UNITED STATES
                       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, 1999

                         Commission file number 1-11803







                          AMERICAN PAD & PAPER COMPANY
             (Exact name of registrant as specified in its charter)


        Delaware                                          04-3164298
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                       Identification No.)

17304 Preston Road, Suite 700, Dallas, TX                 75252-5613
(Address of principal executive offices)                   (Zip Code)

       Registrant's telephone number, including area code: (972) 733-6200

         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












         As of November 15, 1999,  there were 28,527,983  outstanding  shares of
American Pad & Paper Company common stock.

================================================================================
<PAGE>
<TABLE>

<CAPTION>
                          AMERICAN PAD & PAPER COMPANY

                    QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999

                                      INDEX
                                                                                                               Page No.
PART I   FINANCIAL INFORMATION

     Item 1   Financial Statements (unaudited)
<S> ......................................................................................................      <C>

         Consolidated Balance Sheets as of
              September 30, 1999 and December 31, 1998 ...................................................        3

         Consolidated Statements of Operations for the three and nine months ended
              September 30, 1999 and 1998 ................................................................        4

         Consolidated Statements of Cash Flows for the nine months
              ended September 30, 1999 and 1998 ..........................................................        5

         Notes to Consolidated Financial Statements ......................................................        6

     Item 2   Management's Discussion and Analysis of Financial Condition and Results of
              Operations .................................................................................       11

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


PART II  OTHER INFORMATION

     Item 1   Legal Proceedings...........................................................................       18
     Item 2   Changes in Securities and Use of Proceeds...................................................       18
     Item 3   Defaults Upon Senior Securities.............................................................       18
     Item 4   Submission of Matters to a Vote of Security Holders.........................................       19
     Item 5   Other Information...........................................................................       19
     Item 6   Exhibits and Reports on Form 8-K............................................................       19
     Signature Page   ....................................................................................       19

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                          AMERICAN PAD & PAPER COMPANY
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)
                                   (Unaudited)

                                                                September 30,    December 31,
                                                                    1999             1998
                                                               --------------   --------------
ASSETS
Current assets:
<S> ........................................................   <C>              <C>
  Cash .....................................................   $        1,545   $        1,371
  Accounts receivable ......................................           36,915           60,660
  Inventories ..............................................          117,408          112,169
  Income taxes receivable ..................................              132            1,700
  Prepaid expenses and other current assets ................            2,206            1,240
  Deferred income taxes ....................................               40               40
                                                               --------------   --------------
    Total current assets ...................................          158,246          177,180

Property, plant and equipment ..............................          148,938          152,198
Goodwill and intangible assets .............................          179,205          185,805
Other ......................................................            2,502            2,654
                                                               --------------   --------------
     Total assets ..........................................   $      488,891   $      517,837
                                                               ==============   ==============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Current portion of long-term debt ........................   $      247,610   $        1,236
  Accounts payable .........................................           48,455           49,598
  Accrued expenses .........................................           49,107           47,078
  Income taxes payable .....................................              300              300
  Restructuring reserve ....................................            2,200            5,660
                                                               --------------   --------------
     Total current liabilities .............................          347,672          103,872
                                                               --------------   --------------

Long-term debt .............................................          137,871          373,675
Deferred income taxes ......................................           16,364           16,972
Other ......................................................            1,102            1,288
                                                               --------------   --------------
   Total liabilities .......................................          503,009          495,807

Commitments and contingencies
 Stockholders' equity (deficit):
  Preferred stock, 150,000 shares authorized,
   no shares issued and outstanding ........................             --               --
  Common stock, voting, $.01 par value, 75,000,000
   shares authorized, 27,926,405 and 27,724,405
   shares issued and outstanding, respectively .............              279              277
  Additional paid-in capital ...............................          301,287          301,287
  Accumulated deficit ......................................         (315,684)        (279,534)
                                                               --------------   --------------
      Total stockholders' equity (deficit) .................          (14,118)          22,030
                                                               --------------   --------------
    Total liabilities and stockholders' equity (deficit) ...   $      488,891   $      517,837
                                                               ==============   ==============

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>



                                     AMERICAN PAD & PAPER COMPANY
                                CONSOLIDATED STATEMENTS OF OPERATIONS
                              (in thousands, except per share amounts)
                                             (Unaudited)

                                                 Three months ended           Nine months ended
                                                    September 30,                September 30,
                                              --------------------------  ----------------------------
                                                  1999           1998        1999              1998
                                              ------------  ------------  ------------    ------------
<S> .......................................   <C>           <C>           <C>             <C>

Net sales .................................   $    144,717  $    174,160  $    416,398    $    482,479
Cost of sales .............................        131,984       156,462       382,230         441,962
                                              ------------  ------------  ------------    ------------
   Gross profit ...........................         12,733        17,698        34,168          40,517

Operating expenses:
   Selling and marketing ..................          5,590         5,569        15,844          15,762
   General and administrative .............          5,026         9,608        18,269          24,313
   Restructuring charges ..................         (1,999)        5,741        (1,999)          5,741
   Loss on sale of accounts receivable ....            836           858         2,286           2,319
   Amortization of intangible assets ......          1,282         1,327         3,853           4,522
   Write-down of intangible assets ........           --            --            --            41,000
   Management fees and services ...........            375           595         1,125           1,655
                                              ------------  ------------  ------------    ------------
Income (loss) from operations .............          1,623        (6,000)       (5,210)        (54,795)

Other income (expense):
   Interest ...............................        (10,912)      (11,929)      (32,632)        (33,735)
   Other income, net ......................             88           192         2,418             207
                                              ------------  ------------  ------------    ------------
Loss before income taxes ..................         (9,201)      (17,737)      (35,424)        (88,323)
Benefit from income taxes .................           --           4,343          --            16,907
                                              ------------  ------------  ------------    ------------
Loss before cumulative effect of a change
   in accounting principal ................         (9,201)      (13,394)      (35,424)        (71,416)

Cumulative effect of a change
  in accounting principal .................           --            --            (726)           --
                                              ------------  ------------  ------------    ------------
Net loss ..................................   $     (9,201) $    (13,394) $    (36,150)   $    (71,416)
                                              ============  ============  ============    ============

Basic loss per share:
  Loss before cumulative effect of a change
   in accounting principal ................   $      (0.33) $      (0.48) $      (1.27)   $      (2.58)
Cumulative effect of a change
     in accounting principal ..............           --            --           (0.03)           --
                                              ------------  ------------  ------------    ------------
  Net loss ................................   $      (0.33) $      (0.48) $      (1.30)   $      (2.58)
                                              ============  ============  ============    ============

Weighted average shares outstanding:
  Basic ...................................         27,829        27,724        27,760          27,713
                                              ============  ============  ============    ============

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>



<PAGE>

<TABLE>
<CAPTION>


                                         AMERICAN PAD & PAPER COMPANY
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (in thousands)
                                                  (Unaudited)

                                                                             Nine Months ended
                                                                                September 30,
                                                                         -----------     -----------
                                                                            1999            1998
                                                                         -----------     -----------

Cash flows from operating activities:
<S> ..................................................................   <C>             <C>
  Net loss ...........................................................   $    (36,150)   $    (71,416)
  Adjustments  to reconcile net loss to net cash provided by (used in)
    operating activities:
    Deferred income taxes ............................................           (607)        (17,148)
    Depreciation .....................................................         10,905          10,241
    Amortization of goodwill and intangible assets ...................          3,853           4,522
    Write-down of assets - Shade/Allied ..............................           --            41,000
    Restructuring charges ............................................         (1,999)          5,741
    Cumulative effect of change in accounting principle ..............            726            --
    Amortization of debt issuance costs ..............................          2,078           3,589
    (Gain) or loss on disposal of assets .............................         (1,929)            143
    Changes in assets and liabilities:
       Accounts receivable ...........................................         22,745          27,202
       Income taxes receivable .......................................          1,568           3,308
       Inventories ...................................................         (5,863)         24,752
       Prepaid expenses and other ....................................           (966)           (301)
       Accounts payable ..............................................         (1,142)        (13,682)
       Accrued expenses ..............................................            567          13,173
       Other assets and liabilities ..................................            (34)           (805)
                                                                         ------------    ------------
         Net cash provided by (used in) operating activities .........         (6,248)         30,319
                                                                         ------------    ------------

Cash flows from investing activities:
  Purchases of property and equipment ................................        (10,702)        (11,195)
  Proceeds from sale of assets .......................................          5,610              21
                                                                         ------------    ------------
         Net cash used in investing activities .......................         (5,092)        (11,174)
                                                                         ------------    ------------

Cash flows from financing activities:
  Net borrowings on credit agreement and long-term debt ..............         11,768          14,400
  Repayment of long-term debt ........................................         (1,198)         (1,146)
  Net repayment of accounts receivable financing facility ............          1,000          (2,000)
  Debt issuance costs ................................................            (57)         (2,037)
  Options and management stock purchase plan .........................              1              11
                                                                         ------------    ------------
     Net cash provided by financing activities .......................         11,514           9,228
                                                                         ------------    ------------

Net increase (decrease) in cash ......................................            174          28,373
Cash, beginning of period ............................................          1,371           4,855
                                                                         ------------    ------------
Cash, end of period ..................................................   $      1,545    $     33,228
                                                                         ============    ============

The  accompanying  notes are an  integral  part of these consolidated financial statements.
</TABLE>

<PAGE>


                          AMERICAN PAD & PAPER COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1999



1.  Organization and Basis of Presentation

     Organization and Basis of Presentation

         American Pad & Paper  Company  (the  "Company")  is a holding  company,
that conducts its operations  through American Pad & Paper Company of Delaware,
Inc. ("AP&P  Delaware") and its wholly owned  subsidiaries,  AP&P Manufacturing,
Inc., and American Pad & Paper Sales Company, Inc.

         The financial statements of the Company include the historical accounts
and  operations  of the Company and AP&P  Delaware.  Included in the  historical
accounts and  operations  of AP&P  Delaware are the accounts and  operations  of
previous  acquisitions  AMPAD,  the  envelope  operations  of  Williamhouse  and
Niagara, and the continuous form operations of Shade/Allied.  Additionally,  the
consolidated  financial  statements  include  the  accounts  of Notepad  Funding
Corporation  ("Notepad"),  a special  purpose  corporation  used in the accounts
receivable financing facility.  All significant  intercompany balances have been
eliminated.

     Business

         The  Company  is a leading  manufacturer  and  marketer  of  nationally
branded and private label  paper-based  office  products in North  America.  The
Company operates in one business segment, converting paper into office products,
and offers a broad assortment of products through two  complementary  divisions:
AMPAD (writing  pads,  file folders,  retail  envelopes,  and other  paper-based
office  products) and  Williamhouse  (business  envelopes and seasonal  greeting
cards).  The  Company's  products are  distributed  through  large mass merchant
retailers,   office  product   superstores,   warehouse  clubs,  major  contract
stationers,  office  products  wholesalers,  paper  merchants,  and  independent
dealers.

     Interim Financial Information

         The accompanying  interim financial  statements are unaudited.  Certain
information and disclosures  normally included in financial  statements prepared
in accordance with generally accepted accounting  principles have been condensed
or omitted,  although the Company  believes the disclosures  included herein are
adequate  to make  the  information  presented  not  misleading.  These  interim
financial  statements should be read in conjunction with the Company's financial
statements for the year ended December 31, 1998.

         The accompanying  interim financial statements contain all adjustments,
consisting  only  of  normal  recurring   adjustments,   necessary  for  a  fair
presentation of the Company's  financial position at September 30, 1999, and the
results  of its  operations  and its cash  flows for the three  months  and nine
months ended  September 30, 1999,  and 1998.  The results of operations  for the
interim  periods  presented  are not  necessarily  indicative  of  results to be
expected for the full fiscal year.

     American Pad & Paper Company of Delaware, Inc.

         AP&P  Delaware,   is  the  issuer  of  13%  Senior  Subordinated  Notes
("Notes").  Terms of the Notes require,  among other matters, that AP&P Delaware
provide  annual  audited and  quarterly  unaudited  financial  statements to the
holders of the notes.  There are no material  differences  between the financial
statements of the Company and those of AP&P  Delaware.  The  composition of AP&P
Delaware's stockholder's equity (deficit) at September 30, 1999, consists of one
hundred  shares of $0.01 par  value  common  stock,  paid-in  capital  of $202.4
million and an accumulated  deficit of $216.5 million and, in total, is equal to
the stockholders' equity (deficit) of the Company.

<PAGE>



2.       Restructuring Reserve

         On September 1, 1998, the Company  announced a plan to rationalize  its
manufacturing  operations.  The plan includes  plant  consolidations,  equipment
moves, plant/product changes, warehouse consolidations,  and the addition of new
distribution centers.

         The  Company  has  announced  three  plant  closings  as  part  of  the
rationalization  plan.  The  closing of the  Kosciusko,  Mississippi,  plant was
announced  on November  10, 1998.  The closing of the Dallas,  Texas,  plant was
announced on January 19, 1999. The closing of the Holland,  New York,  plant was
announced on May 10, 1999.  The final  production  of the  Kosciusko  and Dallas
plants  occurred  on April  14,  1999 and April 22,  1999,  respectively.  As of
September 30, 1999,  371  employees  have been severed and severance and benefit
payments totaling $1.1 million have been charged to the restructuring reserve.
<TABLE>
<CAPTION>

                                             Initial                                        Remaining
                                          Restructuring      Amounts       Change in        Costs to
                                              Charge      Used to date      Estimate          Incur
                                          ------------    ------------    ------------    ------------
                                                                 (in thousands)
<S> ...................................   <C>             <C>             <C>             <C>
Severance and benefits ................   $      1,848    $     (1,064)   $       (615)   $        169
Closing costs to exit facilities ......          2,484            (275)         (1,198)          1,011
Lease termination costs ...............            468            (132)           --               336
Property taxes after ceasing operations            941             (71)           (186)            684
                                          ------------    ------------    ------------    ------------
Total                                     $      5,741    $     (1,542)   $     (1,999)   $      2,200
                                          ============    ============    ============    ============
</TABLE>

         Restructuring  charges  recorded in September 1998 of $2.0 million were
reversed   during  the  quarter   ended   September   30,  1999.   The  original
rationalization  plan included the  consolidation of two existing plants.  After
attempts to hire  additional  skilled labor at the receiving  plant failed,  the
decision to close the first plant was reversed.

         The Company recorded one-time  implementation costs associated with the
rationalization  plan of $8.6 million in cost of sales during the three quarters
ended  September 30, 1999.  These expenses  represent  costs to move  equipment,
efficiency costs, and recruiting costs. Estimated one-time  implementation costs
of $0.2 million that do not qualify for current  recognition will be recorded in
the fourth quarter of 1999. Such costs include equipment and inventory  transfer
costs,  employee retention and relocation,  recruiting costs,  interim warehouse
costs, and other training and efficiency  costs.  The major  undertakings of the
rationalization   plan  are  expected  to  be  completed  in  1999.   Upon  full
implementation,  the plan is expected to have a significant  positive  effect on
the Company's financial  performance,  resulting in an estimated annualized cost
saving of $8.0 to $10.0 million.

3.       Accounts Receivable
<TABLE>
<CAPTION>

                                                        September 30,   December 31,
                                                            1999            1998
                                                        ------------    ------------
                                                              (in thousands)
<S> .................................................   <C>             <C>
Accounts receivable - trade .........................   $     36,004    $     59,936
Accounts receivable - other .........................          3,736           2,972
Less allowance for doubtful accounts and reserves for
 customers deductions and cash discounts ............         (2,825)         (2,248)
                                                        ------------    ------------
                                                        $     36,915    $     60,660
                                                        ============    ============
</TABLE>



<PAGE>



         On May 24,  1996,  the Company  entered into a $60.0  million  accounts
receivable  financing  facility.  At  September  30, 1999 and December 31, 1998,
accounts receivable of $57.0 million and $56.0 million, respectively,  were sold
under this facility.  All accounts are sold with recourse.  Therefore, a portion
of the allowance for doubtful accounts covers receivables no longer reflected on
the balance sheet. Under the agreement, the maximum available under the facility
is subject to change  based on the level of eligible  receivables  as defined in
the agreement. The facility matures in October 2001.


4.       Inventories
<TABLE>
<CAPTION>

                                                        September 30,    December 31,
                                                           1999             1998
                                                        ------------    ------------
                                                             (in thousands)
<S> .................................................   <C>             <C>
Raw materials .......................................   $     33,981    $     29,892
Work in process .....................................          7,092           5,440
Finished goods ......................................         81,837          77,788
                                                        ------------    ------------
                                                             122,910         113,120
LIFO reserve ........................................         (5,502)           (951)
                                                        ------------    ------------
                                                        $    117,408    $    112,169
                                                        ============    ============
</TABLE>


5.       Property, Plant, and Equipment
<TABLE>
<CAPTION>

                                           Estimated
                                          Useful lives   September 30,          December 31,
                                            in years         1999                  1998
                                          ------------   --------------       --------------
                                                                   (in thousands)
<S>                                          <C>        <C>                  <C>
Land.....................................                $        4,834       $        7,002
Buildings................................      40                33,234               34,585
Machinery and equipment..................     3-12              135,930              132,721
Office furniture and fixtures............     3-7                12,987               12,351
Construction in progress.................                        11,718                5,109
                                                         --------------       --------------
                                                                198,703              191,768
Less accumulated depreciation............                       (49,765)             (39,570)
                                                         --------------       -- -----------
                                                         $      148,938       $      152,198
                                                         ==============       ==============
</TABLE>


6.       Goodwill and Intangible Assets
<TABLE>
<CAPTION>

                                                         September 30,         December 31,
                                                              1999                1998
                                                         --------------     --------------
                                                                  (in thousands)
<S> .................................................   <C>                <C>
Goodwill ............................................    $      148,460     $      148,460
Intangible assets, primarily tradenames .............            42,767             43,665
Debt issuance costs .................................            20,105             20,048
                                                         --------------     --------------
                                                                211,332            212,173
Less accumulated amortization .......................           (32,127)           (26,368)
                                                         --------------     --------------
                                                         $      179,205     $      185,805
                                                         ==============     ==============

</TABLE>


<PAGE>


         The Accounting  Standards  Executive Committee (AcSEC) issued Statement
of Position  (SOP) 98-5,  which is effective for fiscal years  commencing  after
December 15, 1998.  SOP 98-5,  "Reporting on the Costs of Start-up  Activities",
prescribes  that start-up  costs should be expensed as incurred.  The SOP states
that its  adoption  should be  reported  as a  cumulative  effect of a change in
accounting  principle.  The Company adopted SOP 98-5 effective  January 1, 1999,
recorded a charge of $0.7  million in January 1999  reflecting  the write off of
previously recorded start-up costs.


7.       Accrued Expenses

<TABLE>
<CAPTION>

                                                          September 30,        December 31,
                                                               1999              1998
                                                          -------------     --------------
                                                                       (in thousands)
<S> .................................................   <C>                <C>
Acquisition integration costs .......................    $        5,043     $        6,190
Sales volume discounts ..............................            21,704             18,572
Salaries, wages and benefits ........................             2,903              4,922
Interest ............................................             7,433              3,808
Insurance reserves ..................................             4,682              5,550
Other ...............................................             7,342              8,036
                                                         --------------     --------------
                                                         $       49,107     $       47,078
                                                         ==============     ==============
</TABLE>

8.       Long-Term Debt
<TABLE>
<CAPTION>

                                                         September 30,        December 31,
                                                             1999                1998
                                                         --------------     --------------
                                                                   (in thousands)
<S> .................................................   <C>                <C>
Revolving credit facility ...........................    $      246,000     $      235,150
13% Senior Subordinated Notes due 2005 ..............           130,000            130,000
Industrial revenue bonds ............................             6,815              7,165
Notes payable .......................................               932                584
Capitalized lease obligations .......................             1,734              2,012
                                                         --------------     --------------
                                                                385,481            374,911
Less current portion ................................           247,610              1,236
                                                         --------------     --------------
                                                         $      137,871     $      373,675
                                                         ==============     ==============
</TABLE>

       On Friday  November 12,  1999,  the Company was notified by its banking
group of a default of its revolving credit facility.  The default stems from the
formation of new subsidiaries in December 1997 related to a reorganization  of
the Company's  corporate structure without proper notification to the banks. The
reorganization was implemented primarily for state tax purposes and included the
transfer  of  assets  between  existing   entities  and  transfers  to  the  new
subsidiaries.  Certain  of these  subsidiaries  own  assets for which the banks'
security interest may not have been perfected,  resulting in a default under the
revolving credit  facility.  The banks' default notice prevents the Company from
making the scheduled  November 15, 1999  interest  payment to its  subordinated
debt holders.  The  subordinated  debt indenture  provides a 30-day grace period
during  which to cure this  interest  payment  default.  The Company has been in
discussions  with its bank group and  intends to  continue  to work with them to
attempt to resolve the credit facility default during this grace period.

          The Company has engaged  Lazard  Freres to analyze its  strategic  and
financial  alternatives,   including  the  possible  sale  of  the  Williamhouse
division.  The main  reason for  considering  this  option is that at the proper
valuation,  the proceeds from the sale of the  Williamhouse  division would make
significant  progress  toward  reducing  debt.  Lazard  will  also look at other
actions that would also allow the Company to address its debt structure.
<PAGE>

         Due to the  availability  of a 30-day grace period provided in the bond
indenture,  the liability for the 13% Senior Subordinated Notes will continue to
be classified as long term in the balance sheet.  The revolving  credit facility
does not provide for a grace  period  relative to the  default.  Therefore,  the
entire revolving credit debt will be classified as a current liability.


9.       Related Party Transactions

         The Company had an outstanding note receivable of $284,000 at September
30, 1999, from its former  President and Chief Operating  Officer.  In 1998, the
note was extended to July 2000, and bears interest at a rate of six percent. The
amounts due under the note are with full recourse and are secured by a pledge of
all such shares of Common Stock purchased by the former executive.

         On March 31,  1998,  the  Company  loaned  its acting  Chief  Financial
Officer,  who is also a director,  $1.0 million related to the exercise of stock
options. The current loan balance is $1.1 million. The loan is due in March 2001
and bears  interest at a rate of 5.89%.  The loan is secured by shares of common
stock.


<PAGE>


                          AMERICAN PAD & PAPER COMPANY

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


Overview

         The  Company  is one of the  largest  manufacturers  and  marketers  of
nationally branded and private label paper-based office products (excluding copy
paper)  in the $60 to $70  billion  North  American  office  products  industry.
Through its AMPAD division,  the Company is among the largest  manufacturers  of
writing pads and notebooks, filing supplies, retail envelopes and machine papers
to many of the largest office products  retailers and distributors.  Through its
Williamhouse  division,  the  Company is the leading  supplier of mill  branded,
specialty and commodity  business envelopes to paper merchants and distributors.
Certain factors that have affected, and may affect prospectively,  the operating
results of the Company are discussed below.

         Purchase  Accounting  Effects.  The  Company's  acquisitions  have been
accounted  for using the  purchase  accounting  method.  The  acquisitions  have
currently  affected,  and will  prospectively  affect,  the Company's results of
operations in certain  significant  respects.  The aggregate  acquisition  costs
(including assumption of debt) are allocated to the assets acquired based on the
fair market value of such assets on the date of acquisition.  The allocations of
the purchase price result in an increase in the historical book value of certain
assets such as property,  plant and equipment and intangible  assets,  including
goodwill,  which results in incremental  annual  depreciation  and  amortization
expense each year.

         Raw  Material.   The   Company's   principal  raw  material  is  paper.
Historically,  certain  commodity  grades  utilized  by the  Company  have shown
considerable  price  volatility.  To the extent  that the Company is not able to
pass  such  price  changes  on  to  its  customers  due  to  strategic  customer
considerations or competitive market  conditions,  this price volatility has and
is expected to continue to have an effect on net sales and cost of sales.  There
is no  assurance  that the  Company  will not be  materially  affected by future
fluctuations in the price of paper.


Recent Developments

         On Friday  November 12,  1999,  the Company was notified by its banking
group of a default of its revolving credit facility.  The default stems from the
formation of new subsidiaries in December 1997 related to a reorganization  of
the Company's  corporate structure without proper notification to the banks. The
reorganization was implemented primarily for state tax purposes and included the
transfer  of  assets  between  existing   entities  and  transfers  to  the  new
subsidiaries.  Certain  of these  subsidiaries  own  assets for which the banks'
security interest may not have been perfected,  resulting in a default under the
revolving credit  facility.  The banks' default notice prevents the Company from
making the scheduled  November 15, 1999  interest  payment to its  subordinated
debt holders.  The  subordinated  debt indenture  provides a 30-day grace period
during  which to cure this  interest  payment  default.  The Company has been in
discussions  with its bank group and  intends to  continue  to work with them to
attempt to resolve the credit facility default during this grace period.

          The Company has engaged  Lazard  Freres to analyze its  strategic  and
financial  alternatives,   including  the  possible  sale  of  the  Williamhouse
division.  The main  reason for  considering  this  option is that at the proper
valuation,  the proceeds from the sale of the  Williamhouse  division would make
significant  progress  toward  reducing  debt.  Lazard  will  also look at other
actions that would also allow the Company to address its debt structure.

         Due to the  availability  of a 30-day grace period provided in the bond
indenture,  the liability for the 13% Senior Subordinated Notes will continue to
be classified as long term in the balance sheet.  The revolving  credit facility
does not provide for a grace  period  relative to the  default.  Therefore,  the
entire revolving credit debt will be classified as a current liability.

<PAGE>

Results of Operations

The following table summarizes the Company's historical results of operations as
a percentage of net sales for the three and nine months ended September 30, 1999
and 1998.

<TABLE>
<CAPTION>

Income Statement Data
                                            Three months ended September 30,  Nine months ended September 30,
                                             ----------------------------     -----------------------------
                                                1999             1998             1999            1998
                                             ------------    ------------     ------------     ------------

<S> .....................................    <C>             <C>              <C>              <C>
Net sales ...............................          100.0%          100.0%           100.0%           100.0%
Cost of sales ...........................           91.2%           89.8%            91.8%            91.6%
                                             ------------    ------------     ------------     ------------
   Gross profit .........................            8.8%           10.2%             8.2%             8.4%
Operating expenses:
   Selling and marketing ................            3.9%            3.2%             3.8%             3.3%
   General and administrative ...........            3.5%            5.5%             4.4%             5.0%
   Restructuring charges.................           -1.4%            3.3%            -0.5%             1.2%
   Loss on sale of accounts receivable ..            0.6%            0.5%             0.5%             0.5%
   Amortization of intangible assets ....            0.9%            0.8%             0.9%             0.9%
   Write-down of assets .................            0.0%            0.0%             0.0%             8.5%
   Management fees and services .........            0.3%            0.3%             0.3%             0.3%
                                             ------------    ------------     ------------     ------------
Income (loss) from operations ...........            1.0%           -3.4%            -1.2%           -11.3%

Other income (expense):
   Interest .............................           -7.5%           -6.8%            -7.8%            -7.0%
   Other income, net ....................            0.1%            0.0%             0.6%             0.0%
                                             ------------    ------------     ------------     ------------
Loss before income taxes ................           -6.4%          -10.2%            -8.4%           -18.3%
Benefit from income taxes................            0.0%           -2.5%             0.0%            -3.5%
                                             ------------    ------------     ------------     ------------

Loss before cumulative effect of
  a change in accounting principle ......           -6.4%           -7.7%            -8.4%           -14.8%

Cumulative effect of a change in
  accounting principle net of tax .......            0.0%            0.0%            -0.2%             0.0%
                                             ------------    ------------     ------------     ------------
Net loss ................................           -6.4%           -7.7%            -8.6%           -14.8%
                                             ============    ============     ============     ============
</TABLE>


Three months ended September 30, 1999, compared to three months ended September
 30, 1998

         Net sales  decreased to $144.7  million in 1999 from $174.2  million in
1998, a decrease of $29.4 million or 16.9%. The decrease is comprised of a $30.3
million  decrease  in sales  partially  offset  by a $0.9  million  decrease  in
customer  incentives.  The net sales decrease is primarily  attributable  to the
loss  of a  major  superstore  customer,  the  Company's  efforts  to  eliminate
unprofitable  business in its forms sales, the continued effort by the Company's
superstore  customers to reduce inventory,  and slower than expected business in
the paper merchant  channel.  The decrease was partially  offset by increases in
the  remaining  superstore  customers  and the end of  some  customer  incentive
programs.

         Gross profit  decreased  to $12.7  million or 8.8% of net sales in 1999
from $17.7 million or 10.2% of net sales in 1998. This $5.0 million  decrease in
gross profit margin is primarily  attributable  to lower than expected volume as
well as a less  favorable  product  mix  (more  commodity  and less  proprietary
products).  This was somewhat  offset by lower standard costs and higher rebates
collected from vendors. In addition, 1999 cost of sales included $3.8 million of
one-time costs  associated with the plant  rationalization  plan. These expenses
represent costs to move equipment, efficiency costs, and recruiting costs.

         Selling and marketing expenses of $5.6 million incurred in 1999 were in
line with expenses recorded in 1998.

         General and  administrative  expenses decreased to $5.0 million in 1999
from $9.6 million in 1998.  This decrease is primarily  attributable to the 1998
expenses of $2.2  million for  severance  and  consulting  costs paid to certain
former  executives of the company and $1.4 million of consulting fees related to
work on the Company's restructuring.

         Restructuring  charges  recorded in September 1998 of $2.0 million were
reversed  during  the three  months  ended  September  30,  1999.  The  original
rationalization  plan included the  consolidation of two existing plants.  After
attempts to hire  additional  skilled labor at the receiving  plant failed,  the
decision to close the first plant was  reversed.  Restructuring  charges for the
three months ended  September 30, 1998, of $5.7 million  represents  part of the
previously announced major  rationalization plan of the Company's  manufacturing
operations.

         Losses on sales of accounts  receivable of $0.8 million in 1999 were in
line with expenses recorded in 1998. The losses on sales of accounts  receivable
represent the Company's cost of using a third party trust to provide off balance
sheet financing of trade accounts receivable.

         Goodwill and intangible asset  amortization  expense of $1.3 million in
1999 were in line with recorded expenses in 1998.

         Management  fees and  services  decreased  to $0.4 million in 1999 from
$0.6 million for 1998. The change in management fees is due to the renegotiation
of the Company's  Advisory Agreement to reduce the fee from $2.0 million to $1.5
million annually.

         Interest expense  decreased to $10.9 million in 1999 from $11.9 million
in 1998,  representing  a decrease of $1.0 million.  The decline is due to lower
average outstanding debt levels during the third quarter of 1999 compared to the
third quarter of 1998, partially offset by higher rates.

         The income tax  provision  for the quarter  ended  September  30, 1999,
reflects  an  effective  income  tax  benefit  rate of 0% as  compared  with the
effective income tax provision rate of 24.5% for the quarter ended September 30,
1998. In the third  quarter of 1999,  the Company did not record any tax benefit
associated with its loss.  Instead,  the Company  increased its net deferred tax
valuation  allowance  by an amount equal to the tax benefit that would have been
provided  by the  loss.  The  Company  will  continue  this  practice  until the
realization of its recorded net operating loss is reasonably assured.


Nine months ended September 30, 1999, compared to nine months ended September
30, 1998

         Net sales  decreased to $416.4  million in 1999 from $482.5  million in
1998, a decrease of $66.1 million or 13.7%. The decrease is comprised of a $69.2
million  decrease  in sales  partially  offset  by a $3.1  million  decrease  in
customer  incentives.  The net sales decrease is primarily  attributable  to the
loss  of a  major  superstore  customer,  the  Company's  efforts  to  eliminate
unprofitable  business  in its  forms  sales,  and the  continued  effort by the
Company's superstore  customers to reduce inventory.  The decrease was partially
offset by increases in the  remaining  superstore  customers and the end of some
customer incentive programs.

         Gross profit  decreased  to $34.2  million or 8.2% of net sales in 1999
from $40.5 million or 8.4% of net sales in 1998.  This $6.3 million  decrease in
gross profit  margin is primarily  attributable  to lower sales and LIFO charges
that exceeded  1998 charges by $6.7  million.  These  variances  were  partially
offset by lower standard costs and operating variances as well as higher rebates
collected from vendors. In addition, 1999 cost of sales included $8.6 million of
one-time costs  associated with the plant  rationalization  plan. These expenses
represent costs to move equipment, efficiency costs, and recruiting costs.

<PAGE>

         Selling and marketing  expenses of $15.8 million  incurred in 1999 were
in line with expenses recorded in 1998.

         General and administrative  expenses decreased to $18.3 million in 1999
from  $24.3  million  in 1998,  or $6.0  million.  This  decrease  is  primarily
attributable  to 1998 one time  severance and  consulting  costs paid to certain
former  executives  of the Company of $3.4  million,  $1.4 million of consulting
fees  related  to work on the  Company's  restructuring,  and  $0.7  million  in
litigation costs.

         Restructuring  charges  recorded in September 1998 of $2.0 million were
reversed  during  the  nine  months  ended  September  30,  1999.  The  original
rationalization  plan included the  consolidation of two existing plants.  After
attempts to hire  additional  skilled labor at the receiving  plant failed,  the
decision to close the first plant was  reversed.  Restructuring  charges for the
nine months ended  September  30, 1998, of $5.7 million  represents  part of the
previously announced major  rationalization plan of the Company's  manufacturing
operations.

         Losses on sales of accounts  receivable of $2.3 million in 1999 were in
line with expenses recorded in 1998. The losses on sales of accounts  receivable
represent the Company's cost of using a third party trust to provide off balance
sheet financing of trade accounts receivable.

         Goodwill and intangible asset  amortization  expense  decreased to $3.9
million in 1999 from $4.5  million in 1998.  The decrease of $0.6 million is due
primarily to the  amortization  associated  with the $41.0 million write down of
intangible assets in the second quarter of 1998.

         Write-down of intangible  assets  expense of $41.0 million for the nine
months  ended  September  30,  1998,  reflects a  write-off  of  goodwill  and a
write-down of intangible  assets  associated  with the  Shade/Allied  continuous
forms business.

         Management  fees and  services  decreased  to $1.1 million in 1999 from
$1.7 million for 1998,  representing  a decrease of $0.6 million.  The change in
management fees is due to the renegotiation of the Company's  Advisory Agreement
to reduce the fee from $2.0 million to $1.5 million annually.

         Interest expense  decreased to $32.6 million in 1999 from $33.7 million
in 1998,  representing  a decrease of $1.1 million.  The decline is due to lower
average  outstanding debt levels during the year-to-date  period ended September
30, 1999 compared to the year-to-date period ended September 30, 1998, partially
offset by higher rates.

         The income tax provision for the nine months ended  September 30, 1999,
reflects  an  effective  income  tax  benefit  rate of 0% as  compared  with the
effective income tax provision rate of 19.1% for the nine months ended September
30, 1998.  In the first nine months of 1999,  the Company did not record any tax
benefit  associated  with its  loss.  Instead,  the  Company  increased  its net
deferred  tax  valuation  allowance  by an amount  equal to the tax benefit that
would have been  provided by the loss.  The Company will  continue this practice
until the  realization of its recorded net operating loss is reasonably assured.
In the first nine months of 1998, the Company lowered its effective tax rate due
to the expected effect of nondeductible expenses during 1998.

         Cumulative  effect of a change  in  accounting  principle  for the nine
months ended September 30, 1999, reflects a charge of $0.7 million,  net of tax,
for  the  write  off of  previously  recorded  start-up  costs.  The  Accounting
Standards  Executive  Committee (AcSEC) issued Statement of Position (SOP) 98-5,
which is effective  for fiscal years  commencing  after  December 15, 1998.  SOP
98-5, "Reporting on the Costs of Start-up Activities",  prescribes that start-up
costs should be expensed as incurred. The SOP states that its adoption should be
reported as a cumulative effect of a change in accounting principle.
<PAGE>


Known Trends and Seasonality

         The Company  experiences some  seasonality in its business  operations.
During the Company's third and fourth quarters, net sales tend to be higher than
in the  first  and  second  quarters  due to sales of  back-to-school,  seasonal
greeting card and tax filing products.

         The Company's AMPAD division sells primarily to fast growing  customers
such as office  products  superstores,  mass  merchants  and  national  contract
stationers.  Such customers  periodically  adjust the levels of inventory in the
retail  distribution  channels,  either  in  retail  stores  or in  distribution
centers.  The Company has  determined  that lower than expected sales will occur
during the quarters in which such downward  adjustments are made. The Company is
not able to predict the future effect of such adjustments; however, it is likely
that its retail  customers  will continue to adjust  inventory  levels in future
quarters.

         The  Company's  gross  profit is  directly  affected  by,  among  other
factors,  the  mix of  products  sold  and the mix of  customers.  Based  on the
Company's  current  product  categories  and customer mix, the  Company's  gross
profit will be  negatively  or  positively  affected  as the actual  product and
customer sales mix changes.

Liquidity and Capital Resources

         Net  cash  used by  operating  activities  for the  nine  months  ended
September  30,  1999,  was $6.2  million as  compared  to net cash  provided  by
operating  activities  for the nine months ended  September  30, 1998,  of $30.3
million. This decrease is primarily the result of lower sales.

         Cash used in investing  activities for the nine months ended  September
30, 1999 and 1998, was $5.1 million and $11.2 million,  respectively, due to the
purchase of equipment,  principally production equipment,  offset by the sale of
assets.

         On Friday  November 12,  1999,  the Company was notified by its banking
group of a default of its revolving credit facility.  The default stems from the
formation of new  subsidiaries in December 1997 related to a  reorganization  of
the Company's  corporate structure without proper notification to the banks. The
reorganization was implemented primarily for state tax purposes and included the
transfer  of  assets  between  existing   entities  and  transfers  to  the  new
subsidiaries.  Certain  of these  subsidiaries  own  assets for which the banks'
security interest may not have been perfected,  resulting in a default under the
revolving credit  facility.  The banks' default notice prevents the Company from
making the scheduled November 15, 1999 interest payment to its subordinated debt
holders.  The subordinated debt indenture  provides a 30-day grace period during
which to cure this interest payment default. The Company has been in discussions
with its bank  group and  intends  to  continue  to work with them to attempt to
resolve the credit facility default during this grace period.

          The Company has engaged  Lazard  Freres to analyze its  strategic  and
financial  alternatives,   including  the  possible  sale  of  the  Williamhouse
division.  The main  reason for  considering  this  option is that at the proper
valuation,  the proceeds from the sale of the  Williamhouse  division would make
significant  progress  toward  reducing  debt.  Lazard  will  also look at other
actions that would also allow the Company to address its debt structure.

         Due to the  availability  of a 30-day grace period provided in the bond
indenture,  the liability for the 13% Senior Subordinated Notes will continue to
be classified as long term in the balance sheet.  The revolving  credit facility
does not provide for a grace  period  relative to the  default.  Therefore,  the
entire revolving credit debt will be classified as a current liability.

         The  declaration of the default has restricted the Company's  liquidity
to it current cash on hand and the cash  generated by its near-term  operations.
As a result,  the ability of the Company to meet its  continuing  obligations is
dependent upon its continued sales and collection of outstanding receivables and
the careful  management of cash until  availability  under the revolving  credit
facility can be restored or other  financing  can be  arranged.  Cash on hand at
November 15, 1999, was $10.4 million.

<PAGE>

Year 2000 Issue

         The  Company  recognizes  the need to ensure  that its  operations  and
relationships  with  vendors,  customers and other parties will not be adversely
impacted by software or other processing errors arising from calculations  using
the year 2000 and  beyond.  Failure by the Company to timely  resolve  Year 2000
issues  could  result,  in the worst  case,  in an  inability  of the Company to
manufacture  and  distribute  its  product to  customers  and  process its daily
business for some period of time. However, based on the progress made to date in
its Year 2000 remediation  plan, the Company believes the worst case scenario is
unlikely. Failure to address Year 2000 issues by one or more third party service
providers  on whom  the  Company  relies  could  also  result,  in a worst  case
scenario,  in some business  interruption.  The amount of lost revenues, if any,
resulting  from a worst case scenario  such as those  examples  described  above
would depend on the period of time over which the failure goes  uncorrected  and
the breadth of its impact.

         The Company has purchased a new certified Year 2000  compliant  version
of its existing software to upgrade critical  manufacturing,  distribution,  and
financial applications.  While the primary purpose of the software upgrade is to
modernize and improve the Company's  operations,  it is also expected to resolve
any Year 2000 issues in these critical computer  systems.  Through September 30,
1999, capital  expenditures to purchase software and related hardware total $2.3
million and non-capital  expenditures for Year 2000 readiness are  approximately
$0.7  million.  At this  time,  other  than  the  cost of  implementing  its new
information  system,  the Company does not believe that the costs of  addressing
the Year 2000 issue will be  material.  The  Company has  increased  its overall
information  systems budget to accommodate  the  implementation  of the upgraded
software and Year 2000  compliance  projects and has not delayed other  critical
information systems work due to its Year 2000 efforts. The implementation of the
new software was completed and put in production on October 15, 1999.

         In addition to the software upgrade, a Company-wide committee of senior
executives  representing  all functional areas has been established to identify,
evaluate  and  initiate  corrective  actions  in  order  to  achieve  Year  2000
readiness.  The  committee  has  completed  the  process of taking the  relevant
inventory,  assessing  risk  and  assigning  priorities  to  various  tasks  and
performing limited internal tests relative to the Company's critical  functions.
The  committee  determined  that the  Company's  primary  hardware and operating
systems and the program supporting the Company's electronic data interchange are
Year 2000 compliant. With regard to the Company's manufacturing and other non-IT
readiness for Year 2000,  the Committee has not identified any issues that would
have a material,  adverse  impact on the Company's  operations'  processes.  The
committee has developed contingency plans for the Company's critical information
systems  that  primarily  consist  of  making  its  existing  systems  Year 2000
compliant  in the event  that the  software  upgrade  was not  completed  by the
scheduled date. In addition,  contingency plans have included the development of
manual intervention processes for critical functions. Remedial tasks relative to
the Company's critical functions have been completed. In addition, the committee
has requested and received  documentation from all key customers,  suppliers and
other  business  partners  that their  organizations  will be ready for the year
2000.  While the Company  cannot  warrant  that all the systems of its  business
partners will be Year 2000 compliant,  based on currently available information,
the Company expects no significant business  interruptions due to non-compliance
by any particular entity.

         There can be no assurance that the Company will be able to complete all
of the remedial tasks in the required time frame, that unanticipated events will
not occur, that the Company will be able to identify all Year 2000 issues before
the problems  manifest  themselves,  that third party  systems will be Year 2000
compliant  and that  Company's  estimate  of Year 2000  costs  will not  require
revision  if  unanticipated  adverse  developments  occur.  However,  management
believes  the Company is taking  adequate  action to address  Year 2000  issues.
Based on a current assessment of risks relating to its Year 2000 readiness,  the
Company  does not  believe  Year  2000  issues  will  materially  affect  future
financial results or operating performance.
<PAGE>

Forward-Looking Statements

         The Company is including  the  following  cautionary  statement in this
Form 10-Q to make applicable and take advantage of the safe harbor provisions of
the Private  Securities  Litigation  Reform Act of 1995 for any  forward-looking
statements  made by, or on behalf of, the  Company.  Forward-looking  statements
include  statements  concerning plans,  objectives,  goals,  strategies,  future
events or performance, and underlying assumptions and other statements which are
other than  statements of historical  facts.  From time to time, the Company may
publish or otherwise make available  forward-looking  statements of this nature.
All such  subsequent  forward-looking  statements,  whether  written or oral and
whether made by or on behalf of the  Company,  are also  expressly  qualified by
these   cautionary   statements.   Certain   statements   contained  herein  are
forward-looking  statements and,  accordingly,  involve risks and  uncertainties
that could cause  actual  results or outcomes  to differ  materially  from those
expressed in the  forward-looking  statements.  The  forward-looking  statements
contained herein are based on various  assumptions,  many of which are based, in
turn,  upon  further  assumptions.  The  Company's  expectations,   beliefs  and
projections  are expressed in good faith and are believed by the Company to have
a reasonable basis,  including without limitation,  management's  examination of
historical  operating trends,  data contained in the Company's records and other
data  available  from  third  parties,  but  there  can  be  no  assurance  that
management's  expectation,  beliefs or projections will result or be achieved or
accomplished.  In addition to the other factors and matters discussed  elsewhere
herein,  the following  are important  factors that, in the view of the Company,
could cause  actual  results to differ  materially  from those  discussed in the
forward-looking statements:

     1. Changes in economic conditions, in particular those which affect the
         retail and wholesale office product markets.
     2. Changes in the availability and/or price of paper, in particular if
         increases in the price of paper are not passed along to the Company's
         customers.
     3. Changes in senior management or control of the Company.
     4. Inability to obtain new customers or retain existing ones.
     5. Significant  changes in competitive  factors,  including product pricing
         conditions affecting the Company.
     6. Governmental/regulatory actions and initiatives, including those
         affecting financings.
     7. Significant changes from expectations in actual capital expenditures and
         operating expenses.
     8. Occurrences affecting the Company's ability to obtain funds from
         operations, debt or equity to finance needed capital expenditures and
         other investments.
     9. Significant changes in rates of interest, inflation or taxes.
    10. Significant  changes in the Company's  relationship  with its employees
         and the potential  adverse effects if labor disputes or grievances were
         to occur.
    11.  Changes  in  accounting  principles  and/or  the  application  of such
          principles  to the Company.
    12.  Timely  resolution  of Year 2000 issues by the Company and its
          customers and suppliers.
    13.  Completion of the Company's restructuring plan.
    14.  Changes in customer inventory levels.
    15.  Changes in relationships with lenders and other sources of capital.

         The Company  disclaims  any  obligation  to update any  forward-looking
statements to reflect events or other circumstances after the date hereof.


<PAGE>



ITEM 3   Quantitative and Qualitative Disclosures About Market Risk

         The Company has market risk  exposure  arising from changes in interest
rates.  The Company's  earnings are affected by changes in  short-term  interest
rates as a result of borrowings  under its revolving  credit  facility that bear
interest based on floating rates.  The Company has entered into an interest rate
cap to reduce  the  impact  from a  significant  rise in  interest  rates on its
floating rate debt and may do so in the future.  However,  there were no amounts
received under the agreement as of September 30, 1999 and 1998.

         At September 30, 1999, the Company had approximately  $246.0 million of
variable rate debt obligations outstanding with a weighted average interest rate
of 9.04%.  A  hypothetical  10% change in the effective  interest rate for these
borrowings,  assuming  debt levels at  September  30,  1999,  would have changed
interest  expense by approximately  $1.7 million for year-to-date  September 30,
1999.


                          AMERICAN PAD & PAPER COMPANY

                            PART II OTHER INFORMATION

ITEM 1            Legal Proceedings

         As  previously  reported,  between  March 10, 1998 and April 11,  1998,
three complaints were filed in the United States District Court for the Northern
District of Texas naming as defendants the Company,  certain of its officers and
directors and certain of the underwriters and other related entities involved in
the  Company's  initial  public  offering.  The  plaintiffs  in  the  first  two
complaints  purport to represent a class of stockholders  who acquired shares of
the  Company's  common stock  between  July 2, 1996 and  December 17, 1997.  The
complaints  seek  unspecified   damages  and  other  relief  under  the  federal
securities  laws  based on  allegations  that the  Company  made  omissions  and
misleading  disclosures  in public  reports and press releases and to securities
analysts during 1996 and 1997 concerning the Company's financial condition,  its
future  business  prospects  and the impact of various  acquisitions.  These two
lawsuits were  consolidated  on July 2, 1998. The third  complaint was dismissed
without  prejudice by the  plaintiffs on September 29, 1998.  Motions to dismiss
have been filed in the consolidated cases and all briefing is complete.  Pending
a ruling on the motions to dismiss,  all proceedings in the consolidated  action
have been stayed.  To the extent that the motions to dismiss are denied in whole
or in part, the Company believes that it has meritorious defenses to plaintiff's
claims and intends to vigorously defend the action.

ITEM 2            Changes in Securities and Use of Proceeds
                  None

ITEM 3            Defaults Upon Senior Securities

         On Friday  November 12,  1999,  the Company was notified by its banking
group of a default of its revolving credit facility.  The default stems from the
formation of new  subsidiaries in December 1997 related to a  reorganization  of
the Company's  corporate structure without proper notification to the banks. The
reorganization was implemented primarily for state tax purposes and included the
transfer  of  assets  between  existing   entities  and  transfers  to  the  new
subsidiaries.  Certain  of these  subsidiaries  own  assets for which the banks'
security interest may not have been perfected,  resulting in a default under the
revolving credit  facility.  The banks' default notice prevents the Company from
making the scheduled November 15, 1999 interest payment to its subordinated debt
holders.  The subordinated debt indenture  provides a 30-day grace period during
which to cure this interest payment default. The Company has been in discussions
with its bank  group and  intends  to  continue  to work with them to attempt to
resolve the credit facility default during this grace period.

          The Company has engaged  Lazard  Freres to analyze its  strategic  and
financial  alternatives,   including  the  possible  sale  of  the  Williamhouse
division.  The main  reason for  considering  this  option is that at the proper
valuation,  the proceeds from the sale of the  Williamhouse  division would make
significant  progress  toward  reducing  debt.  Lazard  will  also look at other
actions that would also allow the Company to address its debt structure.
<PAGE>
        Due to the  availability  of a 30-day grace period provided in the bond
indenture,  the liability for the 13% Senior Subordinated Notes will continue to
be classified as long term in the balance sheet.  The revolving  credit facility
does not provide for a grace  period  relative to the  default.  Therefore,  the
entire revolving credit debt will be classified as a current liability.


ITEM 4            Submission of Matters to a Vote of Security Holders
                  None

ITEM 5            Other Information
                  None

ITEM 6            Exhibits and Reports on Form 8-K

(a) Exhibits. The following Exhibits are filed herewith and made a part hereof:

       Exhibit No.                          Description of Exhibit

27.05    Financial Data Schedule


    (b) Reports on Form 8-K.

         The  following  reports on Form 8-K were filed during the third quarter
         of 1999 and  through  the date of the filing of this report:

(1)               Current Report on Form 8-K filed August 26, 1999,  relating to
                  the Company's August 18, 1999, press releases. A press release
                  on August 18, 1999, announcing the appointment of Raj Tanna as
                  Vice President of E*Commerce.

(2)               Current Report on Form 8-K filed September 20, 1999,  relating
                  to the Company's  September 13, 1999, press releases.  A press
                  release on September 13, 1999,  announcing the  appointment of
                  Barry L.  Silberman as Vice  President  of  Marketing  for the
                  AMPAD Division.




                                   SIGNATURES

Pursuant to the  requirements of the Securities  Exchange Act of 1934,  American
Pad & Paper  Company has duly  caused  this report to be signed on November  15,
1999, on its behalf by the undersigned thereunto duly authorized.




/s/ James W. Swent, III                  /s/ David N. Pilotte
-----------------------                  ------------------------------------
James W. Swent, III                      David N. Pilotte
Chief Executive Officer and              Vice President and Corporate Controller
Chief Financial Officer                    (Principal Accounting Officer)
(Principal Executive Officer and
Principal Financial Officer)

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