indiana facility; the effects of the Company's ISO certification efforts; the amounts required for capital expenditures in future periods; the availability and cost of materials; and continuing industry-wide pricing pressures and other industry conditions. Such forward-looking statements speak only as of the date of this Report, and the Company disclaims any obligation or undertaking to update such statements. Each forward-looking statement that the Company believes is material is accompanied by one or more cautionary statements identifying important factors that could cause actual results to differ materially from those described in the forward-looking statement. The cautionary statements are set forth following the forward-looking statement, in other sections of this Form 10-Q, and/or in the Company's other documents filed with the Securities and Exchange Commission, whether or not such documents are incorporated herein by reference. In assessing forward-looking statements, readers are urged to read carefully all such cautionary statements.Taxes

~~Item~~ For 2the quarter ended June 30, 2002, the Company recorded a provision for income taxes of $48,000 as compared with a tax benefit of $187,000 for the second quarter of the prior year. ~~Management's~~ The ~~Discussion~~tax ~~and~~provision ~~Analysis~~was based on an effective tax rate of ~~Financial~~37% ~~Condition~~for ~~and~~the ~~Results~~three months ended June 30, 2002 as compared with an effective tax rate of 18% ~~Operations~~for the three months ended June 30, 2001.

~~General~~Net Income (Loss)

~~The~~ Net ~~following~~income ~~discussion~~for ~~and analysis of~~ the ~~financial~~three ~~condition~~months ended ~~and results~~June of30, ~~operations~~2002 ofwas ~~Disc Graphics~~$82,000 compared ~~Inc.~~to ~~and~~a ~~its~~loss ~~subsidiaries~~of ~~(collectively "Disc~~$869,000 ~~Graphics" or the "Company")~~ for the ~~three and nine-month periods ended~~same ~~September~~period ~~30, 2001 should be read~~ in ~~conjunction with~~ the ~~unaudited~~prior ~~Consolidated Financial~~year, ~~Statements~~an ~~and~~improvement ~~the~~of ~~Notes~~$951,000. The ~~thereto~~increase ~~included~~in profitability is ~~elsewhere~~due inprimarily ~~this~~to ~~Report,~~improved ~~and~~gross ~~the~~profit ~~Company's~~margins ~~Annual Report~~ on ~~Form~~lower ~~10-K~~outside processing and ~~for~~labor ~~its~~expenses ~~fiscal~~as ~~year~~well ~~ended December 31, 2000,~~ as ~~filed~~lower ~~with~~fixed ~~the~~SG&A ~~Securities and Exchange Commission (the "2000 Form~~expenses related ~~10-K").~~to ~~Results for~~ the ~~periods~~Company's ~~reported~~cost ~~herein~~containment ~~are not necessarily indicative of results that may be expected for the full year or in future periods~~initiatives.

Results of Operations for the ~~Three~~Six Months Ended ~~September~~June 30, ~~2001~~2002 and ~~2000~~ 2001

Net Sales

Net sales for the ~~three~~six months ended ~~September~~June 30, ~~2001~~2002 were $1323,~~448~~108,000 compared with $1726,~~804~~323,000 for the same period in ~~2000~~2001, representing a decrease of $43,~~356~~215,000, or 2412.52%. The ~~decrease~~closure inof ~~sales~~the ~~was~~Indiana facility during ~~attributed primarily to soft~~the ~~market~~second quarter ~~conditions~~of ~~within~~last ~~the direct packaging~~year accounted for $1, ~~commercial~~306,000 or ~~computer software and music product categories~~40.6% ~~Computer~~of ~~software~~the ~~product~~decline ~~sales~~in ~~were further affected~~sales. The overall decline, by excluding the ~~lack~~effect of ~~new~~the ~~product~~Indiana facility closure, was ~~releases.~~most ~~These~~evident ~~decreases were partially offset by an increase~~ in ~~revenue from video and entertainment software~~ music packaging ~~products~~ (off approximately ~~sales. This increase~~$1, ~~specifically DVD packaging sales~~097,000 ~~was~~or in27.8%) reflecting industry wide softness within ~~part~~ the ~~result~~music industry, and decreased commercial ~~of the Company securing the~~ printing of(down ~~DVD~~$1,203,000 ~~packaging~~or ~~for~~66.6%) abetween ~~major~~the ~~film~~comparison periods, reflecting ~~studio. The~~the Company's decision ~~focus on new accounts and new markets continues~~ to ~~be a priority~~abandon of the ~~Company~~CCG acquisition.

Gross Profit

The Company recognized gross profit of $34,~~278~~570,000 (a 2419.48% ~~profit~~gross profit margin) for the ~~three~~six months ended June ~~September~~ 30, ~~2001~~2002, as compared ~~with~~to $34,~~299~~858,000 (an a 18.54% ~~profit~~gross profit margin) for the same period in ~~2000,~~ 2001 representing a gross profit margin increase of 51.94 percentage points. The ~~increase~~Company's in gross profit ~~margin~~declined isonly ~~due~~$288,000 ~~to various~~or ~~cost containment initiatives implemented by the Company during 2001~~5.9% ~~Although~~despite ~~Disc Graphics has experienced~~ a ~~decline in~~ sales decline of $3,215,000 or 12.2% reflecting the ~~Company's~~ implementation of several cost containment ~~aggressive~~initiatives ~~cost~~such ~~containment~~as ~~has~~the renegotiation of ~~resulted~~more infavorable pricing arrangements with anseveral ~~improvement~~of inour ~~gross~~main ~~profit~~material ~~margin.~~suppliers, the reduction of ~~The~~outside processing costs through improved deployment of available production resources ~~Company~~and ~~intends~~improved tolabor ~~continue to focus aggressively on cost containment~~utilization.

-9-

Selling, ~~Shipping,~~ General and Administrative Expenses

Selling, ~~shipping,~~ general and administrative ("SG&A") expenses for the ~~three~~ six months ended ~~September~~ June 30, ~~2001~~ 2002 were $23,~~189~~735,000 (16.32% of net sales) compared with $35,~~411~~900,000 (1922.24% of net sales) for the same period ~~one~~a year ago, a a decrease of $12,~~222~~165,000 or 3536.87%. The decrease is primarily due to ~~cost~~the closure of the Company's Indiana facility, ~~containment~~and ~~initiatives~~the elimination of goodwill amortization and lower payroll related costs.

Net Interest Expense

Net interest expense for the ~~three~~six months ended ~~September~~June 30, ~~2001~~2002 was $~~360~~545,000 compared with $~~433~~919,000 for the same period of the prior year. Interest expense includes interest payable under the Company's revolving credit facility, its notes , and capital lease obligations on equipment~~, as well as its note, supplemental note and debenture issued in connection with the CCG Acquisition~~. The $374,000 decrease in net interest expense is due primarily to decreased borrowings under the Company's revolving credit facility and the lower effective interest rate on the related revolving credit ~~facility~~loan.

Equity in Loss of Joint Venture

For the ~~three~~six months ended ~~September~~June 30, ~~2001~~ 2002, the Company recorded $~~123~~119,000 as its share of losses from its equity method investment in a joint venture compared to $129,000 as its share of losses for the same period of the prior year.

Income Taxes

For the ~~quarter~~six months ended ~~September~~June 30, ~~2001~~ 2002, the Company recorded a provision for income taxes of $~~178~~64,000 as compared with a tax benefit of $~~185~~476,000 for the ~~third~~ ~~quarter~~same ofperiod ~~the~~in ~~prior year~~2001. The tax provision was based on an effective tax rate of 3537% for the ~~three~~six months ended ~~September~~June 30, ~~2001.~~2002 ~~This~~as ~~rate~~compared with ~~reflects~~ an ~~estimated~~ effective tax ~~benefit~~rate ~~for~~of ~~the~~23% ~~full year which considers the Company's estimated tax loss~~ for the ~~full year subject to an assessment of the recoverability of the~~six ~~resulting~~months ~~deferred~~ended ~~tax~~June ~~asset~~30, ~~considering its ability to carry such losses back for tax purposes and the anticipated reversal of existing temporary differences~~2001.

Net Income (Loss)

Net income for the ~~three~~six months ended ~~September~~June 30, ~~2001~~2002 was $~~322~~107,000, compared with a net loss of $~~360~~1,613,000 for the same period in the prior year, an ~~increase~~ improvement of $~~682~~1,720,000. The increase in ~~the net income~~ profitability is due primarily to improved gross profit margins. ~~The~~on ~~net~~lower outside processing and ~~loss~~labor expenses ~~for~~as ~~the~~well ~~prior~~as ~~year~~lower ~~reflects~~fixed ~~in part the additional costs~~SG&A ~~and~~expenses ~~inefficiencies~~related ~~relating~~ to the ~~expansion~~Company's ofcost ~~the~~containment ~~Hauppauge facility during the third quarter of 2000~~initiatives.

~~Results~~Liquidity ~~of Operations for the Nine Months Ended September 30, 2001~~ and ~~2000~~Capital Resources

~~Net~~ The ~~Sales~~SEC recently issued Financial Reporting Release No. 61, which sets forth the views of the SEC regarding enhanced disclosures relating to Management's Discussion and Analysis of Financial Condition and Results of Operations, including guidance with respect to disclosure on liquidity and capital resources. The information provided below about the Company's debt, credit facilities and future commitments is included here to facilitate a review of the Company's liquidity.

~~Net sales for the nine months ended September 30, 2001 were~~ The Company's total debt was $3911,~~771~~558,000 ~~compared with~~ and $4915,~~972~~094,000 at ~~for the same period in 2000~~June 30, 2002 ~~representing~~and December 31, 2001, arespectively. The Company's total ~~decrease~~debt of $1015,~~201~~094,000, at orDecember ~~20.4%.~~31, ~~The~~2001 ~~decrease~~is indue ~~sales was attributed~~ to ~~soft~~ ~~market~~be ~~conditions~~repaid ~~within~~as ~~the~~follows: in 2002 ~~direct packaging~~$1, ~~commercial~~280, ~~computer software~~000, ~~and music product categories. Computer software product sales were further affected by the lack of new product releases. These decreases were partially offset by an increase~~ in ~~revenue~~2003 ~~from~~$2,025,000; 2004 ~~video~~$7,919,000; ~~and entertainment software packaging products sales along with an increase~~ in ~~pharmaceutical~~2005-2006 ~~product sales. This increase~~$2, ~~specifically DVD packaging sales~~294,000; and ~~was in part the result of the Company securing the printing of DVD packaging for a major studio~~thereafter, $1,576,000. ~~The Company's~~ Debt ~~focus~~obligations ondue ~~new~~to ~~accounts~~be ~~and~~repaid ~~new~~in ~~markets~~2002 ~~continues~~will to be asatisfied ~~priority~~with ofoperating ~~the~~cash ~~Company~~flows.

The Company's debt consists of both fixed and variable-10rate instruments. At June 30, 2002 and December 31, 2001, fixed-rate debt constituted approximately 57% and 46% of its total debt, respectively. The increase in the percentage of fixed-rate debt was primarily due to repayment of revolving line of credit borrowing during 2002. The average interest rate on the Company's debt was approximately 7.8% and 7.2% at June 30, 2002 and December 31, 2001, respectively.

~~Gross~~ The ~~Profit~~primary source of cash for the Company's business has been cash flow from operations and availability under the Company's revolving credit facility. Cash as of June 30, 2002 was $22,000 compared to $53,000 as of December 31, 2001. Net cash provided from operations for the six months ended June 30, 2002 was $3,637,000 compared to $2,425,000 for the six months ended June 30, 2001. The improvement in cash flows from operations is primarily attributable to the Company's improved profitability along with the Company's continued focus on cash management. In addition, the Company benefitted from a federal income tax refund payment of $2,274,000 pertaining to net operating loss (NOL) carry backs generated in 2001. As of June 30, 2002, the company had working capital of $6,443,000.

The Company recognized gross profit of $8,136,000 (a 20.5% profit margin) for the nine months ended September 30, 2001, as compared with $8,037,000 (a 16.1% profit margin) for the same period in 2000, representing a profit margin increase of 4.4 percentage points. Given the financial challenges in a softening economy, the Company approved the closure of its Indiana facility during the first quarter of 2001, as well as the disposition of certain equipment. The Company also implemented several cost containment initiatives, which included headcount reductions in the Hauppauge facility and the renegotiation of more favorable pricing arrangements with several of its main suppliers. Although Disc Graphics has experienced a decline in sales, the Company's aggressive cost containment has resulted in an improvement in gross profit margin. The Company will continue to focus aggressively on cost containment.-10-

~~Selling~~ On December 28, ~~Shipping~~2001 the Company and its primary lender signed an amendment to the Credit Agreement. The amendment establishes revised covenants, and includes the following changes to ~~General~~the Credit Agreement: (i) reduction in maximum borrowing under the revolving credit facility to $11,000,000, subject to a borrowing base formula based on eligible accounts receivable and ~~Administrative~~inventory, (ii) ~~Expenses~~change of maturity to a three-year term with a five and six-year amortization against machinery and real estate respectively, (iii) refinancing of two term loans currently financed by the primary lender, one secured by machinery and equipment and the other secured by real estate. As of June 30, 2002, the Company had $4,666,000 available under its revolving credit facility and was in compliance with all covenants.

~~Selling,~~ In connection with ~~shipping,~~the Company's closure ~~general~~of ~~and~~its ~~administrative~~Indiana facility during ~~("SG&A") expenses for~~ the ~~nine months ended September 30,~~ second quarter 2001 ~~were $8~~,~~089,000~~ the Company has sold all ~~(20.3%~~ of ~~net~~the related machinery and equipment as ~~sales) compared~~of ~~with~~June ~~$10~~30,~~323,000 (20~~ 2002.7% As of ~~net~~June ~~sales) for the same period a year ago~~30, 2002 athe ~~decrease~~Indiana real estate remains unsold and ~~of $2,234,000 or 21.6%. The decrease~~ is ~~primarily due to a reduction~~ included in ~~headcount~~ tothe Company's plant ~~decrease~~and equipment at ~~our fixed costs, as well as a reduction in commission~~its expected ~~expense~~realizable ~~and freight costs due to lower sales for the first nine months of 2001~~value.

~~Equity~~ As ina ~~Loss~~result of ~~Joint~~the modifications to ~~Venture~~the Credit Agreement, the Company's realignment actions, and cost reduction initiatives, management believes that its profit potential and cash flow will be improved. Further, cash provided by operations and amounts available from its Credit Agreement is expected to be sufficient to meet the Company's cash requirements through the next fiscal year.

~~For~~ The ~~the~~Company ~~nine~~is ~~months~~obligated under ~~ended~~capital leases ~~September~~for machinery and equipment. At June 30, 2002 and December 31, 2001, capital ~~the~~lease obligations ~~Company~~were ~~recorded~~ $~~252~~15,000 asand ~~its~~$132,000, respectively, and ~~share~~are ofscheduled ~~losses~~to ~~from~~be ~~its~~fully ~~equity method investment~~ paid in ~~a joint venture~~2002.

~~Net~~ The ~~Interest~~Company ~~Expense~~leases its main operating facility from an entity owned by related parties of the Company. The lease is for a fifteen-year term, expiring in 2007 and requires annual rental payments aggregating $348,000, and payments for a share of maintenance, insurance and real estate taxes. The Company is also obligated under noncancellable operating leases. Future minimum lease payments under these agreements are as follows: in 2002 $1,308,000; in 2003-2004 $1,899,000; in 2005-2006 $1,666,000; and thereafter $808,000.

Net interest expense for the nine months ended September 30, 2001 was $1,279,000 compared with $1,150,000 for the same period of the prior year. Interest expense includes interest payable under the Company's revolving credit facility, its notes and capital lease obligations on equipment, as well as its note, supplemental note and debenture issued in connection with the CCG Acquisition. The increase in net interest expense is due to increased borrowings under notes payable for capital expenditures made in fiscal 2000, which was partially offset by decreased borrowings on their revolving credit facility.-11-

~~Income~~Item ~~Taxes~~3. Quantitative and Qualitative Disclosures About Market Risk

~~For~~The ~~the~~Company ~~nine~~finances ~~months~~the ~~ended~~purchase ~~September~~of ~~30,~~production equipment ~~2001,~~and ~~the~~other ~~Company~~capital expenditures through ~~recorded~~long-term debt aand/or capital leases. The ~~tax benefit~~majority of ~~$298,000~~the asCompany's ~~compared~~long ~~with~~term adebt ~~tax~~is ~~benefit~~its ~~of $1~~equipment loans,~~239,000~~ which ~~for~~are ~~the~~not ~~comparable~~exposed ~~period~~to changes in interest rates. As of ~~the~~June ~~prior~~30, ~~year.~~2002, ~~This~~the ~~rate~~Company ~~reflects~~had an$3,013,000 ~~estimated~~of ~~tax~~debt outstanding ~~benefit~~on its ~~for~~revolving line ~~the~~of ~~full~~credit. The ~~year~~stated ~~which~~or ~~considers~~implicit rates ~~the~~on the Company's other borrowings, including capital leases, are ~~estimated~~generally ~~tax~~fixed ~~loss~~or ~~for~~in ~~the~~those ~~full year~~instances ~~subject~~where torates anare ~~assessment of~~ variable, the ~~recoverability~~Company ofgenerally fixes the ~~resulting deferred~~rates ~~tax~~through interest rate ~~asset~~swap agreements. If ~~considering~~current interest rates ~~its~~were ~~ability~~ to ~~carry~~increase by ~~such~~10%, the ~~losses~~effect ~~back~~to ~~for~~the Company ~~tax~~would ~~purposes~~be ~~and the~~an ~~anticipated~~additional ~~reversal~~annual expense of ~~existing~~approximately ~~temporary differences~~$19,000.

~~Net~~ The ~~Loss~~Company does not have any sales, purchases, assets or liabilities denominated in currencies other than the U.S. dollar, and as such is not subject to foreign currency exchange rate risk.

The net loss for the nine months ended September 30, 2001 was $1,291,000, compared with a net loss of $2,196,000 for the same period in the prior year, a decrease of $905,000. The decrease in the net loss is primarily due to improved profit margins from several cost containment initiatives instituted during the first nine months of 2001.-12-

PART II -~~11-~~ OTHER INFORMATION

~~Liquidity~~Item ~~and~~1. Legal ~~Capital Resources~~Proceedings

~~The~~ As ~~primary source~~ of ~~cash~~June ~~for the Company's business has been cash flow from operations and availability under the Company's revolving credit facility. Cash as of September~~ 30, ~~2001 was $60~~2002,~~000,~~ there ~~compared~~were ~~with~~no ~~$59,000~~lawsuits pending against ~~as of December 31, 2000. Net cash provided by operations for~~ the nine months ended September 30, 2001 was $4,970,000 compared with $487,000 for the nine months ended September 30, 2000. Cash flows from operations for the nine months ended September 30, 2001 is primarily attributable to the Company's ~~critical~~that ~~focus~~are ~~on cash~~material ~~management resulting in a reduction of accounts receivable~~ and ~~inventory balances~~are ~~by $2,327,000. Cash flow from operations also improved due~~ required to ~~a reduction~~be ~~of its pre-tax loss and lower payments on accounts payable and accrued expenses~~reported, aswith ~~well as cost containment initiatives and headcount reductions as discussed above. As of September 30, 2001,~~ the ~~Company~~following ~~had working capital of $7,225,000.~~exception:

On Laurence Locks, ~~June~~et 1,al. v. Disc Graphics: In July 2001, plaintiffs served ~~following~~a Summons and Complaint against the ~~adoption~~Company asserting claims related byto the Company's previous purchase of ~~a consolidation~~the ~~plan~~assets of Contemporary Color Graphics, Inc. ~~the~~("CCG"). The ~~Company~~claims ~~amended~~concern ~~its~~principal ~~credit~~and ~~agreement~~interest ~~with~~payments allegedly ~~its~~due ~~primary~~on August 1, 2000 under ~~lender~~terms of a $1 million dollar promissory note (the "~~Credit~~CCG Note"), a $600,000 convertible debenture (the ~~Agreement~~"CCG Debenture") and a $1,000,000 supplemental promissory note (the "Supplemental Note") given by the Company as partial payment of the purchase price in the CCG Acquisition. See, ~~This~~Item ~~amendment~~7, Management's Discussion ~~established~~and ~~revised~~Analysis of ~~covenants~~Financial Condition; Contemporary Color Graphics Acquisition contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. Pursuant to the terms of the CCG asset purchase agreement ~~reflect~~dated as of July 1, 1999 between the Company, CCG and CCG's ~~2001~~shareholders, (the ~~projections~~"Asset Purchase Agreement"), the CCG Note and ~~consolidation~~the ~~plan~~CCG Debenture, amounts due under the CCG Note and ~~had~~the CCG Debenture are diminished according to a ~~maturity~~formula contained in the Asset Purchase Agreement as a result of a shortfall between required CCG sales and ~~date~~actual CCG sales. The Company believes that no payments are due to CCG under the terms of ~~April~~the ~~15,~~CCG ~~2002~~Asset Purchase Agreement. Under the terms of a subordination agreement executed by CCG in favor of the Dime Savings Bank in connection with the CCG Acquisition, the Company believes that CCG may not pursue its claim without the consent of the Dime Savings Bank, which consent has ~~was~~been refused. The ~~subsequently~~action ~~extended~~is topending ~~July~~in 31New York Supreme Court, Suffolk County. Individual plaintiff Laurence Locks ~~2002~~has also asserted a claim for breach of his employment agreement with the Company regarding his termination. Locks asserts that he is due "in excess of $332,600" for the unexpired term of the employment agreement, with interest, because he was terminated "without cause."

On In ~~November~~lieu 5,of ~~2001~~answering the Complaint, the Company moved ~~and~~to ~~its~~dismiss ~~primary lender signed a proposal with~~ the ~~intention~~ toportion ~~amend~~of the ~~Credit~~action relating ~~Agreement. The proposal establishes revised covenants,~~to ~~and includes~~ the ~~following~~CCG ~~changes~~Note toand the ~~Credit~~CCG ~~Agreement: (i) reduction in maximum borrowing amount to $11,000,000, subject to a borrowing base formula~~ Debenture based on ~~eligible~~ ~~accounts receivable and inventory~~documentary evidence, ~~(ii) change of maturity to a three year term with up to seven year amortization against machinery & equipment and real estate~~ namely, the provisions ~~(iii) refinancing~~ of ~~two term loans currently financed with a bank,~~the subordination ~~one~~agreement which ~~secured~~are ~~by machinery~~ clear and ~~equipment~~ unambiguous and ~~the~~which ~~other~~CCG ~~secured~~had bythe opportunity to ~~real estate, with~~review and negotiate before ~~its primary lender~~executing. The ~~proposed amendment is subject to the completion~~ motion was recently denied by the Court. The Company's Answer, Affirmative Defenses and Counterclaims are ~~primary~~to ~~lender~~be ofserved anand ~~investigation~~filed ofon ~~the~~August ~~Company's~~2, ~~eligible~~2002. The ~~collateral and~~Court ~~the execution~~ and ~~delivery of definitive documents which shall be mutually agreed upon by all~~ the parties. Atentered into ~~September~~a 30discovery schedule, ~~2001,~~but ~~and~~no atdiscovery ~~the~~demands ~~date~~have ofyet ~~this~~been ~~report, the~~served ~~Company~~nor ~~was~~are inyet ~~compliance~~due ~~with~~by ~~the~~either ~~revised covenants~~party.

AsItem ~~a result of the CCG Acquisition in 1999 and the purchase of approximately $10~~2.0 Changes million of additional manufacturing equipment over the past two years, the Company's total indebtedness and future debt service obligations have increased significantly from prior levels. The Company intends to fund these debt service obligations from operating cash flow in ~~future~~Securities ~~periods,~~ and ~~believes~~ ~~that~~Use ~~it will have sufficient funds to do so. In addition, proceeds from the sale~~ of ~~equipment and a building discussed above will be utilized to pay~~ ~~down borrowings under the Company's debt agreements.~~Proceeds

~~Impact~~ Not ~~of New Accounting Pronouncements~~applicable.

~~Refer~~Item ~~to "Recent Accounting Pronouncements" contained in the Company's September 30, 2001 Consolidated Financial Statements for discussion on Statement of Financial Accounting Standards No~~3. Defaults ~~141, Business Combinations, and~~Upon ~~No.~~Senior ~~142, Goodwill and Other Intangible Assets.~~Securities

~~-12-~~ Not applicable.

Item 34. ~~Quantitative~~ Submission ~~and~~of ~~Qualitative~~Matters ~~Disclosures~~to ~~About~~a ~~Market~~Vote ~~Risk~~of Security Holders

~~The~~ Not ~~Company finances the purchase of production equipment and other capital expenditures through long-term debt and/or capital leases~~applicable. A substantial portion of the Company's long-term debt is its revolving line of credit under the Credit Agreement, which is exposed to changes in interest rates. As of September 30, 2001, the Company had approximately $7.5 million of debt outstanding on its revolving line of credit. The stated or implicit rates on the Company's other borrowings, including capital leases, are generally fixed or in those instances where rates are variable, the Company generally fixes the rates through interest rate swap agreements. If current interest rates were to increase by 10%, the effect to the Company would be an additional annual expense of approximately $45,000.

~~The~~Item ~~Company does not have any sales, purchases, assets or liabilities denominated in currencies other than the U~~5.S. Other ~~dollar, and as such is not subject to foreign currency exchange rate risk.~~Information

~~-13-~~ Not applicable.

~~PART~~Item ~~II - OTHER INFORMATION~~6(a). Exhibits

~~Item~~ The ~~1. Legal~~Exhibits ~~Proceedings~~to this Quarterly Report on Form 10-Q are listed in the Exhibit Index which appears elsewhere herein and are incorporated herein by reference.

OnItem ~~or about July 16, 2001, CCG and its owners commenced an action against the Company for principal and interest payments allegedly due since August 1, 2000 under terms of a $1 million dollar note~~ 6(~~the "CCG Note"~~b) ~~and a $600,000 convertible debenture (the "CCG Debenture") given by the Company as partial payment of the purchase price in the CCG Acquisition~~. Reports ~~Pursuant~~on to the terms of the CCG asset purchase agreement dated as of July 1, 1999 between the Company, CCG and CCG's shareholders (the "CCG Asset Purchase Agreement"), the CCG Note and the CCG Debenture, amounts due under the CCG Note and the CCG Debenture are diminished according to a formula contained in the CCG Asset Purchase Agreement, as a result of a shortfall between required CCG sales and actual CCG sales. The complaint also contained a cause of action by one of the CCG principals alleging that the consolidation of the CCG operations into the Hauppauge facility (see 2000 First Quarter Form 10Q, Page 7) constructively terminated his position. The Company believes that no payments are due to CCG under the terms of the CCG Asset Purchase Agreement or to such CCG principal and intends to vigorously defend itself in this action. Under the terms of a subordination agreement executed by CCG in favor of the Dime Savings Bank in connection with the CCG Acquisition, CCG may not pursue its claim without the consent of the Dime Savings Bank, which consent has been refused. The Company believes that its potential liability under the asserted claims is not material. Except as set forth above, there were no lawsuits pending against the Company as of September 30, 2001.8-K

~~Item~~ The ~~2. Changes~~Company indid ~~Securities~~not ~~and~~file ~~Use~~any ofCurrent ~~Proceeds~~Reports on Form 8-K during its fiscal quarter ended June 30, 2002.

~~Not applicable.~~-13-

~~Item~~ Pursuant ~~3. Defaults~~to ~~Upon~~the requirements of ~~Senior~~ the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Not applicable.


			DISC GRAPHICS, INC. (Registrant)

	August 7, 2002		/s/ Donald Sinkin Donald Sinkin President & CEO



	August 7, 2002		/s/ Margaret Krumholz Margaret Krumholz Senior Vice President of Finance & CFO

~~Item 4. Submission of Matters to a Vote of Security Holders~~-14-

~~Not~~DISC ~~applicable~~GRAPHICS, INC. FORM 10-Q Quarter Ended June 30, 2002

~~Item~~ EXHIBIT ~~5. Other Information~~INDEX

On October 12, 2001 the Company dismissed its independent accountant, KPMG, LLP ("KPMG"), effective immediately. This decision was approved by the Audit Committee of the Company's Board of Directors. On October 12, 2001, the Company engaged PricewaterhouseCoopers ("PWC") as its new independent accountant and auditor. This decision was approved by the Audit Committee of the Board of Directors of the Company.


Exhibit Number		Description

99.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (President and Chief Executive Officer).*

99.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Senior Vice President of Finance and Chief Financial Officer).*

~~The~~* ~~reports~~Document offiled KPMG on the Company's consolidated financial statements as of December 31, 2000 and 1999 and for each of the years then ended did not contain any adverse opinion or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope or accounting principles.herewith

During the Company's fiscal years ended December 31, 2000 and 1999 and subsequent interim periods to October 12, 2001, there were no disagreements between the Company and KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused them to make reference in connection with their opinion to the subject matter of the disagreement.-15-

-14-

Item 6(a) Exhibits

There are no Exhibits to this Quarterly Report on Form 10-Q.

Item 6(b) Reports on Form 8-K

The Company did not file any Current Reports on Form 8-K during its fiscal quarter ended September 30, 2001.

-15-

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

	DISC GRAPHICS, INC.(Registrant)
November 7, 2001	/s/ Donald Sinkin
	Donald SinkinPresident & CEO
November 7, 2001	/s/ Margaret Krumholz
	Margaret KrumholzSenior Vice President & CFO

-16-

DISC GRAPHICS, INC. Quarterly Report on Form 10-Q for the Fiscal Quarter Ended September 30, 2001 EXHIBIT INDEX

Exhibit Number Description NONE.

-17-

Filing Compare · DISC GRAPHICS INC /DE/